Financial crime compliance
A complete guide to understanding Politically Exposed Persons (PEPs)
In an interconnected financial environment, much like the one we’re navigating today, building defences against financial crime is more critical than ever. The United Nations estimates that corruption drains around $2.6 trillion from the global economy each year.
Individuals on the politically exposed person (PEP) list, because of their influential roles in governments or international organisations, are more likely to be exposed to corruption or misuse of power. As such, robust PEP screening has become an essential compliance measure across global financial and non-financial sectors. It deters the misuse of public funds by identifying and managing politically exposed persons.
Who are politically exposed persons?
A PEP is typically someone who currently holds, or has previously held, a senior public position. These roles often come with decision-making powers, access to public funds, or the ability to influence policy — factors that make them vulnerable and a risk to the state or an organisation.
The idea of PEP screening gained prominence following the United Nations Convention Against Corruption (UNCAC) in 2003 and was later reinforced by the Financial Action Task Force (FATF). Today, screening for PEP persons is a standard regulatory requirement in many organisations.
The politically exposed person list typically covers three main types:
Foreign PEPs
Individuals holding senior roles in foreign governments, including heads of state, ministers, judges, ambassadors, and executives of state-owned enterprises.
Domestic PEPs
High-ranking officials in a country’s government, legislative, judicial, military, and regulatory roles.
International organisation PEPs
Senior members of international organisations such as the United Nations, World Bank, or regional trade blocs. This includes board members, directors, and commissioners.
Along with these categories, family members and close associates of a PEP often feature on a PEP list due to their proximity to political and financial influence.
The PEP screening process
Effective PEP screening plays a critical role within an organisation’s Know Your Customer (KYC) and Anti-Money Laundering (AML) framework. It helps uncover hidden risks early in the customer lifecycle and involves the following:
Collecting information
The screening process starts with gathering key details about individuals, including full legal names, aliases, date and place of birth, nationality, occupation, known associates, and business affiliations.
Using reliable data sources
Names are then checked against reliable politically exposed person lists, government records, international sanctions lists, and credible media reports to confirm a PEP status.
Screening and verifying matches
Not every match means risk. Organisations must assess context, checking factors like dates of office, locations, and relationships to ensure accurate identification and avoid false positives in identifying a politically exposed person.
Assessing risk
An effective PEP risk assessment enables organisations to categorise PEPs according to their level of risk. Factors include:
- The country involved and its corruption index
- The sensitivity of the individual’s role
- Any history of allegations or legal action
- The source of their wealth
- The presence of third-party entities or shell companies used to obscure ownership
Monitoring
Since an individual’s status as a politically exposed person can change over time, institutions must maintain updated monitoring systems and review risk profiles regularly to account for updates in political status or legal standing.
Challenges in effective PEP screening
Despite its importance, PEP screening comes with its own set of challenges. These issues highlight why many organisations now look to technology-led solutions to manage PEP screening more effectively.
- High false positives due to common names or incomplete data
- Inconsistent definitions of PEPs across regions
- Difficulties in identifying associates or hidden beneficiaries
- Operational delays caused by manual checks
- Static PEP lists that quickly become outdated
Enhancing PEP screening and reducing risk exposure
Modern financial crime compliance increasingly relies on technology to overcome the limitations of traditional PEP screening.
AI-driven compliance tools
Artificial Intelligence (AI) and Machine Learning (ML) help analyse patterns, aliases, and transactions in real time, reducing false positives and detecting anomalies more effectively.
Real-time watchlist updates
Regularly updated PEP lists allow organisations to respond swiftly to newly identified PEPs or sanctions.
Advanced KYC technology
Biometric authentication, liveness detection, and document verification solutions improve onboarding processes and enhance accuracy.
Risk-based monitoring frameworks
Custom rules based on PEP risk assessment parameters allow teams to prioritise high-risk individuals, improve resource allocation, and reduce alert fatigue.
How can Infosys BPM tailor financial crime compliance for your business?
Tailored Financial Crime Compliance (FCC) services by Infosys BPM help organisations combat financial crime through AI, machine learning, and advanced analytics. These features include Anti-Money Laundering (AML), Know Your Customer (KYC), and fraud management. With a focus on faster onboarding and risk mitigation, Infosys BPM’s KYC and Fraud Management offerings enable accurate identity verification, AI-driven risk scoring, and omnichannel fraud detection.
