PEP Screening in New Zealand: Understanding AML/CFT Requirements

When conducting Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Customer Due Diligence (CDD) in New Zealand, there is another important step that is often overlooked besides verifying customer identities — Politically Exposed Person (PEP) screening.

Many businesses believe that PEP checks are only necessary for government officials, politicians or high-net-worth individuals. However, even if a customer is an ordinary individual or holds a New Zealand passport, PEP risks cannot automatically be ruled out.

Under New Zealand's Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act), reporting entities are required to take reasonable steps, according to the level of risk involved, to determine whether their customers or beneficial owners are PEPs.

What Is a PEP?

PEP stands for Politically Exposed Person. Under section 5 of New Zealand's AML/CFT Act, PEPs primarily include individuals who hold, or have held within the preceding 12 months, prominent public positions in overseas countries, such as:

• Heads of state or heads of government;

• Government ministers or equivalent senior politicians;

• Supreme Court judges or equivalent senior judges;

• Governors of central banks;

• Senior foreign representatives and ambassadors;

• High-ranking military officers;

• Board chairs, chief executives and other senior executives holding positions of comparable influence in state-owned enterprises.

In addition, immediate family members and certain close associates of these individuals may also be classified as PEPs.

It is important to understand that New Zealand law has a specific definition of PEPs, primarily focusing on prominent public functions held overseas and associated individuals. This does not mean that all New Zealand domestic politicians are automatically classified as PEPs under the Act.

Do You Need to Conduct PEP Checks on Every Customer?

Under section 26(1) of the AML/CFT Act, reporting entities must, as soon as practicable after establishing a business relationship or conducting an occasional transaction or activity, take reasonable steps according to the level of risk involved to determine whether the customer or any beneficial owner is a PEP.

The Department of Internal Affairs (DIA) has made it clear that PEP checks should follow a risk-based approach. However, this does not mean that every customer requires an extensive background investigation. For example, a simple open-source internet search may be sufficient for lower-risk customers.

What Should You Do If Your Customer Is Identified as a PEP?

Being a PEP does not mean that a person is suspected of money laundering, nor does it mean that a business must refuse to deal with them.

The purpose of PEP screening is to identify potential risks that may require additional attention, rather than automatically assuming that a customer has engaged in illegal activities.

Under section 26(2) of the AML/CFT Act, if a reporting entity determines that a customer or beneficial owner with whom it has established a business relationship is a PEP, it must:

First, obtain senior management approval to continue the business relationship.

Second, obtain information about the source of wealth or funds of the customer or beneficial owner and take reasonable steps to verify that information.

For occasional transactions or activities, section 26(3) also sets out requirements for obtaining and verifying information about the source of funds or wealth.

Therefore, PEP screening is not simply about checking a name against a database. Businesses must also take appropriate compliance measures based on the screening results.

How We Help Businesses With PEP Screening

To address the practical challenges businesses face when conducting PEP screening, Trusted AML provides professional AML screening software and compliance support services.

Our services include:

• Global PEP Database Screening: Screening customers and relevant individuals against global politically exposed persons databases.

• Sanctions Screening: Helping identify whether customers or related businesses are associated with sanctions lists.

• Potential Match Review: Assisting compliance staff in reviewing screening results and reducing repetitive manual searches.

• Screening Record Keeping: Maintaining relevant screening information and results for subsequent internal reviews and compliance assessments.

Through a systematic screening process, businesses can manage customer risks more effectively while reducing the administrative workload associated with manual checks.

In addition to our software, Trusted AML also provides professional AML compliance advisory services, including:

• Support with PEP match reviews and customer risk assessments;

• Guidance on Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD);

• Compliance guidance on Source of Funds (SoF) and Source of Wealth (SoW) reviews;

• Updates to AML/CFT compliance programmes and risk assessments;

• Compliance officer support and staff training.

Our goal is not only to help businesses complete their screening requirements, but also to ensure they understand what steps to take when dealing with potentially high-risk customers.

The key to effective PEP screening is not simply identifying a potential match, but correctly assessing the risk and taking appropriate compliance measures.