Politically Exposed Persons: Everything You Need to Know About PEP List and PEP Check

Not everyone who enters your organisation needs the same level of verification. But have you considered the risks linked with high-ranking officials? This is where the idea of politically exposed persons (PEPs) comes in.

Meaning of Politically Exposed Person

PEPs are those who have been entrusted with major public tasks during the last 12 months. This includes appointments made by governments (such as the United Kingdom), international organisations, and even community organisations. PEPs demand greater due diligence since their positions confer tremendous power and influence.

How to Identify a PEP (Politically Exposed Person)

Understanding who qualifies as a Politically Exposed Person (PEP) is critical for organisations seeking to manage risk efficiently. Here's a summary of who fits within this category and how to identify them:

• Governmental Powerhouses: This category comprises the highest levels of national and regional leadership, including heads of state, cabinet ministers, and members of parliament. Essentially, anyone in a prominent position within the government fits under this category.


• Financial Overseers: People who oversee financial institutions are likewise considered PEPs. This comprises members of audit courts and central bank boards. Their influence on financial regulations demands additional investigation.


• Diplomatic and Military Figures: PEP checks should involve ambassadors, chargés d'affaires, and high-ranking military leaders. These individuals hold prominent roles on the global scene, necessitating rigorous due diligence.


• State-Owned Enterprise Elite: Don't overlook the key players in government-controlled businesses! Senior management and board members at such companies are frequently categorised as PEPs due to their access to considerable resources and potential conflicts of interest.


• Judicial Authority: Judges, especially those in supreme courts or constitutional courts, are considered PEPs due to their capacity to influence legal outcomes. Their decisions can have far-reaching implications, prompting a closer examination.

The PEP classification extends beyond a single person. Here's why:

• Family Ties: PEP lists can include immediate family members. Close ties may be used for financial benefit, necessitating more vigilance.


• Close Associates: Publicly known business associates of PEPs may also also warrant a closer look. Understanding these relationships is critical for effective risk management.


• Beneficial owners: Don't be deceived by titles! PEP checks must consider the beneficial owners of a PEP's property. These are the people who ultimately reap the benefits of ownership, even if the property is registered in another name.

What is a PEP Check?

A PEP check is an important step in preventing your company from involvement in financial crimes. It's essentially a screening technique for identifying Politically Exposed Persons (PEPs) among your consumers or clients.

PEPs hold high-ranking government positions or wield great power in public life. While this authority can be utilised for good, it also includes the risk of corruption. PEP checks help to reduce this risk by enabling you to do enhanced due diligence (EDD) on these individuals.

PEP checks typically include:

• Database Scans: Verifying credible databases and PEP lists maintained by government agencies or established financial institutions.
• Verification: Determining whether a customer comes within the PEP category.

Who needs to Conduct PEP Check?

Financial crime, corruption, and reputational damage are all concerns that can devastate any organisation. However, certain industries are more likely to meet these challenges. Here's a list of these sectors:

Financial Institutions

Banks, credit unions, and other financial institutions are the heart of the economy. They manage large sums of money, making them ideal targets for financial crime. To address this, they are legally required to do rigorous customer due diligence (CDD), which includes PEP checks. These checks enable them to identify high-risk persons while also adhering to Anti-Money Laundering (AML) requirements.

Legal and Professional Services

Law firms, accountants, and other professional service providers frequently deal with high-net-worth individuals and corporates. These clients may have intricate financial interactions, thus it is critical to recognise potential hazards. PEP checks allow these companies to verify regulatory compliance while avoiding involvement with corrupt operations.

Real Estate and Luxury Goods

The real estate industry, particularly in major investment hubs, can attract PEPs who want to launder money through property transactions. Similarly, dealers in luxury goods such as art and jewellery must exercise caution to prevent their products from being used for money laundering or corruption.

Government Agencies

Government agencies play an important role in issuing licences, permits, and contracts. PEP checks should be included in their screening procedures to prevent corruption and ensure fair decision-making. This step allows government institutions to maintain public trust while also ensuring responsible resource distribution.
 

Why is a Politically Exposed Person (PEP) Check Important?

PEP Check is important because by performing it, businesses can:

• Reduce the Risk of Bribery: Bribery is a typical method for influencing business agreements or obtaining contracts. PEP checks can assist identify those who are more vulnerable to bribery efforts.
• Combat Money Laundering: Criminals frequently attempt to legitimise illicit funds. PEP checks can help businesses from inadvertently supporting money laundering activities.
• Protect Reputation: Being involved with financial crimes can seriously harm a company's reputation. PEP checks reflect a commitment to ethical behaviour and deter potential misbehaviour.

PEP Screening Process

Here's a breakdown of the key steps involved in PEP checking process:

Identifying an Individual

The first step is to obtain information on the person or decision-maker you're dealing with. This includes:

• Personal information: Name, date of birth, address, etc.
• Business associations: Identifying their roles as Ultimate Beneficial Owners (UBOs) or Persons with Significant Control (PSCs) within organisations.

Verification

Once you've gathered this information, you must confirm the person's identification. This is accomplished through:

• ID verification: Checking official documents such as passports or national IDs.
• KYC (Know Your Customer) protocols: Following standardised methods for verifying a customer's identity and assessing their risk profile.

Risk Assessment

Based on the information gathered, you can assess the individual's risk level. If they are labelled as high-risk or identified as a PEP, additional steps are required:

• Enhanced Due Diligence (EDD): This entails doing a more in-depth screening of the individual's background, financial history, and potential connections to PEPs or high-risk activities.

Reporting

In some circumstances, you may discover suspicious activities regarding PEPs, such as:

• Individuals on the sanction lists
• Unexpected wealth
• Unusual transactions

If any red flags appear, it is critical to file a Suspicious Activity Report (SAR) to the appropriate authorities.

Continuous Monitoring

• Staying Vigilant: The PEP list is updated constantly. As a result, regular monitoring is necessary. This includes constantly verifying against updated politically exposed person lists and being aware of any changes in an individual's risk profile or questionable activities.

How Can Complygate Help

Managing PEP risk can be challenging, but it does not have to be overwhelming. Complygate recognises the necessity of reliable PEP screening solutions. We provide a suite of PEP screening tools and solutions to help you streamline your due diligence process. Contact us today to discuss your unique requirements and learn how Complygate's PEP screening solutions may help your organisation operate with confidence and mitigate risk.