Politically exposed persons can leave your business exposed to reputational damage, but it’s not always easy to uncover whether your new client poses a risk. In fact, it’s not always easy to ascertain whether your client is a PEP or not. Although not all PEPs are inherently risky, you’ll first need to find out if your client is a PEP or not and possibly do further due diligence before you can make an accurate risk assessment. Read on for an explainer on what a PEP is and how you can do PEP checks with ease.
PEP stands for Politically Exposed Person. A PEP is someone who has political power or influence, and may therefore be more susceptible to bribery or corruption. Close family and business associates can sometimes also be considered to be a PEP because they can also influence a person in a position of power.
Keep in mind, there is not one definition of who is or isn’t a PEP, as the criteria is broad and who fits the bill can change from country to country and even company to company.
Generally speaking, there may be nothing wrong with doing business with a PEP, but it can depend on things like your company’s risk appetite, the industry they operate in, the country they are from, the rule of law and guardrails in place to prevent corruption in that country, as well as who exactly the PEP. In other words, what’s there background, what exactly is their proximity to power and so forth.
As you can see, it’s complicated. Which is why it’s so important to know if your potential client is a PEP to begin wit so that you can then go ahead with doing additional due diligence if needed and making an assessment about how to proceed in a more informed way.
Because PEPs carry an additional risk of bribery or corruption, it may be riskier for your business to have a business relationship with them.
The key issue for your business is the reputation risk associated with doing business with a shady individual who is linked to corruption or bribery.
Depending on where your business operates and the compliance and regulatory environment that you are in. In some cases, you may face fines for failing to identify a PEP, especially if it contributes to a financial crime being committed. Your company may also have its own guidelines on whether a PEP status increases someone’s level of risk and therefore whether you should proceed with them.
PEPs require this special designation because they
Answering this question is rather difficult as who classifies as PEP can vary from country to country, can change based on the context, and may even change based on your company’s own risk appetite.
Keep in mind, a PEP can spread risk levels like a spider’s web. This is because close associates or family members of a PEP may become a higher risk by association.
Organisations and institutions
No. In fact, you may have to make a judgement based on what area you operate in, your company’s risk appetite and so forth. While for some companies, anyone with political exposure is a no-no, for others they would be more than happy to take “lower level” PEPs on as a client. For example, for them, small town mayors and district judges would not be considered a PEP.
Also, remember that being a PEP does not mean you have done something wrong. Naturally, the majority of PEPs are not corrupt or bribed. The PEP designation is simply a label that someone with power is at a greater risk of corruption or being a target for bribery.
Your company may ask potential clients to make a statement about whether they are a PEP or not. Your analysts can also do manual research by doing a Google search and reading up on the history of that individual. You can also use an automated tool like Complytron, which has a database of global and European PEPs.
Simply type your target’s name into our search field and we’ll reveal whether that name is a likely PEP.
One watchout is to be careful about false positives. For example, if your target has a common name, the PEP match may actually be in reference to someone else. In this case, it’s worth doing a bit of additional research like checking the date of birth and other identifying information.
Complytron’s database also includes Relatives and Close Associates, casting your net wider so that you don’t miss someone who actually has political exposure.
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Doing business with someone who later turns out to be a bad actor that you could have avoided by doing a simple PEP check can lead to reputational damage for you and your company.
Tools like Complytron can help your company check if a person is a PEP with a simple name search. You can use our tool as a stand alone resource or integrate it into your existing due diligence processes. Read more about our KYC solution.
People who can be considered a PEP include members of government and high-ranking officials in certain organizations and institutions. Here are some examples:
A person is considered to be a PEP while they hold office or another position of power or influence over how government money is spent. Their associates can also be considered PEPs during this time. Keep in mind, people’s power and influence does not necessarily end when they leave a position, so former office holders can often also be considered to be a PEP.
There is no hard and fast rule about who is a close associate of a PEP, but here is some general guidance:
It’s important for your business to know if a potential client is a PEP. There’s no official list of PEPs, but there are guidelines on what constitutes this classification. Solutions like Complytron give you an ever growing, up-to-date database of PEPs to search so that you can perform more thorough due diligence.
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