PEPs, International Organizations and Source of Wealth

Status is a risk factor, not an accusation

A politically exposed person, or PEP, holds or has held a prescribed public office. A head of an international organization, or HIO, leads a qualifying organization. Their positions can create access to public resources or influence that raises bribery and corruption risks.

Being a PEP is not proof of wrongdoing and does not automatically prohibit buying insurance. The rules require defined determinations, records and additional measures in relevant circumstances. Sanctions screening is a separate analysis: a person can be politically exposed without being sanctioned, or sanctioned without being a PEP.

Use actual roles rather than stereotypes about nationality or wealth. A foreign citizenship does not itself make a person a foreign PEP, and Canadian residence does not remove a foreign public-office classification.

Foreign and domestic categories

• Foreign PEPs include specified senior positions in or on behalf of a foreign state, such as a head of government, legislator, senior military officer, ambassador or president of a state-owned company. Once identified, a foreign PEP remains a foreign PEP indefinitely, including after leaving office.

• Domestic PEPs include prescribed Canadian federal, provincial, territorial and municipal roles. A person generally remains within the domestic category for five years after leaving the qualifying office, with the guidance also addressing death. A municipal mayor qualifies regardless of population; do not invent a minimum city size.

• Not every public employee or every judge holds a prescribed PEP position. Use the current list and the actual office. The office determines status; the client's personal investment preference does not.

HIOs, family and associates

The HIO definition includes heads of organizations established by governments of states, qualifying institutions of those organizations and international sports organizations. It is not limited to the United Nations, and not every internationally active private company is an international organization under the rule.

The current HIO definition includes holding the role within the last five years. Apply the relevant period and current guidance to former officeholders rather than treating all HIO status as permanent.

Specified family members and close associates also require attention. Family includes prescribed relationships; close association can involve important personal or business connections. An ordinary introduction or a distant acquaintance is not automatically a close association, while a significant shared enterprise can be relevant.

Ask appropriate questions and use reasonable measures to establish the facts. A database can help, but an unexplained name match should be checked against the person's identity and role.

Life-sector transaction thresholds

For ordinary life-sector activities, reasonable measures to determine PEP, HIO, family-member or close-associate status apply when receiving a lump-sum payment of at least $100,000 in funds, or equivalent virtual currency, for a life policy or immediate or deferred annuity.

A separate trigger applies when the reporting entity will remit at least $100,000 to a beneficiary over the duration of a life policy or immediate or deferred annuity. This is not limited to one outgoing instalment of that size.

These PEP amounts are distinct from the $10,000 information-record and large cash rules. A $100,000 bank-funded premium can trigger PEP duties without being a large cash receipt. Conversely, a $10,000 cash receipt can trigger cash duties without reaching the PEP lump-sum amount.

Specified exceptions apply to defined products and arrangements. Read the current life-sector guidance rather than borrowing an exception from a different report type or assuming all term insurance is outside the regime.

Source of funds and source of wealth

Source of funds concerns the money or virtual currency used for the particular transaction. Source of wealth concerns how the person accumulated overall assets. “From a bank account” identifies a payment route, not necessarily the underlying economic source.

For a qualifying transaction involving a foreign PEP or relevant family member or close associate, take reasonable measures to establish the required sources and ensure senior management reviews the transaction. Domestic PEPs, HIOs and related persons require these enhanced transaction measures when the relevant risk assessment identifies high risk.

A client may explain that funds come from sale of a business while wealth arose from many years of lawful employment and investment. Assess whether the explanation fits the known circumstances and obtain appropriate supporting information through the compliance process. Do not substitute a declaration of respectability for a source assessment.

Timing and records

For a qualifying incoming lump-sum transaction, the life-sector guidance provides 30 days after the transaction for the prescribed determination and applicable enhanced measures. The clock does not restart when the agent later notices the person's public office.

For a beneficiary expected to receive the threshold total over the duration, take the prescribed measures before the first remittance of any part of that amount. Waiting until the final payment reaches $100,000 misses the timing requirement.

Record the role and organization, determination date, known source information, senior management reviewer and review date where required. Keep the specified PEP transaction records for at least five years from the last business transaction.

If the facts also establish reasonable grounds to suspect money laundering, terrorist financing or sanctions evasion, assess the separate reporting duty. PEP review does not replace an suspicious transaction report (STR), and an STR is not automatically required solely because a person holds public office.

Source checkpoint

FINTRAC's current definitions and life-sector PEP guidance explain status, thresholds, enhanced measures and timing.