Politically exposed person

Politically exposed person or PEP is a term that describes a person who may be or recently acted in the political arena of a country or has held a position in the recent past. Such an individual must be tracked by financial institutions as they pose potential reputational risk to regulated entities. Heavy fines have been imposed on financial institutions such as Riggs Bank for conducting business with PEPs without following adequate Know Your Customer procedures and enhanced due diligence processes. PEP-specific compliance legislation underlines the link between corrupt politicians, money laundering and the financing of terrorism. Since September 11, 2001 more than 100 countries have changed their laws related to financial services regulation, with the fight against political corruption playing a foundational role.

The definition of a PEP is commonly based on the Financial Action Task Force (FATF) definition:

• 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, 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.

Politically exposed foreign person

Canadian PEP legislation, most notably Bill C-25, includes much reference to "Politically Exposed Foreign Persons". Bill C-25 is the latest amendment to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. This Canadian term shows a large degree of overalap with the politically exposed person (PEP) definition used in most other countries in the world, and is also comparable to the "senior foreign political figure as outlined in the USA PATRIOT Act.

Bill C-25's PEPF definition follows below:

"Politically exposed person - means a person who holds or has held one of the following offices or positions in or on behalf of a foreign state:
(a) head of state or head of government;
(b) member of the executive council of government or member of a legislature;
(c) deputy minister or equivalent rank;
(d) ambassador or attaché or counsellor of an ambassador;
(e) military officer with a rank of general or above;
(f) president of a state-owned company or a state-owned bank;
(g) head of a government agency;
(h) judge;
(i) leader or president of a political party represented in a legislature; or
(j) holder of any prescribed office or position. It includes any prescribed family member of such a person"

The PEP and PEFP definitions are to be used, in conjunction with the risk-based approach to due diligence, to screen all new and existing account names and transactions for money laundering and terrorist financing risk.

Sources

• http://www.fatf-gafi.org/pages/0,2987,en_32250379_32235720_1_1_1_1_1,00.html
• http://www.wolfsberg-principles.com/faq-persons.html
• http://www.worldcompliance.com/PEPs.htm
• http://www2.parl.gc.ca/content/hoc/Bills/391/Government/C-25/C-25_1/C-25_1.PDF