Foreign PEP – Basic Overview
- Meaning: A foreign politically exposed person, or foreign PEP, is an individual who holds a prominent office or position or public function in or for the legislature, executive, or judiciary of a foreign country.
- Why it matters: Foreign PEPs can be exposed to bribery and corruption risk. The regime therefore requires additional checks and approvals in higher risk circumstances.
- What extra measures often involve: Senior manager approval and stronger source of funds and source of wealth work, depending on your risk assessment and the rules that apply.
- Reform timing: The updated outcomes based CDD framework commences on 31 March 2026, and Tranche 2 obligations commence on 1 July 2026.
What is a foreign politically exposed person
AUSTRAC explains that a foreign politically exposed person is an individual who holds a prominent public position or role in a government body or international organisation, either in Australia or overseas, and that immediate family members and close associates can also be treated as PEPs.
Under AUSTRAC reforms guidance, the definition of a foreign PEP is more specific. A foreign PEP is an individual who holds a prominent office or position or public function in or for the legislature, executive or judiciary of a foreign country. The guidance lists examples such as head of state, members of the executive council, legislators, ministers, senior judges, ambassadors, high ranking military officers, heads or board members of government bodies, heads or board members of state owned companies or banks, and governing body members of political parties represented in a legislature.
The same reforms guidance explains that a foreign PEP also includes certain family members and close associates, including where there is joint beneficial ownership or close business relations, based on information that is public or readily available.
Why foreign PEP risk is treated differently
Foreign PEP controls are designed to reduce exposure to bribery, corruption, and laundering of proceeds of crime. AUSTRAC notes that PEPs can be targets for corruption and bribery attempts because they hold positions of power and influence, but that being a PEP does not mean a person is involved in criminal activity.
FATF makes the same point. FATF explains that many PEP roles can be abused for laundering illicit funds or predicate offences such as corruption or bribery, and the FATF standards require additional AML and CTF measures for business relationships with PEPs. These requirements are preventive, not criminal.
For Tranche 2 firms, the operational message is straightforward. A foreign PEP match is not a reason to panic. It is a reason to slow down, apply structured enhanced due diligence, and document a defensible decision.
What additional obligations look like in the reforms guidance
AUSTRAC’s reforms summary for current reporting entities states that enhanced CDD must be applied when ML and TF risk is high and in specified circumstances, including when your customer is a foreign PEP, or when a suspicious matter reporting obligation arises.
AUSTRAC’s PEP reforms page sets out that additional obligations apply for PEPs and includes senior manager approval requirements, with more detail depending on customer risk and PEP type.
Separately, AUSTRAC’s source of funds and source of wealth guidance states that you must identify source of funds and source of wealth on certain high risk customers and transactions, or when the customer or their beneficial owner is a foreign PEP.
How foreign PEP checks appear in Tranche 2 work
Matter type 1: Property purchases and asset acquisitions
A client buying property may have a foreign PEP beneficial owner behind a company or trust. Your task is to identify the PEP exposure and ensure the funding story is credible.
Matter type 2: Company formation and structuring
Foreign PEPs may use layered entities to distance themselves from assets. This is where beneficial ownership work and source of wealth checks become essential.
Matter type 3: Legal services and trust account flows
Foreign PEP funds may pass through trust accounts. Your file should show why the transaction is legitimate and how risk was managed.
Matter type 4: Accounting and advisory engagements
Foreign PEPs may seek professional legitimacy. This increases the importance of documenting the purpose of the engagement, the expected transaction behaviour, and the evidence supporting wealth and funds.
Practical examples
Example 1: Foreign minister purchasing Australian real estate through a company
Screening identifies a director as a foreign minister. Under the reforms definition, this is a foreign PEP. Enhanced CDD should include strong source of funds and source of wealth work, plus senior manager sign off where required by your program and risk rating.
Example 2: Close associate with joint ownership
A client is not a foreign PEP themselves, but public information shows joint beneficial ownership with a foreign PEP. The reforms definition treats this as within scope for foreign PEP treatment.
Example 3: Foreign PEP working or residing in Australia
AUSTRAC’s current guidance notes that foreign PEPs can include foreign PEPs working or residing in Australia, meaning the risk indicator is the role in the foreign government body, not the person’s current location.
Best practice foreign PEP controls for Tranche 2 businesses
1. Put foreign PEP checks into your onboarding workflow
Your CDD workflow should screen customers, beneficial owners, and controllers for PEP exposure and have a clear escalation pathway.
2. Build an enhanced CDD pack for foreign PEP cases
Foreign PEP cases often need a tighter evidence set. Common additions include asset declarations where available, credible third party corroboration, and a stronger narrative that ties funds to legitimate sources.
3. Make source of funds and source of wealth routine, not exceptional
AUSTRAC expects source of funds and source of wealth checks for foreign PEPs and certain high risk activity. Bake this into your templates so staff do not treat it as an awkward add on.
4. Ensure senior decision making is real
AUSTRAC reforms guidance emphasises senior manager involvement and formal governance roles. This needs to be a real control, not a rubber stamp.
5. Link foreign PEP management to suspicious matter reporting readiness
AUSTRAC highlights enhanced CDD triggers that include where a suspicious matter reporting obligation arises. Your escalation pathway should connect enhanced CDD findings to suspicion assessment.
Common challenges
- False positives that do not get resolved properly.
- Weak documentation, where staff keep evidence but do not explain why it supports the decision.
- Excessive risk aversion, where firms reject all foreign PEPs rather than applying a proportionate approach.
- Under escalation, where staff accept a foreign PEP with minimal checks because the client is commercially attractive.
Key Takeaways for Managing Foreign PEP
Foreign politically exposed person is one of the most practical high risk flags you will deal with in Tranche 2 compliance. The right approach is calm, structured, and well documented. Screen properly, apply enhanced due diligence that fits the risk, evidence source of funds and source of wealth credibly, and ensure decisions are owned at the right senior level in line with the outcomes based reforms.
“Bookmakers sit at a natural convergence point for cash, speed and anonymity. AUSTRAC’s focus reflects the reality that wagering platforms can be misused as value transfer mechanisms if risk controls are not actively applied.”
