What Is a Politically Exposed Person (PEP)?

A PEP is not a celebrity, and not a criminal. It is a person whose job carries a built-in, above-average risk that bribery or corruption money ends up moving through them. The exposure comes from the position, not from anything about the person. I find that distinction does most of the work here, and it is the bit firms tend to get backwards.

What I usually see is PEP screening treated as a kind of celebrity-name-check: run the name, see whether anyone famous comes up, and move on. I understand the instinct, but it misses what the rule is actually getting at. A backbench state MP nobody could name is a PEP, while a famous actor with no public role is not. What you are really looking for is public power, not fame.

There are 3 types, and they look tidier on paper than they tend to feel in practice. A domestic PEP holds a prominent public position in an Australian government body. A foreign PEP holds the equivalent position overseas, and that includes foreign PEPs who live or work here. An international organisation PEP holds a senior role in a body like the UN or the World Bank. For a small firm, the reason the categories matter really comes down to one thing: only the foreign one takes the decision out of your hands.

Figure 1. The 3 PEP categories, plus immediate family members and close associates.

That foreign-PEP rule is the one I would make sure you get right before anything else. When a client, or someone standing behind the client, is a foreign PEP, the level of care is not yours to set: enhanced customer due diligence is mandatory. With a domestic PEP you weigh up the risk yourself, whereas with a foreign PEP that judgment has already been made for you. I think this is the part people quietly resent, since it takes away their discretion, and you can be perfectly comfortable with a client and still owe the full enhanced process.

Figure 2. The level of customer due diligence a PEP triggers.

The next part of the definition is the one I would worry about most, and it is also the one I see overlooked most often. Immediate family members and close associates of a PEP are PEPs too. If you are trying to work out where the real exposure tends to sit, it is usually here rather than with the office-holder, because the money rarely moves through the minister directly. It moves through the people around them: a spouse, an adult child studying overseas, a business partner holding an asset on their behalf. So a spotless client with a politically exposed spouse is still a PEP file, however much you might wish it were not.

Then there is the question everyone eventually asks me, which is how to do this without spending a fortune. My honest view is that a lot of what small firms spend here buys reassurance more than protection. A specialist database is fine, and often sensible, but a clear written method your staff actually follow will do more for you than an expensive subscription nobody opens. AUSTRAC’s own expectation is not exotic anyway: ask the person, at onboarding and through the relationship, whether they or a family member or close associate is a PEP; check public sources, sanctions lists and government lists; and bring in a specialist database where PEPs are genuinely likely in your book.

The one habit I would push back on is leaning on a single line in the file that says you asked and the client said no. Asking is the right place to start, but on its own it is not really a method.

None of this is something you settle once at onboarding, either. If a client becomes a PEP partway through the relationship, or you simply learn something you did not know earlier, the file reopens. Feeling reassured about someone is not quite the same as having checked them.

Two things firms miss. A foreign PEP removes your discretion: enhanced due diligence is mandatory. And the family members and close associates of a PEP are PEPs too, so a clean client with a politically exposed relative is still a PEP file.

If you are getting ready for 1 July 2026, here is where I would start.

Work out honestly whether PEPs are realistically in your client base. If you act for overseas buyers or international companies, the safe assumption is that they are.

Write the PEP step into your customer due diligence procedure, so it is clear who asks the question, what they check, where they record it, and when a match gets escalated.

And when a foreign-PEP match does come up, treat it as an automatic move into enhanced due diligence rather than something to argue about case by case.

 

The regulatory detail

Definition and source

A politically exposed person is defined in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), section 5, with the categories and connected-person terms set out in the AML/CTF Rules 2025, section 1-5. A PEP is an individual who holds a prominent public position or role in a government body or international organisation, in Australia or overseas, together with that individual’s immediate family members and close associates. The obligations that attach to a PEP sit inside the customer due diligence framework: initial CDD under Act section 28, and enhanced CDD under Act section 32 and Rules section 6-20.

The 3 categories

Domestic PEP: an individual who holds a prominent public position or role in an Australian government body. AUSTRAC’s positions include members of the legislature of the Commonwealth, a state or a territory; members of the governing body of a political party represented in such a legislature; the Governor-General and state Governors; senior judicial officers; senior military officers; and senior government executives or accountable authorities under the Public Governance, Performance and Accountability Act framework.

Foreign PEP: an individual who holds a prominent public position or role with a government body in a country other than Australia. This includes foreign PEPs who are working or residing in Australia.

International organisation PEP: an individual entrusted with a prominent public function, position or office of a public international organisation, for example a head, deputy head or board member of a body such as the United Nations, the World Trade Organisation or the World Bank.

