Muhammad Kamran Shehzad AML/ CFT Regime in Pakistan Director-Banking Policy Department
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Transcript Muhammad Kamran Shehzad AML/ CFT Regime in Pakistan Director-Banking Policy Department
AML/ CFT Regime in Pakistan
By
Muhammad Kamran Shehzad
Director-Banking Policy Department
State Bank of Pakistan
Legislative Framework
National Accountability Ordinance, 1999
Control of Narcotics Substance Act 1997
Anti-Terrorism Act 1997.
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.
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 proscribed
organizations to submit all accounts for it’s
political and social welfare activities and
disclose all funding sources.
• Freezing, Seizure and Forfeiture of assets
AML/CFT Measures by SBP
Institutional Arrangements
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• 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, LEAs, 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 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
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 customer’s 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:
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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 correspondent’s
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.
International Cooperation-UNSCResolutions-Freezing of
Accounts
Bank accounts of proscribed individuals and
entities frozen. ( Rs.600 million Approx US$
10million)
• Request for supply of information from
foreign jurisdictions are currently dealt in
accordance with prevailing laws.
Interagency Coordination
• Regular meetings of high ups of – NABSECP-PBA- Ministries.
• Exchange of necessary information between
stakeholders
• Working Group formed by Ministry of
Foreign Affairs to review all agreements/
MoUs.
Informal Value Transfers- Formation
of Exchange Companies
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Amendment in (FERA) 1947:
SBP is empowered to grant license and
monitor Exchange Companies and make
rules/ regulations
Authorized Money Changers replaced with
Exchange Companies
Full fledged ’25’ Category ‘B’ 33.
Exchange Companies are subject to SBP
regulations and onsite inspection
Informal Value Transfers- Formation of
Exchange Companies
Full fledged exchange companies – Authorized to
deal in foreign currency notes, coins, postal notes,
money orders, bank drafts, travelers checks and
transfers.
Category ‘B’ only sale/ purchase of FC notes
payment location
ECs are allowed to open booths for remote areas
Curbing of Informal Value Transfers
• Banks have been encouraged to gear up
their systems and infrastructure for
providing efficient remittance services
• There is restriction on physical
transportation of cash exceeding US $
10,000/-
Curbing of Informal Value Transfers
The steps were successful as workers remittances
increased gradually
• 1999-00
$
913 M
• 2000-01
$
1,022 M
• 2001-02
$
2,341 M
• 2002-03
$
4,191 M
• 2003-04
$
3,826 M
• July 04-Feb 05 $
2,607 M (expected over US$4
Billion for the whole year)
Documentation of Economy
• Bar on Issuance of Rupee Traveler Checks
of denominations in excess of Rs. 10,000.
• Almost all bearer instruments have been
eliminated.
Challenges
• Reporting of STRs by banks
• Cash based economy- low rate of literacy,
lack of banking services in remote areas
• Financial deepening and documentation in
phased manner
• Partial information and common namesidentification of persons/ entities associated
with terrorism (UNSC Resolutions)
Road Ahead
• Enactment of Anti Money Laundering
Legislation
• Establishment of FIU
• Enhanced Coordination between Various
Agencies
Thank You