- 'Prominent public position or function'
- 'Government body'
- 'International organisation'
- 'Government Minister or equivalent senior politician'
- 'Senior government official'
- 'Judge of a court of equivalent seniority in a foreign country or international organisation'
- 'Governor of a central bank or any other position that has comparable influence to the Governor of the Reserve Bank of Australia'
- 'Senior foreign representative, ambassador or high commissioner'
- 'High ranking member of the armed forces'
- 'State enterprise'
- 'Immediate family member and close associate'
- 'Source of wealth' and 'source of funds'
- 'Senior management approval'
This term relates to functions which may exist at the Commonwealth, state and territory levels or their foreign equivalents. The meaning of 'prominent' may be determined through the size of the function in relation to the number of affected persons, the budget and its relevant powers and responsibilities.
The 2012 FATF Recommendations provide examples of positions which are covered, such as Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, important party officials, or, in relation to international organisations, directors, deputy directors and members of the board or equivalent. The FATF provides further detail in its guidance, Politically Exposed Persons (Recommendations 12 and 22).
Such positions commonly hold specific powers in relation to approving government procurement processes, budgetary spending, development approvals and government subsidies and grants.
PEPs at the local government or municipal level
It is noted that although FATF considers that a prominent public function may extend to the municipal or local government level, it is generally considered that this will only apply to persons who have the substantive powers (as noted above) relevant to this level of government.
The definition of 'domestic politically exposed person' in the AML/CTF Rules limits such persons to those who hold a position in an 'Australian government body', which is defined in the AML/CTF Act as extending to the Commonwealth, state or territory levels. This definition does not capture the local government or municipal level.
This is not the case with the definition in the AML/CTF Rules of 'foreign politically exposed persons' who hold positions in a 'government body', which is defined more broadly in the AML/CTF Act to include the 'government of part of a country'.
Although foreign PEPs are characterised as being of high ML/TF risk under Part 4.13 of the AML/CTF Rules, reporting entities may consider foreign officials at the local or municipal level as being PEPs only if they hold the substantive powers as noted above.
Accordingly, domestic customers of reporting entities at the local government or municipal level and who would otherwise be considered PEPs if they were foreign customers, are not required to be treated as PEPs under Part 4.13 of the AML/CTF Rules. However, the normal obligations relating to customer identification in Chapter 4 and ongoing customer due diligence in Chapter 15 will apply to such persons.
The Department of Foreign Affairs and Trade's Heads of Government List provides details on the names and titles of heads of state, heads of government, foreign ministers, trade ministers and in some case, ministers responsible for development assistance.
In summary, the AML/CTF Act defines 'government body' as:
- the government of a country; or
- an agency or authority of the government of a country; or
- the government of part of a country;
- an agency or authority of the government of part of a country.
The AML/CTF Act also defines 'Australian government body' as:
- the Commonwealth, a state or a territory; or
- an agency or authority of the Commonwealth, or a state or a territory.
Such Australian government bodies are created for a public purpose and come under the power of government, whether at the Commonwealth, state or territory level. This description is also relevant for foreign government bodies, with 'public purpose' being the key indicator in determining whether a body is categorised as a government body.
The Australian Government's Government Online Directory provides details of government bodies at the Commonwealth, state and territory levels.
For the purposes of the PEP definition, 'international organisations' are organisations established by formal political agreement between countries, where the agreement has the status of an international treaty, and the organisation is recognised in the law of the member countries.
- the United Nations and affiliates such as the International Maritime Organization
- regional international organisations such as the Council of Europe, institutions of the European Union, the Organization for Security and Co-operation in Europe and the Organization of American States
- international military organisations such as the North Atlantic Treaty Organization
- economic organisations such as the World Trade Organization.
In Australia, a government minister (at the Commonwealth, state or territory level) is an elected person who holds an executive office in the government and is responsible for administering one or more departments. A Parliamentary Secretary may be considered the equivalent of a minister.
For foreign PEPs, there may be situations where the government minister or equivalent is not an elected person but may be appointed directly by the government (for example, Cabinet Secretaries in the United States) with relevant or equivalent powers to those held by Australian government of the day through the casting of their votes.
