Politically Exposed Person (PEP): Understand What It Means and Why It Matters

A politically exposed person (PEP), according to the official definition, is an individual who holds a prominent public function or has performed relevant public roles, jobs, or functions within the last five years. Because of this, they carry a higher risk of being involved in corruption, money laundering practices, and negative media exposure.

Simply put, a politically exposed person can represent a high risk. Not necessarily because they have done something wrong, but because they occupy positions that require extra scrutiny.

But why is this relevant? For many reasons, but we can summarize it with two recent data points:

First, Brazil scored 34 points and ranked 107th among 180 countries in the Corruption Perceptions Index, the worst score in our history.

Second, an investigation by the Technology Laboratory Against Money Laundering (Lab-LD) of the São Paulo Civil Police identified just over R$ 9.6 billion in illicit financial flows in 2024. According to the research, this number represents a 113% increase in money laundering volume in one year.

In other words, the data indicates a scenario reflecting a high rate of corruption and an increase in crimes provided for in the Anti-Corruption Law, which should be a warning for both the public sector and private companies.

After all, there is no shortage of cases of companies facing adverse media for being linked to politically exposed persons without conducting proper background checks.

And the final result? A company’s most valuable assets disappear: a drop in share value, reduced revenue, loss of clients, and the breakdown of partnerships essential to the value chain.

What are Politically Exposed Persons (PEPs)?

Imagine your company is a hotel about to host a mayor or even a president. In this case, you would take extra precautions, right? You would want to ensure all reservation details are correct and stay alert to avoid any confusion.

This is because this person is politically exposed, and you know that any situation involving them, whether positive or negative, can have a major impact on your organization. That is why it is so important to understand this concept and know how to identify a PEP.

Use this solution to check if your employee or partner is a Politically Exposed Person (PEP).

After all, whether you are a hotel or not, when you fail to identify if someone working with you—be it an employee, client, or partner—is a PEP, you end up opening doors to reputational and financial risks.

Furthermore, it is important to know that politically exposed persons are listed in AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) regulations issued by regulatory and supervisory bodies. In other words, they are figures monitored in a special way with the aim of promoting AML practices.

Discover 5 methods for Anti-Money Laundering (AML) prevention.

Examples of PEPs and How They Are Monitored

See some examples of politically exposed persons, both within and outside Brazilian territory.

• Members of the Legislative branch;
• Members of the Executive branch;
• Members of the Judiciary branch;
• Members of the Supreme Federal Court and Superior Courts;
• President, Vice-President, and authorities of Public Foundations and Public Enterprises.

Why Identify Politically Exposed Persons (PEPs)?

Identifying a PEP is important for the same reason you should know your collaborators, employees, and suppliers through background checks.

That reason is to prevent misconduct, fraud, and scams that directly impact your company’s finances and sustainability. However, in the case of politically exposed persons, these risks are much more scalable.

See the 3 Main Risks of Not Checking PEPs

See the main impacts of not identifying if a partner is present on PEP watchlists.

• Money Laundering: Characterized by financial movements marked and recognized by a large amount of money coming from an unknown origin or tampered with by someone or some institution, according to Law 12.683/12 (Brazil).
• Regulatory and Legal Risks: If the figure is related to omissions of records and assets, factual fraud, or any action that violates current regulations, the organization may suffer blocks and sanctions.
• Reputational Risks: If the exposed person is involved in any negative media and this is not identified beforehand, it is your company that may end up paying the price.

You see, all these are risks that directly affect your company’s pocketbook, generating financial losses that could be avoided with a simple background check.

See how to perform PEP verification for your company here.

After all, doing business with a PEP, when done properly and safely, does not necessarily mean exposing your company to risks or obstacles. The important thing is to have access to data and foresee possible risks, that is, to check.

How to Identify a Politically Exposed Person (PEP)

Identifying a PEP goes far beyond knowing if they hold a public office. You need to verify if the person has or has held relevant government functions, if they are a relative or have close ties to authorities, or even if they work in areas that can influence political decisions.

The safest way to do this is through a well-structured individual background check. A risk analysis process that crosses different databases to confirm information, identify possible links, and, of course, indicate whether the person is a PEP or not.

At BGC Brasil, for example, verification is done broadly, quickly, and precisely, combining technology with rigorous analysis. This way, you have clarity on who you are hiring, doing business with, or keeping as a partner, helping you reduce reputational and financial risks before they knock on your door.

Politically Exposed Persons and Your Company’s Compliance

In the context of compliance, identifying a PEP is essential to prevent behaviors that could compromise the standards of the company’s code of ethics, as well as compliance with current regulations in your sector.

Read our infographic on the 7 pillars for an efficient compliance program.

In this sense, checking the background and history of a PEP is a strategic ally, as it allows you to confirm information, map possible links, and assess regulatory risks before formalizing any hiring or partnership.

Background Check for PEP Identification and Consultation

The background check is an essential tool for identifying and checking if a person is politically exposed (PEP). It allows you to verify history, records, and possible links that may represent regulatory, reputational, or financial risks for your company.

With this analysis, it is possible to make safer decisions in hiring, partnerships, and business relationships, ensuring that your company is protected and compliant with compliance standards.

It is super important and indispensable to know who you create a partnership with for your company. This is because, by knowing your partners, customers, and collaborators, it becomes possible to reduce risks and avoid problems for your company like the ones mentioned above, for example.

Want to know more about our background check solution? Request a demo here.