Expert answer:Politically Exposed Persons and Enhanced Due Dilig


Solved by verified expert:Who are “Politically Exposed Persons” (PEPs) and why is it important to implement effective risk-based due diligence, monitoring, and reporting systems for this group?Why must an individual’s official responsibilities of his office be considered when determining if the individual is a PEP?Explain why it is necessary to review an individual’s financial information, professional background, and income sources when determining his PEP status.What role does geographic location and industry play in determining PEP risk?What does FATF Recommendation 6 state? Why do you think that compliance with this FATF Recommendation is so low/poor?Why is applying Enhanced Due Diligence (EDD) measures to all former office holders and their families and close associates for an infinite time disproportionate?Hypo: you are an attorney and a prospective client (American individual) informs you that he has been cheated out of $75,000 in a Nigerian fraud scheme. What practical, legal problems will you encounter in handling the case? You find out later that there are ten different unrelated victims.Hypo: you are an attorney and a large multinational bank informs you that it has been cheated out of 4.5 million dollars in a multinational fraud scheme with the monies ending up in Nigeria, Cyprus, and Yemen. How will you handle the case?Please comment on and discuss the Termites article.


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Peter W. Schroth*
Yet they railed against us. We spoke of the rule of law and
human rights; they would ask why the United States would not
join the International Criminal Court or the Land Mines Treaty, why we sought always to make rules that would apply to
everyone except Americans.
Anne-Marie Slaughter1
Perhaps the greatest political achievement of human civilizations is the
practical entrenchment of fundamental rights and freedoms, which are characteristically for the long term, in the context of functional democracy, which is
characteristically for the short term. This combination may be called constitutionalism. Once it is established, the protected rights and freedoms add strength to
democracy, but democracy does not reciprocate by strengthening the rights; on
the contrary, democracy’s tendency is to burst out of its constraints in pursuit of
immediate objectives.2
A central obstacle to constitutionalism is the asynchrony of political
developments. In the United States, for example, immediate objectives include
prevention of terrorist acts and furthering the war in Iraq (which may or may not
be related). Some of the relevant fundamental rights and freedoms were entrenched long ago: freedom of speech and press, security from unreasonable
searches and seizures, the privilege against self-incrimination, due process of
law and others by the Bill of Rights in 1791; equal protection by the fourteenth
amendment in 1868. Constitutional courts, among which the Supreme Court of
the United States was the pioneer but is no longer always the leader, have been
the most effective guardians of this constitutionalism and the extent to which
they exist and maintain constitutionalism over time is a key measure of human
progress on this dimension.
Constitutionalism, however, is never perfect, never finished, never
safely taken for granted as we pursue new goals. An important part of current
history in the United States is the manner in which the Supreme Court and other
Co-Editor-in-Chief, Journal of Legal Studies in Business. Earlier versions of the parts of this article
were presented at 2004 and 2005 conferences of the Academy of International Business and the
International Academy of African Business and Development.
Anne-Marie Slaughter, Hubris and Hypocrisy: America is Failing to Honor Its Own Codes, INT’L
HERALD TRIB. 22 May 2004.
Although the credo set forth in this paragraph has already been published in Peter W. Schroth &
Ana Daniela Bostan (2004), International Constitutional Law and Anti-Corruption Measures in the
European Union’s Accession Negotiations: Romania in Comparative Perspective, 52 AM. J. COMP.
L. 514 (2004), it appeared first in one of the conference papers on which the present article is based.
Journal of Legal Studies in Business
[Vol. 12
courts respond to such aggressive pursuit of immediate objectives as the USA
PATRIOT Act3 and the detention of “enemy combatants” at Guantanamo Bay.
The contrast between long-term and short-term perspectives is stark in Hamdi v.
Rumsfeld4 and Rasul v. Bush,5 both just decided as this was written. Eight of the
nine Justices agreed that the due process clause protects even “enemy combatants” and that the writ of the federal courts runs even to a naval base leased
from Cuba. This is so plainly correct that some found it surprising that the
politicians currently in power had not even considered the long term, Constitutional perspective. The Los Angeles Times reported that
senior administration officials acknowledged that they were unprepared for a rebuke in two landmark Supreme Court decisions that
rejected the military’s treatment of prisoners in the war on terrorism.
Now, the administration has been left to scramble to develop a strategy for granting hearings to detainees without having
to cope with an unwieldy series of lawsuits throughout the nation.
