What is a Politically Exposed Person (PEP) and why is it important?
A Politically Exposed Person (PEP) is an individual who currently holds or has previously held a high-ranking position within a state, government, or international organisation. Since these individuals can influence major economic and political decisions, they are considered more susceptible to corruption, bribery, and financial crime.
The term PEP is primarily used in the context of Anti-Money Laundering (AML) and counter-terrorism financing (CTF) efforts. Businesses in the financial, legal, and other regulated industries must implement special procedures to identify and manage business relationships with PEPs.
Why is it important to identify PEPs?
Identifying and verifying PEPs is a crucial part of regulatory compliance and risk management. Here are some key reasons why it is necessary:
1. Reducing the risk of corruption and bribery
PEPs often have the power to influence financial decisions and legislation. This makes them more vulnerable to bribery and corruption, where business partners or companies may attempt to gain unfair advantages. By identifying PEPs, businesses can reduce the risk of inadvertently engaging in illegal business activities.
2. Compliance with AML/KYC regulations
Financial institutions and other regulated entities are required to conduct Enhanced Due Diligence (EDD) when dealing with a PEP. This includes:
Gathering more background information on the customer
Monitoring transactions more closely
Assessing the origin of the customer’s assets
Failure to comply with these regulations can result in hefty fines and legal consequences.
3. Preventing money laundering and terrorist financing
Criminal organisations can exploit PEPs to move funds through international financial systems and conceal transactions. Having robust monitoring and control mechanisms helps businesses detect suspicious transactions and report them to the relevant authorities.
4. Protecting your company’s reputation
If a company unknowingly collaborates with a PEP involved in corruption or financial crime, it can lead to negative publicity and damage the company’s reputation. Implementing effective PEP screening processes helps businesses make more informed decisions and avoid high-risk partnerships.
In addition to identifying PEPs, it is also critical to screen companies and their representatives against sanctions lists. Sanctions are designed to prevent business dealings with individuals and entities linked to terrorism, money laundering, or human rights violations.
How can businesses identify and manage PEP risks?
Manually checking whether a customer or business partner is a PEP can be both time-consuming and complex. That’s why many companies use automated solutions to ensure their PEP checks are accurate, efficient, and up to date.
Having a structured PEP screening process is not just a legal obligation—it is a key component of running a secure and sustainable business.
With Roaring’s services, businesses can quickly identify whether a customer or business partner is a PEP, ensuring regulatory compliance and minimising business risks.
Want to learn how to automate your PEP checks? Book a demo with us today!
