Anti-money laundering guidance for supervised businesses

AMLG11650 - Guidance for all sectors: Politically Exposed Persons (PEPs)

16.5 Politically Exposed Persons (PEPs)

PEPs may present a high risk of money laundering, terrorist financing or proliferation financing due to their prominent public functions. International standards issued by the FATF recognise that a PEP may be targeted for bribery and corruption attempts  This is not intended as a suggestion of susceptibility to corruption, but rather to recognise that PEPs can be a target for malicious actors, including serious organised crime groups and hostile states.

You must have in place appropriate risk-management systems and procedures to determine whether a customer or the beneficial owner of a customer is PEP or a family member or a known close associate of a PEP, and to manage the enhanced risks arising from any business relationship or transactions with such a customer by applying EDD.

 

16.6 What is a PEP?

A PEP is a person that are entrusted with prominent public functions, whether in the UK or abroad.

PEPs include:   

• Heads of state, heads of government, ministers and deputy or assistant ministers.  
• Members of parliament or similar legislative bodies.

This includes regional governments in federalised systems and devolved administrations, including the Scottish Parliament, Northern Ireland Assembly and Welsh Senedd, where such bodies have some form of executive decision-making powers. This does not include members of local government in the UK, but it may, where higher risks are assessed, be appropriate to do so in other countries.   

• Members of governing bodies of political parties.

A member of a governing body will generally only apply to the national governing bodies where a member has significant executive power (for example, over the selection of candidates or distribution of significant party funds).  

• Political parties who have some representation in a national or supranational Parliament or similar legislative body.   
• Members of supreme courts, of constitutional courts or of any judicial body the decisions of which are not subject to further appeal, except in exceptional circumstances.

In the UK this includes Supreme Court judges but does not include any other member of the judiciary.  

• Members of courts of auditors or boards of central banks.  
• Ambassadors, ambassadors’ deputies, and high-ranking officers in the armed forces.

Where members holding these offices on behalf of the U.K. government are Permanent Secretary or Deputy Permanent Secretary level or hold the equivalent military rank, for example Vice Admiral, Lieutenant General or Air Marshal.   

• Members of the administrative, management or supervisory bodies of state-owned enterprises.

This only applies to ‘for profit’ enterprises where the state has ownership of greater than 50% or where information reasonably available points to the state having control over the activities of such enterprises.  

• Directors, deputy directors and members of the board, or equivalent of an international organisation

This includes international public organisations such as the UN and NATO but does not include international sporting federations. 

 

PEPs do not include:   

• Middle ranking or more junior officials.    
• Persons who were not a PEP under the former Money Laundering Regulations 2007, or where they ceased to hold a prominent public function prior to 26 June 2017, such as former MPs or UK Ambassadors.  
• In the UK, civil servants below Permanent or Deputy Permanent Secretary level will not normally be treated as having a prominent public function. 

 

16.7 Identifying PEPs

You must have appropriate risk management systems and procedures in place to determine whether a customer is a PEP or a family member or known close associate of one and must keep a record of any such checks made. The following are examples of procedures you should consider putting in place: 

• Asking your customer.  
• Taking into account information provided through the National Risk Assessment or by HMRC.
• Searching information available in the public domain e.g.: 
• The internet.
• News agencies and sources.  
• Government and parliament websites.
• Electoral Commission. 
• Companies House Persons of Significant Control.
• Transparency International.
• Global Witness.
• Using a commercial provider to assist in identifying PEPs.

Whatever source is used you need to understand how any database is populated, for example how often it is updated. You should ensure that those flagged by the system fall within the definition of a PEP, family member or known close associate as set out in the Regulations and this guidance.    

When assessing whether a person is a PEP, you should be mindful of whether a person is acting on the instruction of, or on behalf of, a PEP. This is more likely to be the case when the relevant persons hold prominent functions in a third country which presents a relatively high risk of money laundering, terrorist financing.    

 

16.8 Family members and known close associates of PEPs

Family members and known close associates of PEPs must also have EDD measures applied to them. You should take a proportionate and risk-based approach in assessing whether any given individual is a family member of a PEP.

For these purposes, the definition of “family member” includes:  

• Spouses/civil partners of PEPs.  
• Children of PEPs and their spouses/civil partners. 
• Parents of PEPs. 

It may be appropriate to treat a wider circle of family members (such as brother and sisters or aunts and uncles) as subject to enhanced due diligence measures in cases where a business has assessed a PEP to present a higher risk.    

Known close associates are persons who have:   

• Joint beneficial ownership of a legal entity or arrangement with a PEP.
• Any other close business relationship with a PEP.
• Sole beneficial ownership of a legal entity or arrangement set up for the benefit of a PEP. 

