Politically exposed person

What it means

A politically exposed person, or PEP, is an individual who holds or, within a specified period, held a prominent public function. Examples include members of parliament, government ministers, judges of higher courts, ambassadors, senior military officers, central bank board members and heads of state-owned enterprises.

Close family members, such as a spouse, children and parents, and people known to be close business associates of a PEP are treated the same way. The reason is that proceeds of corruption or abuse of public office can be moved precisely through family and associates.

PEP status is not in itself a suspicion. It does mean, however, that an obliged entity under anti-money laundering (AML) law must apply enhanced due diligence to a transaction with them: establish the source of funds and wealth and have senior management approve the relationship.

How it works in practice

Accounting firms, tax advisers, estate agents and sellers of luxury goods are obliged entities. When onboarding a client, we check as part of KYC whether the client or their ultimate beneficial owner is a PEP, usually through a written declaration and database screening.

If the client is a PEP, we document the process: where the money to set up the company came from, how transactions are funded and who approved taking them on. The relationship is then monitored on an ongoing basis, with data refreshed more often than for ordinary clients.

For every transaction that does not fit the PEP client’s usual business, we consider whether it is an unusual business transaction that must be reported to the financial intelligence unit. The decision and its reasons are recorded internally.

What to watch out for

PEP status does not end when the function ends. The law sets a period after leaving office during which the person is still treated as a PEP, and the obliged entity must track it. A former minister is not an “ordinary client” the day they leave office.

The most common mistake is relying solely on the client’s declaration. If the client hides their status and the obliged entity does not check available sources, it can be penalised for insufficient due diligence at an inspection. Database checks and sanctions screening are therefore standard.