Money laundering compliance

1. 32ND MCMC
CURRENT ISSUE PRESENTATION
Topic: Anti Money laundering Compliance in
National Savings Organization
NAME OF PARTICIPANT: MUHAMMAD MOHSIN AFZAL
GROUP: FINANCE DIVISION
SPONSOR DS: MS. SAROSH FATIMA
DATED: OCTOBER 16 , 2021
NATIONAL INSTITUTE OF MANAGEMENT,
LAHORE

2. • Currency of the topic
• Introduction / Historical Prospects
• Products of National Savings
• National Savings Role & Importance
• Money Laundering and anti money laundering
measures
• Financial Monitoring Unit functions
• National Savings Supervisory Board
• National Savings regulations
SEQUENCE

3. • Important steps/elements related to
AML/CFT/Rules/Regulations issued by CDNS.
• Suspicious Transaction Reports / Currency
Transaction Reports (STRs / CTRs).
• Red Flag Indicators
• Discontinuation of bearer prize bonds.
• Inherit risk assessment on TF/ML
• FATF recommendation compliance status
• Recent Developments in AML/CFT Regime and
FMU.
SEQUENCE

4. • Guidelines issued by FMU on reporting of
STRs/CTRs.
• Capacity Building measures
• Analysis
• Conclusion
• Recommendations
SEQUENCE

5. CURRENCY OF THE TOPIC
5
Pakistan's FATF compliance: Loopholes in small
savings accounts left deliberately for terror
financing.
ANI / Jun 25, 2021, 13:03 IST
Govt to screen Rs4.03tr investments
in savings schemes
January 19, 2020
Rs.86b withdrawn from saving
schemes Money pulled out in wake of
change in govt policies, compliance
with FATF plan.
May 23, 2021
NSS outflows exceed inflows first
time in 16 years
August 31, 2021
Pakistani national investment
scheme to go digital to comply
with global watchdog
January 29, 2020 07:32
5
Govt stops selling prize bonds of
Rs7,500, Rs15,000
April 30, 2021

6. VISION
To promote and inculcate the habit of thrift for
mobilization of Savings.
MISSION
To be the preferred institution for small savers in
facilitating the objective of financial inclusion and
extending social security net to all the deserving
section of society.
Introduction

7. • One of the oldest institutions in the country with a
legacy of more than 140 years that came into
existence with the promulgation of Government
Savings Bank Act in 1873.
• National Savings Bureau (NSB) in 1943-44 as an
attached department of the undivided
Government of India
• The Bureau was renamed as Central Directorate of
National Savings (CDNS) in 1953.
Introduction and Historical
perspective

8. • In 1960, Status of an Attached Department of the
Ministry of Finance with the powers to formulate
policies and execute various National Savings
Schemes (NSS).
• Custodian of the nation’s savings, today the
National Savings is the largest investment and
financial institution in Pakistan with a portfolio of
over Rs. 3.4 trillion and more than 04 million
valued investors are being served through a large
network of 376 branches nationwide controlled by
12 Regional Directorates.
Introduction and Historical
perspective

