MASAK Guidelines on Politically Exposed Persons

Financial Crimes Investigation Board (“MASAK”) published its guidelines on Politically Exposed Persons (“PEP”) in November 2022 (“Guidelines”) in which it lays out the international standards, definition, scope, and measures to be taken regarding PEPs.

One step back

The Financial Action Task Force (“FATF”) listed Turkey in the gray list as one of the jurisdictions with strategic deficiencies[1]. Although Turkey made a high-level political commitment to work with the FATF, its regime for anti-money laundering and combatting the financing of terrorism (“AML/CFT”) was still found ineffective. To meet international standards and commitments about PEPs, the General Communiqué of MASAK (Sequence No: 21) (“Communiqué”) was prepared and published in the Official Gazette dated 17 November 2022.

Scope of the Guidelines

The Guidelines refer to FATF Guidance (Rec. 12) to define PEPs[2]. Accordingly, PEP is an individual who is or has been entrusted with a prominent function. There are three categories of PEP:

1. Domestic PEP: Senior executive individuals who are or have been entrusted domestically with prominent public functions by way of election or assignment,
2. Foreign PEP: Senior executive individuals who are or have been entrusted with prominent public functions by a foreign country by way of election or assignment,
3. International organization PEP: members of senior management or individuals who have been entrusted with equivalent functions at an international organization.

Of note, additional measures can be needed for the family members and close associates of the above-listed persons[3].

The distinction between domestic and foreign PEP arises from the country which assigns the public function.

Identification of beneficial owners

PEP can be a customer or a beneficial owner of a customer. This Guideline is important to highlight the role of beneficial owners in corruption and AML/CFT transactions. Similar to FATF Guidance (Rec. 12), the Guidelines state that PEPs could circumvent AML/CFT and anti-corruption safeguards by establishing business relationships or conducting transactions by using third parties, such as intermediaries. Therefore, relevant obliged parties like financial institutions are required to identify the beneficial owner and take reasonable measures to verify the identity of the beneficial owner.

What is a reasonable measure?

Article 4(1) of the Communiqué states that financial institutions, designated non-financial businesses and professions, and crypto asset service providers are obliged to take “reasonable measures” to determine whether the customer or real beneficiary owner is a PEP or not.

“Reasonable measures” shall mean appropriate measures which are commensurate with the AML/CFT risks. In this respect, when determining the risk level, one should consider, among others, particulars of the public power granted to PEP or the fact that small financial institutions, with little or no exposure to foreign financial markets, deal with a foreign PEP.

The Guidelines suggest that various sources like (a) information about the profession obtained to verify the identity of real persons, (b) internet and media search, and (c) commercial databases could be used as sources to determine PEPs.

Foreign PEPs are always considered high risk and require the application of enhanced due diligence measures (Please see Article 4(3) of the Communiqué). Whereas, in the case of a domestic/international organization PEPs, measures should be taken based on the assessment of the level of risk (Please see Article 4(4) of the Communiqué).

Conclusion

This document will serve as an important guide for obliged groups in their transactions with PEPs. The Guidelines remind that the financial institutions, designated non-financial businesses and professions, and crypto asset service providers are expected to inform MASAK, irrespective of whether PEPs are domestic, foreign, or international organizations, within the scope of reasonable measures to be taken, at the final stage, if there is any information, suspicion, or any reason to suspect that the asset subject to the transaction is illegally obtained or used for illegal purposes.

[1] https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-march-2022.html

[2] https://www.fatf-gafi.org/documents/documents/peps-r12-r22.html

[3] FATF Guidance describes family members and close associates in a very broad sense including partners outside the family unit (e.g. girlfriends, boyfriends, mistresses); prominent members of the same political party, civil organization, labor or employee union as the PEP; business partners or associates, especially those that share (beneficial) ownership of legal entities with the PEP, or who are otherwise connected (e.g., through joint membership of a company board) see page 12.