In order to ensure your organization fully complies with financial crime compliance regulations, it is essential that you and your team understand when a customer relationship involves a Politically Exposed Person (PEP) and conduct appropriate diligence and risk mitigation on such relationships.
The Financial Action Task Force (FATF), an international body that sets standards for anti-money laundering and counter-terrorist financing requirements, defines PEPs as individuals who are currently or previously have been entrusted with a prominent public function within countries or international organizations. FATF explains that, because of their seniority and influence, such positions potentially can be abused for the purpose of committing money laundering offences and related predicate offences, including corruption and bribery, as well as conducting activity related to terrorist financing.
FATF provides the following examples of PEPs:
- Heads of government or heads of state
- Senior politicians and government officials
- Senior military or judicial officials
- Senior executives of government owned organizations
- Important political party officials
Family members and close associates of such persons also may qualify as PEPs.
FATF does not provide a list of specific PEPs, instead requiring that regulated entities have appropriate systems in place to determine whether customers or their beneficial owners qualify as PEPs, to consider the specific risks associated with the relationship, and to implement appropriate diligence and monitoring to address any risks of abuse.
Practical Examples of PEPs
Day-to-day examples of PEPs could include:
Foreign PEPs
- Individuals who hold or have held positions of public trust in a foreign country: heads of state or government, diplomats, senior politicians, judicial or military officials, executives of state-owned corporations.
Domestic PEPs
- Individuals who hold or have held influential positions in their own country: heads of state or government, senior politicians, judicial or military officials, executives of state-owned corporations.
International Organization PEPs
- Directors, senior executives, board members or other prominent officials of an international organization.
Family Members
- Spouses/partners, children, parents, siblings and other close family members related to the PEP through blood, marriage or other legal arrangements.
Close Associates
- Individuals closely connected to a PEP through business or social relationships, joint beneficial ownership or other legal arrangements.
FATF guidance does not specify the precise level of seniority that triggers PEP status. FATF notes that prominent public functions may exist at the federal, state or provincial, or even municipal levels. To address this, LexisNexis Risk Solutions captures individuals at international, national, and subnational units of government, including states or provinces (or equivalent) and in many cases cities or other local government.
Note: Ultimately, whether an individual qualifies as a PEP, and the specific diligence required with respect to that person, is determined by the laws of those countries having jurisdiction over the regulated financial institution, and the risk information available to it. Different countries take different approaches to implementing FATF’s recommendations.
PEPs Change Over Time, We Can Help
It’s easy to see how the list of potential PEPs is expansive and continually in flux as people move into new roles, family members change, and countries update their laws implementing FATF recommendations and guidance.
LexisNexis® WorldCompliance™ researchers maintain deep insight into the government and political structures, AML laws, election cycles, and specific PEP considerations for their areas of responsibility. Our researchers routinely conduct analysis to help ensure thorough and timely coverage.
Contact us to learn how to streamline your due diligence and lower your exposure to risk and fines.
References:
1. Fenergo, AML Enforcement Action in 2024, Fenergo
