As the pressure is mounting on Pakistan to take additional strict measures to curb money laundering, the State Bank on 14th June, 2107, took some new steps to combat money laundering and terror financing. Fresh guidelines were issued to banks and DFIs to tighten rules against money laundering and choke the flow of funds to finance terrorism. According to new amendments, banks and DFIs will make a comprehensive assessment of controls on asset products and related customers to ensure effective implementation of due diligence requirements as per their own assessment of materiality and risk simulation without compromising on identity and verification requirements. Banks and DFIs were advised to place adequate number of analysts for monitoring and reporting and take steps towards developing their knowledge and skills to use latest technology for effective monitoring and reporting of suspicious transactions. Financial institutions were also instructed to incorporate procedures to record and maintain data of account opening cases rejected by compliance of central account opening units. Another important instruction was not to assign unrealistic business targets and conflicting roles to bank employees. Risks of money laundering and terror financing were also advised to be included in key performance indicators (KPI) of officers responsible for enterprise risk management and operational risk management functions.

It may be mentioned here that this is not the first time for the SBP to introduce measures to check money laundering and terror financing in the country and abroad through banking channels. It had already developed comprehensive AML regulations which were being aligned with Financial Action Task Force (FATF) recommendations and other international standards. The SBP also helped in draft making and finalisation of the AML Law/Act and its subsequent amendments to meet international standards and bring consistency and clarity to the enforcement provisions. Although, almost all the essential aspects of preventive and control measures for combating terrorism as per risks involved seem to be already covered, the latest instructions on the subject is another attempt to sensitise the banks/DFIs about the importance of the subject and cover all the flanks. The objective seems to be to identify and understand all the money laundering and terrorist financing risks in the country and follow a risk-based approach to mitigate the risks. The financial institutions, in a nutshell, have been told to be more active and diligent and spare no effort to close any loopholes that may be exploited by unscrupulous elements. Banks and DFIs, for instance, have been asked to recruit more analysts, upgrade their knowledge and skill levels and utilize the latest technology for effective monitoring and reporting of suspicious transactions. They have also been advised not to assign unrealistic targets to employees and include KPIs for judging their efficiency in risk management and anti-laundering effort. Unrealistic targets given to the staff, undue emphasis on their achievement and understaffing at the banks/DFIs often result in overlooking the dubious accounts and initiating proper actions. While the newly announced measures could help combat money laundering and terror financing in an effective and meaningful manner, they need to be complemented by other steps like proper education, generation of more employment opportunities and strengthening and reinforcing the police and intelligence networks to root out the scourge of terrorism from the country. It also needs to be pointed out that proper co-ordination by other central banks is also quite necessary for the success of the effort.

Copyright Business Recorder, 2017