9. Organogram

10. Products of National
Savings (Certificates)
Name of Certificate Defense Savings Certificates Special Savings Certificates Regular Income Certificates
Bahbood Savings
Certificates
Short Term Savings
Certificates
launched In 1966 1990 1993 2003 2012
Maturity Period 10 years 03 Years 05 Years 10 Years 3M,6M & 1Y
Who can Invest?
Pakistani or Foreign Nationals:
Minor, Single Adult, or Jointly
Pakistani or Foreign Nationals:
Minor, Single Adult, or Jointly
Pakistani or Foreign
Nationals: Minor, Single
Adult, or Jointly
Pakistani senior citizens,
widow,
Pakistani or Foreign
Nationals: Minor, Single
Adult, or Jointly
Mode of Deposit Cash/Cheque Cash/Cheque Cash/Cheque Cash/Cheque Cash/Cheque
Early Encashment Penalty
No Profit is payable if encashed
before completion of each year
No Profit is payable if encashed
before completion of each period
of six months.
Year 1= 2% of the face value
Year 2 = 1.50%, Year 3 = 1%
and Year 4 = 0.50%
Year 1= 1% of the face value
Year 2 = .75%, Year 3 = 5%
and Year 4 = 0.25%
No Profit is payable if
enchased before
completion of Maturity
Profit Payments At Maturity Bi-Annually Monthly Monthly On Maturity
Zakat* Compulsory Compulsory Exempted Exempted Exempted
Withholding Tax** Applicable Applicable Applicable Exempted Applicable
Min Investment Rs. 500 Rs. 500 Rs. 50,000 Rs. 5,000 Rs. 10,000
Max Investment Amount No Limit No Limit No Limit Rs. 5,000,000 No Limit
Institutional Investment Fresh Institutional Investments are not allowed (until further notice) w.e.f.01.07.2020 vide Finance Division, Islamabad's Notification dated 30.06.2020.
* Under the provision of Sub-Section (1) of Section 3 of Chapter II of Zakat and Ushr Ord.1980 (XVIII of 1980) and Rule 20 of Chapter Ill of Zakat Collection & Refund Rules 1981, CZ-50 Form may be submitted to the Officer
In charge of the relevant National savings Center by the customer.
*WHT: Rate of Withholding Tax (irrespective of the date and amount of investment/profit) shall be 15% for filers (Persons appearing in Active Tax Payer List (ATL) and 30% for non-filers (Persons not appearing in Active
Tax Payers List).
http://savings.gov.pk/national-savings-products-summary/

11. Products of National Savings
(Accounts /Prize Bonds
Accounts Prize Bonds
Name of Account Pensioners' Benefit Accounts Special Savings Accounts Savings Accounts
Shuhada Family Welfare
Account
Premium Prize Bonds 1)
Rs.25,000/-
2) Rs. 40,000/-
Certificates
launched In 2003 1990 - 2018 2020 (1) & 2017 (2)
Maturity Period 10 Years 03 Years - 10 Years -
Who can Invest? Pakistani citizens: Pensioners
Pakistani or Foreign Nationals:
Minor, Single Adult, or Jointly
Pakistani or Foreign
Nationals: Minor, Single
Adult, or Jointly
Pakistani citizens:
Pensioners
Pakistani citizens:
Individuals
Mode of Deposit Cash/Cheque Cash/Cheque Cash/Cheque Cash/Cheque Cash/Cheque
Early Encashment Penalty
Year 1= 1% of the face value Year 2 =
.75%, Year 3 = 5% and Year 4 = 0.25%
No Profit is payable if encashed
before completion of each period
of six months.
-
Year 1= 1% of the face value
Year 2 = .75%, Year 3 = 5%
and Year 4 = 0.25%
No Profit is payable if
encashed before
completion of each
period of six months.
Profit Payments Monthly Bi-Annually Annually Monthly Bi-Annually
Zakat* Exempted Compulsory Compulsory Exempted Exempted
Withholding Tax** Exempted Applicable Applicable Exempted Applicable
Min Investment Rs. 10,000 Rs. 500 Rs. 100 Rs. 10,000 Rs. 25,000/ 40,000
Max Investment Amount Rs. 5,000,000 No Limit No Limit Rs. 5,000,000 No Limit
Institutional Investment Fresh Institutional Investments are not allowed (until further notice) w.e.f.01.07.2020 vide Finance Division, Islamabad's Notification dated 30.06.2020.
* Under the provision of Sub-Section (1) of Section 3 of Chapter II of Zakat and Ushr Ord.1980 (XVIII of 1980) and Rule 20 of Chapter Ill of Zakat Collection & Refund Rules 1981, CZ-50 Form may be submitted to the Officer
In charge of the relevant National savings Center by the customer.
*WHT: Rate of Withholding Tax (irrespective of the date and amount of investment/profit) shall be 15% for filers (Persons appearing in Active Tax Payer List (ATL) and 30% for non-filers (Persons not appearing in Active Tax
Payers List).
http://savings.gov.pk/national-savings-products-summary/

