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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Money laundering

Harlow & Co, an audit firm, is asked to act for a new client, Brightwater Trading Ltd. The engagement partner notes that the client's owner is a politically exposed person (PEP) from a high-risk jurisdiction. Which response is most consistent with a risk-based approach to client due diligence?

Enhanced due diligence should be applied. A PEP from a high-risk jurisdiction is a higher money laundering risk, so the firm needs senior approval, must establish source of wealth and funds, and must monitor the relationship more closely. Simplified checks are inappropriate, and an automatic refusal is not required.

  1. AApply enhanced due diligence, including senior management approval and establishing the source of wealth and fundsCorrect
  2. BApply simplified due diligence because the client is a limited company with a registered address
  3. CAccept the client and carry out due diligence only if a suspicious transaction later arises
  4. DDecline the engagement automatically because PEPs may never be clients of an audit firm

Explanation

A PEP from a high-risk jurisdiction is a higher-risk relationship, so enhanced due diligence is required. This normally includes senior management approval, establishing source of wealth and funds, and ongoing enhanced monitoring. Simplified due diligence is only for low-risk situations, and PEPs are not automatically barred.

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