Understanding politically exposed person (PEP) and risks they bring to businesses

You may have often heard that PEPs qualify for exclusive identification and verification, be it at financial institutions or corporates. Usually happening in the form of leadership screening in corporates, their verification is important as they are capable of wielding direct/indirect influence over organisations they are associated with due to their connections to positions of power. While not all PEPs are corrupt, the wrongful influence of one corrupt PEP can spell financial and/or reputational disaster for an organisation, making it important to verify them before offering them a position aboard your company.

Who are Politically Exposed Persons exactly?

Before discussing ways to minimize risks that PEPs or Politically Exposed Persons bring to institutions and workplaces, it is important to understand who Politically Exposed Persons are. PEPs in the broader sense refer to individuals or leaders who play an active political role or assume critical public responsibilities. The definition expands to cover relatives, close friends and network of other close connections of an important public or political figure. Depending on power structures in a country, a PEP could be a leadership official or their connection in the executive, legislative, administrative, military, or judicial branch of a country, a diplomat, influential businessmen impacting a country’s economy or their immediate or close family and friends.

Who are politically exposed person (PEP) in India and what risks do they bring to businesses?

In India, power remains largely concentrated to the political elite, which is why, Executive bodies, Legislative bodies, security forces, executive forces, judicial bodies, relatives of politicians and bureaucrats are considered important PEPs along with joint business owners and close business aides of politicians. Measuring their influence against high levels of corruption in India (Transparency International’s Corruption Perception Index 2019 put India at 80th position out of 175 countries) is enough to see why PEPs in India qualify for higher due diligence by organisations they are associated with. High profile scandals like fraud at a state-owned bank and at a cooperative bank further hint towards the need for detailed and recurring screening of PEPs who might be trusted to take important decisions related to business.

Politically exposed person (PEP) in BFSI vs PEPs in DNFBPs and other corporates

Screening for PEPs in the financial sector is usually performed at the beginning of the account opening through standard due diligence and KYC processes and must be repeated at regular intervals as part of ongoing due diligence. Taking a cue from this practice, DNFBPs where threat of money laundering looms as well as other corporates where misappropriation and misuse of assets and resources, embezzlement of funds and other frauds can happen must adopt their own robust PEP screening practices. It is important to deploy techniques of verification that take in consideration the fact that a corrupt PEP might hide his/her identity, history or influence using complex corporate mediums through layering and integration and hence become difficult to assess at the time of employment. Even after a PEP is identified and clears initial authentication, there’s a need to keep an eye on them through continuous monitoring as a common adage warns “Once a PEP, always a PEP”.

AuthBridge’s politically exposed person (PEP) screening solution

Our PEP screening solution assumes that a PEP doesn’t lose influence even after they no longer hold the position of influence. Due to informal relationship of PEPs with each other in India, it becomes significant to identify them while hiring and making an aware decision while onboarding as trying to fire them after they have been employed could get very tricky.

Our leadership screening solution – AuthLead™ – is just the right tool for identification of a PEP, and investigation into their history, finances and shareholding pattern, public reputation etc. Our database check under AuthLead ™ looks for a match against criminal and regulatory databases, PEP checklist, web searches, and negative news to ensure that the PEP you are dealing with has the least risk exposure. Global regulatory and criminal databases can help to identify any existing litigation against the individual. Highly advanced AI engines go through a plethora of records available on the web to do adverse web media checks. We perform Independent reference checks for qualitative insights about candidates’ past performance and reputation. Our expert team can help to do a detailed analysis of the candidate’s professional account through intense secondary research.

With the list of PEPs around the world growing every day – individuals moving into new roles, becoming part of new families – it becomes crucial to be aware of these changes. Taking help of an expert who knows nitty gritties of compliance and have the best resources available to identify PEPs becomes the need of the hour.