Anti-Money Laundering Second Amendment Act 2020

Anti-Money Laundering Second Amendment Act 2020: Certain important amendments/ new requirements have recently been introduced in the AML Act, a summary of which is as follows:

▪  Money laundering declared a cognisable offence in addition to already being a non-bailable offense, which means that the investigation officers can arrest people without warrants.

▪  Increase in the amount of fine to Rs. 25 million for natural persons which was previously Rs. 1 million.
▪  Increase in the amount of fine for legal person Rs. 100 million which was Rs. 5 million rupees previously.

▪  Willful failure or refusal to provide assistance, now treated as misconduct, punishable with imprisonment for up to five years and a fine of up to Rs. 1 million for natural person and upto Rs. 10 million for legal person.

▪  Enhancement in roles of the National Executive Committee, General Committee and Financial Monitoring Unit for greater focus on the money laundering, terrorist financing and predicate offences.

▪  Constitution of AML/CFT regulatory authority comprising of the regulators (including SBP, SECP, FBR, Pakistan Post, National Savings), and SRBs (including ICAP, ICMAP and Pakistan Bar Council).

Anti-Money Laundering Second Amendment Act 2020

▪  Introduction of detailed guidelines on Customer Due Diligence (CDD) on when and how to perform CDD, record keeping, allowing third-party reliance, what to do in case of inability to perform CDD, tipping off, risk understanding, compliance programmes, and policies and procedures.

▪  Enabling the investigating officers to use various techniques within a period of 60 days (extendable for anther 60 days) with the
permission of the court

Further details of the amendments introduced through AML Act 2020 are provided on slides below:

Key Amendments in AML Act 2020

Section 2: Definitions

Key terms related to Money laundering (ML), Terrorism Financing (TF) and Proliferation Financing (PF) have been made part of the glossary/ definitions which were previously not apart of the Act.

Some of terms in Anti-Money Laundering Second Amendment Act 2020 are:

• AML/ CFT
• Legal person
• AML/ CFT regulatory authority
• Occasional transactions
• Beneficial Owner
• Oversight body for SRB
• Business relationship
• Proliferation financing
• CDD
• Reporting entity
• Competent authorities
• Risk
• Corporate group
• Self Regulatory Body (SRB)
• Legal arrangements
• Targeted Financial Sanctions (TFS)

Further, certain addition have also been made in the existing definitions i.e. additional LEAs added in the definition of investigating or prosecuting agency (FBR, CTDs etc.), legal person added in the person definition, DNFBPs and reporting entities definition has been amended.

Section 4: Punishment for Money Laundering

▪   The punishment for money laundering crimes Natural Persons is increased to up to Rs. 25 million (previously Rs 1 million)

▪   Further in the case of legal person, the fine is extended to Rs. 100 million (previously Rs. 5 million)

Section 5: National Executive Committee

▪   Minister for Economic Affairs and Director General FATF Cell have been included as members of the Committee

▪   Further certain amendments in existing roles and few new roles have been introduced for the Committee.

Amended Roles in Anti-Money Laundering Second Amendment Act 2020:

Amended Roles	Previous Roles
▪   Recommend to the Federal Government to make rules for the determination of predicate offences	▪   Determine such offences
▪   Approve, review and oversee the implementation of a national strategy to fight ML/ TF	▪   Develop the national strategy

Additional Roles:

▪   Recommend to the Federal Government on the application of countermeasures as called for by FATF to combat ML/ TF

▪   Seek the following reports from competent authorities:

o  Overall analysis of the STRs and CTRs

o  Statistics concerning the investigations and prosecutions conducted in relation to ML/TF offenses o  Statistics of supervisory actions taken by the AML/CFT regulatory authorities

Section 5: General Committee

▪   Director General FATF Cell has been included as member of the Committee

▪   Certain amendments in existing roles and few new roles have been introduced for the Committee.

Amended Roles:

Amended Roles	Previous Roles
▪   Issue necessary directions to the investigating or prosecuting agencies, AML/CFT regulatory authorities, FMU and any other authority appointed by the Federal Government, including measures for development and performance review of such agencies and authorities	▪   Take measures for development and performance reviews of agencies
▪   Discuss any other issue of national importance relating to ML and TF	▪   TF was not addressed earlier

Additional Roles:

▪   Develop a national strategy to fight money laundering and financing of terrorism ▪   Seek the following reports from competent authorities:

o  Overall analysis of the STRs and CTRs

o  Statistics concerning the investigations and prosecutions conducted in relation to ML/TF offenses o  Statistics of supervisory actions taken by the AML/CFT regulatory authorities.

Section 6: Financial Monitoring Unit

Certain changes have been introduced in the roles of FMU and related agencies, a snapshot of which is provided below:

FMU may request the investigating or prosecuting agencies for feedback regarding the disseminations made in the form of periodic reports or statistics concerning the investigations and prosecutions of ML and TF in Pakistan;

FMU to make regulations in consultation with AML/ CFT regulatory authorities for ensuring receipt of STRs and CTRs, previously consultations were required only with SBP and SECP

Term Reporting Entities (REs) introduced in place of financial institutions and non-financial businesses and professions

• Agencies are required to promptly provide the records as well as any information requested by FMU, previously only information was required to be provided

• In relation to cooperation with other countries’ FIUs, predicate offences is also added to criteria for sharing, requesting and receiving information in addition to ML and TF

Section 6A: AML/CFT Regulatory Authority (New Requirement)

