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Politically exposed persons (PEPs): risks and mitigation

Article Information:

Title:

Politically exposed persons (PEPs): risks and mitigation

Author(s):

Kim-Kwang Raymond Choo

Journal:

Journal of Money Laundering Control

Year:

2008

Volume:

11

Issue:

4

Page:

371 - 387


ISSN:

1368-5201


DOI:

10.1108/13685200810910439

Publisher:

Emerald Group Publishing Limited


Acknowledgements:

The views expressed in this article are those of the author alone and not the Australian Government or the Australian Institute of Criminology (AIC). Research was carried out in the author's personal capacity. Thanks also to Janet Smith (AIC) for her help in editing an earlier version of this article although the author accepts responsibility for this final version.

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Abstract:

Purpose – The purpose of this paper is to consider the risks posed by politically exposed persons (PEPs) and explain the money laundering risk when entering into financial transactions and business relationships with PEPs. Risk mitigation by regulated entities and corruption prevention strategies are also outlined. To minimise money-laundering risks associated with PEPs, legislation will need to adapt to deal with threats that organized criminals and terrorists seek to exploit. Future directions for research in relation to PEPs are also identified.

Design/methodology/approach – An analysis of how regulated entities can reduce their risk of money laundering when entering into financial transactions and business relationships with PEPs is presented.

Findings – It was found that there is a need to harmonise legally enforceable obligations targeting PEPs. PEP monitoring, arguably, should be extended to individuals holding prominent public functions in their own jurisdictions, individuals exercising functions not normally considered prominent but who have political exposure comparable to that of similar positions at a prominent level, and individuals holding important positions in private sectors such as CEOs of listed companies. Regulated entities in the private sector need to play their part to mitigate their risks such as conducting ongoing environmental scans of risks of money laundering and the financing of terrorism.

Originality/value – This paper improves awareness of the potential money laundering risks when entering into financial transactions and business relationships with PEPs and makes several recommendations to mitigate the risk posed by PEPs.

Keywords:

Australia, Corruption, Due diligence, Money laundering, Risk management


Article Type:

Research paper


Article URL:

http://www.emeraldinsight.com/10.1108/13685200810910439

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