12. Products wise share
Product -wise share
1%
21% 14%
7%
Savings Accounts
Special Savings Accounts
10%
22%
14%
11%
Pensioners' Benefit Account Defence
Savings Certificates Special Savings Certs
(Regd) Regular Income Certificates Bahbood
Savings Certificates
Prize Bonds

13. A person shall be guilty of offence of money laundering, if
a) he acquires, converts, possesses, uses or transfers
property, knowing or having reason to believe that
such property is proceeds of crime;
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 proceeds of crime;
c) holds or possesses on behalf of any other person any
property knowing or having reason to believe that such
property is proceeds of crime;
Offense of Money Laundering

14. d) participates in, associates, conspires to commit,
attempts to commit, aids, abets, facilitates, or counsels
the commission of the acts specified in clauses (a), (b)
and (c)
Offense of Money Laundering

17. Recent Development in AML-CFT legal Frame work
Acts
/Rule
Key Points Hyperlink
AMLA ACT,
2010
• Under Section 6-A powers and functions of
Regulatory Authorities are defined
• Schedule-IV (1)(iv) specify National Savings (AML
and CFT) Supervisory Board for National Savings
Schemes as a regulator of CDNS
• Under Section 7(A-J) Reporting Entities (CDNS)
are required to perform Customer Due Diligence
(CCD)
AMLA Act, 2010
National
Savings AML-
CFT
Supervisory
Board Powers
and Function
Rules, 2020
 Rule 3 defines the composition of the Board
 Rule 4 defines the Powers and functions of the
Supervisory Board
 Rule 5 defines the Repeal and saving of existing
Rules
Powers and
Functions
Supervisory
Board
Notification

18. Contd…
Acts
/Rule
Key Points Hyperlink
AML/CFT
Sanction
Rules 2020
 Rule 3. Empowers Regulatory Authority to
sanction.
 Rules 4. Type of sanctions and penalty amounts.
 Rules 6. defines the range of Penalty amounts.
Click Here.
National
Savings (AML-
CFT)
Regulations,
2020
 Regulation 1 & 2. defines applicability terms and
 Regulation 3. deals with Risk assessment and
Mitigation
 Regulation 4. Customer and Beneficial Owner
Identification and Verification
 Regulation 6,7,8 and 9 deals with Internal
controls, Targeted financial sanctions and
obligations, Reporting of STR and CTR, Record
keeping
Click Here.

19. Customer?
One who maintains an account, establishes business
relationship, on who’s behalf account is maintained,
Your? Who should know?
Branch manager, audit officer, monitoring officials, PO
Know? What you should know?
True identity and beneficial ownership of the
accounts
Permanent address, registered & administrative
address
Know your customer

20.  Making reasonable efforts to determine the true
identity and beneficial ownership of accounts;
 Sources of funds
 Nature of customers’ business
 What constitutes reasonable account activity?
 Who your customer’s customer are?
What KYC mean

21. • Customer Acceptance Policy
• Customer Identification Procedure- Customer
Profile
• Risk classification of accounts- risk based approach
• Risk Management
• Ongoing monitoring of account activity
• Reporting of cash and suspicious transactions
Core Elements of KYC

22. • Customer Acceptance Policy
• Customer Identification Procedure- Customer
Profile
• Risk classification of accounts- risk based approach
• Risk Management
• Ongoing monitoring of account activity
• Reporting of cash and suspicious transactions
Core Elements of KYC

27. 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
Suspicious Transaction Reports (STRs)

28. All CTRs shall, to the extent and in the manner prescribed by
the FMU, be filed by the reporting entities with the FMU
immediately, but not later than seven working days, after the
respective currency transaction.
Threshold – Cash Transactions of Rs 2.0 Million or above
Currency Transaction Reports (STRs)

29. • Whoever willfully fails to comply with the suspicious
transaction reporting requirement 7 or give false
information shall be liable for imprisonment for a term
which may extend to three years or with fine (Rs.100,000)
or both.
• In the case of the conviction of a reporting entity, the
concerned regulatory authority may also revoke its license
or registration or take such other administrative action.
Liability for failure
(Failure to file Suspicious Transaction
Report and for providing false information)

