Politically Exposed Persons (PEPs)

Financial institutions, fintech companies, and other regulated entities carry a vital responsibility to uphold the financial system’s anti-money laundering (AML) and counter the financing of terrorism (CTF) standards. These standards are designed to detect and deter illicit financial flows which if left unchecked have the ability to cause significant instability around the world. One of the key elements within these frameworks is the identification and ongoing monitoring of Politically Exposed Persons, also known as PEPs. 

While not all PEPs are involved in wrongdoings, the nature of their elevated positions, especially in government or public-facing roles, often puts them in environments where financial decisions intersect with political influences. This can quickly create opportunities for bribery, misappropriation of funds, or preferential treatment in public contracts. 

Effective PEP screening helps businesses establish the risk levels of a customer at the outset and help to maintain appropriate monitoring. Not only is this type of screening a regulatory obligation, it’s best practice to safeguard against financial loss and reputational damage. In today’s interconnected world, the fallout of unknowingly facilitating financial crimes can be catastrophic and one oversight can have significant global consequences.

What Is a Politically Exposed Person (PEP)?

A Politically Exposed Person refers to someone who is entrusted with a prominent public function, often with the authority to enact public policies, influence government decisions, and manage public funds. As defined by the Financial Action Task Force (FATF), this includes current and former heads of state, senior politicians, judges, high ranking military officials, and executives of state-owned businesses, among others. Notably, this classification also extends to those working in international enterprises, like the directors or board members of global institutions.

The definition of PEP is not limited by geography or nationality, as both domestic and foreign individuals can be designated as PEPs depending on their role and scale of influence. It’s not uncommon for former public officials or their close family members and associates to remain under enhanced due diligence measures for a number of years after they have exited office.

Why Are PEPs Considered High Risk?

Classifying PEPs as high risk is not based on guilt or wrongdoing but instead stems from the potential to misuse their power due to the nature of their roles. Those with political power often control or influence access to resources, public contracts, foreign aid, and national assets, all of which are channels through which money laundering, embezzlement, and abuse of power can occur. 

PEPs can be especially vulnerable to outside influence, with third-parties, ranging from private companies to foreign entities to organized crime groups, often attempting to exploit their status for personal or political gain. This can take the form of covert financial arrangements, undisclosed partnerships, or pressure to approve questionable deals. Even if there is no direct evidence of misconduct, behaviors like the use of offshore accounts or shell companies can signal potential risk. Regulators urge institutions to stay vigilant by implementing enhanced due diligence, tracking transaction behavior regularly, and routinely reassessing the risk level of high-profile clients.

It is important to emphasize that these compliance controls are preventative, not punitive. They serve to protect the financial system from misuse and ensure maximum transparency in high-risk relationships. When institutions overlook or misclassify PEPs, they not only expose themselves to compliance failures but also risk becoming inadvertently complicit in broader corruption schemes.  

Key PEP Categories and Examples

By understanding the various categories of Politically Exposed Persons (PEPs), it becomes easier to accurately identify how much of a risk they pose within financial relationships. Not all PEPs carry the same level of influence or exposure, but each of them has unique vulnerabilities that necessitate tailored security. Below are the primary classifications of PEPs, along with examples of the roles they typically fill.

1. Domestic PEPs

These are individuals who hold prominent public positions within their own country. These include high-level figures such as presidents, ministers, governors, central bank officials, and senior members of the judiciary or military. Because of their access to government processes, public budgets, and national policy decisions, their financial activity can directly intersect with state interests. Domestic corruption often occurs under the radar so it’s important for institutions that operate within the same jurisdiction to not reduce advanced oversight just because of the familiarity of these roles.

2. Foreign PEPs

Foreign PEPs are public officials from outside the jurisdiction of the institution conducting the screening. These individuals tend to serve similar roles to domestic PEPs, but due to their foreign status, there is limited transparency and more complex due diligence challenges. Also, if a foreign PEP comes from a country with high perceived levels of corruption or political instability, the risk associated with their financial behavior significantly increases. International AML frameworks often emphasize stricter checks on foreign PEPs due to the inherent difficulties around obtaining accurate information.

3. International Organization PEPs

This category covers those who have leadership positions, such as secretary-general, board chairs, or executive directors, in global or regional bodies like the United Nations, World Health Organization, International Monetary Fund, or African Union. Even though they might not always be connected to governing bodies, these individuals often oversee large-scale funding, international aid programs, and cross-border negotiations, which all present opportunities for misuse of influence. 

4. Family Members and Close Associates

Immediate family members, including spouses, children, siblings, and parents, along with business partners or personal advisors are also considered PEPs due to their indirect exposure to power and privilege. These relationships can be leveraged to conceal ownership assets, channel illicit payments, or conduct transactions on behalf of the primary PEP. Because of their proximity, these individuals often appear in layers of financial activity, making it critical for institutions to monitor both the PEP as well as their network of close connections.

