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SBP says banks can’t misuse definition of ‘politically exposed person’

August 20, 2015


The standing committee directed the central bank to hold an immediate meeting with banks to set some standards.—APP/File
The standing committee directed the central bank to hold an immediate meeting with banks to set some standards.—APP/File

ISLAMABAD: The State Bank of Pakistan (SBP) said on Wednesday that commercial banks might be misusing the term ‘politically exposed persons’ (PEPs) to obstruct the process of providing financial services to citizens.

An State Bank of Pakistan team, led by deputy governor Saeed Ahmed, testifying before the Senate Standing Committee on Finance and Revenue — headed by Salim H. Mandviwala said that under SBP rules, PEPs included heads of state or government; senior politicians; senior government, judicial or military officials; senior executives of state-owned entities; and senior tax and audit officers.

Senators had expressed concerns that banks were discriminating against politicians and their extended families and denying them financial services, such as opening bank accounts, as if they were criminals for being associated with politics or being related to politicians. They demanded that the central bank put an end to this campaign.

The standing committee directed the central bank to hold an immediate meeting with banks to set some standards and carry advertisements in newspapers to inform the people of their financial rights.

Senators accuse commercial banks of discriminating against politicians and their extended families and denying them financial services

Mr Ahmed assured committee members that it was not for private banks to misuse the definition of PEPs to discriminate, close down accounts or create hassles for customers.

“Sometimes they try to be more loyal than the king himself,” he said, and promised to immediately issue a circular clarifying the situation, as well as putting out an advertisement for information of the general public.

The State Bank of Pakistan official explained that in financial regulation, PEPs meant individuals who were entrusted with prominent public functions — either domestically or by a foreign country, or in an international organisation.

This does not extend to middle-ranking or junior individuals.

Senator Mandviwala narrated the case of the son of a senior politician, who was not allowed to open a bank account.

The gentleman then had to introduce himself as a teacher and open his account in a different branch. “This is a denial of basic rights and discriminatory,” he maintained.

Mr Ahmed told the committee that he too faced difficulties in making transactions and it took him 21 days to have $10,000 transferred from Faysal Bank in Islamabad to Meezan Bank in Karachi because his name was similar to a leader of a proscribed organisation.

He admitted that he also faced difficulties in operating his bank accounts in the United Kingdom because the Bank of England viewed him as a PEP since he was the deputy governor of a central bank outside the UK.

State Bank of Pakistan requires all banks to undertake certain measures before opening and maintaining accounts of PEPs and their close associates or family members.

These include implementing appropriate internal policies, procedures and controls to determine if a customer is a PEP and obtain approval from the banks’ senior management to establish or continue business relations where the customer is a PEP or subsequently becomes a PEP.

This means they have to establish the sources of wealth or beneficial ownership of funds, including banks and development finance institutions’ assessments to this effect; and enhance monitoring of business relations with that customer.

This is important to ensure that necessary safeguards are in place as per international norms and by no means constitutes a refusal of banking services to such customers.

The central bank said that Pakistan was under international obligations to implement these safeguards. For example, Article 52 of the United Nations Convention Against Corruption required all states to take measures in accordance with its law to require banks to verify the identity of customers and to take reasonable steps to determine the identity of beneficial owners of funds deposited into high-value accounts and to conduct enhanced scrutiny of accounts sought or maintained by individuals who are, or have been, entrusted with prominent public functions; and their family members and associates.

Secondly, the Financial Action Task Force — an inter-governmental body established in 1989 by the ministers of G-7 countries (France, West Germany, Italy, Japan, United Kingdom, United States of America and the European Commission) and associate membership from International Monetary Fund, World Bank, Asian Development Bank etc also require Islamabad to promote the effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

Being a member of the Asia-Pacific Group on Money Laundering, Pakistan is obliged to follow FATF standards. Non-compliance results in the imposition of counter-measures, including disconnection from the international financial system. Currently, Iran and North Korea are subject to such measures while Pakistan has been recently excluded from that list.

Published in Dawn, August 20th, 2015

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