Challenges for financial institutes in implementing robust customer due diligence in Pakistan

Abstract

Purpose This study aims to investigates the challenges faced by Pakistani financial institutes (FIs) and regulators in implementing robust customer due diligence measures. Design/methodology/approach The study adopted a qualitative technique. Twenty-five semi-structured interviews with chief compliance officers and regulators were conducted. Findings The study concluded that the main challenges are name screening, obsolete nature and quality of databases and undocumented, unregistered and unregulated portions of the economy and society. In addition, identification and verification of high-profile customers and beneficial owners, lack of specialised staff and cost of compliance are the significant challenges faced by FIs in Pakistan. Originality/value The Pakistani financial sector is less researched on anti-money laundering front, especially concerning customer due diligence. Further, the social, cultural and economic norms of the Indian sub-continent are more or less the same. Therefore, the study findings could be generalised to the region.

The role of information sharing in combating money laundering: the importance and challenges of mutual legal assistance for developing jurisdictions like Pakistan

“…The financial sector was and is still considered the fundamental channel for launderers because most FATF recommendations are concerned with the FIs (Teichmann, 2020). Further, FIs operating from developing jurisdictions are more exposed to ML as the local elite could abuse the customer due diligence requirements for onboarding and remittances of ill-gotten proceeds to developed jurisdictions (Sultan and Mohamed, 2022c). To combat this, FIs have recruited an army of compliance professionals (Teichmann, 2020) and are entrusted with safeguarding the FIs from launderers.…”

Virtual currencies and money laundering: existing and prospects for jurisdictions that comprehensively prohibited virtual currencies like Pakistan

“…Further, cyber- and trade-based ML typologies are increasing in Pakistan (Sultan and Mohamed, 2022c). Furthermore, the CDD mechanism is feeble and unable to combat the laundering process (Sultan and Mohamed, 2022d). With this AML outlook, Pakistan could not afford the abuse of its soil and new technologies for laundering, which will further increase distrust between Pakistan and the international community.…”

The sustainability of the international AML regime and the role of the FATF. The objectivity of the greylisting process of developing jurisdictions like Pakistan

“…Undoubtedly, the financial sector of Pakistan is facing several deficiencies in implementing a robust AML regime. It is acknowledged by Pakistani authorities and pointed out by APG/FATF: core challenges include poor performance of the financial intelligence unit (Sultan and Mohamed, 2022a), abusive powers of politically exposed persons (Sultan and Mohamed, 2022b) and customer due diligence (Sultan and Mohamed, 2022c). Moreover, the consistent and massive imposition of fines also arguably represents not achieving the intended outcome of deterring FIs from facilitating ML (Halliday et al , 2019).…”