When does a PEP stop being a PEP?

𝗪𝗵𝗲𝗻 𝗱𝗼𝗲𝘀 𝗮 𝗣𝗘𝗣 𝘀𝘁𝗼𝗽 𝗯𝗲𝗶𝗻𝗴 𝗮 𝗣𝗘𝗣? This week saw Malysia’s most infamous PEP, former Prime Minister Najib Razak make an astonishing fall from grace, going from a life of ostentatious luxury to a prison cell to serve a 12 year sentence on charges of abuse of power and money laundering related to the 1MDB scandal. This week also saw Argentina’s public prosecutor seeking that Vice President Cristina Kirchner be sentenced to 12 years in prison and disqualified from public office for life for alleged corruption during her two terms as president.

So whilst Najib Razak and other high-level prosecutions are outrageous examples of the way in which certain PEPs plunder state assets, extort and accept bribes, and use the international financial system to launder their stolen assets, they are also a good opportunity to revisit the way countries mitigate PEP risks around the world.

I’ve noticed different countries have different definitions and requirements regarding the “PEPitude” of their PEPs. “PEP” for those unfamiliar with AML jargon stands for “Politically Exposed Person” or the good old “Government Official” in Anticorruption terminology.

While there’s no universal rule financial institutions or non-financial designated businesses and professionals follow around the world on this topic, it is good practice to avoid setting time limits on how long a PEP should be considered a PEP.

Many countries have introduced time limits on the length of time the person, family member, or close associate needs to be treated as a “High risk” PEP after the person has ceased to be entrusted with a prominent public function.

But various geographic, cultural, political, and even religious factors may determine the duration of the power and influence held by public officials, relatives, and close associates.

In many cases, the influence held by PEPs and close associates outlasts the term in office by years, even decades, and corrupt monies do not become legitimate after a certain time period.

According to guidance issued by the Stolen Asset Recovery (StAR) Initiative, rather than setting time limits, ” banks should be encouraged to consider the ongoing PEP status of their customers on a case-by-case basis using a risk-based approach, and regulatory authorities should provide guidance about what this entails.

If the risk is low, banks can consider declassifying the relationship, but only after carefully evaluating the continuation of anti-money laundering risks and with the approval of senior management.”

Some countries plainly consider that “once a PEP, always a PEP”, and for good reason.

%d bloggers like this: