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.