When meeting your AML/CTF obligations, two checks often confuse:
- Politically Exposed Person (PEP) checks
- DFAT sanctions checks
They sound similar, but they serve very different purposes.
What is a PEP Check?
A Politically Exposed Person (PEP) is someone who holds a prominent public position or has influence over government decisions or public money.
This includes:
- Politicians (e.g. Members of Parliament)
- Senior government officials
- Judges
- Military leaders
- Executives of government-owned organisations
- Close family members or associates of these people
The Australian Transaction Reports and Analysis Centre provide guidance.
Why PEPs Matter
PEPs are considered higher risk because they may have:
- Access to public funds
- Influence over decisions
- Greater exposure to bribery or corruption risks
Importantly:
A PEP is not doing anything wrong – they require more scrutiny.
What is a DFAT Check?
A DFAT check refers to screening a person against Australia’s sanctions lists managed by the Department of Foreign Affairs and Trade.
These lists include:
- Individuals involved in terrorism
- People subject to international sanctions
- Entities linked to serious crime or national security risks
Why DFAT Checks Matter
If a person appears on a DFAT sanctions list:
- You must not provide services to them
- You may have legal obligations to report or freeze assets
This is not about “risk level” – this is about legal prohibition.
Key Difference (Simple View)
| PEP Check | DFAT Check |
| Identifies higher-risk individuals | Identifies prohibited individuals |
| Risk-based approach | Legal compliance requirement |
| You can still deal with them (with controls) | You must NOT deal with them |
| Requires enhanced due diligence | Requires immediate escalation |
When Do You Need to Do a PEP Check?
You should conduct a PEP check when:
Completing Customer Due Diligence (CDD)
- Large transactions (e.g. $5,000+ or $10,000 thresholds depending on service)
- Customer identification processes
Ongoing Customer Monitoring
- Regular or high-value patrons
- Unusual or suspicious behaviour
Trigger Events
- Change in customer behaviour
- Large wins or frequent cash activity (common in licensed venues)
When Do You Need to Do a DFAT Check?
DFAT checks should be completed:
At Customer Onboarding / Identification
- When verifying identity for AML/CTF purposes
Before Providing Services
- Particularly where financial transactions are involved
During Ongoing Monitoring
- Especially for higher-risk customers
When Suspicious Activity is Identified
- As part of escalation and investigation
Practical Example for a Licensed Venue
Scenario 1 – PEP
A customer:
- Is a local council CEO
- Regularly plays gaming machines
- Wins $6,000
- You can still pay them
But you should:
- Record them as a PEP
- Apply Enhanced Customer Due Diligence (ECDD)
- Monitor their activity more closely
Scenario 2 – DFAT
A customer:
- Presents ID
- Matches a DFAT sanctions list
You must:
- Stop the transaction
- Escalate immediately
- Follow internal procedures
- Consider reporting obligations
How This Works in Practice (Simple Process)
Step 1 – Identify the Customer
- Collect ID as normal
Step 2 – Run Checks
- PEP screening
- DFAT sanctions screening
Step 3 – Assess Outcome
- If PEP → Apply enhanced monitoring
- If DFAT match → Stop and escalate
Common Mistakes to Avoid
A frequent issue in venues is:
Treating PEPs as “banned customers”
This is incorrect.
- A PEP = higher risk → manage them
- A DFAT match = prohibited → do not proceed
Simple Way to Explain to Staff
You can train staff using this:
- PEP = “Watch more closely”
- DFAT = “Do not proceed”
Final Guidance for Your AML/CTF Program
To stay aligned with AUSTRAC expectations:
- Include both checks in your CDD procedures
- Clearly document:
- Who performs the checks
- When they are done
- What happens if there is a match
- Train staff using real scenarios
- Use systems (like CIRT) to record outcomes and actions
Reference
- Australian Transaction Reports and Analysis Centre AML/CTF guidance on customer due diligence and PEPs
- Department of Foreign Affairs and Trade sanctions framework and consolidated list
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