What is a Politically Exposed Person?
A politically exposed person (PEP) is an individual with a high-profile political role or someone who has been entrusted with a prominent public function. These individuals present a higher risk of involvement in money laundering and/or terrorist financing because of the position they hold.
TABLE OF CONTENTS
- What is a Politically Exposed Person?
- Defining a Politically Exposed Person
- How do PEP classes work?
- What PEP coverage do you have?
Defining a Politically Exposed Person
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.
While it may be useful for financial institutions to build a list of designated PEPs to reference, doing so is often challenging since the criteria that qualify an individual as a PEP are broadly defined and vary from country to country.
The FATF also periodically issues new AML/CFT recommendations on PEPs which further complicates the implementation of any ‘definitive’ PEP list.
The Financial Action Task Force (FATF) has codified the term in its AML guidance, setting out the following classifications of PEP:
- Foreign PEP Individuals entrusted with prominent public functions by a foreign country. This category of PEP may include heads of state or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, and important political party officials.
- Domestic PEP Individuals entrusted with prominent domestic public functions. This category includes ‘heads of state or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, and important political party officials.
- International PEP The FATF sets out a third category of ‘International PEP’ – known as an individual entrusted with a prominent position by an international organization. This category of PEP covers ‘members of senior management, i.e. directors, deputy directors and members of the board or equivalent functions’.
Relatives and Close Associates (RCA) of the individuals outlined above may also be categorized and treated as politically exposed persons. This category refers to immediate family members or close social or professional contacts of a government or political official, or senior executive – meaning spouses, parents, siblings, children, and spouses’ parents and siblings.
The FATF points out that its three classifications of PEP are ‘not intended to cover middle ranking or more junior individuals’.
How do PEP classes work?
First AML tiers PEPs based on the FATF recommendations.
- Ruling royal families
- Heads of state and government
- Members of government (National and federal level)
- Members of Parliament (National and federal level)
- Senior officials of other state agencies and bodies and high-ranking civil servants
- Heads and senior officials of the military, judiciary, law enforcement and boards of central banks
- Top-ranking officials of political parties
- Members of regional governments, parliaments and judiciary
- Senior officials and functionaries of international and supranational organisations
- Ambassadors, consuls and high commissioners
- Senior management and board directors of state-owned businesses and organisations
- Please note this does not include advisory members. The finished legislation for PEP screening requirements doesn't mention members of Advisory Boards of state-owned companies as part of the PEP list.
- For state-owned enterprises only members of the administrative management and supervisory body are considered PEPs.
- Heads of agencies, state-owned enterprises, and other institutions under regional governments
- Mayors and members of local, county, city and district assemblies
- Senior executives of local governmental bodies (agencies, state-owned businesses)
- Judges of local courts
What PEP coverage do you have?
Our total coverage consists of countries based on ISO 3166: https://www.iso.org/iso-3166-country-codes.html.
We have a basic coverage for all the countries listed above which includes the most important PEP-related positions (such as Head of State, MPs, etc.) for all countries and jurisdictions. So far, our in-depth coverage contains 80 countries and jurisdictions.
Our data teams are actively improving our in-depth coverage highly increasing data available regularly.