Updated PEP Risk Classification (2025)

Note: Risk classification should be dynamic and reassessed based on new information, adverse media, or behavioral triggers.

How Are PEPs Identified?

Identifying PEPs is a complex task that often involves combining multiple data sources and technological solutions. Because PEP status is not always publicly declared and can change over time, institutions need to take a layered approach to verification and monitoring, which makes cross referencing essential.

• Customer Due Diligence (CDD)
  • As outlined in FATF Recommendations 10 and 12, CDD forms the basis of assessing a client’s risk level. During onboarding, institutions must gather information about a person’s background, political affiliations, and source of wealth to determine if PEP status applies.
• PEP Databases
  • Third-party providers such as Dow Jones, Refinitiv, and LexisNexis compile extensive databases of politically exposed individuals and their known associates. Advanced features like relationship mapping, jurisdictional context, and real-time updates help compliance teams keep track of changes in status and influence.
• Government-Issued PEP lists and Asset Disclosures
  • Depending on the jurisdiction, some public officials may be required to disclose assets or income streams, which is then compiled into government-maintained registers and watchlists. These databases are especially helpful for validating information provided by clients or external tools.
• Open-Source Intelligence (OSINT)
  • Media outlets, public records, and online profiles can reveal unofficial roles or newly acquired influence and are particularly helpful for low-profile but high-risk individuals who may not appear in official databases.
• Self-Declaration During Onboarding
  • When paired with independent verification and other tools, self-reporting remains a useful tool as it can fill gaps in information and support documentation requirements.
• In-House Risk Profiling Based on Past Interactions
  • Returning clients may not be classified as PEPs in the past but might hold relevant positions so internal systems should flag behavior changes or updated employment data that may elevate a customer’s risk.
• AI and Machine Learning Solutions
  • AI driven systems can analyze large volumes of data across regions and languages, identify indirect relationships, and highlight anomalous transaction patterns in real time. These tools are able to improve detection rates, reduce false positives, and alleviate compliance workloads.

Evolving Global Regulatory Requirements

Regulatory frameworks around the world have begun to move toward a dynamic, continuous approach to managing PEPs. Instead of just flagging a PEP at onboarding, institutions are expected to periodically reevaluate client risk, especially when their location, behavior, or transaction pattern changes. The UK’s Money Laundering Regulations and the U.S. AML Act of 2020 have worked to reinforce obligations around continuous due diligence (especially for higher-risk individuals). In the EU, the AMLD6 goes even farther and requires financial entities to review document risk and refresh customer data on a scheduled basis.

Another important development is the broadening scope of who qualifies as a PEP. Many countries have expanded their definitions to now cover people who hold influence in state-run companies, political parties, and international organizations (even at regional or subnational levels). This reflects a recognition that risk isn’t confined to top governmental positions and can exist anywhere that public trust and authority intersect with financial decision-making. As a result, it is important for institutions to look beyond title and jurisdiction to assess exposure based on function, proximity to power, and geopolitical context.

Compliance Obligations for Online and Financial Businesses

Digital platforms, especially those in banking, gaming, crypto, and e-commerce, are under mounting pressure to integrate automated PEP screening into their compliance infrastructure. Because they operate in fast moving environments with global user bases, relying on manual checks or point-in-time assessments is no longer sufficient. These new controls should include:

• Risk-based onboarding workflows to tailor checks based on a user’s geography, business activity, transaction profile, and other contextual signals, instead of using a one-size-fits-all approach.
• Continuous transaction monitoring to reveal risk patterns that might not be apparent during onboarding so proactive measures can be taken.
• Adverse media checks to supplement PEP lists that might not always capture emerging risks and indicators of potential misconduct.
• KYC refresh cycles to maintain updated customer profiles and identify changes in job title, affiliation, or geographic location that might trigger a PEP status shift.
• Regulatory reporting for suspicious activities to the appropriate authorities, ensuring that reporting timelines are met while reducing manual errors and audit gaps.

Firms must also ensure that employees are trained to recognize red flags and that internal controls are regularly audited for effectiveness.

Conclusion

Managing the risks associated with Politically Exposed Persons now requires more than just ticking boxes. As regulatory expectations evolve and new risk vectors emerge, businesses must stay ahead by embedding proactive, intelligent PEP screening into their core operations.

Whether in finance, crypto, or e-commerce, organizations that implement rigorous controls, maintain robust data governance, and foster a culture of compliance will continue to be better positioned to prevent exposure to financial crimes within their operations. In doing so, they simultaneously meet regulatory obligations as well as protect their integrity and build long term trust with customers and partners alike.