Identifying Politically Exposed Persons (PEPs)

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The Basel Committee on Banking Supervision's paper on Customer Due Diligence (CDD) for Banks provides guidance on how banks can identify and manage risks associated with their customers, including Politically Exposed Persons (PEPs).

PEPs are individuals who are or have been entrusted with prominent public functions, such as senior government officials, high-ranking military officers, or senior executives of state-owned enterprises. Due to their positions, PEPs are considered to be at a higher risk of being involved in corruption, bribery, and money laundering activities.

The appropriate compliance control for identifying PEPs, according to the Basel Committee's paper, is to review relationships at account opening and on a periodic basis. This means that banks should conduct enhanced due diligence (EDD) on customers who are identified as PEPs or who have close associates who are PEPs. EDD involves collecting additional information on the customer and the nature of their transactions to better understand the source of their wealth and the potential risks associated with the relationship.

Determining that a local figure is a PEP is not an appropriate compliance control on its own, as not all local figures are PEPs. Reviewing when a relationship is established is important, but it is not sufficient for identifying PEPs who may become customers after the initial relationship review. Requiring that the customer discloses that they are a PEP or an associate of a PEP is also not enough, as some PEPs may not disclose this information voluntarily.

Therefore, the appropriate compliance control for identifying PEPs is to review relationships at account opening and on a periodic basis, and to conduct EDD on customers who are identified as PEPs or who have close associates who are PEPs.