What is an example of politically exposed persons (PEPs)?

Politically exposed persons (PEPs) are individuals who hold prominent public positions or responsibilities, which can increase their risk for involvement in bribery, corruption, or money laundering due to their access to government resources and influence. The correct answer identifies this category effectively by mentioning heads of state and government officials, who distinctly fall under the definition of PEPs. These individuals often face heightened scrutiny because their positions might allow them to take advantage of their influence or access to public funds in ways that could lead to financial misconduct.

The concept of PEPs is important in anti-money laundering (AML) frameworks, as it necessitates enhanced due diligence when dealing with such individuals. In contrast, local business owners, school administrators, and corporate employees do not typically fall within this definition, as their roles do not inherently carry the same level of responsibility or potential for influence in governmental affairs. This distinction is crucial for financial institutions and compliance professionals when assessing the risks associated with various clients.