Top 5 Ways RCAs & PEPs Use Informal Networks for Corruption

Have you ever wondered how RCAs (Relatives And Close Associates) assist  in money laundering without being easily identified?

Financial organizations suffer credibility and trust issues due to the involvement of politically exposed persons and their RCAs in money laundering. Financial organizations in response to breaking AML regulations face sanctions and heavy fines.

RCAs, facilitated by PEPs, help mask the actual beneficial owner and complicate the screening process. Financial organizations need to improve their RCA monitoring to identify real account holders and the linked risks to know the source of illicit money.

This article will take you through top informal methods which are in use of RCA’s and PEP to facilitate money laundering and how to deal with risks.

This video perfectly explains how PEPs and RCAs exploit their positions to facilitate money laundering.

Influential people in high positions have authority and power, which can be used for good or evil purposes, either to serve the people or to satisfy their greed for money through illegal means.

PEPs and RCAs use complex techniques to avoid detection and verification for integrating illicit funds into the clean financial system.

Below are the top 5 ways of money laundering using informal networks.

Use Of Real Estate

Organized Crime and Corruption Reporting Project (OCCRP) demonstrates the enormous investments made by corrupt politicians, criminals, and sanctioned individuals in Dubai real estate.

The Center for Advanced Defense Studies (C4ADS) information suggests that Dubai is attractive for money laundering as it has lenient residency laws and weak regulations.

Buying expensive properties in Dubai is as smooth as a knife through butter, as there is no proper investigation. Transactions do not need detailed examination, making Dubai heaven for PEPs and RCAs to invest large amounts of money.

According to the study, several sanctioned Russian oligarchs and dishonest, high-ranking, corrupt officials purchased the high-value properties using informal means.

These oligarchs purchased properties such as luxurious villas and apartments using shell company to hide their identities and transactions by intermediaries who were not popular and could easily escape the verification process.

Russian citizens have acquired both built and undeveloped $6.3 billion of Dubai real estate. Russian businessman Dmitry Rybolovlev owns the estimated $3.5 million mansion on the al Khisab front of the Palm Jumeirah.

Illicit investments in the real estate market make it difficult for regulatory bodies to identify the real owners of illegal funds, and dirty money can be concealed easily by appearing as legitimate funds.

U.S. Treasury Department shed light on Kinahan Organized Crime Group, who used Dubai for his illicit activities and his crimes, caused massive killings, and sanctions were imposed on Kinahan and other team members.

As discussed in the video, Gupta brothers quickly transferred enormous amounts of money from South Africa to Dubai using connections with former South African President Jacob Zuma (2009-2018). The UAE didn’t support the South African authorities despite knowing all the extradition treaty policy.

Seeking the power of authority, the Guptas channeled its illicit money from one country to another using a complex network and close acquaintances, taking advantage of their connections with Zuma.

They get government deals like acquiring higher ranks in government positions through corruption and stealing public money for their benefit. EU politicians suggested strict anti-money laundering regulations in UAE, and some even asked to blacklist the UAE along with North Korea and Iran.

Shell Companies and Offshore Accounts

Isabel dos Santos of Angola used to be a famous lady and was named Africa’s richest lady. Due to corruption charges and freezing of her assets, the name was removed from Forbes list of richest people by January 2021.

She layered her actual source of wealth using a complex hierarchy of shell companies and foreign accounts. She did it in tax havens to bypass the verification process and measures.

She was found guilty in 2013 of being a shareholder in Angolan companies involving banks and a telecom firm when her father was president (death, July 2022). In January 2020, Angolan authorities froze her assets for embezzlement and money laundering.

She rejected the charges and expanded her shares in Portuguese cable TV and broadband firm, which Lisbon court seized in April 2020. She was also appointed as the head of state oil organization by her father inJune 2016.

The new president dismissed her from that position in November 2017.

Launda leaks reported that Dos Santos, her husband, and their RCAs created a web chain of businesses comprising 400 companies and affiliates in 41 countries.

These firms earned billions of dollars through consulting employment, government agreements, and licenses.

Buying Luxury Assets

The ex-governor James Ibori of Delta State, was accused of money laundering in 2012. News outlets reported that he looted $165m from the oil-rich country. His family members, wife, sister, and legal agent were also accused of money laundering.

The £4.2m has been retrieved from his family members mentioned above. Criminals commonly mask illicit money by purchasing and selling valuable goods. To conceal the source, PEPS and RCAs buy costly possessions like property, cars, yachts, and artwork.

James Ibori Rose went through every phase of life, from being a small-town robber to becoming the governor of a state in Nigeria and finally being accused of money laundering.

Ibori started embezzlement in the store as he was a thief and then he returned home and became involved in politics. He was elected governor in 1999 and started embezzling money from the state. Delta State provides oil for Nigeria.

The purchase of a private jet through his London-based solicitor made British police conscious of keeping an eye on him and he escaped his arrest in  Nigeria using a group of his supporters who attacked the police. Finally, he was arrested in Dubai (2010) and sent to the UK.

In 2012, he was guilty of ten fraud charges worth approximately £50m. After being released from jail, he was immediately taken into immigration custody. The court decided to keep him in custody to figure out how to retrieve at least £57m.

After returning to his homeland, he planned to register a complaint against the Home Office, mentioning his illegal detention. He won the case with only £1 Compensation. British government filed a petition to recover £117.7 from Ibori.

The court had a fraud list by Ibori, who owned accounts in multiple banks and more than ten properties worldwide, including a house in Abuja, Nigeria, worth £5 million and some apartments in London’s Abbey Road.

