Politically Exposed Persons

A Chronicle of PEPs: 134 Days After the US Election

March 17, 2021 8 minute read

The United States 2020 elections were record-breaking for a multitude of reasons. They were the first full US elections to take place during a pandemic and due to mail-in voting, turnout surpassed the previous presidential election before in-person voting began. Americans elected its first female vice president, who is also its first African American and first Asian American vice president, and they elected the most diverse Congress in history. 

For ComplyAdvantage, the United States 2020 elections followed a massive improvement in the scope and granularity of our coverage of politically exposed persons in the United States. Massive, all-at-once changes throughout a large multi-tiered public administration are notoriously difficult to capture in an accurate and timely manner using manual methods, but our automated detection systems allow us to follow the grain of leadership changes as it trickles through the layers. We take a close look below at the positions that changed hands starting with November 4. 

Federal Officials – PEP Class 1

The most prominent PEP changes after the US elections are typically changes in the US Congress and the US Presidency. 

For the US Senate alone, our PEP monitoring systems detected 8 departures and the 6 additions within a day; effective January 3. The House of Representatives saw 60 incoming members and 57 outgoing members on January 3, all of whom were picked up within a day. We quickly identified the out-of-ordinary changes, such as the Senate’s resignation of Kamala Harris and the departure of Kelly Loeffler, as well as the three late additions due to Georgia’s Senate runoff and Harris’s replacement. The House of Representatives recorded the resignation of Cedric Richmond, who was later selected by President Biden as Special Advisor. 

Changes to the US Presidency were captured in our database on Inauguration Day, on January 20. In addition to the President and the Vice President, this also includes the members of the cabinet appointed by the new president. Of particular note, President Biden structured a slightly larger Cabinet than the previous administration, with 25 incoming members replacing the 23 outgoing members. 

Beyond this point, the US system becomes muddled, with a complicated web of presidential and secretarial-level appointees requiring Senate confirmation heading the 15 departments and the hundreds of subordinated agencies. Our internal classifiers are designed to ensure all relevant types of institutions in the government apparatus are captured. 

Significant change has already taken place: the offices under the presidency have recorded 42 outgoing and 27 incoming members on a PEP-relevant level,  as these are the most immediate staff of the new President. 

Changes in the leadership of cabinet-level agencies reveal the challenges of the Senate confirmation system. The “rank and file” of presidential appointees is made up of Deputy Secretaries, Under Secretaries, Assistant Secretaries, Inspectors General, and so on, which garner less attention from both the media and the Senate. As such, from the 284 outgoing leaders, of which 14 were detected even before Inauguration Day, only 194  positions have been so far filled and uploaded to their official websites. The entities from this segment are generally responsible for sectoral policy-making and budgetary disbursement within their department’s line of work and are expected to remain dynamic even after the initial wave. 

A similar ongoing wave of change is still occurring in the agencies that report to the cabinet departments, where 160 outgoing members were so far replaced by 117 new appointees. These entities are a mix of political appointees and career civil servants heading their particular agencies’ policy implementation and use of funds. While this may not be seen as particularly proportional change, it still remains a dynamic segment requiring ongoing monitoring due to the sheer volume of institutions. 

The wave of change also appears to have affected the military segment, with 46 high-ranking military officers across all branches of the armed forces leaving their positions before the Inauguration Day on January 20, followed by a second wave of 32 outgoing members the following day. Under the outgoing president, 69 military leaders ascended to positions picked up by our system and were followed by an additional 21 under the new president. While most military leaders achieve their positions by rank, and therefore these changes would not be correlated to the 2020 election, certain subsets are subject to a direct presidential appointment or the appointment by a political appointee. Further changes are expected. 

Political parties took advantage of the election with a refresh in their national leadership, as the Democratic Party replaced 7 members of its national executive committee with 5 new additions on January 20, picked up within 5 days by our systems. The Republican party similarly replaced 2 of its national leaders with 5 new leadership members. 

International Representatives – PEP Class 2

Diplomats are generally reserved as a special mention in PEP screening requirements and ambassadors and charge d’affaires are nearly universally included by countries in the list of positions to be considered as PEPs. The US system uses a mix of career diplomats and political appointees to fill ambassadorships and lengthy Charge d’Affaires postings before an ambassador to a particular country is nominated and then confirmed by the Senate. 

