AML CFT Presentation L&DPTTTTTTTTTTTTTTTTTTTT.pdf

PPT
PPPPTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT

1. Title













Anti Money Laundering &
Combating the Financing of Terrorism

2. What Is Money Laundering?
Money laundering is the method where “dirty money” (proceeds of
crime) is received from criminal activities, processed through
legitimate businesses and is converted into “clean money”.
Anti-money laundering refers to a set of procedures, laws and
regulations designed to stop the practice of generating income
through illegal means and their induction in financial institutions. The
three stages of Money Laundering are:
Placement: Placement is the introduction of illegal funds into the
financial system
Layering: disguise transaction through a succession of complex
financial transactions with the purpose of erasing all links with its
unlawful origin
Integration : Place the laundered funds back into the economy
through real estate, business assets, securities, etc.

2

3. • Corruption and Bribery
• Fraud
• Organized crime
• Illegal arms sales
• Smuggling
• Drug and human trafficking
• Environmental crime
• Terrorism
3
Criminal activity in perspective of Money
Laundering

4. Title











What Is Terrorist financing?
4
Terrorist financing is the process whereby funds (often in smaller
amounts) are provided for the purpose of committing terrorist activities
or for the use or benefit of a terrorist group.
Anti-terrorist financing means:

Interrupting the flow of funds (and materials) to known and suspected
terrorist individuals and entities.

Not doing business with persons or entities from countries sanctioned by
OFAC, EU, the United Nations (UN) or cited by the Financial Action Task Force
(FATF), or other applicable body.
In terrorist financing, the money frequently starts out clean i.e. as a
‘charitable donation’ before moving to terrorist accounts. Terrorist
financing is also referred as “Reverse Money Laundering”.

5. •Trade-based money laundering is the process of disguising the
proceeds of crime through the use of what appear to be legitimate
trade transactions, often by misrepresenting the price, quantity or
quality of imported or exported goods.

•Traditional ways of Trade based Money Laundering:

5
Trade-based Money Laundering (TBML)

6. Over and Under-invoicing of Goods and Services
•By under-invoicing the good or service at a price below the “fair market”
price, the exporter is able to transfer value to the importer, as the
payment for the good or service will be lower than the value that the
importer receives when it is sold on the open market.
•Alternatively, by over-invoicing the good or service at a price above the
fair market price, the exporter is able to receive value from the importer,
as the payment for the good or service is higher than the value that the
importer will receive when it is sold on the open market.

Multiple Invoicing of Goods and Services
•By invoicing the same good or service more than once, a money
launderer or terrorist financier is able to justify multiple payments for the
same shipment of goods or delivery of services. Employing a number of
different financial institutions to make these additional payments can
further increase the level of complexity surrounding such transactions.
6

7. Over- and Under-Shipments of Goods and Services
•In addition to manipulating export and import prices, a money launderer can
overstate or understate the quantity of goods being shipped or services being
provided. In extreme cases, an exporter may not ship any goods at all, but simply
collude with an importer to ensure that all shipping and customs documents
associated with this so called “phantom shipment” are routinely processed.
Banks and other financial institutions may unknowingly be involved in the
provision of trade financing for these phantom shipments.

Falsely Described Goods and Services
•In addition to manipulating export and import prices, a money launderer can
misrepresent the quality or type of a good or service. For example, an exporter
may ship a relatively inexpensive good and falsely invoice it as a more expensive
item or an entirely different item. This creates a discrepancy between what
appears on the shipping and customs documents and what is actually shipped.
•The use of false descriptions can also be used in the trade services, such as
financial advice, consulting services and market research. In practice, the fair
market value of these services can present additional valuation difficulties
7

8. 8
Why AML/ CFT is Critical for Banks/ DFIs
The banking sector continues to have a relatively high potential risk
because money launderers and terrorist financiers tend to seek out
vulnerable banks which have weak KYC/ CDD controls to achieve their
criminal objectives. Banks must act cautiously because:

Regulators heavily fines banks due to AML/ CFT lapses.
US, European banks would not correspond with such banks.
Financial Intelligence Units considers banks as primary money
laundering targets.

