TECHZERO1 SMC PRIVATE LIMITED

KNOW YOUR CUSTOMER (KYC)

PROCEDURES HANDBOOK

KNOW YOUR CUSTOMER (KYC) & ANTI–MONEY LAUNDERING (AML) PROCEDURE HANDBOOK

POLICY GUIDELINES FOR KNOW YOUR CUSTOMER (KYC)

Foreword

A Handb o o k containing detailed guidelines on KYC Policy P olicies was required to help management and staff to fully understand their obligations. This would help our front-end staff and managers to have direct interaction with the customers. KYC Laws are in the evolutionary process, new regulations and subsequent amendments will require a regular update of our procedures and skills to remain in line with the best practices followed internationally.

Regulatory Policies across the globe are focused on strict compliance of Anti Money Laundering (AML) and Know Your Customer (KYC) Laws/Regulations according to international standards. Fintech in every country are required to strictly comply with these standards besides seeking certification from their foreign correspondents that they are fully compliant with these regulations. Seen from this perspective, SBP has prescribed Prudential Regulations, which must be complied with by the financial institutions, banks, FinTech’s and their employees. Consequently, Fintech companies and banks are required to know their customers as well as their business.

We have created awareness through our website and web-portal and have also put in place procedures for our merchants and customer’s due diligence. Prevention of criminal use of banking channels for the purpose of Money Laundering and other unlawful trades is the responsibility assigned to the banks/Financial Institutions. Since KYC & AML Regulations are relatively new concepts, training courses were arranged by the u s to provide the necessary KNOW HOW to our field force.

We expect that every employee of the company, particularly Field Force and Customer Support and Regional Manager, will carefully study these guidelines, which will help them to meet their regulatory obligations. With concerted efforts and teamwork, we should be able to meet this challenge successful

Table of Contents

• INTRODUCTION
• VERIFICATIONOF IDENTITY/KNOW YOUR CUSTOMERS 14
  • KNOWYOUR CUSTOMER (“KYC”) 14
  • Customer Identification– General Principles 14
    • TheNeed to Verify Identity and Address 14
    • Completionof Account Opening and Know Your Customer Forms 15
    • Completionof Account Opening Formalities and Authorisation 15
    • Reportingof Suspicious Circumstances 16
  • Customer Identification– Whose Identity Must be Verified 16
  • CustomerIdentification – Account Opening Documentation 16
  • DocumentationRequirements To Open Account 17
  • Procedures whereIdentification Cannot be Completed 21
  • Customer Identification– Cash Remittances for Non Account Holders 21
    • OutwardRemittances for non account holders 21
    • InwardRemittances 22
  • CustomerIdentification – Special Circumstances 22
    • ThirdParty Mandate Holders 22
    • Circumstances forDeclining New Accounts 22
  • MaintainingRecord for the Accounts Opened and Closed 22
  • Knowingthe Customer’s Business 22
  • politicallyexposed persons (PEPs) 24
  • TRANSACTIONSTHROUGH CORRESPONDENT RELATIONSHIPS 24
• REVIEWINGAND MONITORING CUSTOMER ACCOUNTS 26
  • Theneed for Vigilance 26
  • UpdatingKnowledge of the Customer 27
  • Semi- annual review of Accounts 27
  • MonitoringRecently Opened Accounts 28

1.1 KNOW YOUR CUSTOMER (“KYC”)

The general perception of staff on KYC policy is inaccurate that central bank’s regulations make the new account opening difficult. On the contrary, proper account documentation and KYC procedures provide satisfaction and protection to the staff against unforeseen events and assist in establishing relationship in accordance with the TechZero1’s policies. Getting maximum reliable information about the customer is the basic principle of good banking which enables the Techzero1 as a Fintech Company and its partner’s bank to make correct decisions to meet with customer’s genuine banking requirements promptly. Techzero1’s officers / staff have not to be alarmed or frightened but prudently ensure that all the necessary documents have been obtained at the time of the merchant onboarding and account opening.

Our partner’s financial institutions have a statutory obligation to know their customers and to understand the nature of the business that is being conducted with us. This applies to every type of customer regardless of who they are, their personal status, or the type of account or service that they require.

Knowing your customer means:

D seeking evidence of identity and address and independently confirming that evidence at the start of a business relationship with the Techzero1 and its partner bank. (See sub-sections 4.2-4.7).

D seeking information regarding the nature of the business that the customer expects to conduct with the Techzero1, establishing sources of income and expected patterns of transactions, and keeping that information up to date, to show what might be regarded as normal activity for that customer. (See sub-section 4.10).

All prospective customers for accounts with TECHZERO1 must be seen face to face. The appropriate account opening and customer information forms must be completed, and any additional interview notes must be obtained and retained in the customer file. Customer Identification – General Principles

1.1.1 The Need to Verify Identity and Address

The Bank must verify the credentials of every customer when an account is first opened. This applies to all types of accounts (personal customers; sole traders/proprietors; partnerships; private and public companies etc.). Customers introduced from other branches are included in this requirement. An exemption is given when the applicant customer is itself at another bank or financial institutions.

 

 

 

Identity must also be verified whenever a customer without an account with the Bank (i.e. online e-commerce customer) requires a wallet / card-based remittance transaction of Rs.500,000 or more. This limit in case of merchants could be Rs.5,000,000, (case to case basis) if the IBFT / Card / Wallet remittance is to be credited to an account in the customer’s own name). The purpose of remittance column has already been included in the remittance form.

 

1.1.2 Completion of Account Opening and Know Your Customer Forms

All prospective merchants must complete in full the appropriate Account Sign Up Form and provide the necessary documentary evidence of identity and financial information. If any column on either form is not applicable it should be marked as N/A, no section should be left blank. The interviewer must also complete and sign the “Account Opening process with Techzero1 – “Know Your Customer” form.

Any additional information obtained during the interview about the merchant’s background and

financial standing should be recorded by the staff and kept in the merchant’s file.

1.1.3 Completion of Account Signing up Formalities and Authorization

No account will be opened until the account opening and Know Your Customer forms have been completed, and all documents have been received and examined to ensure that they are valid. For example:

D the Customer Identification Number / CNIC has not expired.

