ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM (AML/CFT) REGULATIONS Course designed by Training & Organization Development Division in consultation with Compliance Group 1 June, 2015 Reference & effective date 2 BPRD Circular No. 02 of 2012 September 13, 2012 These regulations will take effect from October 31, 2012. Banks/DFIs may align their AML/CFT risk assessment procedures in accordance with aforesaid Guidelines within six months from issuance of this circular. ACRONYMS 3  AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism  ARC Aliens Registration Card  CNIC Computerized National Identity Card  CRP Customer Risk Profiling  CTR Currency Transaction Report  DDs Demand Drafts  DFI Development Finance Institution  EDD Enhanced Due Diligence ACRONYMS 4  FATF Financial Action Task Force  FI Financial Institution  FMU Financial Monitoring Unit  FT Financing of Terrorism  KYC/CDD Know Your Customer/ Customer Due Diligence  ML Money Laundering  MTs Mail Transfers ACRONYMS 5  NADRA National Database & Registration Authority  NARA National Aliens Registration Authority  NGOs/NPOs Non-governmental Organizations or Non-profit Organizations  NICOP National Identity Card for Overseas Pakistanis  NTN National Tax Number  PEP Politically Exposed Person ACRONYMS 6  POs Payment Orders  POC Pakistan Origin Card  RBA Risk Based Approach  SBP State Bank of Pakistan  SDD Simplified Due Diligence  SECP Securities & Exchange Commission of Pakistan  STR Suspicious Transaction Report  TMS Transaction Monitoring System C O N T E N T S 7  STAGE - I Acronyms Definitions  STAGE - II 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  STAGE - III  Minimum Documents to be obtained from Various Types of Customers under AML/CFT Regulations  Examples or Characteristics of Suspicious Transactions (Red Alerts) that May be a Cause for Increased Scrutiny for AML/CFT Purposes STAGE - I DEFINITIONS 8 “Beneficial owner” in relation to a customer of a bank/DFI, means the natural person(s) who ultimately own(s) or controls a customer or the person on whose behalf a transaction is being conducted and includes the person(s) who exercise(s) ultimate effective control over a person or a body of persons whether incorporated or not; STAGE - I DEFINITIONS 9 “Beneficiary” means the person to whom or for whose benefit the funds are sent or deposited in bank; “Beneficiary institution” means the financial institution that receives the funds on behalf of the wire transfer or fund transfer beneficiary; STAGE - I DEFINITIONS 10  “Control” in relation to a legal person, means the power to exercise a controlling influence over the management or the policies of the undertaking, and, in relation to shares, means the power to exercise a controlling influence over the voting power attached to such shares;  “Correspondent bank” means the bank in Pakistan which provides correspondent banking services to bank or financial institution situated abroad and vice versa; STAGE - I DEFINITIONS 11  “Correspondent banking” means provision of banking services by one bank (correspondent) to another bank (respondent) including but not limited to opening and maintaining accounts in different currencies, fund transfers, cheque clearing, payable through accounts, foreign exchanges services or similar other banking services.  “Cross-border wire transfer” means a wire transfer where the ordering institution and the beneficiary institution are located in different countries or jurisdictions;  “Currency Transaction Report or CTR” as defined under AML Act;  STAGE - I DEFINITIONS 12  “Customer” means a person having relationship with the bank which includes but not limited to holding of deposit/deposit certificate/ or any instrument representing deposit/placing of money with a Bank/DFI, availing other financial services, locker facility, safe deposit facility, or custodial services from the Bank/DFI;  “Customer due diligence or CDD” in broader terms includes; a) identifying the customer and verifying the customer‟s identity on the basis of documents, data or information obtained from customer and/or from reliable and independent sources; STAGE - I DEFINITIONS 13 b) identifying, where there is a beneficial owner who is not the customer, the beneficial owner and taking adequate measures, to verify his identity so that the Bank/DFI is satisfied that it knows who the beneficial owner is, including, in the case of a legal person, trust or similar legal arrangement, measures to understand the ownership and control structure of the person, trust or arrangement; c) understanding and, as appropriate, obtaining information on the purpose and intended nature of the business relationship; and STAGE - I DEFINITIONS 14 d) monitoring of accounts/transactions on an ongoing basis to ensure that the transactions being conducted are consistent with the Banks/DFIs knowledge of the customer, their business and risk profiles, including, where necessary, the source of funds and updating records and data/ information to take prompt action when there is material departure from usual and expected activity through regular matching with information already available with Bank/DFI. STAGE - I DEFINITIONS 15  “Domestic wire transfer” means any wire transfer where the originator and beneficiary institutions are located in Pakistan regardless the system used to effect such wire transfer is located in another jurisdiction;  “Dormant or in-operative account” means the account in which no transaction has been taken place for the last one year;  “FATF Recommendations” means recommendations of Financial Action Task Force as amended from time to time;  “FMU” means Financial Monitoring Unit established under the AML Act;