Pakistan: Picture unclear about money laundering

By Sarfaraz Ahmed

KARACHI: The events that led to the signing of an agreement between US regulators and Habib Bank Limited recently to bolster policies aimed at detecting abuse by money launderers, terrorist financiers and other criminals, are still shrouded in mystery.

According to top banking sources, the action of the Federal Reserve Board and the New York State Banking Department against the HBL has caused serious concerns among Pakistani banking circles. The US regulators' action targets "deficiencies at the financial institution's New York branch".

Though the regulators have been quoted as saying that the bank has agreed to take steps to address compliance problems in its money laundering policies, the details of these "compliance problems" have not been made clear.

According to banking sources, the State Bank of Pakistan, which has already advised all banks and development finance institutions (DFIs) to implement systems which could flag out-of-pattern transactions for reporting suspicious transactions, will now be required to ensure that banks and DFIs make use of technology and upgrade their systems and procedures more strictly in accordance with the changing profile of various risks.

These sources told Daily Times the signing of the agreement in the US had created confusion about these banks' compliance with security guidelines.

But the Pakistani and foreign banks operating in the country claim that they already had an efficient systems in place because of the growing sensitivity and importance of money laundering and terrorist financing issues.

"Our system, which includes a comprehensive set of measures for combating money laundering and terrorist financing, was in place much before the central bank came up [with its guidelines and policies for banks aimed at dealing with such matters]," said the head of a leading public sector bank requesting not to be named.

Asked whether the US regulators had ever approached his bank in connection with a suspicious transaction, he replied in the negative. He said that there had never been a single instance of such a transaction during his tenure.

However, at least one foreign bank operating in Pakistan conceded that it had come across a few such transactions and attempts by criminal elements. "But those were not very often," said the chief executive of a foreign bank operating in Pakistan.

"Fortunately, or you can say due to our high level of monitoring and systemic strength, there have been few attempts relatively," he said. "Even the attempters realise the tough and strict monitoring by us and whenever there's any suspicious activity, we report it to the central bank immediately".

He said: "We have a very strict account policy, and after that we monitor transactions strictly. Our policy is even stricter than the central bank's own guidelines, which are fairly adequate in this regard. We have different levels of system monitoring, firewalls and systems in line with international standards. It includes staff training and control at multiple levels."

The central bank has already set up an exclusive unit to deal with money laundering and financing of terrorism. Among other things, this central bank unit has been issuing instructions for freezing of assets of individuals and organisations declared to be involved in terrorism under various UN Security Council resolutions and the Anti-Terrorism Act, 1997, according to the SBP.

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