opening & supervision of accounts

Opening & supervision of AccountsOpening & supervision of Accounts

Mandatory compliance Mandatory compliance of of

Know Your Customer. KYCKnow Your Customer. KYC

SBP Prudential Regulations SBP Prudential Regulations

for for Commercial BanksCommercial Banks


What is Money LaunderingWhat is Money Laundering??

The process of changing the identity of illegallyThe process of changing the identity of illegally obtained money so that it appears to haveobtained money so that it appears to have

originated from a legitimate sourceoriginated from a legitimate source..


Harmful effects of Money LaunderingHarmful effects of Money LaunderingMacroeconomic Impact :Macroeconomic Impact :Contamination of legal financial transactions.Contamination of legal financial transactions.

Sociopolitical impact :Sociopolitical impact :Organized crime infiltrates financial institution , acquiresOrganized crime infiltrates financial institution , acquirescontrol of large economic sectors by bribing bureaucrats ,control of large economic sectors by bribing bureaucrats ,indeed governmentsindeed governmentsCrime ownership of organizations corrupts business practicesCrime ownership of organizations corrupts business practicesethics and social fabrics.ethics and social fabrics.Ultimately they influence the democratic process . Ultimately they influence the democratic process . They influence corrupt political groups to de- stabilizeThey influence corrupt political groups to de- stabilize

governments that try to check crime governments that try to check crime ..

Volume of Laundered Money :Volume of Laundered Money :International Monetary Fund ( I.M.F ) has estimatedInternational Monetary Fund ( I.M.F ) has estimatedthat aggregate size of money laundering worldwidethat aggregate size of money laundering worldwidesomewhere between two and five percent of worldssomewhere between two and five percent of worldsGDP ( based on 1996 statistics ).GDP ( based on 1996 statistics ).It is also estimated that about 2 billion pounds areIt is also estimated that about 2 billion pounds arelaundered in London banks and over 500 billionslaundered in London banks and over 500 billionsdollars are laundered in US banks in a year.dollars are laundered in US banks in a year.


Current Classification Of Countries:Current Classification Of Countries: The US State Department has published a list of countries classifying them as The US State Department has published a list of countries classifying them as High risk ( primary concern), High risk ( primary concern), Medium high and Medium risk , which is as follow :Medium high and Medium risk , which is as follow :

High Risk Medium High Medium Risk High Risk Medium High Medium Risk Nigeria India Bahrain Nigeria India Bahrain Russia Israel BulgariaRussia Israel Bulgaria Turkey Pakistan Czech Republic Turkey Pakistan Czech Republic U.A.E Hungry U.A.E Hungry

South AfricaSouth Africa KuwaitKuwait LebanonLebanon

PolandPoland


The Process Money Laundering ?The Process Money Laundering ?

PLACEMENTPLACEMENT LAYERINGLAYERING INTEGRATIONINTEGRATION

Objective: Objective: To Disguise the original ownership, retainTo Disguise the original ownership, retain

control and legitimize fundscontrol and legitimize funds..


PLACEMENTPLACEMENT

The process of introduction illicit funds fromThe process of introduction illicit funds from crime or crime or drug trafficking drug trafficking into the into the

financial systemfinancial system.. (through opening bank accounts)(through opening bank accounts)


LAYERINGLAYERING

The process by which the illicit money is The process by which the illicit money is separated from its original (illegal) sourceseparated from its original (illegal) source by by the creation of complex series of transfers the creation of complex series of transfers designed to hide designed to hide the audit trail and provide a degree the audit trail and provide a degree of anonymity.of anonymity.


INTEGRATIONINTEGRATION Making criminally obtained moneyMaking criminally obtained money appear legitimate.appear legitimate. To succeed the integration process must To succeed the integration process must give the laundered proceeds the give the laundered proceeds the appearance of normal business funds appearance of normal business funds as they re-enter the economy.as they re-enter the economy.


