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Gift Arku
Marketing Associate
The term "Politically Exposed Person" (PEP) gained global attention following a shocking corruption scandal in the late 1990s involving Nigeria's former military dictator, General Sani Abacha. During his regime, Abacha and his associates embezzled an estimated $5 billion, funnelling the money into foreign bank accounts through fraudulent transactions. This scandal exposed the vulnerability of global financial systems to exploitation by powerful political figures and catalysed international efforts to strengthen anti-money laundering (AML) and corruption controls.
A Politically Exposed Person (PEP) is any individual who holds or has held a prominent public position, either in government, an international organisation, or a political party. These individuals are considered high risk due to their access to state resources and influence, making them potential targets or participants in corruption, money laundering, or financial fraud.
The Financial Action Task Force (FATF) defines three broad categories of PEPs:
In addition to these categories, Relatives and Close Associates (RCAs) of PEPs—such as spouses, parents, siblings, and business partners—are also flagged due to their proximity to power.
“It’s important to note: PEPs are not inherently engaged in illicit activities, but their positions expose them to higher risks, necessitating stricter due diligence processes.”
Screening for Politically Exposed Persons (PEPs) is a critical part of an institution’s risk-based approach to combating money laundering and financial crimes. The process involves several structured steps, from gathering customer data to continuous monitoring, ensuring compliance with AML regulations and safeguarding against reputational damage.
Here’s a detailed look at how the process works:
The process begins with collecting essential customer information during onboarding, such as:
This data serves as the foundation for screening and risk assessment.
Once the data is collected, specialised AML software screens the information against a comprehensive database of politically exposed persons. This automated process uses fuzzy matching algorithms to identify potential matches, even if the input data is slightly inconsistent. Financial institutions can configure the strictness of these matches to balance accuracy and efficiency.
Initial screenings often generate alerts for potential matches. Compliance officers, such as Money Laundering Reporting Officers (MLROs), must then review these hits to distinguish between true matches and false positives. This step ensures that legitimate customers are not mistakenly flagged, avoiding unnecessary disruptions.
Each customer is assigned a risk score based on their profile and screening results. Risk scores consider factors such as:
The assigned risk score determines the level of due diligence required:
For high-risk customers, institutions perform a deeper investigation to mitigate potential threats. EDD involves:
Compliance officers document every step of the screening process, creating an audit trail for internal reviews and regulatory reporting. This includes recording decisions, risk assessments, and supporting evidence to ensure transparency and accountability.
The screening process doesn’t end after onboarding. Financial institutions must conduct ongoing monitoring to identify changes in a customer’s risk profile. This includes:
Smile ID’s AML Check solution simplifies ongoing monitoring by providing continuous tracking of flagged customers for up to 12 months, ensuring institutions remain compliant with global standards.
Understanding who qualifies as a Politically Exposed Person (PEP) is crucial for accurate screening and risk assessment. PEPs are individuals entrusted with prominent public functions, often exposed to higher risks of corruption or financial crimes. However, not everyone with influence or wealth meets the criteria. Let’s clarify this with examples:
While not always classified as PEPs themselves, family members and close associates are often considered high-risk due to their potential access to the same resources and influence as the PEP.
Not all Politically Exposed Persons (PEPs) present the same level of risk. Categorising PEPs by their risk level allows financial institutions to tailor their due diligence processes and allocate resources effectively. Below are the typical risk levels, their categories, and examples:
These individuals hold national leadership roles or wield significant power, making them highly susceptible to corruption and financial crimes. Enhanced due diligence is essential for this group.
While not at the apex of power, these individuals occupy senior positions in government, law enforcement, or state-owned entities and maintain a moderate influence.
This category includes individuals in senior management positions within government-owned entities or board members of state agencies. Though their roles are significant, the scope of their influence is narrower.
These individuals hold less influential roles and typically present a lower risk. While still requiring screening, simplified due diligence may suffice.
Understanding these categories enables financial institutions to calibrate their compliance processes based on a risk-based approach. High-risk PEPs may require robust ongoing monitoring and comprehensive Enhanced Due Diligence (EDD), while low-risk PEPs can often be handled with less stringent measures.
Smile ID’s AML Check offers a seamless way to categorise PEPs into appropriate risk levels by leveraging automated screening and risk scoring. The solution integrates robust PEP databases and advanced algorithms to match customer profiles against global watchlists, ensuring compliance with a risk-based approach.
