What Is PEP (Politically Exposed Person)?
Time and time again, there’s one question that keeps circling back – what is a PEP and is it safe to work with them?
As a result, today, we’d like to refresh your mind regarding PEPs; not everyone understands what a PEP is and it’s important to understand the requirements in working with them.
According to the Financial Action Task Force (FATF) and a range of AML Directives, a politically exposed person (PEP) is an individual that has been entrusted with a prominent public function. Due to their position and potential influence, PEPs often pose a higher risk of being involved in money laundering, bribery and/or corruption.
Because of this risk, additional AML/CTF measures are applied when onboarding PEPs. These requirements may vary by jurisdiction, but they are all preventive in nature (not criminal), and should not be interpreted as meaning that all PEPs are involved in criminal activity.
However, these additional duties regarding record keeping and reporting may impose additional costs on your infrastructure and compliance department.
Who should be classified as a PEP:
1. Heads of state, government officials, ministers and deputy or assistant ministers;
2. Members of parliament or of similar legislative bodies;
3. Members of the governing bodies of political parties;
4. Members of supreme courts, of constitutional courts or of other high-level judicial bodies, the decisions of which are not subject to further appeal, except in exceptional circumstances;
5. Members of courts of auditors or of the boards of central banks;
6. Ambassadors, chargés d’affaires and high-ranking officers in the armed forces;
7. Members of the administrative, management or supervisory bodies of state-owned enterprises;
8. Directors, deputy directors and board members (or equivalent) of international organizations.
Importantly, relatives and close associates (also known as RCAs) of those individuals who meet the criteria aforementioned may also be subject to additional checks. Specifically:
1. The spouse, or a person considered to be the equivalent of a spouse, of a politically exposed person;
2. The children and their spouses, or persons considered to be the equivalent of a spouse, of a politically exposed person;
3. The parents of a politically exposed person;
4. Natural persons who are known to have joint beneficial ownership of legal entities or legal arrangements, or any other close business relations, with a politically exposed person;
5. Natural persons who have sole beneficial ownership of a legal entity or legal arrangement which is known to have been set up for the de facto benefit of a politically exposed person.