Challenges in dealing with politically exposed persons

Abstract

Politically exposed persons (PEPs) are individuals who are, or have been, entrusted with prominent public functions. PEPs are potential targets for bribes due to their prominent position in public life. They have a higher risk of corruption due to their access to state accounts and funds. A review of Financial Action Task Force (FATF) and FATF-style regional bodies' mutual evaluation reports reveals that a significant number of jurisdictions are found to be either non-compliant or partially-compliant with the FATF recommendation on PEPs. Corrupt PEPs may exploit the regulatory difference between jurisdictions to facilitate the laundering of corruption proceeds and/or illegally diverted government, supranational or aid funds. To combat money laundering risks posed by PEPs, there is a need for ongoing monitoring of risks by regulated entities. This paper also outlines three policy implications, namely: deciding whether to include domestic public office holders in existing PEP definitions; deciding when to terminate PEP status; and deciding whether to extend PEP monitoring to individuals holding important positions in the private sector, that is, financially exposed persons.