Equivalent senior politician
The term 'equivalent senior politician' includes 'shadow' ministers in the opposition and will include persons such as the Leader of the Opposition and the leaders of parties in Parliament.
In situations where the government does not have a clear majority and therefore relies upon members of other parties to pass legislation implementing its policies, politicians who would not fulfil the requirements of being ministers or have sufficient seniority, may be considered to fall within this category due to the power they have to influence the government of the day through the casting of their votes.
The 'ElectionGuide' website provides a worldwide overview of elections, including details of senior politicians.
The criteria noted above in regard to 'prominent public position or function' are also relevant to determining whether a person is a 'senior' government official. These include:
- the size of the function in relation to the number of affected persons
- the budget and relevant powers and responsibilities of the position, including the approval of government procurement processes, control over regulatory approvals including the awarding of licenses or concessions, budgetary spending and government subsidies and grants.
Reporting entities may also consider positions at lower levels if those persons are in roles which have powers and responsibilities which are equivalent or similar to those of senior government officials (for example, a Chief Financial Officer or Chief Information Officer with significant procurement or other budgetary responsibility or oversight).
The roles of senior government officials in foreign countries may vary widely from those in Australia. The following lists may assist reporting entities in determining whether a person is a foreign senior government official.
An official is more likely to be considered a senior government official if they have:
- substantial authority over or access to state assets and funds, policies and operations
- control over regulatory approvals
- control or influence over decisions that would effectively address identified shortcomings in the AML/CTF system of the country
- access, control or influence over government accounts
or if they are involved in state industries such as:
- arms trade and defence industry
- banking and finance
- construction and large infrastructure
- government procurement
- mining and extraction
- provision of public goods and utilities.
The PEP definition specifies courts of equivalent seniority to the High Court of Australia, the Federal Court of Australia or the Supreme Courts of a state or territory:
- Supreme Courts are the highest court in the judicial hierarchy of each state or territory
- the Federal Court covers almost all civil matters arising under Australian federal law, including some summary and indictable criminal matters
- the High Court deals with cases which originate in the High Court and is the highest court of appeal in Australia on all legal matters.
Accordingly the relevant principle in respect to foreign country courts is whether the court is one of the superior courts within its relevant jurisdiction (such as a state or territory), or whether it is the highest within the country.
The PEP definition also refers to judges of 'international organisations'. Not all international organisations will have judicial or similar functions; however, examples of international organisations that do are the International Court of Justice and the European Union Court of Justice.
In these examples, the relevant position may not include the term 'judge' within its title; however, the position may be the equivalent of a judge as the position holder is required to determine matters through the application of a legal remedy.
'Governor of a central bank or any other position that has comparable influence to the Governor of the Reserve Bank of Australia'
Central banks oversee the monetary system of a nation and have a wide range of responsibilities, from overseeing monetary policy to implementing specific goals such as currency stability, low inflation and full employment. They may also issue currency, function as the bank of the government, regulate the credit system, oversee commercial banks, manage exchange reserves and act as a lender of last resort.
The Reserve Bank of Australia (RBA) is a 'central bank' and has legislated functions to contribute to the stability of the Australian currency, full employment and the economic prosperity and welfare of the Australian people. The Governor of the RBA manages the bank and its operations.
An internet search can usually identify the central bank of a foreign country and the relevant position equivalent to the Governor of the RBA. For example, in the United States the central bank is the Federal Reserve, with the equivalent position being the Chairman of the Board of Governors. In the United Kingdom, the Bank of England is the central bank with the equivalent position being the Governor and in Indonesia, Bank Indonesia is the central bank and it is led by the Governor.
The Bank for International Settlements website provides a comprehensive overview of world central banks.
The foreign postings of the Australian Government include:
- Ambassador – Head of an embassy which is the main representative office of one country in the capital city of another.
- High Commissioner – Head of the High Commission, a main representative office of a Commonwealth country in the capital city of another Commonwealth country.>
The following Australian Government foreign postings may be characterised as 'senior foreign representatives':
- Consul-General – Head of the Consulate or Consulate-General, a lower level representative office, usually located in a city outside the capital city.>
- Deputy Head of Mission – The deputy to the ambassador.
