Wonder how some corrupt politicians and their friends can move money around in volumes through the financial system undetected? Actually, many of these money laundering schemes are undertaken to conceal the source of funds accruing from Bribery or Abuse of Power. RCA checks are very vital in unearthing such hidden financial dealings of PEPs’ relatives and close associates.
As former UN ambassador Mark Malloch-Brown once said, “Corruption is an assault on a country’s development. It impacts the poorest people most heavily and undermines trust in political institutions and democracy.” RCA checks allow financial institutions to trace corrupt officials’ relationships with any persons who may launder their money.
Read on to find out how RCA checks work and why they are essential in disrupting the dirty money pipeline.
What are RCA Checks?
RCA checks consider relatives and close associates of a PEP. With RCA checks, the goal is to determine whether an RCA is corrupt or engaging in other suspicious financial activity. Corruption monitoring tools blur by examining the background of RCAs as well. This added layer of screening may show a tie between PEP corruption and friends or family acting to clean dirty money.
What is PEP Corruption?
PEP corruption is the abuse of office by political persons, public officials, or senior execs to acquire power for personal benefits, usually in the form of extracting bribes or stealing state assets. Active ongoing monitoring is critical in recognizing patterns and making out signs of PEP wealth from corrupt sources rather than legitimate means.
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The Link Between PEP Corruption and Money Laundering
Tying laundering to PEP corruption, corrupt officials must hide the sources of money and be able to spend their bribes freely. To make tracking even more complicated, people launder dirty funds through relatives and close associates corruption. The RCA review makes it easier to lauder through the family after getting noticed.
Common Money Laundering Schemes
Usual laundering disguises include businesses as fronts and invoice falsification. In the role of the Financial Action Task Force, cases of shell companies used for invoice fraud have increased by 30% in 2023. Hence, quickly moving money through a lot of accounts hides sources. Crypto and casinos also aid laundering. RCA and PEP checks to see if family or associates are involved in aid laundering through these or shell firms.
Using the Financial System to Launder Corrupt Funds
The global nature of finance today allows launderers to move dirty money anywhere, both in physical and virtual terms of FATF. Third-party RCA screening will follow lawyers or firms that corrupt PEPs might use for laundering with relatives.
In 2022, up to US$2 trillion, about 2–5% of global GDP is laundered worldwide.
The Role of Shell Companies and Third Parties
Third parties and shell companies are most likely to help RCAs of corrupt PEP checks in the laundering of dirty money. Through shell firms, this will reverse the trail of actual ownership, offering an opportunity to corrupt PEPs and their RCAs to hide or dispose of assets but remain in control. Third parties, including attorneys and accountants, also circumstantially helped to launder funds through shell companies.
Why are RCA Checks Important for Preventing Money Laundering?
RCA checks on family and networks associated with a PEP are vital in the prevention of money laundering originating from Corruption. Laundering is how corrupt PEPs disguise the sources of money and spend illicit gains freely. Without RCA screening, such corrupt PEPs could easily make use of close family and friends for secret handling and investing of dirty funds. This disrupts the whole corruption circle and better supports anti-corruption controls.
As of 2023, Global Financial Integrity offers new data under which approximately 10% of corruption money gets laundered through family circles.
How do RCA Checks Work?
RCA checks are conducted by reading through the history and backgrounds of family members and other associates a PEP may have to identify if they have been involved in Corruption or financial crimes of any nature. An RCA check identifies an increase in unexplained wealth against an RCA’s established income. Monitoring of all transactions within an RCA’s accounts and firms aids in the detection of indicators of laundering.
Challenges in Implementing Effective RCA Checks
Thorough RCA checks in the implementation process are faced with problems—in particular, the identification of all close family/friends and assessment of the actual level of corruption risk. This is because PEP has extensive, complex networks that are difficult to review thoroughly. In the case of RCA corruption, it can be well hidden and hence complicates monitoring.
Read more information on how our institution runs robust RCA checks to identify corruption risks. Contact us. We’re putting additional controls on politically exposed persons and their networks to create a safer financial system, one that protects investors from the negative consequences of laundered money with root causes in Corruption.
