The Global PEP list includes profiles of Politically Exposed Persons, as well as those of their family members and close associates. Politically Exposed Persons (PEPs) are considered high risk in today's regulatory environment. Regulation requires enhanced due diligence when conducting business with Politically Exposed Persons, particularly when they become part of private banking transactions. Heavy fines have been imposed on financial institutions that have conducted business with PEPs without following adequate Know Your Customer procedures and enhanced due diligence processes. Since September 11, 2001, more than 100 countries have tightened their Anti Money Laundering laws, making the fight against corruption a central element of their new legislation. In addition, there has been greater emphasis on cooperation between nations to enforce the Foreign Corrupt Practices Act.
This raises two questions:
- What is a Politically Exposed Person?
- What are the expectations for an organization that deals with Politically Exposed Persons?
While there is no global definition of a PEP, the Financial Action Task Force (FATF) has issued guidelines. Local legislation, like the USA Patriot Act or the European Union Directive, uses similar definitions of a Politically Exposed Person, typically consisting of the following five layers:
- Current or former senior official in the executive, legislative, administrative, military, or judicial branch of a foreign government (elected or not)
- A senior official of a major foreign political party
- A senior executive of a foreign government owned commercial enterprise, and/or being a corporation, business or other entity formed by or for the benefit of any such individual
- An immediate family member of such individual; meaning spouse, parents, siblings, children, and spouse's parents or siblings
- Any individual publicly known (or actually known by the relevant financial institution) to be a close personal or professional associate.
The interpretation of each of these layers varies between countries. Some jurisdictions focus only on Foreign Political Figures. Some countries limit the definition to the national level; while others also include regional Politically Exposed Persons. While there might be slight variations of the five layers above, the expectations for an organization doing business with Politically Exposed Persons are universally similar.
The following two-step process is an international standard:
- Identify the PEPs amongst your clientele
- Make sure that funds managed by your organization on behalf of the Politically Exposed Person do not derive from a corrupt source