HERMES FORENSIC SOLUTIONS

1. HERMES FORENSIC SOLUTIONS

2. HERMES The Domestic PEP The danger within?

3. What is a PEP? Personal Equity Plan Foreigner Deal Maker/King Maker Local Councillor Local Council Official A Lord who is a non dom. Husband/Wife/Partner of the above HERMES

4. JMLSG 5.5.19 A PEP is defined as “an individual who is or has, at any time in the preceding year, been entrusted with prominent public functions and an immediate family member,…………..” HERMES

5. What is a ‘prominent public function ? HERMES JMLSG 5.5.21 “Public functions exercised at levels lower than national should normally not be considered prominent.”

6. Local Councils JMLSG 5.3.177 “Only simplified due diligence (see section 5.4) is required in respect of public authorities in the UK.” But what about the councillors etc? HERMES

7. BUT? Who determines a person’s PEP status? Where is the line drawn? Who draws the line? When does accountability apply? What price your reputation or that of your firm? HERMES

8. The Italian Job • Former deputy mayor of Preston • Frank McGrath • Laundered for a drug dealer “Turchet” • £154,000 in cash to Italy • House purchase in Wrexham £116,000 • Aeroplane Hangar • Bling HERMES

9. Does he fit the definition? • Deputy Mayor? • Mid sized English North West Town • Did he use his office to facilitate the crime • I suggest possibly not • But the air of respectability it gave him is a contributory factor HERMES

10. Is there a launderer in the House? HERMES • The expenses scandal of our honourable (or not so) MPs would suggest that there is. • There can be no doubt that the scandal has changed the dynamic of providing financial services to domestic PEPs • Mortgages? • Two MPs residing together double the risk • Lords, Ladies and Gentlemen – yes there are some there as well and they may include non doms. • Who is watching who?

11. To name but a few! HERMES • David Chayley MP (Labour) • Elliott Morley MP (Labour) • Jim Devine MP (Labour) • Lord Hanningfield (Conservative Peer) • Charges are related to the expenses scandal and are predicate offences • Will money laundering charges follow?

12. What about the others? Does the absence of a criminal charge mean that there are in fact no reasonable grounds to suspect? If two MPs embark upon an accounting charade to suggest that they do not live together in order to double the amount of money (because it can only be an expense when the expense has been incurred) they can obtain then does that present a firm with reasonable grounds to suspect? HERMES

13. PEP – Yes or No – Who goes, You decide? • In a couple of months time you will decide. • David Wilshire MP (Conservative) • £100,000+ to own company • Jacqui Smith • Sister’s home as main residence • Two pornographic videos • Would you want their business? • Would you treat them as a PEP? • Remember reputational risk. HERMES

14. Does repayment of funds cause suspicion to evaporate If a shop lifter is stopped and challenged does the offence disappear when he/she gives the goods back to the shop? Does this equate to a zero capital risk investment? We are all in the wrong business! More significantly do the grounds to suspect go away when a firm learns that the local PEP has repaid funds that he/she was not entitled to. Perhaps in respect of mortgage payments for a mortgage that did not exist? HERMES

15. Where is the beginning and Where is the end? Is there a means to the end or in the case of the MPs is there an end to the means? Finite resources being spread thinner and thinner Firstly it was foreign PEPs Secondly it was national PEPs Now the cases are against local domestic PEPs What is the value of the expense (incurred costs) to firms in applying these requirements to an ever increasing client population? HERMES

16. PEP Risk Management JMLSG 5.5.25 “Firms are required, on a risk-sensitive basis, to: 􀂾 have appropriate risk-based procedures to determine whether a customer is a PEP; 􀂾 obtain appropriate senior management approval for establishing a business relationship with such a customer; 􀂾 take adequate measures to establish the source of wealth and source of funds which are involved in the business relationship or occasional transaction; and 􀂾 conduct enhanced ongoing monitoring of the business relationship” HERMES

17. Banking Products/Services JMLSG 5.5.26:- “In the context of this risk analysis, it would be appropriate if the firm’s resources were focused in particular on products and transactions that are characterised by a high risk of money laundering…..” HERMES

18. Conclusions It’s not becoming any easier There is a need to second guess the public sector There is a need to be responsive to media, trends, typologies and cases The risks are increasing but the resources to manage them are not Lateral thinking is imperative Sharing innovative risk management ideas Local/domestic PEP risk management may not be envisaged as high risk to the FATF but that does not mean the FSA will hold the same point of view and perhaps your local police service will be different again HERMES

19. HERMES Any questions End ?????????

20. Martin Woods HERMES Forensic Solutions Limited 35c North Row Mayfair London W1K 6DH T: +44 (0)20 7355 7897 E: mwoods@hermesforensics.com W: www.hermesforensics.com Hermes Forensics Solutions Limited – Registered in England & Wales Company No: 7113500 HERMES