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A Politically Exposed Person (PEP) is an individual who holds a prominent public position or function in government, political party, or international organization. PEPs are considered to pose a higher risk of involvement in bribery, corruption, and money laundering due to their position and access to public funds and resources.
PEPs can include heads of state, government officials, senior politicians, judges, military officials, and leaders of political parties. It can also include their immediate family members and close associates.
In terms of TPRM (Third-Party Risk Management), identifying whether a potential customer or business partner is a PEP is crucial as it requires a higher level of due diligence and monitoring. Financial institutions, in particular, are required to comply with various anti-money laundering (AML) and counter-terrorism financing (CTF) regulations that require them to identify PEPs and monitor their transactions more closely.
Failing to properly identify a PEP and properly manage the associated risks could result in regulatory penalties, reputational damage, and financial losses. Therefore, it is important for organizations to have effective processes in place to identify and manage PEPs as part of their overall TPRM strategy.