What is a PEP/SOE?

Politically Exposed Person (PEP)

A Politically Exposed Person, or PEP, is an individual who holds, or has held, a prominent public position that could potentially expose them to financial crime risks. 

This category typically includes high-ranking government officials, heads of state, senior politicians, military officers, and leaders of state-owned enterprises. The concern with PEPs in the context of anti-money laundering (AML) and anti-corruption efforts is that their positions of authority may be exploited for personal financial gain or to facilitate illicit activities. 

To address these risks, financial institutions and other organizations are often required to conduct enhanced due diligence (EDD) when dealing with PEPs. This EDD involves a deeper level of scrutiny into their financial activities and the source of their wealth to assess and mitigate potential risks. 

State-Owned Enterprise (SOE)

A State-Owned Enterprise, or SOE, is a business entity in which the government holds a significant ownership stake and typically exercises a substantial degree of control over its operations. 

SOEs can operate in various industries, including energy, telecommunications, transportation, and finance, and they may encompass government-controlled banks and financial institutions as well. 

From a financial crime perspective, SOEs are of concern due to their unique structure and government ownership, which can potentially create opportunities for corruption, money laundering, or other illicit financial activities. In a manner similar to PEPs, transactions involving SOEs may be subject to enhanced due diligence procedures to assess and mitigate potential risks associated with these state-controlled entities. 

Both PEPs and SOEs play a crucial role in the broader efforts to prevent and detect financial crimes. Compliance with the specific due diligence requirements and criteria for identifying PEPs and SOEs can vary by jurisdiction and regulatory authority. Nevertheless, it remains a fundamental component of anti-money laundering (AML) and anti-corruption strategies within the financial sector, aimed at safeguarding against financial misconduct and maintaining the integrity of the financial system.