Family Member of a PEP

A family member of a PEP is a close relative of a politically exposed person, someone who holds or has held a prominent public function. Anti-money laundering rules extend PEP measures to family members because officials who abuse their position often use relatives to hold assets, open accounts or receive payments, so that the money does not appear in their own name. A bank, payment firm or other regulated business that identifies a customer as a family member of a PEP must apply the same risk-based measures it would apply to the PEP.

Family members are one of two related categories, the other being a close associate of a PEP, such as a business partner. Together with PEPs, they are often referred to as PEPs and RCAs (relatives and close associates). The concept comes from the FATF Recommendation 12, which says that PEP requirements should apply to family members and close associates of all types of PEP.

Definitions vary by jurisdiction. The FATF leaves the detail to countries, describing family members as individuals related to a PEP either directly by blood or through marriage or similar civil partnership. The EU's anti-money laundering directives give a minimum list:

• The spouse, or a person considered equivalent to a spouse, of the PEP.
• The children of the PEP and their spouses or equivalent partners.
• The parents of the PEP.

Some countries and firms extend this to siblings, grandparents, grandchildren or in-laws, especially where local circumstances suggest wider family networks are used to hold wealth. Firms set their definition in their risk policies, taking account of the law and their own risk assessment.

Where the family member is related to a foreign PEP, or where the relationship is assessed as higher risk, firms apply enhanced due diligence. Typical steps include obtaining senior management approval, taking reasonable measures to establish the source of wealth and source of funds, and carrying out enhanced ongoing monitoring. For relatives of domestic PEPs and PEPs of international organisations, FATF standards allow firms to apply enhanced measures only when risk is higher, although some jurisdictions, including the EU, require enhanced measures for all PEP family members. A family member who is also a PEP in their own right is treated as a PEP.

Family members are harder to identify than PEPs, because their names may not appear in public records connected with the PEP. Firms rely on a combination of customer declarations at onboarding, commercial databases that map PEP relatives, PEP screening of customers and beneficial owners, adverse media searches and information gathered during the relationship. Screening tools must deal with name variations, transliteration and common surnames, which can produce many false matches. Firms are not expected to research every customer's family tree, but they must take reasonable steps and act on information they hold.

Under EU rules, once a PEP has left office, firms must continue to consider the risk for at least 12 months and until the risk is no longer considered specific to PEPs. Family members are linked to the PEP's status, so when a PEP is no longer treated as such, the relatives usually cease to be treated as PEP family members, although firms may keep them under enhanced monitoring if other risk factors remain. Some jurisdictions take a different view on former PEPs, and FATF guidance emphasises a risk-based assessment rather than a fixed period.

Applying PEP measures to family members can cause difficulties for people who have no involvement in public life beyond their relationship, such as adult children seeking a mortgage or a student account. Complaints about intrusive questions or account refusals have led regulators in some countries to issue guidance stressing proportionate treatment, particularly for relatives of domestic PEPs. At the same time, enforcement cases and investigations into grand corruption have shown how family members are used to launder the proceeds of bribery and embezzlement, often through shell companies, real estate and private banking. Firms therefore aim to balance fairness with the need to understand where relatives' wealth comes from, using a documented, risk-based approach within their customer due diligence framework.