Domestic PEP examples 

These examples show how to identify customers who are PEPs and what to do next. They explain the processes you need to assess, manage and mitigate risks associated with customers who are PEPs.

Domestic PEP example

A large accounting firm, with offices throughout Australia, provides a range of accounting and financial services to individuals and businesses.

John, a principal accountant, is employed by the firm and manages a portfolio of domestic clients including high-net-worth individuals and medium to large businesses

Conducting ongoing customer due diligence 

Whilst conducting ongoing customer due diligence (CDD), and in an online search, John finds that one of his existing clients has recently been elected mayor of a local council. He asks this client about this. They confirm the election result and John updates his client’s know your customer (KYC) information. The client now meets the definition of a domestic PEP under the AML/CTF Act. Whilst the client was low risk at onboarding, the client’s money laundering, terrorism financing and proliferation financing (ML/TF) risk has now become medium risk in line with the accounting firm’s AML/CTF policies and applies ongoing CDD controls to manage and mitigate risks associated with domestic PEPs. This includes conducting source of funds and source of wealth checks in line with the firm’s policy on all high-net-worth medium risk customers to better understand their financial positions.

Verifying source of funds and source of wealth

John collects and verifies information about the client’s source of funds and source of wealth and asks his client to make a formal declaration about these as required by the firm’s AML/CTF program. The information is verified by official documentation provided by his client, including his salary package as mayor and the recent sale of assets.

Doing these checks helps John understand if the client’s financial position is credible and if the funds come from a legitimate source or not. 

The additional checks confirm the client’s financial activities are legitimate. John finds the source of their funds are consistent with their professional and business activities. 

This gives John a clear understanding of his client’s financial position. It means the firm can apply appropriate risk mitigation controls.

Record keeping and senior manager approval

John maintains detailed records of: 

• all ongoing CDD steps
• the client’s reassessed ML/TF risk rating from low to medium risk 
• his decision to continue the relationship with the client. 

In line with the firm’s AML/CTF policies, John doesn’t need to seek senior manager approval to do this.

Family member of a domestic PEP example

A small suburban law firm manages funds and estates for individuals, businesses and other entities. The law firm helps clients structure assets and manage their wealth. Principal account manager Sonny works with high-net-worth individuals and medium to large businesses.

Conducting initial customer due diligence 

Sonny receives an enquiry from a couple wanting to set up a family trust. They have a share portfolio valued at $500,000 and want to pass it on to their 2 children when they reach 25 years of age.

Sonny conducts initial customer due diligence (CDD) procedures and collects the couple’s: 

• names
• dates of birth
• residential addresses 
• country of residence 
• occupations.

They provide the required identification documents and Sonny verifies these using a document verification system (DVS).

The couple also provide documentation including remuneration and bank statements to verify their source of funds. 

The explanation of the stated purpose of the trust and the funds involved is also consistent with the clients’ low-risk profile.

Family member of a PEP

As part of the law firm’s initial CDD processes, Sonny asks his clients if either of them is a PEP. One of them indicates that their parent is a senior federal Australian politician who is therefore classified as a domestic PEP.

The client also provides the details of the politician, including name and position which Sonny confirms by checking against open sources.

This now means that both clients are classified as domestic PEPs as the client’s spouse is also now considered a domestic PEP.

Although Australia is assessed as a low‑risk jurisdiction in the law firm’s country risk assessment, the client is classified as medium risk under the firm’s AML/CTF policies.

Getting senior manager approval

As the couple is considered as medium risk, senior management approval isn’t required before providing them with a designated service, as per the firm’s AML/CTF policies. 

Sonny maintains detailed records of: 

• all initial CDD steps
• the names and roles of all parties screened 
• screening results
• escalation and approval decisions. 

Domestic PEP concerns identified example

A mid‑sized accountancy firm operating across Australia provides taxation, bookkeeping, payroll, and corporate advisory services to individuals and small‑to‑medium enterprises.

Jo is a senior accountant at the firm and manages a portfolio of long‑standing clients, including several high‑net‑worth individuals and private companies.

One of Jo’s long‑term clients is a privately owned consulting company. During routine ongoing customer due diligence (ongoing CDD), the client’s beneficial owner is identified as a domestic PEP. In line with the firm’s AML/CTF policies, the client is assessed as medium ML/TF risk.

Conducting ongoing CDD and transaction monitoring

As part of the firm’s regular review processes, Jo looks at the client’s financial activity and the information previously collected. During this process, she identifies several issues that require a closer look. 

Jo identifies large payments from an entity not previously disclosed as part of the client’s stated customer base, unexplained delays in providing updated financial statements and source of funds details, and a new overseas bank account used for receiving payments.

These issues, and the client’s domestic PEP status, trigger potential ML/TF red flags.

Reassessing risk 

As part of the firm’s AML/CTF policies, Jo reassesses the client’s ML/TF risk, considering:

• the client’s domestic PEP status
• the nature and pattern of the unusual financial activity
• the lack of complete information provided, and
• whether the client’s explanations are supported by evidence.

Jo determines that the client’s ML/TF risk has increased from medium to high and documents the reassessment and the reasons for the increased risk rating.

Conducting enhanced customer due diligence (CDD)

Because of the client’s high‑risk PEP rating, Jo conducts enhanced customer due diligence (enhanced CDD). This is in line with the firm’s AML/CTF policies.

She requests detailed explanations from the client for the sudden increase in revenue and information regarding the nature of their relationship with the new entity who has been making the large payments. She also requests documentation regarding the new overseas bank account and updated source and funds and source of wealth information.

Enhanced customer due diligence findings and concerns

The client provides information that is incomplete and raises further concerns. Their explanations for the increased revenue and payments are not consistent with the company’s known business activity, and the contracts provided by the client do not substantiate the payments that have been received. The documentation on the overseas bank account is also incomplete with no clear reason for its use.  

The client’s responses create additional concerns, and Jo cannot be sure that the funds are from a legitimate source.

Escalating concerns

Jo escalates the matter to the firm’s AML/CTF compliance officer and provides details of the client’s domestic PEP status, the updated ML/TF risk assessment, the enhanced CDD steps completed, and the unresolved inconsistencies and concerns, particularly on the source of funds.

The AML/CTF compliance officer reviews the information and determines that the ML/TF risks cannot be adequately mitigated and the unresolved concerns regarding the client’s source of funds.

In line with the firm’s AML/CTF policies, the decision is made to cease providing designated services to the client.

Submitting a suspicious matter report and documenting actions

The AML/CTF compliance officer submits a suspicious matter report (SMR) to AUSTRAC and maintains detailed records of all ongoing CDD and enhanced CDD steps taken, the reassessment of the client’s risk rating, and the decision to end the business relationship with the client.