Reporting requirements for DNFBPs

Reporting requirements for  DNFBPs: Anti-money laundering initiatives rose to global prominence in 1989, when a group of countries and organizations around the world formed the Financial Action Task Force (FATF). Its mission is to devise international standards to prevent money laundering and promote their implementation. In October 2001, following the 9/11 terrorist attacks, FATF expanded its mandate to include combating
terrorist Financing.

Another important organization in the fight against money laundering is the International Monetary Fund (IMF). Like the FATF, the IMF has pressed its 189 member countries to comply with international standards to thwart terrorist

Consequently, Parliament of Pakistan promulgated The Anti-Money Laundering Act 2010 (the AML Act) which later was amended from time to time. AML applicable to “Financial Institutions” and specified “Non-Financial Businesses and Professions” (NFBPs). Financial Institutions and NFBPs have been specified as “Reporting Entity” under the AML Act.

For the purposes of carrying out responsibilities under the AML Act, Financial Monitoring Unit (FMU), has been established as an independent decision making authority housed in State Bank of Pakistan.

In   accordance   with   the   provisions   of   the   AML   Act,   FMU   has   powers   to   receive STRs/CTRS from every reporting entities in the manner prescribed by the FMU which include Suspicious Transaction conducted or attempted by, at or through such reporting entity, if it knows, suspects or has reason to suspect that the transaction or a pattern of transactions of which the transaction is a part are arising out of proceed of crime.

Under the AML Act, following are the AML/CFT Regulatory Authorities

1. SBP for any reporting entity licensed or regulated under any law administered by SBP.
2. SECP for any reporting entity licensed or regulated by SECP under any law administered by SECP
3. FBR for real estate agents, jewellers, dealers in precious metals and precious stones and accountants who are not the members of ICAP and ICMAP
4. National Savings (AML and CFT) Supervisory Board for National Savings Schemes
5. Pakistan Post (AML and CFT) Supervisory Board for Pakistan Post; and
6. ICAP established under the Chartered Accountants Ordinance, 1961 (Act X of 1961) for their respective members
7. ICMAP established under the Cost and Management Accountants Act, 1966 (Act XIV of 1966)for their respective members
8. Pakistan Bar Council established under the Legal Practitioners and Bar Councils Act, 1973 (Act XXXV of 1973); for lawyers and other independent legal professionals that are enrolled under the Pakistan Bar Council or Provincial Bar Councils or Islamabad Bar Council
9. Any other SRB as may be notified by the Federal Government

As one of the important regulators, FBR has issued regulations under SRO 924 dated 29^th Sep 2020 to regulate sectors in its domain like, Accountants other than ICMAP/ICAP members, Jewellers and Real Estate Agent.

Reporting requirements for DNFBPs

Under the rules, every DNFBP will be registered with the FBR and will provide all information to the tax machinery. It includes, but not limited to, criminal records of the senior management and beneficial owners and maintaining records of customers to check money laundering transactions.

The regulations notified through SRO924 will cover accountants, real estate, gems and jewellery sectors to minimize chances of parking of terror financing there. The FBR will also work as a focal organization for monitoring services of DNFBP and Reporting requirements for DNFBPs.

Now, FBR has under section 6A of the Anti-Money Laundering Act, 2010 (VII of 2010) has made the following    Regulations    in    respect    of    the    Designated    Non-Financial    Businesses    and Professions(DNFBPs), which include as defined in the regulations.

1. Real Estate Agents,
2. Jewelers and
3. Accountants

The above DNFBPs the required to register themselves on FBR Portal and are required to make compliances under the regulations as under:

Risk assessment and mitigation by DNFBPs

Under the rules, the DNFBPs will take appropriate steps in accordance with section 7F of the AML Act to identify, assess, and understand their risks for customers, countries or geographic areas, and products, services, transactions or delivery channels.

