Who Qualifies as a PEP? The Complete List of PEP Positions and Roles

A politically exposed person (PEP) is an individual who is or has been entrusted with a prominent function. Many PEPs are in positions that could be misused to launder funds illegally or commit other predicate offenses like bribery or corruption. The FATF Recommendations mandate that additional AML/CFT controls be applied to commercial dealings with PEPs due to the risks associated with PEPs. Since these criteria are preventive in nature, not criminal, it is not a reasonable assumption that all PEPs are a part of financial criminal activities.

As outlined in Recommendations 12 and 22, the FATF has created guidelines that will help foreign, domestic, and international organization PEPs, their families, and close associates successfully implement these additional precautions.

The following topics are going to be covered in this article;

• What Makes Someone a PEP? The FATF Definition
• FATF PEP Categories and Positions
• The Boundary Cases: Where Compliance Teams Struggle
• PEP Positions by Jurisdiction: Where Definitions Diverge
• Relatives and Close Associates: The Extension
• How to Use This List: Building Your PEP Policy

What Makes Someone a PEP? The FATF Definition

According to FATF Recommendation 12 definition, Politically Exposed Persons, or PEPs, are individuals who are or have been entrusted with prominent public functions. The definition of "politically exposed person" gives some examples of a variety of prominent public functions that a person may hold or have been given by an international organization, or a foreign/domestic government. The definition of a politically exposed person excludes middle-ranking or less senior individuals in the aforementioned groups. However, it should be known that lower-level and middle-ranking personnel may operate on behalf of a PEP to get around AML/CFT regulations.

The key phrase here is ‘prominent public functions’. The FATF's intentional reliance on the prominent public functions phrase is crucial to the classification of PEPs. It seems to be designed with intended suppleness to assure broad oversight. FATF does not provide an exhaustive list of positions. It describes categories and high-level taxonomies rather than a strict, comprehensive registry of positions. National regulators and financial institutions are to handle all the work of identification and determine specific positions within those categories. Although this intrinsic ambiguity acts as a tactical buffer, it is the source of PEP classification headaches and compliance challenges in financial systems.

FATF PEP Categories and Positions

A comprehensive list of categories with specific examples of positions under each provided by FATF is as follows. This list categorizes individuals whose "prominent public functions" necessitate heightened regulatory scrutiny under FATF Recommendation 12. The "prominent" character of these functions depends on their degree of power, influence, or control over public resources or policy;

• National Leadership: The highest echelon of executive power is heads of state and government like residents, prime ministers. Monarchs, such as current kings, queens, and emirs who have considerable ceremonial or executive authority are included. Representatives of the crown like governors-general, regional leaders include heads of self-governing territories and premiers of autonomous regions.
• High-Level Legislators & Politicians: State or provincial governors and mayors of major towns or financial centers are examples of powerful regional executives although the threshold varies. Members of national assemblies like parliament, senate, and congress, cabinet ministers/secretaries.
• Senior Government Officials: Directors-generals, secretaries which are permanent, and the diplomatic corps like ambassadors and high commissioners comprise the executive core of government ministries.
• Senior Judicial Officials: Chief prosecutors, prosecutors general, attorney generals, heads of judicial governing organizations, heads of judicial councils, and members of the highest courts like the supreme court or the constitutional court.
• Military Command & Intelligence: Chiefs of defense staff, directors of national security and intelligence services, heads of domestic security services, senior commissioned officers like admirals, generals. Military attachés are debatable.
• State-Owned Enterprise (SOE) Executives: CEOs and board directors of organizations under state control. These include state-run banks and financial institutions, national energy companies, and sovereign wealth funds.
• Political Party Leadership: Regardless of official government terms in nature, important members of major political organizations. These can be party leaders, general secretaries ,chairpersons and treasurers of major political parties, who have substantial influence over policy as key persons. These positions are included even if they hold no government office.
• Regulatory & Institutional Oversight(Others): Heads of financial regulatory organizations, central bank governors and board members. Senior representatives of international sports governing organizations like FIFA and IOC are included by some jurisdictions.

