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