PEPs or politically exposed persons are high-risk customers with more opportunities than ordinary citizens to gain assets through unlawful means like money laundering and bribe-taking.
Classifying a potential client as a PEP doesn’t mean a company can’t work with them at all. Discovering a client is a PEP just forms part of the process that allows financial institutions and DNFBPs (Designated Non-Financial Businesses and Professions) to make a wholesome assessment on risks.
With PEP check it is crucial to stay aware of the red flags. Sometimes matching just one of these politically exposed person indicators can link them to financial abuse.
Every regulated company has to fit the guidelines for working with a politically exposed person. After revealing that a client is a PEP, companies are responsible for ongoing due diligence that fits the client’s PEP status.
Financial Action Task Force or FATF is an intergovernmental AML/CFT institution that regulates financial crimes. It is also an essential reference for any other regulatory action.
All of our PEP screenings are performed in compliance with FATF guidelines that put PEPs into 4 categories, based on their risk level:
Have been thinking of implementing a better compliance solution? Sumsub AML screening complies with all global and local regulations such as FATF, FINMA and FCA, minimizing false positives.
Financial Action Task Force introduced several political exposed person red flags that help companies detect unlawful activities. Based on their information matching several of these indicators must raise some suspicions of illegal activity. In some cases, it may even lead directly to money laundering exposal. A particular country or region may also have their own PEP indicators for suspicion that should be considered equally as important.
It is important to remember that the FATF list itself is not exhaustive and these political exposed person indicators are only complementary examples of what is beneficial to pay attention to. Let’s look at some of them:
As PEPs clearly aware of their risky status they sometimes try and conceal their identity or avoid being in the spotlight. For example:
Sometimes PEPs behavior gives them away:
PEP’s position can also be a reason for concern:
Industries that are considered high-risk depend on the place and vary from country to country. Examples of higher risk industries are:
The way PEP uses or receives money can expose a lot about them:
FATF also deems some of the services and products more risk-prone and particularly vulnerable to be used by PEPs:
The FATF also explains how some countries are considered higher risk based on geographic risk factors. These indicators should also be taken into account when scanning a PEP if they are from:
Sumsub KYC/AML solution is a priceless tool that helps to protect the platform by constantly and automatically monitoring PEPs across all databases.