On 10th November 2023, the European Union published an EU List of Prominent Public Functions, bringing much-needed clarity to the classification of Politically exposed persons (PEPs) within all EU Member States.
EU PEP List
Politically exposed persons (PEPs) encompass individuals who have held or currently hold significant public roles, both domestically and internationally, excluding lower-ranking officials, as per Regulation 2(1) of the Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTR).
What are PEPs - Prominent Public Functions?
These prominent public functions can vary and may include positions such as heads of state, government ministers, judges, and high-ranking military officials. For instance, the EU Member States' national lists could identify a PEP as someone holding the position of a national parliamentarian, a mayor of a major city, or a top executive in a state-owned enterprise.
The list, published in the EU Official Journal on November 10, 2023, and available on the FIAU's website, provides a comprehensive compilation of such roles at national, international, and EU levels. Businesses need to refer to specific national lists to determine whether an individual qualifies as a PEP and warrants heightened scrutiny in financial transactions to mitigate the risk of money laundering or terrorist financing.
What Does This Mean in Practice?
PEPs present with a higher risk of ML/FT due to the position of influence occupied by the individual, exposing them to the possibility of misuse of their position for personal gains, through means such as corrupt practices, bribe acceptance or misappropriation of public funds. Such proceeds of crime would require money laundering to legitimise them. Additionally, prominent functions also open these individuals to the possibility of financing of Terrorism.
Therefore, to mitigate the potential risk presented by such individuals, subject persons are under obligation to apply Enhanced Due Diligence measures.
Examples of Enhanced Due Diligence Measures Applied to PEPs
Such measures may include, but are not limited to:
- Obtaining Senior management approval
- Taking adequate measures to establish source of wealth and funds involved
- Conducting enhanced Ongoing Monitoring
The sphere of PEP does not stop with the specific individual within the position but ripples out to their family and close associates who may also benefit from the influence of their loved ones’ position. Such individuals may be partners, children and their partners, parents, etc. Therefore, the obligation to carry out Enhanced Due Diligence measure also applies to these individuals.
It is important to note that whilst PEPs and their associates pose a higher risk of ML/FT, an attempt by PEPs to establish a business relationship does not automatically mean that this relationship is being set up with ill intentions.
Whilst the list outlines the typical scenarios under which a person may be considered PEP, the list is not exhaustive and as such, a case-by-case approach is required for the assessment of whether or not an individual is a PEP. Social, economic, cultural context and how long it has been since such a position was held, will influence such an assessment.
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