Domestic Politically Exposed Person (Domestic PEP)

A domestic politically exposed person (domestic PEP) is an individual entrusted with a prominent public function in the country where the bank, payment firm or other regulated business is located. Examples include heads of state and government, ministers, members of parliament, senior judges, senior officials of central banks and audit bodies, senior military officers, ambassadors and senior executives of state-owned enterprises. The concept forms part of the wider category of politically exposed persons, whose positions may give them opportunities to abuse power for corruption, bribery or embezzlement.

Domestic PEPs are distinguished from a foreign PEP, who holds a prominent function in another country, and from people who perform prominent functions for international organisations. A family member of a PEP and a close associate of a PEP are usually treated in the same way as the PEP. Middle-ranking and junior officials are not normally PEPs.

The Financial Action Task Force sets the standards in its Recommendation 12. Since its 2012 revision, the Recommendation covers foreign PEPs, domestic PEPs and persons with prominent functions in international organisations. For foreign PEPs, firms must always apply enhanced measures. For domestic and international organisation PEPs, firms must take reasonable steps to determine whether a customer is a PEP and then apply enhanced measures only where the relationship presents higher risk. This risk-based treatment reflects the view that domestic officials are often better known and subject to local oversight, although corruption risk can still be significant in some countries.

The FATF also recommends that PEP status should not end automatically when a person leaves office; firms should continue to assess risk based on factors such as the person's former influence and how long ago they held the role.

Countries implement the standard differently. The European Union's anti-money laundering directives, starting with the Fourth AML Directive in 2015, make no distinction between domestic and foreign PEPs: enhanced due diligence applies to all PEPs, and member states must publish lists of the functions that count as prominent public functions in their country. The United Kingdom originally adopted the same approach in its 2017 regulations, with guidance from the Financial Conduct Authority encouraging proportionate treatment. Later legislation required that, in the absence of other higher-risk factors, a domestic PEP be treated as presenting lower risk than a foreign PEP, and the FCA reviewed firms' practices on that basis. In the United States, the Bank Secrecy Act rules focus on senior foreign political figures in private banking, and US domestic officials are handled through general risk-based customer due diligence.

Where a domestic PEP relationship is assessed as higher risk, firms apply enhanced due diligence, typically including:

• Senior management approval to open or continue the relationship.
• Reasonable measures to establish the source of wealth and source of funds involved.
• Enhanced ongoing monitoring of transactions and periodic review of the relationship.
• Closer scrutiny of products and transactions that fit poorly with the person's known income and role.

For lower-risk domestic PEPs, where permitted, firms may apply standard measures while still recording PEP status and monitoring for changes in risk.

Firms identify PEPs through customer declarations at onboarding, checks against commercial databases and official lists, and PEP screening during the relationship. Domestic PEPs can be easier to identify than foreign ones because of public registers and local media coverage, but they may also be numerous, particularly where definitions include regional or municipal officials or a wide range of state-owned enterprises. Screening tools must be configured to the local definition, and firms must handle false matches, common names and changes in office promptly.

Critics argue that applying enhanced checks to all domestic PEPs and their families places a heavy burden on individuals, who may face intrusive questions, delays or refusals when opening accounts or getting mortgages, even where they pose little risk. This has led to complaints from politicians and public officials and to reviews of how firms treat them. Others warn that domestic corruption can be as serious as foreign corruption, and that relaxing standards could weaken defences against misuse of public funds. Supervisors generally expect firms to apply a genuinely risk-based approach, avoiding both blanket refusal and superficial checks.