1. Beneficial ownership and Politically Exposed Persons (PEPs): Definitions and asset disclosure requirements

2. Identifying and defining PEPs: Why is it important
Due to their position and influence, it is recognised that many PEPs are in positions that potentially can be abused for the purpose of offences and related to corruption and bribery.
Lack of transparency with regards to politically exposed persons and their assets held in the extractive sector poses corruption risks with regard to the award of natural resource concessions.
Does not mean that PEPs should be refused to conduct business within the extractive industry, but that such business relationships should be made transparent to prevent misuse.
Politically connected persons can potentially use illegitimate influence to secure contracts or affect deals in the extractive sector, often through companies or third parties.
This means that companies may be given access to lucrative extractive projects because their owners are politically connected, rather than being most suitable to execute the project, often resulting in losses for the government.
PEPs should therefore be specifically identified in beneficial ownership disclosures.

3. What the EITI Standard says
“The multi-stakeholder group should agree an appropriate definition of the term beneficial owner. (…) The definition should also specify reporting obligations for politically exposed persons”(#2.5.f.ii).
BO definition to refer to PEP obligations
“Information about the identity of the beneficial owner should include the name of the beneficial owner, the nationality, and the country of residence, as well as identifying any politically exposed persons. It is also recommended that the national identity number, date of birth, residential or service address, and means of contact are disclosed.” (2.5.d)
The EITI Standard requirement on beneficial ownership (2.5) requires that the BO definition adopted by the MSG should specify reporting obligations for PEPs.
MSGs are also required to ensure that BO disclosures under the EITI Standard identify PEPs holding ownership rights in oil, gas and mining assets.
Countries have different types of positions that would fall under the category “PEP”. The MSG should therefore take existing definitions and reporting obligations and how these are being practiced into consideration, as well as international standards related to PEPs.
BO disclosures to identify PEPs

4. Who are PEPs?
A politically exposed person (PEP) is an individual who is or has been entrusted with a prominent public function. Could include close family members and associates.
Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned enterprises, or important political party officials.
Also former officials, if they still have influential roles.
Family members by blood, marriage or other civil partnership, can stretch beyond immediate family.
Associates can be both personal social and professional.
Definitions of domestic PEPs should be clear and legally enforceable.
Should be aligned with definitions already existing in domestic law and international norms

5. PEP definitions: International examples
United Nations Convention against Corruption
Individuals who are, or have been, entrusted with prominent public functions, and their family members and close associates.”
ion_Against_Corruption.pdf
UNCAC definition: includes family members and close associates

6. PEP definitions: International examples
Financial Action Task Force (FATF):
An individual who is or has been entrusted with a prominent public function.
Distinguishes between foreign and domestic PEPs
Also persons with prominent functions entrusted by international organisations
Not intended to cover middle ranking or more junior individuals
Foreign vs domestic PEPs: prominent public functions having been entrusted by a foreign country or domestically.
Persons who are or have been entrusted with a prominent function by an international organisation can include members of senior management, i.e. directors, deputy directors and members of the board or equivalent functions.

7. PEP definitions: International examples
EU Anti-Money Laundering Directive:
(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.
The EU Anti-Money Laundering Directive lists the following positions as
Also notes that none of the public functions referred should cover middle-ranking or more junior officials

8. PEP reporting obligations
Most countries have asset disclosure systems in place applying to PEPs. This would usually include a list of public officials required by law
While there are often legal requirements for PEPs to disclose assets, such disclosures are not always enforced or publicly available.
Source: World Bank, Using Asset Disclosure for Identifying Politically Exposed Persons

9. PEP reporting obligations: Examples from countries
Honduras:
The Mining Law prevents public office holders from obtaining extractive licenses due to potential conflicts of interest.
However, the concept of beneficial ownership is not recognised and there is thus no law that explicitly prevents PEPs from holding ownership interests in extractive companies.
There are no declaration systems in place that would reveal such practice.

10. PEP reporting obligations: Examples from countries
Ghana:
Public Office Holders Act requires PEPs to declare all assets owned and liabilities owed either directly or indirectly to the Auditor General.
However, the reporting is not always enforced and the information not publicly available.

