What is Politically Exposed Person (PEP)?

What is PEP?

A Politically Exposed Person (PEP) is an individual who holds a prominent public position or has held such a role in the recent past, and as a result, is considered at higher risk for involvement in bribery, corruption, or other financial crimes. The term includes not only the person in the role but also close family members and known associates.

Why Are PEPs Considered High Risk?

PEPs are more likely to be involved in or targeted by financial misconduct due to their access to public funds and power. This does not imply criminal activity by default but requires Enhanced Due Diligence (EDD) in compliance programs.

Categories of Politically Exposed Persons

Politically Exposed Persons (PEPs) are individuals who hold prominent public positions or have significant influence in government, politics, or public administration. These individuals are categorized into distinct types based on their roles and responsibilities.

What Are the Risk Levels of a Politically Exposed Person?

High Risk: Individuals who face significant exposure due to their position, such as senior executives, public officials, or those with direct links to corruption or illicit activities. These individuals may pose a greater threat in terms of financial crimes or fraudulent practices. 

Medium Risk: Individuals with moderate exposure, such as those in roles with some level of financial decision-making or indirect connections to high-risk entities. While not as directly involved, they still present potential vulnerabilities that require monitoring. 

Low Risk: Individuals with minimal exposure, typically in roles or circumstances that have little to no connection to financial crimes or corruption. These individuals are less likely to be involved in high-risk activities.

Red Flags of a Politically Exposed Person 

• Bribery and corruption: The offering, giving, receiving, or soliciting of something valuable to influence actions, especially in a position of power. 
• Illicit enrichment: The accumulation of assets by individuals in a way that cannot be legally justified by their income or declared sources of wealth. 
• Use of shell companies or proxies: The creation or use of companies or intermediaries to hide true ownership, evade taxes, or facilitate illegal activities. 
• Abuse of public authority: The misuse of power or position by public officials for personal gain, often at the expense of the public interest.

How to Identify Politically Exposed Persons?

Screening Tools:

• PEP (Politically Exposed Persons) screening databases (e.g., Sanction Scanner) to identify individuals who may pose higher risks due to their influential roles.
• Sanction list integration to automatically cross-check individuals and entities against global watchlists and sanctions, ensuring compliance with regulations.
• AI-powered transaction monitoring to detect suspicious activities in real-time, helping to flag anomalies that require further investigation.

 Enhanced Due Diligence (EDD):

• Source of wealth and source of funds checks to verify the legitimacy of financial resources, reducing the likelihood of illegal activities such as money laundering.
• Ongoing monitoring and regular reviews to maintain up-to-date risk assessments throughout the lifecycle of a business relationship.
• Senior management approval for high-risk business relationships, ensuring proper oversight and accountability before proceeding.

Risk Scoring Models:

• Jurisdiction risk assessments to evaluate the potential risks associated with operating in or dealing with specific countries or regions known for higher risks.
• Role influence level analysis to determine how an individual’s position or influence could increase exposure to financial crime risks.
• Transaction behavior patterns to identify deviations from expected norms, highlighting potential red flags for further review.

What Are the Key Challenges for Politically Exposed Persons?

Managing PEP-related compliance is a critical yet complex task for financial institutions and regulated entities. While screening for PEPs is essential for preventing financial crime, compliance teams face several ongoing challenges:

1. Real-Time Status Changes

PEP statuses can change suddenly — a previously low-risk client may be appointed to a public office overnight. Without automated systems that offer real-time updates, compliance teams risk missing critical status shifts, leading to regulatory breaches.

2. Global Database Inconsistencies

There is no single, centralized, or universally accepted PEP list. Instead, institutions rely on fragmented databases with varying coverage and update frequencies. This creates gaps in detection, especially for PEPs in less transparent jurisdictions.

3. High False Positive Rates

Name-based screening often triggers alerts for individuals with common names or similar identities, especially across different transliterations and scripts. These false positives consume valuable analyst time and increase operational workload unnecessarily.

4. Manual Enhanced Due Diligence (EDD) Workloads

Once a PEP is identified, institutions must conduct time-intensive EDD procedures, including verifying the source of wealth and monitoring transactions. Without automation or smart workflows, this process slows down onboarding and increases cost.

5. Jurisdictional Variability

PEP definitions, monitoring periods, and compliance obligations differ across countries (e.g., EU vs. US vs. Asia). Ensuring that all policies are jurisdiction-specific and up to date is a constant challenge for global compliance teams.

