A politically exposed person (PEP) is loosely defined as someone who has been entrusted with a prominent public function. The identification of PEPs, their family members and close associates is a key aspect of risk-based due diligence processes to prevent or at least detect and report potential money laundering.
Interpretation of the PEP definition varies by country, legislation, social, economic and cultural context. Organisations who do business with, or handle funds from a PEP without the appropriate due diligence procedures need to be aware of the possible consequences. Many companies choose to screen their clients against a PEP database not only to comply with anti-money laundering regulations but also as part of their overall risk based program.
Politically exposed persons are considered high risk in today’s regulatory environment because individuals who hold a prominent public function present greater integrity and corruption risks.
Corrupt practices such as bribery and fraud are often predicate crimes for money laundering offences. Therefore PEPs and foreign public officials feature significantly in most anti-money laundering and anti-bribery regulations.
Organisations have been imposed with very heavy AML fines for conducting business with PEPs without sufficient Know Your Customer checks and Enhanced Due Diligence processes. However, determining that a client is a PEP does not prejudge a link to criminal activities and Financial Action Task Force (FATF) Guidance states that a PEP classification should not stigmatise the individual or prevent a business relationship. Instead it should form part of a wider risk evaluation process.
Companies also need to carefully examine foreign and domestic business partners that are either themselves PEPs, or who maintain close relationships with PEPs. Our white paper discusses patterns of political corruption involving PEPs and how due diligence obligations can be addressed in line with the risk-based approach.
WorldCompliance™ Data assists with your Enhanced Due Diligence and AML PEP processes. Containing a PEP list with over 1.8 million politically exposed persons and foreign officials, it will help you understand the risk associated with an individual.
This extensive source of information will help you determine whether your clients are politically exposed or a family member or close associate of a PEP. You can access and search our PEP list with a free trial of the LexisNexis® WorldCompliance™ Online Search Tool.