What is a Politically Exposed Person (PEP)?
A PEP (Politically Exposed Person) is someone who has been appointed by a community institution to a high-profile position. Under anti-money laundering regulations, many companies aim to apply additional scrutiny to PEPS to mitigate the risk of their proceeds being used in any bribery and corruption. If this happens, any assets or anything else gained will be stripped from their country of origin.
- PEPs often vary from institution to position. Some examples of PEPs include but are not limited to:
- Within Governmental Bodies (e.g., Members of Parliament, Heads of State)
- Within Legislative & Executive Agencies (e.g., Senior officials in the military, senior diplomats)
- Within Organisations (e.g., Board members, senior management of state-owned businesses)
- Close associates or family members (e.g., individuals who share beneficial ownership with a PEP or any other close business relationship.)
The process of identifying PEPs and the risks that they could pose is referred to as a PEP List Screening. This screening is included in some of the best regulations surrounding AML compliance programs, especially regarding financial institutions.
When taking AML regulations into consideration, a business should meet all of these, and if this is not done, they remain vulnerable to financial crimes as the longer they leave such regulations, the more difficult it will be for them to detect. Companies that do not detect financial crimes can face AML penalties like fines etc. Not only will these fines be an economic consequence of AML negligence, but the reputation of these businesses will also inevitably be tarnished.
If you are running a business, you should consider these screenings as a risk-based approach, acknowledging that PEPs should not be discriminated against or shunned because of their vulnerability to corruption.
How is working with a PEP potentially damaging?
It is important to acknowledge that although PEPs could potentially use their positions of influence to engage in corrupt practices, this does not mean they are all inherently bad people.
They can be potentially damaging to a business because PEPs, their families, and anyone else in close proximity to them could be vulnerable to money laundering or terrorist financed funds, making any business that they are affiliated with subject to enhanced scrutiny, as opposed to regular individuals.
The international standards which have been issued by the FATF (Financial Action Task Force) recognise that a PEP may be in a position to abuse their public office for private gain. They suggest that a PEP could use a financial system to launder the proceeds of this abuse of office.
For businesses that are in financial industries like banking or insurance, if a corrupted PEP is attempting to store assets to disguise laundered or terrorist financed funds that they have received through an act of bribery, then that business stands to be held accountable if they cannot prove that they took all the necessary steps in avoiding any illegal activity from happening.
Ostensibly, the purpose behind PEP checks is to identify the risk of them committing illegal activities. This is one of the aspects identified in the risk-based thinking model, which ensures that practices are in place to address any potential issues in the future proactively.
What can I do if I cannot identify a PEP?
If a politically exposed person cannot be identified from our standard AML checks and due diligence, firms will need to look into the prospect of ongoing monitoring and more regular risk assessments during their transaction on a case-by-case basis.
In order to avoid tarnishing their long-term reputation and regulations, organisations and businesses should understand how to recognise a PEP and the likelihood of them partaking in corrupt practices. Having a robust and thorough policy in place will minimise any risk before proceeding with the business transaction.
How can I deal with PEPs?
Businesses that believe they are dealing with PEPs must apply additional AML measures to the interaction, ensuring they do not find their reputation being put in a precarious position. At AML and Compliance, we can provide you with the relevant guidance and information regarding this.
Businesses must ensure they are doing the following to handle PEPs appropriately:
Internal Controls or Monitoring: A business should have the appropriate and relevant internal controls and monitoring systems to notify people if criminals are attempting to use the organisation or company for laundering. It allows them to act quickly and efficiently.
Customer Due Diligence: This ensures that you are carrying background checks on individuals before going into business with them. Apathy or failure to perform these checks of due diligence could allow money launderers to take advantage of your business through a PEP figure, and you could be involved in criminal activity without knowing it.
Contact AML and Compliance for your PEPs concerns.
For any questions or concerns surrounding your overall AML policy or potential further PEPs concerns, get in touch with our team today by calling us on 0203 985 8553 or emailing us at info@amlandcompliance.co.uk or complete an enquiry form. If you require any further information on how to deal with PEPs and avoid having your business’ reputation ruined by not complying with AML procedures, read up on our compliance reporting.