6. Lack of Contextual Risk Scoring

Many tools provide binary PEP results (match/no match), without considering contextual factors such as position held, jurisdictional risk, or proximity to power. This limits the ability to prioritize actual risk versus administrative matches.

Who is Considered a Politically Exposed Person?

A Politically Exposed Person (PEP) is someone who holds — or has recently held — a prominent public position that may present a higher risk of involvement in corruption, bribery, or financial crime due to their influence and access to funds.

Being a PEP is not an indication of wrongdoing, but it requires financial institutions to apply enhanced due diligence when entering into or maintaining a business relationship with such individuals.

Individuals Commonly Considered PEPs:

• Heads of state or government
• Ministers and deputy ministers
• Members of parliament or national assemblies
• Senior judges or magistrates
• High-ranking military officers
• Central bank governors
• Senior executives of state-owned enterprises
• Ambassadors or other high-ranking diplomats

Also Included:

• Family members of PEPs (spouses, children, parents, siblings)
• Close associates, such as:
  • Business partners
  • Legal representatives or proxies
  • Individuals with joint beneficial ownership in companies or trusts

Global PEPs Table – June 2025

Politically Exposed Person Regulations

FATF (Financial Action Task Force):

The FATF is an intergovernmental organization that sets international standards to combat money laundering and terrorist financing. It requires financial institutions to identify Politically Exposed Persons (PEPs) and conduct Enhanced Due Diligence (EDD) on these individuals to mitigate risks associated with corruption or misuse of power. While the FATF does not maintain a specific list of PEPs, it provides risk-based guidance to help institutions categorize and assess PEP risks effectively.

EU 6th AML Directive:

The EU 6th Anti-Money Laundering Directive emphasizes the importance of identifying PEPs as part of combating financial crimes within the European Union. It mandates both the identification and ongoing monitoring of PEPs to ensure transparency and accountability. The directive also enforces strict legal liability for financial institutions in cases of non-compliance, reinforcing the importance of adhering to AML regulations across member states.

UK Law:

Under UK law, the 2017 Money Laundering Regulations (MLR) clearly define PEPs and establish regulatory requirements for firms handling transactions involving these individuals. The Financial Conduct Authority (FCA) offers specific guidance to help firms interpret and implement these regulations, ensuring that PEP-related risks are managed effectively and in compliance with the law.

U.S. FinCEN Guidelines:

In the United States, FinCEN (Financial Crimes Enforcement Network) provides guidelines for managing PEP-related risks. Although U.S. regulations do not legally require institutions to screen for PEPs, FinCEN strongly encourages a risk-based approach to assess and monitor PEP-related activities. Financial institutions under the Bank Secrecy Act (BSA) are required to file Suspicious Activity Reports (SARs) for any transactions involving PEPs that raise red flags, ensuring greater oversight and accountability.

What is PEP screening?

PEP screening (Politically Exposed Person screening) is a key component of anti-money laundering (AML) compliance programs. It refers to the process of identifying individuals who hold—or have held—prominent public positions, as well as their close associates and family members. These individuals are considered to pose a higher risk for potential involvement in bribery, corruption, or money laundering due to their access to public funds and influence.

Why PEP Screening Matters?

Financial institutions and regulated entities are required to:

• Detect and monitor transactions involving PEPs more closely
• Conduct Enhanced Due Diligence (EDD) to assess the source of their funds and potential risks.
• Comply with global regulations, such as FATF Recommendations, EU AML Directives, FinCEN guidelines, etc.

Key Elements of PEP Screening

• PEP databases: These are used to check whether a customer matches known PEP profiles.
• Name matching algorithms: Ensure that variations and aliases are also detected.
• Ongoing monitoring: Because a customer’s status may change (e.g., becoming a PEP after onboarding).

What to Consider When Choosing a PEP Monitoring Tool

• Jurisdictional Coverage: Does it align with your client base or operational countries?
• Data Freshness: Are PEP lists updated daily or in real-time?
• Customization: Can you fine-tune risk thresholds and alerts?
• Scalability: Can the system scale with your business growth and onboarding volume?
• Regulatory Alignment: Is it compliant with FATF, FinCEN, EU AMLD, and local requirements?

What Is the Role of PEP Screening in AML Compliance?

Politically Exposed Person (PEPs) refers to a person who is of high danger when it comes to money laundering, bribery, and corruption. Since they hold such positions as holding senior government positions, having control over state-owned enterprises, or influencing public procurement, PEPs can access public funds, regulatory power and administrator authority.  With this amount of influence, chances of abuse, misuse of funds and illicit financial activities emerge.

