MINISTRY OF LAW AND JUSTICE
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Frequently Asked Questions

The Anti – Money Laundering and Countering Financing of Terrorism (AML/CFT) regime seeks to help instill public confidence in the country’s financial systems domestically and globally. The AML/CFT regime in Pakistan is applicable for banks, other financial institutions, financial service providers and the Designated Non – Financial Business and Professions (DNFBPs).

In this regard, the Ministry of Law and Justice is pleased to publish Frequently Asked Questions (FAQs) on AML & CFT aiming to provide a clear and concise understanding of the AML / CFT obligations.

These FAQs aim to facilitate lawyers and other legal professionals to comprehend and implement their obligations under the AML/CFT regime under the Anti – Money Laundering Act 2020 and the related Rules and Regulations.

It includes information on a range of topics, such as Risk Based Customer Due Diligence, Ultimate Beneficial Ownership, Politically Exposed Persons, STR & CTR filing requirements, Targeted Financial Sanctions (TFS), record keeping and more information about how to comply with AML/CFT obligations.

The FATF is an inter-governmental body who sets international standards that aim to prevent money laundering (ML), terrorist financing (TF) and also works to stop funding for weapons of mass destruction (PF). As a policy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. The FATF published a revised set of 40 Recommendations on AML/CFT measures in 2012, which are being continuously updated. Further information on the FATF is available at http://www.fatf-gafi.org/.

The National Risk Assessment (NRA) is a government–wide activity undertaken to develop risk–based anti–money laundering and countering the financing of terrorism (AML/CFT) actions and facilitate allocation of available resources to control and mitigate risks.

ML is the processing of criminal proceeds to disguise their illegal origin from the commission of a predicate offense, which underlying crime that generates the funds to be laundered. This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardizing their source. Illegal arms sales, smuggling, and the activities of organized crime, can generate huge amounts of proceeds. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to “legitimize” the ill-gotten gains through ML. When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention. In response to mounting concern over money laundering, the FATF developed a coordinated international response. One of the first tasks of the FATF was to develop the 40 Recommendations, which set out the measures national governments should take to implement effective anti-money laundering programs.

Terrorists and Terrorist organizations also rely on funds and other assets to sustain themselves and to carry out terrorist acts. The funds and other assetsused by terrorists are derived from a wide variety of sources. Generally, Individual terrorists or terrorist organizations are not greatly concerned with disguising the origin of the funds and other assets, they are concerned with concealing its destination and the purpose for which it is collected. Terrorists and Terrorist organizations therefore employ techniques similar to those used by money launderers to hide their funds and other assets, which may be from legitimate or illegal sources.

Weapons of Mass destruction proliferation refers to the manufacture, acquisition, possession, development, export, trans-shipment, brokering, transport, transfer, stockpiling or use of nuclear, chemical, or biological weapons and their means of delivery, and related materials (including both technologies and dual-use goods used for non-legitimate purposes), in contravention of national laws or, where applicable, international obligations. Preventing proliferation financing is an important part of combating proliferation. It is essential to disrupt the financial flows available to proliferators and to obstruct and complicate the procurement of the illicit goods, services and technology needed for the development of weapons of mass destruction and their means of delivery.

Under section 2(xii) of the Anti-Money Laundering Act,2010 “Designated non-financial businesses and professions or DNFBPs” mean the following persons, namely:-

(a) real estate agents, including builders and real estate developers, when performing the prescribed activities in the prescribed circumstances and manner;

(b) dealers in precious metals and precious stones, including jewellers and gem dealers, when performing the prescribed activities in the prescribed circumstances and manner;

(c) lawyers, notaries, accountants and other legal professionals who carryout monetary transactions for their clients concerning the following activities:-

    (I) managing, operating, buying and selling of real estate, legal persons and legal arrangements and preparing documents therefor;

    (II) managing of client money, securities or other assets;

    (III) managing bank, savings or securities accounts; or

    (IV) organizing contributions for the creation, operation, or management of companies;

(d) trust and company service providers, when they carry out monetary transactions or services for a client concerning the following activities:–

    (I) acting as a formation agent of legal persons;

     (II) acting as or arranging for another person to act as a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons;

    (III) providing a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership or any other legal person or arrangement;

    (IV) acting as or arranging for another person to act as a trustee of a trust or performing the equivalent function for another form of legal arrangement; and

    (V) acting as or arranging for another person to act as a nominee shareholder for another person; and

(e) such other designated non-financial businesses and professions as may be notified by the Federal Government.