The DNFBPs will have policies, controls and procedures, which are approved by senior management. This has been done to enable them to mitigate risks that have been identified in their own assessment or any other publicly available resource or provided by the FBR; monitor the implementation of those controls and enhance them if necessary; and take enhanced measures to manage and mitigate the risks where higher risks are identified.

Record keeping by DNFBPs

The records maintained by DNFBPs as set out in section 7C of the AML Act will be sufficient to permit reconstruction of individual transactions including its nature and date, the type and amount of currency involved, and the customer in the transaction so as to provide, when necessary, evidence for prosecution of criminal activity.

The real estate agents, jewellers and accountants will keep a list of all such customers where the business transaction was refused or needed to be closed either on account of failure of the client to provide relevant documents or the original document for viewing as required.

Customer Due Diligence (CDD) and Beneficial Ownership

The real estate agents, jewellers and accountants will conduct Customer Due Diligence as per the laid down criteria. It will cover transactions of a client concerning the buying and selling of property; dealing of cash in jewellery, precious metals and stones with a customer equal to or above Rs2 million amounts; and accountants when they prepare for, or carry out, transactions for their clients and Reporting requirements for DNFBPs

The DNFBP will identify the customer whether entering into a business relationship or conducting an occasional transaction, and whether natural or legal person or legal arrangement and verify that customers identity using reliable, independent sources documents, data or information as required under these regulations.

The DNFBP will identify the beneficial owner and take reasonable measure to verify the identity of the beneficial owner by using reliable and independent document, data or sources of information.

For the purposes of verification of identity of customer or beneficial owner in these regulations, reliable and independent document, data or sources of information includes ;

1. CNIC
2. NICOP (for overseas Pakistanis)
3. POC by Nadra
4. Form B ( Children Under 18)
5. ARC ( if person is foreign national)

For Legal Person;

1. Resolution of board of directors for opening of account specifying the person authorized to
   open and operate the account (not applicable for single member company);
2. Memorandum of Association;
3. Articles of Associations, wherever applicable
4. Certificate of incorporation
5. Securities and   Exchange   Commission   of   Pakistan   (SECP)   registered   declaration   for commencement of business as required under the Companies Act, 2017 (XIX of 2017), as applicable
6. List of directors required to be filed under the Companies Act, 2017 ( XIX of 2017), as applicable
7. Identity documents as per sub-clause (a) of all the directors, beneficial owners and person authorized to open and operate the account; and
8. any other  documents  as  deemed  necessary  including  its  annual  accounts  and  financial statements or disclosures in any form which may help to ascertain the detail of its activities, sources and usage of funds in order to assess the risk profile of the prospective customers

Federal Government is please to make the following Sanctions Rules conferred by Section 43, section 6A 2(h) and section 6C (c) of the Act.

Sanctions imposed to the extent and in the manner as may be prescribed, upon their respective SRB who fails to comply with any provision of this Act and any rules or regulations made thereunder and Reporting requirements for DNFBPs are imporatant

Type of sanctions and penalty amounts;

1. Impose a monetary penalty in accordance with these Rules;

(b) impose any condition, limitation or restriction on the reporting entity’s business or product offerings, as it considers appropriate,

(c) Revoke license or de-registration of the reporting entities as applicable;

(d) Impose a temporary or permanent prohibition on any natural person who holds an office or position involving responsibility for taking decisions about the management of the reporting entity, including but not limited to:

(i) issuing a written warning;

(ii) imposing a temporary suspension; or (iii) removal from service

(e) Issue a statement of censure/warning/reprimand;

(f) Issue a direction to the person to undertake any given actions, including but not limited to:

(i) comply with the requirements within a specified time period through a remedial plan;

(ii) conduct internal inquiries; or

(iii) take disciplinary action against directors, senior management and other officers.

(g) Impose any other sanction permitted under the AML/CFT Regulatory Authority’s enabling legislation and any rules, regulations or directives issued thereunder.

The AML/CFT regulatory authority may not impose a sanction on a person if the authority is satisfied that the reporting entity took all reasonable steps and exercised all due diligence to ensure that the requirement would be complied with.

