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Politically exposed person
In financial regulation, "politically exposed person" (PEP) is a term describing someone who has been entrusted with a prominent public function. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence that they may hold. The terms politically exposed person and senior foreign political figure are often used interchangeably, particularly in international forums. Foreign official is a term for individuals deemed as government persons under the Foreign Corrupt Practices Act or FCPA, and although definitions are similar to PEP, there are quite a few differences and should not be used interchangeably. The term PEP is typically used referring to customers in the financial services industry, while 'foreign official' refers to the risks of third party relationships in all industries.
While there is no global definition of a PEP, most countries have based their definition on the 2003 Financial Action Task Force on Money Laundering (FATF) standard, as for example the Swiss financial market regulator in 2011, which quoted it as "the international standard" or the Australian government in 2015. FATF is an international inter-governmental body, founded in 1989 on the initiative of the G7 and hosted by the OECD, to set standards and promote implementing measures against money laundering, financing of terrorism and financing of proliferation of weapons of mass destruction to preserve the integrity of the global financial system.
In February 2012, the FATF's latest definition of politically exposed persons (PEP), revised from 2003, is as follows:
Requirements for a PEP apply to family members or close associates, any individual publicly known, or known by the financial institution to be a close personal or professional associate. "The FATF definition is not intended to include middle-ranking or more junior individuals."
Foreign PEPs: individuals who are or have been entrusted with prominent public functions by a foreign country, for example Heads of state or Heads of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials.
Domestic PEPs: individuals who are or have been entrusted domestically with prominent public functions, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials. (Not all countries subscribe to the concept of domestic PEPs with respect to regulatory requirements/application of due diligence. For example, US law, specifically Section 312 of the USA Patriot Act and its implementing regulations provide for enhanced due diligence for SFPFs (Senior Foreign Political Figure) only, defined as: "a current or former senior official in the executive, legislative, administrative, military, or judicial branches of a 'foreign' government...a senior official of a major 'foreign' political party; and a senior executive of a 'foreign' government-owned commercial enterprise.)
- Persons who are or have been entrusted with a prominent function by a state owned enterprise or an international organisation refers to members of senior management, i.e. directors, deputy directors and members of the board or equivalent functions.
- Domestic PEPs are individuals who hold a prominent public position or function in an Australian government body
- Foreign PEPs are individuals who hold a prominent public position or function in a government body of a foreign country.
- International organisation PEPs are individuals who hold a prominent public position or function in an international organisation.
- A foreign person who has held any time in the preceding year a prominent public function outside the United Kingdom, in a state or international institution
- Members of courts of auditors or of the boards of central banks
- Ambassadors, chargés d’affaires and high-ranking officers in the armed forces
- Members of the administrative, management or supervisory bodies of state-owned enterprises
- Heads of state, heads of government, ministers and deputy or assistant ministers
- Members of parliaments
- Members of supreme courts, constitutional courts or of other high-level judicial bodies
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