- Charge d'affaires – An official placed in charge of diplomatic business during the temporary absence of the ambassador.
- Honorary Consul – Head of the Honorary Consulate. This is usually a private businessperson (usually an Australian citizen) who agrees to perform limited consular functions, in a city where Australia does not have an Australia-based representative.
The Department of Foreign Affairs and Trade's Embassies and consulates web page provides details of persons in the above roles. Equivalent terms used by foreign countries include:
- Head of Mission
- Chief of Mission
- Deputy Chief of Mission
- Permanent Representative
- minister plenipotentiary.
Other titles regarding diplomatic postings may be considered by reporting entities as being PEPs if the person has a prominent public position or function.
In Australia the 'armed forces' refer to the Australian Army, the Royal Australian Navy and the Royal Australian Air Force. However, foreign armed forces may vary in regard to the services which exist.
In Australia the following may be considered to be 'high ranking' and are listed in descending order of seniority:
Royal Australian Navy
Royal Australian Air Force
Air Chief Marshall
Air Vice Marshall
The seniority of a rank is generally based upon two elements: what the rank may command in the field (or equivalent) in times of conflict, and the executive role which they may undertake. For example, a Major General may command a division (approximately 10,000 to 15,000 soldiers) and hold an executive appointment such as Special Operations Commander – Australia.
The Australian Government Department of Defence's website provides details on senior appointments in the Australian Defence Force.
In Australia, a 'state enterprise' is usually known as a 'government business enterprise' (GBE) and may exist at the Commonwealth, state or territory level. A state enterprise is characterised by:
- the government controlling the enterprise
- the enterprise being principally engaged in commercial activities
- the enterprise having a legal personality separate to a department of government.
The enterprise may be a body corporate established by legislation for a public purpose (state-owned or statutory corporations), or a company established under corporations law in which a state or territory government has a controlling interest.
Examples of current Commonwealth GBEs are ASC (formerly known as Australian Submarine Corporation), Australian Postal Corporation, Australian Rail Track, Defence Housing Australia and NBN Co Limited.
In foreign countries, GBEs may be known as a crown corporation, government-owned corporation, state-owned company, state-owned entity, state enterprise, commercial government agency or public sector undertaking.
As noted in the PEP definition, in such organisations a PEP may be the board chair, chief executive, chief financial officer or any other position which has comparable influence in the organisation.
The FATF Recommendations require that family members and close associates of PEPs should be treated as PEPs because of the potential that the relationship could be misused to move the proceeds of crime or facilitate their placement and disguise, or for terrorism financing. In determining the level of ML/TF risk associated with a customer or potential customer who is close associate and/or family member of a PEP, the reporting entity should consider the identified links between the PEP and the family member or associate.
The notion of a 'close associate' is not intended to capture every person who has been associated with a PEP, such as a friend or colleague. A close associate is an individual who is known (through information that is public or readily available) to have:
- joint beneficial ownership of a legal entity (for example, a company) or legal arrangement (for example, a trust) with the PEP
- sole beneficial ownership of a legal entity or legal arrangement that is known to exist for the benefit of the PEP.
The PEP definition within the AML/CTF Rules specifies that an 'immediate family member' includes a spouse, a de facto partner, a child and a child's spouse or de facto partner, and a parent.
The definition of an immediate family member is inclusive and therefore is not limited to the relationships specified. The list indicates what is meant by the term and a decision as to who is an immediate family member will be informed by what information is public or readily available about the PEP. For example, it may be known that a particular PEP has a history of business dealings with a sibling, so a reporting entity may therefore consider that the sibling's relationship with the PEP is sufficiently close for the sibling to be considered an immediate family member (even though siblings are not specifically included in the AML/CTF Rules definition).
The PEP definition also notes that the term 'de facto partner' is defined in the Acts Interpretation Act 1901 in section 2D (References to de facto partners), section 2E (Registered relationships) and section 2F (De facto relationships)and this definition should be used for the purposes of the AML/CTF Rules. In summary, that definition specifies that a person is a de facto partner of another person (whether of the same or different sex) if:
- the person is in a registered relationship with the other person; or
- is in a de facto relationship with the other person.
