Politically Exposed Persons: Types and Red Flags As Set by FATF

Politically Exposed Persons: Types and Red Flags As Set by FATF

“Others have better means than us”, and “a resourceful person can leverage the power for benefits” we usually hear this around us. Actually, all this is true. Resourceful people surely have better chances of attaining some benefits than others. And, can be instrumental in pushing easily the illicit funds into the economy.

Well, if we think reasonably, a resourceful person doesn’t imply a person being bad. It is just the way they showcase themselves. So, picturing them to be the negative ones is not right. However, we cannot trust politically exposed persons regarding money laundering cases. 

We know you must be thinking about who are politically exposed persons. Let’s get into it.


What is PEP?


Politically Exposed Persons are the high-risk customers who are or should not be dealt with. These people have more opportunities compared to ordinary nationals. They access assets and services by unfair means like bribes or money laundering. PEP is not reliable and seamlessly launders money. To avoid such risks, institutions and businesses keep their eyes open for the PEP list. 


Many companies have come up with PEP screening software to prune the politically exposed people or have enough resources to hide after the fraud. Since the PEP list helps the companies stay alert with their dealings, it is important to access the PEP screening software.


PEP list doesn’t mean they should not be entertained with your services. But, the PEP list should be considered to stay more attentive to that portion of the customers. It also helps the institutions to proceed with the risk assessment actively. They run through the PEP list and get aware of the potential risks. Also, they can link the frauds to the list and find if anyone on the list is involved in the same.

What is PEP According to FATF?


According to the FATF, the PEP list can be explained like this-


  • Politically exposed persons are the executive bodies, legislative bodies, diplomatic roles and judiciary bodies of the senior government official.
  • The PEP can be close family members connected either directly or through the civil form of partnership or marriage. 
  • Close associates of the politically exposed persons. They can be connected either professionally or socially. 
  • The PEP can be a senior official of a political party.

Types of Politically Exposed Persons

PEP can be differentiated in further parts according to FATF:

Foreign PEPs: The foreign PEPs are the people who hold a powerful and prominent position in the foreign country. This list can include the Head of the State, financial regulators of foreign countries or senior executives

Domestic PEPs: The domestic PEPs are the individuals positioned as prominent public figures domestically. This list can include the Head of the government or State, financial regulators or senior executives. 

International PEPs: The international PEPs are individuals with a high or prominent public position by an international organization. The list can include board members of the organization or any other senior management positions

Family Members: The family members, according to FATF, are the individuals who are connected or related to the PEP. They can also be distinguished as the PEP themselves. 

Close Associates: Anyone who has been closely acquainted or associated with the PEP can also be considered as PEP themselves. The relationship can be social and professional when it comes to relating to the PEP. 

If an individual is recognized as a PEP, it doesn’t imply that they are involved in any criminal activity. It simply means that extra precautions should be taken while dealing with these people. PEP list is of the individuals who are risky for your business and not necessarily frauds or criminals. 

Most companies have adopted the PEP screening software to get a detailed and accurate PEP list. Especially because of the risk assessment, the companies like to collect the potential risk names. 

However, there are some red flags that should be taken into account. 


Red Flags to Watch Out for


The FATF has introduced some practical red flags that can keep the businesses from PEP. 


  • Identity shielding: If you feel that a company or an individual is shielding their identity and avoiding the spotlight, take it as a hint. 
  • Suspicious behavior: If the individual or a company is acting weird and suspicious. Maybe you need to check their past. Acts like being secretive, providing inaccurate information, or behaving fishy are big red flags you should watch out for. 
  • Position of the Company: If you feel that the company's position has been drastically shifted to a higher or lower position, you should be concerned. 
  • Transactions: The company's transactions should be consistent and match its financial status. If the transactions are fishy, go deep. 

Smart Infotech understands the rise in money laundering cases and provides AML-TRACE as a solution. The software is perfect for avoiding financial fraud and performing the risk assessment process. Get in touch with us to know more about our software and how it helps with PEP screening.