Politically exposed persons, who are they?

The Financial Action Task Force—FATF—stated in 2013 that politically exposed persons, due to the power they hold and the influence they enjoy, are in positions that could potentially be abused for purposes of money laundering, corruption, or activities aimed at financing terrorism. Consequently, FATF recommended that additional preventive measures should be applied to these individuals.

This concept was first introduced into European legislation in Directive 2005/60/EC, which outlined the measures to be taken when an obligated entity engages with a person holding public responsibility. A year later, Directive 2006/70/EC expanded the concept more comprehensively, detailing its procedures.

European law classifies these individuals as “politically exposed persons.” Spanish legislation, however, refers to them as persons with public responsibility, considering this term more accurate and expressive when transposing the European mandate. Despite the different semantic construction of both terms, in practice, they mean the same thing.

European law defines “politically exposed persons” as “individuals entrusted with significant public functions, along with their immediate family members and persons known as associates.” Through Directive 2006/70/EC, a series of interpretative requirements were established to apply and transpose this directive into the legal systems of the Member States.

In this regulation, the European legislator categorizes persons with public responsibility into different roles, such as:

• Heads of State, Heads of Government, ministers, or secretaries of state;
• Parliamentarians;
• Members of the highest judicial bodies;
• Members of courts of auditors or central bank councils;
• Ambassadors or high-ranking officials of the armed forces;
• Members of the management bodies of state-owned enterprises.

For immediate family members, the Directive defines them as: spouses or equivalent, children or equivalent, as well as parents. It also defines the term “persons known to be close associates” as those who co-own a legal entity with a person in the political sphere or have established legal entities in their favor.

National Transposition

How have these Directives been transposed by the Member States of the Union? Most of them adopt the defining standard provided by the European Union, but each adds its own peculiarities.

For example, Germany, in its anti-money laundering law, fully implements the definition of PEP as outlined by the European Union. However, while the Directive states that PEPs may lose this status after having ceased to hold a relevant public function for at least one year, Germany does not set this condition. The German state stipulates that after 12 months, during which a PEP has left their political office, obligated entities may take appropriate risk-oriented measures if they believe the person still poses a threat. This opens the door to continuing to consider a person as a PEP who, due to their political status, no longer holds this position but may still pose a risk.

Another example, concerning the duration of PEP status, is Portugal. Portugal also adopts a definition identical to the European one and establishes a similar rule to Germany, setting a one-year duration for PEP status, as long as the individual has ceased holding a political office. The Portuguese legal system states that if the person continues to pose a risk “due to their profile or the nature of their operations,” they will retain their PEP status for the obligated entity.

And Spain? Spain divides the definition of PEP into two sections. First, it fully adopts the list established by the European legislator in section 2 of Article 14, although it adds a new provision for senior positions in political parties, a concept not covered by European regulations. This section will be used for foreign PEPs, as it is complex to establish specific figures for each political system in every country.

Then, in its third section, it specifies further, stating that those considered persons with public responsibility—henceforth PEPs—include, in the first place, “**persons other than those listed in the previous section, who hold senior positions as defined in Article 1 of Law 3/2015,” redirecting the interpretation of PEPs to the law regulating the exercise of senior positions in the General Administration, specifically Article 1, which provides a list of positions.

It also specifies which political positions will be considered PEPs at the regional and local levels, as well as in trade union and business representation. This section will be used for domestic PEPs, i.e., Spanish PEPs. Unlike other EU states that copy the PEP definition from European Directives, the Spanish legislator has further clarified which political positions will be considered PEPs to assist obligated entities in determining who qualifies as a PEP. Moreover, unlike other states, PEP status will continue for up to two years after leaving public office—one year longer than in other legislations.

What about non-European countries that are not subject to these Directives? In the United States, for example, there is a definition for PEPs, but it applies exclusively to foreign PEPs, meaning those who are not U.S. nationals. U.S. legislation requires additional due diligence measures for Senior Foreign Political Figures—understood as foreign PEPs—but does not establish specific measures for nationals. However, the Financial Crimes Enforcement Network—FINCEN—a body similar to Spain’s SEPBLAC, states that obligated entities should establish the appropriate measures for domestic PEPs according to their own prevention programs.

In contrast, Mexico offers a more specific treatment and classification of PEPs. Under section 68 of the General Provisions referenced in Article 115 of the Credit Institutions Law—regulations applicable to the prevention of money laundering—it is stated that the Ministry of Finance and Public Credit will draw up a list of positions considered National PEPs. In 2020, the Ministry published the list, which includes more than 100 national public positions to be considered PEPs under Mexican regulations. What about foreign PEPs in Mexico? The Ministry of Finance and Public Credit states that the outlined criteria may be used analogously, while always considering that the political and administrative structure of two countries may differ greatly.

Conclusion

Each state bases its definition of Persons with Public Responsibility either on Recommendation 12 of the Financial Action Task Force or, if they are European states, on the Directives concerning money laundering prevention.

This regulatory dispersion, and in practice, its lack of harmonization, complicates the work of obligated entities in their KYC processes, as well as in fulfilling their obligations regarding money laundering prevention. Therefore, it is necessary to have both legislative and operational tools that more clearly specify which individuals should be considered PEPs.