Assess PEP and high-risk customers

Assess PEP and high-risk customers

A former senior public official applies for an investment account and says the capital came from selling a family company. One error is to reject the applicant solely for a political title; another is to accept the account merely because one sale contract was supplied. A politically exposed person, or PEP, may have influence or authority that increases exposure to corruption risk. FATF Recommendation 12 calls for additional measures according to the type of PEP, circumstances, and applicable regime. PEP status triggers proportionate examination; it is neither evidence of guilt nor an automatic sanctions designation.

Distinguish source of wealth from source of funds. Source of wealth explains how a person accumulated assets over time: business activity, inheritance, professional income, or disposals. Source of funds explains the origin of the particular amount entering a transaction now. Overall wealth may be understandable while the immediate transfer comes from a third party absent from the sale story. Conversely, the transfer may come from the applicant’s own account while the accumulation of its balance remains unexplained. Neither question replaces the other.

Draw ownership and control, not just a list of names. Record the legal entity, share owners, ultimate beneficial owners, and anyone who can direct a decision or sign. A person with a small share may control the company through an agreement or appointment right. For a foreign intermediate company, follow the chain to natural persons and note the source and date of every link. Public-register data may be incomplete or stale; compare it with customer documents and independent sources available lawfully. FATF PEP guidance describes companies that can obscure a political connection, but these are risk indicators, not an automatic test of crime.

Enhanced due diligence extends checks and oversight in proportion to exposure: obtain approval at the required level, understand purpose and expected activity, establish source of wealth and funds, and monitor the relationship. It need not mean requesting the same document from everyone or excluding an entire sector. Binding details vary by jurisdiction; apply current law and institutional policy when acting. If information is insufficient, identify the correct pending state, the missing evidence, and who can decide on an exception or refusal.

Evidence may conflict. A signed document proves a share transfer, while another record shows the previous owner still holds voting rights. Do not pick the convenient record; obtain the effective date and post-sale control terms. For adverse media, verify the person’s identity, report date, allegation, and available responses. A press allegation is not a court finding. The decision maker needs a visible confidence level for each fact, and the relationship needs review when office, activity, or structure changes.