Pakistan’s Fight Against Money Laundering and Terrorist Financing

In the global fight against financial crime, each region faces unique challenges, and those faced by Pakistan are, arguably, more complex. Pakistan was first placed on a list of “jurisdictions with strategic deficiencies”, also known as the grey list, in 2008 and thereafter from 2012 to 2015. In June 2018 Pakistan was again placed under the watch-list due to the gaps in its Anti Money Laundering (AML) / Counter Terrorist Financing (CFT) compliance regimes.

Pakistan – as a member of the Asia Pacific Group on Money Laundering (APG) – has demonstrated that it takes financial crime seriously and is committed to implementing the Financial Action Task Force (FATF) 27-point plan.

What is FATF looking for in AML and CFT?

FATF has formulated a set of 40 recommendations which have become international standards on AML and CFT.

Over time, these recommendations have been and will continue to be updated. The recommendations list out the essential measures that countries should have in place to:

  1. Identify the risks, and develop policies and domestic coordination;
  2. Pursue money laundering, terrorist financing and the financing of proliferation;
  3. Apply preventive measures for the financial sector and other designated sectors;
  4. Establish powers and responsibilities for the competent authorities (e.g., investigative, law enforcement and supervisory authorities/including National Accountability Bureau, Financial Intelligence Unit, National Counter Terrorism Authority, etc.) and other institutional measures;
  5. Enhance the transparency and availability of beneficial ownership information of legal persons and arrangements; and facilitate international cooperation.

FATF evaluates a country’s performance based on its assessment methodology that covers:

  1. Technical compliance, which is about legal and institutional framework and the powers and procedures of the competent authorities, and
  2. Effectiveness assessment, which is about the extent to which the legal and institutional framework is producing the expected results.

A lot of these recommendations and methodology are nothing but the dry financial jargon that is characteristic of multilateral bodies and compliance professionals, such as a “risk based approach”, “structural deficiencies”, “materiality”, “customer due diligence (CDD)”, “suspicious transaction report (STR)” etc.

At Accuity, we have been supporting this cause, by helping over 40% of the banking and financial institutions (BFSI) in Pakistan meet their AML and CFT obligations for the past decade.

As Pakistan’s Banking and Financial Services (BFS) community, and sectors like Designated Non-Financial Business and Professions (DNFBPs) and Non-Banking and Financial Institutions (NBFIs), increasingly look towards advanced compliance and screening solutions, it is essential that they consider three things – effectiveness, efficiency and explainability.

The questions that these institutions should ask themselves are as follows:

Firstly, does the touted solution have effective and proven capabilities in stopping the organisation from processing an illegal transaction or onboarding a customer/counterparty it shouldn’t?

Secondly, is it efficient in stopping financial crime without compromising the customer experience? False positive reduction (FPR) is one of the biggest challenges we see in the industry today. Organisations must be careful not to implement and configure a solution on day one and then simply leave it to run. Much like how a musical instrument needs tuning until it sounds right, any financial crime screening engine must be continuously finetuned to suit the organisation’s specific regulatory obligations, risk appetite, local cultural nuances and constant regulatory changes.

Traditional names in Urdu, amongst other factors, can complicate compliance checks considerably. The potential for duplication or confusion is greater, exacerbated by translation and the fact that spellings can be fluid – take Mahmoud and Mahmud and some names are also very common – there are an estimated 150 million males in the world named Muhammad, for example. That is where Acuity leverages new age technologies such as Machine Learning and Artificial Intelligence in its solutions to further enhance the system’s efficiency, reduce screening turnaround time, and provide best-in-class matching algorithms.

Lastly, does it provide explainability? Is it easy for the organisation to pull information to report back to its regulator? As sanctions screening requirements across the region have grown more stringent, we’ve observed our customers being audited more often than before and asked to provide details on every little factor that could have affected a transaction.

As Pakistan moves towards more complex regulatory regimes, like Trade Based Money Laundering (TBML), the key challenge that banks’ compliance team face in such scenario, is the screening of goods and vessels. Banks staff is no science expert to differentiate dual-use and controlled goods from the normal-use goods. The complexity magnifies even more when there is no standard format of goods information on Bill of Lading – sometimes it has common name or scientific formula as the goods name. Similarly, vessel companies resort to nefarious actions by changing vessels names, flag, etc. when a regulator sanctions them. Keeping track of vessels name history to avoid engaging in business with a sanctioned vessel or shipping company becomes tricky for compliance professionals.

“We have been supporting the compliance community in Pakistan for over a decade now and have been helping their drive and willingness to adapt technology in fighting financial crime. Pakistan’s journey has been challenging, but the dedication of the community to implement change driven by persistent regulator should certainly help the cause of moving off the FATF monitored list. Having said that, SBP has been very proactive and has been at the forefront of setting international guidelines and regulations to ensure its member banks are adhering to prescribed compliance standards. Pakistan being an export hub, the banking relations must be maintained globally and multiple big regional banks have established international operations, making it mandatory for them to comply with both domestic and international regulations” said Piyush Chawla, Head of Sales – South Asia & ANZ at Accuity.

Ultimately, AML/CFT screening solutions, fuelled by high-quality sanctions and politically exposed persons (PEP) screening data, is a crucial component in achieving success within today’s dynamic compliance environment.

At Accuity, we consider all these factors and believe that potential hurdles to effective screening can be overcome with the right mindset, knowledge, cultural focus and resources. We look forward to continuing this essential conversation and making a positive impact locally.

“With the mission of developing human capital for the banking industry in Pakistan for over seven decades, the Institute of Bankers Pakistan (IBP) is committed towards meeting global compliance standards and ensuring FATF observations on AML/CFT regime for the region.

This mainly entails a two-pronged approach: One, propagating awareness of these recommendations within the banking and financial industry; the other being adoption of technology to ensure the required systems are in place. Focusing on the former, State Bank of Pakistan has played a key role in propagating the culture of the sustainable compliance. With its mandate, IBP has been proactive in engaging various stakeholders, including regulatory technology partners like Accuity, to deepen the Financial Crime Compliance proliferation across Pakistan”

Faisal Hussain
Director Research & Development, Institute of Bankers Pakistan

“Over the last two years or so, Pakistan has covered a lot of ground in coming up to and, in fact, endeavoring to exceed the expectations of FATF in adherence to the 40 Recommendations and largely completing the plan of action agreed with FATF. Updating the national risk assessment-2019, completely revamping the AML/CFT Guidelines by SBP, are some of the examples evidencing the serious commitment of the government in taking its fight against money-laundering and terrorist & proliferation financing to the next level. I believe that FATF’s landmark work has enabled the world to be a much more secure place for corporates, financial institutions and designated non-financial businesses & professions (DNFBPs). It has led to other desired consequences as well, like the documentation of economy, better utilization of national wealth, encouraging the observance of human rights, etc. However, in my opinion, given the perennially changing regulatory landscape, international standards & guidelines, advancements in products & services as well as technology, and increasing complexity in the changing tactics adopted by the financial criminals, the fight against such crimes is going to be a continuing endeavor rather than a conclusive war”

Faisal Anwar
Senior Independent Consultant/Advisor, ex-Head Global Compliance Group, Habib Bank Limited