What Does “Enhanced Due Diligence” on a Politically Exposed Person Actually Involve?

A new client walks in, and someone on your compliance team flags them as a politically exposed person. What happens next is where many Kenyan reporting institutions get vague, treating it as “be a bit more careful” rather than a defined set of steps with a regulatory basis. The Proceeds of Crime and Anti-Money Laundering Regulations, 2023 set out what enhanced due diligence on a politically exposed person involves, and they treat foreign and domestic PEPs differently, which is the point most internal policies miss.

Who counts as a politically exposed person

Regulation 26(5) defines a politically exposed person as a person entrusted with a prominent public function in Kenya or another jurisdiction. The list includes members of Cabinet, senior executives of state owned corporations, important political party officials, senior military officials and other senior members of the disciplined forces, members of the Judiciary, State Officers, senior Public Officers, senior officials of international organisations and Heads of State or Government. It also includes any immediate family member or close business associate of those persons, and any other category the Financial Reporting Centre may determine.

Two consequences follow. A client who holds no office but is the spouse, child or close business partner of an office holder is within the definition. And the definition is not limited to Kenyan officials, so a foreign minister’s relative opening an account in Nairobi is a PEP.

Foreign PEPs: enhanced due diligence is mandatory

For a foreign politically exposed person, regulation 26(1) requires a reporting institution, in addition to ordinary customer due diligence, to do four things. It must have risk management systems to determine whether a customer or beneficial owner is a PEP, obtain senior management approval before establishing the relationship (or before continuing it for an existing customer), take reasonable measures to establish the source of wealth and source of funds, and conduct enhanced ongoing monitoring of the relationship. These are not discretionary steps for a foreign PEP.

In practice, evidencing source of wealth means more than a client declaration. Typical support includes audited accounts or tax returns, employment or appointment records, sale agreements for major assets, and independent adverse media and sanctions screening. The Regulations require reasonable measures, so the file should show what was requested, what was obtained, and why any gap was accepted or escalated.

Domestic PEPs: a risk-based trigger

The position is different for a domestic PEP, and for a person entrusted with a prominent function by an international organisation. Regulation 26(2) requires reasonable measures to determine whether the customer or beneficial owner is a PEP. The senior approval, source of wealth and funds, and enhanced monitoring measures apply where the relationship presents a higher risk. A policy that applies foreign-PEP treatment to every domestic PEP is more onerous than the Regulations require, while a policy that applies no enhanced steps to a domestic PEP at all, without recording a risk assessment, is exposed. The safer course is to document the risk rating and the reasons for it in every case.

Life insurance and the payout point

Regulation 26 also addresses life insurance policies. The institution must take reasonable measures to determine whether the beneficiary, or the beneficial owner of the beneficiary, is a PEP at the latest at the time of payout. Where higher risks are identified, it must inform senior management before the payout, conduct enhanced scrutiny of the whole relationship with the policyholder and consider making a suspicious transaction report.

Suspicious transaction reporting

Being a PEP is not itself a ground for a report. The duty to report unusual or suspicious transactions to the Financial Reporting Centre arises under section 44 of the Proceeds of Crime and Anti-Money Laundering Act when the facts warrant it. Enhanced monitoring exists precisely so that activity inconsistent with what you would expect from the client, given their known wealth and funds, is noticed and escalated.

Being a PEP is not an accusation

Public office carries exposure by nature, and PEP status says nothing about wrongdoing. Treating every PEP relationship as a red flag to be avoided tends to produce thin, defensive compliance files that look worse under supervisory scrutiny than a properly conducted and documented enhanced review. A file that shows senior approval, a reasoned wealth and funds assessment, and a monitoring plan is a defensible file.

Building PEP screening into your process

The most common gap is a screening process that checks only the client’s own name and misses the family member and close business associate limbs of regulation 26(5). A workable step asks directly who the client’s immediate family and close business associates are, checks beneficial owners as well as the customer, and records who made the risk decision and when. Rescreen existing customers periodically, because someone who was not a PEP at onboarding may become one on appointment to public office.