The cost of fine is insignificant, compared to the loss of business and
internal costs such as:

-Restructuring, designing new procedures, new systems, training etc.
-Hiring of staff to perform customers due diligence
-Loss of Reputation
-Loss of Shareholder value

9. 9
Penalties Imposed On Banks

10. 10
Tools to Combat Money Laundering &
Terrorist Financing
Anti Money Laundering ACT 2010*
Risk Based Approach*
SBP AML/ CFT Regulations*
Accuity Compliance Link for Customer Screening
Oracle Financial Crime Compliance Management

Please refer following websites for details of these documents:

-State Bank of Pakistan http://www.sbp.org.pk
-Financial Monitoring Unit http://www.fmu.gov.pk

11. 11
SBP requires Banks to conduct their internal money laundering and
financing of terrorism risk assessments to identify, assess, manage and
mitigate related risks on on-going basis.

SBP further advised banks to develop a risk register whereby risks
emanating from various business aspects can be accounted for. These may
include the following:

Customers: Identifying risk determinants while establishing relationships
with customer;
Products: Envisaging risk attributes resulting from customer’s need for
financial services and appropriate controls;
Delivery Channels: Identifying risks associated with delivery channels which
may vary from customer to customer depending on their needs; and
Geographic/Jurisdictional: Risks resulting from customer geographic
presence and jurisdiction in which the customer is operating.
SBP Risk Based Approach (RBA)

12. 12
Risk
Register
Risk
Register
SBP Risk Based Approach (RBA)
Account Holder
Score
Determination
High
Medium
Low
Risk
Decision
Customer
Segment
Products Channels Location

13. 13
SBP AML/ CFT Regulations
Regulation – 1 Customer Due Diligence (CDD)
Regulation – 2 Correspondent Banking
Regulation – 3 Wire Transfers/Fund Transfers
Regulation – 4 Reporting of Transactions (STRs/CTRs)
Regulation – 5 Record Keeping
Regulation – 6 Internal Controls, Policies, Compliance,
Audit & Training

14. 14
Customer Acceptance - Ensure that only legitimate
and bona fide customers are accepted.
Customer Identification- Ensure that customers are
properly identified to understand the risks they may
pose.
Transactions Monitoring- Monitor customers
accounts and transactions to prevent or detect illegal
activities.
Risk Management- Implement processes to effectively
manage the risks posed by customers trying to misuse
facilities.
Regulation – 1 Customer Due Diligence (CDD)

15. 15
Customer Acceptance Policy
Only relationships with clients known & convincing information
No anonymous or fictitious/ benami accounts
No clients with criminal background, bad reputation, potential to
cause embarrassment
Not to open any account if unable to verify identity, or due to
non-cooperation of customer or non reliability of information or
unavailability of required documents.
No Shell bank account

16. 16
Customer Identification
The Bank/ Development Financial Institutions (DFIs) shall verify identity
documents of the customers (natural persons) and in case of legal persons,
identities of their natural persons from relevant authorities or where necessary
using other reliable, independent sources and retain on record copies of all
reference documents used for identification and verification.
Verification of the identity of the customers and beneficial owners shall be
completed before business relations are established including verification of
Computerized National Identity Card - CNIC/ National Identity Card for Overseas
Pakistani - NICOP/ Pakistan Origin Certificate - POC/ Smart National Identity Card
- SNIC from NADRA wherever required for customers under these regulations.
In case banks/ DFIs are not able to satisfactorily complete required CDD
measures, account shall not be opened or any service provided and
consideration shall be given if the circumstances are suspicious so as to warrant
the filing of STR. If CDD of an existing customer is found unsatisfactory, the
relationship should be treated as high risk and reporting of suspicious
transaction be considered as per law and circumstances of the case.

