Joint PEP BSA/AML Guidance.pdf

The Agencies do not interpret the term "politically exposed persons" to include U.S. public officials. BSA/AML regulations do not define PEPs, but the term is commonly used in the financial industry to refer to foreign individuals who are or have been entrusted with a prominent public function, as well as their immediate family members and close associates. The level of risk associated with PEPs varies and not all PEPs are automatically higher risk. PEPs should not be confused with the term "senior foreign political figure" (SFPF) as defined under the BSA private banking regulation, a subset of PEPs.

The Agencies recognize that, consistent with a risk-based approach, the level and type of CDD should be commensurate with the risks presented by the PEP relationship. The CDD rule does not create a regulatory requirement, and there is no supervisory expectation, for banks to have unique, additional due diligence steps for customers who are considered PEPs. Instead, the level and type of CDD should be appropriate for the customer risk.

Banks must apply a risk-based approach to CDD in developing the risk profiles of their customers, including PEPs, and are required to establish and maintain written procedures reasonably designed to identify and verify beneficial owners of legal entity customers. Banks must adopt appropriate risk-based procedures for conducting CDD that enable banks to understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile, and conduct ongoing monitoring to identify and report suspicious transactions.

There is no regulatory requirement in the CDD rule, nor is there a supervisory expectation, for banks to have unique, additional due diligence steps for PEPs. A bank may choose to determine whether a customer is a PEP at account opening, if the bank determines the information is necessary for the development of a customer risk profile. Banks may leverage existing processes for assessing geographic-specific money laundering, corruption, and terrorist financing risks when developing the customer risk profile.

Not all PEPs are high risk solely by virtue of their status. Rather, the risk depends on facts and circumstances specific to the customer relationship. For example, PEPs with a limited transaction volume, a low-dollar deposit account with the bank, known legitimate source(s) of funds, or access only to products or services that are subject to specific terms and payment schedules could reasonably be characterized as having lower customer risk profiles.