11. Beneficial ownership and PEPs: Thresholds for reporting
Some countries set thresholds for BO disclosures determining the number of owners companies will be requested to report (e.g. beneficial owners with >25% of shares or control of a company)
The MSG may consider requiring disclosure of all PEPs who are beneficial owners, regardless of any threshold, or setting specific thresholds for PEPs.
Example 1: Kyrgyz Republic
“A beneficial owners is a natural person who has the title to property, influences transactions, obtains a certain benefit from transactions, and who has an ownership stake of at least 5%. If the beneficial owner is a politically exposed person their stake must be disclosed irrespective of the size of the stake.”
Ethiopia has a lower threshold specifically for PEPs, at 5%

12. Beneficial ownership and PEPs: Level of detail
In addition to PEP’s name, MSG can consider disclosing:
Position, role and dates in office
Time at which the PEP acquired its beneficial interest in the extractive asset

13. Identifying PEPs in BO disclosures
EITI model beneficial ownership declaration form
The model declaration form prepared by EITI requests reporting companies to specify whether any of their beneficial owners are PEPs.
Includes request for information about the public office position and role or other reason for PEP designation, and the dates of holding office.

14. Identifying PEPs in BO disclosures
Example: DRC 2012 EITI Report
The report shows that the mining company Bolfast is 100% owned by Bokonda Balela Faustin and notes that Mr Faustin has been a Member of Parliament since 2011.
The 2012 report does not provide any information on when Mr Faustin acquired ownership of Bolfast.
DRC 2012 EITI Report identified one PEP in the BOs that were reported by companies.
It might have been that Mr Faustin acquired this company long before he became an MP, but would be useful for future reports to note when the beneficial interest was obtained.

15. Identifying PEPs in BO disclosures
The MSG might consider using existing asset declaration practices to help identify cases where PEPs are beneficial owners of extractive assets
Example: Burkina Faso
In Burkina Faso, the authority receiving declaration of assets held by politicians might be able provide the declaration of any form of property that politicians hold in the extractive companies
Burkina Faso’s BO scoping study noted that reporting obligations exist, and that these could be built upon for identifying PEPs in BO disclosures.

16. Case study: Ukraine
Ukraine has launched a publicly available register of PEPs, allowing the public to search through profiles of PEPs, close associates and family members, in line with the FATF recommendations.
Information is cross-checked with official sources or documents obtained from state authorities.

17. Case study: Ukraine
The register includes the following information on domestic PEPs:
Full name
Type of  PEP (PEP, close associate, family member, etc.)
Date and place of birth
All officially confirmed places of residence including abroad
Citizenship
All officially confirmed places of work (full name of the agency, official website, position, year of appointment and dismissal)
Financial statement
List of related individuals (close associates, family members)
List of related legal entities (full name, type of connection)
Where relevant, the register also includes extended information including about the business reputation of the PEP, such as international sanctions, criminal proceedings, criminal records, involvement in corrupt practices, business connections with other PEPs.

18. Case study: UK
Definition: UK EITI has adopted the EU's definition of PEP as described in the new EU Fourth Money Laundering Directive. Ownership Threshold: Reporting entities should disclose information in relation to any PEP owners, where these hold a share in the reporting entity of more than 5%. Due Diligence: The disclosures in relation to PEPs should reflect the information available to the reporting entity in the ordinary course of business. It is not required to perform incremental due diligence. Data timeliness: The disclosures should be based on knowledge held when the report information is supplied to the independent administrator.
UK’s BO register does not include information on PEPs. UK EITI will be requesting this information from reporting companies in forthcoming EITI reporting.

19. Case study: UK
Companies with owners defined as PEPs that are above the ownership threshold are requested to report:
Name
Month and year of birth
Nationality
Country of residence
Date when beneficial interest was acquired
Service address
Name of public office holder
Public office position and role
Date when office was assumed
Date when office was left, if applicable
If the PEP beneficial owner is not the public office holder, the PEP
beneficial owner’s connection with the public office holder

20. PEP definitions and asset disclosure requirements: Discussion
Is there a national PEP definition in your country? Consult company law, anti-money laundering act, Code of Conduct, etc.
Assess the definition:
Does the definition cover most persons in your country with “prominent public functions”?
Is it clear from the definition who is a PEP? This should be considered from the perspective of those who will be required to report information on beneficial ownership to the authorities
Is the definition legally enforceable?
2. Are there existing national reporting obligations for PEPs? If yes,
Who collects the information?
What details are requested?
Is the information publically available?
Study the international examples in the handout. Underline the elements that you like about these definitions, and would like to see included in your country’s definition.
Based on the assessment of any existing PEP definitions and your discussion of international examples, what would be the key components related to PEPs in your country’s BO definition? Note that in accordance with the EITI Standard, this should be referred to.
If there is no prior knowledge of point 1 and 2, or such definitions do not exist, then recommend starting the exercise on point 3. Presenter should do some homework and investigate point 1 and 2.

21. Author: Dyveke Rogan
Date: January 2017
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Address: EITI International Secretariat, Ruseløkkveien 26, 0251 Oslo, Norway