ANTI-MONEY LAUNDERING AND COUNTER FINANCING OF TERRORISM (AML/CFT) FOR DNFBPS

No. Pakistan performed its first national ML risk assessment during 2015-2017, which was
followed in 2018 with an assessment of its TF risk (TFRA), later an addendum to TFRA
was conducted in 2019 followed by a Transnational paper. Later, the consolidated TFRA
was prepared combining TFRA and it’s addendum. However, a wide-reaching and
comprehensive update to the earlier risk assessment exercises was the need of the time.
NRA 2019 constitutes an important basis to continued strengthening of Pakistan’s
framework to combat ML and TF. Moreover, another effort regarding Sectoral Inherent
Risk Assessment (SIRA) has also been made during 2020 for supplementing the NRA,
2019.

The methodology for this NRA refers to the following concepts as defined by the FATF
Guidance on NRA:
 A threat is a person or group of people, object or activity with the potential to cause
harm to, for example, the state, society, the economy, etc. In the ML/TF context this
includes criminals, terrorist groups and their facilitators, their funds, as well as past, present
and future ML or TF activities.
 Vulnerabilities comprise those things that can be exploited by the threat or that may
support or facilitate its activities. In the ML/TF risk assessment context, looking at
vulnerabilities as distinct from threat means focusing on, for example, the factors that
represent [weaknesses in AML/CFT systems or controls or certain features of a country.
They may also include] the features of a particular sector, a financial product or type of
service that make them attractive for ML or TF purposes.
Note: this revised NRA focuses on inherent vulnerabilities, so we have put the reference to
weaknesses in AML/CFT in brackets.
 Inherent risk: refers to ML/TF risk prior to the application of AML/CFT controls.
 Consequence refers to the impact or harm that ML or TF may cause and includes the
effect of the underlying criminal and terrorist activity on financial systems and institutions,
as well as the economy and society in general.
 Likelihood of ML/TF: the likelihood of ML/TF threat actors exploiting inherent
vulnerabilities

The key purpose of a risk assessment is to drive improvements in risk management
through identifying the general and specific money laundering and terrorist financing risks
a DNFBP is facing, determining how these risks are mitigated by a DNFBPs AML
programme controls and establishing the residual risk that remains for the DNFBPs. The
results of a risk assessment can be used for a variety of reasons, including to:
• identify gaps or opportunities for improvement in AML/CFT policies, procedures and
processes
• make informed decisions about risk appetite and implementation of control efforts,
allocation of resources, technology spend
• assist management in understanding how the structure of a business unit or business
line’s AML compliance programme aligns with its risk profile
• develop risk mitigation strategies including applicable internal controls and therefore
lower a business unit or business line’s residual risk exposure
• ensure senior management are made aware of the key risks, control gaps and remediation
efforts
• assist senior management with strategic decisions.
• ensure regulators are made aware of the key risks, control gaps and remediation efforts
across the FI
• Assist management in ensuring that resources and priorities are aligned with its risks.

The new threat rating in NRA 2019 does not reflect a change in the national situation, but
rather reflects a better understanding and more effective analysis of the threats that exist,
owing to more comprehensive information and statistics and a greater level of local
experience and expertise about ML/TF threats.
Threat analysis concerning all crimes, including the 21 designated predicate offences under
the FATF Standards, which was complemented by a threat analysis of illegal MVTS/
Hawala/Hundi and cash smuggling. In total 23 ML threats were rated; 7 ML threats were
rated high for Illicit Trafficking in Narcotic Drugs, Corruption and Bribery, Smuggling,
Cash Smuggling, Tax Crimes, Illegal MVTS, Terrorism/TF; 9 as medium-high for
Organized Crime, Human Trafficking, Arm Trafficking, Robbery, Market Manipulation,
Cybercrime, Fraud and forgery, Kidnapping, Extortion; and 5 as medium for Sexual
Exploitation, Trafficking of Good, Counterfeiting Currency, Piracy of Products, Murder;
and 2 as medium low for Environmental Crime and Marine Piracy

The national inherent vulnerability assessment consisted of an assessment of inherent
ML/TF vulnerabilities of Pakistan as a whole (e.g., economy, geography, demographics,
social and religious) and its key economic sectors and financial and non-financial products.
The porous border, hostile neighborhood, high number of afghan migrants, the long
coastal line, the level of poverty etc. has exposed the country to the significant risk of
money laundering and terrorist financing.
The financial sector of Pakistan consists of banks, non-bank finance companies (NBFC) &
modarbas, asset management companies & collective investment schemes (AMC & CISs),
and other financial institutions including exchange companies (ECs), development finance
institutions (DFIs), the Central Directorate of National Savings (CDNS), and the Pakistan
Post Office, brokers and investment advisors, and insurance companies. The DNFBP
sector comprises real estate dealers, dealers in precious metals and stones (mostly jewelers),
auditors and accountants, lawyers and notaries. Lawyers engage in company service
providers (CSP) activities but there is no separate category of CSPs in Pakistan. Trust
services are not offered by any specialized service providers in Pakistan; however, for the
purpose of establishment of trusts, services of lawyers may be obtained.
The inherent ML/TF vulnerabilities have been evaluated for various sectors, both financial
and non-financial. The inherent ML/TF vulnerabilities are identified for 17 economic and
financial sectors taking into consideration their customers, products and geographical
locations. The assessment indicates;
• • 8 sectors as highly vulnerable i.e., Banking, MFBs, Exchange Companies (EC),
EC-B category, Real Estate Dealers, Hawala/Hundi, CDNS, Pakistan Post;
• • 5 sectors as medium high i.e., , Lawyers & Notaries, Securities, AMCs & CISs,
Dealers in Precious Metals, NBFCs & Modaraba; life insurance assessed and ,
• • 2 sectors as Medium i.e. Auditors and Accountants
• • 2 sectors as low i.e., Non-life insurance and Development Financial Institution
(DFIs).

Financial institutions and designated non-financial businesses and persons (including
non-profits) are expected to (i) understand the nature and level of the money laundering
and terrorist financing risks which they face and (ii) apply AML/CTF policies and
procedures to mitigate and monitor these risks.
The findings from the NRA provide a useful foundation upon which FBR-DNFBPs can
effectively implement their risk-based AML/ATF frameworks. The FBR uses a risk-based
supervisory framework in undertaking its AML/CTF mandate.