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Politically Exposed Person (PEP)

A Politically Exposed Person, or PEP, is someone who holds or has held a high-ranking public role, which makes them more likely to be involved in corruption or other financial misconduct. Put more simply, a PEP is anyone whose political power or influence could be misused for personal gain.

The concept of PEPs was introduced to strengthen the EU’s framework against money laundering and terrorist financing. Under the Anti-Money Laundering Directive, financial institutions must apply stricter checks when dealing with PEPs.

That means banks and other firms cannot treat them like ordinary customers. They must investigate the source of their funds, monitor their accounts closely, and get senior management approval before starting or continuing a business relationship.

Who Counts as a PEP?

There are three main types of PEPs, according to the European Banking Authority:

  • Domestic PEPs: senior politicians, government officials, judges, military officers, and executives of state-owned companies within their own country.
  • Foreign PEPs: people with equivalent roles outside the country.
  • International PEPs: senior officials at international organizations, such as directors or board members.

Family members and close associates are also included, since they may benefit from the same networks and opportunities for corruption.

Why PEPs Matter in AML

Financial institutions must apply enhanced due diligence when onboarding or monitoring PEPs. This includes obtaining senior management approval, identifying the source of wealth and funds, and carrying out ongoing monitoring of the business relationship.

The PEP concept is not about assuming guilt. It is about recognizing that these individuals, by virtue of their positions, pose a higher risk and therefore require more oversight.

Interesting facts

  • The definition of a PEP is broader than many people think. For instance, even if someone has left office, they may still be considered a PEP for several years.
  • You might be surprised to learn that being classified as a PEP can affect very ordinary things like opening a bank account or applying for a mortgage.
  • The goal is to protect the integrity of the financial system. By carefully monitoring PEPs, banks and regulators can reduce the risk of corruption spilling into the economy and make sure the financial system is not misused.

Further reading

Further Reading