D the documents are uploaded after original seen sign offs and stamped.

D Agreement’s mandate duly signed and completed.

D all documentary evidence, information and signatures are consistent.

D in the case of giving a Third Party Mandate that the Third Party Mandate Form has been duly signed and completed.

D The email of Thanks should be sent through the registered email id of the merchant on their given addresses to notify the customer that their account has been opened.

D The login ids and passwords book should only be issued after the account opening form has been completed in all respects and the Letter of Thanks issued by the Techzero1 has been received by the customer.

In the absence of the Country Compliance Officer the account opening will be approved by CEO.

1.1.4 Reporting of Suspicious Circumstances

If there are any suspicious circumstances surrounding the opening or operation of any account, the matter must be reported immediately to the respective CCO / CEO. After making discreet inquiries, the respective CCO / CEO together with partner’s banks will send their detailed report to the Bank’s Head Compliance, giving reasons for the suspicion with their findings and shall endorse a copy thereof to the Business Group Head and Head of Compliance Group. If it is established that the transaction under review is suspicious, the CCO after due diligence and necessary checks will advise Head of Compliance Group, who will discuss it with the Techzero1’S CEO and President of the partner bank and subsequently the transaction will be reported to the State Bank of Pakistan.

1.2 CUSTOMER IDENTIFICATION – WHOSE IDENTITY MUST BE VERIFIED

Establishing the identity of anyone who wishes to do business with the Techzero1, and the bank is vital. For all applicants the Techzero1 and the bank is required to be satisfied with that:

D the person we are dealing with is who she/he says they are and lives permanently at the address they have given.

D the sole traders/proprietors, partnership, company we are dealing with is a legitimate business with a known address and represents legitimate owners.

Therefore, in respect of accounts for sole traders/proprietors, partnerships and companies, it is necessary to verify the identity of the business entity PLUS the key individuals who will be operating and managing the account as well as those who are investing into the business or controlling it.

For joint accounts, the identity of all account holders must be established. This also applies to any other third parties (e.g. power of attorney holders) who are permitted by the account holder to operate the account.

If the customer gives a mandate to a third party to operate the account, the mandate form should be signed by both parties i.e. the account holder and the third party. In such cases the identity of both should be obtained in line with the normal procedures set out above for personal customers.

 

1.3 CUSTOMER IDENTIFICATION – Merchant’s Onboarding

For each type of customer, certain documentation must be obtained and sufficient information gathered for us to be certain that:

 

 

 

D we know our new customer, having verified identity and address and understanding the

customer’s business and the expected levels of transactions.

D the new customer has understood and accepted the TechZero1’s terms and conditions for the account.

D we are satisfied that the mandated individuals do have the authority of the account holder(s) to control the account, and.

D we are satisfied that the account holder(s) and their business are legitimate, and the Techzero1 and the bank are not at risk of financial loss or reputational damage.

Original identification documents must be seen, photocopied and retained in the customer’s file. Care must be taken to ensure that the copies are clear and legible and that the copies are stamped, signed and dated to show that the originals have been seen. If there is any doubt about the legality or acceptability of any document, immediate reference must be made to the Business Manager.

When a prospective customer does not yet have a permanent residential address, documentary evidence of the temporary address should be obtained and an undertaking received from the customer that documentary evidence of the permanent address will be provided to the Techzero1 as soon as it is available.

Documentary evidence could be a copy of the lease / tenancy agreement or a letter from the landlord stating that the person wishes to open account lives in his or her property as a tenant etc. This should be obtained together with a copy of the landlord’s CNIC and utility bill.

Care must be taken to ensure that the information presented / collected makes sense on a cumulative basis and does indeed relate to the applicant.

Accounts must not be opened on the strength of faxed documentation, even from within the Group. Only original or certified photocopy documentation is acceptable.

 

1.4 DOCUMENTATION REQUIREMENTS TO OPEN ACCOUNT

The following documentation requirements have been issued by the State Bank of Pakistan under Regulation PR-1 for the FinTech’s and Banks to obtain when they open various types of merchant’s accounts along with KYC form. Exceptions from these requirements are not allowed

DOCUMENTS TO BE OBTAINED FROM VARIOUS TYPES OF CUSTOMERS/ACCOUNT HOLDER(S) UNDER REGULATION M-1

 

 

SR.#	NATURE OF ACCOUNT	DOCUMENTS/PAPERS TO BE OBTAINED.
I.	Individuals	1. Attested photocopy of Computerized National Identity Card (CNIC) or Passport of the individual by a Gazette Officer or an Officer of the Bank /DFI. The same must also be verified through NADRA on-line VERISYS system. 2. In case the CNIC does not contain a photograph, the Bank/DFI should also obtain, in addition to CNIC, any other document such as Driving License etc., that contains a photograph. In case the customer does not have any such document that bears his/her photograph, then the following procedure is to be followed: i. A copy of the photograph duly attested by gazette officer/Nazim ii. A copy of CNIC without photograph duly attested by the same person who has attested the photograph as per Sr. No (i) above. iii. A confirmation in writing to the effect that they have no other document bearing their photograph. 3. In case of a salaried person, attested copy of his service card, or any other acceptable evidence of service, including, but not limited to a certificate from the employer. 4. In case of illiterate person, a passport size photograph of the new account holder besides taking his right and left thumb impression on the specimen signature card.
II.	Sole Trader / Proprietorship	Efforts should be made to obtain relevant document(s) to establish the existence of the sole trader/proprietorship concern, and the following documents must be obtained:
		1. Attested photocopy of Computerized National Identity Card (CNIC) or Passport of the individual by a Gazette Officer or an Officer of the Bank /DFI. The same must also be verified through the NADRA on- line VERISYS system. 2. In case the CNIC does not contain a photograph, the Bank/DFI should also obtain, in addition to CNIC, any other document such as Driving License etc., that contains a photograph. In case the customer does not have any such document that bears his/her photograph, then the following procedure is to be followed:

 

 

 

 

