ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) Monday declared that the income tax returns and wealth statements do not completely establish the source of wealth/ funds of customers of financial institutions.

The SECP Monday issued new version of Frequently Asked Questions (FAQs) on anti-money laundering and countering the financing of terrorism (AML/CFT). The purpose of these FAQs is to facilitate understanding of SECP’s regulated persons (RPs) under the AML/CFT regime, and to meet evolving regulatory expectations for anti-money laundering and sanctions compliance. The SECP has specially focused on Customer Due Diligence (CDD), Politically Exposed Persons (PEPs), Targeted Financial Sanctions (TFS) and other AML/CFT related obligations.

According to the SECP, the income tax returns and wealth statements do not completely establish the source of wealth/ funds of a customer and only provide evidence against income/wealth sources regarding predicate offence of tax evasion. It is useful to obtain wealth statement reported with Income Tax return for the verification of Source of income/wealth. However, additional verification measures that could be applied for high-risk business relationships include, obtaining additional information on the intended nature of the business relationship, the reasons for intended or performed transactions, bank statements and obtaining approval of senior management to commence or continue the business relationship etc.

The risk categorization of a customer is based on combination of factors such as customer, product, geography and delivery channel. If a high-risk customer intends to purchase a low risk product, he/she will be subjected to Enhanced Due Diligence (EDD) measures.

The solely relying on self-declaration by a customer may not be an appropriate customer due diligence (CDD) measure in terms of AML/CFT Regulatory framework. RPs should undertake steps to not only identify but also verify that the self-declaration is valid. Moreover, many customers would not be able to determine if they are indeed a PEP, or not, for example because the customer may not be aware of the definition of a PEP, family member or close associate of a PEP as defined in SECP Regulations.

To establish PEP status, RPs should actively engage with customers and obtain information relevant to establish different elements of the PEP definition. To do this effectively, well-trained staff and effective information gathering using ‘PEP search softwares’ or through public databases such as Election Commission, parliamentarian’s tax directories, public website/disclosures by Public sector organizations and other public search portal etc. should be used and document for record keeping purposes, SECP added.

Copyright Business Recorder, 2022

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