17. 17
Regulation – 1 Customer Due Diligence (CDD)
Customer Due Diligence (CDD) is also known as Know Your
Customer.
It can be divided into two categories:

Standard Due Diligence
Enhanced Due Diligence

Standard Due Diligence


Making reasonable efforts to determine the true identity and
beneficial ownership of accounts;
Sources of funds
Nature of customers’ business
What constitutes reasonable account activity?
Who your customer’s customer are?

18. 18
Enhanced Due Diligence (EDD)
High Risk accounts require obtaining higher level of KYC (Know Your
Customer) information known as “Enhanced Due Diligence (EDD)” to
mitigate the increased risk of High Risk customers. Examples of High Risk
customers are:

Politically Exposed Persons
NGOS/NPOS/ Charities’, Trust, Club Societies accounts
Housewife Account
Sole Proprietor without NTN
Landlord
NAB Convicted
Non Resident
Unregistered Partnership Firm

* In MBL Frequency of reviewing High Risk Accounts is 1 year,
Medium Risk accounts is 3 years and low risk accounts is 5 years.

19. 19
Reduced Customer Due Diligence
Where there are Low risks and information on the identity of the customer
and the beneficial owner of a customer is publicly available, or where
adequate checks and controls exist, banks may apply simplified or reduced
CDD / KYC measures. Following cases may be considered for application of
simplified or reduced CDD / KYC:

Financial institution regulated/ supervised by State Bank of Pakistan
except exchange companies/ money remitters.
Public companies that are subject to regulatory disclosure requirements
and such companies are listed on a stock exchange or similar situations.
Government administrations or entities.
Reduced CDD / Know Your Customer (KYC) measures shall not be applied
where there is risk of money laundering or terrorist financing or when a
customer resides in a country, which does not comply with FATF
recommendations.

20. 20
CDD Review Process
Bank undertakes CDD measures when:
Establishing business relationship,
Carrying out occasional wire transfers (domestic/cross border)
regardless of any threshold,
There is suspicion of Money Laundering (ML)/ Terrorist Finance (TF),
There is doubt about the veracity or adequacy of available
identification data on the customer.
Trigger events like investigation by FIA/ NAB etc.
There is a doubt that the account is in the name of fictitious person
Identify every prospective customer by obtaining minimum set of
documents as per Annexure I of AML/ CFT regulation.
Identify beneficial ownership of accounts/ transactions by taking all
reasonable measures.

21. 21
For customers that are legal persons or for legal arrangement, banks /
DFIs are required to take reasonable measures to:
Understand the ownership and control structure of the customer
Determine that the natural persons who ultimately own or control the
customer. This includes those persons who exercise ultimate effective
control over a legal person or arrangement
Government accounts should not be opened in the personal names of
the government official(s). Any such account, which is to be operated by
an officer of the Federal / Provincial / Local Government in his / her
official capacity, shall be opened only on production of a special
resolution / authority from the concerned administrative department
duly endorsed by the Ministry of Finance or Finance Department of the
concerned Government.
CDD Review Process

22. 22
EDD Review Process
Banks / DFIs shall conduct enhanced due diligence when dealing with high-
risk customers, business relationship or transaction including the following:

Customers with links to offshore tax havens;
Customers in cash based businesses;
High net worth customers with no clearly identifiable source of income;
Customers in high-value items etc.
Customers belonging to countries where CDD / KYC and AML regulations
are lax.
There is reason to believe that the customer has been refused banking
facilities by another bank / DFI.
Opening correspondent banks’ accounts.
Dealing with non-face-to-face / on-line customers. Adequate measures in
this regard should be put in place, For example, independent verification
by a reliable third party, client report from the previous bank/DFI of the
customer.