Changes to top-level embassy postings were detected before inauguration day, as 15 positions were vacated. Out of these, 8 were ambassadorship posts, of which 5 were political appointees and 3 were career diplomats. In December, 5 Ambassador positions were vacated and only 1 was filled. One of the most high-profile position changes was that of the US Embassy in Beijing, which saw the departure of Terry Branstad, who resigned as Ambassador in order to work on the Trump Presidential Re-election Committee. Brandstad was replaced by a Charge d’Affaires, a career diplomat with more than 30 years of experience in the Foreign Service. Changes for this type of entity are generally frequent and not all detected changes would be correlated with the change in administration. 

Incoming embassy leaders were detected in lower numbers, with 8 positions being filled. Only 2 of those were ambassadorships, both career diplomats. This raises the total number of vacant ambassadorship posts which can be potentially filled by the Biden administration to 89. 

State-Level Officials – PEP Class 2

State-level elections add an additional layer of complexity and volume, making automated change detection critical. 

Elections were held for 86 of the 99 state legislative chambers, with nearly 6,000 state legislator seats being up for election. Our systems detected changes occurring in 90 state legislative chambers after Election day, with the difference explained by various other ad-hoc resignations. All in all, from the nearly 6,000 seats contested, around 1,300 changed hands. 

States employ different legislator terms and election cycles, from 2 or 4 years for both chambers, to a split of 2 years for the lower chamber and 4 years. Some elect all members at once, others use a staggered system similar to the US Senate. 15 states employ term limits on their legislators. Some hold legislative elections even in off years. This segment has a high degree of variability but remains important from a compliance perspective, as some jurisdictions (notably the United Kingdom) explicitly require financial institutions to treat state-level legislators as PEPs.  

States also have their own directly-elected executives, with 11 of the 50 governorships up for election in 2020. Our systems are able to pick up changes to not only the governors but also other cabinet-level appointed or elected officials, totaling 120 departures from office and 110 additions. This category is expected to remain fluid since not all positions included are elected. 

State-level elections also included members of state supreme courts, which saw 27 outgoing state justices replaced by 24 newly elected ones in the supreme courts of 16 states. 

Local-Level Officials – PEP Class 4

Finally, a host of cities and counties across the United States elected their new local executive and legislative leaders. Out of the largest cities and counties in the country, our system detected changes in 25 executive bodies and 4 councils, totaling 73 entities leaving office and 60 new officeholders. 

Due to the decentralized nature of the US system and the general wealth and size of its local administration units, these entities can hold influence over significant public funds or impactful public policies. 

Profile Consolidation

Our automated systems collect information from official sources to detect individual position changes. Due to the nature of political positions, not all of the 2,200 new individual positions filled since the US elections represent new PEPs. Some entities have switched from previous, unrelated positions, while others ended up holding several postings at the same time. 

From a risk perspective, financial institutions need to be able to use all relevant data when making their determinations. A new PEP and a more experienced PEP could result in different risk levels, based on the institution’s assessment. In order to reduce noise, additional systems detect the different positions of the same entity and consolidate the information in a single profile

What Businesses Need to Know

The United States does not require its financial institutions to screen against domestic PEPs, take additional due diligence measures for domestic PEPs or automatically classify them as high risk (not to be confused with the defined requirement for the PEP subset of Senior Foreign Political Figures) as has been made clear in the latest statement issued by the Federal Banking Regulators. The regulators do not interpret the term “politically exposed persons” to include US public officials. 

US financial institutions are still required to conduct customer due diligence and create a risk profile for all their customers. Having the most up-to-date and accurate information on the political exposure, including relatives and close associates, of their customers can help financial institutions have a clear picture of the risks they are exposed to and take the necessary steps to mitigate them. 

The requirements become clearer and stricter for foreign financial institutions dealing with US customers. Canada, the largest export market for the United States, differentiates between domestic and foreign PEPs and requires, among others, that financial institutions determine if a customer is a foreign PEP on onboarding, reassess that classification periodically or when a fact is detected, apply automatic high-risk status for foreign PEPs and apply the principle of “once a PEP, always a PEP”. 

As the United States remains the world’s largest trading nation and most countries have clear requirements for foreign PEP screening, having access to a PEP database that can quickly detect all-at-once changes is crucial for compliance. 

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For more information on Politically Exposed Persons (PEPs), check out our guide: The Challenges of Politically Exposed Persons (PEPs)

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