PEP — Politically Exposed Persons: What Accountants and Lawyers Need to Know
A minister, a mayor, even a board member of a state-owned enterprise may be a PEP. Do you know what additional obligations arise from accepting a PEP as a client?
What Are PEPs?
Politically Exposed Persons (PEPs) are natural persons who hold or have held a prominent public position, which exposes them to a high risk of corruption or abuse of power. The rationale is straightforward: someone who exercises or has exercised public power has more opportunity to acquire illicit income. This does not mean they are suspected of wrongdoing — it means the professional must apply stricter controls. Under Article 3(9) L.4557/2018, PEPs are classified as domestic or foreign, with foreign PEPs generally considered higher risk.
Who Exactly Qualifies as a PEP?
L.4557/2018 provides an exhaustive list: Government: Heads of state/government, ministers, deputy ministers, secretaries of state Legislature: Members of Parliament and equivalent bodies Judiciary: Senior judges (Council of State, Supreme Court, Court of Audit) Independent Authorities: Board members of Central Banks, AADE, ELTE, etc. International Organisations: Senior officials of the EU, UN, NATO, etc. State-Owned Enterprises: Senior executives (CEO, CFO) of companies with >50% state ownership Important: Family members (spouse, children, parents) and close associates of PEPs are subject to the same requirements.
How Long Does PEP Status Last?
PEP status does not expire automatically. Under L.4557/2018, a person remains a PEP for at least 12 months after leaving the public position. In practice, many compliance officers apply a 5-year period after departure — especially for senior officials who retain influence after leaving. "When does someone stop being a PEP" is a matter of risk-based judgement: if a former minister continues to operate in the same circles, enhanced due diligence may be justified even after 12 months.
What Additional Measures Are Required for PEPs?
For clients who are PEPs or connected to PEPs, L.4557/2018 requires Enhanced Due Diligence (EDD): • Senior management approval to begin or continue the engagement • Investigation of source of wealth and source of funds • Enhanced monitoring of the business relationship • More frequent KYC updates (at least annually rather than every 3 years) • Specific documentation for each significant transaction How to check if someone is a PEP: Use commercial PEP/sanctions lists (World-Check, Dow Jones Risk & Compliance) or free sources (OpenSanctions.org) and document the check in the file.