A politically exposed person (PEP) is an individual with perceived political influence, including elected officials, financial service providers, lobbyists, and associates of powerful individuals. PEPs are subject to laws restricting certain relationships and transactions due to the temptation to abuse their power. In democracies, laws governing PEPs are more likely to be enforced, but reporting requirements can be complex to discourage abuse of political influence.
A politically exposed person is the term used to describe an individual’s perceived political influence, particularly when it comes to facilitating various benefits on behalf of others. People who hold political positions through election or appointment would likely fall into this category. Other situations that may define someone as a politically exposed person include those in financial services, lobbying, or those whose family members or associates hold political office. In some cases, members of a politically powerful individual’s entourage may also fall into this category. Individuals who hold influence due to political ties are often subject to laws that place restrictions on certain relationships or transactions.
Elected and appointed officials fall into the category of a politically exposed person because they perform a political function. As a natural outflow of their political influence, those who perform this function often possess varying degrees of power to determine or influence the allocation of public resources. Examples of this may include an official who has the power to lease public land or to direct the expenditure of taxes that have been collected. Because of the temptation to self-aggrandisement that this often presents to individuals performing that function, a PEP may be subject to varying degrees of scrutiny. These may include the mandatory reporting of certain financial transactions or the listing of the various relationships the person has with individuals or business enterprises.
For example, the president of a large bank may make a campaign contribution to a member of a legislative body, with a whispered informal agreement that this contribution will be provided with further undisclosed benefits to the legislature in exchange for political favors. In this case, the president of the bank, due to his level of prominence in the community and his political relationships with legislators, can be considered a politically exposed person. Relatives of the person may also fall into this category. Within autocratic societies, a broader definition of PEP can be extended to include a significant number of political cronies, officials, or even their extended family members.
In democracies and open societies that allow for free speech, the responsibilities of a politically exposed person are often clearly outlined within various laws. Those seeking to monitor these individuals generally have an easier time doing so under these circumstances, because the laws governing those with political influence are more likely to be enforced. Even so, it can sometimes be very difficult to resist the temptation to exert political influence. As a result, reporting requirements can be quite complex, as governments use disclosure laws in an effort to discourage the abuse of political influence.
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