Politically Exposed Person: who they are and how to perform adequate verification

All over the world, banks, financial intermediaries, law firms, and professionals are required to verify whether their clients fall into the category of Politically Exposed Persons (PEPs). This is a crucial step to comply with Anti-Money Laundering (AML) regulations, prevent corruption, and protect the integrity of the financial system.

When a client is identified as a PEP, they are considered high-risk in terms of exposure to unlawful practices such as corruption, extortion, or embezzlement. For this reason, the international FATF-GAFI recommendations and European AML directives require Enhanced Due Diligence (EDD) procedures, which include strict checks at the start of the relationship and continuous monitoring of transactions.

Politically Exposed Person (PEP): meaning and definition

A Politically Exposed Person refers to a natural person who holds or has ceased to hold an important public office for less than a year. The definition also includes close family members and persons known to have close ties with such individuals, as they too may be exposed to corruption risks.

Here are some examples of roles considered PEPs according to international standards:

• Heads of State or Government, ministers, deputy ministers, members of parliament;
• Members of governing bodies of political parties;
• Judges of supreme or constitutional courts, high-ranking magistrates;
• Members of central bank boards;
• Ambassadors and senior military officers;
• Top executives of state-owned enterprises or sovereign wealth funds.

The regulation also includes those holding equivalent roles in international organizations such as the UN, EU, or NATO.

Family members of PEPs include parents, spouse (or cohabitant), children, and individuals linked to the latter by marriage, civil union, or de facto cohabitation.

Anti-Money Laundering: the due diligence of PEPs

Because they hold very important public offices, Politically Exposed Persons are considered particularly likely to receive funds illicitly, which may result in serious crimes such as corruption, extortion, and embezzlement. For this reason, international Anti-Money Laundering regulations require all obliged entities to apply enhanced due diligence measures to Politically Exposed Persons.

This means that professionals must first verify whether their clients are PEPs: if so, they must analyze the origin of the funds used by the PEPs and their family members before establishing an ongoing business relationship with them and must ensure constant monitoring of the relationship, assessing, among other things, whether transactions are consistent with the client’s economic and financial profile.

According to the law, if a professional is unable to ensure enhanced controls over PEPs, they should refrain from entering into ongoing relationships with them or terminate any relationships already established.

PEPs and Anti-Money Laundering: what is Enhanced Due Diligence?

Enhanced Due Diligence (EDD) is a procedure provided for by Anti-Money Laundering regulations for customers considered higher risk, such as Politically Exposed Persons (PEPs).

In particular, EDD requires:

• Collecting additional information about the client and the origin of funds;
• Approval by senior management before establishing a relationship;
• Ongoing monitoring of transactions to verify that they are compatible with the risk profile.

In addition to implementing ordinary customer due diligence measures, it is therefore necessary to obtain authorization from those holding administrative or managerial powers, apply adequate measures to establish the origin of funds, and ensure constant and strengthened control of operations.

Typical procedures of enhanced due diligence include:

• Verification of the client’s identity (and company owners);
• Analysis of the nature and purpose of the transactions carried out by the PEP;
• Definition of the reason why the client uses the service;
• Verification of the origin of funds;
• Analysis of operations and assessment of their reasonableness;
• Continuous monitoring of transactions and immediate reporting to the Financial Intelligence Unit in case of suspicious transactions;
• Periodic verification of PEP status.

Among the obligations of professionals such as banking and financial intermediaries is the need to manage risk according to the nature of the relationship, the type of operations, and the client’s risk profile.

How to carry out PEP AML due diligence?

After verifying that the client is a PEP, it is then necessary to collect additional information about them and assess the reasons that led them to request a particular service. Then professionals must analyze the level of risk associated with the client and implement appropriate control measures.

Among the internationally shared recommendations, the following should be mentioned:

• Use of global databases to identify PEPs and monitor status changes;
• Integration between internal systems and risk scoring platforms to classify clients according to their exposure level;
• Adoption of automated processes to minimize manual errors and ensure consistency in risk assessment;
• Comprehensive documentation of the checks carried out and constant updating of information.

A structured and technologically advanced approach to managing PEPs is essential not only to comply with AML regulations but also to protect the company’s reputation and prevent sanctions. The adoption of automated IT systems capable of interacting with company documents, evaluation forms, and external databases, in particular, makes it possible to fulfill the obligations related to enhanced due diligence in a rigorous and effective way.

PEP Verification via API

To simplify and speed up checks on Politically Exposed Persons at a global level, Openapi has recently introduced the PEP service, which is part of the Risk API. The service returns numerous details about individuals who hold (or have held) significant public offices, such as:

• Personal data: first name, last name, date and place of birth, gender, photo, biography, and aliases
• Relationships: connected family members and collaborators
• Public roles: current and past positions, dates, and institutional level
• Organization: name, type of entity, country, description, and group affiliation
• Identifiers: unique personal number, when available

Also part of the Risk API are Adverse Media and Sanctions List, which respectively make it possible to detect any involvement in news reports or legal proceedings and to check whether individuals or entities appear in official lists, thus identifying sanction, legal, and reputational risks related to clients and suppliers/partners.