SR.#	NATURE OF ACCOUNT			DOCUMENTS/PAPERS TO BE OBTAINED.
				i. A copy of the photograph duly attested by gazette officer/Nazim ii. A copy of CNIC without photograph duly attested by the same person who has attested the photograph as per Sr. No (i) above. iii. A confirmation in writing to the effect that they have no other document bearing their photograph.
III.	Partnership			1. Attested photocopy of Computerized National Identity Card (CNIC) of all partners. 2. Attested copy of “Partnership Deed” duly signed by all partners of the firm. 3. Attested copy of Registration Certificate with Registrar of Firms. In case the partnership is unregistered, this fact should be clearly mentioned on the Account Opening form. 4. Authority Letter, in original, in favor of the person authorized to operate on the account of the firm.
IV.	Joint Stock Companies			Certified Copies of: 1. Resolution of Board of Directors for opening of account specifying the person(s) authorized to operate the company account. 2. Memorandum and Articles of Association. 3. Certificate of Incorporation. 4. Certificate of Commencement of Business. ** 5. Attested photo copies of identity cards of all the directors. 6. List of Directors on Form 29 issued by the Registrar SECP.
		*& **		As per the relaxed requirements by SBP, such foreign companies belonging to countries where the opening of bank account does not require furnishing of Board Resolution for the purpose of opening bank account and certificate of commencement of business is also not issued by any institution/body, such foreign companies will have to furnish the following documents in lieu of the above (* & **), to the satisfaction of the Bank:
	In case of Joint Stock Companies of Foreign Origin
				1. Power of Attorney from the competent authority for opening of Bank Account. 2. A certificate from the Company Secretary, duly authorized by the Board, and that the entity started its business from a certain date and that certificate of Commencement of Business is not issued in that Country All other instructions on the subject shall, however, remain unchanged.

 

 

 

 

SR.#	NATURE OF ACCOUNT	DOCUMENTS/PAPERS TO BE OBTAINED.
V.	Clubs, Societies and Associations	1. Certified copies of: i. Certificate of Registration. ii. By-laws/Rules & Regulations 2. Resolution of the Governing Body/Executive committee for opening of account authorizing the person(s) to operate the account and attested copy of the identity card of the authorized person(s) 3. An undertaking signed by all the authorized people on behalf of the institution mentioning that when any change takes place in the persons authorized to operate on the account, the banker will be informed immediately.
VI.	Agents’ Accounts	1. Certified copy of ‘Power of Attorney”. 2. Attested photocopy of their identity card / passport of the agent.
VII.	Trust Account	1. Attested copy of Certificate of Registration. 2. Attested photocopy of identity cards of all the trustees. 3. Certified copy of the “Instrument of Trust’. Bank can open accounts of trust covered under section 227 of Companies ordinance 1984 including Provident Fund, Gratuity Fund and pension funds after obtaining evidence of registration with any Govt Authority. The bank has to ensure that the opening of Trust Account & subsequent operation in the account are in accordance with the spirit of KYC, due diligence and other Anti Money Laundering / Combating Financing of terrorism (AML/CFT) safeguards.
VIII.	Executors / Administrators	1. Attested photocopy of identity cards of the Executor / Administrator. 2. Certified copy of Letter of Administration or Probate.
IX.	Government Accounts	1. It must be ensured that government accounts are not opened in the personal names of the government officials(s). Any such account, which is to be operated by an officer of the Federal / Provincial / Local Government in his / her official capacity, shall be opened only on production of a special resolution / authority from the concerned administrative department duly endorsed by the Ministry of Financial or Finance Department of the concerned provincial or Local Government.

1.5 PROCEDURES WHERE IDENTIFICATION C ANNOT BE COMPLETED

Businesses where all the required information cannot be obtained will be declined. Exceptions will only be permitted on the decision of the Country Compliance Officer & CEO, who determines whether there are genuine reasons for the information or documentation not being available. In cases where there are no valid explanations for the absence of the information or documentation, the circumstances must be reported as a possible suspicion.

If funds are being held on behalf of the prospective merchant / customer, the written approval of the respective CEO must be obtained before funds are returned to the customer. In these circumstances, funds must never be paid away to a third party.

1.6 CUSTOMER IDENTIFICATION – CASH REMITTANCES FOR NON-ACCOUNT HOLDERS

Cash remittances for nonaccount holders present a high risk for the Techzero1 and the bank and increase the TechZero1’s vulnerability to money laundering. The additional measures listed below have therefore been introduced to mitigate those risks.

 

1.6.1 Outward Remittances for non-account holders

D Whenever there is any doubt in respect of the documentation, reference must be made to the country compliance officer and operations manager before acceptance of the transaction. Copies of the documentary evidence are to be retained with the remittance advice.

D Where the level of income does not appear to support the value of the remittance, but there appears to be a valid explanation, the remittance will be accepted. However, any further requests for that customer must be monitored. Any suspicions must be reported to the compliance officer using the Internal Report Suspicious Transaction Form (See Specimen Forms – Section 9).

D The Finance Manager must authorize any cash remittance of Rs.500,000 or above and make notation on the remittance form and sign the form to confirm that all of the procedures and evidence is satisfactory

1.6.2 Inward Remittances

D Cash payment to non-account holders of TechZero1 SMC Private Limited will require proper evidence of identity.

1.7 CUSTOMER IDENTIFICATION – SPECIAL CIRCUMSTANCES

 

1.7.1 Circumstances for Declining New Accounts

New relationships that do not appear to be legitimate including those where the applicant does not supply essential documentation as required in accordance with section 4.5 or proof of identity and address must be declined.

1.8 MAINTAINING RECORD FOR THE ACCOUNTS OPENED AND CLOSED

 

Regional offices and Head offices will keep a record of all accounts being opened and closed; Operation Manager will send a monthly report of all accounts opened and closed to the Company’s Compliance Officer with copy to the CEO. The report will show the title of accounts, type, address and closing balance of accounts that were opened and last balance of accounts those were closed. AOF and record of accounts opened and closed must be maintained for 5 years after the relationship has ended.

1.9 KNOWING THE CUSTOMER’S BUSINESS

 It is not sufficient only to identify the customer; it is also necessary to understand the customer’s

business and the use of the account or other banking service

Knowing the customer obviously includes knowing who the customer is and where he / she lives or conducts their business, but KYC is also about what the customer does, his/her/their financial circumstances and how the account will be used.