 

16.9 Assessing the risk of PEPs

You must assess in each case the level of risk that the PEP presents and apply an appropriate level of EDD. More frequent and thorough measures should be taken if the PEP is higher risk. Similarly, a reduced level of EDD measures can be applied to lower-risk PEPs.

When assessing the risk presented by a PEP you should take account of your own assessment of the risks faced by your business in relation to PEPs on a case-by-case basis.The level of risk of a PEP may vary depending on where they are from and their public accountability.

A PEP who has a prominent public function in the UK must be treated as lower risk unless other factors in your risk assessment indicate a higher risk. The same treatment should be applied to family members or close associates of a lower risk UK PEP.   

A lower risk PEP may be one who holds office in a country with traits such as:  

• Low levels of corruption.  
• Political stability and free and fair elections.  
• Strong state institutions where accountability is normal.  
• Credible anti money laundering measures.  
• A free press with a track record for probing official misconduct.  
• An independent judiciary and a criminal justice system free from political interference.  
• A track record for investigating political corruption and taking action against wrongdoers.  
• Strong traditions of audit within the public sector.   
• Legal protections for whistle blowers.  
• Well-developed registries for ownership of land, companies, and equities.   

 

A PEP may be a lower risk if they:  

• Are subject to rigorous disclosure requirements such as registers of interests or independent oversight of expenses.
• Do not have decision making responsibility such as a government MP with no ministerial responsibility or an opposition MP.     

 

A high-risk PEP may be from, or connected to, a country viewed as having a higher risk of corruption that may have traits such as:  

• High levels of corruption. 
• Political instability.  
• Weak state institutions.  
• Weak anti money laundering measures.  
• Armed conflict.  
• Non-democratic forms of government.  
• Widespread organised criminality or illicit drug supply.  
• A political economy dominated by a small number of people or entities with close links to the state.  
• Lacking a free press and where legal or other measures constrain journalistic investigation.
• A criminal justice system vulnerable to political interference.  
• Lacking expertise and skills related to book-keeping, accountancy, and audit, particularly in the public sector. 
• Law and culture hostile to the interests of whistle blowers.  
• Weaknesses in the transparency of registries of ownership for companies, land, and equities. 
• Human rights abuses.

   

A high risk politically exposed person may show characteristics such as:  

• A lifestyle or wealth that does not match what you know of their income source,
• Credible allegations of financial misconduct have been made against them in relation to bribery or dishonesty. 
• There is evidence they have sought to hide the nature of their financial situation
• Has responsibility for or can influence the awarding of large procurement contract where the process lacks transparency.
• Has responsibility for or can influence the allocation of government grant of licenses such as energy, mining, or permission for major construction projects.

      

A family member or known close associate of a politically exposed person may pose a lower risk if they:  

• Are related or associated with a PEP who poses a lower risk. 
• Are related or associated with a politically exposed person who is no longer in office.  
• Are under 18 years of age.                

 

The family and known close associates of a politically exposed person may pose a higher risk if they have:  

• Wealth derived from the granting of government licences or contracts such as energy, mining, or permission for major construction projects.  
• Wealth derived from preferential access to the privatisation of former state assets.  
• Wealth derived from commerce in industry sectors associated with high barriers to entry or a lack of competition, particularly where these barriers stem from law, regulation, or other government policy. 
• Wealth or lifestyle inconsistent with known legitimate sources of income or wealth. 
• Been subject to credible allegations of financial misconduct made in relation to bribery or dishonesty.  
• An appointment to a public office that appears inconsistent with personal merit.     

 

16.10 PEPs and EDD requirements

You must always apply EDD on PEPs, their family members or known close associates as set out in section 16.8 above.  However, where your risk assessment indicates a lower risk, for example they are a domestic PEP, the PEP, family members and known close associates may be subject to less scrutiny than those who present a higher risk, for example:  

• Supervision of the business relationship is at a less senior management level  
• Source of wealth and funds is established from information you already have or publicly available information only
• Ongoing monitoring is less intensive such as only when necessary to update due diligence information      

You must continue to apply EDD when the PEP has left their function or position and for a further period of at least 12 months after they cease to hold such a function. A requirement to apply EDD more than 12 months after the PEP person has ceased to hold that function will normally only apply to a PEP you have assessed as higher risk. For family members and known close associates, the obligation to apply EDD stops as soon as the PEP stops holding the office unless there are other reasons for treating them as higher risk.    

You should identify when a PEP is a beneficial owner of a corporate body and take appropriate measures based on your risk assessment. This does not make the legal entity or other beneficial owners PEPs as well.  If the PEP has significant control and can use their own funds through the entity, then a higher risk is indicated, and EDD may be required.