What is a PEP?

A PEP (Politically Exposed Person) is a person entrusted with a prominent political position, meaning a prominent public position or a prominent public function. This category includes, among others, heads of state and government, ministers, members of parliament, members of the governing bodies of political parties, ambassadors, members of supreme judicial bodies, members of central bank governing bodies, and senior officers of the armed forces.

However, not every politician, public official, or employee of the public administration is a PEP. What matters is the specific position or function, and the Act excludes middle-ranking and junior positions. PEP status is not an allegation or an indication that a person is suspected of committing a criminal offence. It does, however, mean an increased level of risk from an AML/CFT perspective and triggers the obligation to apply additional customer due diligence measures. In practice, these may include obtaining approval from senior management, establishing the source of wealth and the source of funds, and intensifying monitoring of the relationship.

Who has PEP status?

The Polish AML Act classifies as PEPs persons holding prominent public positions or performing prominent public functions. The catalogue includes, among others:

• heads of state and heads of government;
• ministers, deputy ministers and secretaries of state;
• members of parliament and members of similar legislative bodies;
• members of the governing bodies of political parties;
• members of supreme judicial bodies;
• members of courts of auditors and governing bodies of central banks;
• ambassadors and chargés d’affaires;
• senior officers of the armed forces;
• certain members of the governing bodies of state-owned enterprises and companies controlled by the state;
• directors, deputy directors and members of the governing bodies of international organisations, as well as persons performing equivalent functions;
• other persons holding prominent public positions or functions specified in the regulations.

This does not mean that every person employed in public administration or connected with politics is a PEP. The Act expressly excludes middle-ranking and junior positions. For domestic public positions and functions, there is a detailed list set out in a regulation issued by the competent minister. It is, however, a list of positions and functions, not a list of names of PEPs.

PEP status also does not depend on citizenship or place of residence. A person may be a politically exposed person if they perform the relevant function in Poland, another country, or an international organisation. From an AML perspective, it is also important that verification does not end with the customer alone. An obliged institution should determine whether the customer or their beneficial owner is a PEP. In the case of a business customer, this therefore requires looking at the natural persons behind its ownership and control structure as well.

Are family members and close associates of a PEP subject to the same requirements?

The AML Act distinguishes between:

• a politically exposed person;
• a family member of a PEP;
• a person known to be a close associate of a PEP.

These concepts are not identical, but the provisions concerning PEPs also apply accordingly to family members and close associates.

The statutory category of family members of a PEP includes:

• the spouse or a person living with the PEP in a relationship equivalent to marriage;
• a child of the PEP and that child’s spouse or person living with them in a relationship equivalent to marriage;
• the parents of the PEP.

This definition should not automatically be extended to all relatives. Siblings, cousins, parents-in-law, or more distant relatives do not become family members of a PEP within the meaning of the Act solely because of the family relationship.

A separate category is a close associate of a PEP.

This may include, among others, a natural person who is jointly with a PEP the beneficial owner of a legal person, another organisational unit, or a trust, or who maintains close business relations with the PEP. This category may also include a person who is the sole beneficial owner of an entity or trust known to have been established for the de facto benefit of the PEP. A “close associate” therefore does not mean every acquaintance, professional colleague, or person who simply remains in contact with a PEP.

Family members and close associates do not thereby become PEPs themselves, but the relevant requirements applicable to PEPs also apply to them.

How is PEP status checked?

An obliged institution should have risk-based procedures enabling it to determine whether the customer or their beneficial owner is a PEP, a family member of a PEP, or a person known to be a close associate of a PEP. The Act allows, among other things, the institution to obtain a declaration from the customer stating whether or not they have PEP status. Such a declaration is made under pain of criminal liability for making a false statement. This does not, however, mean that the customer’s declaration must be the only source of information.

Depending on the procedure adopted and the level of risk, the institution may also use, among other things:

• information from public sources;
• data concerning functions held;
• its own findings;
• appropriate databases and screening tools.

In simplified terms, the process may look as follows:

customer or UBO → identification → declaration and screening → potential match → verification of the person and function → decision → documentation.

The mere appearance of a name in a PEP database should not be treated as automatic confirmation of status. An alert may concern another person with the same or a similar name, outdated information, or a function whose nature requires further verification. A potential match should therefore be verified. Relevant factors may include the person’s identity, the function held, the period during which it was held, the country, and other information allowing the match to be confirmed or ruled out. Screening identifies a potential match. PEP status must be confirmed.

What obligations arise in relation to a PEP?

Determining that a customer is a PEP does not mean that establishing or continuing the relationship is prohibited. It does, however, trigger the obligation to apply additional measures provided for in the AML Act. In the case of business relationships with a PEP, an obliged institution should in particular:

• obtain approval from senior management to establish or continue the business relationship;
• apply appropriate measures to establish the source of the customer’s wealth;
• establish the source of funds or other assets available to the customer within the relationship or transaction;
• intensify ongoing monitoring of the business relationship.

Source of wealth and source of funds do not mean exactly the same thing.

Source of wealth refers to how the customer accumulated their overall wealth, for example through business activity, employment, investments, the sale of assets, or inheritance. Source of funds, on the other hand, concerns the specific funds or assets used within a particular relationship or transaction. The additional measures applied to PEPs are preventive in nature. They result from the increased risk associated with persons holding significant public influence, particularly in the context of corruption risk and the potential use of the financial system for money laundering.

PEP status does not mean that the person has committed a criminal offence or that every transaction they carry out is suspicious.

In practice, the process can be simplified as follows:

PEP identification → risk assessment → approval → establishing source of wealth and source of funds → enhanced monitoring → documentation.

How long are additional measures applied to a former PEP?

Ceasing to hold a prominent political position does not automatically mean that the measures associated with increased risk cease to apply. From the date on which the person stops performing such a function, the obliged institution should continue to apply measures reflecting the higher risk for a period of at least 12 months and until it has determined that the person no longer presents an increased risk.

The key wording is therefore “at least 12 months”.

This does not mean that the additional measures automatically cease after one year. Following the minimum period, the institution should assess whether factors justifying the increased risk still exist. Relevant considerations may include, among other things, continuing influence, the nature of the position previously held, ongoing connections, and other circumstances relevant from an AML/CFT perspective.

It is therefore inaccurate to state:

“a PEP stops being a PEP after 12 months”.

The regulations require measures reflecting the increased risk to continue to be applied for at least 12 months, and their termination should follow from an assessment that the increased risk associated with the person no longer exists.

12 months is a minimum period, not an automatic end date for applying additional measures.