Act No. 253/2008 Coll., on Certain Measures against the Legalization of the Proceeds from Crime and the Financing of Terrorism, which is also often referred to as the “Anti-Money Laundering Act” or the “AML/CFT Act”, describes who falls into the category of politically exposed persons.
However, the definition given in this law can be interpreted in different ways, which sometimes causes certain confusion. In this regard, the Financial Analytical Office (FAÚ) issued Methodological Instruction No. 7 of November 22, 2022, with clarification as to who exactly can be called a politically exposed person. A specific list of government functions, which determines the inclusion of a person in the category of politically exposed persons, can be found on the FAÚ website.
The information in this article applies only to the activities of companies registered and operating in the Czech Republic. At the same time, 90% of the information applies to other EU jurisdictions.
Government functions and positions that allow a person to be classified as a PEP
In accordance with the information contained in Methodological Instruction No. 7, published by the FAÚ, the list of politically exposed persons includes:
- Persons holding the highest government positions (the President, the Prime Minister, the Head of the Office of the President, the Head of Administration and his deputies, ministers and their deputies, members of Parliament, senators, etc.);
- Heads and employees of the central bodies of the government administration (Czech Statistical Office, Czech Mining Office, Industrial Property Office, State Office of Material Reserves, Office of National Security, etc.);
- Chairman and deputy governing bodies of political parties and political movements;
- Heads of local authorities (mayors and their deputies, municipal secretaries, governors and their deputies, etc.);
- Judges of the Supreme and Constitutional Courts;
- Members of the board of the Central Bank;
- Senior officers of the armed forces;
- Heads of diplomatic missions (ambassadors, consuls general, chargé d’affaires, members of the European Parliament, etc.);
How can I tell if a particular person belongs to the PEP category?
According to the generally accepted definition, the list of politically exposed persons includes persons who can potentially be involved in corruption and bribery due to their position and influence.
In order to determine whether a person falls into this category, it is necessary to be guided by both the Anti-Money Laundering Law and Methodological Instruction No. 7 from the FAÚ, as the legislative definition of politically exposed persons is limited to general phrases and does not provide an exhaustive list of state functions, performing which a person receives PEP status.
Separately, under section 4(5)(b)(1) of the AML/CFT Act, the category of politically exposed persons includes close relatives of listed individuals, as well as those who have a close business relationship with them.
Unfortunately, there are no lists of politically exposed persons., In each case, before making a transaction or starting a business relationship, obliged entities must determine whether a potential client / counterparty is among the PEP. Procedures to determine whether a person has PEP status are an essential part of the internal policy system of any company that is required to identify its customers. Each check should be carried out in full, and information about its results should be recorded in writing.
The procedure for determining the status of politically exposed persons: what is it all about?
For determining whether a person falls into the PEP category, it is recommended to:
- conduct an online study using the national list of government functions and positions;
- use paid online resources that help to identify politically exposed persons based on information from open sources (for example, https://www.pepcheck.cz/);
- receive a written application from the client/counterparty.
At the same time, it is important that a person is fully informed about the significance of the status of a politically exposed person in the context of the Anti-Money Laundering Act. Also, in terms of cooperation, it is necessary to write down the client’s obligations to notify them about the change in his position during business cooperation.
FAÚ’s Methodological Instruction No. 7 recommends using more than one of these techniques to check each specific customer.
What to do if the status of a politically exposed person is confirmed?
In such situations, individuals and companies legally required to conduct background checks on their customers must apply a specific procedure. It is provided for in section 9a of the AML/CFT Act and involves enhanced identification and control of the client. It is also mandatory to determine the sources of origin of funds of politically exposed persons.
FAÚ’s Methodological Instruction No. 7 allows obliged entities to divide clients with PEP status into groups with higher and lower f ML/TF risk levels. Accordingly, different control measures proportional to the risk may be applied to each group.
For example, an affidavit (written statement) from the client is sufficient for politically exposed persons with a low level of risk to confirm the origin of funds, while when checking clients with PEP status from a high-risk group, it is recommended to use other sources of information (for example, tax returns, bank statements, etc.).
It is also essential that Section 15(2) of the AML/CFT Act states that if a politically exposed person refuses to provide information on the origin of the funds or other assets used in the transaction, the obliged entity shall not cooperate with him in any way.