Politically exposed persons (PEPs)
A PEP is an individual who holds a prominent public position or role in a government body or international organisation, either in Australia or overseas. Immediate family members and/or close associates of these individuals are also considered PEPs.
PEPs often have power over government spending and budgets, procurement processes, development approvals and grants. Examples of PEPs include heads of state, government ministers or equivalent politicians, senior government executives, high-ranking judges, high-ranking military officers, central bank governors, or board members or executives of an international organisation. This is not a complete list of PEPs.
Because PEPs hold positions of power and influence, they can be a target for corruption and bribery attempts, and ultimately for money laundering or terrorism financing activities. This is why it’s important to use AML/CTF measures to identify, mitigate and manage any such potential risks. However, you should remember that being a PEP doesn’t automatically mean someone is involved in criminal activities.
As part of your AML/CTF program, you must outline how you identify PEPs and what steps you take when dealing with them.
Types of PEPs
The AML/CTF Act identifies three types of PEPs.
- Domestic PEP – someone who holds a prominent public position or role in an Australian government body.
- Foreign PEP – someone who holds a prominent public position or role with a government body in a country other than Australia. This would include foreign PEPs working or residing in Australia.
- International organisation PEP – someone who holds a prominent public position or role in an international organisation, such as the United Nations (UN), the World Trade Organisation (WTO) or the North Atlantic Treaty Organisation (NATO).
How to respond to discrepancies
You must have risk-based systems and controls in place to respond to any discrepancies you notice when verifying a PEP’s identity. These controls should help you be sure that the PEP is who they claim to be.
It is important to know your customers and implement strategies to mitigate and manage the money laundering/terrorism financing risk posed by PEPs. You can do this by:
- considering the money laundering/terrorism financing risks posed by PEPs when providing a designated service/s to them
- tailoring your systems and controls, such as staff awareness training and initial and ongoing customer due diligence procedures
- submitting suspicious matter reports to AUSTRAC, where required.
When a PEP leaves their position
A person, or their family members or close associates, are not considered PEPs once they leave their high-profile position that attracted their PEP status. However, they may still be high-risk. Former PEPs may still maintain a degree of influence and therefore pose a money laundering/terrorism financing risk to your business or organisation, especially if they were high-risk PEPs. When you consider a former PEP is a high-risk customer, you must apply your ECDD program. You also may choose to implement other controls to mitigate and manage the risk.
PEPs and other legislative requirements
Sometimes reporting entities believe that they are unable to meet their legal obligations to a customer who is a foreign PEP or other high-risk customer because the AML/CTF legislation prevents them from providing the designated service. However, AUSTRAC’s position is that you may continue to provide the designated service to a customer rated as high money laundering/terrorism financing risk as long as you have applied enhanced customer due diligence procedures and submit a suspicious matter report (SMR) if appropriate.
Privacy law and PEPs
The information you collect and verify about a person’s identity is covered by the Privacy Act, and you should be aware of your obligations under that law. The personal information you collect about a PEP to comply with your AML/CTF obligations may be considered ‘sensitive’ and, according to the Australian Privacy Principles should be given a higher level of privacy protection. For example, the Privacy Act defines information about someone’s political opinions or their membership of a political association as sensitive. You must make sure that the way you manage sensitive information complies with your obligations under the Privacy Act.
The content on this website is general and is not legal advice. Before you make a decision or take a particular action based on the content on this website, you should check its accuracy, completeness, currency and relevance for your purposes. You may wish to seek independent professional advice.