PEP Screening: How to Identify Politically Exposed Persons

Politically Exposed Persons — commonly known as PEPs — are individuals who hold, or have recently held, prominent public functions. Because of their position, PEPs may have greater opportunities to engage in or facilitate corruption, bribery, and money laundering. Under Australia's AML/CTF framework, reporting entities must screen clients for PEP status and apply enhanced due diligence when a match is found.

What Is a Politically Exposed Person?

A PEP is a natural person who occupies or has occupied a prominent public position. The FATF defines three categories:

Foreign PEPs

Individuals who hold or have held a prominent public function in a foreign country. Examples include:

• Heads of state or government
• Senior politicians and members of parliament
• Senior government or judicial officials
• Senior military officers
• Senior executives of state-owned enterprises
• Important political party officials

Foreign PEPs are always considered higher risk because the potential for corruption in their home jurisdiction may be difficult to assess from Australia.

Domestic PEPs

Individuals who hold or have held a prominent public function within Australia. Examples include:

• Federal and state members of parliament
• Senior public servants (department secretaries, agency heads)
• Senior judges and magistrates
• Senior officers of the Australian Defence Force
• Executives of government-owned corporations
• Senior officials of major political parties

Domestic PEPs carry elevated risk, though generally less than foreign PEPs, because Australia's governance structures provide greater transparency and accountability.

International Organisation PEPs

Individuals who hold or have held a senior position in an international organisation. Examples include:

• Directors and board members of international financial institutions (e.g., World Bank, IMF)
• Senior officials of the United Nations or its agencies
• Heads of international courts or tribunals

Family Members and Close Associates

PEP screening does not stop with the individual. You must also consider:

• Immediate family members — spouses, children, parents, and siblings of PEPs
• Close associates — individuals known to have close business or personal relationships with PEPs, including business partners and advisors

Family members and close associates are considered PEPs because they may be used as conduits for illicit funds.

Why PEP Screening Matters

The connection between political power and financial crime is well-documented globally. PEPs have access to public funds, government contracts, and regulatory influence. Without screening, a reporting entity might unknowingly:

• Process transactions involving the proceeds of corruption
• Facilitate the laundering of bribes received by a foreign official
• Assist a PEP in concealing assets obtained through abuse of their position

AUSTRAC expects all reporting entities to have a risk-based approach to PEP identification. Failing to screen for PEPs is a compliance failure, and processing transactions for PEPs without enhanced due diligence can result in enforcement action.

How to Screen for PEPs

Effective PEP screening involves several steps:

1. Screen at Onboarding

Every new client — and every beneficial owner of a client entity — should be screened against PEP lists during the customer identification process. This should happen before you provide any designated service.

2. Use Reliable Data Sources

PEP lists are maintained by specialist screening providers. These databases aggregate publicly available information from government sources, media, and international watchlists. Manual screening using Google searches is not sufficient for a compliant process — you need a structured, repeatable approach.

Key data sources include:

• Commercial PEP screening databases (e.g., Dow Jones, Refinitiv, ComplyAdvantage)
• DFAT's consolidated sanctions list (which includes some PEP-related entries)
• Publicly available parliamentary and government directories

3. Screen Beneficial Owners

If your client is a company or trust, screen the beneficial owners — not just the entity name. A company controlled by a PEP's family member carries the same risk as a direct PEP relationship.

4. Apply Enhanced Due Diligence

When a PEP match is confirmed, you must apply enhanced due diligence. This includes:

• Obtaining senior management approval before establishing or continuing the relationship
• Taking reasonable measures to establish the source of wealth (how the PEP accumulated their assets)
• Taking reasonable measures to establish the source of funds for specific transactions
• Conducting enhanced ongoing monitoring of the relationship

5. Conduct Ongoing Screening

PEP status can change. A client who was not a PEP at onboarding may be appointed to a government position later. Ongoing screening — at least annually for higher-risk clients — is essential to capture these changes.

Handling False Positives

PEP screening databases are broad by design, which means false positives are common. A client named "John Smith" may match against hundreds of entries. When a potential match is flagged:

1. Compare the match against all available identifying information (full name, date of birth, nationality, address)
2. Review the source data to understand the basis for the match
3. If the match can be definitively ruled out, document your reasoning and clear the alert
4. If the match cannot be ruled out, escalate to your compliance officer and apply enhanced due diligence as a precaution

Never ignore a match without documenting why it was dismissed.

How Long Does PEP Status Last?

There is no universal rule for when a former PEP ceases to be considered a PEP. The FATF recommends that individuals be treated as PEPs for a minimum period after they leave their public role — typically 12 to 18 months, though some jurisdictions apply longer periods. AUSTRAC's guidance suggests a risk-based approach: the more senior the position and the higher the corruption risk in the relevant jurisdiction, the longer you should maintain enhanced due diligence.

Streamline Your PEP Screening

Manual PEP screening is time-consuming and error-prone, especially for businesses with large client bases. ComplyReady integrates PEP and sanctions screening into the client onboarding workflow, automatically flagging matches and guiding you through the enhanced due diligence process.

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