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Politically Exposed Persons : A very misunderstood status

Updated: Sep 1, 2022

August 26, 2020 the news agency Al Jazeera published a list of names of 120 individuals of which they have branded as “convicted criminals” and “fugitives” who are using the Cyprus Citizenship by Investment Program to buy their way into EU.

August 26, 2020 the news agency Al Jazeera published a list of names of 120 individuals of which they have branded as “convicted criminals” and “fugitives” who are using the Cyprus Citizenship by Investment Program to buy their way into EU. The “Cyprus Papers”, as mistakenly categorized, have sparked an intensive debate in the Republic of Cyprus. On the one side there is healthy criticism towards the government, but at the same time on the other side there is a clear intention to harm the Cyprus Investment Program for furtherance of political agenda and/or other hidden ulterior motives. The latter is an issue for discussion in another time, in a maybe more appropriate medium, as this paper will focus on the misunderstood status of Politically Exposed Persons (PEPs).

Among the names published recently, there are indeed some limited problematic cases where the government and the Council of Ministers need to, without delay, implement the newer provisions passed by the House of Parliament and where necessity arises to revoke the citizenship status of the specific individuals (actions that have already commenced). Through a swift reaction of the government to the problematic cases it will ensure the credibility of the program which has immeasurably helped the Cypriot economy in the past few years. As mentioned above there are some limited problematic cases, but the vast majority of the names that have seen the light of day concern PEPs.

To understand the status of PEP we must first understand of what is a politically exposed person as analysed in local, EU and international law. The Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 suggests that a PEP is a person that has been assigned and/or entrusted with a prominent public function as well as its close family members and close associates. The law has listed of which public positions, family members and close associates carry the PEP status. The Financial Action Task Force (FATF) suggests that a PEP is “an individual who is or has been entrusted with a prominent function”. FATF guidelines go even further and argue that many PEPs hold positions that can be abused for money laundering and other offenses. Where the EU directive and FATF guidelines agree is that due to the risks associated with PEPs enhanced due diligence measures need to be established prior (and during) to the commencement of a business relationship.

While EU and international law agree that the status of PEP carries out risks and appropriate protective measured need to be put in place to mitigate AML/CTF risks nonetheless these requirements are preventative and not criminal in nature and “should not be interpreted as meaning that all PEPs are involved in criminal activity”.

The EU law emphasises that, quoting paragraph 33 of the Directive; “The requirements relating to politically exposed persons are of a preventive and not criminal nature, and should not be interpreted as stigmatizing politically exposed persons as being involved in criminal activity. Refusing a business relationship with a person simply on the basis of the determination that he or she is a politically exposed person is contrary to the letter and spirit of this Directive and of the revised FATF Recommendations.”

It is very clear and simple that no law wants PEPs to be targeted or treated as criminals simply by holding the specific public function that has created their PEP status. Enhanced Due Diligence processes must be established to mitigate the risks of the PEP status, but a regulated entity should not discriminate against such individuals as they are not criminals unless the otherwise is proven. This is already well established in Cyprus and appropriate measures are taken to mitigate AML/CTF risks, as many other countries do such as the UK, Netherlands, Germany and Belgium.

Arguably, once again Cyprus has been targeted through the Al Jazeera “leak” and falsely presented as granting citizenship to criminal elements. However, as analysed above the only “criminal offense” these “criminal elements” have done is to hold a prominent public function. The Citizenship by Investment program is fully aligned with the EU law and it is constantly adapting to correct weaknesses that had been identified in its infant years.

It is a vital fuel for the economy of our Republic and we have an obligation to protect it along with the image of our nation. Political furtherance, individual profit and other ulterior motives are immaterial, and should be set aside, in comparison of the prosperity of our country.

*DISCLAIMER: This article and its publication are intended to provide a brief introduction and act as a general guide. This is provided for information purposes only and cannot be utilized as a substitute for professional advice. This document does not represent a legal opinion and one must not rely on it without receiving independent advice based on the particular facts of its own case. No responsibility is accepted by the author or the publishers for any loss suffered from acting or refraining from acting based on the contents of this publication.

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