Strategic Analysis
1. Introduction
As per results of census of 2017 announced by Pakistan Bureau of Statistics, Female comprise of 48.79 % (101,644,632) of the total population. Out of which 36% (36,507,714) female located in Urban areas and 61% (64,638,918) was reported positioned in Rural areas of country. Further 25% (24,913,060) females were reported in age range of 20-35 years.
As per available information, only 29 % of women in Pakistan have a bank account, among the lowest in the world, and this disparity severely impedes national economic development as, promoting equal opportunities for women and men for accessing and pursuing financial and professional endeavors is critical for sustainable and inclusive economic growth in Pakistan. Further incorporating a gender perspective in existing policies and industry practices by State Bank of Pakistan (SBP) is imperative to build an inclusive financial system that serves both women and men equally.
Government of Pakistan in conjunction with SBP announced different schemes promoting financial literacy in women segments in rural and peri-urban areas, including Asaan account, Credit Guarantee and Refinance Scheme, which offers a zero per cent refinance rate and 60% risk coverage for small businesses run by women entrepreneurs. Due to appreciable steps of Government of Pakistan along with SBP for involving the females in financial inclusion, the number of accounts and use of financial precuts/channels has increased massive in numbers. Simultaneously the risk associated with misuse of these accounts have also increased, which is observed via massive increase in number of STRs reported during the period under review.
This strategic analysis report provides the assessment of money laundering and associated predicate offences risks associated with misuse of Housewife and Student accounts. The focus of the study is to analyze the risk of money laundering associated with the tendencies and patterns of financial conduct in accounts reported via STRs, and at the same time how it can be misused for money laundering, tax evasion and other crimes.
2. AML/CFT Developments Regarding Enhanced Due Diligence of Housewife and Student Accounts
SBP have placed specific high-risk elements and recommendations for EDD in context of housewife accounts, where in it was professed that in relation to housewife accounts, banks/DFIs may.
- Obtain a self-declaration for source and beneficial ownership of funds.
- Update details of funds providers, if any along with customer’s profile.
- Identify and verify funds providers if monthly credit turnover exceeds an appropriate threshold to be decided by banks/DFIs.
Securities and Exchange Commission of Pakistan (SECP) also advised for EDD of housewife and student accounts, as in all cases where the connection between a customer and his source of income or wealth is very disparate, consider whether the customer is acting on his own behalf or may be a close associate acting for another party, e.g., Politically Exposed Person (PEP). This is particularly relevant for any person with no discernible source of income and a high living standard, such as housewives, children, or students. Close Associate.
3. Scope of the Strategic Analysis
The strategic analysis is based on STRs received by FMU from 1st January 2021 to 31st March 2022 on the Housewife and Student accounts who were either found suspicious over their financial conduct or were reported under inquiry/adverse media news or associated with any other predicate offence. The report covers the analysis of their occupation, geographic location, products used, account activity and tax status. Further, the analysis tends to identify possible predicate offences linked with misuse of housewives and students accounts with help of case studies.
3.1 Analysis Methodology
This analysis has been conducted on the STRs received by FMU from 1st January 2021 till 31st March 2022 on Housewife and Student accounts. The strategic analysis is based on STRs received from REs and majority of the STRs were found to be received from the banking sector whereas exceedingly high number of STRs were observed to be reported from other sectors such as Exchange Companies. This element hindered in conducting a holistic analysis of the STRs related to the Housewife accounts and Student accounts.
3.2 Limitation of Analysis:
Previously, FMU was receiving CTRs and STRs in hard form and the data was captured through in house developed system Electronic Data Capturing System (EDCS). FMU has deployed goAML reporting system w.e.f. January 1st, 2019, whereby all the reporting entities were required to submit STRs / CTRs through the system and receiving of hard copy of STRs were discontinued. The CTRs are accepted automatically in the system; however, some system-based rules have been defined for auto processing of the CTRs. The analysis is based on the data extracted from the goAML and therefore the errors / omissions in the reporting could not be ruled out.
4. Analysis of STRs Related to Housewife and Student Accounts
4.1. STRs reported breakup entity wise
In terms of Section 7 of Anti Money Laundering Act, 2010, STR is filed with FMU for a suspicious transactions conducted or attempted through a financial institution and DNFBPs. At present, the STRs have been categorized in two categories i.e., STRs reported based on financial transactions and STRs reported based on activity.