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Lawyers are key actors in the business and financial world, facilitating vital transactions that underpin the economy in Pakistan and globally. The Financial Action Task Force (FATF) characterizes lawyers as “Gatekeepers” because they “protect the gates to the financial system,” through which potential users must pass in order toaccess it. Both domestic and international evidence suggests that using gatekeepers, such as lawyers, is a way for criminals to create a false perception of legitimately acquired wealth or create opaque legal structures to obfuscate illicit financing. The FATF has noted that gatekeepers are a common element in complex money laundering schemes. Gatekeepers’ skills are important in creating legal structures that could be used to hide illicit proceeds or engage in illicit financing, and for their ability to manage and perform transactions efficiently to avoid detection.

Lawyers are key actors in the business and financial world, facilitating vital transactions that underpin the economy in Pakistan and globally. The Financial Action Task Force characterizes lawyers as “Gatekeepers” because they “protect the gates to the financial system,” through which potential users must pass in order to access it.

Under Section 2(xii)(c) of the Anti-Money Laundering Act, 2010, lawyers who carryout monetary transactions for their clients concerning these activities shall be treated as designated non-financial business and professions (DNFBPs) for the purposes of AML/CFT Regime:-

     (i) managing, operating, buying and selling of real estate, legal persons and legal arrangements and preparing documents therefor;
     (ii) managing of client money, securities or other assets;
     (iii) managing bank, savings or securities accounts; or
     (iv) organizing contributions for the creation, operation, or management of companies.
In addition to the aforementioned activities, Section 2(xii)(d) of the Anti-Money Laundering Act, 2010, provides for other services which, if provided by a lawyer, shall make him subject to the AML/CFT Regime:-
     (i) acting as a formation agent of legal persons;
     (ii) acting as or arranging for another person to act as a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons;
     (iii) providing a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership or any other legal person or arrangement;
     (iv) acting as or arranging for another person to act as a trustee of a trust or performing the equivalent function for another form of legal arrangement; or (v) acting as or arranging for another person to act as a nominee shareholder for another person.
     Where a lawyer is not engaged in any of the above activities or providing such services, he is not subject to the AML/CFT DNFBPs related statutes, rules or regulations etc.

A number of AML/CFT risks are associated with the specified services or activities where lawyers are engaged.

By way of an example, a lawyer may be carrying out transactional activities including preparing documents for the sale of real property, or acting on behalf of the buyer including managing deposits or payments for real property. Lawyers are normally involved in the transfer of property. Real estate, both commercial and residential, accounts for a high proportion of confiscated criminal assets, demonstrating that this as a clear area of vulnerability. In such cases, even if the lawyer is not handling the funds, he will typically be aware of the financial details and in many cases will be in a position to inquire about the transaction where appropriate.

Another example of potential risk is where lawyers may act under the power of attorney and manage client’s funds, accounts, securities, or other assets. In such cases, people try to avoid accessing banking services typically used in transactions to obscure the trail of funds changing hands as a means to hide their criminal activities. One way to obscure this trail or to add an appearance of legitimacy is to use the professional services of a lawyer to interact with financial institutions.

Another situation where lawyers are at risk might be when they are acting as a formation agent for legal person (such as a company) or legal arrangement on behalf of a customer (such as registering a company with the SECP). In these cases, the actual ownership of the legal person being formed may be concealed or obscu#941515 for example, where shell companies, multiple layers of ownership, or other complex legal structures are used. Setting up a trust can also be a way to create a perception of distance between assets and their beneficial owners. This obscures the beneficial owner (s). Further, international evidence shows that people can use charitable organisations (such as incorporated societies and charitable trusts) to finance terrorism.

