By Muhammad Kamran Shehzad Director-Banking Policy Department State Bank of Pakistan

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ByMuhammad Kamran ShehzadDirector-Banking
Policy DepartmentState Bank of Pakistan

• AML/ CFT Regime in Pakistan

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• Legislative Framework

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

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• National Accountability Ordinance, 1999

• 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.

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• 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.

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• Anti-Terrorism Act 1997

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

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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

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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, LEAs, International and Multilateral
  bodies
• Issue directives for freezing of accounts

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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

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M-1Know 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

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M-1Know Your Customer

• Enhanced due diligence to be applied on the
  following high risk customers
• Customers belonging to NCCTs/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

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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

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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

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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

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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

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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

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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

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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.