It's crucial for companies subject to AML to check if their customers and business partners are PEPs, so they don't become RCAs. Let Creditro help...
What is PEP?
PEP is a politically exposed person and is a statutory part of a KYC check according to AML legislation. Learn here what PEP means and why its essential.
PEP stands for a politically exposed person. These people are involved in politics or hold high government office. It is a person with a high-ranking job, e.g., a government or another political position.
PEP is a person who possesses institutional power within the political sphere. Because of precisely this power, they have a high-risk concerning money laundering, extortion, bribery, and other forms of corruption – this can happen both voluntarily and involuntarily. Spouses, family, and close business associates will also be considered a PEP. They do this as their relationship can be exploited by criminals, e.g., to blackmail the person in the position of power.
Companies within the financial sector are subject to the Money Laundering Act and the directive AML 5, which makes it clear that companies must know their customers. When the company uses KYC to document that they know the customer, the customer gets screened to see if they are a PEP.
A brief overview of typical PEP's
- Leaders of the government or state
- Judges and members of the court
- Senior members of the central bank
- Senior officers in the Armed Forces
- Managers and senior officials in state-owned enterprises
The Anti-Money Laundering Directive requires all companies covered by the directive to be very careful when they have customers who are PEPs. They must be checked for fraud with money to a greater extent than others, as they pose an increased risk.
It can be difficult for companies to judge whether potential or current customers are PEP because the existing list of PEPs is not definitive but only includes those who have been reported.
Why screen for PEPs?
Being a politically exposed person indicates to a greater extent that you as a company must be aware of the increased risk of involvement in, among other things, money laundering and terrorist financing. Many PEPs are also subject to attempted bribery and extortion, making them a higher risk to have as a client in your business.
However, there are many websites where you can screen for PEP. The Danish Financial Supervisory Authority conducts, among other things, a list of the persons who are PEP in Denmark. The list is incomplete as it only contains the names of PEPs that have been reported to the authorities.
Now you can see the latest PEP list here.
What is a PEP list?
A PEP list is a list that describes all the PEPs we have in Denmark. The list includes persons who are either currently or have previously been classified by the EU as politically exposed. A PEP list helps to make it easier for companies to assess whether their customers may be exposed to aggravated circumstances. Each European government has its PEP list, which it must maintain.
What should you do if your client is a PEP?
If one of your customers turns out to be a PEP, you need to perform a more comprehensive KYC and implement more excellent monitoring. The monitoring may consist of you examining their financial transactions more closely and assessing the customer relationship to their current risk assessment.
In short, a PEP customer must be kept a closer eye on than other customers. A PEP customer is also called a high-risk customer, and a check must be carried out yearly. Low-risk customers must be checked approximately every five years.