EDD requirements for PEP

Mauritius has a well-developed AML/CFT framework based on the Financial Intelligence and Anti-Money Laundering Act 2002 (“FIAMLA”), the Financial Intelligence and Anti-Money Laundering Regulations 2018 (“FIAML Regulations”), FSC guidance, and international standards issued by the FATF. Within this framework, management companies occupy an important gatekeeping role because they administer global business companies, trusts, funds, and other cross-border structures.

Because management companies often deal with complex ownership chains, fiduciary arrangements, and international clients, they are particularly exposed to money laundering and corruption risks. This is why enhanced due diligence (“EDD”) is especially important when dealing with politically exposed persons (“PEPs”).

Because management companies often deal with complex ownership chains, fiduciary arrangements, and international clients, they are particularly exposed to money laundering and corruption risks. This is why enhanced due diligence (“EDD”) is especially important when dealing with politically exposed persons (“PEPs”).

Definition and Scope of PEPs

Under the FIAML Regulations 2018, a PEP includes “a foreign PEP, a domestic PEP and an international organisation PEP” (FIAML Regulations 2018, reg. 2). In practice, this covers individuals who are or have been entrusted with prominent public functions, whether in Mauritius, abroad, or in international organisations.

In practice, this covers individuals who are or have been entrusted with prominent public functions, whether in Mauritius, abroad, or in international organisations.

The Mauritian framework also extends beyond the PEP personally. It includes family members and close associates. Regulation 15 recognises the need to consider whether a customer or beneficial owner is linked to a PEP through these relationships (FIAML Regulations 2018, reg. 15).

This wider scope is important because political influence and illicit wealth are often concealed through relatives, trusted associates, holding companies, or trusts rather than in the PEP’s own name.

Why PEPs Are High-Risk Clients

PEPs are not automatically suspicious, and they are not prohibited clients under Mauritian law. However, they are considered inherently higher-risk because of their access to public resources, public decision-making, procurement systems, state contracts, and regulatory influence.

The FATF has clarified that firms should not reject a client only because the person is a PEP. As FATF states, “Refusing a business relationship with a PEP simply based on the determination that the client is a PEP is contrary to the letter and spirit of Recommendation 12” (FATF Guidance on PEPs).

The correct compliance position is therefore clear: PEPs may be accepted, but only with enhanced scrutiny. For management companies, this distinction is critical because many high-net-worth or internationally active clients may fall within the PEP category.

Regulatory Framework in Mauritius

Management companies licensed by the FSC must comply with the Mauritian AML/CFT framework in full. The legal basis for EDD is found in both FIAMLA and the FIAML Regulations.

FIAMLA provides that where higher risks are identified, “a reporting person shall conduct enhanced due diligence measures consistent with the risks identified” (FIAMLA, s.17C(3)). This confirms that EDD is mandatory where the customer presents a higher ML/TF risk.

The FIAML Regulations are more specific. Regulation 12 provides that enhanced due diligence may include:

• Obtaining additional information on the customer;
• Obtaining additional information on the intended nature of the business relationship;
• Obtaining information on the source of funds or source of wealth;
• Obtaining the approval of senior management; and
• Conducting enhanced monitoring of the business relationship (FIAML Regulations 2018, reg. 12(2)).

For PEPs specifically, Regulation 15 requires firms, in relation to foreign PEPs, to:

• have appropriate risk management systems to determine whether the customer or the beneficial owner is a politically exposed person;
• obtain senior management approval for establishing or continuing business relationships;
• take reasonable measures to establish the source of wealth and source of funds; and
• conduct enhanced ongoing monitoring on that relationship (FIAML Regulations 2018, reg. 15(1)).

Domestic PEPs and persons entrusted with a prominent function by an international organisation must also be subject to those same measures where higher risk is identified (reg. 15(2)).

The FSC AML/CFT Handbook further reinforces that FSC licensees must apply a risk-based approach and enhanced due diligence where higher risk exists (FSC Handbook). This is particularly relevant to management companies because of the nature of their business.

FATF Standards Relevant to PEPs

The Mauritian framework is aligned with FATF standards. FATF Recommendation 1 requires firms to apply a risk-based approach, meaning that higher-risk situations must be subject to stronger mitigating measures. Recommendation 12 specifically addresses PEPs and requires firms to identify PEP exposure, obtain senior management approval, establish source of wealth and source of funds, and apply enhanced ongoing monitoring. Recommendation 22 is also relevant because it extends AML/CFT obligations to trust and company service-type activities, which are closely connected to the work of management companies.

