This relationship within PEP role and level of authority needs to be examined on a case-by-case basis to aid in the analysis of risk exposure, considering how influential a principal could be in making decisions for the organization on one side, while exercising his/her PEP position on the other. Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features. A clients exchanged contracts with a cash buyer who refuses to share the source of funds. It is possible that some information in this document is incomplete, incorrect, or inapplicable to particular circumstances or conditions. If you know or suspect a money laundering offence is taking place, you must make a disclosure to your firms money laundering reporting officer (MLRO). The compliance analyst should consider the CPI score to help recognize potential differences in the way government agencies across the board might exercise controls to deter corruption activities, in connection to the performance, responsibilities and accountability of public servants. A politically exposed person (PEP) is someone in a high-profile, prominent political or public role, past or current. The term "politically exposed person," which is sometimes used interchangeably with " Senior Foreign Political Figure ," emerged in the late 1990s in the aftermath of the Abacha Affair, a money-laundering scandal in Nigeria that galvanized global efforts to prevent political figures from abusing the financial system. These individuals may have been entrusted with a high-position by a community institution, an international body or state, within the last 12 months. A PEP is nothing more than an individual. PEPs are important for the simple fact that they're considered to be more prone to corruption, terrorist financing and money laundering. The term PEP is commonly used in the financial industry to refer to foreign individuals who are or have been entrusted with a prominent public However, if you know that a beneficial owner is a PEP, you should consider what extra measures, if any, you need to take when dealing with that client. Similar to understanding a PEPs influence based on level of authority and position, understanding the beneficial ownership (BO) of an organization is also a key part of the analysis of risk exposure. Family members of a PEP include: a spouse or partner of that person; children of that person and their spouses or partners; Politically Exposed Persons FFIEC BSA/AML Examination Manual 1 November 2021 POLITICALLY EXPOSED PERSONS Objective: Evaluate the bank's policies, procedures, and processes to assess, manage, and mitigate potential risks associated with foreign individual customers who the bank has designated as politically exposed persons (PEPs). Is the name of the PEP an exact or partial match to the inquired name? During the due diligence process, it is discovered that one of the principals of the TPI is associated with the Minister of Education for the country where the TPI conducts business. The influence and control a PEP or HIO has put them in a position to impact policy decisions, institutions . After further investigation, the CCO discovered that the principal was receiving kickbacks from his brother, a PEP. Analytical cookies are used to understand how visitors interact with the website. "politically exposed person" means an individual who is or has at any time in the preceding 12 months been, entrusted with a prominent public function, including either of the following individuals (but not including any middle ranking or more junior official). PEP monitoring requirements are preventative in nature and should not be considered indicative of criminal behavior. As an example, a PEP related to the ultimate beneficial owner (UBO) of an organization might be able to influence decisions made at a higher level in the structure of the organization, but not necessarily be able to influence a decision taking place at a lower level. For example, a freight forwarder interacting with government officials, brokers, sales agents, and port authorities is considered riskier than a notary public interacting with lower-level government agencies on purely administrative matters. Subsequentially to any form of customer due diligence, you will most likely have to deal with a group of customers called politically exposed persons or PEPs. What is a politically exposed person? What Does The Pandora Papers Leak Mean for AML/CFT Compliance? Do you think you can answer 'what is a PEP' and identify one correctly? The data we provide to you may not be used, in whole or in part, to: make any consumer debt collection decision, establish a consumers eligibility for credit, insurance, employment, government benefits, or housing, or for any other purpose authorized under the FCRA. A "politically exposed person" or "PEP" is an individual that holds a prominent public position or function. The PEP status, or the one of a politically exposed person, is associated with civil servants and senior executives at the national or international level. For more information on foreign PEPs and associated requirements, see FINTRAC's PEP and HIO guidance. With that in mind, an effective PEP screening process should be built on the following principles and considerations: Screen any name or entity against live Sanctions, PEPs and Adverse Media data and insights for free, Originally published November 21, 2019, updated November 22, 2022. "specified official" means any of the following officials (including any such officials in an institution of the European Communities or an international body): "immediate family member" of a politically exposed person includes any of the following persons: "close associate" of a politically exposed person includes any of the following persons: 1. A politically exposed person (PEP) is an individual who is or has been entrusted with a prominent function. Verify customers with live Sanctions, PEPs and Adverse Media data and insights for free. Compare employment history, including industry, companies, titles, positions, and length of time at each position or company. Information on the merger of our Irish Property Funds. This is usually someone who has been entrusted with a prominent public function in a government or international organization. Due to their position and influence, PEPs are at higher risk to be involved in money laundering and related predicate offences, including corruption and bribery. The term politically exposed person, sometimes used interchangeably with Senior Foreign Political Figure, emerged in the late 1990s in the wake of the Abacha Affair: a money-laundering scandal in Nigeria which galvanized global efforts to prevent abuse of the financial system by political figures. A PEP can be defined as someone who has been entrusted with a prominent public function. While politically exposed person (PEP) status does not predict criminal behavior, the risk exposure that it brings means that financial institutions must apply additional AML/CFT measures when establishing a business relationship and conduct ongoing monitoring to ensure that they capture changes in their customers risk profile. The list can include personally identifiable information such as date of birth, gender, aliases or nicknames, titles, roles, and nationality and passport number. A PEP check or PEP screening involves a search of official politically exposed persons lists to reveal whether the candidate is listed as a politically exposed person. Because of their position, they are more likely to be involved in money laundering and/or terrorist financing. Many PEPs hold positions of influence and as a result carry a greater risk, if their influence is abused for the purpose of money laundering, corruption or bribery. Gain the relevant skills and knowledge to ensure that you are supporting your firm and progressing your career. "immediate family member" of a politically exposed person includes any of the following persons: any spouse of the politically exposed person; any person who is considered to be equivalent to a spouse of the politically exposed person under the national or other law of the place where the person or politically exposed person resides; any child of the politically exposed person; any spouse of a child of the politically exposed person; Why Is Data Management So Important for Third-Party Due Diligence? Some countries are extending the regulatory scope of PEPs to their close associates and immediate family members. In the compliance arena, PEP risk mitigation is one of the major components of any organizations anti-corruption due diligence program and a variable most often included as part of risk assessment models. Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. heads of state, heads of government, ministers, and deputy or assistant ministers, members of courts of auditors or of the boards of central banks, ambassadors, chargs daffaires and high-ranking officers in the armed forces, members of the administrative, management or supervisory bodies of state-owned enterprises, members of supreme courts, constitutional courts or other high-level judicial bodies whose decisions are not generally subject to further appeal, except in exceptional circumstances, beneficial owners of the persons property (someone who enjoys the benefits of ownership even though the title of the property is in another person's name), receiving funds in the retainer from a government account, receiving communications on official letterhead from the client or a related person, general conversation with the client or person related to the retainer which links the person to a PEP, news reports suggesting your client is a PEP or is linked to one, public domain information, such as parliament and government websites, commercial databases that contain lists of PEPs, family members and known close associates, their source of wealth outside of the political position, their remuneration for their current role, get senior management approval for the business relationship, take adequate measures to establish the source of wealth and source of funds, closely monitor the business relationship throughout, the transaction is regularly carried out by non-PEPs, funding for the transaction is substantial or from an unusual source. b. For example: John Smith and Carlos Gonzalez might be considered common names in their respective cultures. A Politically Exposed Person (PEP) is an individual with a prominent public post or a public function. A politically exposed person (PEP) is defined by the Financial Action Task Force (FATF) as an individual who is or has been entrusted with a prominent public function. What should I do? Necessary cookies are absolutely essential for the website to function properly. Once you establish that you have a PEP client, you can look at the basis on which they're categorised (lower or higher risk) and the nature of the retainer theyre asking you to undertake. A politically exposed person (PEP) is someone who's been appointed by a community institution, an international body or a state, including the UK, to a high-profile position within the last 12 months. This will help you make sure that your enhanced due diligence is proportionate and effective. The Financial Action Task Force (FATF) subsequently codified the term in its AML guidance, setting out the following 3 classifications of PEP: The FATF points out that its three classifications of PEP are not intended to cover middle ranking or more junior individuals. Is the PEP associated with any consulate that would potentially facilitate the issuance of a travel visa? This is done in order to mitigate reputational risk, operational risk, and legal risk, based on internationally accepted best practice standards and guidelines on the management of PEPs whilst . The definition extends to immediate family members and known close associates. These customers will automatically be treated as high-risk customers. Who Qualifies as a Politically Exposed Person in Canada? 165970. Basically, a PEP is someone in a public, high-ranking position of power and influence. The cookie is used to store the user consent for the cookies in the category "Analytics". Politically Exposed Person (PEP): Risks and Screening Gabija Stankeviit Throughout the years, governments and institutions try to reduce corruption, fraud, and other illegal and immoral activities globally. In basic terms, a Politically Exposed Person is someone who, through their prominent position or influence, is more susceptible to being involved in bribery or corruption. 