Politically Exposed Person
Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, a politically exposed person (also called a “PEP”) is a foreign national who holds, or has held, one of the following offices or positions in or for a foreign country:
- Head of state.
- Head of government.
- Member of the executive council of government.
- Member of a legislature.
- Deputy minister or equivalent.
- Ambassador or attaché.
- Counsellor of an ambassador.
- Military officer with a rank of general or above.
- President of a state-owned company or a state-owned bank.
- Head of a government agency.
- Judge (any level).
- Leader or president of a political party represented in a legislature.
And in respect of any of the above positions or offices, the person’s:
- Common law partner.
In Canada, financial entities, life insurance companies, life insurance brokers and agents, securities dealers and money services businesses are required to treat foreign PEP clients with heightened scrutiny.
Most FATF member countries treat domestic and foreign PEPs with heightened scrutiny. A handful of countries, such as Canada, only consider foreign PEPs to pose a money laundering and terrorist financing risk.
PEPs who have been entrusted with prominent public functions, their family members and close associates, represent a greater money laundering risk because of the possibility that they may abuse their position and influence to carry out corrupt acts, such as accepting and extorting bribes or misappropriation of state assets and then use domestic and international financial systems to launder the proceeds.
The World Bank estimates that more than US$1 trillion is paid in bribes each year. The Stolen Asset Recovery Initiative has estimated that corrupt money received by public officials in developing and transition countries is approximately US$40 billion per year, equal to 20%-40% of official development assistance. Corrupt PEPs need to use foreign financial systems to launder (e.g. hold funds derived from corruption and other criminal activities).
The U.S. Senate Committee on Homeland Security and Governmental Affairs released a special Money Laundering Report (available at this site) that describes recent cases of PEPs who laundered hundreds of millions of dollars in the U.S. According to the Report, in at least one case, Yamilee Bongo-Astier (an immigrant to Canada and the daughter of Omar Bongo, the former president of Gabon) received cash from Canada and elsewhere that she deposited into New York banks for family members. In 2007, she had US$1 million in cash in her safety deposit box. Her family is believed to have transferred over US$18 million into the U.S. financial system. Duhaime’s Anti-Money Laundering Law in Canada summarized the Report here.