Opening & supervision of Accounts

Mandatory compliance of

Know Your Customer. KYC

SBP Prudential Regulations for Commercial Banks

Opening & supervision of Accounts What is Money Laundering?

The process of changing the identity of illegally obtained money so that it appears to have originated from a legitimate source.

Opening & supervision of Accounts

Harmful effects of Money Laundering Macroeconomic Impact : Contamination of legal financial transactions. Sociopolitical impact : Organized crime infiltrates financial institution , acquires control of large economic sectors by bribing bureaucrats , indeed governments Crime ownership of organizations corrupts business practices ethics and social fabrics. Ultimately they influence the democratic process . They influence corrupt political groups to de- stabilize governments that try to check crime .

Volume of Laundered Money : International Monetary Fund ( I.M.F ) has estimated that aggregate size of money laundering worldwide somewhere between two and five percent of worlds GDP ( based on 1996 statistics ). It is also estimated that about 2 billion pounds are laundered in London banks and over 500 billions dollars are laundered in US banks in a year.

Opening & supervision of Accounts

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

High Risk Nigeria Russia Turkey

Medium High India Israel Pakistan U.A.E

Medium Risk Bahrain Bulgaria Czech Republic Hungry South Africa Kuwait Lebanon Poland

Opening & supervision of Accounts

The Process Money Laundering ?

PLACEMENT LAYERING INTEGRATION

Objective: To Disguise the original ownership, retain control and legitimize funds.

Opening & supervision of Accounts

PLACEMENT The process of introduction illicit funds from crime or drug trafficking into the financial system. (through opening bank accounts)

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

Opening & supervision of Accounts INTEGRATION Making criminally obtained money appear legitimate. To succeed the integration process must give the laundered proceeds the appearance of normal business funds as they re-enter the economy.

Opening & supervision of Accounts

The strategy of criminal organizations is to manipulate their illicit proceeds, usually through the legitimate financial sector in such a manner as to make those proceeds appear to have come from a legitimate source. Thus Money Laundering is a vital component of all financially motivated crime. More importantly for the international community, since obfuscating any evidentiary paper or money trail is a precondition to successful Money Laundering, such activity will invariably involves trans border operations including many border crossings in the course of a single laundry transactions.

Opening & supervision of Accounts

Combating / Checks on Money Laundering by Supernational & Regional Organizations: UNITED NATIONS FATF: The Financial Action Task Force GCC FATF An Inter-Government Body whose purpose/motive is: The development and promotion of politics that are designed to combat money laundering.

Opening & supervision of Accounts

FATF MEMBER COUNTRIES Argentina Greece Australia Hong Kong Austria China Belgium Iceland Brazil Ireland Canada Italy Denmark Japan Finland Luxembourg France Mexico Germany Netherlands of America

Newzealand Norway Portugal Singapore Spain Sweden Switzerland Turkey United Kingdom United States

Opening & supervision of Accounts

The following modes, inter-alia promote Money Laundering in Pakistan: Hundi / Hawala Investment in Real Estate Smuggling Shares Gold/Silver Baynamee Accounts Under / Over Invoicing Kidnapping / Extortion Carjacking Drug & Human Trafficking

Opening & supervision of Accounts

Anti money laundering steps in Pakistan

Opening & supervision of Accounts Why is it Important to Fight Money Laundering?

Reduce the Incentive to Commit Crime and make the methods of financing more crime harder. Avoid Reputational, Legal and Financial Damage and Risks to Banks and Other Intermediaries.

Opening & supervision of Accounts

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

Opening & supervision of Accounts S.B.P Prudential Regulation XI

Banks shall make all reasonable efforts to determine the true identity of every would be account holder . Towards this end , banks shall institute effective procedure and methods for obtaining proper identification from new customer .

SBP Prudential Regulation XII

Before extending their services , banks shall make reasonable efforts to determine the True identity of their customers . Particular care should be taken to identity the ownership of accounts , especially in respect of those using lockers / safe custody facilities . Effective procedure should be instituted for obtaining and verifying identification of new customers . An explicit policy should be devised to ensure that significant transaction are not conducted with customers who fail to provide satisfactory evidence of their identity .

Prudential Regulation XII

Specific procedure should be established for

ascertaining a customers
Status and source(s) of earnings , for monitoring of accounts on a regular basis , and for checking identities and bona fides of remitters and beneficiaries , for retaining internal record of transactions for future reference.

Prudential Regulation XI

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

Opening & supervision of Accounts

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

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

Opening & supervision of Accounts Individual Accounts

Documents / papers to be obtained

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

Opening & supervision of Accounts

Illiterate Persons
Required documents / papers A passport size photograph of new account holder besides taking his right and left thumb impression on specimen signature card alongwith the Account opening form

Opening & supervision of Accounts

Partnership Accounts
Required documents / papers

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

Opening & supervision of Accounts Joint stock companies Required documents / papers
Certified copies of : Resolution of board of directors for opening of account specifying the person(s) authorize to operate the company account . Memorandum of article of association. Certificate of incorporation . Certificate of commencement of business. Attested photo copies of identity cards of all directors .

Opening & supervision of Accounts

Accounts of Executors/Administrators
Required documents / papers

Attested copies of NIC of executors /Administrators

Certified copies of letter of Administration or Probate.

Opening & supervision of Accounts

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

Opening & supervision of Accounts

Account in name of Association Clubs , and Societies

Required documents / papers Certified copies of : Certificate of registration By laws rules and regulations Resolution of board of Governing Body /Executive committee for opening of account specifying the person(s) authorize to operate the company account . Undertaking signed by all the authorized persons on behalf of he institution stating that when any change take place in the persons authorize to operate on the account , the banker will be informed immediately.

Opening & supervision of Accounts

SBP Prudential Regulation No. XIII

All terms and conditions of operation of an account shall be duly made known to the opener of account at the time of opening an account . The terms and conditions must be elaborately documented in account opening form / application and must be signed by the prospective depositor/ account holder to signify having been read and understood .

Opening & supervision of Accounts

Introduction SBP Prudential Regulation xi Customer of same branch & Customer of same bank but another branch After proper verification of signatures Customer of other banks After complete verification of signatures and other particulars from that bank Introduction by employees of bank is also acceptable

Opening & supervision of Accounts

SBP Prudential Regulation xi c Satisfactory evidence from branch manager should be placed by banks in respect of True identity of beneficial owners of all accounts opened . Real party in interest or controlling person / entity of all accounts

Opening & supervision of Accounts

SBP Prudential Regulation xi d Customer due diligence is an on going process for prudent banking practices there for Update customer information and records, if any at reasonable intervals . Monitor and check unusually large cash transactions , especially those which are out of character /inconsistent with history , pattern etc.

Opening & supervision of Accounts SBP Prudential Regulation xi e

Enhance due diligence should be applied To high - risk customers such as those belonging to countries where KYC and money laundering regulations are lax , those with links to offshore tax havens , customer in cash based business in high value items , and high net worth customers with no clearly identified source of income etc . When the Customer has been refused banking facilities by other banks .