Handling a PEP, that is, a politically exposed person, is one of the aspects of customer due diligence that creates the most operational uncertainty: the definition is broad, it extends to family members and close associates, and the pool is set to grow. With Regulation (EU) 2024/1624 (AMLR), applicable from July 10, 2027, the notion of PEP is broadened and Member States will have to publish the official list of prominent public functions. Let’s look at who falls into the category, which obligations apply and how to get organized without blocking the business.
Who are politically exposed persons (PEPs)
In Italy, the definition is found in Article 1(2)(dd) of Legislative Decree 231/2007: a PEP is a natural person who holds or has held prominent public functions. They include, among others:
- heads of state and government, ministers, deputy ministers and undersecretaries;
- members of parliament and members of the governing bodies of political parties;
- judges of supreme or constitutional courts whose decisions are not generally subject to further appeal;
- members of courts of auditors and of the boards of central banks;
- ambassadors, chargés d’affaires and high-ranking officers of the armed forces;
- members of the administrative, management or supervisory bodies of companies controlled by public entities;
- senior executives of international organizations.
The status does not stop at the individual: it also covers family members (spouse or partner, children and their spouses or partners, parents) and persons known to be close associates of the PEP, for example those who share beneficial ownership of a company or a significant business relationship. It is precisely this second circle, hard to bring to light with a simple self-declaration, that makes the check complex.
A PEP is not a customer to turn away
Politically exposed person status does not imply any suspicion of wrongdoing. The rationale, consistent with FATF Recommendation 12, is that political exposure entails a potentially higher risk of corruption and abuse of position, and therefore warrants proportionate safeguards. Closing all relationships with PEP customers across the board, so-called indiscriminate de-risking, is not a compliance response: it is a commercial retreat that, moreover, does not reduce systemic risk. The EBA Guidelines on money laundering risk factors (EBA/GL/2021/02) call for measures to be scaled to the actual profile: type of function, jurisdiction, nature of the relationship, source of funds.
The enhanced measures to apply
When the customer or the beneficial owner is a PEP, Legislative Decree 231/2007 requires enhanced due diligence, which translates into three minimum safeguards:
- Senior management approval: establishing or continuing the relationship must be approved by a person with management powers or of an appropriate hierarchical level, with a recorded decision.
- Source of wealth and source of funds: all reasonable measures must be taken to establish them, with documentary evidence and not just the customer’s declaration.
- Enhanced ongoing monitoring: more frequent monitoring of transactions and periodic review of the risk profile for the entire duration of the relationship.
Watch out for departures from office: Article 24(6) of Legislative Decree 231/2007 provides that enhanced measures continue to apply even to those who left public office more than a year ago, if a high risk persists. In practice, the status is not automatically reset when the twelve months expire: a documented assessment of the residual risk is required.
What changes with the AMLR from July 10, 2027
- Broader scope: prominent public functions will also include the heads of regional and local authorities with at least 50,000 inhabitants, with a significant impact on the domestic market.
- More relevant family members: brothers and sisters are included among the family members of PEPs holding the most senior functions, such as heads of state and government, ministers, deputy ministers and undersecretaries.
- Official lists: each Member State will have to draw up and keep up to date the list of national prominent public functions, while the European Commission will maintain a consolidated EU-level version.
Official lists are an advantage, because they provide a common reference, but they also raise the bar: it will be harder to justify a failure to identify a PEP by citing the unavailability of sources.
What to do in your company
- Update AML policies and procedures with the extended definition of PEPs, family members and close associates.
- Review onboarding forms so they capture public functions, family members’ roles and relevant business relationships.
- Formally assign who approves the relationship and keep evidence of the decision.
- Standardize documentation on source of wealth and source of funds.
- Measure screening false positives: namesakes, transliterations and incomplete records are the leading cause of unmanageable work queues.
- Plan periodic reviews, including the one after the person leaves office.
How AegisX helps you
Identifying PEPs manually, across heterogeneous lists and with inaccurate records, produces too many false positives and some false negatives, which are the worst risk. With Monitus you automate the screening of customers and beneficial owners for PEPs and adverse media, with name disambiguation and ongoing monitoring over time; with Sanction Screening you check international sanctions lists in the same verification workflow, keeping an audit trail ready for supervisors.
Want to find out how to cut PEP verification times without lowering the quality of your controls? Talk to the AegisX team.
This article is for informational purposes only and does not constitute legal or compliance advice.
