Page 7 - 20200513 Newsletter - 07042020 Final

Volume 3, Edition 1 Chatterbox 07/04/2020

Part Two: Regulatory Response
In Focus: FATF

When is a PEP not a PEP?
Court rules that a partially owned company can ...continued
still be a ‘state-owned enterprise”
2. Given its assurance
levels, determine whether
‘Mrs H’ argued that the Bank was not who is, or has been, entrusted with it is appropriately reliable,
a State-owned enterprise because prominent public functions’ match independent in light of potential
there is a distinction between an article 3(9) 4MLD. The question risks that it is used to facilitate
enterprise that is State-owned and is whether the POCA words, ‘by illicit finance
a company whose shares are owned an international organisation or
in part by a government body. The by a State other than the United With 1.7 billion unbanked adults
Bank was simply a commercial Kingdom or [another] EEA State’ (not worldwide and 26% of them
bank substantially owned by the mirrored in 4MLD), added a further citing lack of documentation
government of Azerbaijan. The fact qualification: that the individual has as the primary barrier, digital
that the State had a large shareholding to be specifically entrusted either by ID offers another important
in the Bank did not make it a State- an international organisation or by a benefit. A robust digital ID
owned enterprise, she argued. Mrs H State. The answer is no – the focus of can allow individuals without
relied on expert evidence that under the statutory wording is on the status a traditional identification to
Azerbaijani law the Bank, which is of the entrusted person and not how nonetheless have a robust
an Open Joint Stock Company, is not that person has come to be entrusted form of identification to access
a “state organisation” but a “normal with prominent public functions. financial services and improve
commercial entity”. financial inclusion
The intent is to exclude from the
The Court of Appeal disagreed. On definition of a politically exposed http://www.fatf-gafi.org/
the facts, the State owned over 50% person those who are entrusted with publications/fatfrecommendations/
of the Bank and had ‘ultimate control’. prominent public functions in either documents/digital-identity-
It was therefore a State-owned the UK or another EEA State. As the guidance.html
enterprise. Bank is a State-owned enterprise,
Mr H was a PEP because he was its
Chairman of State-owned enterprise Chairman and therefore fell within
is a PEP article 3(9)(g) 4MLD (“members of
the administrative, management or
Mrs H argued that being a chairman supervisory bodies of State-owned
of a State owned bank and being enterprises“). In other words, by
entrusted with ‘prominent public definition he was to be treated as
functions’ did not necessarily go hand ‘entrusted with prominent public
in hand. Although Mr H was chairman functions’. This meant that Mrs H was
of the Bank, there was no evidence also a politically exposed person risk
that he was entrusted with prominent by family association as she was the
public functions ‘by an international wife of Mr H.
organisation or by a State’. He was
therefore not a PEP, according to Mrs http://www.aoinvestigationsinsight.
H. com/part-state-owned-enterprises-
and-politically-exposed-
The Court of Appeal again disagreed. persons/#page=1
The words in POCA, ‘an individual

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