If you want to avoid regulatory and reputational damages, you want to be sure that your organization understands how a PEP (politically exposed person) is recognized, together with associates. This is not as easy to do as you might think.
To put it as simple as possible, you check to see if a person is a PEP by checking databases of individuals. Usually, these are wealthy individuals that are documented in order to expose a potentially damaging association with someone else involved in politics. Identifying people that are PEP is really important as it helps avoid numerous risks.
The PEP is defined by the FATF (Financial Action Task Force). It is an individual that has a public function. Because of the influence of the position, it is possible that the PEP can be abused in order to commit ML (money laundering) offenses, together with other offenses like bribery or corruption.
Due to the extra risks associated with PEPs, extra anti-money laundering and counter-terrorist financing measures have to be employed by businesses. This is done in a relationship with a PEP. PEP red flags can easily lead to huge problems whenever they are not respected.
There are different PEP categories that exist. Some are relevant for most businesses while others are not. It is important for a business to properly assess the risks of working with a PEP. This starts by knowing what type of PEPs exist. What is particularly important is knowing the high-level PEPs, which are:
- Foreign PEPs
These are individuals that are entrusted with or are holding prominent public functions in a foreign country. This includes heads of government or state, senior government, senior politicians, military officials, judicial officials, state-owned corporations’ senior executives and important political party representatives.
- Domestic PEPs
This includes individuals that were entrusted or that have prominent public functions at a domestic level, including senior politicians, military officials, senior government and important political party officials.
- Family Members
This includes individuals that are directly or indirectly related to PEPs, like through marriage or through consanguinity.
- International Organization PEPs
Such PEPs are people that received their status through a function held in an international organization. It includes senior management members and those that have equivalent functions, like deputy directors, board members or directors.
- Close Associates
As expected, these are individuals that are connected to PEPs in a close way, professionally or socially.
With primary PEPs, with politicians included, individuals that have senior positions in a state-owned company, royalty or military people can be included in the list. Some roles that can be considered as PEP include:
- Heads of government, heads of state, assistant ministers, deputy ministers and ministers.
- Members of constitutional courts or different other judicial bodies at the highest level.
- Auditors of central banks.
- Members of management, administrative and supervisory bodies for enterprises that are state-owned.
PEP status is very important and whenever a person is identified with this acronym, special KYC measures have to be implemented by businesses, together with other actions.