Under the Wwft, financial institutions are obligated to have a risk-based procedure to check whether a client is a ‘Politically Exposed Person’ (PEP). A PEP is a politically exposed person who may be particularly susceptible to corruption. This means you should investigate whether the client may be a PEP. If someone is indeed a PEP, you must conduct enhanced customer due diligence and continuously monitor the customer with enhanced measures.
PEP list
The tax authorities and the Ministries of Finance and Justice publish and maintain a list of politically exposed persons. Persons who may be considered Politically Exposed Persons include:
- heads of state, heads of government, ministers, deputy ministers or state secretaries;
- members of the board of a political party;
- members of Parliament or members of a similar legislative body;
- members of high courts delivering judgments not subject to appeal;
- members of courts of auditors or members of the executive boards of Central Banks;
- ambassadors, chargé d’affaires and senior army officers;
- directors, deputy directors, members of the Board of Directors or holder of an equivalent position within an international organisation (e.g: UN, EU institutions, North Atlantic Treaty Organisation and World Trade Organisation);
- family members and close associates.
Direct family members of a Politically Exposed Person must also be identified. This could include the spouse, parent or child of a PEP. The same applies to close associates of a PEP, which could be someone with whom the PEP has had a close business relationship. If the PEP is a legal entity, the rules also apply to the ultimate beneficial owner (UBO) of the PEP.
Engaging in a business relationship with a PEP
If a client is identified as a Politically Exposed Person, it does not necessarily mean you have to refuse to engage with them. Entering into a business relationship is allowed, provided your organisation meets a number of conditions:
- The decision to enter into the relationship is made by a person within your organisation who is specifically authorised to do so.
- Measures have been taken to determine the source of the PEP’s wealth.
- There is continious monitoring of the client.
PEP investigation
There are several ways to determine whether a client is a Politically Exposed Person. For example, you can use the services of commercial companies that provide PEP lists for a fee (PEP screening). Alternatively, you can inquire directly with the client. This can be done through a statement/form in which the client indicates whether or not he/she is a PEP, which should be updated regularly by asking the question with a certain frequency. Furthermore, you can also consult public sources yourself (e.g., conducting a Google search with the person’s name combined with search terms).
Regulators expect companies to establish more extensive procedures and measures depending on whether they have many or few PEP’s in their client base.
Note: An automated check against a PEP list is not always foolproof, if in doubt further investigation is necessary. Depending on the size of your institution, direct inquiry with the client and a Google check can sometimes be just as effective or even more effective.
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