There lies potential for this decision to pioneer an Assessment by Equivalence approach, bringing much-needed clarity to the classification of PEPs within the international organisations.

In an interesting move, the European Union has clarified the murky waters of political exposure when it comes to international bodies. This document illuminates the EU’s recent decision on defining Politically Exposed Persons (PEPs), providing, among other things, a beacon of guidance for institutions nestled in the global hubs of Geneva, Vienna, and New York.

Certainty in Leadership Roles: EU's Stance

The EU's PEP Classification: A Transparent Framework

The European Commission, on October 31, 2023, etched a decisive path by publishing a Decision that meticulously outlines functions deemed prominent in public service within the European Union institutions and bodies. This pivotal Decision fosters transparency and fortifies the defenses in anti-corruption policy. 

You can find the official decision at this link

https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ:C_202300611

The Puzzle Solved

The landscape before this decision was a terrain of doubt. The prevailing Directive (EU) 2015/849 left many pondering if it encompassed all EU institution high ranking officials under its PEP umbrella. A definitive list was absent, leaving much to interpretation of “How High to be High".

Article 3(9) Directive: The Cornerstone

Article 3(9) of the Directive included the definition of  ‘politically exposed person’, stating that a PEP is “a natural person who is or who has been entrusted with prominent public functions” and includes the following: (a) heads of State, heads of government, ministers and deputy or assistant ministers; (b) members of parliament or of similar legislative bodies; (c) members of the governing bodies of political parties; (d) members of supreme courts, of constitutional courts or of other high-level judicial bodies, the decisions of which are not subject to further appeal, except in exceptional circumstances; (e) members of courts of auditors or of the boards of central banks; (f) ambassadors, chargés d'affaires and high-ranking officers in the armed forces; (g) members of the administrative, management or supervisory bodies of State-owned enterprises; (h) directors, deputy directors and members of the board or equivalent function of an international organisation. 
This list did not make any reference to the specific functions exercised by the EU level officials. The Commission Decision says that the functions considered as being prominent public functions at the EU level should therefore be based on an assessment by analogy with the functions exercised in a Member State. 

Based on the Article 3(9) list, the Commission within its duties compiled a list of the exact functions which qualify as prominent public functions at the European level. 

The list includes, in particular:

• the President of the European Council and the Secretary-General of the Council of the European Union;
• the Members of the European Parliament; 
• the Members of the European Commission; 
• the Judges, Advocates-General and Registrar of the Court of Justice; 
• within the European Central Bank: the President, the Vice-President and the other Members of the Executive Board; the Members of the Governing Council and the General Council; the Chair, the Vice-Chair and the other Members of the Supervisory Board;
•  the Members of the European Court of Auditors; 
• within the European External Action Service: Heads of Union delegations or representative offices of the Union to a third country or to an international organisation; Heads of Mission of third countries and of international organisations accredited to the Union.

Implications for day to day Compliance work

This important clarification by the EU may ripple through the corridors of compliance departments of FIs in international cities hosted by a large number of international institutions. 

• The EU’s recent clarification of who gets to be qualified as a PEP sets some guidance for other international organizations and is especially relevant for institutions operating in cities like Geneva, Vienna or New York hosting wealth of international organizations. 
• Lifts the uncertainty on PEP qualification of key EU personal 
• Emphasizes the notion of Assessment by Analogy of function exercise in Member State
• Compiled a list of the exact functions which qualify as prominent public functions at the European level.

The European Commission on 31 October 2023 published a new Decision which specifies the exact functions that qualify as prominent public functions in the European Union institutions and bodies. The Decision is crucial for ensuring transparency and accountability, especially concerning the prevention of money laundering and terrorist financing.

Prior to that, there was uncertainty as to whether the Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing covered persons serving in the EU institutions and bodies, or not. 

Article 3(9) of the Directive included the definition of  ‘politically exposed person’, stating that a PEP is “a natural person who is or who has been entrusted with prominent public functions and includes the following: (a) heads of State, heads of government, ministers and deputy or assistant ministers; (b) members of parliament or of similar legislative bodies; (c) members of the governing bodies of political parties; (d) members of supreme courts, of constitutional courts or of other high-level judicial bodies, the decisions of which are not subject to further appeal, except in exceptional circumstances; (e) members of courts of auditors or of the boards of central banks; (f) ambassadors, chargés d'affaires and high-ranking officers in the armed forces; (g) members of the administrative, management or supervisory bodies of State-owned enterprises; (h) directors, deputy directors and members of the board or equivalent function of an international organisation. 
This list did not make any reference to the specific functions exercised by the EU level officials. The Commission Decision says that the functions considered as being prominent public functions at the EU level should therefore be based on an assessment by analogy with the functions exercised in a Member State. 

Based on the Article 3(9) list, the Commission within its duties compiled a list of the exact functions which qualify as prominent public functions at the European level. 

The list includes, in particular:

• the President of the European Council and the Secretary-General of the Council of the European Union;
• the Members of the European Parliament; 
• the Members of the European Commission; 
• the Judges, Advocates-General and Registrar of the Court of Justice; 
• within the European Central Bank: the President, the Vice-President and the other Members of the Executive Board; the Members of the Governing Council and the General Council; the Chair, the Vice-Chair and the other Members of the Supervisory Board;
•  the Members of the European Court of Auditors; 
• within the European External Action Service: Heads of Union delegations or representative offices of the Union to a third country or to an international organisation; Heads of Mission of third countries and of international organisations accredited to the Union.

Given that detailed guidance like this is lacking within many other international institutions, this may lay some ground for Assessment by Equivalence of other international institutions personnel, especially in cities like Geneva, Vienna or New York where often banks and other institutions are confused with PEP classifications of high ranking members of those institutions.