For those of you less familiar with Malaysian vocabulary, the title of today's article is a geeky play of words referencing the fact that RCAs are a type of cable used in 90’s television sets - combined with a colloquial term that generally means someone is ‘well connected’ i.e. has ‘cables’. Relatives and Close Associates (aptly named RCAs) of Politically Exposed Persons (PEPs) have connections that can help grant them favors and access to where ordinary citizens cannot go. But enough with the jokes, and on to the more serious topic of the actual people close to power, and what they have to do with the discipline of FinCrime.
A few episodes ago on our weekly LinkedIn show The Dicorm Forum we spoke about the “nexus” of a transaction - the wider network of counterparties from which money flows from and to. In the case of PEPs and RCAs they are highlighted specifically due to the prominent positions of power that they hold in society. Often they wield significant authority over things like contracts, permits, and border controls which make them a prime target for bribery and corruption through organized crime syndicates. Let's first remember that just because someone has a risk of doing something unscrupulous, doesn't mean they will. We should always start with assuming the best intentions, but check to make sure anyway.
So if they aren’t evil, what’s all the fuss about?
Let’s use an analogy, in a store, the security personnel can't watch every customer all the time, it's resource-intensive and very disruptive to the shopping experience. So the idea is, security concentrates on the guy with the backpack or trenchcoat a little closer as they could do more damage if they happened to be a thief. That’s the premise behind additional, enhanced due diligence when it comes to PEPs.
PEPs often can be found using their children's bank accounts or their spouses’ credit cards to avoid scrutiny and this has happened in the past, all over the globe. This is why financial institutions now also need to monitor RCAs. So the next thing we should talk about is, who are these RCAs Exactly?
The R’s and the CA’s
We’ll start with the ‘R’ for Relatives. This includes family members of a PEP both biological and non-biological (adoption/marriage) and includes parents, siblings, spouses, or children. We often refer to these as one degree of separation. In contrast, a ‘CA’ or close associate is any individual closely connected to the PEP, either socially or professionally, anyone who "couldn't say no" to the PEP because they were obligated, had a significant power distance with, or because there were financial gains to be had. So an individual who is closely connected to a PEP may also include extended family members - think uncles, cousins, in-laws.
Next, let's look at financially dependent individuals. This boils down to people who are on the PEP’s personal or corporate payroll like drivers, bodyguards, household staff & secretaries. PEPs would usually have such relationships due to having significantly more administrative duties than regular folks like us.
Finally, we move on to the more obvious things like business partners, work colleagues, and close friends who have a known relationship with the PEP. You would know this from news and lifestyle magazine articles, photographs, or social media posts through which you can determine that these people know each other or they are close - but you have to make some assumptions.
So what to do about this mess of extra ‘cables’?
An important thing to note is that close associates are a lot harder to pin down than direct family members. As a business, you must always determine the extent to which these individuals are directly involved with the PEP. As far as regulations are concerned, determining this is on a ‘best effort’ basis. You are never really going to be 100% sure. Finding these links has evolved from a proactive initiative by financial institutions to something that's now actually required by law.
As such you need to design a process around it as quickly as possible and it is highly recommended to get a tool that will kick off the process for you. These tools will scan everyone's names for links and only present you with the ones that actually need to be reviewed. These people who need extra screening may only be 1-2% of your entire customer base but it is still a lot of work to get through.
If after reading all this you find yourself confuddled by how to separate your VIP guests from money launderers and terrorists, don’t feel like you’re alone. Thousands of businesses around the world struggle with the same thing. Arm yourself with the right information by getting in touch with us today for a no-nonsense no-obligation discussion on what you need to do to keep your business safe.