Who is a PEP?
A Politically Exposed Person (PEP) is someone who is in charge of a prominent public function. Their positions in the public system can easily be abused for bribery, corruption and laundering of illicit funds. The Financial Action Task Force (FATF) recommends that when banking systems and financial institutions deal with PEPs, they should implement additional AML/CFT and due diligence steps for greater protection against fraud.
Who classifies as a PEP?
Any individual who holds a position in the government or has a senior role in an international organization is considered a Politically Exposed Person. Some examples of PEPs include government ministers, heads of state, government executives, senior judges, high-ranked military officers and senior leaders of international organisations. The family members and close associates of PEPs are also considered to be high-risk individuals.
PEPs are broadly classified as:
1. Foreign PEPs
A foreign PEP is someone who is currently (or was) holding an important public position on behalf of another country. These include heads of state, members of a legislative assembly, senior judicial/military officials, ambassadors, leaders of political parties, etc.
Once an individual has been classified as a foreign PEP, they remain so forever.
2. Domestic PEPs
A domestic PEP is an individual who holds a prominent public position and currently resides in the same country as the bank or financial institution. Similar to foreign PEPs, this category includes heads of state, members of a legislative assembly, senior judicial/military officials, ambassadors, leaders of political parties, etc. The only difference between foreign and domestic PEPs is the country from which the individuals have been appointed to their public position.
3. International organization PEPs
These are individuals who have been entrusted with prominent public positions by an international organization, eg directors, deputy directors and board members of organizations like the United Nations (UN), International Monetary Fund (IMF) and World Trade Organization (WTO).
Note that every country has its own classification of high-risk and low-risk PEPs, so make sure to comply with those specific regulations.
Why is PEP identification necessary?
Banking systems and financial institutions are mandated to evaluate if their customers or potential business partners are PEPs (or even close associates of one) in order to evaluate their risk profiles.
Imagine a political leader with access to government funds, who can easily influence the judicial system. How easy it would be for them to launder money obtained through bribery and corruption! This is the major reason why the FATF recommends a financial institution continuously monitor its customer and client database to identify potential PEPs.
Now similar to low-risk and high-risk individuals, PEPs can also be classified into low-risk and high-risk PEPs.
With the World Economic Forum stating that an estimated $2.6 trillion global cost of corruption every year, it is easy to see why identifying PEPs is essential for the banking system and financial institutions. PEP screening helps identify high-risk individuals and prevent bribery and corruption, protecting the financial sector from fraud.
PEP screening has to be done in a risk-based evaluation method, and since most foreign PEPs pose a high risk, they require a stricter AML/CFT policy. Since domestic PEPs undergo changes regularly, it is important for financial institutions to always have an ongoing screening process.
How can uqudo’s PEP screening help your business?
uqudo’s full-fledged PEP screening process evaluates your potential customers and business partners against a list of 1.7+ million PEPs featuring senior government officials, military and judicial figures, state-owned enterprises, and their close families and associates. Along with our automated and continuous AML screening procedure, this helps protect your business from potential fraud.