Short answer: a politically exposed person (PEP) is someone who holds, or has held, a prominent public function. PEPs are not assumed to be criminals, but their position gives access to public funds and influence, so they carry a higher risk of bribery and corruption. The FATF standard requires enhanced measures for foreign PEPs in every case and a risk-based approach for others.
Who counts
FATF Recommendation 12 and its guidance distinguish three groups:
- Foreign PEPs: individuals entrusted with a prominent public function by another country, such as heads of state or government, senior politicians, senior government, judicial or military officials, senior executives of state-owned enterprises and important political party officials.
- Domestic PEPs: the same roles in the firm's own country.
- International organisation PEPs: people who are or have been entrusted with a prominent function by an international organisation, such as senior management, directors and board members.
The definition also extends to family members (spouse, children, parents, siblings, and in many regimes their spouses) and close associates (people with joint ownership of companies or a close business or personal relationship).
What firms must do
For foreign PEPs, in every case:
- Have a risk-management system to determine whether a customer or beneficial owner is a PEP.
- Obtain senior management approval before establishing or continuing the relationship.
- Establish the source of wealth and source of funds.
- Conduct enhanced ongoing monitoring.
For domestic and international-organisation PEPs, firms take reasonable measures to determine PEP status, and apply the same enhanced measures only where the relationship presents higher risk.
How long does PEP status last?
FATF does not set a fixed time limit; the approach should be risk-based, considering the level of influence the person still has and the seniority of the role. In the EU, the rules require firms to keep treating a person as a PEP for at least 12 months after they leave office and then to continue as long as the risk remains. Some firms apply longer periods for senior roles in high-corruption-risk countries. The common phrase "once a PEP, always a PEP" is a firm policy choice, not the FATF rule.
Finding PEPs
- Screen customers, beneficial owners and controllers against PEP databases at onboarding and periodically.
- Ask customers to declare PEP status and assess the answer.
- Use adverse media and public registers as supplements.
- Remember that a PEP can sit behind a company: check ownership, not only the named customer.
Red flags in PEP relationships
- Wealth that does not fit the official salary of the role.
- Payments from or to government contractors, or commission-based deals with state bodies.
- Use of shell companies, trusts or family members in other countries.
- Reluctance to explain source of wealth.
- Large cash movements, or requests for unusual secrecy.
Exam angles
- Foreign PEPs always need EDD. Domestic PEPs depend on risk.
- A PEP is not automatically refused: the question is whether the risk can be managed.
- Senior management approval is part of the process.
- Family members and close associates are treated like the PEP.
- Source of wealth and source of funds are both needed.