Identification of Politically Exposed Persons (PEPS) is vital because due to their position and influence, many PEPs are in positions that potentially can be abused for the purpose of committing money laundering offenses, corruption, bribery and terrorist financing.

As a firm, in order to comply with the requirements of monitoring for politically exposed persons (a 2001 US Patriot Act Regulation), it is important to understand what or who a politically exposed person could potentially be. Without this, many firms may only be partially complying with the requirements.

The term “politically exposed persons” generally includes a current or former senior foreign political figure, their immediate family, and their close associates.  More specifically:

  • A “senior foreign political figure” is a senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government-owned corporation. In addition, a senior foreign political figure includes any corporation, business, or other entity that has been formed by, or for the benefit of, a senior foreign political figure.
  • The “immediate family” of a senior foreign political figure typically includes the figure’s parents, siblings, spouse, children, and in-laws.
  • A “close associate” of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on behalf of the senior foreign political figure.

So what does this all mean? First, if the individual could have been at any time classified as a PEP, then they must be treated as a PEP for the purposes of account opening. Also much to the surprise of many firms, those individuals related to the PEP (immediate family) must also be treated as a PEP. Finally, even a close associate of a PEP, someone not even related to that individual but who is widely and publicly known to have an “unusually” close relationship must also be classified as PEPs.