For all merchants and account holders’ information is required on:

D the purpose of the account

D the customer’s occupation profession and source(s) of income. (At times, it could be difficult for the fintech company and the bank to verify an individual’s source of income. Under such circumstances, the branch manager or account opening officer will satisfy himself / herself when interviewing customer at the time of account opening about

customer’s statement about his / her income. However, for corporate and commercial

customers source of income will be determined from their financials)

D the beneficial owner of any funds to be deposited or invested.

For accounts with cheque and payment facilities the following additional information is required:

D the customer’s normal expenses and outgoings; and

D other bank accounts, credit cards, etc. held by the customer.

Unemployed customers or other customers whose income cann ot be ascertained must state whether they have any other source of income.

Customers in business should clearly state the nature of their business or profession, e.g. “importers and dealers in watches” or “accountant in private practice”. Similarly, customers in employment should state their position and the employer’s name and address. Vague words or phrases (e.g. “in business” or “in service”), should not be used.

Directors of Private Companies must confirm whether they are the principal shareholders and, if not, the beneficial owners of the company must be identified.

D KYC information is needed to establish a pattern of expected activity and can assist the Bank:

D to meet the customer’s business requirements.

D to recognize unusual transactions and thus protect the customer and the Bank from fraud

D to recognize any unusual transaction which might raise suspicion of money laundering.

No merchant will be onboarded, and account should be opened until a satisfactory understanding of the customer’s business has been obtained and documented on the Know Your Customer form.

Knowing the customer’s business is not a “one off “event.

Regular contact with the customer must be used to keep such knowledge up to date and appropriate notes must be placed in the customer’s file. All information gathered during the monitoring of existing client accounts (see Section 5) which updates knowledge of the customer, and his/her business, must be the subject of a similar note for the file.

1.10 POLITICALLY EXPOSED PERSONS (PEPS)

Business relationships with individuals holding important public positions and with people or companies clearly related to them may expose a fintech company and the bank to significant reputational and/or legal risks. Such politically exposed persons (*PEPs*) are individuals who are or have been entrusted with prominent public functions, including heads of state or of government, senior politicians, senior government, judicial or military officials, senior executives of publicly owned corporations and important political party officials. There is always a possibility, especially in countries where corruption is widespread, that such people abuse their public powers for their own illicit enrichment through the receipt of bribes, embezzlement etc.

 

The TechZero1’s staff should gather sufficient information from a new customer, and check publicly available information, to establish whether the customer is PEP. TechZero1’s staff should investigate the source of funds before accepting PEP. The decision to open an account for PEP should be taken at the CEO level.

1.11 TRANSACTIONS THROUGH CORRESPONDENT RELATIONSHIPS

Transactions conducted through correspondent relationships can present an additional risk for all fintech companies and the banks unless sufficiently know your customer procedures have been undertaken by the remitting fintech and the bank on the underlying client and the origin of the funds. Consequently, to comply with new regulatory guidance, additional measures will be required to ensure that we “know our correspondent banks”.

Particular attention should be paid when continuing the relationship with Correspondent Banks located in jurisdictions that have poor KYC standards or have been identified by the Financial Action Task Force (FATF) as being non-co-operative (list attached in section 9). The purpose will be to ascertain whether the correspondent bank is itself regulated for money laundering. The prevention and, if so, whether the correspondent is required to adopt Know Your Customer procedures to international standards. (PR M4, Section 4)

The volume and nature of transactions flowing through fintech and correspondent accounts with banks that do not have equivalent anti-money laundering procedures will need to be monitored against expected levels and destinations. Any material variances or unusual circumstances (whether isolated transactions or trends) will be subject to additional enquiries.

The TechZero1 and the Bank will consider terminating the accounts of correspondents who fail to provide satisfactory answers to such enquiries including, where appropriate, confirming the identity of customers featuring in unusual or suspicious circumstance

2 REVIEWING AND MONITORING CUSTOMER ACCOUNTS

 

2.1 THE NEED FOR VIGILANCE

Whilst it can be assumed that most merchants and the customers are honest and that their transactions are legitimate, this is not always the case. As with all banks, there will be some prospective customers who approach the TechZero1 and the bank with the deliberate intention of using our services to launder criminal funds. It is hoped that the TechZero1’s enhanced procedures for merchant’s account opening and for handling cash remittances will identify these situations at the outset.

However, it is not only prospective merchants and the customers who may put the TechZero1 and the bank at risk. Occasionally, merchants may seek deliberately to build up a degree of trust before they use the fintech company and the bank for criminal purposes; others may turn to crime because of a change in their personal circumstances. It is possible, therefore, that some existing customers may become deliberately or unintentionally involved in money laundering through cash deposits, transfers in, transfers out, or through lending or trade finance (examples are included in Section 7 of this Handbook). It is therefore vital that all staff are vigilant and that all unusual transactions for any customers are identified, discretely researched and, where there is a suspicion of money laundering, a report is made to the CCO (see Section 9 Specimen Forms).

The foundation of any monitoring procedure lies in the initial collection of identification and “know your customer” information and the ongoing updating of that information. Updating arises from regular contact with the customer and the results of regular monitoring procedures.

The nature of the business that a customer expects to conduct must be ascertained when the account is opened and regularly updated. This will enable management and staff to judge whether the customer’s transactions are in line with expectations or whether unusual transactions give cause for concern and possible suspicion that criminal money is involved.

The initial period of any new merchant and the customer relationship presents the greatest vulnerability and therefore warrants additional monitoring procedures. Once the initial period (up to the first six months) is over, ongoing routine monitoring covering all transactions becomes the norm.

Dormant and inactive accounts need to be monitored to respond to any transaction which, because

of the ‘dormant’ nature of the account, is unexpected or unusual and warrants review or approval

2.2 UPDATING KNOWLEDGE OF THE CUSTOMER

All managers and staff must recognize the need to keep up to date the TechZero1’s knowledge of the customer with reference to:

D documenting the merchant’s / customer’s banking habits and patterns of transactions.

D documenting events or changes that are considered important for a sound knowledge of

merchant’s / customers and their activities.

