Summary


A Politically Exposed Person (PEP) is a person who is or has been (in the last 12 months) in a prominent public function. A For example, a head of state, senior politician, or an official with a public profile.


First AML conduct PEP checks through our third party service provider on all individuals verified via the First AML Platform. Our service provider generate a report for any individuals whose details match those of a PEP or a relative/close associate (RCA) of a PEP; these reports are accessible via the First AML platform.


This article will outline how PEP checks are surfaced in the platform, what the results mean, and how to further review any matches or possible matches.




TABLE OF CONTENTS


Summary



Why are PEP Checks required?


Under anti-money laundering regulations, the main aim of applying additional scrutiny to work involving PEPs is to mitigate the risk that the proceeds of bribery and corruption may be laundered, or assets otherwise stripped from their country of origin.


Reporting entities must, as soon as practicable after establishing a business relationship (or occasional activity), take reasonable steps to determine if a customer or beneficial owner is a PEP. If they determine their customer or beneficial owner is a PEP, there are additional measures that need to be applied.


Results


First AML conducts PEP checks on all individuals verified via the First AML Platform. These checks are surfaced in the individual profile to be presented with one of the following results:


  • Match (Red Flag) = Positive PEP match identified
  • Possible Match (Orange Flag) = Match identified, First AML have been unable to determine whether the match is positive or negative
  • No Match (Green Flag) = No positive PEP match identified



What is a Match?



A PEP Match means that this individual is confirmed as a politically exposed person.



What is a Possible Match?



A Possible PEP Match means that some of the individual's details (e.g. name, date of birth, citizenship, residency etc.) match with an individual who is politically exposed, however, we have been unable to determine a positive match. The possible match flag is to show that some details have matched however there appear to be discrepancies in information, spelling, location, and/or not enough information.



What is No Match?



No Match means that the individual’s details do not match with any politically exposed person.


Defining a Politically Exposed Person

The term “politically exposed person”, sometimes used interchangeably with “Senior Foreign Political Figure”, emerged in the late 1990s in the wake of the Abacha Affair: a money-laundering scandal in Nigeria which galvanized global efforts to prevent abuse of the financial system by political figures.

While it may be useful for financial institutions to build a list of designated PEPs to reference, doing so is often challenging since the criteria that qualify an individual as a PEP are broadly defined and vary from country to country.

The FATF also periodically issues new AML/CFT recommendations on PEPs which further complicates the implementation of any ‘definitive’ PEP list.

The Financial Action Task Force (FATF) has codified the term in its AML guidance, setting out the following  classifications of PEP:

  1. Foreign PEP Individuals entrusted with prominent public functions by a foreign country. This category of PEP may include heads of state or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, and important political party officials.
  2. Domestic PEP Individuals entrusted with prominent domestic public functions. This category includes ‘heads of state or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, and important political party officials.
  3. International PEP The FATF sets out a third category of ‘International PEP’ – known as an individual entrusted with a prominent position by an international organization. This category of PEP covers ‘members of senior management, i.e. directors, deputy directors and members of the board or equivalent functions’.

Relatives and Close Associates (RCA) of the individuals outlined above may also be categorized and treated as politically exposed persons. This category refers to immediate family members or close social or professional contacts of a government or political official, or senior executive – meaning spouses, parents, siblings, children, and spouses’ parents and siblings.

The FATF points out that its three classifications of PEP are ‘not intended to cover middle ranking or more junior individuals’.


How do PEP classes work?

First AML tiers PEPs based on the FATF recommendations.

Level 1

  • Ruling royal families
  • Heads of state and government
  • Members of government (National and federal level)
  • Members of Parliament (National and federal level)
  • Senior officials of other state agencies and bodies and high-ranking civil servants
  • Heads and senior officials of the military, judiciary, law enforcement and boards of central banks
  • Top-ranking officials of political parties

Level 2

  • Members of regional governments, parliaments and judiciary
  • Senior officials and functionaries of international and supranational organisations
  • Ambassadors, consuls and high commissioners

Level 3

  • Senior management and board directors of state-owned businesses and organisations
    • Please note this does not include advisory members. The finished legislation for PEP screening requirements doesn't mention members of Advisory Boards of state-owned companies as part of the PEP list.
    • For state-owned enterprises only members of the administrative management and supervisory body are considered PEPs.
  • Heads of agencies, state-owned enterprises, and other institutions under regional governments

Level 4

  • Mayors and members of local, county, city and district assemblies
  • Senior executives of local governmental bodies (agencies, state-owned businesses)
  • Judges of local courts


What PEP coverage do you have?

Our total coverage consists of countries based on ISO 3166: https://www.iso.org/iso-3166-country-codes.html.

We have a basic coverage for all the countries listed above which includes the most important PEP-related positions (such as Head of State, MPs, etc.) for all countries and jurisdictions. So far, our in-depth coverage contains 80 countries and jurisdictions.

Our data teams are actively improving our in-depth coverage highly increasing data available regularly.



How to determine whether a possible match is true or false



When an individual is flagged as a possible PEP match, the next step is for your team to further investigate to determine whether the match is true or false.


Locating the Comply Advantage Report


To locate the information generated by Comply Advantage, follow the below steps:


  1. Navigate to the relevant case within the First AML Platform

  2. Click on the name of the relevant individual (with an orange or red flag)

  3. Click on the “Verifications” tab

  4. Scroll down to “Screening”

  5. Click the red “Match” text within the screening table



This will take you to the screening report for this individual or entity. The report will contain basic information about the individual or entity, and their screening status. You will be able to view the potential matches and the reasons for the match.




You can click on each match to display the sources of their match and any additional information. The underlying sources will appear in a slideout to the right. Selecting More Details for a potential match will display the sources of their match and any additional information.




Reviewing the Match


To review the match you will need to open the comply advantage report and determine which details match those of your clients. For example:


1. Name: Does their first, middle, last name, match? Is the spelling the same? Is this a common name?

2. DOB: Does their date of birth match?

3. Associated Country/Citizenship: Does their country/citizenship match?

4. Photo: If there is an image of the PEP, does it match your client?


If you cannot determine whether a match is true or false from these details, additional google searching of the PEP is recommended, and you may choose to address this directly with the individual to assist.


Determining the next step


Match


For individuals who have been flagged by First AML as a positive PEP match or a possible PEP match which is then determined by you to be a positive match, you will need to decide on the next step in accordance with your Compliance Programme and guidance from the regulators.


If you determine that EDD is required, please leave a note in the Compliance Notes section of the case requesting this. Leaving a note will automatically notify the First AML team assigned to the case.


United Kingdom


Under the MLR2017, enhanced due diligence is required for all positive PEPs (within 12 months). If First AML discover one of your customers is a PEP, we will alert you immediately.



New Zealand & Australia


Please note that under Anti-Money Laundering legislation in New Zealand & Australia, enhanced due diligence is required for any foreign PEPs.  If First AML discover one of your customers is a foreign PEP, we will alert you immediately.


Enhanced due diligence is not legislated for domestic PEPs, but dependent on the information uncovered by the check and the context of your relationship with your customer, you may still choose to conduct it.



Possible Match - False


For individuals who have been flagged as a possible match and determined by you to be a negative match, make a note of this within the Compliance Notes section of the case.