May 24, 2007

Boom in Market to Identify “Politically Exposed Persons”

European and U.S. regulations on money-laundering have created a market for lists of customers presenting a risk. Several companies have positioned themselves on this highly specialized niche.

In Europe, the European Commission’s 3rd directive on the fight against money laundering and the funding of terrorism that comes into effect at the end of the year is obliging financial establishments in the EU to introduce systems to identify “politically exposed persons” (PEP) among their customers. The European Parliament defines PEP as persons who exercise major public functions and their family and friends. In the United States, the USA Patriot Act and regulations laid down by the Office of Foreign Assets Control (OFAC) already compel financial establishments to carry out checks of the type.

To identify persons deemed at risk, most of the big banks, customs services, casinos and airports already dip into databases containing hundreds of thousands of names of persons and organizations. The lists are sold by a number of specialized companies (see graph below). The companies incorporate names on dozens of official lists, such as those of the UN, Interpol, OFAC, the FBI and the Bureau of Industry and Security (U.S. Commerce Department) and use their own staff to flesh out the list with persons identified from public sources like the media and government files.

The marketing of lists - on which both terrorists and ordinary politicians can figure - is regulated by national organizations that see to the protection of privacy. In most countries the authorities must be informed when the lists are used. In Scandinavia, the products of World Check, one of the market leaders which turned sales of USD 40 million last year, were banned prior to 2005 and the French privacy watchdog CNIL allows the lists to be seen on-line but forbids any downloading of files.

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