930527

P.O. Box No 4456
KARACHI

NBFIs Circular No. 13
27^th May, 1993

Chief Executives of DFIs, Investment banks, Leasing Companies, Modarabas, Discount Houses & Housing Finance Companies

Dear Sirs,
Prevention of Criminal use of NBFIs For the Purpose of Money-Laundering and Other Unlawful Trades

The following guidelines are issued to safeguard NBFIs against their involvement in money-laundering activities and other unlawful trades. This will add to or reinforces the precautions, NBFIs may have been taking in this regard.

a) Before extending their services, NBFIs shall make reasonable efforts to determine the true identity of the customer. Particular care should be taken to identify ownership of all accounts and those using safe custody facilities. Effective procedures should be instituted for obtaining identification from new customers. An explicit policy should be devised to ensure that significant business transactions are now conducted with customers who fail to provide evidence of their identity.

b) NBFIs shall ensure that business is conducted in conformity with high ethical standards and that NBFIs laws and Regulations are adhered to. It is accepted that NBFIs normally do not have effective means means of knowing whether a transaction stem from or forms part of wrongful activity. Similary, in an international context, it may be difficulty to ensure that cross border transactions on behalf of customers are in compliance with the regulations of another country. Nevertheless, NBFIs should not set out to offer services or provide active assistance in transactions, which in their opinion are associated with money derived from illegal activities.

c) Specific procedures be established for ascertaining customer status and his sources of earning, for monitoring of accounts on a regular basis, for checking identities and bonafides of remitters and beneficiaries, for retaining internal record of transactions for future reference. The transactions which are out of character with the normal operation of the account involving high deposits/withdrawals/transfers should be viewed with suspicion and properly investigated.

d) For an effective implementation of NBFIs policy and procedure, suitable training be imparted to members of staff and they be informed of their responsibility in this regard.

e) NBFIs may make arrangements for setting up an internal audit system in order to establish an effective means of testing/checking/compliance with the NBFIs policy and procedures established by it.

2) Keeping in view the above principles, NBFIs shall issue necessary instructions for guidance and implementation by staff members.

(I.A. FAROOQ)
Director