For Mauritian management companies, these Recommendations are not abstract international standards. They shape local supervisory expectations and support the FSC’s focus on risk-sensitive controls.

Core EDD Requirements for PEPs

A. Identification and Verification

The first step is to determine whether the customer, beneficial owner, family member, or close associate is a PEP. This requires more than basic identity verification. The management company should gather additional information on the person’s public role, connections, and ownership interests.

Where the client is a company or trust, special attention must be given to beneficial ownership. The FIAML Regulations require firms to identify beneficial owners and, in the case of trusts, to identify the “settlor, the trustee, the beneficiaries or class of beneficiaries... and any other natural person exercising ultimate effective control over the trust” (FIAML Regulations 2018, reg. 7).

B. Source of Wealth and Source of Funds

A central EDD requirement for PEPs is to establish source of wealth (“SoW”) and source of funds (“SoF”). This is expressly required under Regulation 15. For management companies, this means obtaining evidence that explains both the overall origin of the client’s wealth and the source of the specific funds involved in the business relationship.

This information must be documented and assessed for consistency. A declaration from the client alone should not be treated as sufficient where independent evidence can reasonably be obtained.

C. Senior Management Approval

PEP relationships require senior management approval before onboarding, and in some cases before continuing the relationship. This is a specific legal requirement under Regulation 15. In practice, the approval should be based on a written risk assessment that considers ML/TF exposure, corruption risk, jurisdictional risk, complexity of structure, and reputational concerns.

D. Enhanced Ongoing Monitoring

FIAMLA and the FIAML Regulations make clear that customer due diligence is not a one-off exercise. PEP relationships must be subject to enhanced ongoing monitoring. This includes reviewing transactions, identifying unusual patterns, reassessing risk where circumstances change, and updating customer information periodically.

For management companies, this is particularly important where there are changes in ownership, new capital injections, trust distributions, related-party transactions, or movement of assets across jurisdictions.

E. Enhanced Information Gathering

EDD for PEPs also requires a better understanding of the purpose and intended nature of the relationship. Management companies should understand why the structure is being established in Mauritius, what business activity is expected, which jurisdictions are involved, and whether the overall arrangement makes commercial and legal sense.

F. Screening and Adverse Media

A strong compliance framework should include PEP screening tools, sanctions screening, and adverse media checks, both at onboarding and on an ongoing basis. This is necessary because PEP status or reputational risk may emerge after the relationship has started.

Challenges for Management Companies

EDD for PEPs is often more difficult for management companies than for retail banks. The main reason is structural complexity. PEP exposure may be hidden behind trusts, nominee arrangements, layered companies, or close associates. In addition, management companies often deal with cross-border structures, where information may be spread across several jurisdictions and intermediaries.

This makes it harder to identify the true ultimate beneficial owner, understand control, and verify source of wealth. The use of introducers or foreign advisers may assist operationally, but it does not remove the Mauritian management company’s own compliance responsibility.

Practical Recommendations

Management companies should adopt a structured and documented approach to PEP risk. In particular, they should:

• Classify confirmed PEP relationships as high-risk;
• Use reliable screening databases and independent public sources;
• Escalate PEP files to compliance and senior management;
• Document the rationale for onboarding or rejection;
• Refresh EDD periodically, at least annually or when trigger events arise;
• Integrate transaction monitoring with customer risk reviews;
• Train onboarding and administration teams on PEP typologies and red flags.

The most important point is that management companies should not treat EDD as a document-collection exercise. The real test is whether the firm can explain why it accepted the client, what risks were identified, and how those risks are being controlled.

Conclusion

In Mauritius, EDD for PEPs is a legal and regulatory requirement, not a matter of discretion. Management companies, as FSC licensees, must apply enhanced scrutiny to PEPs, their family members, and close associates, especially in global business and fiduciary structures where ownership and control may be difficult to trace.

PEPs are not prohibited clients, but they require stronger due diligence, senior management oversight, source of wealth and source of funds verification, and enhanced ongoing monitoring. For management companies, a strong PEP framework is not only necessary for compliance; it is essential for protecting the firm’s licence, reputation, and long-term sustainability.