EDD refers to a higher level of scrutiny & investigation conducted by businesses when dealing with entities that pose a higher risk in illicit...
What is a Politically Exposed Person?
A politically exposed person (PEP) refers to an individual with high public function who may present a higher risk towards corruption and bribery.
What is a Politically Exposed Person?
A Politically Exposed Person (PEP) refers to an individual who holds a prominent public position or is closely associated with someone in a position of power. PEPs are deemed to be at a higher risk of involvement in corruption, bribery, or money laundering due to their access to public resources and influence.
PEPs can include:
- Senior Government Officials: This category includes individuals holding high-ranking positions in the government, such as heads of state, heads of government, ministers, members of parliament, senior military officers, and high-level civil servants.
- Political Party Officials: PEPs can also include officials of political parties, including leaders, executive committee members, and campaign managers.
- Judicial Officials: Judges, magistrates, and other senior judicial figures may be considered PEPs due to their influential roles within the judicial system.
- Senior Executives in State-Owned Enterprises: Individuals holding top managerial positions in state-owned enterprises, government-owned corporations, or public-sector banks can be classified as PEPs.
- High-Ranking Members of International Organisations: PEPs can also include individuals holding key positions in international organisations, such as the United Nations, World Bank, International Monetary Fund (IMF), or regional development banks.
The designation of a person as a PEP is not meant to imply wrongdoing or criminal activity. Instead, it recognises the potential risk associated with their position and the need for enhanced due diligence in financial transactions involving PEPs. Financial institutions and businesses are required to exercise greater scrutiny when dealing with PEPs to ensure compliance with anti-money laundering (AML) regulations and to prevent the misuse of the financial system for illicit purposes.
It's worth noting that the definition and categorisation of PEPs can vary between jurisdictions and institutions. Regulatory authorities and international organisations often provide guidance on the identification and handling of PEPs to assist businesses in their risk assessment and due diligence processes.
What are the Types of Politically Exposed Persons?
Politically Exposed Persons (PEPs) can be classified into different types based on their positions and relationships. Here are some common types of PEPs:
- Foreign PEPs: These are individuals who hold or have held prominent public positions in foreign countries. They include heads of state, government officials, senior politicians, diplomats, or high-ranking military officers from other countries.
- Domestic PEPs: Domestic PEPs are individuals who hold or have held prominent public positions within their own country. They can include heads of state, government ministers, members of parliament, mayors, judges, or senior officials in government agencies or state-owned enterprises.
- International Organisation PEPs: PEPs can also be individuals who hold or have held senior positions in international organisations, such as the United Nations, World Bank, International Monetary Fund, or regional development banks. These individuals may have significant influence and decision-making power in global affairs.
- Family Members of PEPs: Family members of PEPs are also considered PEPs due to their close association with influential individuals. This includes spouses, children, parents, siblings, and other close relatives of PEPs. The rationale behind including family members is to address the risk of potential abuse of power or illicit financial activities through their connections.
- Close Associates and Business Partners: PEPs often have close associates or business partners who may also carry a higher risk due to their association with influential individuals. These individuals may have business relationships, joint ventures, or partnerships with PEPs and can potentially be involved in money laundering, corruption, or other illicit activities.
- Domestic PEPs in International Business: Domestic PEPs who engage in international business activities, such as investing, acquiring assets, or establishing businesses abroad, may pose additional risks. Their involvement in cross-border transactions may require enhanced due diligence to ensure transparency and mitigate potential risks associated with money laundering or corruption.
It's important to note that the definition and categorisation of PEPs may vary across jurisdictions and organisations. Some entities may have their own specific criteria for classifying PEPs based on their risk assessment frameworks. Additionally, regulatory guidelines and requirements regarding PEPs may differ, so it's crucial for businesses to adhere to the regulations and guidelines applicable in their respective jurisdictions.
What are the Regulations around Politically Exposed Persons?
Regulations surrounding Politically Exposed Persons (PEPs) vary across jurisdictions, but there are common international standards and guidelines that many countries adhere to. Here are some key regulations and guidelines related to PEPs:
- Financial Action Task Force (FATF): The FATF is an international standard-setting body that provides recommendations and sets guidelines for anti-money laundering (AML) and counter-terrorism financing (CTF) measures. The FATF has issued guidance on the identification and enhanced due diligence for PEPs, emphasising the importance of considering the potential risk associated with their involvement in financial transactions.
- Anti-Money Laundering (AML) Regulations: Most countries have implemented AML regulations that require financial institutions, such as banks, insurance companies, and other entities, to establish systems and controls to prevent money laundering and terrorist financing. These regulations often include provisions related to the identity verification and monitoring of PEPs.
- Know Your Customer (KYC) Requirements: KYC regulations oblige financial institutions and certain designated non-financial businesses and professions (DNFBPs) to obtain and verify the identity of their customers. As part of KYC processes, identifying and assessing the status of customers as PEPs is often mandatory.
- Enhanced Due Diligence (EDD): Many jurisdictions require enhanced due diligence measures for PEPs due to their higher risk profile. This typically involves conducting more extensive background checks, monitoring transactions more closely, and implementing additional control measures to mitigate the risks associated with PEP relationships.
- PEP Lists and Sanctions: Regulatory authorities and international organisations maintain PEP lists and databases, which provide information on individuals considered politically exposed. Financial institutions and other businesses are often required to screen their customers against these lists and report any matches or suspicious activities.