30. (1) The directors, officers, employees and agents of financial
institution, ……..are prohibited from disclosing, directly or
indirectly, any person involved in the transaction that the
transaction has been reported.
(2) A violation of the sub-section (1) is a criminal offence and
shall be punishable by a maximum term of three years
imprisonment or a fine which may extend to five hundred
thousand rupees or both.
(3) Any confidential information furnished by a financial
institution……. Pursuant to this Act ….shall be kept
confidential by FMU, investigation agency or officer…..
Disclosure of Information (Tipping off)

31.  Financial Monitoring Unit
 Financial Intelligence Unit of Pakistan
 A Central National Agency to receive, analyse STRs
 FMU’s Website (www.fmu.gov.pk)
 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
Financial Monitoring Unit

32. • Receive, Analyze, Disseminate STRs (Core Function)
• Conducting Strategic Analysis and developing
typologies
• Maintain FMU’s Database of STRs / CTRs
• Access to other Databases
• Maintain confidentiality of information
• Frame Regulations concerning STRs & CTRs
• Recommend AML/CFT measures to authorities
• Freeze any property (for 15 days)
• Cooperate with foreign FIUs
Financial Monitoring Unit Functions

33. • Coordinate with domestic & int’l stakeholders
• Represent at Int’l Forums
• Coordinating Mutual Evaluation Exercise
Financial Monitoring Unit Functions

34. Process Flow in FMU

35. Summary of Products and Client
Risk

36. • Centralized reporting for Suspicious Transition
Reporting (“STR”) and Currency Transaction
Reporting (“CTR”).
• Scope of STR/CTR reporting obligations extended
under the AML Act, 2010 to the extent of prize
bonds.
• Automation of searching of Proscribed
Persons/entities enlisted in UNSC List 1267/1373
with the directions that no financial services shall
be extended
Steps Taken for Implementation of
AML/CFT Regime

37. • To further ensure the payment to genuine
beneficiary and to eradicate any chance of misuse
of funds, it has been made mandatory by CDNS to
bio metrically verified each individual.
• No cash payment beyond PKR. 2 million is allowed
in any case. All payments in excess of above
threshold are mandatory to be made through
Crossed Cheque (Payee Account Only).
• For cash disbursement exceeding PKR 100,000,
advance notice from 3 to 7 days by the investor is
mandatory.
Steps Taken for Implementation of
AML/CFT Regime

38. • Obtaining minimum data to comply KYC)/CDD
criteria has been made mandatory.
• Moreover, CDNS proactively disseminated the
other relevant instructions of SBP’s AML/CFT
regulation to curb the potential exposure ML/TF
while accepting all sorts of receipts/deposits for
issuance of debt instruments.
• Provision of bio-metric facility/ bio verisys in each
NSC.
• Training and capacity building sessions.
Steps Taken for Implementation of
AML/CFT Regime

39. • Making policies and procedures to ensure the
implementation of its supervisory role effectively
and efficiently, including a sanctions regime.
• Conducting the necessary studies and assessments,
risk assessments exercise, and taking the necessary
measures to address and mitigate such risks.
• Co-operating with its foreign counterparts.
• To engage SBP or an external auditors to ensure
compliance with the AML Act.
• Hiring the services of experts if required.
National Savings Supervisory Board
Functions

40. • Identification & Verification of Customer (Both
Existing & Prospective)
• Basic credentials and sources of Funds
• Identification & Verification of Natural Person /
Beneficial Owner
• Financial Services to Individuals/Entities listed in
UNSCRs 1267, 1373, etc & Any Other Relevant Lists
• Financial Services to Politically Exposed Persons
(PEPs), Their Close Associates & Family Members,
NGO/NPO.
National Savings Regulations 2020
Regulation 1

41. • Retain Copies of Identity Documents
• Retain Records of Transactions
• Readily Retrievable
• Minimum Period as Ten Years, After the End of
Relationship
• Retain for Longer Periods in Case of Litigation
• Provision of Information
National Savings Regulations 2020
Regulation 2