D noting merchant’s / customers with particularly large sums being credited/debited to/from their accounts.

D providing easy and immediate access to merchants / customers and KYC information for the CCO and CEO; and

D ensuring that the true beneficial owner and source of all funds is known.

D A file note must be completed recording every meeting and telephone conversation with the merchant / customer and filed in the merchant / customer file.

Accounts where there is little personal contact with the merchant / customer should be subject to review on a regular basis to ensure that any change of address or changes in circumstances that have been notified are recorded. Particular attention should be paid to any new sources of income or unexpected use of the account.

If at any time any member of staff believes that the level and nature of activity in an account is not consistent with the known business or profession of the merchant / customer, or if the transactions otherwise appear to be unusual or suspicious, a report should be made to the CCO.

2.3 SEMI – ANNUAL REVIEW OF ACCOUNTS

 

All compliance and business managers are responsible for monitoring the activity on their merchant’s accounts in accordance with their knowledge of the merchant’s / customer’s business and the expected activity on those accounts. Managers should ensure that they undertake a semiannual review of all accounts where the balance of accounts is Rs.1,000,000 or more or have an average monthly debit or credit turnover of Rs.1,000,000 or more. During the review, Managers should check that all transactions are in line with expected activity and that new information has been recorded. Attention should be paid to any new sources of income or unexpected use of the account. A file note confirming the date of the review should be placed on the merchant’s / customer’s file. Any change in Customer’s finances must be updated in the System’s threshold limits by the operation managers.

2.4 MONITORING RECENTLY OPENED ACCOUNTS

Accounts that have been opened within the previous six months should be closely monitored:

D to establish a normal pattern of activity.

D to ensure that the activity is in line with the merchant’s expected profile on account opening.

D to ensure that the verified identification information remains unchanged, e.g. no early notification of change of address or account signatories.

D to check and review the source of funds.

D to ensure that there are no unexplained large transactions.

2.5 TRANSACTION MONITORING

 

The most important safeguard against money laundering is the ability to detect suspicious transactions and to take further action to prevent the recurrence of such transactions. A few monitoring procedures have therefore been introduced for cash and non-cash transactions and these are set out below.

 

2.5.1 Monitoring Transactions for Merchants and Account Holders – Non-Cash Remittances & transactions

Wire transfer remittances are a high-risk area warranting special attention. Although most wire transfers involve legitimate business transactions, the speed and anonymity they afford have made the system attractive to drug traffickers and money launderers who can swiftly move their money from bank to bank and country to country and thus conceal their source and ownership.

Information on the purpose, identity of the originator and the ultimate beneficiary must be available for all foreign remittances. Further enquiries should be made if these details are not included in incoming remittances to ascertain whether there is a reportable suspicion.

2.6 THRESHOLD LIMITS

 

All transactions across accounts, above the following specified financial thresholds, will be reviewed and signed off as being in line with KYC information retrospectively by the respective business managers. Computer reports will be produced for accounts with a debit or credit transactions or turnover above the following threshold limits:

 

 

D D	High Value Transactions Limit Online and Over-the-Counter Transactions Limit for	= Rs.5,000,000
D	Account Holders (Refer section 5.6) Cash Transactions Limit for Non-Account	= Rs.1,000,000
	Holders (walk-in-customers, Refer Sections
D	3.1, 4.2, 4.7 and 5.6) Cash Transactions Limit for Non-Account Holders	= Rs.500,000
	(Walk-in-Customers) where the funds will be moved
	to his own account	= Rs.1,000,000

 

 

D Personal and Business Accounts: Thresholds will be input into the system as per the merchant’s and account holder’s financials. For Sole Traders / Partnership accounts business managers will decide the expected debit and credit turnover in the account, and in case of personal accounts, an individual’s annual income / salary will be input as threshold limits in the system.

D Corporate Accounts: In line with the financial or expected turnovers in corporate accounts, Business Managers will decide the respective parameters to be used as threshold limits for accounts falling into this category.

 

The above limits have been put in place to monitor the accounts’ activities and by no means suggest that any transaction exceeding the limits will constitute a “Suspicious Transaction”. Operation Managers should use their judgment when they review such transactions and must refer to their respective Business Managers or Area Heads when in doubt.

2.7 EXCEPTION REPORTS

D In order to monitor the exceptions, the following reports will be generated which will be a vital tool for monitoring customer transactions:

2.7.1 Income / Salary / Turnover Exceptions Report

D This will show all the accounts where income / salary or Turnover DR or CR exceeds 25% of the parameters amount set in the account. This report will be a basic tool for monitoring financial KYC. The parameters will be updated as and when there is a change in customer circumstances.

2.7.2 High Value Transactions Report

D This report will pick all customer accounts where there is any transaction of Rs.5 million (debit or credit) or over. Treasury transactions will of course be excluded from this report.

2.7.3 Over The Counter Transactions Report

D This report will pick all cash transactions of Rs.1 million or over (debit or credit).

2.7.4 Transactions Alert Report

D This report will pick all transactions which have taken place in any account for Rs. 1 million or more, so that Business Managers could review the transactions to ensure that these were in line with the customer’s business. Any transaction, which in his / her opinion does not match the customer’s financial profile, will be examined appropriately.

It will be the responsibility of the Business Manager to review these reports and take actions where necessary and make notifications on the reports as to what action was taken. These reports will be checked / audited by the respective CCO monthly.

Financial thresholds should be kept under review and will require to be increased / decreased in the light of experience.

2.8 MONITORING TRANSACTIONS FOR ACCOUNT HOLDERS – CASH REMITTANCES & TRANSACTIONS

 

Cash transactions leave the Techzero1 and the bank particularly vulnerable because of the bearer nature and universal acceptability of currency notes and the fact that there is little or no audit trial. Special care is required in handling cash transactions of large amounts. The KYC procedure should

identify customers who use cash as an integral part of their business, e.g. retail outlets, grocery stores, or restaurants. For such merchants and the customers, the normal amount and frequency of cash deposits should be estimated based on discussions with the customer and the monitoring of account transactions.

The basic principle to be followed is that the size and frequency of cash transactions should have relevance to the nature and size of the customer’s business and portion of sales generated on a cash basis. Further examples of what constitute suspicious transactions appear in Section 7.

