PEP

Politically Exposed Person

An individual who is or has been entrusted with a prominent public function. Financial institutions consider PEPs high-risk customers due to their potential influence and access to public funds, which makes them more susceptible to involvement in financial crimes such as corruption, bribery, money laundering, and terrorist financing.

The definition of a PEP may vary slightly between jurisdictions but generally includes:

1. Heads of state, government officials, and politicians
2. Senior executives of state-owned enterprises
3. Senior officials of political parties
4. Senior members of the judiciary and military
5. Family members and close associates of PEPs

Financial institutions must identify PEPs among customers and apply Enhanced Due Diligence (EDD) measures to mitigate the associated risks. EDD measures for PEPs may include:

1. Obtaining additional information about the PEP’s source of wealth and funds
2. Conducting enhanced background checks and ongoing monitoring
3. Obtaining senior management approval before establishing or continuing the business relationship
4. Applying more stringent transaction monitoring and reporting thresholds

Identifying PEPs is an ongoing process, and financial institutions must regularly screen their customer base against PEP lists and update their risk assessments accordingly. This is crucial for maintaining compliance with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations and protecting the financial institution from potential legal and reputational risks.

It is important to note that being a PEP does not necessarily imply wrongdoing. However, the enhanced scrutiny applied to PEPs is a preventive measure to mitigate the higher risks associated with their status and to detect any potential misuse of their position for illicit purposes.