1 INTRODUCTION

1.1 WHAT IS MONEY LAUNDERING

Money laundering means the methods criminals use to hide and disguise the true nature and origin of the money they make from their crimes.

The term “laundering” is used because criminals need to turn their “dirty” criminal money into clean funds that they can use without arousing suspicion. Getting the criminal money into the financial system means that it becomes harder to trace and confiscate. Drug traffickers, armed robbers, terrorists, illegal arms dealers, fraudsters, and tax evaders all need to launder the proceeds of their crimes.

Money laundering is a global problem. All financial centers are vulnerable and all financial institutions within those centers need to play their part in preventing the criminals from successfully laundering their criminal money.

1.2 THE TECHZERO1’S ROLE IN PREVENTING MONEY LAUNDERING

The prevention of money laundering from the point of view of TECHZERO1 has three objectives:

D Ethical – taking part in the fight against crime.

D Professional – ensuring that the company is not involved in recycling the proceeds of crime that would call into question its reputation, integrity and, if fraud is involved, its solvency.

D Legal – complying with SBP Regulations that impose a series of specific obligations on financial institutions and their employees.

Since August 2001, when the SBP regulations on Anti Money Laundering took effect, all Pakistani Banks and DFIs providing financial services, have had to put procedures in place to prevent criminals from using them to launder their “dirty” money. Similar responsibilities are placed on banks all over the world.

It is important that the Bank and its staff understand and fully comply with these increased responsibilities. The penalties for non-compliance are severe, both for the Bank and individual members of staff. The TechZero1’s partnership as an aggregator and the jobs of all concerned could be at stake. In addition, there are criminal penalties for assisting money launderers. However, increased vigilance by the company in this area will also protect us from the following risks: –

1.1 STAGES OF MONEY LAUNDERING

The first step in the laundering process is for criminals to attempt to get the proceeds of their crimes into a bank or other financial institution, sometimes using a false identity. They can then transfer the proceeds to other accounts, here or abroad, or use them to buy other goods or services.

It eventually appears to be like any legally earned money and becomes difficult to trace back to its criminal past. The criminals can then invest or spend it or as is often the case, use it to fund more crime.

The laundering process is often described as taking place in three stages: –

Placement – (Injection or Pre-washing)

Placement, being the first stage, is the means by which funds derived from a criminal activity are introduced into the financial system, either directly or through using other retail businesses. This can be in the form of large sums of cash or a series of smaller sums. Initial proceeds of drug trafficking or street sales of drugs are always in cash.

Layering – (Stacking or Washing)

The aim of the second stage is to disguise the transaction through a succession of complex financial transactions with the purpose of erasing as quickly as possible all links with its unlawful origin. The funds may be converted into shares, bonds or any other easily negotiable asset or may be transferred to other accounts in other jurisdictions.

Integration – (Recycling)

Complex integration schemes then place the laundered funds back into the economy through real estate, business assets, securities and equities, in such a way that they re- enter the financial system appearing as normal business funds that have been legitimately earned.

The largest amount of criminal money that needs to be laundered comes from the sale of illegal drugs, primarily heroin, cocaine and cannabis.

1.2 THE TECHZERO1’S VULNERABILITIES

Money launderers need the world’s banking systems to launder the proceeds of their crimes and all banks in all countries are vulnerable. Cash based societies and countries without fully comprehensive anti-money laundering programmed (comprising legislation, regulation and financial sector procedures) are especially attractive to the launderers.

Thus, our own degree of vigilance must reflect these potential vulnerabilities. Cash payments arising from drug related crimes are by no means the only risk. Fraud, for example, does not generate any cash, but the extensive proceeds still need to be laundered. Corruption by various individuals and companies including public officials inevitably involves fraud or theft and handling the proceeds of large-scale corruption can produce a serious reputational risk for the bank. In addition, preventative measures put in place by International Financial Institutions over the past decade have resulted in the need for criminals to use more complex routes to gain access to the financial system, rather than placing their cash directly into the bank. It must be stressed therefore that all of the TechZero1’s products and services are at risk from being used by criminals to launder the proceeds of their crime.

