Knowledge base · Anti-money laundering
What is a politically exposed person (PEP)?
Short answer
A politically exposed person (PEP) is an individual who holds or has held a prominent public function, such as a head of state, senior politician, senior official, judge, military officer or state-enterprise executive. Because of bribery and laundering risk, PEPs, their family members and close associates attract enhanced due diligence, usually alongside sanctions screening.
Definition of Politically Exposed Person (PEP) (also: PEP, PEP screening, sanctions screening, sanctions list screening, foreign PEP)
A politically exposed person (PEP) is someone whose public position gives them influence over public money, contracts, licences or decisions, and therefore a higher-than-normal exposure to bribery and the laundering of its proceeds. Being a PEP says nothing about a person's honesty. It signals that a relationship with them, or with their family and associates, needs closer scrutiny.
How is a PEP defined in India?
The definition was inserted into the PML (Maintenance of Records) Rules 2005 by an amendment of 7 March 2023, and is mirrored in the RBI (Commercial Banks – Know Your Customer) Directions 2025. PEPs are individuals who are or have been entrusted with prominent public functions by a foreign country, including:
- heads of state or government;
- senior politicians;
- senior government, judicial or military officers;
- senior executives of state-owned corporations;
- important political party officials.
Under para 45 of the RBI Directions, banks may establish relationships with PEPs but must determine whether a customer or beneficial owner is a PEP, establish the source of funds and wealth, obtain senior management approval to open or continue the relationship, and apply enhanced ongoing monitoring. The same measures apply to the PEP's family members and close associates.
Why do PEPs matter outside banking?
Companies face PEP risk through agents, distributors, joint-venture partners and acquisition targets. An intermediary owned by an official's relative is a classic channel for bribes. Under the Prevention of Corruption Act 1988, as amended in 2018, a commercial organisation can be liable under s. 9 if an associated person gives an undue advantage to a public servant, unless it shows adequate procedures. Foreign laws such as the UK Bribery Act 2010 treat due diligence as one of the six principles of adequate procedures. Identifying PEP links is therefore part of integrity due diligence, discussed further in our article on building an anti-bribery programme in India.
What is sanctions screening?
Sanctions screening checks customers, counterparties and transactions against lists of designated individuals and entities. It is distinct from PEP screening but run through the same onboarding and monitoring processes.
For commercial banks, Chapter IX of the RBI KYC Directions 2025 sets the main obligations:
- UN terrorism-related lists. Banks must not hold accounts for persons on the UN Security Council ISIL (Da'esh) and Al-Qaida Sanctions List and the Taliban Sanctions List, must check these and the Schedules to the 2007 Terrorism Order daily, and must follow the freezing procedure in the order under s. 51A of the Unlawful Activities (Prevention) Act 1967.
- Weapons of mass destruction. Under s. 12A of the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act 2005, banks must screen at onboarding and periodically, must not process transactions that match the designated list, and must report matches to the Central Nodal Officer.
- Reporting. Matches are reported to FIU-IND and the relevant authorities, and frozen funds are dealt with only as the authorities direct.
Companies with international exposure may also need to consider sanctions regimes of other countries where they trade, bank or raise funds. Which regimes apply is a legal question that needs specific advice.
What are common screening pitfalls?
- Relying on name matching alone, without dates of birth, nationality or identifiers, leading to missed matches or many false positives.
- Screening only the customer, not its beneficial owners, directors and key counterparties.
- Screening once at onboarding and never again, although lists and political roles change.
- Clearing alerts without recording the reasoning.
- Ignoring relatives and close associates, who are the usual route for PEP-linked funds.
How does a PEP differ from related terms?
A public servant under the Prevention of Corruption Act 1988 is a much broader category, including many domestic officials and employees of public sector bodies. A PEP is a risk classification used for Know Your Customer and due diligence purposes. A sanctioned person is legally designated; dealing with them may be prohibited outright under the Unlawful Activities (Prevention) Act 1967, the WMD Act 2005 and related orders, which banks implement alongside their PMLA obligations, whereas dealing with a PEP is permitted with safeguards.
Spectra Forensics' integrity due diligence service covers PEP, sanctions and adverse-media checks on counterparties and their owners.
Frequently asked questions
Are domestic Indian politicians PEPs under Indian rules?
The definition in the PML Rules 2005 and the RBI (Commercial Banks – Know Your Customer) Directions 2025 covers individuals entrusted with prominent public functions by a foreign country. Domestic public figures are therefore not PEPs under that definition. Many banks and companies still treat senior domestic officials as higher risk under their own risk-based policies, particularly where government contracts or licences are involved.
What is the difference between PEP screening and sanctions screening?
PEP screening identifies people who carry higher corruption risk; it calls for enhanced due diligence, not refusal. Sanctions screening identifies persons and entities designated under UN Security Council resolutions or national law; a confirmed match generally means the transaction must not proceed and assets may need to be frozen and reported. The two are usually run together but lead to different outcomes.
Can an organisation do business with a PEP?
Yes. Being a PEP is not wrongdoing, and the RBI KYC Directions expressly give banks the option of establishing relationships with PEPs. What is required is proportionate enhanced due diligence: verifying identity and source of funds and wealth, obtaining senior management approval, and monitoring the relationship more closely. The same applies to the PEP's family members and close associates.