Which of the following is an example of a PEP?

The correct choice is the head of state, as this individual fits the definition of a politically exposed person (PEP). A PEP is someone who holds a prominent public position or a high-profile role in government or international organizations. This includes heads of state, elected government officials, senior government officials, judges, and high-ranking military officers. PEPs are considered to be of higher risk for potential involvement in bribery, corruption, or other financial crimes due to their position and the power they hold.

In contrast, a local business owner, recent college graduate, and activist do not typically hold significant public office or senior government roles that would class them as PEPs. While they may influence their communities in various ways, they don't carry the same level of risk associated with the potential for misuse of their position as those who occupy high-ranking public offices. Understanding who is categorized as a PEP is crucial for compliance and risk management in the financial industry, as organizations are required to implement enhanced due diligence measures when dealing with these individuals.