The concept of politically exposed persons (PEPs) is often mentioned in the Know Your Customer/identity verification (KYC/IDV) space. But what exactly is a PEP, and how can you protect your business while working with them? Keep reading to find out.
What is a politically exposed person?
The definition of a PEP varies slightly from country to country. That said, many countries base their PEP regulations on the standard set by the Financial Action Task Force (FATF) in 2003.
Basically, a PEP is someone in a public, high-ranking position of power and influence. This status puts them at a higher risk of being involved in or linked to financial crimes like corruption, bribery, or money laundering.
However, a PEP is not necessarily involved in any wrongdoing. Their position simply provides an opportunity for them to abuse their public office for private gain and launder the proceeds through the financial system.
Types of PEPs
You may be surprised at who can be a PEP. Your business should be aware of each type to protect your assets and customers:
Public officials
Government officials like heads of state, senior politicians, and important party officials are usually PEPs and are easy to identify. People who work in judiciary bodies, like judges or members of the Supreme Court, often classify as PEPs as well.
You can also find PEPs in institutions and state-owned enterprises, such as members of the World Bank or executives in the Department of Treasury.
Family members and close associates
Family members and close associates of a PEP are also considered PEPs. The nature of their relationship means they could potentially access and abuse the PEP’s level of power.
Spouses or partners, children and their spouses, parents, and anyone who is close to the PEP either personally or professionally would fall under this definition.
Domestic vs. foreign PEPs
In 2012, FATF issued a new set of recommendations and revised their definition to differentiate each of the above groups into domestic and foreign PEPs.
- Domestic PEPs: persons who hold or have held important offices or positions in their own country.
- Foreign PEPs: persons who hold or have held important offices or positions in or on behalf of a foreign state.
Generally, foreign PEPs are considered a higher risk since the business conducting the screening is less familiar with the political landscape of the foreign country and may be unaware of the PEP’s power and influence. For this reason, foreign PEPs are often subject to higher levels of scrutiny.
Who determines if a person is a PEP?
Because the definitions and standards vary across countries, there is no global defining body or singular list of PEPs.
While PEP databases do exist, they’re not all-inclusive. PEPs are always changing — especially if you’re including close associates — and some high-risk PEPs may fly under the radar and avoid being listed in any database.
Each business must be aware of the PEP definitions and regulations applicable in their region and use this knowledge to implement necessary measures. When determining if and how to work with a PEP, consider your company’s industry, risk tolerance, and geographic location, the actions customers can take, and any other relevant factors.
How long is a person considered a PEP?
There’s no set time frame defining how long a person remains a PEP.
Well-known, high-risk PEPs may keep their status for life, while others are declassified after some time has passed. Most countries agree it should be at least 12 to 18 months after they leave office. Close associates should be considered a PEP for as long as the relationship continues.
You have to determine what makes sense for your business based on risk assessments and the individual PEPs you’re working with.
Why your business should screen for PEPs
Bribery and money laundering are two of the most common crimes: somewhere between $800 billion and $2 trillion is laundered every year, with 50% going unidentified. It’s up to companies to do what they can to prevent these crimes.
You also need to protect your business. PEP screening is part of that, and an essential part of any company’s Know Your Customer/Anti Money Laundering (KYC/AML) compliance.
Numerous national and international guidelines require extra risk management procedures when doing business when PEPs. This means failing to properly identify PEPs can result in significant fines. For example, English bank Barclays was fined £72 million in 2015 for working with several high-worth PEPs without conducting any extra due diligence or monitoring.
How to identify PEPs with Persona
PEP screening can be a time-consuming, difficult process, especially if you have to manually check multiple lists and databases. Make it easier with Persona, which can screen individuals against 1000+ regularly updated lists and databases to flag anyone deemed high-risk or with suspicious activity.
Easily identify any red flags when individuals first create an account by running watchlists and sanctions reports to screen across global sanction, warning, and PEP lists. Then, run reports on a regular basis to recheck their identity going forward, which can help you flag and take action against suspicious users and transactions much sooner.
Persona is fully customizable and offers one of the industry’s widest ranges of verification components. That means you can adjust the verification requirements and process flow based on each individual PEP’s risk level. For example, if the system flags a new account holder for being on a PEP list, you could require them to submit additional identity verification checks, such as a piece of ID or a selfie scan.
Start screening for PEPs in your business
Protect your business and customers by enabling a more powerful, intuitive PEP screening system. Get in touch today and find out how Persona can help.
