UAE no longer attractive Investment Hub for ” Hot money “

Financial Action Task Force (FATF) , a Paris-based global watchdog , has categorised UAE  on the FATF  ‘gray list’ endangering its position as a regional financial centre . Now transactions and commercial trade in the seven Emirates of the United Arab Emirates are strictly monitored. Dubai has traditionally been a conduit for illicit drug and financial kickback amounts on international government contracts for Indian origin individuals.  Perhaps the financial glitter of UAE and its Emirate of Dubai will wear off under international financial scrutiny.

Anti Money Laundering Regime

Under the Anti-Money Laundering Act, the Federal Board of Revenue  (FBR) is responsible for ensuring that designated non-financial businesses and professions (DNFBPs) including real estate agents, dealers in precious metals and stones and FBR-supervised accountants comply with anti-money laundering and counter financing of terrorism obligations. Financial institutions, lawyers, law firms, notaries and non-FBR-supervised accountants are supervised by other competent authorities and self-regulatory bodies.

Terrorists Disguise Sources of Illicit Money

Money laundering is the process used to disguise the source of money or assets derived from criminal activity. Pakistan’s Anti-Money Laundering regime is in place to ensure that crime does not pay and to protect the integrity of the domestic and international financial systems. Terrorist financing involves the use of funds that may be licit or illicit in origin and using these funds to support terrorist activity. Though terrorist financing transactions are usually smaller in value than those associated with money laundering terrorist financing can result in tragic losses of life. Pakistan’s counter terrorist financing system works to protect the public in concert with the regimes for United Nations and Pakistani targeted financial sanctions. Pakistan’s Anti-Money Laundering Act now includes obligations that apply to DNFBPs. This includes lawyers and law firms, notaries, other legal professionals, accountants and accounting firms, when they provide certain services to client, real estate agents including brokers and dealers, builders and developers, housing authorities, as well as dealers in precious metals and stones including jewellers when conducting cash transactions over 2 million rupees. The accounting and legal sectors are also subject to AML/CFT, rules when they provide trust and company services for clients.

Know Your Client Approach for Banks

The key to an effective AML/CFT system is a good understanding of risk. Each DNFBP must assess and document its risks by looking at its customers, business types, delivery channels and geographic exposure, and keep this understanding up to date. This allows for resources to be targeted towards those areas that present the greatest risk for money laundering and terrorist financing abuse, in order to mitigate these risks.

Credit /Source ;    https://www.fbr.gov.pk/introduction-aml-cft/152366/152367

 

The State Bank of Pakistan has issued regulations of AML/ CFT Guidelines on Risk Based Approach for SBP’s Regulated Entities (SBP REs-Banks/ DFIs/ MFBs)

(A) PREAMBLE 1) Globally there has been an emphasis on application of Risk Based Approach (RBA) to ensure that measures to prevent or mitigate Money Laundering (ML), Terrorist Financing (TF) and Proliferation Financing (PF) are proportionate to the identified ML, TF and PF risks. In this regard expectations are that: a) RBA should be an essential foundation for efficient allocation of resources across the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) regime and the implementation of risk-based measures. b) There should be a National Risk Assessment (NRA) exercise which helps in identifying, assessing and understanding the ML and TF risks at country level. c) The risks identified through NRA should be adequately addressed in AML/CFT regime implemented in the country. The areas where ML/TF/PF risks are identified as low, Regulated Entities (REs) may be allowed to take decision regarding application of simplified measures. 2) Meeting the above expectations requires an important and pivotal role by Regulators/Supervisors of Financial Institutions (FIs)/ REs for ensuring technical compliance and effectiveness on RBA. In this regard sharing of results of NRA and embedding those results in regulatory/ supervisory framework and REs policies/procedures/SOPs/compliance program/internal risk assessments and allocation of resources proportionate to the level of threats and vulnerabilities identified in NRAs is an essential element for achieving effective mitigation of ML/TF/PF risks. 3) In this perspective, Pakistan had completed NRA in 2017, NRA-TF in 2019 and updated NRA on ML/TF in 2019. SBP has not only actively participated in NRA exercises but also ensured involvement of its REs. SBP had shared results of NRA 2017 in Compliance Forum meetings and complete documents of NRA-TF 2019 and NRA on ML/TF 2019 with its REs. REs were not only instructed to ensure capacity building of their staff but also encouraged to undertake measures to enhance outreach for raising customer awareness. REs were also instructed to use the results of NRAs for developing their understanding on ML/TF/PF risks and consider the findings while devising mitigation strategy and policy for ML/TF/PF risks. SBP also ensured extensive outreach/awareness on threats and vulnerabilities identified in NRAs to its supervisory staff through training sessions and REs through compliance forums. 4) SBP had issued its Risk Based Approach (RBA) Guidelines on AML/CFT in 2012. Subsequently, Pakistan committed an action plan with FATF in June 2018 and also undergone a Mutual Evaluation by Asia Pacific Group which was concluded in 2019. In the context, findings of NRAs and aforementioned developments, SBP is issuing following updated guidance to its REs for ensuring adoption of RBA in line with international standards and best practices in areas: identification, assessment and understanding of ML/TF/PF risks, devising AML/CFT controls and preventive measures recommended by FATF for mitigation of ML/TF/PF risk (including implementation of Targeted Financial Sanction (TFS) related to Terrorist Financing (TF) & Proliferation Financing (PF) , Suspicious Transaction Reporting (STR) and Currency Transaction Reporting (CTR)).

Risk Based Approach for Banking Sector

SBP had issued its Risk Based Approach (RBA) Guidelines on AML/CFT in 2012. Subsequently, Pakistan committed an action plan with FATF in June 2018 and also undergone a Mutual Evaluation by Asia Pacific Group which was concluded in 2019. In the context, findings of NRAs and aforementioned developments, SBP is issuing following updated guidance to its REs for ensuring adoption of RBA in line with international standards and best practices in areas: identification, assessment and understanding of ML/TF/PF risks, devising AML/CFT controls and preventive measures recommended by FATF for mitigation of ML/TF/PF risk (including implementation of Targeted Financial Sanction (TFS) related to Terrorist Financing (TF) & Proliferation Financing (PF) , Suspicious Transaction Reporting (STR) and Currency Transaction Reporting (CTR)).Banks/DFIs/MFBs shall ensure an entity level internal risk assessment report covering ML/TF risks including Transnational TF, PF and other emerging risks to and from SBP’s REs.

The internal risk assessment report should help to identify, assess, and understand ML/TF/PF risks at entity level for customers, products, services, transactions, delivery channels and geographies. Internal risk assessment report should also assess major international /domestic financial crimes and terrorism incidents which have probability of posing ML/TF/PF risks to the entity, SBP REs and the Pakistan’s financial sector.

Risk assessment would generally be based on perception, subjective judgment and experience of REs about ML/TF/PF risks posed to them. The REs may adopt any approach which is suitable to them depending upon the nature of their operations, risk appetite and business strategy; and may incorporate the suggested factors mentioned in guiding documents.

 Credit/Source ;   http://www.sbp.org.pk/

By Nadir Mumtaz