42. • Policies, Procedures & Controls with respect to
KYC/CDD, Record Retention, Detection of
Suspicious Transactions & Reporting of STRs/CTRs
• Controls/Policies
• AML/CFT Compliance Program
• Independent Audit Function
National Savings Regulations 2020
Regulation 3

43. • Policies, Procedures & Controls with respect to
KYC/CDD, Record Retention, Detection of
Suspicious Transactions & Reporting of STRs/CTRs
• Controls/Policies
• AML/CFT Compliance Program
• Independent Audit Function
National Savings Regulations 2020
Regulation 3

44. • Comprehensive Training Plan
• Periodic Trainings
• AML/CFT Measures, KYC/CDD Measures, Reporting
of STRs/CTRs, Identification/Analysis of Suspicious
Transactions, etc
• Development of Online Training Modules
National Savings Regulations 2020
Regulation 4

45. • The nominee is not a close relative or change in a nominee
• A third-party check is provided for investment.
• Purchase of a long-term investment product followed shortly
thereafter by a request to liquidate the position to get back the
invested amount.
• Overall investment quantum, account balance, or transactional
activity is not in line with the customer’s business, known means, or
stated purpose of the product.
• The client is frequently purchasing savings certificates or prize bonds
through unusual payments in cash, which do not commensurate
with his/her profile.
• When transactions are conducted without any apparent legitimate
or economic reason. Where multiple deposits are made by
unrelated individuals.
RE Flags for STR reporting

46. • Large cash is deposited followed by early withdrawal.
• Where large deposits and withdrawals are made routinely, and the
end of day balance is very low or nil.
• When a customer insists to buy multiple savings certificates or prize
bonds through structured or broken cash transactions to avoid CTR
reporting threshold (Rs 2.0 Million and above).
• Two or more customers (Linked/associated with each other) working
together to break one cash transaction into two or more transactions
to evade the CTR reporting requirement.
• Purchase of higher denomination Prize Bonds against cash without
providing any plausible justification.
• Encashment of higher denomination Prize Bonds without any
plausible justification.
Contd…

47. • When a customer is frequently converting one product into another
(especially in the name of an unrelated third party) without any
plausible justification.
• Numerous prizes are repeatedly/very frequently being claimed by the
customer against winning prize bonds during a short span of time.
Immediate Actions to be taken by the concerned officers.
Contd…

48. Mutual Evaluation Report (MER 2019) has pointed out
deficiencies in CDNS in compliance to FATF
recommendations, which has negatively affected the
overall grading of the recommendations 10, 11, 12
and 15. In this backdrop, CDNS had taken many
initiatives including the automation of all NSCs,
shifting of operations from decentralized to
centralized environment, compulsion of KYC forms
and bio metric verification before on boarding
customers and risk assessment of customers.
Conclusions

49. However, due to some technical and operational
constraints, many steps are yet to be taken i.e revision
of CDNS internal risk assessment, a PEP solution to
identifying if a customer or beneficial owners is a PEP
or a close associate or family member of a PEP and
implementing appropriate risk management systems,
completion of bio metric verification, KYC/CDD of
existing customers and risk assessment thereon and
formulation of comprehensive plan for audit of
AML/CFT requirements of an individual customers.
Conclusions

50. • National Savings should upgrade its Core Business
Application (CBA) capable of Fraud Monitoring
System.
• IT driven solutions must be made available to
perform AML/CFT compliance functions.
• A full-fledged module of Transaction Monitoring
System (TMS) must be developed in line with
banking practice.
• Bearer prize bonds must be phased out gradually.
• Bugs in CBA in KYC/CDD forms must be removed.
Recommendations

51. • Revision of Risk assessment report 2019 in current
scenario.
• Distance learning training program for field staff
with the help of MITC and TINS.
• Chalk out a comprehensive compliance program to
detect, respond, and eliminate potential money
laundering risk
• Allocation of necessary funds for bio metric
verification / verisys to NADRA.
• Special focus on the training need of Audit officers.
Recommendations