From Wikipedia, the free encyclopedia
Politically exposed person or PEP is a term that describes a person who has been entrusted with a prominent public function, or is closely related to such a person. By virtue of this position and the influence it holds, PEPs present a higher risk for potential involvement in bribery and corruption.
The status designation “Politically exposed person” dates back to the late 1990s in what was known as the “Abacha Affair.” Sani Abacha was a Nigerian dictator who organized with his family members and associates a network of massive theft of Nigeria. It is believed that the amount of the loot was several billion dollars that were transferred to bank accounts in the United Kingdom and Switzerland.[1]
In 2001, in an effort to get back the money thus plundered, the Nigerian government that succeeded the Abacha regime lodged complaints with several European agencies, including the Federal Office of Police(FOP) of Switzerland which, in turn, investigated close to sixty Swiss banks. From this investigation, the concept of “politically exposed person” emerged, which was later included in the 2003 United Nations Convention against Corruption.[2][3][4]
The process of screening for PEPs is usually performed at the beginning of account opening, called enhanced due diligence, and screening of accounts periodically is performed as part of ongoing due diligence. Heavy fines have been imposed on financial institutions such as Riggs Bank for conducting business with PEPs without following adequate Know Your Customer procedures and enhanced due diligence processes. PEP-specific compliance legislation underlines the link between corrupt politicians, money laundering and the financing of terrorism. Since September 11, 2001, more than 100 countries have changed their laws related to financial services regulation, with the fight against political corruption playing a foundational role.
Although there is no global definition of a PEP, most countries based their definition on the Financial Action Task Force (FATF) definition:
- current or former senior official in the executive, legislative, administrative, military, or judicial branch of a foreign government (elected or not)
- a senior official of a major foreign political party
- a senior executive of a foreign government-owned commercial enterprise, being a corporation, business or other entity formed by or for the benefit of any such individual
- an immediate family member of such individual; meaning spouse, parents, siblings, children, and spouse's parents or siblings
- any individual publicly known (or actually known by the relevant financial institution) to be a close personal or professional associate.
The definition is not intended to cover middle ranking or more junior individuals in the foregoing categories.
The term Politically Exposed Person is a term coined in the financial industry as most institutions view these clients as a potential compliance risk and monitor accounts that fall within this category. The termforeign official is used by enforcement agencies relating to persons who have similar characteristics as PEPs, but this term is used in all industries, not just financials, and is a term coined in the Foreign Corrupt Practices Act in the United States.
[edit]Politically exposed foreign person or PEFP
Canadian anti-money laundering legislation requires financial institutions to determine if clients are Politically Exposed Foreign Persons (PEFPs). This Canadian term shows a large degree of overlap with the politically exposed person (PEP) definition used in most other countries in the world, and is also comparable to the "senior foreign political figure" as outlined in the USA PATRIOT Act.
The Canadian PEFP definition is:
"Politically exposed foreign person - means a person who holds or has ever held one of the following offices or positions in or on behalf of a foreign state:
(a) head of state or head of government;
(b) member of the executive council of government or member of a legislature;
(c) deputy minister or equivalent rank;
(d) ambassador or attaché or counsellor of an ambassador;
(e) military officer with a rank of general or above;
(f) president of a state-owned company or a state-owned bank;
(g) head of a government agency;
(h) judge;
(i) leader or president of a political party represented in a legislature; or
(j) holder of any prescribed office or position."
The definition includes any prescribed family member of such a person.
