USA and its definition of PEP

Last August of 2020, the Federal Reserve of the United States, along with other North American regulatory agencies such as the Financial Crimes Enforcement Network and the National Credit Union Administration, issued a joint statement providing some clarity on the measures to be taken regarding politically exposed persons or persons in public positions.

Politically exposed persons, as we pointed out in previous posts, are individuals who hold positions of public power, associated with positions of authority and influence, which may potentially be abused for the purpose of money laundering, corruption, or activities aimed at financing terrorism.

The controversy surrounding the publication of this statement is due to the lack of definition of the term “politically exposed person” in U.S. legislation. Despite this, North American regulations do establish a definition for “Senior Foreign Political Figures” — SFPF, referring to high-ranking foreign political figures, while leaving the concept of “politically exposed person” undefined.

The definition provided for SFPF by the U.S. regulations specifies that these include any high-ranking executive, legislative, administrative, military, and judicial officials, as well as high-ranking officials of political parties or publicly traded companies.

First of all, the joint statement indicates that “the Agencies do not interpret the term ‘politically exposed person’ to include U.S. positions,” later stating that the term PEP defines, in their view, any individual holding a prominent public function, distinct from the SFPF already contemplated in U.S. regulations.

The group of U.S. agencies states that “there is no regulatory requirement, nor is there an expectation of oversight, in the due diligence process through which additional and unique measures should be applied to politically exposed persons.” Furthermore, the statement also notes that “not all politically exposed persons are high risk by virtue of their status,” as it will also depend on the business relationship they have with the obligated party.

Consequently, the group of U.S. agencies indicates that when developing a risk profile for a client, obligated parties should consider, among other factors, the public or political position of the subject, as well as “any indication that the PEP may misuse their authority or influence.” Therefore, U.S. regulatory bodies advocate for developing a risk-based profile, depending on the type of client, business relationship, as well as the type of services or products used, the volume or nature of transactions, or the different geographical areas associated with the client.