PEP Screening: Identifying Politically Exposed Persons
Politically exposed persons (PEPs) are considered high risk for money laundering and corruption. The Money Laundering Act (GwG) mandates companies — especially in the financial sector — to identify PEPs and apply enhanced due diligence measures.
But who qualifies as a PEP? And how can the screening be implemented efficiently?
Who is considered a PEP?
A politically exposed person is someone who holds or has held an important public office. The EU Money Laundering Directive defines three categories:
Domestic PEPs: Heads of state or government, ministers, members of parliament, judges of supreme courts, ambassadors, senior military officers
Foreign PEPs: These same roles in other countries — automatically classified as higher risk
International PEPs: Leaders of international organizations (EU, UN, NATO, etc.)
Important: Family members and close associates (RCAs — Relatives and Close Associates) of PEPs are also subject to enhanced due diligence measures.
Why PEP Screening is Mandatory
The GwG requires obligated entities (banks, insurers, payment service providers, and others) to:
Determine if a customer or beneficial owner has PEP status
Apply enhanced due diligence measures if PEP status is confirmed
Secure approval of the business relationship from senior management
Clarify the source of wealth
Intensify ongoing monitoring
Violations are severely penalized — fines in the millions are not uncommon.
The Challenge: PEP Status Changes
A person who is not a PEP today might become one tomorrow — and vice versa. A minister resigns, a business partner is appointed to a public office. Therefore, one-time screenings are not sufficient.
How Indicium Automates PEP Screening
Global PEP Databases: Matching against comprehensive international PEP lists with daily updates
RCA Detection: Automatic identification of family members and close associates
Ongoing Monitoring: Status changes are detected and reported automatically
Risk Assessment: Not all PEPs are equally risky — Indicium provides context-based risk evaluation
Audit Trail: Complete documentation for auditors and regulatory authorities
The result: you meet your GwG obligations efficiently and can demonstrate compliance at any time.
Nabil el Berr, CEO
Frequently Asked Questions
What is a Politically Exposed Person (PEP)?
A Politically Exposed Person (PEP) is someone who holds or has held a prominent public position. The EU Anti-Money Laundering Directive defines three categories: Domestic PEPs (heads of state and government, ministers, members of parliament, judges of supreme courts, military leaders), international PEPs (heads of international organizations like the UN, EU, NATO), and family members and close business associates of PEPs (Related Persons). The PEP status does not automatically end when their term does - former officials are generally still considered PEPs for 12-18 months.
Why are companies required to conduct PEP checks?
The Money Laundering Act (GwG) requires companies — especially in the financial sector — to identify PEPs and carry out Enhanced Due Diligence. PEPs are considered a higher risk for money laundering and corruption because they have access to public funds and decision-making processes. Non-compliance with PEP screening duties can lead to severe fines — BaFin has imposed multi-million euro penalties in the past.
Who is required to perform PEP checks?
Companies obligated under the GwG include: banks and credit institutions, insurance companies and asset managers, payment service providers, auditors and tax advisors, real estate agents for transactions over 10,000 euros, notaries and lawyers in specific transactions, as well as goods brokers for cash transactions over 10,000 euros. Moreover, a PEP check is recommended as part of any Due Diligence process — such as with investments, partnerships, or during the appointment of executive positions.
How does automated PEP screening work?
Automated PEP screenings compare names and birthdates with specialized PEP databases that contain information on current and former officeholders worldwide. The system identifies matches, checks name variations, and also flags family members and close business partners (Related Persons). Indicium integrates PEP screening into the entire background check process and automatically combines it with sanctions lists screening and Adverse Media Checks for a comprehensive risk profile.
