Dealing with a Politically Exposed Person in business

What is a Politically Exposed Person (PEP)?

In the broadest sense, a PEP is a prominent public figure who has duties and responsibilities in which they are trusted by the general public. 

The precise definition of a PEP varies from one country to another. But in the UK, examples of people who would meet the criteria are senior figures in politics, government, government-owned companies/organisations, courts, banking, law enforcement agencies, armed forces, and religious organisations. 

As well as the high profile individuals themselves, their family members, friends, or business associates can also be classed as RCAs, or Relative and Close Associates, because criminals might use them as leverage to bribe the high profile figure. 

Why does a company need to be aware of PEPs?

Put simply, PEPs are more susceptible to bribery than your average person. Because of their high profile, trusted positions in society, they are more likely to be targeted by criminals who wish to corrupt or take advantage of them. Often, criminals will bribe or blackmail PEPs to conduct or facilitate illegal activity. This could be as simple as leveraging the trust that the public has in the PEP.

What are sanctions?

Sanctions are restrictive measures put in place to protect national security, maintain international peace, and stop money laundering activity, among other things.

In the UK, sanctions are made under the Sanctions & Anti-Money Laundering Act 2018, otherwise known as the Sanctions Act. Its purpose is to impose serious restrictions on working or dealing with certain people or organisations known as Designated Persons (DPs). The list of current DPs is publicised through the UK sanctions list which includes all details on the exact nature of each sanction.

As a result, companies, including estate agents, are forbidden from dealing with DPs or any of their economic resources, no matter how legitimate the transaction might be. 

An estate agent cannot, for example, sell a property to a DP under any circumstances. If they do, they face severe legal repercussions. 

Punishment for breaching sanctions

If a company or individual breaches a sanction by, for example, accepting money from a DP they have committed an illegal act and the Treasury has extensive powers to punish them. 

Offending individuals can be imprisoned for up seven years for dealing with a DP, or companies can be hit with significant financial punishment

There is a specialist body within the Treasury that is responsible for enforcing these punishments. It is called the Office of Financial Sanctions Implementation (OFSI).

How to identify PEPs and avoid breaching sanctions

Companies need to be aware of any PEPs they come into contact with. Not only do they pose a higher risk of criminal activity and thus require close monitoring and due diligence at all times, but there is also a chance they are a DP and have official sanctions against them.

The easiest and most effective way of avoiding inadvertently dealing with a PEP or DP is to employ good anti-money laundering (AML) processes. Furthermore, using an AML system that facilitates the rechecking or ongoing monitoring of individuals is essential as PEPs & Sanctions lists are updated daily.

This is vital because sanctions are more often assigned to individuals than organisations which means they’re not always easy to spot. In fact, according to government-issued sanctions data, 81% of all financial sanctions apply to individual people. Without automated ID and security checks, these individuals could easily slip under the radar.

The other issue to consider is that there is currently no easy method that allows checks to be carried out with varying tolerances depending on the individual company’s appetite for risk. These tolerances vary from one business to the next depending on their area of operations and this lack of flexibility leads to a large number of false positive results. 

Tim Barnett, CEO of Credas Technologies says 

“A politically exposed person is not a criminal. In fact, the vast majority of them are honest, hard working people who serve the community in one way or another and are vital to the smooth running of society. 

Companies must be able to quickly identify when they come into contact with a PEP because they can present a much higher risk than your average person and require an enhanced level of due diligence to be undertaken. In the vast majority of cases there will be no issues at all when working with a PEP, however, until now, many are being wrongly identified as a risk due to the fact that most providers are utilising the same data when forming their results. 

We’re on the cusp of updating our PEPs Sanction service to allow our customers the ability to tailor their own tolerances to match their individual appetite for risk. In doing so, they will be able to drastically reduce the number of false positive results that are returned.”

Data tables

Data tables and sources can be viewed online, here.