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FINANCIAL MONITORING
UNIT
Government of Pakistan
Anti-Money Laundering (AML)
and Combating the Financing of
Terrorism (CFT)
What is Money Laundering
To deal with proceeds of crime and conceal their origin for
future use as clean money
What is Terrorism Financing
Terrorism Financing:
to raise, collect or provide funds (dirty or clean)
-- by collection from individuals or organizations
-- by criminal activities (drug trafficking/human smuggling etc.)
-- from lawful businesses and investments
for purposes of terrorism* or
support terrorists or terrorist organizations
Terrorist Financing criminalized under Anti Terrorism Act, 1997 (ATA)
Framework of Anti-Money Laundering
International
FATF UN Security
United Nations
Conventions Recommendatio Council
ns Resolutions
AML/CFT Obligations (International)
UN Conventions:
Money Laundering was criminalized in UN Convention Against Illicit
Traffic in Narcotic Drugs and Psychotropic Substances, December 19,
1988 (Vienna). 1st International Convention of AML
UN Convention Against Transnational Organized Crime, November 15,
2001 (Palermo) requires member countries to setup domestic framework
to combat ML.
UN Convention Against Corruption, December 14, 2005 (Merida)
emphasize on ML along with criminalization of corruption
International Convention for the Suppression of the Financing of
Terrorism 1999 (New York), criminalize TF.
AML/CFT Obligations (International)
UN Security Council Resolutions:
UNSC Resolution 1267/1999
Sanctions against Al-Qaida, Taliban and associated individuals
Travel ban; Arms Embargo; Asset Freezing (All types of Assets)
[Link]
[Link]
UNSC Resolution 1373/2001
requires actions against domestic terrorists and associates
Actions include freezing of assets (all types of assets)
4th Schedule of ATA, 1997 (Proscribed Individuals)
1st Schedule of ATA, 1997 (Proscribed Entities)
[Link]
AML/CFT Obligations (International)
FATF Recommendations (40)
-- Implement relevant international conventions
-- Criminalize money laundering and terrorism financing
-- Confiscate proceeds of money laundering and terrorist funds and
properties
-- Implement CDD, KYC and record keeping
-- Reporting and monitoring of suspicious transaction
-- Establish financial intelligence unit to receive and
disseminate suspicious transaction reports, and
-- International cooperation on AML
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Relevant FATF Recommendations
Recommendation 1 – Assessing risks and applying a risk-based approach
Recommendation 6 – Targeted financial sanctions related to terrorism and terrorist financing
Recommendation 7 – Targeted financial sanctions related to proliferation
Recommendation 9 – Financial institution secrecy laws
Recommendation 10 – Customer due diligence
Recommendation 11 – Record Keeping
Recommendation 12 – Politically exposed persons
Recommendation 15 – New technologies
Recommendation 17 – Reliance on third parties
Recommendation 18 – Internal controls and foreign branches and subsidiaries
Recommendation 19 – Higher-risk countries
Recommendation 20 – Reporting of suspicious transactions
Recommendation 21 – Tipping-off and confidentiality
Recommendation 26 – Regulation and supervision of financial institutions
Recommendation 27 – Powers of supervisors
Recommendation 29 – Financial intelligence units
Recommendation 31 – Powers of law enforcement and investigative authorities
Recommendation 34 – Guidance and feedback
Recommendation 35 – Sanctions
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Recommendation 20 & 21
Recommendation 20 (Reporting of suspicious transactions)
- Suspicion of money laundering or terrorist financing
- Money Laundering: Any crime (predicate)
- Terrorist Financing: Financing terror &/or links to terrorists
- Report promptly
- Regardless of amount & shall include attempted transactions
- Required by law
Recommendation 21 (Tipping-off and confidentiality)
- Protection by law from criminal and civil liability
- Ensure confidentiality
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Recommendation 12 (PEPs)
Politically Exposed Persons (PEPs)
- who are or have been entrusted with prominent public functions
- includes heads & senior officials of institutions/organizations
- middle ranking or more junior individuals not covered
Domestic & Foreign
Family members, relatives and close associates
Identification of beneficial owner
Systems in place for identification of PEPs
Enhanced measures on source of funds and ongoing monitoring
Senior management approvals required
AML/CFT Obligations (Domestic)
Anti-Money Laundering Act, 2010
AML/CFT Regulations/Guidelines issued by Regulators/
other entities
Issued by State Bank of Pakistan
Issued by SECP
Issued by FMU
other entities
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Some important Provisions of AMLA-2010
Financial Institutions- Section 2(f)
Reporting requirements- Section 7
Suspicious transactions Report (STR)
Currency transaction Report (CTR)
Safe Harbor Provision- Section 12
Liability for failure to file Suspicious Transaction Report
and for providing false information- Section 33
Disclosure of Information (Tipping off)- Section 34
Financial Monitoring Unit (FMU)
Financial Monitoring Unit
Financial Intelligence Unit of Pakistan
A Central National Agency to receive, analyze STRs
FMU’s Website ([Link])
Evolution
Created in Oct 2007 and housed in SBP
Autonomous Body
Operationally Independent
Reports to GC and NEC
Mandate
To Deter Money Laundering & Financing of Terrorism and Serious Crimes
by generating Financial Intelligence
Scope & Operations of FMU
Receive, Analyze, Disseminate STRs (Core Function)
Conducting Strategic Analysis and developing typologies
Maintain FMU’s Database of STRs / CTRs (goAML)
Formation of Regulations concerning STRs & CTRs
Recommend AML/CFT measures to authorities
Coordinate with domestic & int’l stakeholders
Represent at Int’l Forums
Coordinating NRA Exercise
Coordinating Mutual Evaluation Exercise
Coordinating FATF Action Plan
Offence of Money Laundering in AMLA
3. A person shall be guilty of offence of ML, if the person-
(a) acquires, converts, possesses, uses or transfers property, knowing or having reason to
believe that such property is POC;
(b) conceals or disguises the true nature, origin, location, disposition, movement or
ownership of property, knowing or having reason to believe that such property is
POC;
(c) holds or possesses on behalf of any other person any property knowing or having
reason to believe that such property is POC;
(d) participates in, associates, conspires to commit, attempts to commit, aids, abets,
facilitates, or counsels the commission of acts specified in clauses (a), (b) and (c).