1.1 OVERSEAS NETWORK

These guidelines are equally applicable to our Overseas Network, however the regulations on Anti Money Laundering and Know Your Customer of the host country will be followed. SBP Prudential Regulation M5 Section 4 states that, “In case of foreign branches of the Banks / DFIs and subsidiaries of the banks / DFIs in foreign countries undertaking banking business, the banks / DFIs would ensure compliance with the regulations (relating to Anti Money Laundering and KYC) of SBP or the relevant regulations  of  the  host country,  whichever  are  most  exhaustive.”

1 THE CURRENT LEGAL POSITION AND PENALTIES

 1.1 POSITION

Banks and Financial Institutions are required to take immediate notice and report to State Bank of Pakistan all unusual or large transactions in a account which apparently have no genuine economic, commercial or lawful purpose provided that the Bank (s) after complete investigation

/ Enquiry come to a conclusion that such transactions are not for economic, commercial or lawful business purposes and relate to illegal or illicit activities, corruption or corrupt practices and narcotic activities.

Prudential Regulations (PR) M1, M2, M3, M4 and M5 issued by State Bank of Pakistan on money laundering make it mandatory for every Commercial Bank / Financial Institution to put in place procedures to combat Money Laundering. A Commercial Bank would render itself liable for imposition of heavy penalties by SBP if these regulations are not strictly complied with. It is obligatory on TECHZERO1 as an aggregator, its management and staff, to follow the procedures strictly as outlined in these prudential regulations as well as the Anti-Money Laundering Ordinance 2007 (XLV) promulgated on September 07, 2007.

There are personal obligations on every member of management and staff that:

D It is an offence to assist anyone whom you know, or suspect to be, to launder money generated illegally. In the financial sector, assistance can be provided by, for example, opening a bank account, accepting deposits, making transfers/payments, advancing a loan, issuing/accepting letters of credit.

D If you know or suspect that a transaction is related to any illegal activity, you must report it to get protection against a charge of knowingly assisting a criminal to launder the proceeds of his/her crime (see Sections 7 and 8).

D In the case of drug trafficking or terrorist financing, if you form a suspicion of money laundering in the course of your employment or business activity, you must report it, even if you are not handling the transaction or funds in question, otherwise you will be alleged for the offence of collusion.

D Field is categorically advised that unless it is established upon investigation / enquiry that the transactions in question are for unlawful purposes and have no economic, commercial or lawful business purposes, such transactions must not be reported as suspicious transactions. Otherwise, the Bank might be involved in a damage suit by such account- holder(s)

The procedures bank has developed to combat Money Laundering include:

D Awareness raising and training of staff. (See Section 3).

D The verification of new client identification and know your customer and his business. (See Sections 4 and 5).

D Retention of records. (See Section 6).

D Recognition and reporting suspicions of money laundering. (See Sections 7 and 8).

1.1 WHAT DOES THIS MEAN IN PRACTICE?

You are not committing an offence if you do not know or suspect that funds relate to drugs, terrorism or other serious crime.

You are committing an offence if knowing or suspect that someone is involved in any serious crime you commit:

D assist them to obtain control or retain their proceeds, or

D give them any help in investing or transferring those proceeds, or

D advise them that you, or another colleague at the Bank, is suspicious of their activities.

In practice, of course, you are generally not likely to know and may not realize or suspect that there was anything suspicious about a transaction until it is all over and the customer has gone away. If that happens, your duty is clear. You must report your suspicion; you will not be criticized that you were not suspicious immediately.

If you do not report your suspicion and the funds are related to drugs or terrorism, you will have committed an offence of failure to report. If you do not report your suspicion concerning any criminal money, whether relating to drugs, terrorism, tax evasion or any other serious crime, you may also need to defend an action against you for deliberately assisting the criminal.