When determining the sanction to be imposed as set out in sub-section (1), and any penalty to be imposed on a person, the AML/CFT Regulatory Authority shall take into account all relevant circumstances, including where appropriate:

(i) the gravity and the duration of the contravention or failure;

(ii) The type of sanction and penalty amount necessary to constitute a dissuasive, proportionate and effective sanction in respect of the contravention;

(iii) the person’s history of compliance with the Act and any regulations made thereunder, including:

(a) any potential systemic consequences of the contravention; or

(b) previous contraventions by the person

(iv) the financial strength of the Reporting Entity;

(v) the amount of profits gained or losses avoided by the person;

(vi) remedial measures taken by the person to address the cause of the contravention;

(vii) the extent to which the contravention was negligent or willful; or

(viii) any other factor deemed appropriate by the AML/CFT Regulatory Authority.

Penalty amounts

The AML/CFT Regulatory Authority shall apply monetary penalties upto Rs. 100 Million per violation, in accordance with the risk-based penalty scale of the respective AML/CFT Regulatory Authority. Where a monetary penalty has been imposed and if the person does not pay the monetary penalty or does not appeal against the penalty in accordance with these Rules, the AML/CFT Regulatory
Authority or Oversight Body for SRBs may impose further sanctions.

Entities are defined in more detail as follows:

Definitions.-

a) “Accountants” Other than regulated by regulated by Institute of Chartered Accountants of Pakistan (ICAP) and Institute of Cost and Management Accountants of Pakistan (ICMAP), sole practitioners, partners or employed professionals within professional firms when they carry out the activities as specified in the AML Act in section 2, in clause (xii) in sub clause (c) or (d)

b) “Jeweler” means a person who is a bullion dealer or engaged in sale of jewelry, precious stones and metals including all articles made wholly or mainly of gold, platinum, diamonds of all kinds, precious or semi-precious stones, pearls whether or not mounted, set or strung and articles set or mounted with diamonds, precious or semi-precious stones or pearls, when they engage in a cash transaction with a customer of a value equivalent to two Million rupees or more.

c) “Real Estate Agent” includes builders, real estate developers and property brokers and dealers when execute a purchase and sale of a real property, participate in a real estate transaction capacity and are exercising professional transactional activity for undertaking real property transfer.

d) “Customer or client” means any natural person, legal person or legal arrangement engaging a Real Estate Agent, Jeweler or Accountant for the purposes of requesting, acquiring, or using any services or carrying out any transaction or business with a Real Estate Agent, Jeweler or Accountant;

e) “Politically Exposed Persons” or “PEPs” means any individual who is or has been entrusted with a prominent public function either domestically or by a foreign country, or in an international organization and includes but is not limited to:

1. for foreign PEPs, Head of state or of government, senior politicians, senior government officials, judicial or military officials, senior executives of state owned corporations and political party officials;
2. for domestic PEPs, Heads of State or of government, senior politicians, senior government officials, judicial or military officials, senior executives of state owned corporations, political party officials; and
3. for international organizations PEPs, members of senior management or individuals who have been entrusted with equivalent functions;

f) Family Member” family member of a politically exposed person includes-

1. i) a spouse of the PEP;
2. ii) lineal ascendants and descendants and siblings of the PEP

g) “close associate” of a PEP means-

1. i) an individual known to have joint beneficial ownership of a legal person or a legal arrangement
   or any other close business relations with the PEP;
2. ii) an individual who has sole beneficial ownership of a legal person or a legal arrangement which is known to have been set up for the benefit of the PEP;
3. iii) an individual who is reasonably found or believed to be closely connected with the PEP for any other reason, either socially or professionally.

The records to be maintained and furnished by the accountants, real estate agents and jewellers will be subject to inspection by FBR, who may be assisted by other law enforcement agencies.

End of blog: Reporting requirements for DNFBPs