6.4.1 Requirements for Politically Exposed Persons (PEPs)

Effective from 13/7/2023

Due to their potential ability to influence government policies, determine the outcome of public funding or procurement decisions, or obtain access to public funds, politically exposed persons (PEPs) are classified as high-risk individuals from an AML/CFT perspective. The AML-CFT Law and the AML-CFT Decision define PEPs as:

“Natural persons who are or have been entrusted with prominent public functions in the State or any other foreign country such as Heads of States or Governments, senior politicians, senior government officials, judicial or military officials, senior executive managers of state-owned corporations, and senior officials of political parties and persons who are, or have previously been, entrusted with the management of an international organisation or any prominent function within such an organisation; and the definition also includes the following:

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Direct family members (of the PEP, who are spouses, children, spouses of children, parents).

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Associates known to be close to the PEP, which include:

-	Individuals having joint ownership rights in a legal person or arrangement or any other close Business Relationship with the PEP.
-	Individuals having individual ownership rights in a legal person or arrangement established in favour of the PEP.

FIs are obliged to put in place appropriate risk management systems to determine whether a customer, Beneficial Owner, beneficiary, or controlling person is a PEP. In addition to undertaking standard CDD procedures, FIs are also required to take reasonable measures to establish the source of funds and the source of wealth of customers and Beneficial Owners identified as PEPs. In this regard, and commensurate with the nature and size of their businesses, FIs should take measures that include:

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Implementing automated screening systems which screen customer and transaction information for matches with known PEPs;

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Incorporating thorough background searches into their CDD procedures, using tools such as:

-	Manual internet search protocols;
-	Public or private databases;
-	Publicly accessible or subscription information aggregation services;
-	Commercially available background investigation services.

If a customer, Beneficial Owner, beneficiary, or controlling person is identified as a PEP, FIs are required to take reasonable measures to establish the PEP’s source of funds and source of wealth. In this regard, they should also evaluate the legitimacy of the source of funds and source of wealth, including making reasonable investigations into the individual’s professional and financial background.

Furthermore, FIs are also required to obtain senior management approval before establishing a Business Relationship with a PEP, or before continuing an existing one. In regard to the latter, senior management should be notified and their approval should be obtained for the continuance of a PEP relationship each time any of the following situations occur:

•	An existing customer, Beneficial Owner, beneficiary, or controlling person becomes, or is newly identified as, a PEP;
•	An existing PEP Business Relationship is reviewed and the CDD information is updated, either on a periodic or an interim basis, according to the organisation’s internal policies and procedures;
•	A material transaction that appears unusual or illogical for the PEP Business Relationship is identified;
•	The beneficiary or Beneficial Owner of a life insurance policy or family takaful insurance policy is identified as a PEP, and in case higher risks are identified, the overall Business Relationship should also be thoroughly examined and consideration given to filing an STR. Senior management should be informed before the payout of the policy proceeds.

With regard to identified Domestic PEPs and individuals who were previously (but are no longer) entrusted with prominent functions at international organisations, the AML-CFT Decision provides that FIs should implement the measures described above when, apart from their PEP status, the Business Relationships associated with such persons could be classified as high-risk for any other reason.

The handling of a customer who is no longer entrusted with a prominent public function should be based on an assessment of risk. This risk based approach requires that FIs assess the ML/FT risk of a PEP who is no longer entrusted with a prominent public function, and take effective action to mitigate this risk. Possible risk factors are the level of (informal) influence that the individual could still exercise; the seniority of the position that the individual held as a PEP; or whether the individual’s previous and current function are linked in any way (e.g., formally by appointment of the PEPs successor, or informally by the fact that the PEP continues to deal with the same substantive matters).