National Savings and FATF

Updated 21 Feb 2020

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PAKISTAN’S economy is oozing negative vibes. It’s facing one crisis after another and consumer confidence shows no signs of bottoming out.

At the same time, the eroding value of money and assets must be driving people crazy, making them vulnerable, scared and prone to overreaction. This is certainly not a good time to test their wits.

The growing stress among some four million depositors of the Central Directorate of National Savings (CDNS) regarding the intended steps to make the institution compliant to Finance Action Task Force (FATF) requirements needs to seen in this context.

It is good that the semi-autonomous body is seen to be moving in the desired direction to deal with the perceived risk of its products being used to launder dirty money or finance terror. This was necessary. However, it seems that the cost of adjustments has either not been understood or assumed to be too insignificant to merit attention.

The whole system of National Savings schemes (NSS) rests on people’s trust on the state. In their perception, the state can never fail them in payment of profits on time while safeguarding their principal investment. If this trust is breached, the whole system will crumble under its own weight.

Frustrated over new adjustments, if only a quarter of the depositors decide to withdraw their investment, it will translate into about Rs1 trillion. Does the government have the capacity to clear a payment of this scale on a short notice? It’s literally a trillion-rupee question.

If only a quarter of CDNS depositors decide to withdraw their investment, it will translate into about Rs1 trillion

The government must, therefore, find ways to explain the whys and wherefores of whatever it intends to do to NSS depositors and their accounts. A failure holds an outside chance of a run on the institution that commands deposits of little over Rs4tr.

Last year the government drafted rules for anti-money laundering and combating the financing of terrorism (AML/CFT) for National Savings. To meet FATF standards, the government also decided to scrutinise all existing accountholders as quickly as possible.

The depositors, mostly pensioners and housewives who saw these schemes as a source of secured monthly revenue stream, read scrutiny as the reopening of a settled deal and therefore unfair.

While the senior management of the CDNS shared details of how it intends to get the scrutiny completed within the stipulated time through a third party selected by a transparent bidding process, the middle and lower cadres were not perfectly comfortable.

“The selected bidder will screen all NSS accounts and make their risk profile on the basis of the Anti-Money Laundering Act 2010, Anti-Terrorism Act 1997 and the United Nations (Security Council) Act 1948,” a senior source explained.

Khalil Ahmed Chaudhry, officiating Director General of the CDNS, sounded confident over phone. Talking to Dawn from his office in Islamabad, he said the target to comply with FATF requirements will be met.

Elaborating on the points of discussion, CDNS spokesman Zaheer Abbas mailed some dates and details of distance covered by the body. “To engage a suitable body for scrutiny of accountholders, the CDNS floated Expression of Interest (EoI) on Dec 14, 2019. The process of selection is in the works currently.”

A high-placed source familiar with the developments confirmed privately that a shortlist has been drawn up and the chances are that the massive contract will land in the National Bank’s lap.

The National Savings Scheme (AML and CFT) Rules 2019 have been finalised and enabled the organisation to meet the technical criteria of FATF requirements.

Under the said rules, the CDNS shall train its officers and employees on AML and CFT measures to effectively implement relevant changes.

Earlier, explaining the discrepancy in the number of accountholders (7 million) on CDNS website and quoted figures (4 million), a senior officer said the former signify volume of tools/products sold and the later number of customers who can hold multiple products. This means that 4m Pakistanis have investment of Rs4 trillion or size of holding of a single client is Rs1 million on an average.

A senior official found concerns of money transfers for terror from the coffers of National Saving schemes misplaced. “Yes, there could be a remote chance of ill-gotten wealth parked in the saving schemes, as the data is neither perfectly digitised nor centralised, but the diversion of funds to unknown entities or blacklisted outfits from our pool is out of question,” the official said on condition of anonymity.

“The third party payment or wire payment option does not exist in our system. Even cheques can only be made in the depositor’s name from the very branch where the investment was made by the depositor if he wishes to liquidate,” he said.

“Instead of explaining why there is no scope for terror financing in government schemes, some yes-men in our hierarchy decided just to sign along with the finance ministry nincompoops. They should have convinced the deciding forum that gaps can only be closed if they existed,” he mocked.

He was not against digitisation, which he said would further reduce the risk of human error and open up the possibility of technology-based solutions.

Published in Dawn, The Business and Finance Weekly, January 27th, 2020