23. 23
EDD Review Process for PEPs
Politically exposed persons or PEPs are individuals who are entrusted with
prominent public functions either domestically or by a foreign country, or in an
international organization, for example Heads of State or of government, senior
politicians, senior government, judicial or military officials, senior executives of
state owned corporations/departments/autonomous bodies. This does not
intend to cover middle ranking or more junior individuals in the foregoing
categories.

For PEPs or holders of public or high profile positions, Enhanced Due Diligence
(EDD) should include the following:

Relationship should be established and or maintained with the approval of
senior management including when an existing customer becomes holder of
public or high profile position
Appropriate risk management systems to determine whether a potential
customer, a customer or the beneficial owner is a politically exposed person/
holder of public or high profile position and sources of wealth /funds of
customers, beneficial owners for on going monitoring on regular basis

24. 24
EDD Review Process for NGOs/ NPOs
SBP vide BPRD circular letter no 04 of 2012 dated March 12 ,2012 issued new
instruction in order to protect banks/ DFIs from the risk of money laundering and
terrorist financing. These are as under:

Banks/DFIs should conduct enhanced due diligence (including obtaining senior
management approval) while establishing relationship with Non-Governmental
Organizations (NGOs)/Not-for-Profit Organizations (NPOs) and Charities to
ensure that these accounts are used for legitimate purposes and the
transactions are commensurate with the stated objectives and purposes.
The accounts should be opened in the name of relevant NGO/NPO as per title
given in its constituent documents. The individuals who are authorized to
operate these accounts and members of their governing body should also be
subject to comprehensive Customer Due Diligence (CDD). Banks/DFIs should
ensure that these persons are not affiliated with any proscribed entity, whether
under the same name or a different name.

25. 25
EDD Review Process for NGOs/ NPOs
In case of advertisements through newspapers or any other medium,
especially when bank account number is mentioned for donations,
Banks/ DFIs will ensure that the title of the account is the same as that
of the entity soliciting donations. In case of any difference, immediate
caution should be marked on such accounts and the matter should be
considered for filing Suspicious Transaction Report (STR).

Personal accounts shall not be allowed to be used for charity purposes/
collection of donations.

26. 26
Accuity Compliance Link for Customer Screening
Customer screening for all new customers is performed at Branch level prior to on-
boarding of new customers. Branches have been provided Standard Operating
Procedure (SOP) to perform customer screening effectively. Accuity Compliance
Link Watch Lists includes:
Global Watch Lists (GWL)
US OFAC Specially Designated National’s list;
United Nations Security Council Sanctions Committees Resolutions (UNSCR)
European Union's (EU) Consolidated List
Her Majesty's Treasury (HMT) consolidated list

Politically Exposed Persons/ Enhanced Due Diligence Lists (PEP/EDD)
Worldwide Politically Exposed Persons (PEPs) list
Worldwide Enhanced Due Diligence (EDD) data set including Adverse Media

Private Lists
Individuals/ Entities listed by National Accountability Bureau (NAB)
Individuals listed by Anti-Terrorism Act (ATA)
Individuals/ Entities on whom Suspicious Transaction Report is filed by MBL

27. 27
Guidelines on Compliance of GoP Notifications
Issued under United Nations Security Council Resolutions
Banks/DFIs/MFBs should not provide any banking services to proscribed entities
and persons or their associated persons as required under Anti Money
Laundering and Combating the Financing of Terrorism (AML/CFT) Regulations.
For this purpose, necessary measures should be taken including but not limited
to the following controls:

a)In case of entity accounts, it should be ensured that their beneficial owners,
directors, members, trustees and authorized signatories are not linked with
any proscribed entities and persons, whether under the same name or with a
different name.

b) The association of individuals/ entities with proscribed entities and persons
may be determined on the basis of appropriate screening of sanctions lists/
watch lists, publically known information or linkages on the basis of online NTN
verification, government or regulatory sources, reliable media information, etc.

