Anti Money Laundering & Electronic Payments Flashcards
CH # 16
ANTI-MONEY LAUNDERING
▪ Money laundering is illegal process of making money generated by a criminal activity (e.g.
drug trafficking, terrorist funding or tax evasion), appear to have come from a valid source.
▪ Money from criminal activity is considered dirty, and process “launders” it to make clean.
▪ Anti-money laundering (AML) laws are rules for businesses, institutions, and even countries
to eliminate money laundering and terrorist financing activities.
▪ Initially, AML laws were implemented on financial institutions to control drug trafficking.
▪ Since then, it have become global concern.
▪ International authorities such as FATF and world bank are collaborating with national
authorities and state banks to control money laundering.
▪ In Pakistan, the relevant legislation is the Anti-Money Laundering Act, 2010.
▪ AML laws discourage criminals by making it harder for them to hide ill-gotten money.
▪ AML regulations also require financial institutions to monitor customers’ transactions and
report on suspicious financial activity.
Financial institution
Includes any institution carrying on any one or more of the following activities, namely:—
* Acceptance of deposits and other repayable funds from the public;
* Lending in whatsoever form;
* Financial leasing;
* Money or value transfer;
* Issuing and managing means of payments including but not limited to credit and debit
cards, cheques, travelers cheques, money orders, bank drafts and electronic money;
* Financial guarantees and commitments;
* Trading in—
- Money market instruments;
- Foreign exchange;
- Exchange, interest rate and index instruments;
- Transferable securities; and
- Commodity futures trading:
- Participation in shares issues and the provision of services related to such issues;
- Individual and collective portfolio management;
- Safekeeping and administration of cash or liquid securities on behalf of other persons;
- Investing, administering or managing funds or money on behalf of other persons;
- Insurance business transactions;
- Money and currency changing; and
- Carrying out business as intermediary.
Offence of Money Laundering
A person shall be guilty of offence of money laundering, if the person:
▪ Acquires, converts, possesses, uses or transfers property, knowing or having reason to
believe that such property is proceeds of crime94;
▪ Conceals or disguises the true nature, origin, location, disposition, movement or
ownership of property, knowing or having reason to believe that such property is
proceeds of crime95;
▪ Holds or possesses on behalf of any other person any property knowing or having reason
to believe that such property is proceeds of crime96; or
▪ Participates in, associates, conspires to commit, attempts to commit, aids, abets,
facilitates, or counsels the commission of the above 3 acts97.
General Rules of Anti Money Laundering
▪ The knowledge, intent or purpose required as an element of an offence set forth here may
be taken from factual circumstances in accordance with Qanun-e-Shahadat 1984.
▪ In order to prove an offence of money laundering, the conviction of an accused for the
respective predicate offence shall not be required.
Punishment for Money Laundering
Whoever commits the offence of money laundering shall be
▪ Punishable with rigorous imprisonment of at least 1 year (may extend up to 10 years);
▪ Liable to fine which may extend to Rs. 25 Million; and
▪ Liable to forfeiture of property involved in the money laundering
(or property of corresponding value)
Penalty in case of a Company
▪ Fine may extend to Rs. 100 Million
▪ Where a company contravene the provisions of this Act or any related rules etc, every
responsible person (director/partner, manager, secretary or other officer) shall be liable to
be proceeded against and punished accordingly
▪ Every director, officer or employee found guilty shall also be punishable under this section.
Objective of Electronic Fund Transfers Act, 2007?
▪ A payment system (PS) is any system used to settle financial transactions through transfer
of monetary value.
▪ This includes institutions, instruments, people, rules, procedures, standards & technologies
that make its exchange possible.
▪ EFT is electronic transfer of money from one bank account to another, either within a single
financial institution or across multiple institutions, via computer-based systems, without the
direct intervention of bank staff.
▪ Relevant law in Pakistan is the Payment Systems and Electronic Fund Transfers Act, 2007.
“Electronic Fund or Electronic Money”
- An Electronic Terminal,
- ATM,
- Telephone instrument,
- Computer,
- Magnetic medium or
- Any other electronic device
so as to order, instruct, or authorize - A banking company,
- A Financial Institution or
- Any other company or person
to debit or credit an account; and - includes monetary value as represented by a claim on the issuer which is stored
in an electronic device or Payment Instrument, issued on receipt of funds of an
amount not less in value than the monetary value issued, accepted as means of
payment by undertakings other than the issuer and - includes electronic store of monetary value on an electronic device that may be
used for making payments or - as may be prescribed by the State Bank.
“Electronic Fund Transfer”
“Electronic Fund Transfer” means any transfer of funds, other than a transaction originated
by cheque, draft or similar paper instrument, which is initiated through an Electronic
Terminal, telephonic instrument, point-of -sale Terminal, stored value card Terminal, debit
card, ATM, computer magnetic tape or any other electronic device so as to order, instruct, or
authorize a Financial Institution to debit or credit an Account.
“Operator”
“Operator” means any financial or other institution or any person, authorized by the State
Bank to operate any Designated Payment System (DPS).
Designation of Payment System
▪ State Bank may designate a PS as a DPS by a written order, if necessary in the public interest.
▪ State Bank may inspect the premises, equipment, machinery, apparatus, books or other
documents, or accounts and transactions relating to PS, in considering to designate it as DPS.
State Bank may revoke the designation of a DPS if it is satisfied that:
▪ DPS has ceased to operate effectively as a PS;
▪ Operator of the designated system has knowingly furnished information or documents to
the State Bank in connection with the designation of the PS which is or are false or misleading
in any material particular;
▪ Operator or settlement institution of the DPS is in the course of being wound up or otherwise
dissolved, whether in Pakistan or elsewhere;
▪ Any of terms and conditions of designation or requirements of Act has been contravened; or
▪ State Bank considers that it is in the public interest to revoke the designation.
State Power to revoke immediate DPS
The State Bank shall not revoke a designation without giving the operator of the DPS an
opportunity to be heard. However, the State Bank may suspend the designation of a PS without
notice pending the final order, if an immediate systemic risk is involved.
Operational Arrangements
An Operator of a DPS shall establish the following operational arrangements:
▪ Rules and procedures setting out the rights and liabilities of the operator and the participant
and the financial risks the participants may incur;
▪ Procedures, controls and measures for the management of credit, liquidity and settlement
risk, including rules determining time when a payment instruction and a settlement is final;
▪ Criteria for participation in the DPS; and
▪ Measures to ensure the safety, security and operational reliability of the DPS including
contingency arrangements.