“They didn’t really have a specific plan for what to do,
case-by-case, if we lost,” a senior defense official said on condition
of anonymity. “The Justice Department didn’t have a plan. State
didn’t have a plan. This wasn’t a unilateral mistake on DOD’s part.
It’s astounding to me that these cases have been pending for so
long and nobody came up with a contingency plan.” 6
Another interface of long-term rights and freedoms and short-term
objectives is efforts to reduce corruption through penal law. 7 In this area, there is
no set order in which long-term and short-term matters are addressed and the
extent of asynchrony is very different in various parts of the world. In no other
country is it so extreme as in the United States, but a majority of the countries of
Western Europe have successfully combined functioning democracy, entrenched
rights and freedoms and judicial review for at least some decades. In contrast,
several countries of the European “Enlargement” Class of 2004 dealt with
constitutionalization and reduction of corruption simultaneously, in the context
of the accession negotiations, and this is especially true of the two candidates of
the Class of 2007, Bulgaria and Romania. 8 At the other extreme, most African
Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism (USA PATRIOT Act) Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 (2001).
542 U.S. 507 (2004).
542 U.S. 466 (2004).
John Hendren, Bush Administration May Move Detainees From Cuba, L.A. TIMES, 29 June 2004.
There are other, perhaps more effective, ways of reducing corruption than further elaboration of the
penal laws (see, e.g., James Stodder & Peter W. Schroth, Criminalizing Bribery Is Only a Small First
Step: Transparency, Education and Health as Complementary Public Goods, Eastern Economic
Association, Washington, D.C. (Feb. 2004)), but there is no strong reason not to do both.
See Schroth & Bostan, supra note 2.
UN Convention against Corruption
countries are attacking, or thinking of attacking, corruption long before establishing constitutionalism.9 A notable exception seems to be South Africa, where
constitutionalism may be said to have been established for about a decade; after
what seemed to be glacial progress, the new Prevention and Combating of
Corrupt Activities Act was signed on 27 April 2004 and took effect in part on
that date and in part on 31 July 2004.10
It might well be supposed that a responsibility of countries whose
civilizations are more advanced, by some measures, is to provide support of
some kind to the aspirations of the less advanced. Short of that, it would seem to
be a moral obligation at least not to impede their progress, or to aid others in
impeding it. We may consider the new United Nations Convention against
Corruption11 in that context.
The most important principles guiding the work of the Ad Hoc Committee for the Negotiation of a Convention against Corruption appear to have
been achieving consensus and finishing on time. The Ad Hoc Committee received its mandate in General Assembly Resolution 55/61 of 4 December 2000
and General Assembly Resolution 56/260 of 31 January 2002, with the latter
Resolution suggesting that the conference for signing the new Convention be
convened before the end of 2003. The Ad Hoc Committee’s final report 12 is
dated 7 October 2003 and the Convention was opened for signature on schedule,
on 9 December 2003. Like the USA PATRIOT Act, but without the anthrax, the
United Nations Convention against Corruption is a document no one dared be
seen to oppose. Unlike the USA PATRIOT Act, however, the Convention
against Corruption will bring only quite limited change in the law, because so
See Southern African Development Community, Protocol against Corruption, opened for signature
14 Aug. 2001; African Union Convention on Preventing and Combating Corruption, opened for
signature 11 July 2003; Peter W. Schroth, National and International Constitutional Law Aspects of
African Treaties and Laws against Corruption, 13 TRANSNAT’L L. & CONTEMP. PROBS. 83 (2003);
Peter W. Schroth, The African Union Convention on Preventing and Combating Corruption, 49 J.
AFR. L. 24 (2005).
On paper, the new South African law (Prevention and Combating of Corrupt Activities Act 12 of
2004, Republic of South Africa, Government Gazette No. 26311, 28 April 2004) is probably the
strictest and most comprehensive anti-corruption law in the world. On one hand, the very broad
investigative powers it grants to prosecutors (e.g., s. 23) and the extensive reporting duties of
persons who hold any public or private “position of authority” (s. 34) appear to be open to abuse. On
the other hand, the inadequacy of the criminal justice system’s resources to prosecute white-collar
crime before the addition of these new crimes leaves room for uncertainty about the practical impact
of the new statute. See Robin W. Palmer, Fighting International and National Corruption by Means
of Criminal Law, South African national report to the XVI International Congress of Comparative
Law (2002); Schroth, National and International Constitutional Law Aspects of African Treaties and
Laws against Corruption, supra note 9; Brig Dirk Lambrechts, Bribery & Corruption: A Legal
Perspective, 2004, available at
United Nations Convention against Corruption, G.A. Res. A/RES/58/4, 31 Oct. 2003, opened for
signature 9 Dec. 2003, available at (with the full report of the Ad Hoc Committee) or http://www. (Convention text only).
