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October 16, 2019

SBP unveils guidelines to restrict misuse of banking channel


October 16, 2019

KARACHI: The central bank has unveiled new guidelines for banks dealing in foreign exchange to restrict ‘possible’ misuse of banking channel for trade-based money laundering and financing of terrorism, as the country is awaiting a global watchdog’s decision on its financial system.

“Transferring value through legitimate trade transactions has become increasingly attractive avenue for money launderers and terrorist financiers, as they are able to easily obscure their transactions in significant volumes of international trade and escape detection,” the State Bank of Pakistan (SBP) said in the ‘framework for managing risks of trade based money laundering and terrorist financing’ document.

“The main methods by which such people transfer value through legitimate trade transactions are under invoicing, over invoicing, short/over shipment, obfuscation of type of goods/services, etc.”

The SBP said the prime objective of the new framework is to strengthen the trade related AML/CFT regime and conserve foreign exchange.

This framework applies to all banks authorised by SBP to deal in foreign exchange.” The SBP advised authorised dealers (ADs) to upgrade their systems and controls and bring policies and procedures in line with the requirements of the framework to ensure meticulous compliance with the provisions “in order to strengthen trade related anti money laundering/combating financing of terrorism (AML/CFT) regime and restrict possible misuse of banking channel”.

“The provisions of this framework are in addition to and not a replacement of already issued instructions on the subject of ML/FT risks,” it said. “Therefore, the compliance of the same shall not absolve ADs from their legal and regulatory obligations under prevailing AML/CFT laws/rules and regulations or any other relevant law in force.” The central bank advised the banks to educate their clients about their obligation of ensuring correct declaration of particulars on the prescribed forms, utilisation of foreign exchange for the exact purpose for which it is acquired by them and repatriation of foreign exchange that represents the full export value of goods.

“In the event, it is found that material information required to be submitted on the prescribed forms has been omitted or suppressed, foreign exchange is misutilised by a client of an AD or export proceeds repatriated by a client does not represent the full export value of goods, SBP shall initiate penal actionagainst such delinquent parties under relevant provisions of the

Foreign Exchange Regulation Act, 1947 (FERA),” the SBP said in a statement.

“Further, the matter shall also be reported to relevant stakeholders for necessary action under the laws being administered by them. Failure to comply with the instructions on the subject and the regulatory obligations of AML/CFT may attract action against ADs under the FERA and other relevant laws.”

Global financial system’s watchdog Financial Action Task Force is expected to announce its decision whether or not to keep the country in grey list of countries lacking measures to comply with AML/CFT standards.

The SBP, in the framework, advised banks to collaborate with relevant departments such as Pakistan Customs, shipping companies, and chambers of commerce in order to develop an understanding of their internal work and raise awareness of their staff working in trade function.

“Authorised dealers shall enhance the oversight role of their board of directors and senior management in the areas of ML/TF risks associated with trade transactions,” it said. “In this respect, ADs shall institute clear policies and procedures defining therein responsibilities of their board of directors or its sub-committees and senior management.”

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