FATF ¦ R.12 Po­lit­i­cal­ly Ex­posed Per­sons

Recommendation 12: Managing Politically Exposed Persons in Financial Institutions

Politically Exposed Persons (PEPs) present heightened risks of corruption, bribery, and money laundering due to their positions of influence. Recommendation 12 establishes clear expectations for financial institutions to identify, assess, and manage these risks — covering foreign PEPs, domestic PEPs, individuals entrusted with prominent functions in international organizations, and their family members and close associates.

Core Requirements for Foreign PEPs

Financial institutions must go beyond standard customer due diligence when dealing with foreign PEPs, whether as customers or beneficial owners. This includes implementing risk-management systems to determine PEP status, securing senior management approval before onboarding or continuing relationships, establishing the source of wealth and funds through reasonable measures, and conducting enhanced ongoing monitoring. These controls ensure that institutions can detect unusual activity early and maintain robust governance over higher-risk relationships.

Domestic and International Organization PEPs

For domestic PEPs and those holding prominent roles within international organizations, institutions must take reasonable steps to determine PEP status. Where higher risk is identified, the same measures applied to foreign PEPs — senior management approval, verification of source of wealth and funds, and enhanced monitoring — must be implemented. Critically, these obligations extend to family members and close associates, recognizing that risk often flows through connected parties.

Bastian Schwind-Wagner_Follow

"Effective PEP controls are a cornerstone of robust AML programs. Clear governance, reliable data, and enhanced monitoring reduce exposure to corruption and reputational risk.

Institutions that operationalize Recommendation 12 build resilience and trust. Senior management engagement and rigorous source-of-wealth checks are non-negotiable in higher-risk relationships."

PEPs in Life Insurance

Recommendation 12 also addresses life insurance. Institutions should determine whether beneficiaries and, where applicable, beneficial owners of beneficiaries are PEPs — at the latest at payout. If higher risk is present, senior management must be informed before proceeds are released, the entire relationship with the policyholder should be scrutinized, and a suspicious transaction report should be considered where warranted.

Why This Matters

Effective PEP risk management strengthens financial integrity, meets regulatory expectations, and reduces exposure to reputational harm. Institutions that operationalize Recommendation 12 with clear governance, reliable data, and rigorous monitoring are better positioned to detect and deter financial crime.

Dive deeper

• FATF ¦ The FATF Recommendations ¦ Link