Cited supra note 11.
Journal of Legal Studies in Business
[Vol. 12
many of its provisions are optional, either explicitly (Table 1) or not (Table 2),
while others mainly restate existing obligations of many countries.
Table 1: Expressly optional provisions of the UN Convention against
[Each State Party] [States
Parties] shall [also] consider
each State Party shall take
note of
States Parties may consider
the possibility of
States Parties shall consider
the possibility of
States Parties may consider
States Parties are encouraged to conclude, when
Clauses in which wording appears
5.4, 7.1(d), 10 (2nd sentence), 11.1
(2nd sentence), 11.2, 12.2, 27.2, 27.3,
32.2, 34, 38 (2nd sentence), 42.2, 60.5,
6.2, 13.1, 36 (last sentence)
7.2, 7.3, 8.4, 8.6, 14.1(b), 14.2, 14.3,
16.2, 18, 19, 20, 21, 22, 24, 30.6, 30.7,
32.3, 33, 37.2, 37.3, 39.2, 43.1, 48.2,
49, 52.5, 52.6, 54.1(c), 54.2(c), 59,
60.2, 60.4, 60.6, 60.7, 60.8, 61.1, 61.2,
31.8, 46.30
37.5, 45, 46.9(c), 52.4
The United States has an embarrassing tradition of delaying its entry
into the world’s consensus against evils, such as genocide and racial discrimination, then adding a long list of reservations and “understandings” to its
Because different considerations apply to extradition, I have not included in Table 1 the uses of
“may” in Article 44.
In paragraphs 102-109 of the LaGrand Case (Germany v. United States of America), No. 104,
Judgment, 27 June 2001, 2001 I.C.J. 104, 40 ILM 1069 (2001), the International Court of Justice
strongly rejected the assertion of the United States that its use of the word “should” in a preliminary
order did not create binding legal obligations. See Houston Putnam Lowry & Peter W. Schroth,
Survey of 2000-2001 Developments in International Law in Connecticut, 76 CONN. B. J. 217, 230
(2002.) However, that was not an analysis of a treaty provision using the word “should.” As wrong
as one may consider the argument in the Counter-Memorial for the United States to have been, the
fact that it was offered in this context strongly suggests that it may be offered in another.
UN Convention against Corruption
ratifications.15 The Inter-American Convention Against Corruption16 provided
the opportunity for a new approach to the problem of joining a treaty without
changing U.S. law, in this novel provision:
Article IX. Illicit Enrichment: Subject to its Constitution and
the fundamental principles of its legal system, each State Party
that has not yet done so shall take the necessary measures to
establish under its laws as an offense a significant increase in
the assets of a government official that he cannot reasonably
explain in relation to his lawful earnings during the performance of his functions.
The first twelve words were a brilliant innovation: the United States was
protected from the article’s direct attack on the presumption of innocence
without the need of a reservation! Canada seized the opportunity, ratifying the
Inter-American Convention with only this “Statement of Understanding”:
Article IX provides that the obligation of a State Party to establish the offence of illicit enrichment shall be “Subject to its
Constitution and the fundamental principles of its legal system”. As the offence contemplated by Article IX would be
contrary to the presumption of innocence guaranteed by Canada’s Constitution, Canada will not implement Article IX, as
provided for by this provision.
Although much less gracefully, the United States did the same. 17
The technique was developed in the UN Convention against Transnational Organized Crime,18 which six times uses variations on the words
“fundamental principles of its domestic law.” Although the Convention against
Transnational Organized Crime never quite goes so far as to make a State
Party’s obligation subject, as in the Inter-American Convention, to those “fundamental principles,” their recurring rhythm lets them begin to blend into the
background of the standard and innocuous. The corruption convention commit15
See Nathaniel L. Nathanson & Egon Schwelb, The United States and the United Nations Treaty on
Racial Discrimination: A Report for the Panel on International Human Rights Law and Its Implementation (West Pub. Co. 1975); Peter W. Schroth & Virginia S. Mueller (1975), Racial
Discrimination: The United States and the International Convention, 4 HUM. RTS. 171 (1975); Peter
W. Schroth, The United States and the International Bribery Conventions, 50 AM. J. COMP. L. 593,
616-619 (2002).
