ARRANGEMENTS BANKS NEED TO INSTITUTE

TO PREVENT MONEY LAUNDERING

 KNOW YOUR CUSTOMER POLICY:

 Every bank must have a clearly defined and properly documented policy on
entertaining customers business.
 No bank should establish relationship with a customer until it knows the
customer’s true identity.
 If a potential customer is unwilling to provide the necessary information,
establishment of the relationship should be seriously reconsidered.
 In respect of all established relationships the bank should remain alert to any
unusual business transactions in customer accounts.
 Know your customer policies are a bank’s most effective weapon against
being used for money laundering.
 Knowing the customers including depositors and other users of bank
services, requiring appropriate identification and being alert to transactions
that seem out of character for the customer or those that appear suspicious,
can help deter and often detect money laundering.
A POLICY TAILORED TO THE BANK’S CUSTOMER BASE,
BUSINESS NICHE AND OPERATIONS OFFERS THE
FOLLOWING ADVANTAGES:

 Helps detect suspicious activity in a timely manner.

 Promotes compliance with all banking laws.
 Promotes safe & sound banking practices.
 Minimizes the risk that the bank will be used for illicit
activities.
 Reduces the risk seizure and forfeiture of customer’s
loan collateral.
 Protects the banks reputation.
 Bolsters confidence among its customers, other banks
and bank regulators.
 TO PREVENT MONEY LAUNDERING AN
ATTEMPT IS MADE HERE TO LIST SOME OF THE
STEPS BANKS MAY TAKE:-

 OPENING OF ACCOUNTS:-
 Before opening of an account accepting a natural or
juridical person as the bank’s customer. A banker
should discuss and record the following:-
 The client’s background.
 His business or employment particulars
 Type of transactions that the bank would be required to
execute.
 Every effort must be made to establish the true identity
of the client.
 CUSTOMER DETAILS:-

 The account opening form must be designed in a manner that it

asks for and incorporates all relevant information about the
customer:
 Full name, address (both home & business) and date of birth.
 Account holder’s bona-fide must be established on adequate
evidence of his/her correct identity, nationality and domicile.
 In case of married persons, details of their spouses should also
be recorded.
 Inquiries should be made about the sources of the customer’s
wealth and facts recorded on the data sheet to be maintained for
each customer.
 If the prospective customer is an employee the employer’s name
and nature of the employer’s business should be recorded.
 If he is self employed the occupation should be clearly defined,
indicating place of practice and length of time in the present
occupation.
 Incase of foreigners employed locally, copies of their
passport should be obtained to establish their status. A reference
should be obtained from their local employer.
 If it is a business account the nature of the business, products
or services dealt in, places of business and size of their
operation, ownership, individuals or the group holding
controlling shares/equity therein, references from existing
bankers and report of the Credit Information Bureau must be
obtained.
 LEGAL ENTITY:
 Be it a sole proprietorship a partnership or a limited liability company documentary, evidence
including Registration of the Proprietorship, Partnership Deed, Certificate of Incorporation,
Certificate of Commencement of Business, Memorandum & Articles of Association appropriate
Board resolutions and bye laws, a copy of NICs of the partners / Directors etc. must also be
obtained.
 In case of doubt, a copy of the entity’s registration certificate should be obtained directly from
the relevant office of Securities & Exchange Commission of Pakistan.
 NON RESIDENT ACCOUNTS:-
 The fact that these individuals reside in foreign country should raise the banker’s threshold for
inquiries and quality of account introduction.
 It is important that the scrutiny of their travel documents should be conducted thoroughly to
ensure that they are genuine and valid to begin with, in all these cases, customer must be
introduced by very reliable sources.
 INTRODUCTION:-
 All customer accounts must be properly introduced.
 Introduction must not be treated as a routine affair.
 The introducer should be a good customer of the bank.
 Introduction of customers by staff members of the bank particularly junior staff members
should be discouraged.
 LETTER OF THANKS:-
 A letter of thanks should be sent to the introducer and it should be followed up to
ensure that the introducer receives the letter.
 If, however, the letter is returned undelivered no transaction should be permitted in
the account until the issue of the identification of the introducer is resolved to the
satisfaction of the bank.
 No transaction in the account should be permitted until the issue of the identification
of the introducer is resolved to the satisfaction of the bank.
 ISSUANCE OF CHEQUE BOOK:-
 Cheque book should be issued only after completion of all formalities required for
opening of account.
 Authorization for issuing cheque books should be given by a senior staff member
designated for the purpose or the branch manager.
 NO CORRESPONDENCE ACCOUNT:-
 Such account should be treated with extra care.
 Such customer should be interviewed by the branch manager to ascertain the reason(s)
for the customer issuing such instructions.
 ACCOUNTS OPERATED BY ATTORNEY:-
 Reasons for such delegation of authority, full particulars of the agent and
relationship of the account holder with the agent must be established as fair
and legally defendable.
 THE NEED FOR CAUTION:
 Any doubt about the acceptability of the person based on risk assessment or
the applicability of local laws and regulations to the account should be
sufficient reason for not opening the account.
 Regret at this stage would save the bank from many and perhaps more painful
regrets in future.
 CHANGE IN ACCOUNT HOLDER’S PARTICULARS:-
 In the event of changes in the account holder’s particulars including nature of
business, business activities address, or constitution/ownership of the entity
these should be recorded in customer files.
 MONITORING ACTIVITY IN CUSTOMER ACCOUNTS:-
 Monitoring should be dealt with as an on going process.
 If after opening an account and having transactions therein indications
emerge that suggest that risk involved in continuing the account is
unacceptable either as per bank’s own laid down policy, or local law and
banking regulation, the relationship may be terminated.
 Transactions in the account should be reviewed regularly to assess whether
the number and amount of transactions routed through the customer’s
account is in line with the level of business activity / status of the customer.
 From the point of view of money laundering effective monitoring of
accounts is critically important to establish the following.
 A logical relationship between the volume of business being under taken by
the customer and its reflection in related banking transactions being booked
in the customer’s account(s) with the bank.

 The customer is not engaging in business that is not in the knowledge of the
bank and also remains unreported to the concerned regulatory and taxation
authorities.
 There is no change in the character of payment instruments deposited in to
the customer’s account(s) indicating a major shift whereby “endorsed” or
bearer instruments are being deposited in the accounts.
 Cash transactions remain a very small percentage of the total amount being
moved through the account(s). A significant increase in their volume indicates
a switch to undocumented business transaction.
 Inward remittances not related to customer’s business are not being received
in those accounts. Arrival of such remittances must be inquired into from the
customer because it could be tainted money.
 Flows of funds into and from the account are as per the initial understanding
reached with the customer. Suddenly they are not originating either from or
destined for money laundering sensitive geographical locations.
 TRANSACTIONS WITH NON ACCOUNT HOLDERS:-
 Transactions with persons not having an account relationship with the bank
should, as for as possible be avoided particularly one off transactions or
transactions involving transfer of large amount of cash.
 COLLATERAL SUBJECT TO SEIZURE POSSIBILITIES:-
 While accepting collateral securities to secure customer loans banks must
remember that assets purchased out of the proceeds of laundered money, are
subject to government seizure and forfeiture.
 Therefore, knowing your customers, the sources of their incomes and wealth
out of which they have created assets that banks may accept as collateral, can
protect banks against losses they may suffer upon seizure of such collateral.