SBP Cautions Banks Against Money Laundering, Terror Financing



The State Bank of Pakistan (SBP) has issued fresh instructions to banks to strengthen their vigilance system to mitigate the risk of money laundering (ML) and terrorist financing (TF) in the name of import and export activities in the country.

“Transferring value through legitimate trade transactions has become increasingly attractive avenue for money launderers (ML) and terrorist financiers (TF), as they are able to easily obscure their transactions in significant volumes of international trade and escape detection,” SBP said in ‘Framework for Managing Risks of Trade Based Money Laundering and Terrorist Financing’ on its website on Tuesday.

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

The prime objective of this framework is to strengthen the trade related Anti-Money Laundering (AML)/ Combating Financing of Terrorism (CFT) regime and conserve foreign exchange, the central bank said.

The SBP asked the banks to develop detailed profiles of their clients involved in import and export businesses, including the main items they trade, trade volumes, locations of trade in overseas markets and prevailing market price of the trading products.

It also instructed the banks to adopt technology-based solutions and enhance capabilities of their staffers through regulator trainings to detect the likely money laundering and terror financing transactions through the banking channels.

What are the high-risk ML/TF transactions?

The central bank has underlined the most likely high-risk transactions which may be meant for ML/TF, including import of goods that are exempted from import-related duties; import of goods that are subject to over 25% import duties; export of goods on which export-related rebates are allowed by the government of Pakistan; where an exporter allows trade discounts to the same importer consistently by way of deduction of amount of discount from the proceeds of export bills.

Such transactions involving high risk also include outward remittance from personal foreign currency (FCY) account of the importer; unusually relaxed terms for settlement of counter value both for exports as well as imports e.g. no specific timeline for shipment of goods against exports advance payment, extended credit period for payment against import of goods especially between unrelated parties; trade transaction of sole proprietorship or partnership concern received by centralized trade processing unit from a different branch of an authorised dealer with whom their relationship is not generally associated or frequent switching of branch for trade transactions by such concerns; trade transactions with high-risk jurisdictions or jurisdictions with lax AML/CFT regulations and implementations;  import/export of free of cost goods; advance payments (import and export of goods);  new bank account opening; import/export of services and trade transactions with a related party.

“Authorized Dealers (ADs which mostly are the banks) shall allocate adequate resources to create awareness of the ML/TF risks associated with trade transactions with specific focus on typologies of TBML, common red flag indicators and the measures to mitigate trade-based money laundering (TBML) risks,” SBP said.

ADs shall undertake assessment of their existing customers on the newly issued parameters and shall complete the same latest by April 30, 2020.

Internal Audit Departments of Authorised Dealers (ADs) shall periodically review (at least once in two years) the robustness of bank’s system and controls with respect to compliance with the provisions of this framework.

“First such review shall be conducted and report thereof shall be placed before the risk management committee of the board not later than December 31, 2020.”

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