There are certain administrative positions in society where a person is more vulnerable to financial crime (or has more opportunities to commit it themselves). And due to their influence, damage caused by them becoming involved in bribery, corruption, money laundering, and other illegal transactions often extends far beyond finance. That’s why financial institutions will often label a politician, judge, company head, or military leader as a politically exposed person.
So what is a politically exposed person, specifically? And how does that person’s status affect how their financial affairs should be handled?
We’ll start by giving a more thorough politically exposed person definition so you can understand what kinds of people may qualify as one, and why.
Politically exposed persons are people who either are or have been in roles where they wield significant administrative influence, either nationally or internationally. This makes them greater targets for financial crimes and gives them unique opportunities to perpetrate these crimes themselves.
The definition of a politically exposed person isn’t clear-cut; it can vary between countries and contexts. However, it usually refers to one of three types of people:
In addition, it may also refer to:
Again, the meaning of “politically exposed” can depend on where you go in the world and what people’s relationships with each other are. But most countries follow the guidelines of the Financial Action Task Force (FATF), a global intergovernmental organization dedicated to preventing money laundering, terrorist financing, and other financial crimes. According to the FATF, people in these types of roles typically count as politically exposed people:
To further illustrate what is considered a politically exposed person and what is not, we’ll list some types of people and explain why each one’s status does or doesn’t make them a politically exposed person.
But how can you find out who is a politically exposed person in the first place? Below are some recommendations for how to screen current and potential clients.
As we’ve mentioned, who is considered a politically exposed person can differ based on national regulations and other contextual factors. However, your company can use several tools and resources to run a politically exposed person check.
Here are some suggestions:
PEPs can be especially problematic for Fintech startups and neobanks. These types of institutions are typically more focused on providing good customer service to win and keep clients, so bad actors may count on them being less scrutinizing.
That’s why it’s critical to treat all potential PEPs as having higher risk profiles than average customers and to invest in cutting-edge anti-fraud and AML systems for maximum compliance and security.
Schedule a demo today to see how Unit21’s system can give your business a powerful yet simple way to comply with PEP regulations, and to guard against the elevated risk of financial crime that PEPs pose.