- National Laws and Regulations: Each country may have its specific laws and regulations regarding PEPs, outlining the obligations and requirements for businesses operating within their jurisdiction. These laws may define who qualifies as a PEP, the extent of due diligence required, and the reporting obligations related to PEP relationships.
It is important for businesses to stay up to date with the regulations in their jurisdiction and adhere to the requirements outlined by relevant regulatory authorities. Non-compliance with PEP-related regulations can result in severe penalties, reputational damage, and potential legal consequences. Therefore, businesses must establish robust Anti Money Laundering and KYC best practices to effectively identify, verify, and manage relationships with PEPs.
How to Identify a Politically Exposed Person?
Identifying a Politically Exposed Person (PEP) can be a crucial step in conducting effective due diligence and risk assessment. Here are some common methods and indicators used to identify a PEP:
- Publicly Available Information: PEPs often hold or have held prominent public positions, such as heads of state, government officials, members of parliament, or high-ranking military officers. Publicly available sources, such as government websites, official directories, or news publications, can provide information about individuals holding such positions.
- PEP Lists and Databases: There are various PEP lists and databases available that provide comprehensive information on individuals who are considered politically exposed. These lists are compiled by reputable sources, such as regulatory authorities, international organisations, or specialised data providers. Businesses can access these lists or subscribe to services that screen customers against them.
- Internal Screening: Businesses can maintain their internal databases of known or potential PEPs based on their interactions and relationships with customers. This can be achieved by recording and updating information during customer onboarding or periodically reviewing customer profiles.
- Affiliation with Political Parties or Organisations: Individuals actively involved in political parties or organisations may indicate a higher probability of being politically exposed. By gathering information about an individual's affiliations, memberships, or positions within such groups, businesses can identify potential PEPs.
- Family Connections: PEPs often have family members who may also carry a higher risk due to their association. Close relatives, such as spouses, children, parents, or siblings of known PEPs, can also be considered as PEPs or subject to enhanced due diligence.
- International Relationships: PEPs may have relationships with foreign entities or individuals that are worth considering. This can include connections with foreign government officials, business associates, or entities located in high-risk jurisdictions.
It's important to note that the specific procedures and thresholds for identifying PEPs may vary depending on regulatory requirements and business risk assessments. Some businesses rely on automated screening tools that compare customer data against PEP lists and generate alerts for further investigation.
It is also essential to update and review PEP status regularly as individuals may transition into or out of politically exposed positions over time. The identification of a PEP does not imply any wrongdoing but serves as an indication of potentially higher risk due to the influence and access to public resources associated with their position.
What should businesses look for in a Politically Exposed Person Screening Provider?
When selecting a Politically Exposed Person (PEP) screening provider, businesses should consider several factors to ensure they choose a reliable and effective solution. Here are some key aspects to look for:
- Comprehensive PEP Database: The screening provider should have access to a comprehensive and regularly updated PEP database that covers a wide range of jurisdictions and includes accurate and reliable information on politically exposed individuals. The database should be sourced from reputable and trusted sources.
- Global Coverage: Ensure that the provider offers global coverage, as politically exposed individuals can be found in various countries and regions. The provider should have extensive coverage of PEPs from different jurisdictions, including high-risk countries or regions.
- Data Accuracy and Reliability: Accuracy and reliability are critical factors in checking for Politically Exposed Persons. The provider should have robust data quality control measures in place to minimise false positives and false negatives. They should regularly update and verify the data to ensure its accuracy and reliability.
- Risk-Based Approach: Look for a screening provider that offers a risk-based approach to screening for Politically Exposed Persons. This means that the provider should allow for customisable risk parameters based on your business's risk appetite and the regulatory requirements of your industry. The screening solution should allow you to set risk thresholds and tailor the screening process to your specific needs.
- Customisable Screening Tools: The provider should offer flexible screening tools that can be customised to align with your business processes and workflows. The solution should allow for easy integration with your existing systems, such as customer onboarding or compliance platforms. Customisation options should include filtering options, exclusion lists, and configurable matching algorithms.
- Compliance Expertise: Verify that the screening provider has a strong understanding of Identity Verification, AML Checks and regulations. They should be knowledgeable about regulatory requirements in different jurisdictions and ensure their screening processes adhere to these requirements. The provider should be able to demonstrate their compliance expertise and commitment to staying updated with regulatory changes.
- User-Friendly Interface: A user-friendly interface is essential for efficient and effective Politically Exposed Person checking. The provider should offer intuitive software or platforms that are easy to navigate and use. The user interface should provide clear instructions, facilitate data entry and retrieval, and minimise manual effort.
- Integration Capabilities: Determine if the provider's Politically Exposed Person solution and eIDV service can integrate seamlessly with your existing systems, such as customer relationship management (CRM) software, compliance platforms, or transaction monitoring systems. Integration simplifies data sharing, reduces manual effort, and enhances the overall efficiency of your screening processes.
- Customer Support and Training: Evaluate the level of customer support and training provided by the screening provider. They should offer responsive customer support channels to address any issues or inquiries promptly. Additionally, training materials and resources should be available to ensure your team can effectively use the PEPs and Sanctions screening solution.
- Reputation and References: Research the provider's reputation in the industry and seek references from other businesses that have used their screening services. Look for providers with a strong track record, established partnerships, and positive reviews that demonstrate their reliability and effectiveness.
By considering these factors, businesses can select a provider that meets their specific needs, regulatory requirements, and budget. The right provider will help enhance compliance efforts, mitigate the risk of financial crimes, and contribute to the overall integrity of the business.