In cases where a lawyer is acting as a nominee director or nominee shareholder for a legal person, others may gain a false impression of legitimacy for the activities undertaken by the legal person. This lack of visibility provides criminals with the opportunity to use their companies or other legal persons for Money Laundering or other financial crime without being detected. The possibility of detection is made less likely because they can do this while maintaining the impression of oversight by reputable Pakistan based (lawyer) directors.

In certain instances, a legal professional providing a registered office or a business address, a correspondence address, or an administrative address for a company, or a partnership, or for any other legal person or legal arrangement, is providing a specified service subject to the AML/CFT regime. This might indirectly assist a person who intends Money Laundering, Terrorist Financing, or committing other crime, through use of an address that is not their physical location. It allows such criminals to keep anonymity and distance from the transactions and activities they are undertaking, and if it is the address of a law firm, it adds a perception of legitimacy to their activities. It also makes it more difficult for law enforcement to track them down in person. That is why it is very important to obtain the physical address of the customer when providing specified services.

Pursuant to Section 6A(1) and Schedule-IV 2(iii) of AMLA, the Pakistan Bar Council, the Islamabad Bar Council and the Provincial Bar Councils are the designated AML/CFT Regulatory Authorities for lawyers licensed with them.

Yes. The Financial Monitoring Unit (FMU) is the Financial Intelligence Unit of Pakistan. It is mandated to receive and analyze STRs and CTRs.
The Ministry of Foreign Affairs is responsible for issuing SROs on TF and PF. These SROs are implemented in Pakistan through the United Nations (Security Council) Act, 1948. Under this Act the Ministry of Foreign Affairs issues SROs to give legal effect in Pakistan these decisions of the Security Council.
The Ministry of Interior/NACTA issues Proscribed Organizations and Persons under the ATA for domestic designations on terrorism and TF.
The Strategic Export Control Division (SECD) in the Ministry of Foreign Affairs is responsible for issuing SROs on PF.

Therelevant statutes, laws and regulations applicable in Pakistan are as follows:
     (i) The Anti-Money Laundering Act, 2010 (AMLA)
     (ii) AML/CFT Sanctions Rules, 2020
     (iii) FMU Guidelines for the Reporting Entities on filing of Suspicious Transaction Reports
     (iv) Oversight Body Regulations
     (v) SRB Regulations
     (vi) The United Nations (Security Council) Act 1948 (UNSC Act)
     (vii) The Anti-Terrorism Act 1997 (ATA)
     (viii) United Nations Security Council (Freezing and Seizure) Order, 2019 (UN Act Freezing and Seizing Order);
     (ix) UNSC Act Statutory Regulatory Orders (UN SROs) by the Ministry of Foreign Affairs
     (x) Ministry of Interior/National Counter Terrorism Authority (NACTA) Proscribed Organizations under Schedule-1 and Proscribed individuals under Schedule-4 of ATA
     (xi) Counter Measures for High-Risk Jurisdiction Rules, 2020 (Counter Measures for High-Risk Jurisdiction Rules)

Weapons of Mass destruction proliferation refers to the manufacture, acquisition, possession, development, export, trans-shipment, brokering, transport, transfer, stockpiling or use of nuclear, chemical, or biological weapons and their means of delivery, and related materials (including both technologies and dual-use goods used for non-legitimate purposes), in contravention of national laws or, where applicable, international obligations. Preventing proliferation financing is an important part of combating proliferation. It is essential to disrupt the financial flows available to proliferators and to obstruct and complicate the procurement of the illicit goods, services and technology needed for the development of weapons of mass destruction and their means of delivery.
Note: Detailed guidance on this subject shall be provided in the regulations issued by the Bar Council.