2.9 LARGE CASH TRANSACTIONS

 

For any merchant or account holder who undertakes, or requests, a cash transaction of any type (including foreign exchange) for Rs.1,000,000 or more. Operation and Business Managers should approve and confirm that such transactions are in line with the KYC information. Where the funds are not drawn from, or credited to, the customer’s account, a note of the transactions should be placed on the customer’s file.

 

2.9.1 Monitoring Transactions – Cash Remittances for Non-Account Holders

D It is not the Banks’ policy to deal with Non-Account Holders. Cash remittances for non- account holders present a particularly high risk for the Bank and require special care and vigilance. However, there could be instances where branch managers in consultation with their Business managers wish to accommodate non account holders with view to establish business relations in future, therefore they will obtain the necessary documents to accommodate the transaction.

D Copies of the documentary evidence obtained (CNIC and source of funds) should be retained with the remittance advice for five years following the date of the transaction.

D All cash remittances of Rs.500,000 and above should be transacted with the prior approval of the Business Manager / Operations Manager.

D In the case of requests for multiple cash remittance transactions by the same non account holder, enquiries should be made to assess whether there are reasons to suspect criminal activity. Any suspicions should be reported promptly to the CCO on the Transactions Alert Report form.

D In cases where the source of funds has not been verified satisfactorily e.g. because the remitter claims that the funds represent cash savings for several years, any subsequent transactions for that customer should be the subject of further enquiries.

D In general terms, staff should not hesitate to withhold their services to non-account holders who do not provide proper identification, give evasive answers to simple questions, or otherwise arouse suspicion of involvement in questionable activitie

3 RECORD KEEPING

 

3.1 DOCUMENT RETENTION

Records are to be retained to provide an audit trial for all funds and adequate evidence for the law enforcement agencies in their investigations;

The minimum retention periods to comply with SBP Money Laundering Regulations are:

D Account opening records and documentary evidence of identity – at least 5 years after the account is closed.

D Account ledger records – at least 5 years.

D Individual transaction records – at least 5 years.

D CCO records of suspicious reports received and reported to FMU – SBP will be kept by the TechZero1 and the bank indefinitely, till the bank gets permission from SBP to destroy such records. (PR3, Section 3)

HOWEVER

If it is known that a Police or tax investigation is under way, all records relating to the merchant account and customer under investigation must be retained until Police / Tax Authorities advise otherwise. The CCO is responsible for managing such situations for the TechZero1.

Transaction documents must be capable of distinguishing between the transactions relating to different customers and of identifying where the transaction took place and in what form.

 

3.2 RETRIEVAL OF DOCUMENTS

 

Subject to the minimum retention periods specified under 6.1 above, documents that are required under court order must be capable of being retrieved and produced within seven calendar days of the date when the order was served.

4 RECOGNISING SUSPICIONS OF MONEY LAUNDERING

 

4.1 WHAT IS SUSPICION?

As the types of transactions that may be used by a money launderer are almost unlimited, it is difficult to define a suspicious transaction. Suspicion is personal and subjective and falls far short of proof based on firm evidence. However, the suspicion must at least have some foundation and not just be based on mere speculation.

A suspicious transaction will often be:

D any transaction where the amount, duration or other specific feature is inconsistent with the customer’s professional or business activities, standard of living or normal movements on the account.

D a transaction that is not logical from an economic, financial or banking point of view.

The key to recognizing suspicions is based on having enough knowledge about a customer’s normal expected transactions and financial circumstances to be able to recognize the abnormal / unusual, and from the abnormal, what might be suspicious. For example, a customer who is unemployed or working in a junior position but is making frequent large cash deposits may be involved in money laundering fraud.

4.2 EXAMPLES OF SUSPICIOUS TRANSACTIONS

 

Examples of what might constitute a suspicious transaction, by activity, are listed below. These are by no means exhaustive and only provide examples of some of the most basic ways by which money can be laundered. This should not be applied as a routine instrument in place of Common Sense.

Identification of these types of transactions does not automatically establish suspicion but should prompt enquiry and consideration of the circumstances. Due consideration should be given to the merchant’s and customer’s explanation for such transactions but not every explanation can be accepted without scrutinizing the transaction.

 

It is justifiable to suspect a customer who is reluctant to provide necessary information and documents to establish relationships. Business Managers should pay more attention to customers who provide minimal or misleading information when opening an account or provide information that is difficult or expensive for the TechZero1 and the bank to verify.

 

 

 

4.2.1 Transactions Which Do Not Make Economic Sense

D A merchant and customer relationship with the Techzero1 and the bank that does not appear to make economic sense,

e.g. a merchant or a customer having many accounts with the same bank, frequent transfers between different accounts or exaggeratedly high liquidity.

D Transactions in which assets are withdrawn immediately after being deposited, unless the merchant’s or a customer’s business activities furnish a plausible reason for immediate withdrawal.

Transactions with that cannot be reconciled with the usual activities of the customer,

e.g. the use of LC and other methods of trade finance to move money between

countries where such trade is not consistent with the customer’s usual business.

D Transactions, which, without a plausible reason, result in the intensive use of what was previously a relatively inactive account, such as a merchant’s or customer’s account which shows virtually no normal personal or business related activities but is used to receive or disburse unusually large sums which have no obvious purpose or relationship to the customer and / or his business.

 

4.2.2 Money Laundering Using Cash Transactions

D Merchant or Customers remitting cash overseas without justification of legitimate earnings or source of funds.

D Unusually large cash deposits made by an individual, or company, whose ostensible business activities would normally be generated by cheques and other instruments.

D Merchant or customers transferring large sums of money to or from overseas locations with instructions for payment in cash.

D Substantial increase in cash deposits of any individual or business without apparent cause, especially if such deposits are subsequently transferred within a short period out of the account to a destination not normally associated with the customer.

D Merchant or customers who constantly deposit cash to cover requests for banker’s drafts, money transfers, or other negotiable and readily marketable money instruments.

D Customers who deposit cash by means of numerous credit slips, so that although each individual deposit is unremarkable, the total of all credits is significant.

