Learn what a Politically Exposed Person list is.
PEPs, or Politically Exposed Persons, are individuals who are involved in politics or hold high office in governments, just to mention a few examples.
If your business is subject to Anti-Money Laundering (AML) laws and regulations, it’s important that you can determine whether you’re involved with PEPs as they are often come with a higher risk of money laundering and financing of terrorism.
On this page we try to answer ‘what is a PEP’, and all other questions regarding the Politically Exposed Person list:
- What is a PEP (Politically Exposed Person meaning)?
- How does a PEP list work?
- What do you need to do as a business if you have a client who is a PEP?
- How the Meo platform can help you check your clients identity and do PEP screenings.
- Fight financial crime with thorough PEP screenings
- Recent changes in PEP legislation
- Identification of PEPs
What is a PEP?
What is the meaning of PEP? A PEP (Politically Exposed Person) is an individual who has a high-ranking job in a government or some other type of political position. In other words, it’s a person who possesses a certain form of political and institutional power.
Because of that power they’re considered high risk in relation to money laundering, blackmail, bribery and other types of corruption – both voluntary and involuntary. Spouses, family and close business partners are also considered PEP, as their relationship can be exploited by criminals to pressure the person in the position of power.
Examples of PEP typically include:
- Politicians
- Leaders of government or state
- Judges and members of the court
- High-ranking members of the Central Bank
- Ambassadors
- High-ranking officers in the Defense Forces
- Spouses and children of the people above
- Close business partners and connections of the people above
The Anti-Money Laundering Directive requires all businesses subjected to the directive to be extra careful when they have clients or customers who are PEPs – and therefore constitutes an elevated risk.
Because of this, it can be difficult for businesses to evaluate, by themselves, whether a current or potential client is a PEP. For that reason EU governments have established lists of present and former PEPs, the so-called PEP lists.
What is a PEP list?
A PEP list is an overview of people who are presently or have formerly been classified by the EU as a Politically Exposed Person. But, what does a Politically Exposed Person mean?
The purpose of the Politically Exposed Person list is to make it easier for businesses to assess whether their clients are subject to aggravated circumstances. Every European government has its own PEP list that they maintain.
It’s important to note that the lists are not seen as sufficient evidence of PEP status. It’s possible that a person is considered a PEP despite not appearing on the list, or if they have not yet been added.
The fact that the Politically Exposed Person lists are incomplete – as well as the fact that spouses, close business partners, amongst other examples, are also considered PEPs – makes it difficult for businesses to live up to the PEP requirement without accessing external data sources that have specialized in maintaining updated lists with all people defined as PEPs.
In these cases, a platform like Meo can help. With our AML solution you can quickly and easily perform PEP checks of clients and customers by screening a number of PEP lists all over Europe.
What do you need to do as a business if your client is a PEP?
If you get involved with a PEP client, you need to conduct an enhanced KYC check (meaning Know Your Customer) and implement greater supervision and more audits of their business venture.
How you conduct an enhanced KYC check, you can read more about in our article about KYC (Know Your Customer).
The audit itself can, among other things, consist of your company investigating their financial transactions more carefully as well as evaluating your client relationship in relation to their current risk assessment.
Meo makes it easy to perform a security check and cross-reference with PEP lists
With Meo’s platform you can easily verify your clients’ identity and cross-reference with a number of well-established Politically Exposed Person lists.
Furthermore, our platform ensures that your clients’ personal data is handled responsibly and in accordance with GDPR.
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Fight financial crime with thorough PEP screenings
If you want to fight financial crime, you need to be aware of PEP lists. It is necessary to be aware of PEPs as it is essential for employees and management to be able to identify these people and handle them correctly and safely in order to avoid financial crime.
On a global scale, bribery and corruption are major problems and there are many examples of attempts to do exactly this to PEPs, therefore common international standards have been established to combat them. The definition of PEPs as well as the requirements for handling PEP transactions are determined based on international standards and on experience gathered over a number of years from authorities around the world.
Recent changes in PEP legislations
An important element of the new anti-money laundering rules is that companies must adopt a risk-based approach and conduct risk assessments of each individual customer relationship. This also applies to the rules on PEPs.
In addition, the knowledge and monitoring must be based on a risk assessment, meaning that companies must strengthen their efforts and monitoring of PEPs that are known to have a greater risk of exposure to money laundering, including bribery, etc.
Additional customer due diligence procedures and additional monitoring must be carried out as deemed necessary by the individual firm to ensure full compliance with the legislations.
Identification of PEPs
Rules on identification of PEPs are put in place as a preventive procedure and should therefore not be interpreted as stigmatizing PEPs as people engaging in criminal activities. Thus, companies have no grounds for refusing to proceed with a customer relationship or closing existing customer relationships solely on the fact that a person is a PEP or a close associate or business partner of a PEP.
PEPs should always be aware that they and their close associates and business partners may at any time be asked to explain or document their finances or other transactions.
Related parties and close collaborators
Related parties and close partners are not considered PEPs solely on the basis of their relationship with a PEP. However, they need to be identified because they may benefit from or be taken advantage of in relation to money laundering, corruption or bribery.
Related parties
The definition of a close relative of a PEP includes:
- Parents
- Spouse, cohabitant or registered partner
- Children and their spouses, cohabitants and/or registered partners
This means that the term does not affect siblings or stepchildren and stepparents e.g.
Close partners
The definition of close business partners of a PEP includes:
- A person who is the owner of a business or other legal entity together with one or more PEPs.
- A person who has a close business relationship with one or more PEPs. For example, a trading partner.
- A person who is the owner of a company or other legal entity established solely for the benefit of a PEP. This means that the person controls all the ownership interests or voting rights, etc. directly or indirectly.
This means that positions that would not be considered as PEPs are, for example, a person participating in board work together with a PEP.