For mitigation purposes, a lawyer shall:
(a) have policies, controls and procedures, to enable them to manage and mitigate the risks that have been identified by National Risk Assessment, respective Bar Council and its own risk assessment;
(b) monitor the implementation of those policies and procedures and to enhance them if necessary; and
(c) take enhanced measures to manage and mitigate the risks where higher risks are identified.

Yes: Under Section 7A the Anti-Money Laundering Act, 2010, every reporting entity (including lawyers) with regard to the specified services must conduct CDD on the customer, its beneficial owner and any authorized representative. CDD includes identifying and taking reasonable measures to verify the identity of the beneficial owner.
Section 7B of the Act provides for reliance on third parties in conducting CDD.
Section 7D(1)provides that where a reporting entity is unable to complete CDD requirements, it shall not open the account, commence business relations or perform the transaction; or shall terminate the business relationship if any. It further provides that the reporting entity shall promptly consider filing a Suspicious Transaction Report in relation to the customer. CDD to be completed prior to providing the specified services or terminating the relationship if any. It also provides for ceasing the CDD process to avoid tipping off.
Pursuant to section 7D(2), where a reporting entity forms a suspicion of money laundering or terrorist financing, and reasonably believes that performing the CDD process will tip-off the customer, the reporting entity shall not pursue the CDD process and shall file a STR.
Section 7E prohibits anonymous business relationships and transactions.
For penalties, section 7I of the Act, provides that the AML/CFT regulatory authority (e.g. Pakistan Bar Council) may impose monetary and administrative penalties for violations of Sections 7A to 7H.
Further, Rule 3 of the AML/CFT Sanction Rules, 2020 provides the powers for the Pakistan Bar Council to sanction lawyers for non-compliance pursuant to Section 7 of the Act, AML/CFT regulations and FMU regulations. Rules 4 and 6 outline the types of sanctions and penalty amounts. Rules 7 and 8 outlines the process for issuing sanctions in writing and the appeal process, respectively.

“Customer Due Diligence” or “CDD” – means
    (a) identification of client/customer (whether natural or legal person or legal arrangement) and its verification of identity using reliable, independent source documents;
    (b) identification and verification of identity of a person purporting to act on behalf of a client;
    (c) in relation to legal persons and legal arrangements take reasonable measures to understand the nature of customer’s business and its ownership and control structure, identify customer and its beneficial owner and verify the identity of customer and the beneficial owners using relevant information or data obtained from a reliable source;
    (d) lawyer shall perform enhanced due diligence where the ML/TF risks are higher. Such enhanced due diligence may include obtaining additional information regarding purpose of transactions and source of funds;
    (e) the enhanced due diligence will be applied while dealing with natural and legal persons of high risk countries and geographies identified by FATF, National Risk Assessment, and SRB’s risk assessment;
    (f) conduct ongoing due diligence of all their customers including existing customers on the business relationship, to ensure that the transactions being conducted are in line with customer’s business, risk profile and source of funds; and
    (g) to carry out any other due diligence measures as and when required by the SRB under the Anti-Money Laundering Act, 2010.
Note: Detailed guidance on this subject shall be provided in the regulations issued by the Bar Council.

Under section 7A(1) of AMLA, every reporting entity shall conduct CDD the following matters, namely:-
    (a) entering into a business relationship;
    (b) conducting an occasional transaction above the prescribed threshold;
    (c) where there is a suspicion of money laundering or terrorist financing; or
    (d) where there are doubts about the veracity or adequacy of previously obtained data.

CDDshall be conducted in respect of the following:
    (a) The customer/client (new and existing);
    (b) Any beneficial owner of a customer;
    (c) Any person acting on behalf of acustomer.

Reporting Entity’s policy and procedures should specify how often ongoing monitoring is to be conducted. A clear cycle should be indicated for each risk category or type of customer / client, for example at least once a year for high risk cases, at least once every two years for medium risk cases and every three years for low risk cases, or where are view is triggered by a defined event.