AML/CFT regulatory authority means the regulators and SRBs, including the following:

o  Regulators: SBP, SECP, FBR, National Savings (AML and CFT ) Supervisory Board, Pakistan Post (AML/CFT Supervisory Board) o  SRBs: ICAP, ICMAP and Pakistan Bar Council

Section 6A: AML/CFT Regulatory Authority (Cont’d)

Powers and functions of AML/CFT regulatory authority

• licensing or registration of reporting entities
• imposing any conditions to conduct any activities by reporting entities to prevent ML/ TF/ PF offences
• issuing regulations, directions and guidelines with respect to CDD
• providing feedback to reporting entities for the purpose of compliance with the requirements of CDD
• issuing regulations, directions and guidelines with respect to financing of proliferation obligations
• monitoring and supervising, including conducting inspections, for the purpose of determining compliance with the requirements of providing feedback to reporting entities for the purpose of compliance with the requirements of CDD, and any rules or regulations that impose TFS obligations

• compelling production of information relevant to monitoring compliance with the requirements of providing feedback to reporting entities for the purpose of compliance with the requirements of CDD, and any rules or regulations that impose TFS obligations

• impose sanctions, including monetary and administrative penalties on REs, including their directors, senior management and officers, for violation of any requirement for CDD and any rules or regulations to comply with the TFS regulations.
• maintaining statistics of the actions performed in respect of the functions and powers, in order to report to the National Executive Committee and the General Committee

Section 6B: International Cooperation by Regulators (New Requirement)

The regulators as specified in Section 6 shall co-operate with foreign counterparts and make reciprocal arrangements to share, request and receive information elating to the requirement of the Act.

Section 6C: Oversight body for SRBs (New Requirement)

The Federal Government shall appoint an Oversight Body for the SRBs which shall exercise and perform the following powers and functions:

• prescribe regulations for the SRBs
• monitor and oversee the SRBs
• impose sanctions to the extent and in the manner prescribed on the SRBs who fails to comply with any provision of and any rules or regulations made under the Act

Section 7A:  Conducting CDD (New Requirement)

Every reporting entity shall conduct CDD in the prescribed manner in the following matters:

• entering into a business relationship
• conducting an occasional transaction above the prescribed threshold
• where there is a suspicion of ML/ TF
• where there are doubts about the veracity or adequacy of previously obtained data

Section 7A:  Conducting CDD (Cont’d)

Every reporting entity shall

• identify the customer and verify the customer’s identity on the basis of documents, data or information obtained from reliable and independent sources

• identify the beneficial owner and take reasonable measures to verify the beneficial owner’s identity on the basis of documents, data or information obtained from reliable sources and be satisfied that it knows who the beneficial owner is

• understand and, as appropriate, obtain information on the purpose and intended nature of the business relationship
• monitor the business relationship on an ongoing basis.

Section 7B: Reliance on third parties (New Requirement)

REs may rely on third party to perform CDD in the prescribed manner.

Section 7C: Record keeping (New Requirement)

REs to maintain a record of the following for a period of at least five years:

▪   All transactions	▪   Records of account files
▪   Business correspondences	▪   Documents of all records obtained through CDD
▪   Results of any analysis undertaken following the termination of the business relationship

Key Amendments in AML Act 2020

Section 7D: Inability to complete CDD and tipping off (New Requirement)

• REs not to establish or continue relationship with customers if unable to complete CDD requirements
• Consider filing a Suspicious Transaction Report
• 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: Anonymous business relationships and transactions (New Requirement)

• REs not to establish or continue and conduct any transaction with a customer who is anonymous or provides a fictitious name.

Section 7F: Risk understanding (New Requirement)

• REs to take appropriate steps to identify, assess and understand the risks to which its business is subjected to.

Section 7G: Compliance programme (New Requirement)

• REs to implement compliance management arrangements, including the appointment of a compliance officer at a management level and training programmes, having regard to the ML/TF risks and the size of the business.

Section 7H: Policies and procedures (New Requirement)

• REs to implement policies and procedures to ensure their compliance with the provisions of the Act and orders, rules or regulations made thereunder that impose TFS obligations.

Section 7I: Sanctions for Reporting Entities (New Requirement)

• If any reporting entity or natural person contravenes any of the provisions of sections 7(1,3,6) 7A to 7H, it may be subjected to sanctions.

Section 7J: Appeal to Concerned AML/CFT regulatory authority (New Requirement)

• Any person aggrieved by the delay or failure of a reporting entity to complete CDD requirement or establish business relationship or  conduct any transaction, may file an appeal to concerned AML/CFT regulatory authority within ninety days.

Section 9A: Application of investigation techniques (New section)

• Enabling the investigating officers to use various techniques which includes the following:
• Undercover operations
• Intercepting communications
• Assessing computer system
• Controlled delivery
• Such techniques may be used with the permission of the court, within sixty days of such permission (extendable by further period of sixty days)

Section 21: Offences to be cognisable and non-bailable

• Money laundering declared a cognisable offence in addition to already being a non-bailable offense, which means that the investigation officers can arrest people without warrants.

Section 25: Assistance to authorities

• Further clarity provided on type of assistance to be provided i.e. production of records, documents and information
• Investigating and prosecuting agency can also require assistance from officers of federal government, provincial government, local authorities in addition to FMU
• Willful failure or refusal to provide assistance to treated as misconduct punishable with imprisonment for a term which may extend to five years, a fine which may extend to Rs. 1 million for natural person and Rs. 10 million in case of legal person

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