What is a PEP?
PEP means politically exposed person. This is a person that has been entrusted with a prominent public function. Examples include senior politicians, heads of state, judges, ambassadors, etc.
Alongside this, close acquaintances or family members of these individuals may also qualify as being PEPs.
Both domestic and foreign officials may be regarded as a PEP. They may be treated differently from one another depending on the financial institution involved.
Why is it important to know if a person is a PEP?
It is important to know if a customer is a PEP because they provide extra risk to a financial institution. Because they are involved in political decisions, may have inside knowledge of upcoming legislation or be aware of events that are outside the current public sphere, politically exposed people are automatically more at risk of being involved in or a target for corrupt practices such as money laundering or terrorist financing.
How does a person become a PEP?
Defining the terms of a PEP can be difficult. The Financial Action Task Force (FATF) regularly provides guidelines but it is up to each individual financial institution and their risk profile to administer. To fail to do so properly leaves these enterprises at risk of sanctions and/or fines.
There is no set time frame for how long somebody remains a politically exposed person. Some remain as a PEP for life. Generally speaking, most countries specify that being politically exposed expires 12-18 months after a public official leaves office.
How do you check if a person is a PEP?
It is possible to identify a PEP through due diligence checks. Most often, it is not possible to identify a PEP with basic know your customer (KYC) and customer due diligence (CDD) checks.
In order to identify a politically exposed person, most financial institutions will enact enhanced due diligence (EDD) checks. These comprise more in-depth requirements than are usually required.
Is being a PEP bad?
No. Assigning someone as a politically exposed person doesn’t automatically bar a financial institution from taking on the individual as a customer. It is merely a way to ensure that they are aware of the risk they may pose.
Failure to do proper checks on customers and any resulting breaches can lead to criminal and regulatory sanctions which often include large fines.
