The Reserve Bank of India (RBI) has said banks should obtain senior management approval to continue business relationship with an existing customer who has subsequently become a politically exposed person and that banks should conduct customer due diligence (CDD) on politically exposed people (PEP).
The central bank has also said banks should apply enhanced CDD to customers who are close relatives of PEPs, and accounts of which a PEP is the ultimate beneficial owner.
In a circular to all commercial banks, RBI has reiterated its stand that banks have to conduct proper know your customer (KYC) to avoid being used for money laundering and financing of terrorism. In the past, banks had been asked to follow risk management procedures on continuous basis for PEP accounts.
RBI has defined politically exposed persons as those individuals who are, or have been, entrusted with prominent public functions in a foreign country such as heads of states or of governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations or important political party officials. RBI had advised banks to gather information on any person of this category desiring to do business with the bank and check all the information available on the person in the public domain.
RBI had also told banks that they should verify the identity of the person and seek information about the sources of funds before accepting them as a customer. Further, banks were told closely to monitor such accounts and family members or close relatives.
RBI has also reiterated that the bank should not open accounts where it is unable to apply proper customer due diligence measures. In fact, RBI has even advised banks to close down account of such customers, if it exists. The central bank has further added that if the bank is not satisfied with the true identity of the account holder, it should notify financial intelligence unit about the same.