Targeted Financial Sanctions (TFS) means both assets and funds freezing and prohibitions to prevent assets or financial services from being made available, directly or indirectly, for the benefit of designated persons and entities pursuant the UNSCR 1267, 1988, and ss as well as 1373 for TF and UNSCR 1718 and 2231 and ss for PF, except as authorized by the Competent Authority i.e. Ministry of Foreign Affairs or Ministry of Interior/ National Counter Terrorism Authority(NACTA).

Sanctions list screening should be performed for client, beneficial owner of the client and person(s) acting on behalf of a client.

“Beneficial owner” means the natural person who ultimately owns or controls a customer or the person on whose behalf a transaction is being conducted and includes legal heir(s) and the person who exercise ultimate effective control over a person.

Direct owner refers to individuals and entities who directly own shares in any legal entity. For example, if you own 25% or more of the shares in a particular entity, you become a direct owner. A direct owner need not necessarily be an individual (natural person) and can also be another entity as in the case where the parent company is a direct owner in its subsidiary. A person can be an indirect owner, if a company or any other business entity in which he has shares, owns another company. For example, if Company ‘B’ is owned to the extent of 25% by Company ‘A’, and Company ‘A’ is owned to the extent of 50% by a natural person, then the said Person is an indirect ownerofCompany‘B’throughCompany‘A’,totheextentof12.5%ownershipinCompany‘B’i.e. 50% of 25%.

Ownership is the right to possess, use, sell, donate or give as a gift any asset or property belonging to a person known as the “owner.” An owner can either be a beneficial owner or a legal owner.
A legal owner of an asset may either be a natural person or a legal person that holds the legal title of thatasset.
In manysituations, the same person is the legal owner as well as the beneficial owner. A beneficial owner must always be a natural person, as a legal person cannot exert “ultimate” control over an asset or entity. This is due to the fact that legal persons are always controlled, directly or indirectly, by natural persons.

Legal persons are any legal entities which are formed and established through a law, such as public companies, private companies, limited liability partnerships, associations not for profit, as defined under the Companies Act, 2017 or any other law. Natural persons are individuals, who for the purpose of the FATF recommendations, shall be recognized as ultimate beneficial owners if exercising ownership and control rights in companies indirectly through legal persons.

Records means information related to client due diligence, enhance due diligence, business relationships, or transactions (domestic or International) and all information related to STRs and CTRs.

Records related to Customer Due Diligence, business relationships and enhanced due diligence shall be kept for a minimum period of five years. Further, the records related to STRs and CTRs shall be kept for a minimum period of ten yearsfrom the date of filing of STR / CTR.
Where transactions, customers or instruments are involved in litigation or where relevant records are required by a court of law or other competent authority, the Reporting firm shall retain such records until such time as the litigation is resolved or until the court of law or competent authority indicates that the records no longer need to beretained.

“Politically exposed person” or “PEP” means an individual who occupies a prominent public function or functions in a government body or international organization, both within or outside Pakistan. The three categories of PEPs include but are not limited to:
    (i) Foreign PEPs who include heads of state or of government, parliamentarians, senior executives of state owned corporations and senior government, judicial, military or political party officials;
    (ii) Domestic PEPs include heads of state or of government, parliamentarians, senior executives of state owned corporations and senior government, judicial, military or political party officials;
    (iii) International organization PEPs who include individual which hold senior managerial or who have been entrusted with equivalent functions in an international organization.

In relation to Politically Exposed Person (PEP) and their close associates or family members, the advocate shall:
    (a) determine if a customer or beneficial owner is a PEP or subsequently becomes a PEP;
    (b) take reasonable measures to establish the source of wealth and the source of funds of customers and beneficial owners identified as PEPs;
    (c) conduct enhanced ongoing monitoring of business relations with the customer; and
    (d) obtain approval of its senior management, in case of a firm;
before establishing or continuing business relationship.

The entity should consider the level of influence that the individual could still exercise and whether the individual’s previous and current function are linked in any way.