Who would be considered a Politically Exposed Person (PEP)?

“A Politically Exposed Person (PEP) is a natural person who is or has been entrusted with prominent public functions and includes his/her immediate family or persons known to be close associates of such persons, but shall NOT include middle ranking or more junior officials.”

A PEP is considered to be a High-Risk Customer (HRC) if seen as prone or susceptible to corruption. It is therefore essential for any PEPs to be declared in the KYC. This will allow the client to consider the risks and risk appetite and therefore accept or exit the relationship.

When determining whether a particular holder of a public function has the requisite seniority, prominence or importance to be categorised as a PEP, the following factors should be considered:

  • Official responsibilities of the individual’s function

  • The nature of the title (honorary or salaried political function)

  • The level of authority the individual has over governmental activities and over other officials

  • Whether the function affords the individual access to significant government assets and funds or the ability to direct the awards of government tenders or contracts

What controls should your firm consider?

Consider the following controls when managing a PEP relationship:

  1. New Client Approval: Procedures should be in place to identify PEPs either before the relationship is established or shortly thereafter. PEP relationships should be escalated for approval to a senior level

  2. Identification of Existing Clients: Where an Institution becomes aware that an individual has become a PEP it should apply appropriate enhanced procedures and controls

  3. Enhanced Due Diligence: Additional research and analysis may be appropriate including validation of information provided for a number of factors including an understanding of the source of funds and wealth and any relevant negative news about the individual

CDD Key takeaways

  • You must identify customers and, where applicable, their beneficial owners, and then verify their identities. You must also understand the purpose and intended nature of the customer’s relationship with you

  • In situations where the money-laundering risk associated with the business relationship is increased, for example, where the customer is a PEP, you must carry out additional, enhanced due diligence (EDD)

  • Where you cannot apply customer due diligence measures, including where you cannot be satisfied that it knows who the beneficial owner is, your firm must not enter into, or continue, the business relationship