Politically Exposed Person (PEP)

🔹 Definition

A Politically Exposed Person (PEP) is an individual who holds—or has held—a prominent public position, either domestically or internationally, and as a result, may pose a higher risk for potential involvement in bribery, corruption, or money laundering. The term also typically includes close family members and close business associates of the politically exposed individual.

Identifying and managing PEP risk is a key requirement under FATF Recommendations, AML/CFT regulations, and financial institution compliance programs worldwide.

🔹 Frequently Asked Questions (FAQs)

Q1: Who qualifies as a PEP?

• Foreign PEPs: Heads of state, senior politicians, diplomats, military leaders, and judges in foreign jurisdictions
• Domestic PEPs: Individuals with high-ranking public roles in the same country (depending on local laws)
• International organization PEPs: Senior executives of international bodies like the UN, IMF, World Bank
• Relatives and associates: Spouse, children, parents, close business partners, or personal aides

Q2: Why are PEPs considered high-risk?

• Their public position makes them targets for corruption and abuse of power
• They may have access to public funds, contracts, or state assets
• PEPs have historically been linked to money laundering, embezzlement, or sanctions evasion
• Transactions involving PEPs may be more opaque or politically sensitive

Q3: How should companies handle PEP relationships?

• Conduct Enhanced Due Diligence (EDD) during onboarding and throughout the business relationship
• Establish the source of funds and wealth clearly
• Perform ongoing monitoring for suspicious transactions
• Screen regularly against global PEP databases and watchlists
• Escalate PEP cases for senior compliance officer approval

Q4: Is being a PEP illegal or disqualifying?

• No. Being a PEP is not illegal, and many PEPs engage in lawful financial activity
• However, financial institutions must treat PEP clients as higher risk and apply stricter controls
• Failing to identify or monitor PEPs can result in regulatory penalties and reputational damage

Q5: How long does PEP status last?

• FATF guidance suggests that once a person is no longer in a PEP role, they may still pose risk for a period afterward
• Many institutions apply a declassification period of 12–18 months after the individual has left office
• The risk level should be assessed case-by-case, depending on the position held and country context