D Company accounts whose transactions, both deposits and withdrawals, are denominated by cash, rather than the forms of debit and credit normally associated

with commercial operations (e.g. cheques, letters of credit, bills of exchange, etc.).

4.2.3 Money Laundering using Bank Accounts and Payment Methods

D Merchant or customers who wish to maintain several Third-Party Mandates for clients’ accounts which do not appear consistent with the type of business, including transactions, which involve nominee names.

D Any company whose account shows virtually no normal banking, or related activities, but is used to receive or disburse large sums which have no obvious purpose or relationship with the account holder and/or their business (e.g. a substantial increase in turnover of an account).

D Reluctance to provide normal information when opening an account, providing minimal or fictitious information or, when applying to open an account, providing information that is difficult or expensive for the financial institution to verify.

D Merchant or customers who appear to have accounts with several financial institutions within the same locality, especially when the Bank is aware of a regular consolidation process from such accounts, prior to a request for onward transmission of the funds.

D Matching payments out with credits paid in by cash on the same or previous day.

D Paying in “large” third party cheques endorsed in favor of the customer.

D “Large” cash withdrawals from a previously dormant/inactive account or from an account which has just received unexpectedly large credit from abroad.

D Companie’s representatives avoiding contact with the Techzero1 & the bank.

D Explanatory remark “at the request of one of our merchant or customers”, whose name is not provided and use of unusual payment routes.

D A merchant or customer who opens an account in the name of a company that is active locally and proceeds to make payments and withdrawals of large sums in foreign currency.

D Substantial increases in deposits of cash or negotiable instruments by a professional firm or company, using client accounts or in-house company or trust accounts, especially if the deposits are promptly transferred between other client company or trust accounts.

D Merchant or Customers who have numerous accounts and pay in amounts of cash to each of them in circumstances in which the total of credits would be a large amount.

 

 

 

D Merchant or Customers who decline to provide information that, in normal circumstances, would make the customer eligible for credit, or for other banking services that would be regarded as valuable.

D Insufficient use of normal banking facilities, e.g. avoidance of high-interest rate facilities for large balances.

D Large number of individuals making payments into the same account, without an adequate explanation.

 

4.2.4 Money Laundering by Secured and Unsecured Lending

D Merchant or customers who repay problem loans unexpectedly.

D Requests to borrow against assets held by a financial institution, or a third party, where the origin of the assets is not known, or the assets are inconsistent with the merchant’s or customer’s standing.

D Request by a merchant or by the customer for the Techzero1 or the bank to provide or arrange finance where the cause of the customer’s financial contribution to a deal is unclear, particularly where property is involved.

D A loan without apparent justification, or where the conditions are abnormal or loans made against offshore guarantees.

D Use of external bank guarantees to guarantee a loan.

D Guarantee deposits made by unknown third parties, who do not maintain close business relationships with the customer.

D The presentation of a bank guarantee for abnormally large amounts.

 

4.2.5 Money Laundering using Off-shore International Activity

D Use of Letters of Credit and other methods of trade finance to move money between countries where such trade is not consistent with the customer’s usual business.

D Customers who make regular and/or “large” payments, including electronic transactions (e.g. SWIFT) that cannot be clearly identified as bona fide transactions to, or receive regular and/or “large” payments from, countries which are commonly associated with the production, processing or marketing of drugs.

 

 

 

proscribed terrorist organizations or are known to be countries supporting strict banking secrecy.

D Building up excessive balances, not consistent with the known turnover of the merchant’s or customer’s business, and subsequent transfer to account(s) held overseas.

D Unexplained electronic fund transfers by customers on an in-and-out basis, or without passing through an account.

D Frequent requests for traveler’s cheques, or foreign currency drafts, or other negotiable instruments to be issued.

D Frequent paying in of traveler’s cheques, or foreign currency drafts, particularly if originating from overseas.

5 REPORTING SUSPICIONS

 

5.1 OVERVIEW

 

The Bank must, by Law, have procedures in place for reporting suspicious transactions and circumstances. There are four stages to the TechZero1’s suspicious transaction reporting procedure:

D It is the duty of every member of management and staff to report any suspicious transactions or suspicions to the Company Compliance Officer (CCO) with copy to the CEO and Head of Compliance of the partner financial institution.

D All Internal Suspicious Transaction Reports must reach CCO with a copy to CEO and must not be blocked at any level.

D The CCO will initially scrutinize the report and will decide on the basis of all available information and additional enquiries whether the transaction remains suspicious or whether there is some additional information that removes the suspicion.

D If the CCO considers the suspicion to be justified, he will prepare a report in conjunction with the respective Business Manager / Relationship Manager after making discreet enquiries for the CCO who will review the findings and accordingly discuss it with the CEO. CEO will discuss the matter with the partner financial institution and accordingly advise Financial Monitoring Unit (FMU) at State Bank of Pakistan (SBP). The Internal Suspicious Report Form will remain on file within the Techzero1 or the bank and is not passed to FMU. The name of the individual member of staff who made the report will not be revealed.

Once a report has been made in line with these procedures, all personal legal obligations have been met. All reports submitted to FMU are treated with the strictest confidence. The merchant or the customer is never informed and to do so would be a criminal offence.

 

5.2 REPORTING PROCEDURES FOR STAFF AND MANAGEMENT

 

Staff with any suspicion must report immediately on the Internal Suspicious Transaction Report Form a copy of which is set out in Section 9.

Company’s staff must provide the original of the Suspicious Transaction Report Form to the Business Manager and at the same time send a copy to the CCO. The Business Manager will consider the

 

 

 

report, incorporate any comments of his own, and forward the original to the CCO and a copy to the CEO.

In the absence of the CEO, back-up Risk Manager will be designated by CCO.

It is important that the reason for the suspicion is explained fully. It is of critical importance that such suspicions must not be discussed with anyone outside the Techzero1 and the bank. Care must be taken in discussing a suspicion, even with other colleagues, and if this is considered not to be appropriate, then discussion must only be held with the CCO or CEO.

It is vital that no mention of such suspicion is made to the merchant or the customer. Any discussion of this nature would risk a tipping off offence being committed if the merchant or the customer became aware that a report had been submitted.

