Financial Crime World

Sanctions Regime: A Closer Look at the Rules and Regulations

In an effort to combat terrorism financing and proliferation financing, the government has implemented a sanctions regime that freezes the assets of individuals and entities designated as terrorists or proliferators. However, concerns have been raised about the scope of this regime, particularly with regards to the freezing of personal bank accounts of family members or blood relatives of designated persons.

Freezing Personal Bank Accounts: A Review

According to Para 6 of Regulation-4 of the State Bank of Pakistan’s Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) Regulations, a person cannot be penalized solely on the basis of their familial or blood relationship with a designated person. This is because such relationships are naturally ascribed and do not necessarily imply involvement in terrorist or proliferation activities.

  • The regulation emphasizes that personal bank accounts should not be frozen based solely on family or blood relationships.
  • Designated persons’ family members or blood relatives may continue to access their accounts without restrictions, provided they have no direct connection to the designated person’s activities.

Account Freezing: A Case-by-Case Approach

In cases where an entity’s account has been frozen due to designation, it is essential to consider whether the personal bank accounts of its directors or members should also be frozen. According to authorities, if a person is found to be a member of a designated entity and works in that capacity, their personal accounts may be liable to freezing as they would fall under the definition of “a person acting on behalf of” the designated entity.

  • The freezing of accounts should be based on individual circumstances rather than blanket restrictions.
  • Personal bank accounts of directors or members may be frozen if there is evidence linking them to the designated entity’s activities.

Notice Requirements: A Clarification

It has been clarified that there is no legal requirement to send Form-B, as mentioned in the United Nations Security Council (Freezing and Seizure) Order, 2019, for freezing under the Anti-Terrorism Act, 1997. However, it is advisable to inform customers of the reason for freezing.

  • The absence of a legal requirement does not imply that notice should not be provided.
  • Transparency is essential in maintaining trust between financial institutions and their customers.

TFS Obligations: FAQs

In an effort to provide clarity on TFS obligations, the State Bank of Pakistan has issued a set of FAQs that address various questions, including:

  • Can designated or proscribed persons receive payments into their credit or loan accounts before designation?
    • No, payments should not be made until the person is officially designated.
  • Can REs exercise the right of set-off debts in frozen accounts?
    • Yes, but only under specific circumstances and with proper documentation.
  • Which authorities should be approached for exemptions for use of funds frozen under the UNSC Act, 1948 or ATA, 1997?
    • The relevant authorities should be consulted to determine eligibility and procedures.

Conclusion

The sanctions regime is a complex web of regulations and guidelines that require careful consideration. By understanding the rules and regulations surrounding account freezing, individuals and entities can better navigate the system and avoid any potential legal consequences.

  • Compliance with sanctions regulations is crucial for maintaining financial stability and preventing illicit activities.
  • Financial institutions should prioritize transparency, due diligence, and customer communication to ensure smooth operations.