A Politically Exposed Person (PEP) is an individual who holds or has held a prominent public position, such as a head of state, senior government official, or high-ranking political party official. PEPs are considered to be at a higher risk for involvement in money laundering and other financial crimes due to their access to power and influence.
The PEP status does not have any criminal implications, but it indicates a higher risk exposure as PEPs are more susceptible to bribery and coruption due to their prominent positions. As such, financial institutions and other regulated entities are required to conduct enhanced due diligence on PEPs and their immediate family members and close associates in order to comply with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations. This includes obtaining and verifying information about the PEP's identity and financial activity, as well as assessing the risks associated with doing business with them.
Types of PEPs
Domestic PEPs: Individuals who hold or have held a prominent public position within their own country.
Foreign PEPs: Individuals who hold or have held a prominent public position in a foreign country.
International PEPs: Individuals who hold or have held a prominent public position in an international organization, such as the United Nations or the World Bank.
Government PEPs: Individuals who hold or have held a prominent role in the government, such as a member of parliament (MP), head of state, minster, assistant minister, diplomatic role, judiciary role, or a senior executive and above in a state-owned eneterprise (SOE).
Organization PEPs: Individuals who hold or have held a prominent role in organizations that are key decision makers of major contracts such international sporting events.
Close Associates: Individuals with a close business relationship with the PEP, beneficial owners of legal arrangements with the PEP, and legal advisors.
Family Members: Relatives such as the parents of children of PEPs, spouse or partner, siblings, uncles and aunts, in-laws, and cousins.
In addition to conducting enhanced due diligence on PEPs, financial institutions and other regulated entities are also required to report any suspicious activity related to PEPs to the appropriate financial intelligence unit (FIU). FIUs are government agencies that are responsible for receiving, analyzing, and disseminating information related to suspicious financial activity to law enforcement and other relevant authorities.
The definition of a PEP may vary depending on the jurisdiction in which the financial institution or other regulated entity is located. Some jurisdictions may have more expansive definitions of PEPs that include individuals who hold or have held a prominent public position at the local or regional level, while others may have more narrow definitions that only include individuals who hold or have held a prominent public position at the national or international level.
Automate Your PEP Screening
Keeping up with changing PEP regulations and statuses, especially the close associates and relatives of PEPs can be challenging and time consuming. Companies need to ensure that their PEP database covers local, regional, and international sources, and are updated in time to meet their business needs.
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