Housewife Accounts
FMU received about 987 STRs from multiple REs related to Housewife accounts including 34 Private/Public Commercial Banks and 27 others (Exchange Companies, Brokerage Houses, Insurance Companies and Asset Management Companies) during the period 1st January 2021 to 31st March 2022.
Student Accounts
FMU received about 302 STRs from multiple REs related to Student accounts including 17 Private/Public Commercial Banks and 05 others (Exchange Companies), during the period 1st January 2021 to 31st March 2022.
4.2. Month Wise Breakdown of STRs:
Housewife Accounts
Month wise trend of reported STRs shows that there was surge in STRs in quarter 4 of 2021 and quarter 1 of 2022, this could be due to the assorted reasons. As per our analysis of various triggers related to misuse of Housewife accounts and student accounts related STRs, it was observed that number of STRs increased in quarter 4 of 2021 due to increase in number of branchless banking accounts, as 3,604,600 new accounts were opened in last quarter of 2021.
Student Accounts
Total of 277 STRs were reported by reporting entities in context of suspicion over the financial conduct of individuals, who declared themselves as student at the time of account opening/financial transactions. These STRs were reported with regular intervals. December 2021 was observed as peak reported month from January 2021 to March 2022.
4.3. Geography Wise Segregation of STRs
Housewife Accounts
Housewife related STRs were received from almost all the provinces of Pakistan, majority of the STRs were received from the provinces of Punjab and Sindh. The analysis shows that about 74% of total STRs were received on housewife accounts and their financial conduct from 06 major cities including Karachi, Lahore, Faisalabad, Islamabad, Sialkot, Rawalpindi.
Student Accounts
Students related STRs were received from almost all the provinces of Pakistan, majority of the STRs were received from the provinces of Punjab and Sindh. The analysis shows that about 41% of total STRs were received on Student accounts from the 07 major cities including Karachi, Lahore, Faisalabad, Islamabad, Rawalpindi, Mardan and Peshawar.
4.4. Occupation wise bifurcation of STRs reported on Housewife accounts:
FMU observed that about 87% of the reported STRs were against females reported as housewife/dependent on income of other family members, 8 % STRs were reported as doing business and operating accounts as housewife, 2.5% reported as salaried Individuals, and remaining females were reported Landlady/earning income from property etc.
4.5. Analysis of Age Bracket of the Individuals
Housewife Accounts
FMU received STRs on Housewife accounts with financial conduct ranging from 19 years to 90 years old. High number of STRs almost 89% were reported on the females aging from 19 to 30 years.
Student Accounts
Simultaneously STRs were reported on Student accounts financial conduct aging from 17 years to 60 and above. High number of STRs almost 32% were reported on the students aging from 30 to 45 years.
4.6. Indicators reported in STRs
Housewife Accounts
FMU Receive STRS based on different reason for suspicion, accordingly different indicators are placed on goAML in line with these reason for suspicion. These indicators are also set in context of predicate offences. During reporting of STRs, RE can select multiple indicators for better understanding the individual’s profile and financial conduct.
The high number of STRs were reported on Housewife accounts and their financial conduct with selected indicators of High value Cash transactions followed by High turnover in accounts and Transactional activity does not match with customer profile. Further STRs were reported on basis of LEAs inquiry/illegal trading in prize bonds and frequent foreign remittances.
Student Accounts
20% of STRs reported on Student accounts and their financial conduct wherein indicators were reported as Transaction activity do not match with customer profile, another 20% of STRs were reported on Virtual Assets, further remaining STRs were reported on High value cash transactions/Frequent Foreign Remittances and High turnover in personal accounts.
4.7. Analysis on Tax status of reported Housewife and Students:
Search in the FBR tax database of 1,224 individuals identified through 1,308 reported STRs to FMU. It was noted that most of the individuals (both Housewives and Students) were found registered with FBR-IR having their own NTN Number.
- Out of 906 reported housewives, 606 were found registered with FBR-I&IR and remaining 300 were found having no tax record. Most of the registered individuals belonged to the urban areas.
- Out of 318 reported students, 191 were registered with FBR-I&IR and remaining 127 were found having no tax record. High numbers of reported individuals were registered with Tax authorities in Karachi9, Lahore, Faisalabad, Islamabad, and Peshawar.
