The Presidents / Chief Executives,
All Banks/ DFIs.

Dear Sirs / Madam,

ANTI MONEY LAUNDERING MEASURES

In order to ensure compliance with Financial Action Task Force recommendations on anti-money laundering, safeguard the interest of depositors from risks arising out of money laundering and to reinforce the measures being taken by the banks / DFIs for proper management of their institutions, the following additions are made, in public interest, in the Prudential Regulations for Corporate / Commercial Banking with immediate effect:

1. REGULATION G-1
E. FITNESS AND PROPRIETY OF KEY EXECUTIVES:

The following new paragraph has been added at number 3 and the existing paragraph No.3 has been renumbered as 4:

“3. The banks / DFIs should also develop and implement appropriate screening procedures to ensure high standards and integrity at the time of hiring all employees, whether contractual or permanent.”

2. REGULATION M-1
KNOW YOUR CUSTOMER (KYC)

The following new paragraph has been added at number 8 and the existing paragraph No.8 has been renumbered as 9:

“8. Banks / DFIs will also undertake customer due diligence measures, including identifying and verifying the identity of walk-in-customers conducting transactions above an appropriate limit to be prescribed by the banks / DFIs themselves.”

3. The following new regulation M-3 will be added in the Prudential Regulations for Corporate / Commercial Banking:

REGULATION M-3
RECORD RETENTION

The records of transactions and identification data etc. maintained by banks / DFIs occupy critical importance as for as legal proceedings are concerned. The prudence demand that such records may be maintained in systematic manner with exactness of period of preservation to avoid any set back on legal and reputational fronts. Banks / DFIs shall therefore, maintain, for a minimum period of five years, all necessary records on transactions, both domestic and international. The records so maintained must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved, if any) so as to provide, if necessary, to SBP or law enforcement agencies for investigation or as an evidence in legal proceedings. Banks / DFIs shall, however, retain those records for longer period where transactions relate to litigation or are required by the Court of law or by any other competent authority.

2. The banks / DFIs shall keep records on the identification data obtained through the customer due diligence process (e.g. copies or records of official identification documents like passports, identity cards, driving licenses or similar documents), account files and business correspondence for at least five years after the business relationship is ended.

3. The records relating to the suspicious transactions reported by the bank / DFI will be retained by the bank / DFI, even after the lapse of the period prescribed above, till such time the bank / DFI gets permission from State Bank of Pakistan to destroy such record.

4. The following new regulation M-4 will be added in the Prudential Regulations for Corporate / Commercial Banking:

REGULATION M-4
CORRESPONDENT BANKING

The banks / DFIs shall gather sufficient information about their correspondent banks to understand fully the nature of their business. Factors to consider include:
• Know your customer policy (KYC)
• Information about the correspondent bank’s management and ownership

• Major business activities
• Their location
• Money laundering prevention and detection measures
• The purpose of the account
• The identity of any third party that will use the correspondent banking services (i.e. in case of payable through accounts)

• Condition of the bank regulation and supervision in the correspondent’s country

2. The banks / DFIs should establish correspondent relationships with only those foreign banks that have effective customer acceptance and KYC policies and are effectively supervised by the relevant authorities.

3. The banks / DFIs should refuse to enter into or continue a correspondent banking relationship with a bank incorporated in a jurisdiction in which it (the correspondent bank) has no physical presence and which is unaffiliated with a regulated financial group (i.e., shell banks). The banks / DFIs should also guard against establishing relations with correspondent foreign financial institutions that permit their accounts to be used by shell banks.

4. The banks / DFIs should pay particular attention when continuing relationships with correspondent banks located in jurisdictions that have poor KYC standards or have been identified by Financial Action Task Force as being “non-cooperative” in the fight against money laundering.

5. The banks / DFIs should be particularly alert to the risk that correspondent accounts might be used directly by third parties to transact business on their own behalf (e.g., payable-through-accounts). In such circumstances, the banks / DFIs must satisfy themselves that the correspondent bank has verified the identity of and performed on-going due diligence on the customers having direct access to accounts of the correspondent bank / DFI and that it is able to provide relevant customer identification data upon request to the correspondent bank / DFI.

6. Approval should be obtained from senior management, preferably at the level of Executive Vice President or equivalent, before establishing new correspondent banking relationships.

5. The following new regulation M-5 will be added in the Prudential Regulations for Corporate / Commercial Banking:

REGULATION M-5
SUSPICIOUS TRANSACTIONS

The banks / DFIs should pay special attention to all complex, unusually large transactions, and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose. Examples of such suspicious transactions are listed at Appendix-I to this circular. However, these are not intended to be exhaustive and only provide examples of the most basic ways in which money may be laundered. The back ground and purpose of such transactions should, as far as possible, be examined, the findings established in writing, and be available to help the relevant authorities in inspection and investigation.

2. If the bank / DFI suspects, or has reasonable grounds to suspect, that funds are the proceeds of a criminal activity, it should report promptly within three days, after conducting appropriate investigation, its suspicions, through Compliance Officer of the bank / DFI to Banking Policy Department of the State Bank of Pakistan. The report should contain, at a minimum, the following information:
a) Title, type and number of the accounts.
b) Amounts involved.
c) Detail of the transactions.
d) Reasons for suspicion.
e) Nature of the underlying criminal activity, the bank / DFI suspects, has generated the proceeds under suspicion.

3. The employees of the banks / DFIs are strictly prohibited to disclose the fact to the customer or any irrelevant quarter that a suspicious transaction or related information is being reported for investigation.

4. In cases of foreign branches of the banks/DFIs and subsidiaries of the banks/DFIs in foreign countries undertaking banking business, the banks/DFIs would ensure compliance with the regulations (relating to Anti Money Laundering and KYC) of State Bank of Pakistan or the relevant regulations of the host country, whichever are more exhaustive.