A Politically Exposed Person (PEP) in the Philippines refers to an individual who holds a prominent public position or has close associations with someone who does. Because of their influence, access to public resources, and potential exposure to corruption risk, PEPs are classified as high-risk customers under the country’s Anti-Money Laundering (AML) regulations.
Financial institutions are obligated by the 'Bangko Sentral ng Pilipinas (BSP)' and the 'Anti-Money Laundering Council (AMLC)' to apply enhanced due diligence when engaging with PEPs.
The identification and monitoring of PEPs form a crucial part of AML programs in the Philippines. These requirements align with international standards established by the Financial Action Task Force, which recommends enhanced scrutiny of politically connected individuals to prevent misuse of financial systems for illicit purposes.
Definition of Politically Exposed Person Philippines
Under BSP Circular No. 706 and Circular No. 950, a PEP is defined as an individual who is or has been entrusted with a prominent public function, whether domestically or abroad. This includes senior government officials, legislators, judges, military leaders, and executives of government-owned or controlled corporations. Family members and close associates are also covered under this classification, as they may benefit from or facilitate the misuse of political influence.
Financial institutions must integrate PEP identification processes into their customer screening and watchlist management systems. This ensures that high-risk clients are continuously monitored and assessed according to AML risk profiles.
PEP Regulations Under the Bangko Sentral ng Pilipinas (BSP)
The BSP has issued several circulars to strengthen the management of PEP-related risks. Circular No. 706 (Updated Anti-Money Laundering Rules and Regulations) and Circular No. 950 (Guidelines on Enhanced Due Diligence for PEPs) emphasize:
Identifying and categorizing customers as PEPs during onboarding.
Obtaining senior management approval before establishing relationships with PEPs.
Establishing the source of funds and wealth.
Conducting ongoing monitoring of PEP-related transactions.
The Anti-Money Laundering Council (AMLC), under the Anti-Money Laundering Act of 2001 (Republic Act No. 9160), also mandates that financial institutions file Suspicious Transaction Reports (STRs) when transactions involving PEPs raise red flags. More guidance can be found on the Bangko Sentral ng Pilipinas website.
Types of Politically Exposed Persons
Before classifying individuals, it’s important to recognize that each category of PEP carries distinct levels of risk depending on their influence, power, and exposure to public funds.
Main PEP Categories
Domestic PEPs: Officials or executives who hold senior positions within the Philippine government or public sector.
Foreign PEPs: Individuals who perform equivalent functions in foreign governments or international organizations.
Family Members: Spouses, children, parents, and siblings of PEPs who could benefit from their influence.
Close Associates: Persons with close business or personal relationships who may act on behalf of or benefit from a PEP’s position.
Managing and Screening PEPs in the Philippines
Financial institutions in the Philippines must develop strong internal controls for identifying and monitoring PEPs. Before listing best practices, it’s vital to understand that proactive detection and governance are critical in reducing corruption, fraud, and reputational risk.
Best Practices for PEP Risk Management
Enhanced Due Diligence (EDD): Perform in-depth assessments of the PEP’s background, source of wealth, and transactional behavior.
Continuous Monitoring: Use automated tools such as transaction monitoring to detect suspicious or irregular activities involving PEP accounts.
Data Accuracy Checks: Ensure PEP data is consistently updated and verified against government databases or global watchlists.
Periodic Reviews: Reassess relationships with PEPs at regular intervals to evaluate risk changes.
Suspicious Activity Reporting: Promptly file STRs to the AMLC when unusual activity is identified.
A case reported by the AMLC in 2022 highlighted the importance of continuous monitoring when it sanctioned a financial institution for failing to identify a politically exposed client’s offshore transactions. This incident reinforced the need for real-time systems capable of detecting high-risk activity before compliance breaches occur.