5. Key Findings
5.1 Tax Evasion
Out of 906 reported females, 606 were found reported with FBR and remaining 300 were found not registered. The element of tax evasion on reported accounts was analyzed and financial intelligence against many reported individuals were shared with LEAs. Details are given as in main sheet.
5.2 Turnovers in the account not matching with the declared profile
The declared profile of individuals was not found matched with the financial conduct of the individuals. 10% of reported STRs were based on “Transaction activity does not match with customer profile”.
5.3 Frequent Cash Transactions
50% of the reported STRs were based on high value cash transactions/ turnover in personal accounts, mostly being maintained by the Housewives.
5.4 Benami Transactions
Although the number of reported STRs in context of Benamidar were few in numbers, but it was analyzed based on reporting by REs. The number in actual may increase depending upon investigation and inquiries on financial intelligences shard with LEAs.
5.5 STRs reported on Politically Exposed Persons
Very few STRs were found reported on Politically Exposed Persons (females). A housewife (wife of a parliamentarian National Assembly) was also reported for conducting transactions of FCY.
Case Studies
Case Study 01
Case Study of Government employee misusing his wife Account
Reason for Suspicion:
FMU Received multiple STRs on Mr. ABC, who was reported for claiming high number of Prize Bond winnings in his personal salary account. Further he was also reported for high turnover in his salary account.
Analysis:
Upon probing it was revealed that the individual was Government servant of Grade 14. The individual claimed winnings of Rs. 12.00 million approx. in noticeably short span of time (only 03 months). The reported aggregate turnover in individual’s personal salary account maintained with Bank (A) was Rs. 66.00 million approx. debit/Credit, respectively.
During the analysis of CTRs, it was noted that individual was continuously withdrawing from an account maintained with Bank (B). Upon delving and calling information, it was disclosed that individual was conducting transactions in his wife account as well. Wherein the reported aggregate turnover was reported as Rs. 14.00 million approx. including (Prize Bond winnings) involving amount of Rs. 9.31 million. Being a low-profile customer’s account (LPC), the reported transactions deviated from declared profile ‘Housewife’ and purpose (i.e., Savings). During the search in other databases, it was noted that the husband Mr. ABC paid very minimum tax (in thousands) and his wife paid zero Tax. Tax profile is deviating from the account turnover.
Conclusion:
The individual was wife of Mr. ABC, who was already reported for conducting high value transactions/claiming high number of Prize Bond winnings and Government employee using personal account for high value/structured transactions. The individual was maintaining Housewife account wherein high turnover was reported in short span of time. The individual opened account for saving purpose and misused the same. High amount of prize bond winnings claimed in noticeably short span of time. The transaction pattern in accounts was not found aligned with the nature/purpose of account. The financial Intelligence was shared with NAB and both husband and wife were reported under inquiry.
Case Study 02
Case Study of a Husband misusing his wife Account (via mandate)
Reason for Suspicion:
The transactional activity in the account of Ms. AA was reportedly suspicious as high value funds were transacted from the accounts which apparently do not commensurate with her profile (Housewife). Further, the source of funds and true beneficiary of funds was also unclear.
Analysis:
During the analysis, it was found that Ms. AA was maintaining multiple PKR & FCY accounts at different banks, whereby high level of transactional activity was noticed i.e., Rs. 200.00 million in LCY accounts and USD $ 100,000/- in FCY accounts. Further, Ms. AA received Rs. 90.00 million in her LCY account, purportedly as gift amount, which was transferred to her own account at another Bank.
Afterwards, Rs. 70.00 million was withdrawn in cash and Rs. 20.00 million was transferred through clearing of cheque. The mandate to operate the account was held be her husband, who was a high-level government employee. Both husband and wife were also conducting currency exchange transactions and had remitted Rs. 30.00 million to USA.
Conclusion:
The individual was using her Personal Accounts for high value financial transactions, Involvement of FCY accounts, high value cash transactions, currency exchange transactions and gift amounted were used as medium of tool for structuring transactions.
The financial Intelligence was shared with NAB as it was suspected that Mr. AK was true beneficiary of funds. The possibility of Corruption and Bribery could not be discounted in the case.