The strategy of criminal organizations is to The strategy of criminal organizations is to manipulate their illicit proceeds, usually through manipulate their illicit proceeds, usually through the legitimate financial sector in such a manner the legitimate financial sector in such a manner as to make those proceeds appear to have come as to make those proceeds appear to have come from a legitimate source.from a legitimate source.

Thus Money Laundering is a vital component of all Thus Money Laundering is a vital component of all financially motivated crime. More importantly for financially motivated crime. More importantly for the international community, since obfuscating the international community, since obfuscating any evidentiary paper or money trail is a any evidentiary paper or money trail is a precondition to successful Money Laundering, precondition to successful Money Laundering, such activity will invariably involves trans border such activity will invariably involves trans border operations including many border crossings in the operations including many border crossings in the course of a single laundry transactionscourse of a single laundry transactions..


Combating / Checks on Money Laundering byCombating / Checks on Money Laundering bySupernational & Regional Organizations:Supernational & Regional Organizations:UNITED NATIONSUNITED NATIONSFATFFATF: The Financial Action Task Force: The Financial Action Task ForceGCCGCC - - FATFFATFAn Inter-Government Body whose purpose/motive is:An Inter-Government Body whose purpose/motive is:The development and promotion of politics that areThe development and promotion of politics that aredesigned todesigned to combat money launderingcombat money laundering..


FATF MEMBER COUNTRIESFATF MEMBER COUNTRIESArgentinaArgentina GreeceGreece

NewzealandNewzealandAustraliaAustralia Hong KongHong Kong Norway NorwayAustriaAustria ChinaChina Portugal PortugalBelgiumBelgium IcelandIceland

SingaporeSingaporeBrazilBrazil IrelandIreland Spain SpainCanadaCanada ItalyItaly Sweden SwedenDenmarkDenmark JapanJapan Switzerland SwitzerlandFinlandFinland LuxembourgLuxembourg Turkey TurkeyFranceFrance MexicoMexico United United

KingdomKingdomGermanyGermany Netherlands Netherlands United States United States of Americaof America


The following modes, inter-alia promote Money Laundering in Pakistan:The following modes, inter-alia promote Money Laundering in Pakistan: Hundi / HawalaHundi / Hawala Investment in Real EstateInvestment in Real Estate SmugglingSmuggling SharesShares Gold/SilverGold/Silver Baynamee AccountsBaynamee Accounts Under / Over InvoicingUnder / Over Invoicing Kidnapping / ExtortionKidnapping / Extortion CarjackingCarjacking Drug & Human TraffickingDrug & Human Trafficking


Anti money laundering steps in Anti money laundering steps in PakistanPakistan


Why is it Important to Fight Why is it Important to Fight Money Laundering?Money Laundering? Reduce the Incentive to Commit Crime and Reduce the Incentive to Commit Crime and make the methods of financing more crime make the methods of financing more crime harder.harder. Avoid Reputational, Legal and Financial Avoid Reputational, Legal and Financial Damage and Risks to Banks and Other Damage and Risks to Banks and Other Intermediaries.Intermediaries.


SBP Prudential Regulation for opening & supervision of New & existing accounts by commercial banks

The State bank of Pakistan has taken effective measures to control and prevent banking institutions from becoming a conduit for money laundering & issued regulations for Mandatory compliance by commercial banks


S.B.P Prudential Regulation XI S.B.P Prudential Regulation XI

“ “ Banks shall make all reasonable efforts to Banks shall make all reasonable efforts to determine the true identity of every would be determine the true identity of every would be account holder . account holder .

Towards this end , banks shall institute Towards this end , banks shall institute effective procedure and methods for effective procedure and methods for obtaining proper identification from new obtaining proper identification from new customer .” customer .”

