What is a Politically Exposed Person (PEP)?

A Politically Exposed Person (PEP) is an individual who holds a prominent public position or has been entrusted with a high-profile role in a government or international organization. Due to their influential status and access to significant resources, PEPs are considered to be at a higher risk for involvement in financial crimes, such as money laundering and corruption.

Learn more about what it means to be a Politically Exposed Person.

Types of PEPs

There are several types of PEPs, including:

1. Domestic PEPs: Individuals who hold prominent public positions within their own country.
2. Foreign PEPs: Individuals who hold similar positions but in a foreign country.
3. International PEPs: High-risk individuals in influential positions at global organizations.
4. Family Members of PEPs: Close relatives of PEPs, such as spouses, children, and siblings.
5. Close Associates of PEPs: People closely linked to PEPs, including business associates, advisors, or personal friends.

Why Identify PEPs?

Identifying PEPs is crucial for mitigating financial crime risks. Financial institutions and businesses must conduct enhanced due diligence procedures when dealing with PEPs to prevent money laundering, bribery, and other financial crimes.

This is a part of the broader Know Your Customer (KYC) process. Footprint's comprehensive platform provides a robust suite of tools to streamline onboarding, ensure accurate identity verification, and safeguard sensitive user data, making it an ideal solution for managing PEPs.

How to Identify PEPs?

To identify PEPs, organizations can use specialized databases, real-time monitoring, and batch screening tools. They can also collect detailed customer information, verify customer details through reliable sources, and cross-reference with public data.

Footprint's platform offers a unique triple binding identity approach, which verifies the person behind the screen, their device, and their phone number, ensuring accurate identity verification and reducing the risk of false positives.

This approach is also useful for document verification and identity verification.

Risks Associated with PEPs

Dealing with PEPs comes with unique challenges and risks, including:

1. Money Laundering and Corruption Risks: PEPs may use their influence to launder money or engage in corrupt activities.
2. Reputational Risks: Financial institutions that fail to identify and manage PEPs effectively can face severe reputational damage.
3. Regulatory and Legal Risks: Non-compliance with PEP regulations can result in significant legal and regulatory consequences, including those related to AML compliance.
4. Operational Risks: Managing PEPs requires robust systems and processes, which can pose operational challenges.

Best Practices for Managing PEPs

To effectively manage PEPs, organizations should:

1. Establish a clear definition of a PEP, such as the one outlined in the Politically Exposed Person definition.
2. Use specialized databases and screening tools, such as Footprint's platform, which provides a comprehensive solution for managing PEPs.
3. Conduct enhanced due diligence procedures, leveraging Footprint's onboarding controls and user behavior insights to detect anomalous behavior, similar to those used for account takeover fraud prevention.
4. Continuously monitor business relationships with PEPs, utilizing Footprint's device attestation frameworks to detect and prevent fraud.
5. Implement robust systems and processes to manage PEPs, ensuring seamless integration of onboarding with vaulting and secure storage of sensitive user data, also known as personally identifiable information.

Frequently Asked Questions

What is a Politically Exposed Person (PEP)?

A Politically Exposed Person (PEP) is an individual who holds a prominent public position or has been entrusted with a high-profile role in a government or international organization. Due to their influential status and access to significant resources, PEPs are considered to be at a higher risk for involvement in financial crimes, such as money laundering and corruption.

What are the types of Politically Exposed Persons (PEPs)?

There are several types of PEPs, including:

1. Domestic PEPs: Individuals who hold prominent public positions within their own country.
2. Foreign PEPs: Individuals who hold similar positions but in a foreign country.
3. International PEPs: High-risk individuals in influential positions at global organizations.
4. Family Members of PEPs: Close relatives of PEPs, such as spouses, children, and siblings.
5. Close Associates of PEPs: People closely linked to PEPs, including business associates, advisors, or personal friends.

Why is it important to identify Politically Exposed Persons (PEPs)?

Identifying PEPs is crucial for mitigating financial crime risks. Financial institutions and businesses must conduct enhanced due diligence procedures when dealing with PEPs to prevent money laundering, bribery, and other financial crimes.

How can organizations identify Politically Exposed Persons (PEPs)?

To identify PEPs, organizations can use specialized databases, real-time monitoring, and batch screening tools. They can also collect detailed customer information, verify customer details through reliable sources, and cross-reference with public data.

What are the risks associated with dealing with Politically Exposed Persons (PEPs)?

Dealing with PEPs comes with unique challenges and risks, including:

1. Money Laundering and Corruption Risks: PEPs may use their influence to launder money or engage in corrupt activities.
2. Reputational Risks: Financial institutions that fail to identify and manage PEPs effectively can face severe reputational damage.
3. Regulatory and Legal Risks: Non-compliance with PEP regulations can result in significant legal and regulatory consequences, including those related to AML compliance.
4. Operational Risks: Managing PEPs requires robust systems and processes, which can pose operational challenges.

What are the best practices for managing Politically Exposed Persons (PEPs)?

To effectively manage PEPs, organizations should:

1. Establish a clear definition of a PEP.
2. Use specialized databases and screening tools.
3. Conduct enhanced due diligence procedures.
4. Continuously monitor business relationships with PEPs.
5. Implement robust systems and processes to manage PEPs.