As a result, PEP screening is both the best choice and a foundational factor of AML compliance programs across the world. 

It also helps institutions:

• Identify whether a client or beneficial owner is a PEP, a family member, or a close associate.  Detect if a client or beneficial owner is a PEP, a family member or a close member.
• Asses the nature and amount of the risk.
• Apply Enhanced Due Diligence  (EDD) measures where required. Apply Enhanced Due Diligence (EDD) when needed.
• Decrease the risk of being involved in a financial crime without being aware of it or fraud in public sector.

In many jurisdictions, some of which are under FATF, the EU’s AML Directives, and FinCEN guidance, PEPs secreening is a mandatory compliance obligation.  Becoming PEP is not suggested wrong immediately, and yet doing it calls for financial institutions to  handle the business relationship more carefully, record it throughly, and constant monitoring of transactions and changes in status. 

Moreover, with efficent PEP screening, more goals of an AML framework are supported by:

• Stopping criminals to hide the origins of their illicit wealth.
• Ensuring transparency and accountability in financial services. Providing clearness and responsibility in financial services.
• Decreasing reputational damage and regulatory risks.

In order to do this efficiently, foundations should trust real-time, dynamic data sources, utilize advanced technology for secreening (like AI-driven name matching and risk scoring) and include PEP controls in core KYC, onboarding, and transaction monitoring processes.

Top PEP Monitoring Software Providers in 2025

What Are the PEP and Compliance Requirements by Jurisdiction?

PEPs vs. Sanctioned Individuals: What’s the Difference?

While PEPs and sanctioned individuals may seem similar in some ways, there are key differences between the two. Sanctioned individuals are typically targeted by governments or international organizations for their involvement in illegal activities, such as human rights abuses or terrorist financing. 

Consequences of Failing to Screen for PEPs

Failure to adequately screen and manage Politically Exposed Persons (PEPs) can result in severe regulatory, financial, and reputational consequences. Below is a summary table followed by real-world case studies to illustrate the risks of non-compliance.

Key Consequences of Inadequate PEP Screening

Examples of PEP Cases in Different Sectors

Below are real-world examples that demonstrate the high-risk nature of PEPs and the consequences of failing to manage that risk.

 Case 1: HSBC (2012)

• Issue: HSBC failed to monitor PEPs and allowed suspicious transactions from high-risk countries.
• Consequence: $1.9 billion fine from U.S. authorities, with lasting reputational damage.
• Lesson: Weak PEP and sanctions controls can have long-term institutional costs.

Case 2: Danske Bank (2007–2015)

• Issue: The bank’s Estonian branch processed €200+ billion in suspicious payments involving PEP-linked shell companies.
• Consequence: CEO resigned, share price dropped over 40%, and multiple regulatory investigations launched.
• Lesson: Failing to escalate PEP risk signals can lead to systemic AML failures.

Case 3: FBME Bank (2014)

• Issue: The U.S. Treasury identified PEP-related money laundering activities through FBME.
• Consequence: Classified as a "primary money laundering concern" under the USA PATRIOT Act; the bank was effectively shut down.
• Lesson: Ignoring high-risk PEP clients can lead to total operational collapse.

 Case 4: Deutsche Bank (2023)

• Issue: Inadequate PEP screening processes in place, especially concerning politically connected clients from Russia.
• Consequence: Regulatory penalties and forced restructuring of AML procedures.
• Lesson: Even large institutions are not immune to compliance breaches.

How May Sanction Scanner Help You?

Sanction Scanner provides advanced compliance tools that help organizations identify, monitor, and manage Politically Exposed Persons (PEPs) effectively and in real time. Whether you're a financial institution, fintech company, or professional service provider, Sanction Scanner enables you to stay compliant with local and global AML regulations.

Key Ways Sanction Scanner Supports PEP Compliance:

PEP Screening with Global Coverage

Screen customers and third parties against a continuously updated database of PEPs, sourced from official government and international lists across 200+ countries.

Automated Risk Classification

Classify detected PEPs based on role, jurisdiction, and exposure level — helping your compliance team prioritize actions based on actual risk.

Ongoing Monitoring

Receive automatic alerts when a person's PEP status changes or new risk information becomes available, ensuring continuous due diligence.

Detailed Audit Trails & Reports

Generate comprehensive reports and maintain audit-ready documentation for regulators, internal reviews, and compliance audits.

Real-Time API Integration

Integrate PEP and sanction screening into your onboarding or transaction processes with Sanction Scanner’s flexible, developer-friendly API.