A “politically exposed person” is an individual that holds a prominent position or function which would give them power and influence over others. Due to their role, they may be more susceptible to bribery, corruption or other money laundering offences, as a result of this they are of high risk to financial institutions.
Generally, PEP’s can be broken down into 5 main categories to describe the type of PEP, and a further 10 industry sectors have been identified to determine who the PEP’s are within that industry sector.
This article will review the PEP categories and industry sectors to help identify which individuals should be classed as PEP by the level of power and influence they hold within their current or previous role.
Foreign PEPs: an individual that holds a prominent public position or function within a foreign country. This includes the head of state or government, senior executives and financial regulators of foreign countries.
International PEPs: an individual that holds a prominent public position or function by an international organisation. This can include members of the board in an organisation and senior management positions.
Domestic PEPS: an individual that holds a prominent public position domestically. This includes the Head of State or government, senior executives and financial regulators.
Relatives: individuals who are related to a PEP can also be classed as a PEP themselves, i.e. David Miliband and Edward Miliband
Close Associates: an individual who has close relations with a PEP whether it is socially or professionally.
Executive branch – A part of the government that has sole authority and responsibility for the daily administration of the state. The top leadership roles of the executive branch may include:
Legislative Branch – A decision making organisation, usually associated with a national government that has the power to enact, amend and repeal laws. A legislature can be Unicameral consisting of only one legislative chamber where all the members deliberate and vote as a single group. Or Bicameral consisting of 2 chambers, normally an upper and lower house, where the enactment of laws usually requires the approval of a majority of members in each of the 2 chambers.
Some countries may devolve significant amounts of legislative power to sub-national authorities, in certain circumstances we would also need to consider local governments as PEPs if this devolution of power gives them a high degree of autonomy.
The system of courts that interprets and applies the law in the name of the state. Usually consisting of a court of appeal often called the Supreme court or Constitutional court, together with lower national and then regional courts.
In most countries, there will be a Supreme court or equivalent, which is utilised as the court of last resort.
However, in some countries, Supreme courts only hear criminal cases by special request which this is rarely granted meaning the state Supreme courts are the final appellate courts for most criminal cases with the federal appeal courts the final arbiter of most federal cases.
Certain countries can grant varying degrees of autonomy to the provinces or states within them, and where these provinces have a high degree of autonomy, we may consider the regional parliaments or those in executive control.
It is therefore important to look for countries whose regions are labelled as autonomous or that have powers to create their own laws and largely control their own budgets.
Regions within some countries may appoint a governor who heads the executive branch in each state and has considerable control over government meaning that the governor has a more prominent function than the regional legislation.
Military ranking is a system of hierarchical positions, the use of which are universal within modern armed forces.
The top 2 “active” roles would be considered PEPs. However, many countries have honorary/ceremonial positions in which case we would consider these and then the next 2 active roles beneath them.
Some ranks may not have been issued for a long time and so may not currently be held by any individual and thus deemed “inactive”.
State-Owned Enterprises are those whose ultimate beneficial owner is the government. A SOE would be deemed a PEP under a policy if it is 50% or more owned by a national government, or an autonomous province/region.
Positions within an SOE that would be deemed PEPs are the board of Directors and above (including non-executives / alternative Directors), or the top 2 managerial positions for the whole company if no board is listed.
What is a Diplomat? A person appointed by the state to conduct diplomacy with another state or international organisation.
The main functions of diplomats revolve around the representation and protection of the interests and nationals of the sending state, as well as the promotion of information and friendly relations.
Heads of the diplomatic mission to a country can be called by many different titles. The main one being ambassador; however, for example, it is worth noting that the ambassador of Taiwan is called a representative.
Individuals connected with agencies that are responsible for the collection, analysis and exploitation of information and intelligence and which support law enforcement, national security, defence and foreign policy objectives are likely to be PEPs.
These are likely to be multiple agencies that cover domestic, foreign and signals intelligence and the individuals often inform the Head of State and government on national security, defence planning, military operations and policy.
To establish if a member of law enforcement agencies is a PEP consider whether they hold one of the top two roles, or can they deputise for the individuals in these roles? Do the regional police have a responsibility at a national level? Consider the rank and equivalent of the police roles.
Is law enforcement overseen by a single organisation or multiple organisations? Oversight by a single organisation will make the risk of inappropriate use of power greater as there will likely be fewer controls in place.
A Royal Family is the immediate family of a King or Queen, and sometimes his or her extended family, where such a monarch exists. We are only interested in the ruling monarch (and their immediate family and associates) unless other members are PEP in their own right.
Not every monarchy has a clear succession to the throne, unlike the UK. For instance, the UAE has no clear line. Also, some royal families may not have existed in an official capacity for some time, for example, in Romania the royal family has not existed in an official capacity since 1947 and as they are no longer in power they would not be considered as PEPs.
Relatives and Close Associates (RCA) also described as ‘PEPs by association’ are linked to a PEP who share a family or friendship connection. FATF guidance state that a connection may be a direct family relation or a connection through marriage.
Family members include the following:
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