Financial Crime World

Due Diligence Crucial in Establishing Relationships with NGOs/NPOs and Charities

As part of its efforts to prevent money laundering and terrorism financing, the government has emphasized the importance of due diligence when establishing relationships with non-governmental organizations (NGOs), not-for-profit organizations (NPOs) and charities.

Comprehensive Customer Due Diligence (CDD)

According to new regulations, banks and financial institutions (Banks/DFIs) must conduct comprehensive customer due diligence (CDD) on NGOs/NPOs and charities before opening accounts or providing services. This includes:

  • Verifying the identity of authorized individuals and members of their governing body
  • Ensuring they are not affiliated with any proscribed entities

Account Opening and Verification

In addition, Banks/DFIs must ensure that the titles of NGO/NPO and charity accounts match those in their constituent documents. If there is a discrepancy:

  • Immediate caution should be marked on the account
  • Consideration given to filing a suspicious transaction report (STR)

The regulations also prohibit the use of personal accounts for charity purposes or collection of donations.

Review and Monitoring

Banks/DFIs are required to review and monitor existing relationships with NGOs/NPOs and charities to ensure they are not linked with any proscribed entities or persons. If a positive match is found:

  • An STR should be filed
  • Appropriate action taken

Correspondent Banking Services

The regulations have also set out measures for providing correspondent banking services. Banks/DFIs must:

  • Assess the suitability of respondent banks by gathering adequate information about their business, management, ownership, and AML/CFT regulations
  • Determine the reputation of the respondent bank and assess its quality of supervision

Before establishing a new correspondent banking relationship:

  • Senior management approval is required
  • Correspondent banks must ensure that they have performed CDD measures on third parties having direct access to payable-through accounts

Wire Transfers/Fund Transfers

The regulations also set out requirements for wire transfers and fund transfers. Banks/DFIs as ordering institutions must:

  • Identify and verify the originator
  • Obtain details of beneficial owners
  • Record adequate details of the transfer

Beneficiary institutions must:

  • Adopt risk-based internal policies to identify and handle incoming wire transfers that are not accompanied by complete originator information
  • Maintain all required originator information with the wire transfer

Reporting of Transactions

Finally, Banks/DFIs must comply with the provisions of the Anti-Money Laundering Act and rules and regulations issued under it. They must:

  • Report suspicious transactions to the Financial Monitoring Unit (FMU) in a timely manner

The new regulations aim to strengthen Pakistan’s anti-money laundering and counter-terrorism financing framework, and ensure that Banks/DFIs are equipped to prevent and detect these types of crimes.