What is a "politically exposed person" (PEP) in compliance terminology?

A "politically exposed person" (PEP) refers to someone who is or has been entrusted with prominent public functions, such as senior government officials, judges, military leaders, or individuals holding key positions in international organizations. This classification is important in compliance and anti-money laundering frameworks because PEPs are seen as posing a higher risk for potential involvement in bribery and corruption due to their access to national funds and decision-making authority.

In compliance practices, institutions are required to conduct enhanced due diligence when dealing with PEPs to mitigate risks associated with money laundering and financial crimes. This involves more rigorous monitoring and assessment of their financial transactions compared to those of ordinary clients. Understanding who qualifies as a PEP allows financial institutions to take appropriate measures in compliance with regulations set forth by organizations such as the Financial Action Task Force (FATF).

The other options do not accurately define a PEP. While individuals with criminal backgrounds, significant financial resources, or those involved in regulatory oversight may have their own implications in compliance contexts, they do not meet the specific criteria that define a politically exposed person.