Politicians and other high-profile public figures are particularly vulnerable to criminal activity since they hold enormous authority and resources. As a result, screening for politically exposed individuals assists financial institutions in identifying and managing the risks associated with doing business with PEPs.

However, while all PEPs are vulnerable to illegal activities and money laundering, not all PEPs are created equal: certain PEPs may be regarded at greater risk than others and require more monitoring. Recognizing this, governments and financial institutions take pains to distinguish PEPs, notably domestic PEPs vs foreign PEPs.

Further, although some countries may publish PEP lists, the FATF warns against relying on them. In general, whether these lists include actual names or job titles, they are also subject to the publishing country’s interpretation of a PEP, which can vary and may not accurately or consistently reflect a financial institution’s risk profile.

As a result, financial institutions must understand the distinction between these two categories of PEPs and the accompanying AML/CFT risks since this will affect screening and business choices.

What are the differences between Domestic and Foreign Pep?

Domestic PEPs are high-risk persons who live in the same nation as the financial institution with whom they have a domestically situated position, according to the FATF Guidance for PEPs. Domestic high-risk persons include local political party officials, senior politicians, CEOs of state corporations, and top military personnel. Other characteristics, such as the PEP’s location of residence, have no bearing on the type of PEP.

Foreign Political Exposed Persons are described in the FATF’s Guidance for PEPs as individuals who occupy an important public position on behalf of a government that varies from the government’s public position in which the financial institution is based. Foreign PEPs are commonly defined as the persons listed below.

• Head of government
• Vice president
• Council of ministers
• Members of the government’s executive board
• A senior soldier
• Central bank manager
• Director of any state-owned firm

Even though Foreign PEPs have previously done these activities, they are nonetheless classified as Foreign PEPs and are deemed high risk. Foreigners with the aforementioned status are automatically classified as high-risk PEPs. This implies that criteria like the location of birth, domicile, and citizenship have no bearing on their risks as Domestic PEPs. Doing business with foreign PEPs involves a larger risk for financial institutions than doing business with domestic PEPs. To deal with these significant risks, financial institutions must do additional due diligence on Foreign PEPs. As a result, foreign PEPs have a higher level of risk than domestic PEPs.

Is Domestic Pep riskier than Foreign Pep?

Domestic PEPs are often seen as less dangerous than foreign PEPs. However, when looking at PEP clients, a financial institution in any nation is more likely to have Domestic PEPs than Foreign PEPs.

Some nations, sometimes willingly, publish lists of domestic PEPs or leaders of public functions. FATF, on the other hand, does not have such a standard and does not consider it necessary. Rather, FATF views such lists as possible flaws that may pose problems to successful implementation. According to the FATF, governments can disclose two sorts of lists: a list of PEP functions or a list of PEP actual names.