Politically exposed persons have long been a focus of AML compliance programmes in the banking sector. Under Australia’s expanded AML/CTF regime, PEP screening Tranche 2 Australia obligations will apply to a much wider range of businesses from 1 July 2026 — including real estate agents, accountants, lawyers, and trust and company service providers. For many of these newly regulated entities, understanding what a PEP is, why they require enhanced scrutiny, and how to screen for them is unfamiliar territory. 

What Is a Politically Exposed Person? 

The Financial Action Task Force (FATF) defines a politically exposed person as an individual who is or has been entrusted with a prominent public function. FATF Recommendation 12 identifies three categories: 

  • Foreign PEPs: Individuals entrusted with prominent public functions by a foreign country, including heads of state or government, senior politicians, senior government officials, judicial or military officials, senior executives of state-owned corporations, and important political party officials. 
  • Domestic PEPs: Individuals entrusted with prominent public functions within the reporting country itself. Australia’s AML/CTF framework recognises domestic PEPs, though historically some jurisdictions applied reduced scrutiny to domestic compared to foreign PEPs. FATF has moved to eliminate this distinction, requiring a risk-based approach that can result in enhanced due diligence for domestic PEPs as well. 
  • International organisation PEPs: Senior figures in international organisations — including directors, deputy directors, members of boards, and equivalent senior management positions. 

PEP status extends to close family members and known close associates (referred to in the FATF framework as “relatives and close associates” or RCAs). An individual who is the spouse, parent, sibling, or adult child of a PEP, or who is known to be a business associate, inherits an elevated risk profile even if they personally hold no public position. 

Why PEPs Require Enhanced Due Diligence 

PEPs are not automatically assumed to be involved in financial crime. The elevated scrutiny applied to PEPs is based on their access to public funds, their potential influence over government contracts or decisions, and the higher statistical correlation between PEP status and exposure to bribery and corruption risk. 

FATF Recommendation 12 requires that, for foreign PEPs, firms must: apply enhanced customer due diligence measures; obtain senior management approval before establishing or continuing a business relationship; take reasonable measures to establish the source of wealth and funds; and conduct enhanced ongoing monitoring. 

For domestic PEPs, a risk-based determination is required — but where a domestic PEP is assessed as higher risk, equivalent enhanced due diligence measures apply. 

AUSTRAC’s AML/CTF Rules give domestic effect to these requirements. Under the Rules, reporting entities must have regard to whether a customer or beneficial owner is a PEP as part of the customer risk assessment process, and must have procedures for enhanced due diligence where PEP status is identified. 

How Tranche 2 Changes PEP Screening Obligations 

For entities currently outside the AML/CTF regime — particularly real estate agents, accountants, and lawyers — the Tranche 2 reforms introduce PEP screening as a formal compliance obligation for the first time. 

  • Screening at onboarding: Before or at the commencement of a business relationship, entities must screen customers and their beneficial owners against PEP databases. This applies to both natural persons and the ultimate beneficial owners of corporate customers. 
  • Screening for RCAs: It is not sufficient to screen only the named customer. Related parties who are close associates or family members of PEPs must also be identified where possible. 
  • Ongoing monitoring: PEP status can change — a person may be appointed to or leave a public position after the initial onboarding. Risk-based periodic rescreening ensures the entity’s records remain current.
  • Enhanced due diligence for identified PEPs: Where a customer or UBO is identified as a PEP, the entity must apply EDD — this may include source of wealth enquiries, senior management sign-off, and more frequent transaction monitoring. 

For newly regulated Tranche 2 entities that have not previously run formal compliance programmes, these obligations represent a significant step change. Manual processes — searching LinkedIn or news sources — are inadequate for meeting the frequency, consistency, and audit-trail requirements of the AML/CTF Act. 

Domestic vs Foreign PEPs: A Practical Distinction 

While FATF has largely aligned the treatment of domestic and foreign PEPs under a risk-based approach, practical differences remain: 

  • Foreign PEPs automatically trigger enhanced due diligence under FATF Recommendation 12, with limited discretion for the reporting entity. The assumption is that foreign PEPs pose higher risk due to reduced visibility of their activities. 
  • Domestic PEPs require a risk-based assessment. A local councillor in a small regional government, for example, may present a different risk profile from a senior federal minister. The entity must assess and document that risk assessment. 
  • A comprehensive PEP screening tool will differentiate between PEP tiers, including classification by seniority, function, and jurisdiction — enabling the reporting entity to calibrate its due diligence response appropriately. 

How NameScan Approaches PEP Screening 

NameScan’s screening platform covers domestic and foreign PEPs across 240+ countries and territories, along with RCA relationships. Searches return a PEP classification tier, the basis for the match, associated data points (position, country, dates), and related adverse media where applicable. Results are stored with a full audit trail, supporting the record-keeping obligations under AUSTRAC’s AML/CTF Rules. The pay-as-you-go model means that real estate agents, accountants, and other Tranche 2 entities can run PEP checks on demand — without a subscription — and scale usage in line with onboarding volumes. 

Frequently Asked Questions 

Who is considered a PEP under Australian AML law? 

Under Australia’s AML/CTF Act and AUSTRAC’s Rules, a PEP is an individual who holds or has held a prominent public function, consistent with the FATF definition. This includes domestic and foreign politicians, senior government officials, senior military and judicial officers, and executives of state-owned enterprises, as well as their close family members and known associates. 

Do Tranche 2 entities in Australia need to screen for PEPs? 

Yes. From 1 July 2026, Tranche 2 entities — including real estate agents, accountants, lawyers, and trust and company service providers — must conduct customer due diligence that includes PEP screening as part of their AML/CTF programme obligations under AUSTRAC. 

What is the difference between a domestic PEP and a foreign PEP? 

A foreign PEP is an individual entrusted with a prominent public function by another country; automatic enhanced due diligence is required. A domestic PEP holds a prominent public function within Australia; a risk-based assessment determines whether enhanced due diligence is warranted, taking into account the nature and seniority of the role. 

What are RCAs and why must they be screened? 

RCAs — relatives and close associates — are people connected to a PEP through family or professional relationships. Because they may benefit from or facilitate corrupt activity on behalf of the PEP, FATF Recommendation 12 requires that they be treated with the same enhanced scrutiny as the PEP themselves. 

How should a real estate agent handle a transaction involving a PEP? 

If a customer or their beneficial owner is identified as a PEP, the agent must: obtain senior management approval to proceed, take reasonable steps to establish the source of funds, apply enhanced due diligence, and conduct enhanced ongoing monitoring for the duration of the relationship. The agent should also document all steps taken and outcomes reached. 

The extension of PEP screening obligations to Tranche 2 entities marks a significant maturation of Australia’s AML/CTF framework. For real estate agents, accountants, and lawyers now entering the regime, building a robust PEP screening capability — using purpose-built tools that are accurate, auditable, and proportionate to their business scale — is not optional. It is the baseline.