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. There are four basic steps companies and compliance analysts should undertake in order to validate or rule out PEP alerts: name matching, geography, profiling, and third-party intermediary vs. See the full list of roles considered to be high-profile positions. Your email address will not be published. A risk based approach to PEP screening should be built around the following principles: Customers become PEPs in a variety of ways including through electoral victories, changes in employment, political appointments, and promotions and firms must be able to capture that change in risk profile as soon as possible. Members of Parliament, Head of State The FATF also periodically issues new AML/CFT recommendations on PEPs which further complicates the implementation of any definitive PEP list. These cookies will be stored in your browser only with your consent. politically exposed persons (peps) are individuals who are or have been entrusted with prominent public functions in a foreign or domestic country; for example, heads of state or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, or important political party In addition, any close business associate or family. Discover our guide to find out how to effectively manage challenges faced during the customer onboarding process. The requirements for PEP monitoring are preventative in nature and should not be interpreted as evidence of criminal behavior. The definition of a Politically Exposed Person (PEP) is an important one to understand for those involved in financial crime compliance. Studies undertaken by the FATF and other international organisations identified that the positions held by PEPs are vulnerable to abuse for the purposes of corruption, ML and potentially TF. A PEP presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence that they may hold. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information. The definition of a PEP varies slightly from country to country. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Learn In-Demand Skills with On-Demand Courses. Immediate family members and/or close associates of these individuals are also considered PEPs. Stolen Asset Recovery Initiative Politically Exposed Persons Strengthening Preventive measures. Despite regulations, political leaders such as Muammar Gaddafi and Hosni Mubarak made headlines in 2013 for freezing assets in US banks that did not adhere to due diligence . Executive Bodies: Cabinet and assistant ministers. These are the other three elements of what to do with PEPs. This category refers to immediate family members or close social or professional contacts of a government or political official, or senior executive meaning spouses, parents, siblings, children, and spouses parents and siblings. bordering countries, regional proximity). The latter helps the compliance analyst in the evaluation of risk exposure and in determining the mitigating steps to be followed. This can also differ depending on the prudent regulators expectations and also from bank to bank. Member of a legislature. Qualifying as a PEP is one of the drivers for a customer to require enhanced due diligence. Aviva Life & Pensions Ireland Designated Activity Company, trading as Aviva Life & Pensions Ireland and Friends First, is regulated by the Central Bank of Ireland. Dun & Bradstreet does not accept liability for direct or indirect losses resulting from using, relying or acting upon information in this document. POLITICALLY EXPOSED PERSONS Objective: Evaluate the bank's policies, procedures, and processes to assess, manage, and mitigate potential risks associated with foreign individual customers who the bank has designated as politically exposed persons (PEPs). a member of the administrative, management or supervisory body of a state-owned enterprise; a head of state, head of government, government minister or deputy or assistant government minister; a member of a parliament or of a similar legislative body; a member of a supreme court, constitutional court or other high-level judicial body whose decisions, other than in exceptional circumstances, are not subject to further appeal; a member of a court of auditors or of the board of a central bank; an ambassador, charg d'affairs or high-ranking officer in the armed forces; a director, deputy director or member of the board of, or person performing the equivalent function in relation to, an international organisation. A Politically Expose Person (PEP) list is a database of politically exposed persons and entities built from rigorous investigative and research processes. Based on this information, CCO Smith advised his team to perform an enhanced due diligence (EDD) on HKSE to obtain more information on its principals, related parties and potential adverse media. Occupying such a position puts them at higher risk of fraud, bribery or corruption. Smarter B2B Prospecting. Deputy minister or equivalent. Politically exposed persons ( PEPs )are generally classified as individuals who have been entrusted with a prominent public function - this definition also applies in Canada. Set up and scale your compliance program with free access to our AML software for early stage fintechs. Accordingly, firms should assess new clients at onboarding as part of the risk-based approach to AML recommended by the FATF. These include Heads of State, Members of Parliament, financial regulators, mayors, members of the military, and members of the judiciary. Think senior politician, foreign political figure, or high-ranking civil servant. Financial regulators require businesses to implement PEP screening measures as part of their AML programs. This type of politically exposed person includes senior officials appointed to roles in major political parties at home or in foreign countries. Under UK money laundering laws, dealing with a PEP requires higher . As part of the on-boarding of TPIs in the due diligence process, an organization might ask a TPI to complete a DDQ or some other input form in order to obtain specific information on the TPI, as specified by the organizations compliance policies and procedures. What is a Politically Exposed Person (PEP)? In this case, the relation identified as a PEP should be considered riskier. This also implies that these institutions must conduct ongoing monitoring to ensure that they do not overlook any changes in a PEPs risk profile. This type of PEP includes senior executives serving in senior executive roles, such as directors or board members, in government-owned commercial enterprises or international organizations. We are the most disruptive online education provider for the global anti-financial crime community Fighting financial crime with online education! May 2021. This cookie is set by GDPR Cookie Consent plugin. Types of Politically Exposed Persons (PEP) Domestic PEPs A person who has a prominent public position or has a role in a government body. Another element of analysis is the location (i.e., country, region, state) where the TPI will be performing services for the organization. All rights reserved. Head of government. 1681 et seq. 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