28. 28
c) While opening new accounts or extending services to customers, any similarity
between the identifying information of the customer and that of proscribed entities
and persons including national identification number, address, etc. may be viewed
with suspicion and properly investigated for necessary action as per
requirements.

d) The banks/DFIs/MFBs should monitor their relationships on a continuous basis
and ensure that no such relationship exists. If any such relationship is found, the
same should be immediately reported to Financial Monitoring Unit (FMU) and
other actions be taken as per law.

Asset Side Customers

Banks/DFIs shall make comprehensive assessment of controls on asset products
and related customers to ensure effective implementation of due diligence
requirements as per their own assessment of materiality and risk without
compromising on identity and verification requirements. This shall include
monitoring of the customers and related risks on ongoing basis as per standard
norms and best practices to mitigate the risks related to such products/
customers.
Guidelines on Compliance of GoP Notifications
Issued under United Nations Security Council Resolutions

29. 29
SBP Regulation-2 Correspondent Banking
Following measures for providing correspondent banking services shall be applied
to assess the suitability of the respondent bank by taking the following steps:

Gather adequate information about the respondent bank to understand
respondent bank’s business, including the following, where applicable;

Know Your Customer Policy (KYC)
Information About The Respondent Bank’s Management And Ownership
Their Geographical Presence/Jurisdiction (Country) Of Correspondence Money
Laundering Prevention And Detection Measures
The Purpose Of The Account Or Service
Major Business Activities
The identity of any third party that will use the correspondent banking services
(i.e. in case of payable through accounts)
Condition of the bank regulation and supervision in the respondent’s country
Banks obtain approval of senior management, before establishing new
correspondent banking relationship.

30. 30
SBP Regulation - 3 Wire Transfers/ Funds Transfers
Bank as ordering institution (whether domestic or cross border wire transfer and
regardless of threshold) shall; Identify and verify the originator and obtain details of
beneficial owner(s) of funds. Record adequate details of the wire transfer so as to
permit its reconstruction, including:

the date of the wire transfer,
the type and amount of currency involved,
the value date,
the purpose and details of the wire transfer beneficiary and the beneficiary
institution,
relationship between originator and beneficiary.

Following information shall be included in the message or payment instruction
which should accompany or remain with the wire transfer throughout the payment
chain:

the name of the wire transfer originator;
the wire transfer originator’s account number (or unique reference number
which permits traceability of the transaction); and
the originator’s address or CNIC/passport number.

31. 31
Reporting of transactions shall be made in accordance with provisions of AML Act,
rules and regulations issued for reporting suspicious transactions/currency
transactions in the context of money laundering or financing of terrorism.

Banks/ DFIs shall obtain information and examine, as far as possible the background
and purpose of all complex, unusual large transactions, and all unusual patterns of
transactions, which have no apparent economic or visible lawful purpose. The
background and purpose of these transactions shall be inquired and findings shall
be documented with a view to making this information available to the relevant
competent authorities when required.

Banks/ DFIs shall periodically review the adequacy of customer information
obtained in respect of customers and beneficial owners and ensure that the
information is kept up to date, particularly for higher risk categories of customers.
The review period and procedures thereof should be defined by banks/ DFIs in their
AML/ CFT policies, as per risk based approach.
SBP Regulation - 4
Reporting of Transactions (STRs/ CTRs)

32. 32
Cash transaction Rs. 2.0 million or above (or equivalent foreign
currency).

Reporting to Financial Monitoring Unit (FMU) within seven working
days after the date of transaction.

Suspicious Transaction Report shall be filed-by the financial
Institution or reporting entity with the FMU immediately but not later
than seven working days after-forming that suspicion.

