KYC/AML/CFT

Presented by
Muhammad Khurram

What is KYC?

Know Your Customer KYC enables banks to know/understand their

customers and their financial dealings to be able to serve them
better and prudently manage the risks of Money Laundering and
Financing of Terrorism.

Why KYC?
To establish the identity of the client. This means identifying
the customer and verifying his/her identity by using reliable,
independent source documents, data or information.
To ensure that sufficient information is obtained on the nature
of employment/business that the customer does/expects to
undertake and the purpose of the account.
To prevent banks from being used, intentionally or
unintentionally, by criminal elements for money laundering
activities.

When does KYC apply?

KYC will be carried out at the following stages:
o Opening a new account.
o Opening a subsequent account where documents as per current
KYC standards have not been submitted while opening the initial
account.
o

Opening a Locker facility where these documents are not available

with the bank for all the Locker facility holders.

When the bank feels it necessary to obtain additional information

from existing customers based on conduct of the account.

When there are changes to signatories, mandate holders,

beneficial owners etc.

Are KYC requirements new?

No ! KYC requirements have always been in place and Banks

have been taking KYC documents in accordance with the
guidelines issued by SBP from time to time. SBP has revisited the
KYC guidelines in the context of the recommendations made by
the Financial Action Task Force (FATF) on Anti Money
Laundering Measures and Combating Financing of Terrorism and
enhanced the KYC Standards in line with International
benchmarks.

The Financial Action Task Force (FATF) was established in July 1989 by a Group of Seven
(G-7) Summit in Paris, initially to examine and develop measures to combat money
laundering.

Money Laundering
o Money laundering is the process by which large amounts of illegally
obtained money (from drug trafficking, terrorist activity or other
serious crimes) is given the appearance of having originated from a
legitimate source.

Criminal Activities
Kidnapping
Drug Trafficking
Bribery/corruption
Tax Evasion
Robbery and Fraud
Gambling
Organized crime
Extortion
Prostitution
Smuggling (arms, people, goods)

SBP Regulations

In 2010, the State Bank of Pakistan (SBP) passed the AntiMoney Laundering Act.
Since 1990s regulators, National Accountability Bureau (NAB),
Anti-Narcotics Force (ANF) and Federal Investigation Agency
(FIA) are putting its efforts to combat against these crimes and
put a pause to money laundering completely.

Stages of the Money Laundering

1.

Placement

Induction of illegal money into the financial system

2.

Layering

Multiple transactions to confuse the audit trail and distance

the original source of funds (e.g. successive transactions,
international transfers).
3.

Integration
than integrating funds back into the real economy as clean and
Respectable money

Placement

Smurfing

It involves the deposit of small amounts off illegal cash into accounts.

Alternative Remittances

It refers to the transfer of funds through alternative or illegal money

transfer system. Alternative remittances also go by the names of
underground or parallel banking.

Electronic Transfers

In the money laundering context, an electronic transfer involves the

transfer of money through electronic payment systems that do not require
sending funds through a bank account.

Layering

Offshore Banks

Offshore banks accepts deposits from non-resident individuals and corporations. A

number of countries have well developed offshore banking sectors; in some cases,
combined with loose AML regulations.

Shell Corporations

A shell corporation is a company that is formally established under applicable

corporate laws, but does not actually conducts a business. Instead, it is used to
engage in fictitious transactions or hold accounts and assets to disguise its original
ownership.

Walking Accounts

A walking account is an account for which the account holder has provided standing
instructions that upon receipt all funds should be immediately transferred into one or
more accounts.

Integration

Import/Export Transactions

To bring illegal money into the criminals country of residence, the domestic
trading company will export goods to the foreign trading company on an
over invoiced basis.

Assets Sales & Purchase

This technique is used directly by the criminals or in combination with the

shell corporations, corporate financings and other advanced means. The
end result is that the criminal can treat the earnings from the transaction
as legitimate profits from the sale of the real estates or other assets.

Stages of the Money Laundering

Money Laundering
Risks to banks?

(I) Reputational risk

(ii) Legal risk
(iii) Operational risk
All risks are inter-related and together have the potential of
causing serious threat to the survival of the bank

Risk Category
o High Risk Customers (CDD Every Transaction)
i) non-resident customers
ii) private banking customers
iii) legal persons

o Medium risk customers ( CDD Only on High

amount)
i) documentary businesses

o Low risk customers ( CDD Yearly )

Reports to be prepaid
CTR- Currency Transaction Report

For all cash transaction above Rs. 2.5 million.

STR- Suspicious Transaction Report

e.g.

Transactions which do not make economic sense.

Transactions inconsistent with the customer's business.

Transactions involving large amounts of cash.
Transactions involving transfers to and from abroad.

FMU is the only designated agency in Pakistan to which suspicious

transaction reports (STRs) and currency transaction reports (CTRs) shall be
made.

Terrorist Financing

It can be defined as the financial support, in any form, to terrorism or of

those who encourage, plan or engage in terrorism.

A terrorist group, like any other criminal organization builds and

maintains an infrastructure to develop sources of funds and channel
them to those who provide materials or services to the terrorist
organizations.

It is sometimes referred as reverse money laundering

Thank You