SECP issues new guidelines to stop money laundering

Published: September 6, 2018
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Prime Minister Imran Khan is also monitoring the situation and has held a few meetings last week to improve prospects of exiting the FATF grey list by September next year. PHOTO: REUTERS

Prime Minister Imran Khan is also monitoring the situation and has held a few meetings last week to improve prospects of exiting the FATF grey list by September next year. PHOTO: REUTERS

ISLAMABAD: The corporate-sector regulator issued new guidelines on Wednesday to curb money laundering and terrorism financing through charitable organisations aimed at addressing concerns of the Financial Action Task Force (FATF).

The guidelines of the Securities and Exchange Commission of Pakistan (SECP) also bar non-profit organisations (NPOs) from taking part in political activities.

These guidelines have been issued on the basis of recommendations of the FATF, according to an announcement made by the SECP.

“NPOs shall not engage in money laundering, terrorist financing, weapon smuggling, anti-state activities or maintain links with proscribed individuals or organisations,” said the guidelines.

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In its recent visit to Pakistan, the Asia-Pacific Group – an FATF-styled regional body – identified NPOs as an area that was prone to be misused by terrorist organisations to finance their activities in Pakistan.

Prime Minister Imran Khan is also monitoring the situation and has held a few meetings last week to improve prospects of exiting the FATF grey list by September next year.

The SECP also directed the companies last week to disclose their real beneficial owners in a bid to curb money laundering.

The fresh guidelines show that currently different laws are applicable to regulate the NPOs at federal and provincial levels.

These organisations are mainly registered and regulated in Pakistan under the Companies Act 2017, the Societies Registration Act 1860, the Trust Act 1882, the Charitable Endowments Act 1890, Voluntary Social Welfare Agencies (Registration and Control Ordinance) 1961, Local Government Ordinance 2001, Cooperative Societies Act 1925 and Religious Endowment Act 1863.

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According to the guidelines, NPOs can be abused in different manners, including exploitation of charitable funds, abuse of assets, misuse of name and status and setting up an NPO for an illegal or improper purpose.

“NPOs shall not indulge in activities that amount to breach of security or in any activity inconsistent with Pakistan’s national interests or contrary to the government’s policy,” stated the SECP.

“NPOs shall also not take part or assist in any kind of political activities, conduct research or surveys unrelated to their activities.”

The SECP warned that the violation of these guidelines may lead to cancellation of their licences.

Pakistan is a member of the Asia-Pacific Group and is required to adopt FATF standards as per its membership obligations and also to comply with UN resolutions.

The guidelines have been issued by the SECP in order to assist the NPOs licensed under Section 42 of the Companies Act 2017 in combating money laundering and terrorist financing.

The SECP said the guidelines would assist in improving Pakistan’s outlook by encouraging increased adherence to the applicable standards.

SECP rolls out new anti-money laundering regulations in line with FATF recommendations

The commission also prohibited all officers of companies from providing any assistance or funding, including charity and donation, to the entities and individuals contained in the list of proscribed organisations, updated by the National Counter Terrorism Authority (Nacta).

The management must have in place adequate measures to clearly identify every board member, both executive and non-executive, stated the guidelines, adding, “NPO must ascertain correct and complete identification particulars of each of its beneficiary person, group of persons or organisation who receives cash or services or in-kind contributions.”

In case the beneficiary is an organisation or a group of persons, the donor NPO must have detailed knowledge of the profile and particulars of such organisation.

NPOs shall ensure that its beneficiaries are not linked with any suspected terrorism-related activity or with terrorist support networks.

In case the projects are implemented through partnership agreements with other partners, the NPO shall make it part of its project agreements that partners shall maintain and share beneficiaries’ information.

Raising red flag

The guidelines bound NPOs to raise red flag if unusual or substantial one-time donations are received from unidentifiable or suspicious sources. These charitable organisations will also raise the flag if a series of small donations are received from sources that cannot be identified or checked.

NPOs will not accept donations in case the donor attaches conditions where NPO will merely be a vehicle for transferring funds from one individual or organisation to another.

NPOs will also report donations made in foreign currency or to foreign sources, where financial regulations or the legal framework are not as rigorous, where donations are conditional to be used in partnership with particular individuals or organisations and where the NPO has concerns about those individuals or organisations.

The guidelines stated that NPOs operating in conflict-ridden or border zones including, but not limited to, tribal agencies, sensitive areas of any province and regions, which have experienced terrorist attacks, will be treated as high-risk NPOs prone to terrorism financing.

Published in The Express Tribune, September 6th, 2018.

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