In MBL, Oracle Financial Crime Compliance Management (FCCM)
is used for automated transaction monitoring. The system is capable
of producing meaningful alerts based on predefined scenarios and
parameter which are reviewed and analyzed by AML analysts at
Head Office.
Guidelines on Reporting Threshold of
Currency Transaction Reports (CTRs)/ Suspicious
Transaction Reports (STRs)

33. 33
• All necessary records on transactions, both domestic and international,
including the results of any analysis undertaken (e.g. inquiries to establish
the background and purpose of complex, unusual large transactions) and
records of identification data obtained through CDD process like copies of
identification documents, account opening forms, KYC forms, verification
documents and other documents along with records of account files and
business correspondence, should be maintained for a minimum period of
ten years from completion of the transaction.

• The records shall be sufficient to permit reconstruction of individual
transactions including the nature and date of the transaction, the type and
amount of currency involved and the type and identifying number of any
account involved in the transactions so as to provide, when necessary,
evidence for prosecution of criminal activity. The transactions records may
be maintained in paper or electronic form or on microfilm, provided it is
admissible as evidence in a court of law.

SBP Regulation - 5 Record Keeping

34. 34
Internal Audit

• MBL Internal Audit Department assess the effectiveness of the Bank’s Internal
Policies, Procedures and Controls, and its compliance with regulatory
requirements as per plan approved by Board Audit Committee.

Training

• Banks shall chalk out and implement suitable training program for relevant
employees on annual basis, in order to effectively implement the regulatory
requirements and banks’ own policies and procedures relating to AML/ CFT.

• The employees training shall enable them to understand new developments,
money laundering and financing of terrorism techniques, methods and trends.

• The training should also include their responsibilities relating to AML/ CFT
especially requirements relating to CDD and analysis of abnormal/out of pattern
transactions and alerts generated thereof for possible reporting of suspicious
transactions.
SBP Regulation - 6
Internal Controls, Policies, Compliance, Audit & Training

35. 35
NAB Ordinance, 1999 Power to call Information by NAB
The Chairman NAB or any authorized officer may, during the course of an
inquiry in connection with contravention of any provision of this Ordinance;

Require any bank or financial institution, notwithstanding anything contained
in any other law for the time being in force, to provide any information
relating to any person whosoever.
Offences Punishment
Knowingly furnishes false information to any member
of the National Accountability Bureau or to any agency
investigating any alleged offence.
10 years or less
Refuses to answer questions, or to provide
information to the National Accountability Bureau or
any other agency when required to do so.
5 years
or less

36. 36
Section 33 Liability for failure to file STR/CTR and
providing false information
• Whoever willfully fails to comply with the suspicious transaction reporting
requirement as provided in section 7 or give false information shall be liable for
imprisonment for a term, which may extend to three years or with fine which
may extend to one hundred thousand rupees or both.

• In case of the conviction of a reporting entity ,the concerned regulatory
authority may also revoke its license or registration or take such other
administrative action, as it may deem appropriate.

Section 34 Disclosure of Information
•(1) The directors, officers, employees and agents of any reporting entity,
financial institution, non-financial Business or profession or intermediary which
report a suspicious transaction or CTR pursuant to this law or any other
authority, are prohibited from disclosing directly or indirectly, any person
involved in the transaction, that the transaction has been reported.
•(2) A violation of the sub-section (1) is a criminal offence and shall be
punishable by a maximum term of three years imprisonment or a fine which may
extend to five hundred thousand rupees or both.

37. 37
The Foreign Account Tax Compliance Act (FATCA) is US legislation enacted by
the US Congress to prevent tax evasion by US persons who conceal offshore
assets from the IRS.
Any financial institution that fails to comply with FATCA will face a 30%
withholding tax on a wide range of U.S. sourced payments to its clients.

Bank must identify following U.S. Indicia if present:
•US Citizen
•US Resident
•US Permanent Resident Card Holder (Green Card)
•US Place of birth
•Current USA mailing or residence address
•Current USA telephone number
•Standing instructions to transfer funds to an account maintained in the USA
•Current power of attorney or signatory authority granted to a person with
USA address
•An “in care of” address or “hold mail” address that is the sole address the
Bank has for the account holder.
Foreign Account Tax Compliance Act (FATCA)