Banks asked to take steps for curbing money laundering

KARACHI: The State Bank of Pakistan (SBP) on Monday asked commercial banks to strengthen measures to control trade-related money laundering, as these transactions involved fraudulent practices like over and under-invoicing of goods and moving value across the border.

“It is a well known fact that the trade transactions have the elements of under and over-invoicing, which facilitate transfer of value across the borders,” Ashraf Mahmood Wathra, Governor of the State Bank of Pakistan (SBP), told reporters after holding a detailed meeting with the heads of the banks.

He said the primary responsibility of combating money laundering lay with Pakistan Customs, however, since documents were negotiated and letter of credits were settled through formal banking sector, the banks were required to enhance their capacity to process foreign trade transactions with extreme care and diligence.

“The banking industry has been working for long on how to minimise money laundering,” Wathra said. The SBP governor noted that this was the first time the central bank invited media after a meeting with the presidents and chief operating officers of the banks.

“The reason being there have been so many rumours for the last a few days regarding one important measure taken by the SBP over unnecessary foreign travel of the banks’ staff,” said the governor, adding, “Somehow it was linked to one particular bank causing panic-like situation over the weekend.”

He stressed the SBP wished to clear the air by sharing the minutes of the meeting with the media. The governor reiterated the SBP would continue to encourage banks to send their staff abroad for advanced trainings, technology acquisition, occasional board of directors meetings, or for managing their overseas networks.

“We will give banks 90 days to submit their foreign travel policy,” Wathra said. To a question, he said the central bank was working on the issue of regulations regarding bancassurance –third party insurance sale by banks. 

The governor went on to add that the meeting, however, was not limited to this issue only but also discussed many important issues faced by the economy in general and the financial sector in particular.  

Moving forward, he said illegal forex operators might have accounts with banks through which they could conduct illegal remittance business. “Banks are required to enhance their ‘customer due diligence’ processes so that such relationships could be avoided. In this regard, the banks should monitor the transaction patterns of their customers and report suspicious activities to the Financial Monitoring Unit," Wathra said.

The governor stressed implemention an in-house system to detect differences between the values declared in the documents and prevailing market prices. “In addition, banks need to set out escalation procedures to manage transactions where significant differences in prices are identified,” he said.

He said that the banks were required to perform additional due diligence when international trade transactions involved any related parties and they must put in place subjective and objective controls to identify related parties trade transactions.

“In such cases, if there are deviations, these should be brought to the SBP attention and/or Suspicious Transaction Report at the FMU may be raised,” he said, and added, banks should have more specific guidance, policies and procedures in place to address the overall risks of trade-based money laundering.

He also advised the financial institutions to ensure that their transaction monitoring processes and systems were robust to flag suspicious transactions. “The banks should also provide adequate and specific training to relevant staff on the financial crime risks prevalent in the trade financing and forex operations,” Wathra said. Wrapping up his talk, the SBP governor said the central bank would support and guide any exercises by banks/financial institutions to achieve this objective.