What Is a Politically Exposed Person (PEP)?
A politically exposed person (PEP) is an individual that is or was a prominent public figure, ehich makes them more susceptible to bribery, corruption, misuse of public funds. Heads of state, government ministers, politicians, judges, military officials, executives of state owned enterprises can be given as examples.
PEPs are seen as higher-risk customers by regulatory bodies like the Financial Action Task Force (FATF), EU Anti-Money Laundering Directives (AMLDs), and Financial Crimes Enforcement Network (FinCEN). These people have access to public resources and they hold some amount of power which has be used for financial crime.
Close associates, friends and immediate family members of PEPs are also closely watched since they can be used to move or hide illicit funds. In this blog post, we’ll be detailing what red flags give away PEPs, requirements for PEP screening in jurisdictions, difficulties in identifying PEPs, and more.
Why Are PEPs Considered High-Risk in AML?
Politically exposed persons are considered high-risk because their positions can be used for corruption, bribery, misuse of public funds. These people also usually use their relatives and close associates. PEPs can move funds using family members, business partners, friends and trusted associates to reduce visibility on behalf of themselves.
Since PEP status can change over time and isn’t the same in every jurisdiction, companies need to conduct ongoing monitoring using global PEP lists instead of one-time screening. Changes in positions, new appointments, allegations, news can change a customer’s risk profile within a day.
Relationships with PEPs have more reputational and regulatory exposure. Failing to identify or monitor PEPs can lead to enforcement, investigations, fines and reputational damage. Regulators, therefore, expect enhanced due diligence (EDD), ongoing monitoring, risk based controls for all PEPs.
Top Red Flags to Identify PEPs
There are many red flags companies can watch out for to identify PEPs. One of these red flags by itself may not be seen as a huge deal but combinations of several red flags from the list below should trigger EDD and closer review by compliance teams.
1. Unexplained Wealth or Lifestyle
If someone is clearly spending above their known or declared income consistently, it’s a PEP red flag. Rapid wealth accumulation combined with offshore assets or foreign accounts may indicate misuse of public funds.
2.Use of Complex Ownership Structures
PEPs usually use shell companies and layered corporate structures to hide ownership. Red flags can be hidden ultimate beneficial owners (UBOs) or UBOs that are difficult to identify, especially in jurisdictions with lack of transparency.
3.Frequent International Transfers or Offshore Activity
High amounts of international transactions that usually involve tax havens or high-risk jurisdictions may indicate attempts to hide illicit funds. These transfers often are lacking economic justification.
4.Close Association With Other PEPs or Sanctioned Individuals
Business relationships, joint ventures, shared ownership structures that involve other PEPs or people that are sanctioned by OFAC, EU, UN sanctions increase risks a lot.
5.Resistance to Provide Information or Documentation
Delayed responses to KYC requests, incomplete documentation, atempts to bypass due diligence requirements are behavioural indicators which show high risk.
6.Sudden or Unexplained Changes in Transaction Behavior
Sudden shifts like large deposits, new funding sources, frequent switching between personal and business accounts can be signs of increased access to funds after political appointment and influence.
7.Third Parties Making Transactions on Their Behalf
The use of intermediaries, relatives, close associates, professional facilitators like lawyers and advisors to make transactions can be attempts to distance the PEP from financial activity.
8.Political Exposure in High-Risk Sectors
Involvement in sectors prone to corruption like public procurement, defence, energy, infrastructure, extractive industries can be a strong PEP risk indicator. This can be seen especially when contracts are given to family members, close associates, and other people close to the PEP.
9.Recent Appointment to a Senior Political Position
New and recent appointments to senior roles usually come with increased access to public funds, regulatory power, decision-making. These can elevate corruption and bribery risk, and should be watched accordingly.
10.Adverse Media Mentions or Leaks
Being named in adverse media reports, investigations, large-scale data leaks like the Pandora or Panama Papers is an imporant red flag. This usually points to offshore structures and undisclosed assets.
How to Monitor and Detect PEP Red Flags
PEPs should be monitored using a risk based aproach that is more than one time checks. Since corruption and reputational risks associated with PEPs are increasing each year, companies are expected to apply EDD and ongoing monitoring.
PEP Screening Best Practices
Automated screening tools like Sanction Scanner, Dow Jones, Refinitiv are recommended for companies that wish to identify PEPs accurately. These tools screen customers against global PEP and RCA (relatives and close associates) lists to helps companies detect direct and indirect political exposure.
