Politically Exposed Person (PEP) generally means a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person. World over, it is accepted that PEPs tend to plunder state assets, extort and accept bribes, and misuse domestic and international financial systems. Internationally, with the objective to curb such activities, the Financial Action Task Force (FATF) was constituted of which India is now a member. PEPs are considered a high risk in any financial system and it is recommended that financial institutions like banks etc. exercise Enhanced Due Diligence (EDD) while dealing with PEPs.
Guidelines issued by Reserve Bank of India as well as by SEBI accept this in principle, but they restrict EDD to PEPs of foreign origin or those residing abroad. They exclude domestic PEPs. PEPs are a special class by themselves and may not apparently attract provisions relating to Related Party Transactions under AS 18, provisions of Companies Act pertaining to interested director etc.
Effectively, domestic PEPs – high ranking politicians (whether they are ministers, members of ruling party or opposition parties) and their relatives have a field day. The disclosures made in the last few days, by the media and `India Against Corruption’ (IAC) brings out this fact sharply. The disclosures raise the issues of legality, corruption and more importantly public probity and propriety.
Every citizen wants government officials do their work efficiently and diligently. In many cases, service standards have been formulated and have been put up prominently outside the government offices. But are these standards followed in case of an ordinary citizen? When it comes to politicians and their relatives, the government officials become super efficient and files move swiftly, be it for approval of dams in Maharashtra or permissions for land in Gurgaon for the son-in-law or in Nagpur for the opposition leader. This unusual efficiency raises suspicions.
Nobody denies the importance of agriculture in India. But when a former Cabinet minister revises his tax returns for three years, raising his agricultural income manifold, one wonders whether agriculture is actually so profitable and how the original returns were so grossly inaccurate. One cannot ignore the coincidence of initials of this minister being the same as those of the person to whom certain payments have been allegedly made by a public company. One will not be surprised if this hyper-successful agriculturist minister has a huge cash balance in his books.
India believes in the rule of law. But we also have as our Law Minister, who in response to allegations made about the functioning of the charitable trust that the heads, says that he will reply with `blood’.
It is often said that, if businessmen and persons with resources take active part in politics, there will be reduction in corruption. We also believe that people from lower ranks of the society should progress. A politician and businessman from Maharashtra has taken this seriously with the result that his business has prospered and his driver has become a director of companies which have their registered offices in slums and chawls and these companies have invested millions in the group of companies headed by this politician. In the maze of companies, one is unable to decide who the beneficial shareholders are.
Some of the transactions coming to light may turn out to be patently illegal if properly investigated, while others may involve veiled corruption in the form of use of political power, contacts and influence. Some of the transactions may not be illegal but they certainly smack of complete impropriety. There is also a new disturbing trend – whenever there is any allegation, the person alleged to have done the wrong blatantly challenges the other to go to court, knowing well that the matter will rarely be taken to courts, if at all there is any investigation it will be shoddy, it will take years and ultimately nothing will happen. This is the sad reality. Yes, ultimately where there’s illegality or corruption the matters should go to court. At the same time, many offences are easy to commit but difficult to prove the way investigations are carried out and the law of evidence is implemented in our country. Also, the courts cannot deal with matters of impropriety, if the transactions are otherwise legal at least on the face of it. In such cases, it is only when such persons feel disgraced that such actions would be curbed. Social pressure can be a tremendous deterrent to improper actions.
The staff of the International Bank for Reconstruction and Development/The World Bank has published a paper `Politically Exposed Persons – A Policy Paper on Strengthening Preventive Measures’. The first recommendation in this Paper is that laws and regulations should make no distinction between domestic and foreign PEPs. The standards adopted by FATF and regional and national standard setters should require similar enhanced due diligence for both foreign and domestic PEPs. The Paper also cites lack of political will and commitment as one of the key causes for not being able to make the genuine difference.
How true!
Sanjeev Pandit
Editor
