FATF requirements: PTI govt to hire bank to scrutinise CDNS deposits

Published: December 15, 2019


ISLAMABAD: The government has decided to hire a commercial bank to scrutinise Rs4 trillion deposits of four million Pakistanis placed with the Central Directorate of National Savings (CDNS) after the Financial Action Task Force (FATF) pointed out glaring deficiencies in its regulatory frameworks.

The Ministry of Finance has floated expression of interests, inviting bids from the interested commercial banks to enter into a third party agreement to enforce Anti-Money Laundering and Combating Financing of Terrorism regulations in the CNDS, according to the finance ministry.

The government is aiming to scrutinise all the existing accountholders within six months and complete the risk profiling by December next year aimed at meeting the FATF requirements.

The move will, for the first time, open four million accounts having Rs4 trillion deposits as of end of October for the scrutiny of a private party. The prospective third party will screen these accounts and make their risk profile on the basis of Anti-Money Laundering Act (AMLA) of 2010, Anti-Terrorism Act 1997 and the United Nations Security Council Act 1948.

The FATF has placed Pakistan on its grey list with effect from June 2018 and the next review on the implementation of the FATF Action Plan will take place in February next year. Before that, the Joint Review Group of the Asia Pacific Group will review Pakistan’s compliance in the third week of January.

The government’s decision to engage a private party to perform the task underscores that it lacks the capacity and planning despite the country being on the grey list for the last almost one and a half year. Instead of building in-house capacity, the finance ministry has decided to involve a third party to perform the critical task.

The director general of the CDNS refused to comment on the decision of engaging the third party.

The CDNS is an attached department of the Ministry of Finance and responsible to sell approved government debt securities to the general public. The CDNS collects proceeds of these securities through physical sale points ie National Savings Centres and deposit into the federal government’s SBP account. CDNS also offers some financial products including saving and pensioner accounts.

Out of the total 376 National Savings Centres, 154 are still operated manually from across the country. The finance ministry undertook the project to computerise all the 376 centres 10 years ago, which still remains a work in progress.

The AML/CFT Mutual Evaluation Report (MER) of Pakistan that the Asia Pacific Group made public in October this year has identified glaring deficiencies in the CDNS and Pakistan Post.

The report says that although banks have made good efforts to comply with the sanctions regime, the CDNS and Pakistan Post have very limited understanding of their ML/TF risks and AML/CFT obligations and is not implementing preventive measures.

“There has been no STR reporting by CDNS, Pakistan Post and DNFBP (Designated Non-Financial Business or Profession),” according to the report.

“Pakistan Post and CDNS are reporting entities under the Anti-Money Laundering Act, however, Pakistan has not issued enforceable AML/CFT requirements to give effect to this criterion,” according to the APG findings.

In its MER, the APG has recommended that based on a comprehensive understanding of the ML/TF risk associated with CDNS, Pakistan Post, and DNFBPs, specific AML/CFT obligations should be extended to these entities.

The non-banking financial institutions are not filing suspicious transactions commensurate with ML/TF risks in these sectors. The report underlined that there were no enforceable AML/CFT requirements for Pakistan Post, CDNS and DNFBPs. There was also little evidence that the Securities and Exchange Commission of Pakistan’s (SECP) supervisory activity is improving anti-money laundering and countering the financing of terrorism measures in Pakistan. Pakistan Post, CDNS and DNFBPs are not supervised for AML/CFT compliance.

Pakistan Post, CDNS and DNFBPs have a limited level of understanding of AML/CFT obligations.

The CDNS and Pakistan Post identify customers under rules-based policies using CNICs with their use of other sources of reliable, independent sources document and data or information to verify the customers being limited.

Where on-going monitoring is applicable it appears to be rules-based with a lack of refusal of or accounts were closed when ongoing customers CDD information is incomplete or cannot be completed, according to the report. 

Published in The Express Tribune, December 15th, 2019.

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