Politically exposed persons are considered to be more prone to involve in illegal activities than the common people due to the influence and links they establish during their time at prominent office. That is why when any business tries onboarding a new client, they comprehensively screen and monitor the Politically Exposed Persons list to reduce the chances of interacting with any entity that seeking legitimate channels for money laundering and Terror financing.
The complexity businesses often have to face during the monitoring and screening of PEPs is the changing status of the watchlist. Because some countries and regulatory bodies strictly follow the norm that once a PEP, always a PEP.’ Contrary to this, most countries believe that after a specific time limit a person could be declassified from the PEPs list, typically ranging from 12 to 18 months.
In this blog, we will explore whether once a PEP, always a PEP. What do regulatory bodies and countries say on this issue? And The Problem with Once a PEP, always a PEP
Understanding PEPs and AML Compliance
Those individuals entrusted with power by ordinary people to run the country’s essential matters are known as the PEPs. Though they are prominent figures, regulatory bodies such as FATF and OFAC consider them people with a high risk of being involved in corruption, bribery, and other financial crimes. This is why businesses that plan or have already made any business deal with them need to assess the risks they can pose comply to with AML regulations. PEP screening itself is not a complicated task, but the complexity that businesses often have to deal with is how long the PEPs remain on the list.
FATF Position on PEP Declassification
Financial Action Task Force declares once a PEP, always a PEP phenomenon, as an open-ended approach. As per the regulatory bodies, a person could be declassified from the PEPs but not mainly based on the prescribed limit, just like the European parliament does, that says in a minimum of 12-18 months, PEP will no longer be on the list after his removal from public office. However, the body clarifies that the removal of peps must be based on individual risk assessment rather than automatic removal after the fixed period. The risk assessment is based on the following phases:
- Time Elapsed since leaving office: A person who has been away from public office for many years has many chances to be removed from the list.
- Nature of the previous position: Removal also depends on the person’s position in the past and the influence he built during his time in the office. The lesser influence, the higher the chance of discallisfications.
- Level of Risk: This is the most prominent part, and it is deeply assessed if the person still possesses any risk of being involved in money laundering or terror financing.
- Country-Specific factors: Where he held the office also matters a lot because sanctioned bodies have listed some countries prone to money laundering, so with a lower risk of financial crimes, discrimination chances increase.
The Problem with Once a PEP, always a PEP
The approach, considering that once a pep is always a pep, isn’t feasible as not every PEP is high-risk. So, based on a few bad characters, the whole community should not fall into the same category, and it can also lead to unjust compliance practices.
For example, If a person once held a prominent public office and was added to the PEPs list. However, after years of leaving his offices, he aspires to move to academia or alleviate his business in a particular field; he will face problems making relations with any entity and must go through the strict sanction screening process to open a bank account and make some transactions. Therefore, once a PEP, always a PEP, the approach should only apply to some PEPs.
It also depends on the country’s law where a particular person lives. In most countries, they declare by law that once a PEP is always a PEP, but there are other countries that declassify them after a defined period or based on the risk they still pose.
Is there a fixed period for PEP declassification?
There isn’t any straight rule for removing an individual from the PEPs list. Some countries or regions may retain a person as a PEP forever, and some change their status depending on the time of leaving public office and his approach at the said time. Here are some time frames and criteria from a general perspective and the regions on declassifying PEPs.
| European Parliament | Minimum of 18 months |
| FATA | indefinitely, case-by-case |
| General Consensus | 12- 18 months |
Manage PEP risk with AML Watcher
Staying updated with AML compliance is quite an intricate task due to fast changes in the rules and regulations along with the addition and removal of PEPs from different lists. However, you have everything in line to comply with AML PEPs check and screening regulations. The tool isn’t just easy to use; it is efficient and reliable and consolidates all watchlists worldwide.
So, to avoid your business interacting with any illegal activity that potentially leads to money laundering and financial terrorism, integrate your business with an advanced AML Watcher screening tool.