1. AML/ CFT Regime in Pakistan
By Muhammad Kamran Shehzad Director-Banking Policy Department State Bank of Pakistan

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

3. 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.

4. 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.

5. 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

6. 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

7. 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

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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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.

18. International Cooperation-UNSC- Resolutions-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.

19. Interagency Coordination
Regular meetings of high ups of – NAB-SECP-PBA- Ministries.
Exchange of necessary information between stakeholders
Working Group formed by Ministry of Foreign Affairs to review all agreements/ MoUs.

20. Informal Value Transfers- Formation of Exchange Companies
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

21. 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

22. 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/-

23. Curbing of Informal Value Transfers
The steps were successful as workers remittances increased gradually
$ M
$ 1,022 M
$ 2,341 M
$ 4,191 M
$ 3,826 M
July 04-Feb 05 $ ,607 M (expected over US$4 Billion for the whole year)

24. 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.

25. 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 names- identification of persons/ entities associated with terrorism (UNSC Resolutions)

26. Road Ahead Enactment of Anti Money Laundering Legislation
Establishment of FIU
Enhanced Coordination between Various Agencies

27. Thank You