Financial Crime World

Banks Must Enhance Due Diligence to Prevent Money Laundering and Terror Financing

Strengthening the Fight Against Money Laundering and Terror Financing in Pakistan

Pakistan’s regulatory authorities have issued new guidelines for banks and financial institutions (DFIs) to enhance due diligence when dealing with Non-Governmental Organizations (NGOs), Not-For-Profit Organizations (NPOs), and Charities. This move aims to strengthen the country’s fight against money laundering and terror financing.

Enhanced Due Diligence Requirements

  • Banks/DFIs must obtain senior management approval before establishing relationships with NGOs/NPOs/Charities.
  • Comprehensive Customer Due Diligence (CDD) is required on individuals authorized to operate accounts, including verifying identity, governing body members, beneficial owners, and ensuring they are not affiliated with proscribed entities.
  • Accounts opened in the name of these organizations must be used for legitimate purposes, and transactions must be commensurate with stated objectives.
  • Existing relationships must be monitored to detect suspicious activities.

Correspondent Banking Guidelines

  • Banks/DFIs must assess the suitability of respondent banks by gathering adequate information about business operations, management, and ownership.
  • Clearly understand and document Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) responsibilities.
  • Obtain senior management approval before establishing new correspondent banking relationships.

Wire Transfers and Fund Transfers

  • Identify and verify the originator of funds.
  • Record adequate details of the transfer.
  • Include specific information in the message or payment instruction accompanying the transfer.
  • Beneficiary institutions must adopt risk-based internal policies to identify and handle incomplete originator information.
  • Banks/DFIs must remain cautious when entering into relationships with institutions that do not comply with standard requirements for wire transfers.

Reporting Requirements

  • Banks/DFIs are required to report suspicious transactions (STRs) and cash transactions exceeding a certain threshold (CTRs) to the Financial Monitoring Unit (FMU).
  • Timely reporting is emphasized to facilitate effective monitoring and prevention of money laundering and terror financing.

Conclusion

The new guidelines aim to enhance the transparency and integrity of Pakistan’s financial system, preventing the misuse of its financial institutions by criminals and terrorists. By strengthening due diligence and reporting requirements, banks/DFIs can play a crucial role in preventing money laundering and terror financing.