This week, the central bank issued a fresh circular concerning opening of bank accounts of politically exposed persons or PEP. The circular effectively seeks to ensure that all PEP related account opening applications be processed within five working days maximum.
On surface, the instructions are laudable as they aim to create ease of business: after all, PEPs are people too, and at times face undue scrutiny and bureaucratic delay – bordering at unwelcome attitude - by compliance departments, especially at large and multinational banks.
Nevertheless, the latest set of instructions seems divorced of ground realities faced by the branch operations departments at commercial banks across all of Pakistan.
First, no single authoritative list of PEPs exists with the regulator. Instead, commercial banks’ compliance departments are expected to maintain such a list based on data aggregation from their branch networks of already opened accounts or past applications received.
Second, the declaration as PEP is effectively a discretionary process. In cases where a new customer who previously does not exist as a PEP in bank database approaches a branch to open a first time account, it is up to either the customer, account opening officer, or his supervisor to identify the prospective customer as PEP, based on his/her prior market knowledge and awareness of customer’s political affiliation, if any.
Routine and periodic reviews by central operations departments of course help cull this data; nevertheless, this is effectively a trial and run process, prone to errors. Definition of PEP based on SBP’s AML/CFT Regulations, 2017, itself leaves room for some ambiguity by noting that only “senior” politicians, government/judicial/military officials, senior executives of SOEs and autonomous bodies, may be declared as PEP, while excluding any middle ranking officials in the foregoing categories.
The cautious ones among commercial banks thus choose to avoid as much exposure to public sector officials as practically possible. After all, would the head of a single-man political party who has never held any public position or won an election, even at rural tehsil level, classify as a PEP? Compared to a mid-ranking party cadre who has never progressed beyond tehsil president status but has been in politics for three decades or so in one of the several dynastic political parties in Pakistan. Examples of both types may be found aplenty across the country.
Furthermore, as experience of several, including one of top five commercial banks in recent money laundering-JIT sagas show, when the accountability axe finally falls on one party or the other, account opening procedures of the entire bank come under scrutiny. Consider, that the country’s premier real estate tycoon, or sponsors of Sindh’s largest sugar milling owning group - central to these investigations have never held any public office whatsoever.
Should the banks then not be careful while initiating banking relationships with individual or business groups with substantive political exposure and financial dealings with political players? What about the incumbent government’s agricultural czar who holds no official position in the government or party but has a reputation as the undeclared “executive producer of the ongoing play”?
Realistically, most commercial bank branches - outside of corporate offices - struggle to complete the account opening procedure even for average Joe for several weeks at a time. Instituting a condition to officially facilitate within five working days will create pressure on junior bank officials to facilitate politically affiliated prospective customers.
However, as the oft-cited experience of many a bankers go, when the bad times come and the politico comes under radar, the same junior of middle ranking bank official has to face the music of FIA and NAB investigations, with no roof to hide his/her head under.
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