Handbook of Anti-Money Laundering.

CHAPTER 17POLITICALLY EXPOSED PERSONS

17.1 WHAT IS A POLITICALLY EXPOSED PERSON?

Politically exposed persons (PEPs) are, quite simply, a high-risk category of individuals that have been identified internationally as requiring enhanced due diligence to be conducted. The general concern is that persons that hold high-profile political positions and those related or associated with them will pose a higher money-laundering risk to firms, as their position makes them vulnerable to corruption. The obvious risks are that the politically exposed person may take some form of facilitation payment to enable a third party to win a contract with government, receive some form of inappropriate commission, abscond with government funds or receive funds to bias legislation in favour of third parties. In the United Kingdom, the Bribery Act brings this into clear focus.

Of course, the majority of PEPs will not actually be conducting illegal activity. All that the requirements ask is that any relevant firm that identifies a customer or potential customer as a PEP should undertake additional procedures commensurate with the level of risk that the relationship poses to the firm. The next issue is what work a firm should do to identify PEPs, and, as we shall discuss, we would recommend that firms take a broad definition of such relationships. The only risk that is posed to a firm through undertaking analysis on more relationships than the minimum requirements is that some element of unnecessary due ...