Politically exposed persons are political or public figures and high-powered senior executives, including their family members or others connected to them. Because they’re powerful figures, PEPs are inherently more susceptible to corruption than others. Thus, screening for PEPs is critical in Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) efforts.
But what is a politically exposed person, exactly? More importantly, how do you screen for them? Continue reading to learn more how screening and monitoring for politically exposed persons has evolved.
A politically exposed person (PEP) is someone in a high-profile, prominent political or public role, past or current. Think senior politician, foreign political figure, or high-ranking civil servant. PEPs are important for the simple fact that they’re considered to be more prone to corruption, terrorist financing and money laundering. Thus, they should be flagged during customer due diligence and subject to enhanced due diligence when opening any account.
Examples of politically exposed persons might include heads of state, ambassadors, and executives in state-owned enterprises. They could extend, however, to close associates and family members of these influential people. A broad list of the various types of PEPs includes:
Note there isn’t any single, collaborative, global definition of PEP. That said, The Financial Action Task Force (FATF) guidance uses a broad PEP definition that describes persons in various positions across three classifications.
Looking at concrete examples of a politically exposed person can help you learn to identify high-risk individuals.
Zamira Hajiyeva made headlines in 2018 after being the subject of the first-ever “Unexplained Wealth Order” (UWO) in the United Kingdom. These orders require asset owners to disclose where their wealth comes from. It’s often used against suspected corrupt foreign officials and their associates.
Ms. Hajiyeva has a fascinating spending history that includes a decade-long £16 million spend at leading luxury department store Harrods, the acquisition of a Gulfstream jet, and a multi-million-pound golf club. Known for her extravagant lifestyle, she captured the public’s attention with notable sprees including spending a whopping £150,000 in a single day on Boucheron luxury products followed by a £1,800-spend on select wines the next day.
From 2001 to 2015, Ms. Hajiyeva’s husband, Zamira Hajiyeva, served as chairman of the International Bank of Azerbaijan. In 2016, he was sentenced for a major embezzlement and fraud scheme. As a result of Mr. Hajiyev’s position at Azerbaijan’s largest bank, the court determined that both Mr. and Ms. Hajiyeva should be considered PEPs.
Teodoro Nguema Obiang Mangue, son of authoritarian leader of Equatorial Guinea Teodoro Obiang, was promoted to the position of First Vice President of Equatorial Guinea in 2016. Prior to that, Mr. Nguema held several different government positions after being appointed by his father’s regime. Some of these appointments included Second Vice-President and Minister of Agriculture and Forestry. His current role as First Vice President establishes him as “President in Waiting.”
He is well-known for a lavish lifestyle that’s resulted in both him and members of his circle and family being the subjects of several international crime charges. He’s also been sanctioned for corruption and alleged embezzlement. The scrutiny faced by the family includes embezzlement charges, investigations, raids and seizures, and imposed anti-corruption sanctions by the US Justice Department, French police, Swiss prosecutors, and the UK.
International media outlets have criticized Nguema’s outlandish spending on luxury items, including champagne, a 2005 Bentley Continental R, and a brand-new Lamborghini Murcielago over a single weekend in South Africa. His failure to pay a South African businessman may lead to some of his assets soon being forcibly sold at auction.
Among Nguema’s foreign interests are multiple rare collectible cars, two houses in South Africa, a Malibu, CA compound worth an estimated $31 million, and a property in Paris, France’s affluent 16th arrondissement, among other high-value items and investments.
It’s widely believed that most – or perhaps all – of his wealth originates from corruption linked to Equatorial Guinea’s oil and gas reserves.
PEPs are individuals with a higher risk of becoming involved in money laundering or other financial crimes. To thwart their actions, many lists have been created to identify PEPs and prohibit them from engaging in certain transactions.
While there’s no comprehensive, up-to-date, global PEP list, some governments maintain lists in effort to identify those who are – or who’ve been in the past – classified as a PEP.
Some examples of organizations that create and make accessible partial lists include:
It’s important to point out that PEP lists are far from complete. They lack comprehensiveness and shouldn’t be the only source used to ensure accurate politically exposed person screening.
PEPs present a heightened risk of involvement in corruption and money laundering activities. To ensure Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) compliance, screening is critical. Per the Anti-Money Laundering Law, a PEP is defined as a natural person who is or has been entrusted with prominent public functions.
Efficient customer due diligence allows financial institutions to determine level of risk and PEP status. Using a risk-based approach, PEPs can be categorized into four levels:
Thorough, comprehensive customer records and a PEP database are an absolute must and should contain identifying unique data. Data included should have information such as:
Politically exposed person screening measures are a requirement of financial regulators. Businesses must be aware of the PEP regulations to adequately implement PEP AML/CFT reviews per money laundering regulations. An effective PEP screening process should be based on specific, well-defined principles and considerations.
Further, continued monitoring and review of PEPs are crucial in any compliance program. Open-source intelligence, network analysis, and negative news screening are all essential elements to ensure nothing is missed or overlooked. Sigma is proud to be a leader in these domains.
Sigma is the industry leader in risk management and data analytics. Our PEP AML screening and monitoring programs offer real-time, transparent compliance screening for lightning-fast client onboarding and risk monitoring detection you can count on.
Request Trial Access today to learn more.
This week, the global anti-corruption watchdog Transparency International (TI) released its annual Corruption Perceptions Index (CPI), a highly...
This week, the WSJ rightly highlighted that the biggest impediment to the U.S. Treasury’s plans to implement a beneficial ownership registry, a key...
During a recent industry workshop, several leading institutions, including Goldman Sachs, HSBC and Citi, among others, indicated that they were in...