PEPs or politically exposed persons are defined as high-risk clients with more opportunities than ordinary nationals to gain assets through illegal means like bribe-taking and money laundering.
Classifying a potential client as a PEP doesn’t mean that a corporation can’t work with them at all. Discovering a client is a PEP is just a part of the process allowing DNFBPs (Designated Non-Financial Businesses and Professions) and financial institutions to make a whole risk evaluation. With PEP check is vital to be aware of the red flags. Sometimes matching just one of these politically exposed person indicators might be linked with financial abuse.
The FATF defines a PEP as:
Individuals who are or have been entrusted with prominent public functions by a foreign country, for example, Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, important political party officials.
Individuals who are or have been entrusted domestically with prominent public functions, for example, Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, important political party officials.
Persons who are or have been entrusted with a prominent function by an international organization refer to members of senior management or individuals who have been entrusted with equivalent functions, i.e. directors, deputy directors and members of the board or equivalent functions.
It is the country which has entrusted the individual with the prominent public function. Pursuant to the definition of PEPs, other factors, such as country of domicile or nationality, are not relevant in determining the type of PEP but may be relevant in determining the level of risk of a specific domestic PEP (as foreign PEPs are always a high risk). It should also be noted that a domestic PEP is subject to the foreign PEPs requirements if that individual is also a foreign PEP through another prominent public function in another country.
Every regulated corporation must fit the guidelines while working with a politically exposed person. After the client is uncovered as a PEP, corporations are responsible for ongoing due diligence fitting the client’s status of PEP.
Financial Action Task Force is an intergovernmental AML/CFT institution regulating financial crimes. It is also a fundamental reference for any other regulatory action.
All of our PEP scans are performed in accordance with FATF rules, depending on their risk level. PEP risk categories:
Compliance software such as Sanction Scanner helps you to comply with regulations. Sanction Scanner AML screening complies with all global and local regulations such as FATF, FINMA and FCA, minimizing false positives.
Financial Action Task Force has introduced red flags of PEPs to help corporations detect illegal activities. Based on their information matching several of these indicators should raise some suspicions. In some cases, it might even lead to money laundering. A particular nation or state may also have its own PEP indicators for suspicion that must be considered crucial.
According to the FATF, the measures that will enable companies to detect and control PEPs:
Identity Shielding: As PEPs are aware of their status, sometimes they try and hide their identity or avoid being in the spotlight. For example:
Suspicious Behavior: PEPs behavior may give them up.
Position in the Company: PEP’s position can become a reason for concern.
The Industry: Industries being considered high-risk depending on the place and varies from nation to nation. Instances of higher risk industries are;
▪ Transactions: The way PEP receives or uses money might expose a lot about them:
Services and Products: FATF deemed some of the products and services are prone to risk and vulnerable to being used by PEPs;
Local Indicators: The FATF explains how some countries are considered to be high risk is based on geographic risk factors. These indicators must also be taken into account when scanning a PEP.
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