Use of Political Power

PEPs or their allies use fraudulent techniques to manipulate public agreements, companies under state authority, or government events to promote money laundering. Corrupt officials give contracts to companies at higher prices by illegal means and those companies move the illegal money, faking it as legitimate money.

The most popular corruption investigation in Brazil is Operation Car Wash, which started in March 2014 (Operação Lava Jato). Executives at  Petrobras (the state oil company) were found guilty of taking bribes from construction firms to compensate for contract awards at inflated prices.

Moreover, the Workers’ Party used funds to bribe politicians for votes and aid with political workshops. A document of the accused politicians was noted, and former president Luiz Inacio Lula da Silva was also included in the scam. He used to be known as “Lula’’.

After three years of investigation, evidence supports the fact that Lula is guilty of the first five charges against him. Engineering firm OAS gave him ownership of an apartment in front of the beach in exchange for his support in winning agreements with Petrobras.

Lula’s sentence began on the 7th of April while suggesting that he should not be bailed in the appeals process, and Lula was arrested for 12 straight years. But Lula rejected all the charges, saying they were all a plan to stop him from winning the next presidential election.

Apart from the Operation Car Wash investigation, a close associate of Lula, Ms. Rousseff, was accused of breaching Brazilian law by transferring funds among government budgets.

She denied these charges, saying it was common among presidents. Still, analysts said she struggled to fill gaps in famous social workshops to enhance her probability of winning the election again in 2014.

Here’s how bribery and corruption differ greatly but are often mistaken as similar.

Are there Any Guidelines for Dealing with PEPs?

The FATF proposed guidelines for foreign, local, and international organization PEPs, their family members, and associates to better apply extra checks as per Recommendations 12 and 22.

In June 2003, the FATF published the first set of compulsory guidelines for foreign PEPs, their bloodline, and close associates. According to Article 52 of the United Nations Convention against Corruption (UNCAC), the FATF added more measures for domestic and international PEPs in February 2012.

Recommendation 12 suggested that countries’ financial organizations follow guidelines for better risk management to determine the identity of clients or beneficial owners, as either they are foreign PEPs or linked with foreign PEPs.

If It is connected, perform extra checks beyond implying usual due diligence (CDD) as suggested in recommendation 10 to verify if and when they are making contracts with them.

Financial institutions need to identify if their clients or beneficial owners are domestic or international PEPs, then assess the risk of dealing with them. If the risk score is high, they should imply extra steps similar to those used for foreign PEPs.

Ensuring the implementation of Recommendation 12 for financial organizations and banks and Recommendation 22 is crucial to guaranteeing that countries adhere to these requirements for DNFBPs.

The report explained the group of red flags and signs to check the illegal use of the financial system by PEPs and RCAs. PEPs use a complex network of businesses to hide their source, and their details don’t align with publicly given information like their salary or property ownership. The PEP is shown as having a high-risk profile or belonging to sanctioned countries.

Top 5 Ways to Master RCA and PEP Screening

• Real Time AML Screening

The first step in AML compliance is screening the names of PEP and associated RCA’s to have wide network risk analysis. Financial organizations are asked to maintain records of all PEPs and RCAs to lower the risks of money laundering.

Information about business ownership, shareholders, and all the information about associates involved is vital in detecting high risk RCA’s.

Different procedures like running background checks, retrieving information against third-party databases enable real life insight into risk status of PEP and RCA’s.

• Keep Track of Transactions

Financial firms notice irregular transaction patterns and high-risk profiles and detect unusual activities among PEP and RCA’s. Keeping an eye on business operations, the origin of funds, and possible transaction patterns is necessary for monitoring PEPs and RCAs.

Firms must check all the services and products they provide, such as the pattern of credit card transactions, loan transactions, and account deposits, to check for unusual activities across several accounts.

Keeping the latest information, reevaluating risk profiles, regularly reviewing risk status among RCAs are critical.

• Enhanced Due Diligence (EDD)

Politically Exposed Persons (PEPs) and their close associates have higher risk profiles for money laundering. Enhanced due diligence (EDD) digs deeper into the background for more detailed risk analysis.

Screening PEPs and their allies against consolidated databases of credible sources is vital to deal with modern day risks.

Evaluate each PEP and RCA attentively by keeping their job title, rank, country, and engagement in view to analyze the amount of risk they can pose to the business.

• Compliance with Legislation

Implementing techniques and policies that comply with FATF recommendations and modifying them according to them is vital for combating money laundering.

Local and international guidelines safeguard the financial organization from money laundering.

This is why it is imperative that financial institutions comply with all reporting requirements such as suspicious activity reports (SARs) for transactions of clients and their associates.

Assisting regulatory bodies with inquiries by giving them proper information about PEPs and RCAs can help in facilitating global compliance.

• Advance technical solutions

The use of advanced screening tools makes the identification and monitoring of PEPs and RCAs easy. However, these tools must be integrated with already present systems for effective operation performance.

With REST APIs the integration has become quicker than ever. The use of artificial intelligence and machine learning algorithms is significantly risking especially when it comes to more precise and accurate sentiment analysis.

Check out our cheat sheet designed to reveal some of the master mind tactics RCA’s use to facilitate money laundering.

Does Your Business Need to Be Vigilant?

The cost of non-compliance is twice more than what it takes to be legally and ethically compliant. Regardless of the business nature RCA’s are a risk for all.

By providing comprehensive databases and advanced analytics, AML Watcher  helps in identifying and monitoring PEPs and the extended network of RCA’s.

This continuous monitoring and customized risk scoring facilitate financial organizations in identifying business specific risks and a more targeted screening approach.

This focused strategy offers a strong foundation for successfully preventing money laundering. Contact us to learn how we can assist you and examine each questionable profile before making any deal with your company or system.