Since PEP data includes name variations, aliases, transliterations, local-language spellings often, strong screening needs well fuzzy matching capabilities. Thanks to this, the risk of missed matches and false positives are reduced.
Companies should focus on screening customers more than the one time during onboarding to make sure their customers keep their risk level same across years.
Enhanced Due Diligence (EDD) Measures
After PEP risk is identified, EDD is needed. For this, source of funds and source of wealth checks are recommended to see whether the assets and income match the person’s role, background, business activities. Unexplained wealth and complex asset structures should be investigated more.
Ongoing transaction monitoring and adverse media monitoring is also equally important. Continuous review of account activity helps detect suspicious patterns the customers show, and media monitoring surfaces new allegations, investigations, enforcement actions which should then change a PEP’s risk profile.
PEP Screening Requirements in Major Jurisdictions
PEP screening and ongoing monitoring is mandatory by regulatory bodies in many countries. Specific rules may be changed in different jurisdictions. Regulators want companies to consistently identify PEPs, assess risk, apply EDD when needed.
In the United States, FinCEN requires companies to identify PEPs and manage accordingly. US regulations don’t use the term PEP explicitly but expectations around identifying senior foreign political figures, their family member and close associates are well established. Ongoing monitoring is needed to make sure changes are detected.
Across EU member states, the 4th and 6th Anti-Money Laundering Directives (4AMLD and 6AMLD) expects PEP identification, initial screening and continuous monitoring. Companies should apply EDD to foreign, domestic, international company PEPs.
In the UK, the Money Laundering Regulations 2017 (MLR 2017) require companies to identify PEPs, relatives, close associates, and to conduct ongoing monitoring. UK regulators care deeply about documenting risk assessments. However, the FCA’s finalised guidance on screening PEPs in 2025 have stated that domestic PEPs should be classed as lower risk if they don’t have any other non-political risk factors.
Australia requires PEP identification and enhanced ongoing monitoring as part of CDD obligations, through AUSTRAC. Companies should detect PEPs within customers and beneficial owners, then continue to manage associated risks.
In Canada, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) mandates PEP screening for domestic and foreign political exposure. Continuous monitoring is also mandated along with EDD for high-risk relationships.
Thailand’s Anti-Money Laundering Office (AMLO) stated in December 2025 that PEPs are formally identified. The announcement urged the country’s companies to use PEP screening, ongoing monitoring and EDD when needed.
Common Challenges in Identifying PEPs
Companies can continue to face challenges during the process of identifying politically exposed persons. Risks can be missed because of these challenges and regulatory penalties are to be expected in cases of crime detection failure.
One challenge is ignoring international PEPs. Companies can make the mistake of focusing solely on domestic political exposure, and this can lead to overlooking foreign officials and individuals linked to international companies. Since there are many global financial services and international transactions, this approach may lead to significant blind spots.
Another challenge seen during the process is overlooking relatives and close associates. PEPs usually use friends, close associates, family members, business partners to hold assets and make transactions on their behalf. Failing to screen RCAs can lead to indirect political exposure going undetected.
Outdated or incomplete PEP databases are also a risk companies should avoid. Politicel roles change frequently and reliance on static data and lists increases the likelihood of missed matches and/or delayed detection. Regular updates make sure that companies are checking customers frequently.
Poor coordination between compliance and onboarding teams can hurt the process as well. If the information gathered during onboarding isn’t shared or escalated accordingly, PEP indicators may be missed. Strong communication across teams and integrated workflows will make sure PEP risks are identified and managed accordingly.
How Sanction Scanner Helps Identify PEP Red Flags
Sanction Scanner is well-known by companies since they can identify and manage PEP related risks by screening, monitoring, documentation controls measures. The platform screens customers against 3000+ global PEP and RCA data sources. These screenings make sure that companies can identify direct and indirect political exposure.
This coverage also helps when looking to detect international PEPs that are usually missed if the screening is limited to domestic data. Name-matching services by the platform supports identification against aliases, transliterations, spelling variations.
Sanction Scanner uses adverse media screening to detect PEPs through corruption allegations, investigations, governance concerns. This type of screening is done regularly to detect PEPs through news regularly. The platform also provides a full audit trail and compliance logs, which help immensely during decision making and potential investigations.
Customer risk scoring is another service by Sanction Scanner that helps prioritise alerts and determine when EDD is needed. With the combination of PEP screening and risk scoring, companies can focus their resources on high risk cases rather than treating all customers the same.
