New requirements at European level for the specification of politically exposed persons

In November 2023, a comprehensive list was published in the Official Journal of the European Union, clarifying for the 27 countries of the European Union who should fall under the definition of a "politically exposed person" (PEP for short) in the respective country. This is an important step. Until now, it has often been difficult to understand who is considered a PEP in the respective member state.

Who or what is a politically exposed person (PEP)?

Section 1 para. 12 of the Money Laundering Act (GwG) defines a politically exposed person as any person who holds or has held a high-ranking important public office at international, European or national level or who holds or has held a public office below national level of comparable political importance.

This definition is obviously very broad. Therefore, the legislator also mentions specific examples in sentence 2. Accordingly, politically exposed persons also include heads of state, heads of government, ministers, members of parliament, but also members of the administrative, management and supervisory bodies of state-owned companies. Even after this list, the definition of a politically exposed person still appears to be far-reaching.

Importance of the PEP test for practice

In practice, it is of particular importance whether a politically exposed person is identified. As part of customer due diligence obligations (also known as know-your-customer or KYC for short), obliged entities under the Anti-Money Laundering Act must clarify with their contractual partners and beneficial owners whether they are a politically exposed person. If this is the case, the Anti-Money Laundering Act generally assumes a higher risk and increased due diligence must be carried out.

Due to their influential position, the legislator has placed these individuals at a higher risk of corruption and money laundering. In the recent past, this risk has become apparent time and again, as demonstrated by the cases at European level surrounding the deposed Vice-President of Parliament Eva Kaili and at German level by the mask affair involving MPs Georg Nüßlein and Alfred Sauter, among others.

New EU list on the properties and functions of PEPs

Now, in November 2023, a comprehensive list was published in the Official Journal of the European Union, which defines the characteristics and functions of politically exposed persons in the individual member states in more detail. While in some countries the mayor is already a politically exposed person (e.g. Cyprus, Croatia), in other countries the characteristics of certain functions (e.g. members of the administrative, management and supervisory bodies of state-owned companies) are defined in more detail.

In Germany, you are only considered a politically exposed person if you are a member of the administrative, management and supervisory bodies of companies in which the federal government or the federal states hold a stake of more than 50 % and which employ more than 2,000 people or have a balance sheet total of more than 3 billion euros.

Implications for practice

On the one hand, the Commission's new comprehensive list brings more clarity to the far-reaching definition of a politically exposed person. On the other hand, it clearly shows how differently politically exposed persons are interpreted in the individual countries.

Practitioners from the financial sector in particular regularly use specialised database providers for the audit. A practical tip is to check whether the database used takes into account the current list of the European Union.