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Politically Exposed Persons (PEPs) and Anti-Money Laundering (AML)

Definition of PEPs

Politically Exposed Persons (PEPs) are individuals who hold or have held a prominent public position, as well as their immediate family members and close associates.

Key Points

Definition: PEPs are identified based on their positions in government, politics, or other high-level roles.
Family Members and Associates: Immediate family members and close associates of PEPs are also considered to be at risk for money laundering activities.
Public Position: The definition of a public position includes but is not limited to:
- Heads of state
- Ministers
- Members of parliament or legislative bodies
- High-ranking officials in government agencies, such as ambassadors, judges, and military leaders

Risk-Based Approach

The risk posed by a PEP relationship depends on various factors, such as the individual’s transaction volume, legitimate sources of funds, and access to specific products or services.

Key Points

Transaction Volume: Higher transaction volumes may indicate higher levels of risk for money laundering activities.
Legitimate Sources of Funds: The availability of legitimate sources of funds can reduce the risk associated with a PEP relationship.
Access to Products or Services: Access to specific products or services, such as high-value real estate or luxury goods, can increase the risk associated with a PEP relationship.

Due Diligence Requirements

Financial institutions must conduct customer due diligence (CDD) for PEPs, which includes verifying their identification, collecting additional information, and performing ongoing monitoring of transactions.

Key Points

Customer Due Diligence: CDD requires financial institutions to gather sufficient information about a PEP’s identity, source of wealth, and business activities.
Ongoing Monitoring: Financial institutions must continuously monitor PEP relationships for suspicious activity and update their knowledge of the individual’s background as necessary.

Red Flags

Certain red flags may indicate suspicious activity by corrupt foreign PEPs and their facilitators, such as the use of third parties to shield identities or obscure ownership.

Key Points

Third-Party Shielding: The use of third parties to conceal a PEP’s identity or ownership can be indicative of money laundering activities.
Obscured Ownership: The failure to disclose accurate information about a PEP’s business interests or financial arrangements can raise suspicions.

Screening PEPs

A risk-based approach is recommended when screening PEPs, gathering information from various sources, and conducting enhanced due diligence.

Key Points

Risk-Based Approach: A risk-based approach considers the individual’s specific circumstances and factors to determine the level of due diligence required.
Enhanced Due Diligence: Enhanced due diligence is required for high-risk PEPs or those with a history of suspicious activity.

Alessa’s AML Compliance Tool

Alessa’s AML compliance tool offers features that help compliance professionals quickly and correctly identify whether an individual is a PEP and take a risk-based approach to the relationship.

Key Features

Native Character Searching: The ability to search for specific characters or names in various languages.
Geography-Based Risk Assessment: The use of geographic information to determine the level of risk associated with a PEP relationship.
Reducing False Positives: Techniques such as date of birth and age refinement to minimize false positives.
PEP Risk Scoring Model: A model that assigns a score based on various factors to determine the level of risk.
Defined Sets of Risk Factors: Pre-determined criteria for identifying high-risk PEPs.