A 'registered relationship' means that the relationship is registered under a law of a state or territory as a prescribed kind of relationship. A 'de facto relationship' means that the persons:
- are not legally married to each other; and
- are not related by family; and
- have a relationship as a couple living together on a genuine domestic basis.
Although the terms 'source of wealth' and 'source of funds' are not specifically used in the AML/CTF Rules definition of PEPs, they are both relevant considerations when assessing ML/TF risk for PEPs.
FATF states that 'source of wealth' refers to the origin of the PEP's entire body of wealth (the total assets), which in turn will give reporting entities an indication of both the volume of wealth the customer would be expected to have and how the PEP acquired that wealth.
'Source of funds' refers to the origin of the particular funds or assets which are the subject of the business relationship between the PEP and the reporting entity, such as the amounts being invested, deposited or transferred.
The purpose of ascertaining such information is to ensure that the reason for the business relationship is commensurate with what a reporting entity could reasonably expect of the PEP in the particular circumstances relating to that customer.
What constitutes a 'reasonable expectation' may relate to the PEP's current income and sources of wealth and funds that could be explained from previous positions, business undertakings or family estates. When the source of wealth and funds do not appear reasonable when the circumstances of the PEP are considered, then this would be relevant to the ML/TF risk assessment by the reporting entity of that customer and may be an indicator of corruption.
Collecting information about sources of wealth and sources of funds
Commonwealth, state and territory politicians in Australia are legally required to publicly disclose assets; for example, through a Register of Member's Interests (or equivalent). Reporting entities may use this information to inform their assessment of a domestic PEP's wealth and sources of funds.
The Commonwealth 'Statement of Registrable Interests', for example, requires the disclosure of information relating to shareholdings in public and private companies, family and business trusts, real estate, directorships, partnerships, liabilities, savings or investment accounts, bonds, debentures, substantial sources of income and any assets valued over $7,500.
If the reporting entity's ML/TF risk assessment of the customer warrants it, the reporting entity can further investigate the customer's interests through other publicly available resources, such as registers relating to companies which could provide information about a PEP's wealth and funds. A reporting entity might also request information from the customer such as evidence of insurance payouts, bequests, gambling wins or asset sales.
The extent of investigation expected of a reporting entity in relation to the source of wealth and source of funds for the PEP is determined by the use of 'reasonable measures', which is defined in Chapter 1 of the AML/CTF Rules as 'appropriate measures which are commensurate with the money laundering or terrorist financing risks'. The investigation by a reporting entity must be 'reasonable' in the context of the circumstances under consideration, and this may vary from case to case.
Accordingly a definitive explanation of what is 'reasonable' cannot be given.
If a reporting entity is unable to determine the source of wealth and the source of funds after undertaking a demonstrated investigation, then the reporting entity may consider whether it is appropriate to continue the business relationship, or, if the relationship does continue, whether to submit a suspicious matter report (SMR) for that particular PEP.
The Parliament of Australia 'Parliamentary Remuneration' webpage provides information about asset disclosure requirements at the Commonwealth, state and territory levels.
Information about international public figures and financial disclosure has been collated in the World Bank's Financial Disclosure Law Library.
Although the term 'senior management approval' is not specifically used in the PEPs definition, such approval is directly relevant to the development of ML/TF risk management systems for PEPs.
Where a customer is a foreign PEP, or a high ML/TF risk domestic or international organisation PEP, Part 4.13 of the AML/CTF Rules requires 'senior management approval' for:
- a business relationship with that PEP to commence or continue, or
- whether a designated service to be provided or continue to be provided to that PEP.
The appropriate time frame for senior management consideration is a matter for the reporting entity.
It would be assumed that in the assessment of such relationships, with their potential for high ML/TF risk, senior management consideration would be provided in a timely manner, as an inordinate delay may have impacts both on the potential customer and the business of the reporting entity.
For example, the senior management assessment may be crucial for the provision of a designated service relating to a significant loan amount, as without that assessment the reporting entity may be exposed to potential financial risk with that high ML/TF risk customer.
Likewise, in circumstances where this designated service has been provided to a PEP or a business relationship has been established, it would also be prudent for senior management approval to be obtained 'as soon as practicable' after the commencement of that relationship for the same reason.