Immediate family members and close associates

The definition extends beyond the office-holder. An immediate family member of a PEP is a PEP. A close associate is an individual known, on information that is public or readily available, to have any of the following with a PEP: joint beneficial ownership of a body corporate or legal arrangement; sole beneficial ownership of a body corporate or legal arrangement held on behalf of or for the benefit of the PEP; or other close business relations. Beneficial ownership carries its own obligations and is dealt with separately under the reformed rules.

Risk treatment and enhanced CDD

Not all PEPs carry the same obligation. Enhanced CDD is mandatory for a foreign PEP, applied where the foreign PEP is the customer, a beneficial owner of the customer, or a person on whose behalf the customer receives the designated service, such as a beneficiary of a trust or foreign equivalent (Act section 32, Rules section 6-20). For a domestic PEP or an international organisation PEP, the approach is risk-based: standard CDD applies unless the ML/TF risk is assessed as high, in which case enhanced CDD is required. Enhanced CDD is also required for any high ML/TF risk customer, whether or not a PEP is involved.

Source of funds and source of wealth

For a foreign PEP, and for a domestic or international organisation PEP assessed as high ML/TF risk, the reporting entity must establish source of funds and source of wealth on reasonable grounds as part of initial CDD (Rules sections 6-21, 6-23 and 6-24). Source of funds is the origin of the money used in the particular transaction. Source of wealth is how the person’s overall assets and wealth were accumulated. The two are distinct and both are required.

Ongoing customer due diligence

PEP status is monitored across the relationship, not settled once at onboarding (Act section 30). A reporting entity must review, update and, where appropriate, reverify KYC information if a customer, a beneficial owner, or a person on whose behalf the service is provided becomes a foreign PEP, or a domestic or international organisation PEP with high ML/TF risk. Under the reform guidance, a person stops being a PEP once they leave the position that attracted the status, as do their family members and close associates. Good practice, consistent with FATF, applies heightened attention for a reasonable period afterward where the residual risk warrants it.

Identifying a PEP

AUSTRAC’s stated expectations for identification are to: ask the person at onboarding and throughout the relationship whether they, a family member or a close associate is a PEP; check the person’s background using public sources, sanctions lists and government lists, including resources such as the Australian Government Directory and the Department of Foreign Affairs and Trade list of senior diplomatic appointments; and use specialist PEP databases or third-party providers where appropriate. If a third-party provider is used, the reporting entity should confirm the provider screens against the positions and offices set out in the Act’s PEP definitions.

Privacy

Information collected about a PEP to meet AML/CTF obligations may be sensitive information under the Privacy Act 1988 (Cth) and the Australian Privacy Principles, which require a higher level of protection. A reporting entity’s handling of that information must comply with its privacy obligations as well as its AML/CTF obligations.

 

Frequently asked questions

Is being a PEP illegal?

No. PEP status reflects a risk exposure created by a position, not any wrongdoing. AUSTRAC is explicit that being a PEP does not mean a person is involved in criminal activity. The status simply requires the reporting entity to apply the right level of care.

Does every PEP require enhanced due diligence?

No. A foreign PEP always requires enhanced customer due diligence. A domestic PEP or an international organisation PEP requires it only where ML/TF risk is assessed as high. Any high-risk customer requires enhanced CDD regardless of PEP status.

Do family members and associates really count?

Yes. Immediate family members and close associates of a PEP are treated as PEPs, because money connected to a politically exposed person is commonly moved through the people around them rather than the person directly.

How long does someone remain a PEP?

Under the reform guidance, a person stops being a PEP once they leave the position that gave them the status, and the same applies to their family members and close associates. Many firms still apply heightened attention for a period afterward where the risk justifies it, which is consistent with FATF guidance.

Do small firms need expensive PEP software?

No. The obligation is to have a documented, proportionate method: ask the client, check reliable sources, escalate matches, and record what was done. A specialist database is reasonable where PEPs are likely in your client base, but the requirement is method and discipline, not a particular product.

 

Homepedia builds HP-KYC, a Tranche 2 customer due diligence tool for real estate agencies and law firms. homepedia.com.au/hp-kyc

 

Sources

• AUSTRAC, Politically exposed persons (Reform)
• AUSTRAC, Enhanced customer due diligence (Reform)
• AUSTRAC, Overview of customer due diligence (Reform)
• Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth)
• AML/CTF Rules 2025 (Cth)
• AUSTRAC, Future Law Compilation of the AML/CTF Act
• FATF Recommendations (Recommendation 12, PEPs; Recommendation 22, DNFBPs)
• Law Society of NSW, AML/CTF Hub
• Home Affairs, Overview of the AML/CTF Amendment Act

General information about Australian AML/CTF obligations, current as of June 2026. This is not legal advice.