Organization of American States, Inter-American Convention against Corruption, 29 Mar. 1996,
entered into force 6 Mar. 1997, OEA/Ser. K/XXXIV.1, CICOR/doc. 14/96 rev. 2, 35 ILM 724
See Schroth, The United States and the International Bribery Conventions, supra note 15, at 615619.
15 Nov. 2000, entered into force 29 Sept. 2003, G.A. Res. 25, annex I, U.N. GAOR, 55th Sess.,
Supp. No. 49, at 44, U.N. Doc. A/45/49 (Vol. I) (2001).
Journal of Legal Studies in Business
[Vol. 12
tee – also under the auspices of the Centre for International Crime Prevention of
the Office for Drug Control and Crime Prevention (which is now called the
Office on Drugs and Crime) – could see the eggs as its own. In this friendly
environment, they could hatch and the termites could spread.
Table 2: Termites in the UN Convention against Corruption
Wording 19,20
in accordance with the fundamental principles of
its legal system
as appropriate and in accordance with the
fundamental principles of their legal system
where appropriate and in accordance with the
fundamental principles of its legal system
Clauses in
which wording
5.1, 6.1, 6.2, 8.1,
9.1, 9.2, 11.1, 36
7.1, 8.3
This is not a complete taxonomy of qualifying clauses in the UN Convention. There is a bewildering variety of such clauses, with dozens of possibly significant differences in wording, placement
within the sentence, etc. Many provisions of the UN Convention are explicitly optional, as shown in
Table 1. Many others are qualified by “where appropriate,” leaving at least the impression that each
State Party is free to judge appropriateness for itself. The table does not attempt to collect these
clauses, which are usually more direct in their approach than the termites; but in saying even this
much, I do not mean to imply that there is a clear, principled distinction between the clauses listed in
the table and others not so listed.
Clause 12.3 is not included in Table 2, because it appears to define a manner rather than a limit:
In order to prevent corruption, each State Party shall take such measures as may be necessary, in accordance with its domestic laws and regulations regarding the maintenance
of books and records, financial statement disclosures and accounting and auditing standards, to prohibit the following acts carried out for the purpose of committing any of the
offences established in accordance with this Convention….
Clauses 27.1, 27.2, 27.3, 31.3, 35, 38, 52.1, 53, 54.1, 54.2 and 57.2 are structured similarly. A
related case is clause 26.1, which also seems not to establish a limit on the obligation:
Each State Party shall adopt such measures as may be necessary, consistent with its legal
principles, to establish the liability of legal persons for participation in the offences established in accordance with this Convention.
Clauses 32.1, 48.1 and 52.2 are less clear, but probably in the same spirit.
None of the clauses mentioned in this note is included in Table 2. It is possible to argue
that some of the clauses that are included in this table are not really termites, but merely statements
of the manner in which an obligation is to be fulfilled. It is not possible to argue that this explains all
of them, or even very many of them. It is important to keep in mind, however, that the frequency of
clauses in which variations on the termite language are used for non-termite purposes helps the
termites avoid notice, by camouflaging them among other insects regarded as innocuous, or even as
UN Convention against Corruption
in accordance with the fundamental principles of
its domestic law
where appropriate and in accordance with the
fundamental principles of its domestic law
Subject to its constitution and the fundamental
principles of its legal system
If required by fundamental principles of the
domestic law of a State Party, it may be provided that the offences set forth in paragraph 1
of this article do not apply to the persons who
committed the predicate offence.
Subject to the legal principles of the State Party
in accordance with its legal system and constitutional principles
in accordance with its domestic law and with
due regard to the rights of the defence
to the extent consistent with the fundamental
principles of its legal system
to the greatest extent possible within its domestic legal system
to the extent that such a requirement is consistent with the fundamental principles of their
domestic law and with the nature of judicial and
other proceedings
Nothing contained in this article shall affect the
principle that the measures to which it refers
shall be defined and implemented in accordance
with and subject to the provisions of the domestic law of a State Party.
in accordance with the fundamental principles of
the legal system of the State Party
Wherever possible and consistent with fundamental principles of domestic law
to the extent permitted by the basic principles of
its domestic legal system and in accordance with
the conditions prescribed by its domestic law
to the greatest extent possible within its domestic legal system
7.3, 7.4, 8.4, 8.6,
9.3, 10, 12.1,
13.1, 23.1, 34,
30.6, 30.7
Journal of Legal Studies in Business
The decisions or actions provided for in paragraphs 1 and 2 of this article shall be taken by
the requested State Party in accordance with and
subject to the provisions of its domestic law and
its procedural rules or any bilat …
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