How Can You Identify A Politically Exposed Person?

The key to being able to identify a Politically Exposed Person (PEP) is understanding what they are.

A PEP is a person who currently holds, or has held, a prominent public position, such as within a government or an international body (including the UK).

Why is it important to be able to identify any PEPs that might be doing business with you? Typically, PEPs hold a position of power where they can make large-scale decisions; the size of these decisions opens them up to bribery, corruption, and other illicit activities.

Who should be included as a PEP?

Now we’ve covered why it’s important to keep an eye out for Politically Exposed Persons who do business with you, it’s now time to look at who is included as a PEP.

There are some basic criteria for deciding who should be classed as a PEP, which are arranged into three general categories: government, organisations and institutions, and close associates.

1. PEPs in government roles

These range from people with a direct link to the government to people with a connection to a state-owned enterprise. For example:

  • Legislative bodies - Members of Parliament or Heads of State are two examples.
  • Executive bodies - Senior officials or senior diplomats are two examples. However, you also need to include their assistants.
  • Diplomatic roles - including ambassadors or chargés d’affaires.
  • Judiciary bodies - you need to include key people who work in high-level judicial bodies, supreme courts or constitutional courts.
  • State-owned enterprises - you need to include anyone who has influence, whether they are current senior executives, or former members of the board, for example.

2. PEPs in organisations and institutions

While these are not directly connected to the government, they still hold power and can be influenced during decision-making.

  • Central financial institutions - examples of PEPs include members of the boards of central banks and the Court of Auditors.
  • Armed forces - you typically only need to look at high-ranking officers, but it’s still good to be aware of them.
  • International sports committees - anyone high-ranking or who has a decision-making role in these situations may be influenced to vote on the location of a major sporting event, including whether new facilities need to be built to accommodate it.

3. Close associates

While these people are not classed as a PEP in their own right, they have close connections with people who do fall under the classification. They, therefore, may have knowledge about or be assisting with any money laundering activities. You need to be aware of:

  • Close business relationships
  • Sole beneficial owners of a legal entity which has been set up for the benefit de facto of the PEP
  • Close family members such as: parents, spouse/partner, siblings, in-laws and children of the PEP
  • Other family members, such as: aunts and uncles

What should you do if you identify a PEP?

If you’ve identified your client as a PEP, you need to carry out enhanced due diligence checks, which include:

  • Having managerial approval for the continuance of the business relationship
  • Taking adequate measures to ensure the source of wealth and their funds
  • Closely monitoring the business relationship throughout

It’s also good practice to inform those responsible for risk assessments within your business that you’ve started a business relationship with a PEP.

If you have suspicions that money laundering is taking place, you need to report it. If you’re unsure how to make a report, check out our previous post: How Do You Report Money Laundering Suspicions?