‘PEP’ is short for ‘Politically Exposed Person’. In Anti-Money Laundering parlance, this refers to politicians, their families, generals, judges and anyone in a public position.
Why should we pay more attention to them?
As the Financial Action Task Force (FATF) – the key intergovernmental body tasked with standard-setting to combat money laundering – explains:
Those working in financial services will be aware of Enhanced Due Diligence procedures that apply to clients with PEP status. These are preventative requirements, not intended to stigmatise PEPs, but rather acknowledging the potential risks associated with them and providing for a financial system that is not misused.
What cases are there of PEPs misusing the financial system?
There are quite a few cases that the above precautionary measures would apply to, which include straightforward money laundering or shadowy transactions that suggest money laundering.
The Organized Crime and Corruption Reporting Project (OCCRP) reported as part of its Azerbaijani Laundromat investigative series that a major Danish bank was used by the Azerbaijani elite for fraud and money laundering. A large amount of money went towards bribing European officials and politicians who in return were expected to praise the Azerbaijani government, despite its poor human rights record.
The current US president himself seems to have enriched himself with little regard for the origin of money flows into his real estate empire, much of it coming in from questionable Russian sources at a time when flows of money outside of Russia were characteristic of money launderers concerned with getting their money out of Russia. His own former campaign manager, Paul Manafort, is currently being indicted on money laundering charges for undisclosed work he did as a foreign political agent to former Ukrainian president Viktor Yanukovych and laundering proceeds from this work through offshore accounts.
The release of the Panama Papers last year further unearthed many connections between politicians, their networks and tax evasion schemes, which can be conducive to money laundering. Twelve heads of state were implicated in the schemes unveiled by the Panama Papers, 128 senior politicians or civil servants, 14,000 companies, banks and law firms. Those are significant numbers, indicative of the scope of the problem.
Those especially in the financial services are supported by regulations which oblige them to be on the lookout for suspicious transactions and to ensure they report any suspicious behaviour, as PEPs’ behaviour has real consequences for democracy.