If you are suspicious, you discuss it with your manager. If you both agree that the transaction is suspicious, you must report it to the TechZero1’s Company Compliance Officer (CCO). The CCO will immediately scrutinize and report it to the CEO to discuss it with Group Head Compliance of partner financial institution and report it to TechZero1’s senior management and SBP.

The TechZero1’s reporting procedures are set out in Section 8.

1 THE TECHZERO1’S POLICY

It is the Policy of TECHZERO1 SMC PRIVATE LIMITED. that:

D Pakistani statutory and regulatory obligations to prevent money laundering are to be met in full.

D Positive management action will be carried out to minimize the risk of the TechZero1’s services being abused for the purposes of laundering funds associated with drug trafficking, terrorism and other serious crime, as defined by SBP.

D The TechZero1 and its partner bank will not continue established relationships with customers whose conduct gives rise to suspicion of involvement with illegal activities. Any customer relationship where the customer’s conduct gives the TechZero1’s staff and bank reasonable cause to believe or suspect involvement with illegal activities will be reported by TechZero1’s staff and the Group Head Compliance to the Fraud Management Unit at SBP after proper scrutiny / enquiry in consultation with the respective CEO and Business Group Head. Thereafter, action will be undertaken in conjunction with the law enforcement agencies to avoid any risk of the Bank committing a tipping-off offence. Wherever possible, the relationship will be terminated.

D The TechZero1’s policy and procedures will be based upon the requirements of the Money Laundering Regulations followed by its partner banks and issued by SBP.

1.1 PROCEDURES WILL BE MAINTAINED TO ENSURE THE FOLLOWING:

D That the identities of all persons conducting business with the Bank are properly verified and sufficient information gathered and recorded to permit the Bank to “know its customer” and predict the expected pattern of business. (See Sections 4 and 5).

D Prospective business where all the required information cannot be obtained without a justifiable reason is declined. (See Section 4).

D Potential new relationships that do not appear to be legitimate are declined. (See Section 4).

Transactions offered by non-account holders or by counterparties that do not appear legitimate are declined. (See Section 4).

D Cash remittances for sub-merchants of TECHZERO1 SMC Private Ltd. are monitored and will be subject to additional controls that include identifying and verifying the ID of on-line customers.

conducting t ransactions above the l imit prescribed by  the  bank.  (This limit is

Rs.500,000).

D Established relationships are regularly monitored, to ensure that they fit the customer’s profile, especially in respect of large or abnormal transactions. (See Section 5).

D Records are retained to provide an audit trial and adequate evidence to the law enforcement agencies in their investigations. (See Section 6).

D All suspicions are reported promptly to the Company’s Compliance Officers for onward advice to the CEO and Compliance and Business Head of partner bank, after having investigated the transaction independently and full co-operation is extended to the Fraud Management Unit at SBP and other law enforcement authorities. (See Section 7 and Section 8).

1.1 SENIOR MANAGEMENT IS RESPONSIBLE FOR:

D The day-to-day compliance with money laundering obligations within all segments of the Techzero1 and the partner financial institutions / bank for which they are responsible.

D Ensuring that the CCO / Bank’s Compliance Head is provided with prompt advice of unusual/suspicious transactions and other matters of significance.

D Seeking from the Compliance Division, at least annually, a report relating to the TechZero1’s compliance with its anti-money laundering obligations and acting on the findings and recommendations.

D Internal Audit to report deviations to the respective Business Head / Regional Managers with copy to Company Compliance Head and Bank’s Group Head Compliance) to ensure rectification of exceptions found during their audit

1.2 PROVISION OF EDUCATION AND TRAINING

D All members of management and field staff are responsible for initial training on anti-money

laundering at least once a year. Compliance Group will coordinate with Training Centers / HRD to ensure that respective directives from regulatory bodies are covered in these training sessions.