Being a politically exposed person or PEP does not in itself suggest a link to criminal activity or abuse of the financial system.
A politically exposed person (PEP) or persons with prominent public functions[1] is an individual who is or has been entrusted with a prominent public function. PEPs are higher-risk customers for financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) because they have more opportunities than ordinary citizens to acquire assets through unlawful means like embezzlement and bribe-taking and thus are more likely to launder money.
FATF Definition
The Financial Action Task Force (FATF)’s Guidance Notes “Politically Exposed Persons (Recommendations 12 and 22)” [2] define a PEP as including the following:
“In particular, the following definitions, which do not cover middle ranking or more junior individuals, apply to this guidance paper:”
Foreign PEPs
“individuals who are or have been entrusted with prominent public functions by a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, important political party officials.”
Domestic PEPs
“individuals who are or have been entrusted domestically with prominent public functions, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, important political party officials.”
International organisation PEPs
“persons who are or have been entrusted with a prominent function by an international organisation, refers to members of senior management or individuals who have been entrusted with equivalent functions, i.e. directors, deputy directors and members of the board or equivalent functions.”
Family Members
“individuals who are related to a PEP either directly (consanguinity) or through marriage or similar (civil) forms of partnership.”
Close associates
“individuals who are closely connected to a PEP, either socially or professionally.”
EU 4MLD Definition
The European Union’s Fourth Anti Money Laundering Directive (EU 4MLD) specifically addresses the threat of money laundering and consequently, defines the obligations imposed on subject persons within the financial sector. This directive was drafted in line with the revised FATF Recommendations, effected in full compliance with Union law.
The EU 4MLD defines a ‘politically exposed person’ as a “natural person who is or who has been entrusted with prominent public functions” and includes the roles and associated individuals outlined above under subheading 3.2.
Of prime importance, the EU 4MLD specifically states that “the requirements relating to politically exposed persons are of a preventive and not criminal nature and should not be interpreted as stigmatising politically exposed persons as being involved in criminal activity”.
Definition under Maltese Law
In adherence with Union Law, Malta transposed the definition of a ‘PEP’ provided by the EU 4MLD, which has been solidified within the Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTR).
The PMLFTR defines "politically exposed persons" as natural persons entrusted with a prominent public function, other than junior or middle-ranking officials. Natural persons include immediate family members and close associates, which have been defined above under subheading 3.2.
In line with the EU 4MLD, PEPs will be considered as remaining politically exposed for at least a subsequent 12-month period from when the prominent public function ceases.
[1] as used in Article 52, United Nations Convention Against Corruption, 2003 (UNCAC).
[2]fatf-gafi.org/media/fatf/documents/recommendations/Guidance-PEP-Rec12-22.pdf
