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The term “PEP” (or Politically Exposed Person) was coined in the 1990s, and essentially refers to anyone in a prominent position in public life, whether that be in the government, in law enforcement or in publicly-owned corporations.
It’s crucial to identify and pay special attention to PEPs during your AML checks, as they’re generally considered to be more susceptible to bribery and other financial crimes due to their high profile roles, wealth and influence. This means they present a greater money laundering risk to your firm; if you do decide to go into business with a PEP, you’ll need to carry out Enhanced Due Diligence, and they’ll require more ongoing monitoring than other potential clients or customers.
There’s no universally observed definition for PEPs, but most organisations use guidance set out by the Financial Action Task Force. The FATF defines PEPs as ‘individuals who are or have been entrusted domestically with prominent public functions.’ Some examples of positions which qualify as PEPs are as follows:
Senior executives in government-owned businesses, like the BBC
Government officials
Leaders of political parties
Senior members of religious groups
High-ranking military officials
Consuls and ambassadors
Members of the House of Lords
Members of parliament
Close friends or relations of any of the above
However, providing a definitive list of who qualifies as a PEP is challenging. The criteria are broad, and international definitions vary significantly. The Financial Action Task Force (FATF) frequently issues updated recommendations, which means the definitions can change, adding to the complexity of creating a concrete list.
While some organisations might filter these roles into different categories to determine the level of risk, SmartSearch treats every match with equal importance. Our cutting-edge automated PEP screening software can even identify Politically Exposed Persons who are logged under nicknames, aliases and abbreviations, so a thorough search is guaranteed. This approach ensures that no potential risk is overlooked, maintaining a robust compliance framework.
When discussing politically exposed persons (PEPs), it's essential to recognise which immediate family members are also considered under this classification. Here's a detailed breakdown:
Parents and Children: Both parents and offspring of individuals classified as PEPs fall under the same designation.
Spouse or Partner: The significant other, whether legally married or a domestic partner, is included in the PEP category.
Siblings: Brothers and sisters, regardless of whether they are full or half-siblings, are considered PEPs as well.
Extended Family: Family ties such as uncles and aunts, along with in-laws, also contribute to this categorization, even if they are seen as more distant relations.
This classification highlights the broad network of individuals considered PEPs due to their closeness and potential influence within the political sphere.
When considering who qualifies as "close associates" of Politically Exposed Persons (PEPs), it's important to understand the specific criteria:
Business Partners: Individuals who have close business ties with a PEP, often involving joint control or shared ownership of companies or other legal entities.
Ownership Beneficiaries: Those who solely own legal entities intentionally set up for the actual benefit of a PEP may also be considered close associates.
These associations imply shared interests or significant influence that aligns with the objectives or benefits of a PEP. Understanding these connections is crucial for compliance and due diligence processes.
In Recommendation 12 of the FATF guidance, it states that ‘the handling of a client who is no longer entrusted with a prominent public function should be based on an assessment of risk and not on prescribed time limits.’
In other words, this is usually subject to interpretation. Anyone who has been a PEP in the past might still qualify as a PEP years after they leave the high profile position they occupied, if they’re still relatively well-known within their field. Once a past or present PEP has been identified, deciding how to proceed is at your discretion, but vigilant ongoing monitoring will enable you to manage the risks involved.
The FATF guidance makes the specific distinction between PEPs in the UK and PEPs overseas, who must also be considered during your AML checks. A PEFP, or Politically Exposed Foreign Person, is defined by the FATF as any ‘individuals who are or have been entrusted with prominent public functions by a foreign country.’
SmartSearch operates on a global scale, and our sophisticated screening software enables us to identify PEFPs just as easily as PEPs, so you can be sure we’ll never miss a beat.
Identifying PEPs amongst your potential clients and customers is half the battle – it’s crucial that you’re able to spot PEPs when carrying out your AML checks, as they drastically increase the money laundering risk to your business.
Once you’ve identified a PEP you’ll need to investigate further, building a solid profile around their public role, and establishing how they might make your company more vulnerable. These details will allow you to make an informed decision about whether or not to have dealings with them.
If you do decide to work with a PEP, they will require more intensive ongoing monitoring than a normal client or customer. As well as Enhanced Due Diligence, your ongoing monitoring process should involve measures like keeping a close eye on all future transactions, frequently reviewing their PEP status, and setting clear business boundaries.
Our complete AML solution is a comprehensive platform that can easily identify PEPs and PEFPs, using unparalleled resources like the Dow Jones WatchList, which is updated daily.
Carry out all your AML checks in one place, from initial checks to sanctions screening and ongoing monitoring – AML compliance has never been easier. Our automated system allows you to ensure that no stone goes unturned, so you’ll always get all the information available about your potential client or customer.
Speak to an AML and compliance expert today to discover more.
According to the Financial Action Taskforce, a PEP is an individual who is (or has been) ‘entrusted domestically with prominent public functions.’ Simply put, anyone in a high-profile position within the public sector can qualify as a PEP. Some politically exposed person examples include members of parliament, high-ranking military officials, and senior executives in government-owned organisations, like the BBC or NHS.
In the context of AML, to be politically exposed is to be in a prominent public position, generally resulting in significant wealth or influence. When a person is politically exposed, they present a greater risk of involvement with bribery, corruption and other forms of financial crime, so they require monitoring more closely. This is what PEP screenings are for.
Anyone who qualifies as a PEP is automatically a high-risk customer. This is because PEPs – by the very nature of their positions – are exposed to more opportunities to be involved in different forms of corruption, like accepting bribes, tax evasion, fraud or money laundering. This is why PEP lists are so important, as they enable you to identify and monitor politically exposed persons, before going into business with them.
