A politically exposed person (PEP) is an individual with a high profile political role, or who has been entrusted with a prominent public function. PEPs represent a higher risk for financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) because they are more likely to become involved in financial crimes like money laundering or the financing of terrorism than other clients.
PEP status does not predict criminal behavior, but the additional risk exposure it brings means that financial institutions must apply additional AML/CFT measures when establishing a business relationship. It also means that these institutions must conduct ongoing monitoring to ensure that they don’t miss a change in a PEP’s risk profile. PEP monitoring requirements are preventative in nature and should not be considered indicative of criminal behavior.
Defining Politically Exposed Persons
The term “politically exposed person”, sometimes used interchangeably with “Senior Foreign Political Figure”, emerged in the late 1990s in the wake of the Abacha Affair: a money-laundering scandal in Nigeria which galvanized global efforts to prevent abuse of the financial system by political figures. Although there is no universal definition of a PEP, most countries base their definitions on the guidance issued by the Financial Action Task Force (FATF). Following that guidance, financial institutions may categorize PEPs as:
- Government Officials: Current or former officials appointed to domestic government positions, or positions in a foreign government. This may include heads of state or individuals working in executive, legislative, administrative, military, or judicial branches, in elected and unelected roles.
- Political Party Officials: Senior officials appointed to roles in major political parties at home or in foreign countries.
- Senior Executives: Individuals serving in senior executive roles, such as directors or board members, in government-owned commercial enterprises or international organizations – that is corporations, businesses, or other entities formed by or for the benefit of any such individuals.
- Family Members: An immediate family member of a government or political official, or senior executive – meaning spouses, parents, siblings, children, and spouses’ parents and siblings.