Key Concepts

A politically exposed person is defined by the FATF as "an individual who holds or has held a prominent public function."

In the context of AML/CFT regulations, PEPs are considered high-risk clients. Their position of power and influence may be exploited for illicit financial purposes. This elevated risk stems from several factors:

• Corruption and bribery: PEPs may be involved in—or targeted by—corrupt practices.
• Access to public funds: They often have the ability to control or influence the allocation of significant government resources, increasing the risk of misappropriation.
• Influence over transactions: Their status may allow them to bypass standard financial controls or facilitate complex, hard-to-trace transactions.

It is crucial to note that being classified as a PEP does not imply involvement in criminal activity; enhanced due diligence is a preventive measure.

The distinction between source of funds and source of wealth lies in their scope and time horizon within a client’s financial profile. Both are essential components of AML/CFT due diligence, particularly in high-risk scenarios.

Source of Funds (SOF)

• Definition: The origin of the specific money or assets used in a particular transaction or business relationship.
• Purpose: Identifies the immediate origin and activity generating the funds for a specific use.
• Time horizon: Short-term (focused on funds used for a specific purpose).
• Examples of origin: Transfer from a savings account for a property purchase, recent business profits, or a specific inheritance or gift amount.

Source of Wealth (SOW)

• Definition: The origin of the customer's entire wealth and assets.
• Purpose: Provides an overview of how the client accumulated their total wealth over time.
• Time horizon: Long-term (examines accumulated financial history).
• Examples of origin: Family inheritance of assets, ownership of a successful business, or long-term investment gains.

The beneficial owner refers to the natural person(s) who ultimately owns or controls a client or legal entity, or on whose behalf a transaction is conducted or an activity is carried out.

At a minimum, the following are considered beneficial owners:

1. The natural person(s) who directly or indirectly owns or controls a legal entity through:
   1. Ownership of more than 25% of shares, voting rights, or capital interest (including through intermediary structures or bearer shares), or
   2. Exercise of control by other means, such as a dominant voting right or any mechanism enabling decisive influence over the entity.
2. If ownership is held by a company or group of companies, the natural person(s) controlling that company or group are deemed the beneficial owners.
3. Where, despite exhausting all reasonable identification efforts and in the absence of suspicion, no natural person can be identified under the above criteria—or where doubt persists regarding the beneficial owner’s identity—the senior managing official(s) of the entity are considered the beneficial owner(s).

The entity in question must conduct this identification process by successively analysing its capital structure, voting rights, and control mechanisms to determine the natural person(s) exercising ultimate effective control.