The Financial Action Task Force (FATF), the global standard setter in the battle against financial crime defines a politically exposed person (PEP) as:
"an individual who is or has been entrusted with a prominent function."
A PEP can be someone who currently holds a prominent function, or did so in the past. There is also considerable area for interpretation about what is prominent, and FATF leaves this vague on purpose. While obvious that a President or Prime Minister is a PEP, the question of whether a Mayor is a PEP is less straight forward. The Mayor of a town with a population of 200, probably not. The Mayor of a city with a million residents and a $50 million annual budget? Definitely.
Many PEPs hold positions that can be abused for the purpose of laundering illicit funds or other predicate offences such as corruption or bribery. Because of the risks associated with PEPs, FATF recommends additional scrutiny for PEP accounts. These requirements are preventive (not criminal) in nature, and should not be interpreted as meaning that all PEPs are involved in criminal activity.