What are the three types of politically exposed persons?
Politically exposed persons (PEPs) are individuals who hold or have held prominent public functions, which may make them susceptible to corruption and other financial crimes. Identifying these individuals is crucial for financial institutions and governments to implement effective anti-money laundering (AML) and counter-terrorism financing (CTF) measures. There are three primary types of PEPs, each with distinct characteristics and levels of risk.
1. Senior Politically Exposed Persons (SPEPs)
The first type of PEP is the Senior Politically Exposed Person (SPEP). These individuals hold the highest positions in government, such as heads of state, heads of government, senior ministers, and members of the executive branch. SPEPs often have significant influence over policy-making and can exert considerable power over public resources. Due to their elevated status and the potential for misuse of their position, SPEPs are considered to be at the highest risk of corruption and financial crime.
2. Associated PEPs
The second type of PEP is the Associated PEP. These individuals are not in public office themselves but are closely related to a Senior Politically Exposed Person. This category includes family members, such as spouses, children, and siblings, as well as close associates, such as business partners and close advisors. Associated PEPs may benefit from their connection to a senior political figure and could be involved in corrupt activities on their behalf. As a result, they are also considered to be at a high risk of being involved in financial crimes.
3. Beneficial Owners of PEPs
The third type of PEP is the beneficial owner of a PEP. This refers to individuals who have ultimate control over a PEP, either directly or indirectly. Beneficial owners may include individuals who have invested in a PEP’s business or assets, or those who have provided financial support. Since beneficial owners can exert significant influence over a PEP’s actions, they are also subject to enhanced due diligence and scrutiny to mitigate the risk of money laundering and other financial crimes.
Understanding the three types of PEPs is essential for financial institutions and governments to implement robust AML and CTF policies. By identifying and monitoring these individuals, organizations can better protect themselves against potential risks and ensure compliance with international standards and regulations.
