What Is a Politically Exposed Person?
In basic terms, a Politically Exposed Person is someone who, through their prominent position or influence, is more susceptible to being involved in bribery or corruption. In addition, any close business associate or family member of such a person will also be deemed as being a risk, and therefore could also be added to the PEP list. The definition of politically exposed person (PEP) is an individual with a high profile political role, or who has been entrusted with a prominent public function. They present a higher risk for involvement in money laundering and/or terrorist financing because of the position they hold. Defining Politically Exposed Persons.
In order to ensure your organisation fully complies with the latest financial PEP regulations, it is essential that you and your team are aware of who or what a Politically Exposed Person PEP could potentially how to sign illinois term limits petition. Providing a definitive list of who could be classed as a PEP is difficult, as the criteria is so broad; international definitions vary and the Financial Action Task Force FATF is frequently issuing updated recommendations.
In basic terms, a Politically Exposed Person is someone who, through their prominent position or influence, is more susceptible to being involved in bribery or corruption. In addition, any close business associate or family member of such a person will also be deemed as being a risk, and therefore could also be added to the PEP list. Note: Each country may have different local PEP regulations that you need to comply with when doing business in that region. Accuity has produced a handy infographic that summarises information on who should be classified as a Politically Exposed Person.
Request a demonstration to see how our KYC Due Diligence Data File can be seemlessly built into your PEP screening process to help streamline your due diligence and lower your exposure to risk and fines. Related Content. Firco Trade Compliance provides an all-in-one solution that screens both customers and activities.
What Is a Politically Exposed Person (PEP)? PEPs or politically exposed persons meaning is high-risk clients with more opportunities than ordinary nationals to gain assets through illegal means like bribe-taking and money laundering. The PEP definition of a politically exposed person (PEP) is charged with an important public function. politically exposed person means an individual who is, or has at any time in the preceding 12 months been, entrusted with a prominent public function, including either of the following individuals (but not including any middle ranking or more junior official): Sample 1 Sample 2 Sample 3. The term “politically exposed person” generally includes a current or former senior foreign political figure, their immediate family, and their close associates. Interagency guidance issued in January offers banks resources that can help them to determine whether an individual is .
What is a PEP? Regulated entities are ultimately responsible for determining if their clients fall under the local PEP definitions for their respective geographies. No, but they can be high risk nonetheless due to their business dealings as they could potentially be fronts for terror financing, be facilitating narcotics smuggling or other criminal proceeds, etc.
Due to their close proximity to the person entrusted with the prominent public office, they may be able to abuse their position to undertake corrupt activities. No, but senior positions within these political parties can be, even if they do not hold any official positions within the seat of government.
However, senior Chinese Communist party leaders often outrank the government official in most cases. Thus it is impossible and fruitless to attempt to identify all members of a political party, since the majority do not wield any public prominence and are not in a position to leverage their party status—but a few senior officials do, and they can be PEPs.
Beneficial ownership information can be difficult to obtain, especially if the company is registered in offshore havens with secrecy laws, such as the British Virgin Islands. AML professionals can utilise a variety of tools to identify beneficial ownership, starting with free internet search engines, simply interviewing the customer, commercial databases and, if the situation requires, even private intelligence firms. There is no one-service-fits-all approach because the legitimate holdings are always the easiest to identify.
However, the riskiest holdings are the ones hidden away and with overly complex structures, and it may require more than a commercial database to uncover the true ownership structure. PEP control of an operating company: when might it matter, how should it be dealt with, and to what extent should such involvement be ascertained?
This is largely left to the risk-based approach. The majority of PEPs are clean and affluent members of society, and their control of operating companies is completely legitimate. However, risks can occur in situations where the companies are found to be used for other purposes, such as hiding personal assets in offshore tax havens, or are involved in corrupt business dealings.
What proactive steps must I take to identify PEPs? Asking your customers to self-identify as being politically exposed is likely to be impractical, and the answers you get may not always be truthful.
Many people may not even realise they are on a politically exposed persons list. This is why financial organisations tend to use an established PEP database that can instantly flag a customer as a PEP. Given that people might make a false declaration or not even be aware that they are considered politically exposed , their status always needs to be checked as part of a robust PEP due diligence program that follows local and international guidelines.
PEP data can be gathered from a variety of publicly available sources, such as government-issued PEP lists, the internet and media sources, internal sources or information shared among financial groups.