Explanation II: For the purposes of proving an offence under this section, the
conviction of an accused for the respective predicate offence shall not be required.
Reporting Requirements Under AMLA
Suspicious Transaction Reports (STRs)
Currency Transaction Reports (CTRs)
Provision of Information
When to file STR?
Suspicious Transaction Reports (STRs)*
7(1) Every financial institution shall file with the FMU ………
Suspicious Transaction Report conducted or attempted ….. if the
financial institution … knows, suspects, or has reason to suspect
that the transaction ……
(a) involves funds derived from illegal activities or is intended or
conducted in order to hide or disguise proceeds of crime;
(b) is designed to evade any requirements of this section;
(c) has no apparent lawful purpose ……..; or
(d) involves financing of terrorism
* Red Flag Indicators or alerts on transaction monitoring systems
Safe Harbor Provision
12. ………the financial institutions …… and
their officers shall not be liable to any civil,
criminal or disciplinary proceedings against
them for furnishing information required
under this Act or the rules and regulations
made hereunder.
Red Flag Indicators- General
Transactional activity do not commensurate with the profile of an individual
Customer identity or source of funds are unverified
Large cash based transactions with unclear source
Structured transactions to avoid reporting and regulatory requirements
Unusual activity in accounts of Public office holders / family members
Frauds / Public Scams
Use of accounts in the name of family members / Servants / Employees /
Minors / Third parties
Camouflaging behind some other person account by using Mandate
Designated Individuals under UNSC 1267/ UNSC 1373
Known criminals / Absconders/ Listed on Red Book, etc.
Individual/Entities listed on OFAC
There is inquiry from any Law enforcement agency
Adverse media news on an individual or entity
Red Flag Indicators- Insurance Sector
Insurance Sector:
Insurance policies are largely commission based involving sales driven objectives
Cash payments on insurance policies
Use of multiple currency equivalents (e.g., cashier’s checks and money orders)
different sources to make insurance policy or annuity payments
Purchases of products that appear outside the customer’s normal range of financial
wealth or estate planning needs
Refunds requested during a policy’s “legal cancellation period”
Policy premiums paid from abroad, especially from an offshore financial center
A policy calling for the periodic payment of premiums in large amounts
Changing the named beneficiary of a policy to a person with no clear relationship to
the policyholder
Lack of concern for significant tax or other penalties assessed when canceling a
policy
National Risk Assessment on ML/TF
Threats and Vulnerabilities are assessed
methodically to arrive at ML Risk and TF Risk
separately.
ML Threat refers to the scale and characteristics of
the proceeds of criminal activities in the country
ML Vulnerability refers to weaknesses or gaps in a
country’s defenses against money laundering.
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ML Threats
Rating 2019 2017 Crime
Illicit Trafficking in Narcotic Drugs, Corruption
High 7 5 and Bribery, Smuggling, Cash Smuggling, Tax
Crimes, Illegal MVTS, Terrorism
Participation in Organized Criminal group,
Human Trafficking, Arm Trafficking, Robbery,
Medium High 9 -
Market Manipulation, Cyber crime, Fraud and
forgery, Kidnapping, Extortion
Sexual Exploitation, Trafficking of Good,
Medium 5 3 Counterfeiting Currency, Piracy of Products,
Murder
Medium Low 2 1 Environmental Crime, Marine Piracy
Low 0 0
Total 23 9
ML/TF Vulnerabilities
ML Threat
ML Threat Rating Rating
Additional
2019 2017
Banking, MFBs, Exchange Companies,
EC B category , Real Estate Dealers,
High 9 1
Hawala/Hundi, CDNS, Pakistan Post,
Lawyers & Notaries
Securities, AMCs & CISs, Dealers in
Medium High 4 2
Precious metals, Audit and Accountants
Medium 2 5 Insurance, NBFCs & Modaraba
Medium Low - 3
Low 1 4 DFIs
Total 16 15
Related Issues Highlighted in Mutual Evaluation
Non-reporting of STRs
Lack of Transaction Monitoring Systems
Understanding issues of beneficial ownership
Limited understanding with respect to risks
Inadequate staff training or capacity building programs
Inadequate measures related to PEPs
Inadequate implementation of Targeted Financial Sanctions
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