New EU Guidelines Clarify the Definition of Politically Exposed Persons (PEPs)

Who or What Is a Politically Exposed Person (PEP)?

The German Anti-Money Laundering Act (GwG) defines a politically exposed person in Section 1 (12) GwG as anyone who holds or has held a prominent public office at an international, European, or national level, or who holds or has held a public office below the national level that is politically comparable.

This definition is clearly very broad. Therefore, the legislator provides specific examples in sentence 2 of the same section. According to this, politically exposed persons include, among others, heads of state, heads of government, ministers, members of parliament, as well as members of the management, supervisory, and administrative bodies of state-owned enterprises. Even this list shows how far-reaching the PEP definition is.

Importance of PEP Screening in Practice

In practice, determining whether a person qualifies as a politically exposed person is highly relevant. As part of the due diligence obligations (also known as Know Your Customer or KYC), obliged entities under the GwG must check whether their contracting partners or beneficial owners qualify as PEPs. If so, the law generally assumes a higher risk and requires the application of enhanced due diligence measures.

The legislator has assigned these individuals a higher risk of corruption and money laundering due to their influential positions. This risk has repeatedly materialized in recent times — as shown by cases such as the removal of former European Parliament Vice President Eva Kaili or Germany’s “mask scandal” involving MPs Georg Nüßlein and Alfred Sauter.

New EU List of PEP Roles and Characteristics

In November 2023, the Official Journal of the European Union published a detailed list clarifying which roles and characteristics define politically exposed persons in each Member State. While in some countries even mayors qualify as PEPs (e.g., Cyprus, Croatia), others further specify the qualifying criteria for certain roles (e.g., members of administrative, management, or supervisory bodies of state-owned companies).

In Germany, a person is considered a politically exposed person only if they are a member of the administrative, management, or supervisory body of a company in which the federal or state government holds more than 50% ownership and which either employs more than 2,000 people or has a balance sheet total of over €3 billion.

Implications for Practice

On the one hand, the new EU list brings more clarity to the far-reaching definition of a politically exposed person. On the other hand, it also highlights how differently the term is interpreted across EU countries.

In the financial sector, institutions often rely on specialized database providers to conduct PEP screenings. A practical recommendation is to check whether the database being used already incorporates the latest EU list.