All staff must note that once the reporting process has commenced, it must be followed through and completed, even if the original suspicion might appear to have been resolved.

The CCO will examine all reports and make additional enquiries as deemed appropriate. If also suspicious, the CCO will submit a formal disclosure report to the CEO for review and onward submission to the FMU (if appropriate) through Head of Compliance of the partner bank.

This procedure must be followed and repeated every time there is an unusual transaction, even if the Techzero1 and the bank has already notified FMU of previous unusual transactions relating to that customer/account.

All reports will be retained by the CCO for reference purposes whether or not the transaction is reported to FMU.

TECHZERO1 will not hesitate to report to partner bank or the Financial Monitoring Unit at State Bank of Pakistan, because by failing to make a report, we are committing an offence. Business managers will give top priority to queries raised by CEO regarding any account which is under suspicion, as the delays could cause serious problems.

 

5.3 CEO REPORTING PROCEDURE

 

The CEO will, on receipt of the report from CCO, undertake sufficient enquiries to determine whether, in his judgement, the abnormal transaction is suspicious.

The CEO may wish to review:

D The account opening records and KYC informati

D Historical transaction patterns

The CEO may wish to discuss the report with:

D Head of Compliance

D The member of operations and business staff

D Other members of management as may be appropriate.

The CEO will:

D Review CCO’s Report.

D Document his enquiries.

If the CCO decides to make a report to the FMU at SBP, he will discuss his findings with the CEO. After getting the CEO’s clearance, he will send the same to the FMU at SBP. If the CCO / Head of Compliance Group decides not to make a report to FMU, a record of the report will be retained after recording their findings.

 

5.4 ACTIONS AFTER REPORTING

 

When the investigators need to use the information from the Bank, they will contact the Bank with an appropriate Court Order, and it is this information that may be used in Court.

It is possible that FMU or an investigator might approach the Bank for additional explanation of the initial report, or for other information. No member of management or staff provide any explanation or information, and the enquirer must be referred to the Compliance Officer.

 

5.5 COMPLETING THE ANNUAL ACKNOWLEDGEMENT FORM FOR THE PREVENTION OF MONEY LAUNDERING

 

Annually, all branch managers must complete the “Annual Acknowledgement Form for the Prevention of Money Laundering” and submit it to the respective GMs. The purpose of the form is to certify that either they have not been suspicious, or that any suspicions have been reported to the RCO and additionally confirming that they have read the Anti Money Laundering Handbook and fully understand their legal obligations and the requirements of the Bank.

These forms will be forwarded to the respective Regional Compliance Officers (RCOs) for onward submission to the Regional Head Compliance (RHC

6 SPECIMEN FORMS / LISTS

 

• SuspiciousTransaction Internal Report Form
• AnnualAcknowledgement Form for the Prevention of Money Laundering
• LargeCash Transactions Form

 

 

 

 

• SUSPICIOUSTRANSACTION – TechZero1’s Internal Report Form

REPORTER: Date: ……………………………………… Name: ……………………………………………….. Tel: ………………………………………… Branch/Dept: ………………………………………… Position: …..………………………………. CUSTOMER:

Name: ……………………………………………….. Account No: ……………………………………..… Address: ………………………………………………………………………………………..…………….

……………………………………………………………………………………………………..………..…

Contact Name: …………………………………… Contact Tel: ……………………………..………..…

.

Date Relationship started: ………………………… Customer reference: ……………….……………. Type of Account/Business: ………………………………………………………………………………… INFORMATION/SUSPICION:

Information/Transaction: ……………………………………………………………………….……………

Reason for Suspicion: …………………………………………………………………….…………………

…………………………………………………………………………………………………………………

 

Additional comments by Compliance Manager:

………………………………………………………………………………………….……………………..

 

…………………………………………………………………………………………………………………

…………………………………………………………………………………………………………………

Name and Signature of the Compliance Manager: Date: …….……………..

Note: it is an offence to advise the customer / client or anyone else of your suspicion or report

 

For CEO USE
Date received:	Time Received:	Ref:
Report sent to CCO /	CCO’s Name & Signature:	Ref:
Head Of Compliance Department
CCO’s Comments:

 

 

 

• ANNUALACKNOWLEGEMENT FORM FOR THE PREVENTION OF MONEY LAUNDERING

 

 

Memorand

To :

 

From : Head of Compliance

 

Date :

 

SUBJECT: Annual Acknowledgement Form – Prevention of Money Laundering

 

As an on-going means of control, you are reminded of the need to be alerted to Money Laundering activities. In this respect, we require you to sign to the effect that you have read the Prevention of Money Laundering Handbook for Management and Staff and that you are aware of your responsibilities under the relevant Laws and Regulations on Money Laundering.

 

You also confirm that if there are any suspicious circumstances surrounding the opening and operation of an account which comes to your knowledge, the matter will be reported to the respective Business managers, Operations and Compliance Managers immediately in accordance with KNOW YOUR CUSTOMER (KYC) PROCEDURE HANDBOOK.

In case if you have any questions, please speak to your Compliance Officer (CO) or call me. Please sign and return the copy of this memorandum to your Direct Manager.

Many thanks,

 

 

Head of Compliance

 

 

 

 

 

Confirmed (Staff’s Name)

 

… (Signature)

… (Location, City, and Address)

 

……………………………………….

 

 

 

9.3 LARGE CASH TRANSACTIONS FORM

 

 

Date: …………………………………….

Reporting Location: ………………………… Telephone No: …………………………

 

Fax No: ………………………… E-mail: ………………………………….

 

In compliance with KNOW YOUR CUSTOMER (KYC) & ANTI-MONEY LAUNDERING (AML) PROCEDURE HANDBOOK.,

Section 5.10, we report the following Large Cash Transactions above the Threshold Limit of Rs.1 million.

We also confirm that these transactions are in line with Customer’s KYC Profiles.

Rs. in (000)

DATE	NAME OF CUSTOMER	ACCOUNT NUMBER	TRANSACTION AMOUNT

 

 

Name & Signature of Reporting Officer

Comments by Operation’s Manager:

 

 

 

Operation Manager’s Name & Signature