In order to remain compliant, companies worldwide need to perform verification checks on their customers.
One of these necessary checks involves making sure customers are not at risk of political exposure or under any sanctions. But, who constitutes a PEP? Here, we will explore just that; how these checks are carried out and what they aim to do.
What is a PEP?
According to the FATF, a politically exposed person (PEP) is an individual who is or has been entrusted with a prominent function. Many PEPs hold positions that can be abused for the purpose of laundering illicit funds or other predicate offences such as corruption or bribery.
Because of the risks associated with PEPs, the FATF Recommendations require the application of additional AML/CFT measures to business relationships with PEPs.
Most of the 37 FATF member countries treat domestic and foreign PEPs with heightened scrutiny. The FATF guidance implies that if a person is a foreign PEP, it de-facto makes them a domestic PEP in their own country. This makes sense for crime prevention, because to export proceeds of crime, the PEP must first use their own domestic financial system and thus, importance is placed on domestic and non-foreign PEPs.
The FATF categorises PEPs as:
- Government Officials
- Political Party Officials
- Senior Executives
- Relatives and Close Associates
Government officials that could be politically exposed persons are current or former officials appointed to domestic government positions or positions in a foreign government. This may include heads of state or individuals working in executive, legislative, administrative, military or judicial branches, in elected and unelected roles.
Political Party Officials
Senior officials appointed to roles in major political parties at home or in foreign countries can also be categorised as PEPs.
Senior executives that are individuals serving in senior executive roles, such as directors or board members, in government-owned commercial enterprises or international organisations may be considered a PEP.
Relatives & Close Associates
Relatives and Close Associates (RCA) could also be a PEP. These are immediate family members of a government or political official or senior executive – meaning spouses, parents, siblings, children and spouses’ parents and siblings.
Peps & Sanctions Tiers
There are four tiers which represent varying degrees of risk that a politically exposed person can bring, depending on his/her position:
PEP Tier 1
- Heads of state and government, including Royal families.
- Members of government at national and subnational levels in case of federal states and provinces.
- Members of Parliament or similar legislative bodies.
- Heads and top commanders of military and law enforcement and their deputies.
- Heads/members of supreme courts, constitutional courts or other high-level judicial bodies whose decisions are not subject to further appeal.
- Heads/members of courts, auditors and the board of central banks.
- Top ranking officials of mainstream political parties, head/deputy heads of minor political parties (without representation in parliament).
PEP Tier 2
- Members of legislative and executive bodies at regional, provincial, cantonal or equivalent.
- Judges, justices, magistrates, prosecutors, attorneys in courts with jurisdiction at regional, provincial or equivalent level.
- Senior officials of military, judiciary, law enforcement agencies, central banks & other state agencies, authorities and state bodies.
- Heads/senior members of mainstream religious groups.
- Ambassadors, general consuls, high commissioners, permanent representatives, head of missions and their deputies, chargé d’affaires.
- Chairmen, secretary generals, directors, deputy directors and members of the board or equivalent function of international/regional organisations.
- Mayors of capital cities.
PEP Tier 3
- Presidents/Chairperson and board members of state owned businesses and organisations.
- Advisers, heads of cabinet, senior officials of military, judiciary, law enforcement, central banks, other state agencies, authorities and state bodies.
- Heads/board members, senior officials of Trade Unions. In case of the Chambers of Commerce and Charities, a risk based approach is followed.
- Presidents, secretary generals, directors, deputy directors, members of board or equivalent function of international NGOs.
- Senior civil servants at regional/provincial or equivalent levels.
- Middle ranking diplomats.
- Alternate/deputy members of parliament/senate.
PEP Tier 4
- Mayors and members of local councils at municipal, town, village or equivalent levels.
- Senior officials of administrative bodies at local levels.
- Low ranking diplomats.
- Lower ranking officials of major parties and officials of minor political parties not elsewhere captured; simple party members/unelected candidates excluded.
How we can help
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