Under the Wwft, financial institutions are required 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 will have to conduct enhanced customer due diligence and carry out ongoing enhanced monitoring of the customer.
PEP list
The tax authorities and the Ministries of Finance and Justice publish and maintain a list of politically exposed positions. Persons who may be considered Politically Exposed Persons include at least:
- 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; and
- 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 should also be identified. This could include the spouse, parent or child of a PEP. The same applies to close associates of a PEP. This could, for example, 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.
Entering into a business relationship with a PEP
If a client qualifies as a Politically Exposed Person, it does not mean that you should refuse them. Entering into a business relationship is permitted, provided your organisation meets a number of conditions:
- The decision to enter into the relationship is made by a person within your organisation specifically authorised to do so.
- Measures are in place to determine the source of the PEP’s assets.
- There is ongoing monitoring of the client.
PEP investigation
There are several ways you can find out 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). You can also do this by asking the client, which can be done by means of a statement/form in which the client indicates whether or not he/she is a PEP; you will have to keep this up to date by asking this question at regular intervals. Furthermore, you can also consult public sources for this yourself (by doing a google check, for example, with the person’s name combined with search terms).
Regulators expect companies to put more and more extensive procedures and measures in place the more or the less PEPs they have in their customer base.
Note: An automated check against a PEP list is not always foolproof, if in doubt you will always need to investigate further. Depending on the size of your institution, asking the customer out and doing a google check can sometimes be as effective or sometimes more effective.
Want to know more?
Could you use help with customer screening, or do you have questions about Wwft compliance? Our specialists have detailed knowledge of financial laws and regulations and the experience to support you in their application. Would you like to know more about the possibilities? Then read more about our services or contact us.