The Boundary Cases: Where Compliance Teams Struggle

Although the foundation is provided by FATF, practical application frequently falls into grey areas. The most frequent classification challenges that compliance officers face are listed below;

Are mayors PEPs?

Major city mayors: yes. Small town mayors: typically no. But the threshold is undefined. Mayors are a prime example of a position whose "prominence" is arbitrary. PEPs are often limited to mayors of "major" cities or important economic centers. There is no set threshold. It mainly depends on the population and the budget of the city. Geopolitical significance can be another checkbox to tick. If the subject of the discussion is London, Paris or the mayor of New York City, the answer is yes, they are considered as PEPs. These individuals have substantial procurement power and they manage budgets bigger than those of some small countries. The mayor in a tiny rural community, such as a village with 5,000 residents, is typically a no . Despite holding public office, they don't have the "prominence" that FATF Recommendation 12 calls for.

Are members of regional/state legislatures PEPs?

Federal systems: Varies. US state senators? → Generally not under FATF, but some PEP databases include them.

The distinction is hazy in federal systems such as those found in the United States, Germany, or Brazil. In theory, FATF concentrates on important national functions. The problem is that they are included in many PEP databases, such as World-Check or Dow Jones, just to be safe, which leads to "over-classification."

In California, a state senator is either YES but debatable. Many banks see California's lawmakers as PEPs because, if it were a nation, its economy would rank fifth in the world.In a unitary state where the regional body lacks budgetary or legislative independence, a member of a tiny provincial legislature is a no.

Are executives of PARTIALLY state-owned companies PEPs?

50%+ state ownership: Likely yes. Minority state ownership: Risk-based judgment. Senior executives are automatically granted PEP status in the majority of nations under a 50% plus share rule, which means majority control.

For minority ownership, 20% for instance, the risk-based approach is used. You need to consider effective control. The questions to ask are, “Does the state have a golden share with veto power, and does it choose the CEO? “

The CEO of the company Equinor in Norway is an example of yes. The Norwegian government controls 67% of the company, so this makes its executives PEPs.

Volkswagen executives in Germany are an illustration of a judgment call. Around 20% of voting rights are controlled by the State of Lower Saxony. They are not the majority, but their impact is big enough for a variety of regulatory organizations to keep an eye on them as PEPs.

Are board members (not executives) of SOEs PEPs?

Some databases include SOEs as PEP, some don't. Best practice: include as PEP. The FATF refers to "senior executives," although many international banks and the EU's best practice under 4AMLD/5AMLD is to include the Board of Directors. The argument being made is that non-executive directors continue to have an impact on significant contracts, mergers, and strategic choices.

A Saudi Aramco non-executive director is a yes in a PEP or not discussion. They are quite close to state assets, even if they are not involved in day-to-day operations. Thus, it has a yes PEP status.Meanwhile, a member of the advisory board who has neither a fiduciary duty to the corporation nor the ability to vote is a no for being a PEP or not.

Are retired military officers PEPs?

The answer depends on declassification rules. When a PEP's status is declassified, their relationship to political influence and power positions is reexamined, and it is determined whether their risk profile fits the predetermined PEP classification criteria. "Once a PEP, always a PEP" that is, unless a risk analysis indicates otherwise. For high-ranking officials, many authorities demand a lifetime PEP status. According to some AML/CFT guidelines, a PEP classification needs to be upheld indefinitely. Some argue that PEPs can be safely declassified provided they satisfy certain requirements, rejecting the idea of lifetime PEP status.

This question is a matter of the declassification discussion. High-ranking generals frequently transition into lucrative positions in the private sector for defense contracting or lobbying, where their previous "prominent functions" still have sway.

A retired general currently serves on the board of a significant defense contractor. To be regarded as a PEP, this is a yes. A retired colonel who has not held any secondary positions in government or business and has been out of duty for ten years is not eligible to be a PEP.

