Politically exposed persons (PEPs) under Australian AML/CTF rules
A politically exposed person (PEP) is a person who holds, or has held, a prominent public position. Identifying a foreign PEP triggers enhanced customer due diligence. A domestic or international organisation PEP must be risk assessed, and enhanced due diligence (including senior manager approval and source of wealth and funds) is required where the customer’s risk is high. PEPs are not inherently risky, but the position they hold creates additional bribery, corruption, and influence risks that warrant additional scrutiny.
There are three categories. Foreign PEPs are heads of state, ministers, senior judicial officers, military officers, central bank executives, and senior officials in foreign government-owned enterprises. Domestic PEPs include members of Commonwealth, State and Territory parliaments, the Governor-General and State Governors, High Court, Federal Court and Supreme Court judges, heads of Commonwealth entities and State government departments and agencies, the head of any local council, senior executives of government-owned companies, senior Defence Force officers, ambassadors and other heads of mission, and members of the governing body of a political party represented in parliament. International organisation PEPs hold senior positions in international bodies (UN, IMF, World Bank).
PEPs by association include family members (spouse or de facto partner, children and their spouses or partners, and parents) and close associates (individuals known to jointly own an entity or arrangement with the PEP, to own one on the PEP’s behalf, or to have other close business relations with the PEP). Firms may choose to screen siblings as a matter of policy. Australian law does not set a fixed period after a person leaves office. Your AML/CTF policies must deal with how you treat former PEPs, including when senior manager approval is needed, based on the risk they continue to present.
Identification mechanics rely on PEP screening services. Specialist providers (Dow Jones Risk and Compliance, Refinitiv World-Check, RDC, Acuris) maintain global PEP lists updated daily. The firm screens customer names against these lists at onboarding and at regular intervals thereafter. Manual checks supplement the automated screening for higher-risk customer types.
Where enhanced due diligence applies (always for foreign PEPs, and for domestic or international organisation PEPs assessed as high risk), the requirements include senior manager approval to onboard the customer, documented source of wealth and source of funds (the customer must be able to explain how the wealth was accumulated), enhanced ongoing monitoring of transactions and behaviours, and more frequent periodic review than standard customers.
Common errors in Australian firms: treating PEP status as binary when assessment also requires risk grading (a domestic PEP from a low-corruption sector is lower risk than a foreign PEP from a high-corruption sector), missing PEPs because the family or close-associate definitions are not applied, and failing to refresh screening for existing customers when their status changes (a customer who becomes a foreign PEP, or a domestic PEP assessed as high risk, needs their KYC information reviewed and updated under enhanced due diligence, and a senior manager must decide whether the relationship continues).
Practical advice: invest in a screening service that meets your firm scale; train staff on how to apply the family and associate definitions; document senior management approval for PEP relationships; review PEP customers annually; and have a written policy for handling customer relationships when a status change occurs. CoSec Partners can help align the corporate-secretarial onboarding flow with your AML/CTF program so PEP triggers are caught at the formation stage.
Frequently asked questions
Does being a PEP mean we cannot act for the customer?
No. PEP status is not a prohibition. Foreign PEPs always trigger enhanced due diligence, and domestic or international organisation PEPs do where the customer’s risk is high. In those cases the firm needs senior manager approval to onboard, documented source of wealth and source of funds, enhanced ongoing monitoring, and more frequent periodic review than for a standard customer.
Who counts as a PEP by association?
Family members (spouse or de facto partner, children and their spouses or partners, and parents) and close associates (individuals known to jointly own an entity or arrangement with the PEP, to own one on the PEP’s behalf, or to have other close business relations with the PEP). Firms may choose to screen siblings as a matter of policy. Missing these definitions is one of the most common failures.
How do firms actually identify PEPs?
Through a screening service. Specialist providers maintain global PEP lists updated daily, and the firm screens customer names at onboarding and at regular intervals afterwards. Manual checks supplement the automated screening for higher-risk customer types.
What if an existing customer becomes a PEP?
If they become a foreign PEP, or a domestic PEP assessed as high risk, their KYC information needs to be reviewed and updated under enhanced due diligence, and a senior manager must decide whether the relationship continues. Failing to refresh screening for existing customers is a recurring gap, because firms tend to screen at onboarding and then not again, which misses every status change that happens mid-relationship.
This article is general information only and does not constitute legal, financial, or tax advice. While we endeavour to keep content accurate and current, laws and regulations change frequently. For advice specific to your circumstances, please consult a qualified professional adviser. CoSec Partners Pty Ltd accepts no liability for actions taken based on this content.