A politically exposed person (PEP) is someone who has a high-profile political role or has been entrusted with a high-profile public duty. Because of their position, they are more likely to be involved in money laundering and/or terrorist financing.
Politically Exposed Person List
In simple terms, a Politically Exposed Person is someone who is more likely to be involved in bribery or corruption due to their prominent position or influence. Furthermore, any close business colleague or family member of such a person will be considered a risk and may be added to the PEP list.
Current or former government officials who have been assigned to positions in the domestic government or in a foreign government could be politically exposed. This could include leaders of state or people in elected or unelected positions in the executive, legislative, administrative, military, or judicial departments.
PEP screening is a process to identify and conduct customer due diligence on any politically exposed person as part of a robust Anti-Money Laundering and Know Your Customer (AML/KYC) program.
In financial regulation, a politically exposed person (PEP) is one who has been entrusted with a prominent public function. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence that they may hold. The terms "politically exposed person" and senior foreign political figure are often used interchangeably, particularly in international forums.
Under Australia's Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) Rules,[5] Politically exposed persons (PEPs) are individuals who occupy a prominent public position or functions in a government body or international organisation, both within and outside Australia. This definition also extends to their immediate family members and close associates.
Canada considers all foreign PEPs to pose a money laundering and terrorist financing risk. Under the amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act that came into effect in 2016, a politically exposed person now also includes all domestic PEPs and Heads of International Organisations (HIOs). Domestic PEPs in Canada retain their classification until 5 years after they leave office. This rule applies even if the PEP is not considered high risk.
As of June 2017[update] likewise the UK's PEP definition is identical to the 2012 FATF definition, i.e. including reference to domestic PEPs; It is found in the Money Laundering Regulations 2017 Section 35(12).[10] A politically exposed person is considered any individual who fits any of the criteria listed below:
The designation "politically exposed person" dates back to the late 1990s, in what was known as the "Abacha Affair." Sani Abacha was a Nigerian dictator who organized a large scale, systematic theft of assets from the Nigerian central bank for some years with his family members and associates. It is believed that several billion dollars were stolen, and that the funds were transferred to bank accounts in the United Kingdom and Switzerland.[16] In 2001, the Nigerian Government that succeeded the Abacha Regime made an effort to recover the money.[17] It lodged complaints with several European agencies, including the Federal Office of Police of Switzerland which investigated close to sixty Swiss banks.[18] In this investigation, the concept of "politically exposed person" emerged, around which the UN organised a committee in December 2000, that eventually led to the October 2003 resolution of United Nations Convention against Corruption, entered into force in December 2005, with ongoing annual reviews of implementation and asset recovery.[19] It had become European Union law in 2004.[16]
Objective: Evaluate the bank's policies, procedures, and processes to assess, manage, and mitigate potential risks associated with foreign individual customers who the bank has designated as politically exposed persons (PEPs). Evaluate the bank's compliance with regulatory requirements, such as customer identification, customer due diligence (CDD), beneficial ownership of legal entity customers, and suspicious activity reporting with respect to these customers. Examiners are reminded that there are no Bank Secrecy Act (BSA) regulations specific to foreign individual customers who the bank has designated as PEPs.
Governments and regulators aim to restrict natural persons' transactions and legal persons who have committed various crimes. Since the persons and organizations in this sanction, PEP, and watch lists contain high risks, businesses have to identify these people and not take action on the necessary people. That's why businesses need to screen their customers on sanctions, PEP, and Watch lists to meet global and local AML requirements and protect themselves against risks. Just one example, there are more than 1000 dynamic sanction lists in the world, and these sanction lists change very often.
PEPs are also classified into classes themselves, for example, Domestic PEP, Foreign PEP, International organization PEPs. In this distinction, the risks posed by PEPs are not the same. In addition, Relatives And Close Associates (RCA) of PEPs also belong to the PEP class but are not as risky as a PEP. As a result, the risks of PEPs can vary. For example, the risks of a president and a mayor are not the same. Below we will give some PEP lists as an example to summarize the situation better. In the meantime, you can take a look at our "What Is a Politically Exposed Person (PEP)," "What Are Relatives And Close Associates (RCAs)," and "Special Interests Entities and Special Interest person" articles in order to understand PEP better.
The Council of Europe parliamentary assembly of the European countries, including Turkey is composed of members of national parliaments. These parliament members can also be called PEP because they carry more risk than a normal person, so people on this list should also be known.
The Unified Canadian Autonomous Sanctions List includes individuals and organizations subject to certain sanction arrangements under the Justice for Victims of Corrupt Foreign Authorities Act (JVCFOA) and the Special Economic Safeguards Act (SEMA). The persons in these lists are updated frequently, as in other sanction lists.
In Ukraine, as in many countries, the financial intelligence unit maintains and publishes a list of people who have been sanctioned. Businesses that have a working status with sanctioned persons or organizations on the list should scan this list.
Moreover, Sanction Scanner collects and structures PEP lists and sanctions data from all over the world through AI support. Businesses can check their customers by name, identification number, or passport number in the global PEP list with Sanction Scanner solutions. The Sanction Scanner presents the results of your sanction and PEP screening in easy-to-understand reports in seconds, and we can present these reports in both detail and summary. With the Sanction Scanner solution, all results of a PEP person sought are given one after the other, so you can minimize your processing load. Businesses can thus identify high-risk customers and take a risk-based approach.
There is no single, universally agreed upon definition of a politically exposed person. However, according to the global Financial Action Task Force (FATF), a PEP is opaquely defined as an individual with substantial political influence or who fulfills a prominent public function. Not only are PEPs subject to additional scrutiny, their family members and close associates may also require screening, since those close to PEPs are considered more apt to act on their behalf, or serve as secondary targets for influence.
The UK government publishes the UK Sanctions List, which provides details of those designated under regulations made under the Sanctions Act. The list also details which sanctions measures apply to these persons or ships, and in the case of UK designations, provides a statement of reasons for the designation.
Article 14 of Law 10/2010 establishes that obliged entities shall apply the enhanced due diligence measures set forth in that article in the business relationships or transactions with politically exposed persons (hereinafter, the "PEP").
The aforementioned List published in January 2021 on the website of the Public Treasury, was drawn up in July 2020 by the CPBC, without prejudice to the existence of other persons of legal responsibility due to their positions or functions in other countries (foreign persons of public responsibility), or in international organizations as defined in Article 14 of Law 10/2010. Thus, the list enumerates the functions or positions that determine the consideration of a person with Spanish public liability, for those who perform or have performed such functions or positions.
To reiterate, if you are not politically exposed but your name has been matched to a PEP list, your Credit Score, ability to obtain credit, and cost of credit will not be adversely impacted so there is no reason to worry.
Politically exposed persons (PEP) pose a higher risk than traditional customers to financial institutions. Therefore, PEPs screening is an important aspect of Know Your Customer (KYC) and anti-money laundering (AML) policies.
A politically exposed person (PEP), as defined by the Financial Action Task Force (FATF), is someone who currently is, or has previously been, entrusted with a prominent function. The United Nations Convention Against Corruption (UNCAC) extends this definition to include relatives and close associates (RCA) of those with a prominent public function. PEPs are at a higher risk for corruption, money laundering, terrorist financing, and bribery related to the nature of the influence they hold based on their position.
PEP screening should be done as part of the client onboarding process as part of the KYC protocol. Politically exposed persons should be assigned a risk score after being identified, using a risk-based approach. 2ff7e9595c
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