What does politically exposed Person (PEP) mean?

In order to combat money laundering, the UN Convention for Combating Corruption and the Financial Action Task Force (FATF) provide instructions on how to identify and deal with Politically Exposed Persons (PEP). In Bangladesh, all scheduled banks and financial institutions strictly comply with the set guidelines when opening an account for a Politically Exposed Person (PEP).

Definition of Politically Exposed Person (PEP)

In Money Laundering Prevention Act-2002, Act No. 4 & 19 and Financial Action Task Force (FATF) Recommendation No.06 address about Politically Exposed Persons (PEP).

Usually, we can define Politically Exposed Person (PEP) is an individual who possess high profile political role, or someone who has been entrusted with a prominent public function.

As per Financial Action Task Force (FATF) definition “A politically exposed person (PEP) is the individual who is or has been entrusted with a prominent public function which include individuals in foreign country and domestic level.

Read Also: How to open a bank account in Bangladesh?

Who will be Treated as a Politically Exposed Person (PEP) 

Examples of PEPs include;

· Heads of state or government, ministers and deputy or state ministers;

· Members of parliament or of similar legislative bodies;

· Members of the governing bodies of political parties (generally only apply to the national governing bodies where a member has significant executive power, e.g., over the selection of candidates or distribution of significant party funds);

· Senior politicians

· Members of supreme courts, of constitutional courts or of any judicial body the decisions of which are not subject to further appeal except in exceptional circumstances;

· Members of courts of auditors or of the boards of central banks;

· Ambassadors, Charges d‟affairs and high-ranking officers in the armed forces;

· Head or the senior executives or members of the administrative, management or supervisory bodies or State-owned enterprises;

· Chief, directors, deputy directors and members of the board or equivalent function of an international organizations.

Along with this list Relatives and Close Associates of the individuals above mentioned person may also be categorized and treated as a politically exposed person. Relatives and Close Associates refers to immediate family members or close social or professional contacts of a government or political official, or senior executive– meaning spouses, parents, siblings, children and spouse’s parents and siblings.

May also note that, according to Bangladesh Bank guideline if a person who is a PEP is no longer entrusted with a prominent public function, that person should continue to be subject to risk-based enhanced due diligence for a period of at least 12 months after the date they ceased to be entrusted with that public function.

Types of Politically Exposed Person (PEP) 

The FATF has categorized PEPs into 3 (three) criteria which include:

· Foreign PEPs;

· Domestic PEPs (known as Influential Persons: IPs in Bangladesh) and

· Chief or similar high-ranking positions in an international organization.

Is a PEP always high risk?

Relationships with PEPs may represent increased risks due to the possibility that individuals holding such positions may misuse their power and influence for personal gain or advantage, or for the personal gain or advantage of close family members and close associates.

But Politically Exposed Person (PEP) status does not always predict criminal behavior, the risk exposure that it brings means that financial institutions must apply additional AML/CFT measures when establishing a business relationship and conduct ongoing monitoring to ensure that they capture changes in their customer’s risk profile. 

How to deal with PEP

1. Bank should monitor PEP customer accounts on an ongoing basis and also monitor is there any changes in PEP status.
2. Get approval from the competent authority and ensure proper documents to open PEPs account as well as take adequate measures to establish the source of wealth and source of funds.
3. Bank and Financial Institutions should train their employees know about their risk and how to deal with it.
4. PEPs are listed in a variety of commercially-available databases. While these databases should not be regarded as a replacement for CDD measures, firms may use them to add depth to their PEP screening measures. 
5. Create comprehensive internal PEP policies. 
6. Conduct ongoing monitoring
7. Establish risk-control procedures

Providing smooth services to the PEP/IP through proper Due Diligence to combat corruption, money laundering, and other issues is the main objective of FATF, UN and Bangladesh Bank. Regulatory requirements for banks and financial institutions are mandatory, and each bank and institution must come up with its own strategy to deal with them.

👉Bangladesh Bank Guidelines on Politically Exposed Person (PEP).