Politically Exposed Person PEP

A politically exposed person is anyone who is or has been entrusted with a prominent public function. Article 2(1)(34) of the Anti-Money Laundering Regulation (AMLR) lists the functions. In a member state they are heads of state and government, ministers and their deputies, and members of parliament. They include members of the governing bodies of political parties that hold seats in national bodies, or in regional or local bodies representing at least 50,000 inhabitants. Judges of supreme courts, constitutional courts and other courts whose decisions are not normally open to appeal are covered. So are members of courts of auditors and of central bank boards, ambassadors, chargés d'affaires and high-ranking officers in the armed forces.

Two groups are easy to miss. Members of the administrative, management or supervisory bodies of enterprises controlled by the state are covered. The same goes for medium-sized or large enterprises controlled by regional or local authorities. Heads of regional and local authorities with at least 50,000 inhabitants are covered too. The definition also reaches comparable functions in EU institutions and bodies, equivalent functions in countries outside the EU, and the highest-ranking officials and board members of international organisations.

Each member state must issue a list of the exact functions that qualify under its own law. The European Commission combines these into a single list, published in the Official Journal and on the website of the Anti-Money Laundering Authority (AMLA), under Article 43. The lists name functions, not people. The AMLR applies from 10 July 2027.

The spouse or partner, the children and their spouses or partners, and the parents of a politically exposed person are covered. That is the definition of a family member in Article 2(1)(35). Siblings count only for the most senior group: heads of state, heads of government, ministers and their deputies, and the equivalent functions at EU level or outside the EU. A member state may widen the sibling rule under Article 2(5) and must tell the Commission if it does.

A person known to be a close associate is defined in Article 2(1)(36) in two ways. The first is a person known to share beneficial ownership of a legal entity or arrangement with a politically exposed person, or to have any other close business relations with one. The second is a person who is the sole beneficial owner of an entity known to have been set up for the benefit of a politically exposed person. AMLA must issue guidelines on the criteria for identifying close associates by 10 July 2027.

Article 46 applies the same measures to family members and close associates as to the politically exposed person.

Three measures apply on top of standard customer due diligence. Under Article 42(1), the firm must obtain senior management approval to carry out an occasional transaction for a politically exposed person, or to start or continue a business relationship with one. It must take adequate measures to establish the source of wealth and the source of funds involved. It must also conduct enhanced ongoing monitoring of the relationship.

The first step is finding out. Article 20(1)(g) makes it part of every due diligence file to determine whether the client, or the client's beneficial owner, is a politically exposed person, a family member or a known close associate. The check therefore reaches the people behind a company client as well.

Senior management has a defined meaning. Article 2(1)(40) covers the members of the management body in its management function. It also covers officers and employees who know the firm's money laundering risk exposure well enough, and are senior enough, to take decisions that affect it.

For at least 12 months, and for longer if the risk remains. Article 45 requires a firm to take account of the continuing risk a person poses because of their former function. The firm must apply one or more enhanced due diligence measures until that risk no longer exists, and in any case for not less than 12 months after the person left the function. There is no fixed end date. Recital 94 gives the reasons: a former office holder may still have informal influence, or their previous and current functions may be linked.

The rule works in both directions. It covers an existing client who leaves office, and a new client who held a prominent public function in the past. The measures are drawn from the list in Article 34(4), which includes obtaining more information on the source of funds and wealth, senior management approval and closer monitoring. Family members and close associates follow the same timing under Article 46. AMLA is due to issue guidelines on how to assess the risk of former office holders.

Not for that reason alone. Recital 98 of the AMLR states that the requirements are preventive and not criminal in nature. They should not be read as implying that politically exposed persons, their family members or their close associates are involved in crime. The recital adds that refusing a business relationship simply because a person falls into one of these groups is contrary to the letter and spirit of the regulation.

The status changes how much the firm must check, not whether it may act. A firm that takes on such a client applies the measures in Article 42.