Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

What does a 'PEP' account refer to in the context of banking regulations?

1. A standard business account associated with moderate risk

2. A politically exposed person account requiring additional scrutiny

3. An account designated for public entities only

4. Any account that deals with foreign currency transactions

The correct answer is: A politically exposed person account requiring additional scrutiny

A 'PEP' account refers specifically to an account associated with a politically exposed person. Politically exposed persons are individuals who hold prominent public functions, such as politicians, government officials, or high-ranking military personnel. Because of their positions, they are deemed to have a higher risk for potential involvement in bribery, corruption, or money laundering activities. Consequently, financial institutions are required to apply additional scrutiny and enhanced due diligence to transactions involving PEP accounts. This includes monitoring account activities more closely, understanding the source of funds, and sometimes conducting more frequent reviews of the account. While the other options mention different types of accounts or characteristics, they do not capture the specific regulatory requirements and heightened risk associated with accounts held by politically exposed persons. Thus, recognizing the unique status of PEP accounts is crucial for compliance with anti-money laundering regulations and managing the risks involved.