Key features include:
Smile ID’s AML Check simplifies and strengthens risk management, giving businesses the confidence to comply with regulations while minimising exposure to financial and reputational risks.
A customer's PEP status can evolve over time due to various life events, such as electoral wins, political appointments, or promotions. Similarly, individuals may lose their PEP designation after stepping down from public or governmental roles. For businesses, recognising and adapting to these changes in realtime is essential for maintaining compliance and mitigating risks.
To effectively monitor shifts in PEP status, businesses can implement the following strategies:
Deciding when a customer no longer qualifies as a PEP is complex. While some institutions adopt the “once a PEP, always a PEP” approach, others follow regulatory guidance to reassess risk profiles periodically.
Factors influencing PEP declassification include:
Global standards, such as those from the Financial Action Task Force (FATF) and the EU Directive, emphasise a risk-based approach. For example, the EU Directive requires organisations to monitor PEPs for at least one year after leaving their public function, ensuring that declassification only occurs when the individual no longer poses elevated risks.
When working with Politically Exposed Persons (PEPs), organisations must remain vigilant for signs of unusual or suspicious activity that could indicate potential financial misconduct or corruption. Identifying these red flags early is crucial for mitigating risks and ensuring compliance with anti-money laundering (AML) regulations.
When it comes to PEP screening, businesses often find themselves walking a tightrope: trying to catch politically exposed persons (PEPs) without tripping over false positives or missing key red flags. It’s like looking for familiar faces in a bustling crowd—only the crowd never stops moving, and the faces keep changing
PEP lists vary widely across regions, sources, and jurisdictions. Some databases are incomplete, outdated, or formatted inconsistently, which can complicate screening efforts—particularly for businesses operating across multiple markets or languages.
Compliance teams often struggle with false positives, where legitimate customers are flagged because their names match those of PEPs. Without the right tools, filtering through these alerts can drain resources, slow down onboarding, and frustrate customers.
Screening doesn’t stop at the PEP—it extends to family members and close associates who may also pose risks. This adds another layer of complexity, especially in regions where relationships and networks are difficult to verify due to limited documentation.
A customer’s PEP status isn’t static. Political appointments, promotions, or even resignations can alter a risk profile overnight. Businesses that rely on one-time checks risk missing these changes, leaving gaps in their compliance processes.
To overcome these challenges, businesses should focus on building a robust and efficient PEP screening process.
Compliance with PEP screening regulations is a non-negotiable requirement for businesses operating in financial services and other regulated industries. Globally, standards set by organisations like the Financial Action Task Force (FATF) mandate enhanced due diligence (EDD) for PEPs to mitigate corruption, bribery, and money laundering risks.
Navigating the regulatory landscape of Politically Exposed Persons (PEPs) is crucial for businesses operating in Africa. Each country enforces specific guidelines to mitigate risks associated with financial crimes.
In Nigeria, the Central Bank of Nigeria (CBN) has issued comprehensive guidance on managing PEP risks. Financial institutions are mandated to conduct both onboarding and ongoing screening for all customers, with an emphasis on automating the PEP screening process where feasible. This approach ensures continuous monitoring and compliance with anti-money laundering (AML) regulations.
Kenya's AML framework requires financial institutions to implement robust customer due diligence measures, including the identification and verification of PEPs. The Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) mandates enhanced scrutiny of transactions involving PEPs to prevent corruption and money laundering activities.
In South Africa, the Financial Intelligence Centre (FIC) oversees the identification and monitoring of PEPs, referred to locally as Politically Influential Persons (PIPs). The FIC Act obligates accountable institutions to apply enhanced due diligence when establishing business relationships with PIPs, ensuring that potential risks are adequately managed.
Non-compliance can result in severe penalties, reputational damage, and loss of trust—emphasising the need for robust screening processes.
Staying ahead in the fight against financial crime can feel like navigating an endless maze—every turn presents new risks, new faces, and new challenges. But with the right tools in hand, you can turn that maze into a well-lit path toward compliance and trust.
Smile ID’s AML Check Solution helps businesses tackle PEP screening and AML compliance without breaking a sweat. By screening users against 1,100+ global and African sanctions & PEP lists and monitoring 70,000+ adverse media sources, you can identify risks quickly and accurately. In just seconds, our system provides a comprehensive risk assessment:
And because financial crime doesn’t rest, we offer automated monitoring for 12 months—ensuring you’re always one step ahead.
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