How can a Politically Exposed Person be identified and what can be done to protect you from risk?

question mark cards held in front of faces

A Politically exposed person (PEP) is defined as an individual who is in a prominent public position or is exposed to individuals in the government, law enforcement or public body. These may be heads of state, government ministers, members of Parliament and ambassadors either foreign or domestic.

A full definition of a Politically exposed person is set out in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

These individuals often present a greater risk for involvement of bribery and corruption due to their position or connections, as well as having access to facilities where money laundering is possible. The definition of politically exposed person extends to family members and close associates of the individual too. There may be instances where it is not quite clear if an individual has political involvement or connections, therefore it is important to apply Enhanced Due Diligence (EDD) to these individuals, especially if they are linked to higher risk countries or business sectors.

A firm needs to take proactive steps to identify if an individual is politically exposed, they can do this by implementing a Political exposed person policy and risk management system. The firm’s policy would have set procedures in place of how to identify a politically exposed person and how to address any issues during the enhanced due diligence process. The policy may include questionnaires, staff training, and obtaining a commercial Politically exposed persons database for screening.

In instances where a politically exposed person cannot be identified when carrying our standard AML checks and enhance due diligence, Firms will need to consider the prospect of ongoing monitoring and regular risk assessments during the transaction on a case-by-case basis.

An individual who may have been a Politically exposed person in the past may continue to be one as they are likely to have connections to their sector or may still have power or influence in some capacity. However, this would need to be investigated, and instance like this, each individual would need to be assessed differently.

In order to avoid reputational and regulatory damages, organisations should understand how to recognise a politically exposed person, therefore a robust policy in place will provide the opportunity any potential minimise risk before proceeding with the business transaction.

 Try out this little quiz ( here) to see if you can recognise a PEP.

To enquire about your Anti Money Laundering policy and how AML and Compliance can work with your business, you can call us on 0203 985 8553, email us or complete an enquiry form.