What are the difficulties of identifying Politically Exposed Persons (PEPs)?

Identifying politically exposed persons (PEPs) can be a tricky business. As part of KYC procedures and identity verification, it’s important to accurately identify PEPs – but due to the complex international legal framework, this is often easier said than done.  

First, there’s the matter of defining who exactly qualifies as a politically exposed person. Definitions of PEPs vary from country to country, and often lack clarity and detail. Then there’s the challenge of gathering data on these people – due to their privileged position in society, this information can be difficult to access or verify.  

As if that weren’t enough, there are also ongoing changes in the guidance surrounding them, meaning that even once a PEP is identified, it’s important to remain vigilant for updates.  

In short, identifying PEPs can be a difficult and time-consuming process – but if done right, it can go a long way towards ensuring the safety and integrity of KYC procedures. 

Why identify a Politically Exposed Person?  

Identifying a PEP helps to protect businesses from potential risks associated with accepting business from those in politically influential positions. Many international and national anti-money laundering (AML) regulations require financial institutions and corporates to have appropriate risk management and due diligence procedures when doing business with these people.  

The aim is to verify the identity of PEPs and to ensure that they are not using their position in public office for private gain or laundering the proceeds of corruption and bribery. 

Identification can be a complex process, but it is an important part of KYC procedures. It helps financial institutions and corporates protect themselves from the risks associated with this category and ensure that they are adhering to applicable international laws. Doing so can help reduce financial crime and ensure the integrity of KYC processes. 

Screening for PEPs 

 This process often involves the use of commercially available databases, as well as manual processes such as requesting additional information from politically exposed persons. It is important to remain vigilant in monitoring these persons and any changes to the applicable laws and regulations, so that businesses can ensure they are always up to date with their KYC procedures  

Overall, taking the time to properly identify PEPs is an important part of KYC. It helps ensure businesses are staying compliant with applicable laws and regulations, while also protecting themselves from the potential risks associated with these people. 

The politically exposed persons requirements should not be interpreted in any way as an effort aimed at stigmatizing PEPs. Given the tens of thousands of domestic and foreign PEPs, de-risking at the slightest indication of a PEP is not a real possibility for financial and non-financial institutions.  

Doing business will inevitably mean having to onboard people in prominent political positions. But while screening for PEPs is a crucial part of a financial institution’s AML program, it’s incredibly challenging to get it right. 

If you are interested to find out more about our performant KYC product or about KYC meaning, set up a meeting with the QOOBISS team!