SBP Prudential Regulation XIISBP Prudential Regulation XII

Before extending their services , banks shall make reasonableBefore extending their services , banks shall make reasonableefforts to determine the efforts to determine the True identity of their customers . True identity of their customers . Particular care should be taken to identity the ownership ofParticular care should be taken to identity the ownership ofaccounts , especially in respect of those using accounts , especially in respect of those using lockers / safe – custody facilities . lockers / safe – custody facilities . Effective procedure should be instituted for obtaining andEffective procedure should be instituted for obtaining andverifying identification of new customers . verifying identification of new customers . An explicit policy should be devised to ensure that significantAn explicit policy should be devised to ensure that significanttransaction are not conducted with customers who fail totransaction are not conducted with customers who fail to

provide satisfactory evidence of their identity provide satisfactory evidence of their identity ..

Prudential Regulation XIIPrudential Regulation XII

Specific procedure should be established forSpecific procedure should be established for

ascertaining a customer’s ascertaining a customer’s Status and source(s) of earnings , Status and source(s) of earnings , for for monitoring of accounts on a regular basis , and monitoring of accounts on a regular basis , and forfor checking identities and bona fides of remitters andchecking identities and bona fides of remitters and beneficiaries , for retaining internal record ofbeneficiaries , for retaining internal record of

transactions for future referencetransactions for future reference..

Prudential Regulation XI Prudential Regulation XI

Transactions, which are out of character withTransactions, which are out of character with normal operations in the account involving normal operations in the account involving usually large deposits , withdrawals orusually large deposits , withdrawals or transfers should be viewed with suspiciontransfers should be viewed with suspicion and properly investigated .and properly investigated .


The bank will determine the true identity of The bank will determine the true identity of the customers to ensure that banking business the customers to ensure that banking business is conducted in conformity with high ethical is conducted in conformity with high ethical standards and adhere to banking laws and standards and adhere to banking laws and regulations and will seek to determine any regulations and will seek to determine any client relationship where the client’s conduct client relationship where the client’s conduct gives the Bank reasonable cause to believe or gives the Bank reasonable cause to believe or suspect involves in illegal activities .suspect involves in illegal activities .

Extreme caution will be exercised to minimized Extreme caution will be exercised to minimized the risk of bank services being abused for the the risk of bank services being abused for the purpose of laundering funds associated with purpose of laundering funds associated with drug and gun trafficking terrorism and other drug and gun trafficking terrorism and other crimes/ illegal trades crimes/ illegal trades ..


Individual Accounts Individual Accounts Documents / papers to be obtainedDocuments / papers to be obtained

Attested photo copy of NIC of the customerAttested photo copy of NIC of the customer (copy should be compared with original card ).(copy should be compared with original card ). In case of salaried person In case of salaried person attested copy of his / her service card , attested copy of his / her service card , or or any other acceptable evidence of service .any other acceptable evidence of service . but not limited to certificate of employer .but not limited to certificate of employer .


Illiterate PersonsIlliterate Persons

Required documents / papers Required documents / papers A passport size photograph of new account holder A passport size photograph of new account holder

besides taking his right and left thumb impression besides taking his right and left thumb impression on specimen signature card on specimen signature card alongwithalongwith the Account opening formthe Account opening form


Partnership AccountsPartnership Accounts

Required documents / papers Required documents / papers

Partners NIC’s attested copies.Partners NIC’s attested copies. Copy of registered partnership deed duly signed.Copy of registered partnership deed duly signed. Attested copy of registration certificate ,Registrar of FirmsAttested copy of registration certificate ,Registrar of Firms Authority letter , in original in favor of person authorize toAuthority letter , in original in favor of person authorize to operate the account operate the account


Joint stock companies Joint stock companies Required documents / paperRequired documents / paperss Certified copies of :Certified copies of :

Resolution of board of directors for opening of account specifying the Resolution of board of directors for opening of account specifying the person(s) authorize to operate the company account .person(s) authorize to operate the company account .

Memorandum of article of association.Memorandum of article of association. Certificate of incorporation .Certificate of incorporation . Certificate of commencement of business. Certificate of commencement of business. Attested photo copies of identity cards of all directors .Attested photo copies of identity cards of all directors .