You are also putting a lot of faith in the validity and freshness of this data, which opens your organisation up to potential risks. Yes, some governments do issue PEP lists, but as noted by the FATF recommendations, these are not complete listings, and solely relying on these lists will not be compliant under any PEP programs.
How often do I need to screen existing clients against PEP lists? Which countries are considered to have high-risk PEPs? It is imperative to adhere to not only the local requirements for PEP due diligence, but also any international ones to which the firm may be exposed. What counts as taking reasonable measures to determine if someone is a domestic PEP? This can be confusing, as not all countries have adopted a PEP due diligence requirement, and some countries that have require only foreign PEPs to be identified.
Therefore the answer to this question will differ from regulator to regulator, so you should always check. Assuming that both domestic and foreign PEPs must be identified, the best time to identify them is during the onboarding process and then during subsequent periodic reviews. Global standards ensure a standardised set of policies, but these would then have to adhere to all local jurisdictional requirements. So if the resident jurisdiction for head office has a regulatory requirement less stringent than a foreign branch, the global policy should ensure that the policy meets that of the international branch and head office.
This is not always easy, as regulators are continuously changing and improving their requirements, but it is always recommended that an organisation follow one standard instead of multiple ones, as clients may not always stick to one location. It would provide a better streamlined compliance process as well as a better customer experience.
There are two ways to monitor this—either through the use of technology or through strict internal review policies. Obviously the easiest and most assured way to ensure no-one slips through the net is if the PEP screening technology used can monitor and flag new PEPs every time the commercial PEP database is updated.
If it finds a match such an existing client suddenly appearing on our PEP database , it will automatically send an alert for you to act upon.
You can use PEP data from sources such as government issued lists, internal sources and working groups, but this can be resource-intensive and not provide the very latest information. Accuity employs hundreds of data editors around the world, constantly monitoring thousands of government sites, and tens of thousands of credible news sources and magazines, for publicly available updates.
It is unrealistic to expect a bank to undertake this resource-intensive task, so the commercial PEP database is a good working foundation for any PEP due diligence program. How do I know my PEP database is up to date; is the responsibility with me to check? The short answer is yes. A commercial PEP database is just one component of a PEP due diligence program, and the responsibility to maintain and update the PEP data that is used by the company which can be gathered from multiple sources and not just solely from the commercial PEP provider is ultimately up to the company.
However, if you can show that you were using the latest data from a recognised commercial database, you have a better chance of showing you were taking appropriate levels of due diligence. This allows them to screen all customers as they are onboarded and then constantly monitor for changes in their PEP status in the future, without the need to periodically re-submit the customer database.
This ensures lower strains on IT resources and lower match rates to review, but most important, existing customers can be immediately flagged by the engine if it detects any changes to the PEP database. What are PEP red flags and risk indicators — for individuals? Why can relationships with PEPs represent an increased risk for financial institutions? Obviously we are not the only people in the world with our name, so just relying on that would naturally cause massive problems with false positives.
This is why PEP screening also incorporates additional criteria such as occupation, dates of birth, gender, and nationality to better distinguish the exact person. This additional cross-referencing would be overwhelming for AML professionals to identify without a smart filtering solution in place that automatically includes these additional criteria as part of the PEP screening process.
How should the Wolfsberg Guidance on the risk-based approach be applied to the management of PEP relationships? However, the underlying principles remain the same in that you should use your limited compliance resources to expend more resources on the riskier relationships. There are numerous resources on what would constitute as a risk-based approach and the Wolfsberg Guidance is certainly a good place to start. However, the most recent FATF Guidelines on the risk-based approach is another good resource we would recommend.
Who decides if someone is a PEP? No, but senior management and boards of directors of such enterprises are. Can legal entities be PEPs? Why are families and associates considered PEPs? Are political parties considered as PEPs? When do I need to undertake screening for PEPs? Do customers need to declare their PEP status? Where can I get reliable PEP data? Can I get government-issued PEP lists?
Is there a time limit on PEP status? What is a domestic PEP? When do I need to screen domestic and foreign PEPs? Should financial institutions apply global standards for PEP screening? How would I know if an existing client became a PEP?
How do I get alerted to new PEPs? How can I incorporate screening for PEPs into my own database? Is there potential for false positives in PEP screening? Related Content. In this case study, learn how Accuity helped Transact Pro transform their compliance process. In this article, Henry Balani, the Global Head of Strategic Affairs at Accuity, examines how anti-money laundering and KYC compliance regulations are likely to impact the adoption of instant payments.