ANTI MONEY LAUNDERING /

COUNTERING THE FINANCIING

OF TERRORISM (AML/CFT)
GUIDELINES ISSUED BY THE SECP FOR NON PROFIT ORGANIZATIONS
CONTENTS
• BACKGROUND/INTRODUCTION
• DEFINITIONS
• UNDERSTANDING TERRORIST FINANCING RISK
• RISK FACTORS OF NPO
• LEGAL / COMPLIANCE REQUIREMENT
• FUNDAMENTAL PRINCIPLES OF GOOD PRACTICES
• RED FLAGS / HIGH RISK INDICATORS FOR NPOs
FINANCIAL ACTION TASK FORCE (FATF)
• FATF is a body which was formed by G7 in 1998
• With the mandate to combat Money Laundering (ML) and Terrorism
Financing (TF)
• FATF has issued 40 recommendations
http://www.fatf-gafi.org/media/fatf/documents/FATF%20Standards%20-%2040%20Recommendations%20rc.pdf

• Recommendation 8 relates to Non Profit Organizations (NPOs)

BACKGROUND
• In 2018, the SECP has issued Guidelines for anti-money
laundering/countering the financing of terrorism (AML/CFT) for Non-
Profit Organizations (NPOs). These Guidelines are in compliance of
Financial Action Task Force (FATF) recommendation # 8 which
specifically applies to NPOs.
• As per Clause 5.2 ‘Good Governance’ of these Guidelines:
The Management must frame its AML/CFT Risk and Compliance
Policy, which shall be approved by the Board of Directors and be
publicly made available. The NPO shall review the said policy on an
annual basis. Management must communicate updated version of the
policy clearly to all employees on an annual basis along-with
statement from the chief executive officer.
DEFINITIONS
• Money laundering is the process of concealing the origins of money
obtained illegally by passing it through a complex sequence of
banking transfers or commercial transactions. The overall scheme of
this process returns the money to the launderer in an obscure and
indirect way.

• Terrorism financing is the financial support, in any form, of terrorism

or of those who encourage, plan or engage in terrorism
KEY FINDINGS
• National Risk Assessment (NRA) is a government wide activity undertaken
to develop risk based AML/CFT actions
• It is imperative to obtain comprehensive NPO data at the national level
• With respect to TF, the World Bank divides NPOs into “complicit” and
“exploited” for TF purposes. While the former willingly functions as a front
for terrorist org, the latter are abused
• Some NPOs also receive donations from other countries and this makes
these NPOs more vulnerable to TF when the primary donor may have links
to proscribed organizations
• https://pkrevenue.com/secp-revokes-licenses-of-22-not-for-profit-
companies-total-cancellation-tops-319/
UNDERSTANDING TERRORIST FINANCING RISK
• Long border with Iran & Afg is a major cause of illegal border crossing,
drug trafficking, cash smuggling, kidnap for ransom and hawala
business
• The presence of Afghan refugees in Pakistan poses a threat from
transactional TF Risk
• Pakistan is facing terrorism and TF threat emanating from terrorist
organizations having footprint in Afganistan
RISK FACTORS OF NPO
Due to high level of trust in NPOs, they can be abused in a number of
ways:
• Exploitation of Funds
• Abuse of assets
• Abuse of NPOs name and status by outsiders
• Abuse of NPOs name and status by insiders
 • Well resourced • Detailed Profiles of
compliance Partner Org.s (their
function BOD profiles and
• Commitment of other key details)
SMT • Donee Register

Know your
Good Governance Beneficiaries/Partners

GOOD
PRACTICES

Know your Employees Know your Donors

• Maintain all key • Donor Register

biodata (Document donors’
• Profile verification identity)
 HIGH RISK INDICATORS
Donations Partners Employees Projects Monitoring

• Material amounts • Project Proposal is • Indications that • Lack of

received from vague or lacks staff is living transparency in
unknown sources adequate beyond their procurement
• Material amounts financial/technical means • Cash payments to
received as details • Asking to use unknown third
cash/street • Difficulty in someone else parties
donations contacting login credentials • Frequent material
partner. • Unusual behavior cash transactions
Address/numbers
not operational
RELEVANT SOURCES
• COMPANIES ACT 2017
• ANTI TERRORISM ACT 1997
• FINANCIAL MONITORING UNIT (FMU)