If you’ve ever seen a “match” on a PEP screening result, it’s easy to feel alarmed. But don’t worry—being a PEP doesn’t automatically make someone a "crook"!

When dealing with PEPs it’s essential to follow the Money Laundering Regulations (MLR) by putting the right controls in place to ensure you're fully compliant and effectively managing any potential risks.
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What is a Politically Exposed Person (PEP)?

A PEP is someone who holds or has held, within the last 12 months, a prominent public position.

In addition, family members and close associates of PEPs are also considered to pose a higher risk, meaning firms must apply similar due diligence measures when dealing with them.

At the beginning of this year, the definition of a PEP was updated. This came after Parliament raised concerns that many PEPs were facing difficulties accessing financial and legal services simply because of their status. The issue? Firms were often asking for too much financial information or conducting overly frequent monitoring. These changes are intended to make life a bit easier for PEPs.

The definition has been split into two categories:

1. Domestic PEPs: Individuals entrusted with prominent public functions in the UK.
2. Non-Domestic PEPs: Those holding similar positions outside the UK.

The key difference? When dealing with domestic PEPs, firms are required to treat them as lower risk compared to non-domestic PEPs, unless there are other enhanced risk factors. This means that a lighter touch should be applied when performing enhanced due diligence (EDD) on domestic PEPs, unless there are specific concerns beyond their PEP status that justify more intense scrutiny.
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Why are PEPs considered high risk?

A PEP is deemed high risk because their roles often present opportunities for bribery and corruption due to the power and influence they hold. The goal of applying EDD to PEPs is to reduce the risk that illicit funds linked to bribery or corruption are laundered through legal or financial channels.

Additionally, PEPs can be easy targets for identity theft because so much of their personal information is publicly accessible.
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How can you identify a PEP?

In my opinion the easiest way to check if your client is a PEP is through online PEP screening solutions, such as Legl. These systems often come with helpful extras like adverse media reports or any known criminal conduct, giving you a clearer picture of the person you're dealing with.

And let’s not forget about Google! A simple search can sometimes reveal a lot about a client’s background and whether they hold (or have held) a high-risk position.
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What do the regulations say?

According to Regulation 33(1)(d) of the MLR, EDD is required when a client is a PEP, or a family member or close associate of one. This means it's essential to figure out if your client is a PEP right from the start.

Once you confirm your client is a PEP, Regulation 35 of the MLR requires you to:

• Obtain senior management approval to continue the business relationship
• Take measures to establish the client’s source of wealth and source of funds
• Closely monitor the business relationship on an ongoing basis

For domestic PEPs, the approach is more flexible. Firms must treat them as lower risk, unless there are other enhanced risk factors—such as involvement in high-risk industries or adverse media—that warrant closer scrutiny.
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The consequences of getting it wrong!

Back in 2019, a partner and Money Laundering Reporting Officer (MLRO) at a well-known law firm ran into serious trouble for not doing PEP checks on two clients who were in fact PEPs. Because he didn’t check if they were PEPs, he didn’t know they were PEPs and so did not apply the EDD that’s required by the MLR.

This all came to light when the clients’ PEP status was revealed in the Panama Papers. As a result, the partner was hit with a fine of £45,000 and had to pay an additional £40,000 in costs from the Solicitors Disciplinary Tribunal (SDT) for breach of the MLR.

Unfortunately, the firm couldn’t bounce back from the bad publicity and ended up going out of business. While the trade name still exists, the original firm has shut its doors.

This case highlights the importance of conducting thorough AML checks, especially when dealing with high-risk clients like PEPs. The collapse of the firm demonstrates how regulatory breaches can have long-lasting reputational and financial consequences for law firms.
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But remember ……..

Seeing a PEP match during screening doesn’t mean you’re dealing with a crook. It just means extra controls need to be put in place to ensure you are compliant with the regulations and reducing the risks of money laundering. With the new distinction between domestic and non-domestic PEPs, you can now apply a more tailored approach. By using reliable PEP screening tools, such as Legl and following the required steps in the MLR, you can manage these clients safely and confidently.