Accounts of Executors/AdministratorsAccounts of Executors/Administrators Required documents / papersRequired documents / papers

Attested copies of NIC of executors /AdministratorsAttested copies of NIC of executors /Administrators Certified copies of letter of Administration or Probate.Certified copies of letter of Administration or Probate.


Trusts AccountsTrusts Accounts Required documents / papersRequired documents / papers Attested photocopy of certificate of registration /Attested photocopy of certificate of registration / Attested copies of NIC of all trusties .Attested copies of NIC of all trusties . Certified copies of instrument of TrustCertified copies of instrument of Trust


Account in name of Association Clubs , and SocietiesAccount in name of Association Clubs , and Societies Required documents / papersRequired documents / papers Certified copies of :Certified copies of : Certificate of registrationCertificate of registration By –laws rules and regulations By –laws rules and regulations Resolution of board of Governing Body /Executive committee for opening Resolution of board of Governing Body /Executive committee for opening

of account specifying the person(s) authorize to operate the companyof account specifying the person(s) authorize to operate the company account .account .Undertaking signed by all the authorized persons on behalf of he institution Undertaking signed by all the authorized persons on behalf of he institution stating that when any change take place in the persons authorize to stating that when any change take place in the persons authorize to

operateoperate on the account , the banker will be informed immediately.on the account , the banker will be informed immediately.


SBP Prudential Regulation No. XIIISBP Prudential Regulation No. XIII

All terms and conditions of operation of an account shall be All terms and conditions of operation of an account shall be duly made known to the opener of account at the time of duly made known to the opener of account at the time of opening an account . opening an account .

The terms and conditions must be elaborately documented The terms and conditions must be elaborately documented in account opening form / application and must be signed by in account opening form / application and must be signed by the prospective depositor/ account holder to signify having the prospective depositor/ account holder to signify having been read and understood .been read and understood .


Introduction Introduction SBP Prudential Regulation xiSBP Prudential Regulation xi Customer of same branch & Customer of same bank but anotherCustomer of same branch & Customer of same bank but another branchbranch After proper verification of signatures After proper verification of signatures Customer of other banksCustomer of other banks After complete verification of signatures and other particulars from After complete verification of signatures and other particulars from

that bankthat bank Introduction by employees of bankIntroduction by employees of bank is also acceptable is also acceptable


SBP Prudential Regulation xi cSBP Prudential Regulation xi c Satisfactory evidence from branch manager should Satisfactory evidence from branch manager should

be placed by banks in respect of be placed by banks in respect of True identity of beneficial owners of all accounts True identity of beneficial owners of all accounts

opened .opened . Real party in interest or controlling person / entity of Real party in interest or controlling person / entity of

all accountsall accounts


SBP Prudential Regulation xi dSBP Prudential Regulation xi d Customer due diligence is an on going process for Customer due diligence is an on going process for

prudent banking practices there for prudent banking practices there for Update customer information and records, if any at Update customer information and records, if any at

reasonable intervals .reasonable intervals . Monitor and check unusually large cash transactions Monitor and check unusually large cash transactions

, especially those which are out of character , especially those which are out of character /inconsistent with history , pattern etc/inconsistent with history , pattern etc..


SBP Prudential Regulation xi eSBP Prudential Regulation xi e Enhance due diligence should be applied Enhance due diligence should be applied To high - risk customers such as those belonging to countries To high - risk customers such as those belonging to countries

where KYC and money laundering regulations are lax , those where KYC and money laundering regulations are lax , those with links to offshore tax havens , customer in cash based with links to offshore tax havens , customer in cash based business in high value items , and high net worth customers business in high value items , and high net worth customers with no clearly identified source of income etc .with no clearly identified source of income etc .

When the Customer has been refused banking facilities by When the Customer has been refused banking facilities by other banks other banks ..

opening & supervision of accounts

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