Politically Exposed Persons: Definition and Categories
As of July 20, 2020, a new regulation has come into force in Estonia, defining what constitutes a politically exposed person (PEP) for the purposes of anti-money laundering and countering the financing of terrorism (AML/CFT) legislation.
Definition of Politically Exposed Persons
According to Section 91 of the Estonian AML/CFT Act, a PEP is a natural person who performs or has performed prominent public functions and with regard to whom related risks remain. The definition includes individuals who hold positions such as:
- Head of state or government
- Minister, deputy minister, or assistant minister
- Member of a legislative body
- Judge of the highest court of a country
- Auditor general or member of the supervisory board or executive board of a central bank
- Ambassador, envoy, or chargé d’affaires
- High-ranking officer in the armed forces
- Member of an administrative, management, or supervisory body of a state-owned enterprise
- Director, deputy director, and member of a management body of an international organization
Categories of Politically Exposed Persons
The regulation also lists specific categories of PEPs, including:
- Head of state or government
- Minister, deputy minister, or assistant minister
- Member of a legislative body
- Member of a governing body of a political party
- Judge of the highest court of a country
- Auditor general or member of the supervisory board or executive board of a central bank
- Ambassador, envoy, or chargé d’affaires
- High-ranking officer in the armed forces
- Member of an administrative, management, or supervisory body of a state-owned enterprise
- Director, deputy director, and member of a management body of an international organization
Family Members and Close Associates
The regulation also defines what constitutes a “family member” of a PEP, including:
- Spouse
- Parent
- Child
- And their equivalents
Additionally, it defines “person known to be close associates” as those who have joint beneficial ownership of a legal person or trust with a PEP, have close business relations with a PEP, or are the beneficial owner of a legal person or trust set up in the interests of a PEP.
Risk Appetite and Assessment
The regulation also emphasizes the importance of risk appetite and assessment for AML/CFT purposes. According to Section 10, “risk appetite” refers to the total exposure level and types that an obliged entity is prepared to assume for the purpose of its economic activities and attainment of its strategic goals.
Obliged entities must determine their risk appetite in writing and take into account various factors such as:
- Planned revenue
- Measures applied with the help of capital or other liquid funds
- Reputation risks
- Legal risks
- Risks arising from money laundering and terrorist financing or other unethical activities
National Risk Assessment
The regulation requires a national risk assessment to be conducted to identify sectors, fields, transaction amounts, and types where enhanced due diligence measures are necessary. The assessment must also specify sectors and fields where the risk of money laundering and terrorist financing is smaller and where simplified due diligence measures can be applied.
Publication of National Risk Assessment Results
The results of the national risk assessment will be published on the website of the Ministry of Finance and made available to obliged entities.