A Politically Exposed Person (PEP) is an individual who holds a prominent public position in a government or international organisation. Immediate family members or close associates of these people are also considered PEPs.

A PEP check, or a PEP screening, is a vital component of any financial institution’s Anti-Money Laundering (AML)  and Counter-Terroism Financing (CTF) procedures — also known as AML/CTF.

Why is it important to know if your customers are PEPs?

PEPs often have power over government spending and budgets, procurement processes, military plans, or highly-sensitive financial information. As a result, they are generally more at risk of corruption or bribery attempts. Due to their positions of power and influence, as well as their reputation as public figures, they can inadvertently be targeted as vessels for money laundering or terrorism financing activities.

According to the Australian Transaction Reports and Analysis Centre (AUSTRAC), examples of PEPs can include but are not limited to

  • heads of state
  • government ministers
  • senior government executives
  • high-ranking judges
  • high-ranking military officers
  • central bank governors
  • board members or executives of international organisations

Being a PEP doesn’t automatically mean someone is conducting illegal activity. Nor does it mean a PEP can or should be excluded from conducting their financial affairs at a mainstream institution in the same way as any other consumer.

However, due to a PEP’s access to and control over significant amounts of money and resources, they can be easily compromised, extorted or bribed. It opens up potentially dangerous and illegal means of money laundering or funding terrorist activity either within their own country or offshore.

There’s no law against offering PEPs products and services from a financial institution — however, it is the financial institution’s responsibility to manage the risk the PEP represents.

Failure to comply with national AML/CTF regulations can result in substantial fines and even prison terms, not to mention the long-term reputational damage to the business. For example, in 2020, one of Australia’s major four banks was issued a fine of some A$1.3 billion for its breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).

For this reason, a PEP check is a risk assessment procedure that banks and financial institutions must use to identify PEPs in the Know Your Customer (KYC) process.

What duty do organisations have to conduct PEP checks and PEP screenings?

You must have risk-based assessments and procedures in place to identify KYC PEPs. The PEP check must be done before providing a politically exposed person with a designated service.

At GBG, we understand that being able to confidently onboard legitimate customers and manage risky individuals is essential. With greenID’s Trusted PEPs and Sanctions screening, you can conduct business in confidence, knowing you’re complying with AML and KYC regulations.

PEPs and sanctions in KYC

It is important that financial institutions check to see if a company has been sanctioned via a sanction screening. If a company or individual has been issued a penalty for failure to comply with a court order or law, this also presents a significant internal risk to a financial institution and must be mitigated.

Using greenID’s trusted PEPs and Sanctions screening, we continuously check against the big 4 sanctions (UN, EU, OFAC and OFSI) for new releases. As well as internationally recognised sanctions, greenID also monitors locally-enforced sanction lists to help you stay compliant, no matter where you’re doing business. In fact, we glean data from 187 independent governing bodies, national and international sanction lists.

Identifying and mitigating risk against PEPs is just one of the regulatory protections you will get when you work with GBG. Its suite of KYC checks also covers age verification and AML on an international and local level.

Learn more about how greenID’s PEP screening checks can help you meet KYC compliance requirements here