Table of Contents
- Introduction
- Regulatory Violations
- Failure to Monitor Transactions
- Unusual Transaction Patterns
- Non-Compliance with Customer Due Diligence (CDD)
- Failure to Identify Beneficial Ownership
- Appellant’s Arguments
- SECP’s Response
- Final Decision
- Legal Implications
1. Introduction
The case 2024 C L D 480 arose from an appeal filed by Messrs AKD Securities Limited against a penalty imposed by the Securities and Exchange Commission of Pakistan (SECP). The SECP penalized the appellant for violating the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Regulations, 2018. The Appellate Bench, chaired by Akif Saeed and Abdul Rehman Warraich, decided the appeal on 25th August 2023.
2. Regulatory Violations
The SECP conducted a compliance review and observed serious breaches of AML/CFT Regulations.
Failure to Monitor Transactions
The appellant failed to verify whether customer transactions corresponded to their declared profiles.
Unusual Transaction Patterns
The appellant permitted trading activities inconsistent with the customer’s financial profile. The SECP highlighted that the customer, classified as a “housewife” with limited trading experience, engaged in high-volume transactions contrary to her declared financial capacity and activity level.
Non-Compliance with Customer Due Diligence (CDD)
The appellant neglected its duty to update the customer’s profile and investigate unusual transactions. It failed to maintain the requisite checks on ongoing customer relations as mandated by the regulations.
Failure to Identify Beneficial Ownership
The appellant did not ascertain the ultimate beneficial owner of the account, violating key provisions of the AML/CFT Regulations.
3. Appellant’s Arguments
The appellant asserted several defenses to refute the allegations:
- It monitored customer transactions based on assigned trading limits.
- It relied on the customer’s tax returns and wealth statements to validate the customer’s trading activities.
- It claimed there was no deliberate intention or mens rea to breach the regulations.
- It argued that any non-compliance resulted from an honest mistake and requested a lenient view.
4. SECP’s Response
The SECP refuted the appellant’s contentions and emphasized the following:
- The trading activities of the customer clearly contradicted her declared financial profile.
- The appellant failed to explain how it assessed the customer’s tax return to justify the unusual transactions.
- The appellant provided no evidence of investigating or documenting the reasons for the deviations.
- The appellant neglected its duty to ensure consistent and ongoing monitoring of transactions.
5. Final Decision
The Appellate Bench dismissed the appeal. It held that the appellant violated the AML/CFT Regulations by failing to:
- Ensure compliance with mandatory transaction monitoring requirements.
- Investigate and document unusual trading patterns.
- Update customer profiles to reflect changes in financial activity.
The Bench explicitly rejected the argument regarding the absence of mens rea and maintained that compliance with AML/CFT Regulations is absolute and not contingent on intent.
6. Legal Implications
This decision underscores the strict enforcement of AML/CFT Regulations by the SECP. Securities brokers must:
- Establish robust systems for transaction monitoring and customer profiling.
- Actively investigate deviations and document findings in compliance with regulations.
- Update records and ensure that customer profiles align with their financial activities.