A politically exposed person (PEP), also known as a senior foreign political figure (SFPF) in the US, can broadly be defined as an individual entrusted with prominent public functions.  PEPs typically do not include middle-ranking or more junior officials.  Persons subject to the US and UK AML regulations must have in place appropriate risk-management systems and procedures to determine whether a customer or the beneficial owner of a customer is a PEP.

In the US, if a customer or potential customer is a SFPF, a family member of a SFPF, or a known close associate of a SFPF, FinCEN requires financial institutions to apply procedures for enhanced due diligence reasonably designed to detect and report transactions that may involve the proceeds of foreign corruption.1  Proceeds of foreign corruption include any asset acquired by, through, or on behalf of a SFPF through misappropriation, theft, or embezzlement of public funds, the unlawful conversion of property of a foreign government, or through acts of bribery or extortion.  The definition also includes any property resulting from a conversion or transformation of any such assets.2

In the UK, if a regulated firm determines that a customer or potential customer is a PEP, or a family member or known close associate of a PEP, then enhanced due diligence must be applied.  The firm must assess the level of risk associated with the customer and the extent of the enhanced due diligence measures that are to be applied to the customer. I addition, to conduct business with PEPs, a regulated firm must have senior management approval for establishing and continuing the business relationship.  The regulated firm must also examine the background and purpose of the transaction, take adequate measures to establish the source of wealth and source of funds involved in the proposed business relationship, and conduct enhanced ongoing monitoring of the relationship.  For more on enhanced due diligence, see here.

1 31 CFR § 1010.620(c)(1). 
2 31 CFR § 1010.620(c)(2).   

More topics in this series