Regardless of being originated from the military, many nations agree that this time frame needs to be at least 12 to 18 months after the high-ranking government officials exit from public service. Although there isn't a single regulation, certain regulatory organizations do implement specific guidelines. For instance, following the termination of a politically exposed person's granted role in an important public capacity by a Member State, a third country, or an international organization, entities must evaluate the persistent risk associated with that person for at least 12 months, as per Article 22 of Directive 2015/849 from the European Parliament and the Council.

Are diplomats PEPs?

Ambassadors: yes. Lower-ranking consular staff: typically no.

It is obvious that ambassadors and high commissioners are PEPs. Unless they are serving in a prominent function like ‘Chargé d'affaires’, which are temporary heads of mission, lower-ranking employees are often not. Seniority and financial signing authority constitute the threshold in this discussion.

The French ambassador to the US is a yes for being a PEP. As it is a high-level diplomatic position with significant political exposure.

A typical no would be a third secretary or consular assistant at an embassy. They carry out administrative tasks and don't have the prominence to qualify as a major PEP.

Read more: PEP Categories Explained: Foreign PEPs, Domestic PEPs, and International Organization PEPs

PEP Positions by Jurisdiction: Where Definitions Diverge

The comparison of PEP positions by jurisdiction tells how various regulators interpret the "prominent public function" rule. They frequently add local layers that result in the classification headache that was previously addressed. National regulators modify these categories to fit their legal environment, even if it's the FATF who provides the baseline. A more detailed examination of jurisdictional differences in PEP classification is as follows;

Table 1: PEP positions by jurisdiction and variation of definitions

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Relatives and Close Associates: The Extension

A primary PEP may typically be found through an official government register. RCA connections are not publicly available. Identifying an RCA mostly necessitates relationship mapping and in-depth adverse media screening. This is a challenge in the compliance line of work.

Spouses or common-law partners, biological or adoptive children, parents, siblings, and in-laws, such as a minister's son-in-law, are examples of family members. When treating family members who don't fit this description, businesses should use a risk-based and appropriate strategy. Members of their larger family may be used by a corrupt PEP to launder money obtained through corruption. Larger family members like aunts and uncles might be the subject of corruption and may be considered as family members in appropriate cases.

Having a close personal or professional contact with a PEP puts a person in the close associates list. They might profit from or help the PEP's influence. A minister's long-term business partner who is active in granting governmental contracts, co-owners of a company or a legal entity, can be marked as a close associate. Advisors in the fields of law, finance, or strategy who oversee the PEP's private assets, and people who are known to be romantically involved with the official can also be close associates.

How to Use This List: Building Your PEP Policy

A road map for operationalizing the intricate definitions covered is given in this section. Creating a documented, risk-based structure that complies with both local and international regulations is more important for developing a strong PEP policy than screening every individual. Compliance departments should adhere to these methodical procedures to guarantee that their screening procedures are effective and defendable as they go from theory to practice;

• Start with FATF categories as baseline. Make your policy based on the main FATF categories: heads of state, senior politicians, judicial, military, and SOE executives. You have no room for compromise on these.
• Layer jurisdiction-specific additions. Depending on where you operate, incorporate certain criteria. Your policy should focus on "Foreign Political Figures" if you are headquartered in the US or include "Domestic PEPs" if you are in the EU.
• Define your institution's thresholds for boundary cases. Officially record your organization's viewpoint on ambiguous issues. Determine and document the population size at which a mayor becomes a PEP for you. What ranks in the military cause a PEP hit etc. Your greatest defense in an audit is to include these answers in your documented policy.
• Select PEP databases that cover your required scope. Select a platform that compiles data from all pertinent jurisdictions. The database has to be updated in real-time to account for abrupt political changes, elections or coups. It has to include and contain RCAs.
• Configure your screening system to match your defined positions. You may filter out low-risk middle-ranking people while high-risk authorities are never overlooked. Sanction Scanner offers sophisticated systems to compliance teams with configurable screening which enable position-level screening rules.
• Review and update in annual intervals. The political landscape is constantly shifting and dynamic. Every year, update your job lists to reflect current risk appetites. Review your strategy to take into account new regulatory guidelines like the EU's growing AML Regulations.