AML / CFT Regime in Pakistan

By

Taslim Kazi
Chief Manager SBP BSC (Bank) Peshawar

Legislative Framework

National Accountability Ordinance, 1999 Control of Narcotics Substance Act 1997 Anti-Terrorism Act 1997.

Deals mainly with the detection, investigation, prosecution and speedy disposal of cases involving corruption and corrupt practices The following offences under NAO covers the offence of money laundering : Acquisition of any property / pecuniary advantage through corrupt, dishonest or illegal means Having assets beyond known sources of income which can not be reasonably accounted for. Pursuant to Section 20, financial institutions are bound to report suspicious financial transactions to NAB.

National Accountability Ordinance, 1999

Control of Narcotics Substance Act 1997

The following offences/ provisions under CNSA covers the AML measures:

Makes the acquisition of assets through drug money an offence The suspected properties / assets may be frozen and subsequently forfeited through the Court. This measure can be construed as an anti-money laundering measure. Section 67: it is mandatory for financial institutions to report STRs to ANF, suspected to be related to drug business.

Anti-Terrorism Act 1997

Deals comprehensively with the offences of terrorism and financing of terrorism. Makes compulsory for the prescribed organizations to submit all accounts for its political and social welfare activities and disclose all funding sources. Freezing, Seizure and Forfeiture of assets

AML/CFT Measures by SBP

Institutional Arrangements

Setting up of dedicated AML/ CFT Units. Capacity Building- training Regulatory Framework Issuance of Prudential Regulations Monitoring & Enforcement On-site inspection and off-site surveillance International Obligations UNSC Resolutions- Freezing of accounts Curbing of Informal Value Transfers Formation of Exchange Companies Documentation of Economy Restriction on RTCs Bearer Instruments

AML/ CFT UNITS

Primary Responsibilities of the Units Issuance of regulations and directions to banks and DFIs in accordance with FATF Recommendations and international best practices Receive STRs and process them for suitable action Coordination and liaison with relevant Govt. departments, International and Multilateral bodies Issue directives for freezing of accounts

Regulatory Framework

A separate section in new PRs has been dedicated to regulations pertaining to AML and CFT. PR Compliant with 40 + 9 recommendations In line with Basel Core Principle No.15 Violations of regulations dealt with penal action

M-1:Know Your Customer

Formulation of KYC Policy duly approved by the Board of Directors of banks/DFIs. True Identity of Beneficial Owner, Real Party in interest or Controlling person Requirement of minimum documents Requirement of Introduction

M-1:Know Your Customer

Enhanced due diligence to be applied on the following high risk customers: Customers belonging to Offshore tax heavens, etc. Customers in cash based businesses or high value items High net worth customers with no clearly identifiable sources of income Customers who have been refused by another bank Correspondent banks Non-face-to-face/on-line customers verification of walk-in customers

M-2:

Continuous Monitoring

Ensure that the business is conducted in conformity with high ethical standards, banking laws and regulations Specific Procedures be established for: Ascertaining customers status and his source of earnings Monitoring of accounts on regular basis Checking identities and bonafides of remitters and beneficiaries Retaining internal record of transaction

M-2:

Continuous Monitoring

Transactions out of character / inconsistent with the history, pattern and normal operation of the account to be viewed suspiciously and properly investigated Suitable training to employees Banks/DFIs to issue necessary instructions for guidance and compliance by all concerned

M3: Record Retention

All necessary record of transactions both domestic and international be retained for five years. Such records should be sufficient to permit reconstruction of individual transactions Records relating to identification including business correspondence to be retained for at least five years Records relating to STRs to be retained even after the lapse of five years and not to be destroyed without prior permission of State Bank

M4: Correspondent Banking

Banks/DFIs to gather sufficient information about their correspondent banks to understand fully the nature of their business including:
Management and ownership Major business activities Location ML prevention and detection measures

M4: Correspondent Banking

The purpose of account The identity of any third party that will use the correspondent banking services Condition of the bank regulation and supervision in the correspondents country Banks/DFIs not to enter or continue correspondent banking relationship with shell banks

M-5: Suspicious Transactions

Banks/DFIs to pay special attention to all complex, unusually large transactions, which have no apparent economic and visible lawful purpose. Examples of suspicious transactions STRs to be reported if there are reasonable ground to suspect that funds are proceeds of a criminal activity, within three days, through Compliance Officer to Banking Policy Department Tipping off strictly prohibited

Further Processing of STRs.

STRs reported by banks, at present, are forwarded to NAB which is the relevant agency for investigation and prosecution of of all kinds of corruption.

Thank You