PEP Screening: When Politicians Become Clients
Politically Exposed Persons (PEPs) are high-risk clients who require enhanced due diligence. Under Tranche 2, you must screen for PEPs and apply additional measures when you identify one. Here is what you need to know.
What is a PEP?
A Politically Exposed Person is an individual who holds or has held a prominent public position, making them potentially higher risk for bribery, corruption, or misuse of their position.
Categories of PEPs
Foreign PEPs (Highest Risk)
- Heads of state or government
- Senior politicians and party officials
- Senior military officials
- Senior judicial officials
- Senior executives of state-owned enterprises
- Senior officials of international organisations
Domestic PEPs (Australia)
- Federal, state and territory parliamentarians
- Federal, state and territory judges
- Senior military officers
- Senior public servants
- Executives of state-owned corporations
Family Members and Associates
Close family members (spouse, children, parents and siblings) and close associates of PEPs are also considered higher risk and may require enhanced due diligence.
PEP screening process
- Ask the question: Include PEP questions in your onboarding forms
- Screen against databases: Use PEP screening tools or databases (free sanctions search available at HeadStart Docs™)
- Document the screening: Record what checks you performed and when
- Apply ongoing monitoring: PEP status can change - repeat screening periodically
Enhanced due diligence for PEPs
When you identify a PEP client, Section 32 requires enhanced due diligence:
- Senior management approval: Before establishing or continuing the relationship
- Source of wealth: Establish and document where their wealth comes from
- Source of funds: Verify where the transaction funds originated
- Enhanced ongoing monitoring: More frequent reviews of the relationship
Foreign PEPs: Automatic EDD
Foreign PEPs automatically trigger enhanced due diligence. For domestic PEPs, you apply a risk-based approach - EDD is required if the overall risk is elevated.
Practical tips
- Include PEP declaration in your client onboarding forms
- Use our free sanctions and PEP screening tool
- Document all PEP screening in your client file
- Set reminders for ongoing PEP screening (annually or per engagement)
- Obtain senior management sign-off for all PEP clients
Key Takeaway
PEP screening is mandatory for all Tranche 2 reporting entities. Ask the question, screen against databases and apply enhanced due diligence when you identify a PEP. Foreign PEPs are automatically high-risk. Document everything.
Read our complete Tranche 2 Guide
Key dates, affected sectors, obligations and how to prepare
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