Banks to develop in-house system to fight money laundering

Central bank asks them to exercise care, report suspicious trade transactions

KARACHI: The State Bank of Pakistan (SBP) has asked commercial banks to develop in-house system and expertise to unearth money laundering and flag suspicious transactions for investigation.

"To minimise money laundering through banking channels, banks should…implement an in-house system to detect differences between the values declared in documents {invoices} and prevailing market prices," said SBP Governor Ashraf Mahmood Wathra at a press conference on Monday.

"Primary responsibility lies with the Pakistan Customs," he said, emphasising that since documents were negotiated and letters of credit (LCs) settled through the formal banking sector, banks were required to enhance their capacity to process foreign trade transactions with extreme care and diligence.

"It is well known that trade transactions have the elements of under-invoicing and over-invoicing, which facilitates the transfer of value across borders," he said.

The central bank governor pointed out that illegal foreign exchange dealers could have accounts with banks through which they might be conducting unauthorised remittance business.

"Banks are required to enhance their customer due diligence processes so that such relationship could be avoided. Banks should monitor the transaction patterns of their customers and report suspicious activities," he said.

He asked banks to conduct additional due diligence when international trade transactions involved any related parties. Banks must put in place subjective and objective controls to identify trade transactions of related parties.

"If there are deviations, then these should be brought to the SBP's attention," he said.

Wathra said banks must have more specific guidance, policies and procedures in place to address overall risks of trade-based money laundering. Banks must provide adequate and specific training on the financial crime risks prevalent in trade financing and forex operations to the relevant staff, he stressed.

"SBP…will continue to encourage banks to send their staff abroad for advance training, technology acquisition and occasional board of directors' meetings or to manage their overseas networks," he said.

Wathra announced that the central bank would give banks 90 days for submitting their foreign travel policy.



The deadline was given in the backdrop of an incident last week in which a leading bank's staff was stopped at a local airport and denied travel abroad. "By this time, only a couple of banks have developed the travel policy," he revealed.

It has been noted that the central bank has restricted banks from arranging trips for their staff that achieve business targets, stopped trips arranged by a third party and trips based on income earned on account of third-party commission.

Banking spreads

Prior to the press conference, the SBP governor and other central bank officials held a long meeting with heads of commercial banks.

Wathra said banking spreads - the difference between interest on lending and return on deposits - had shrunk by 4.75% since 2013 as banks were providing loans at a reduced average rate of 7.25%.

He acknowledged that some of the banks were still providing expensive loans including credit cards and agriculture financing. "SBP is in negotiations with them to bring [down] their rates."

Explaining the reason behind the requirement of 100% cash deposit for opening LCs for the import of certain goods, the governor stressed that the step had been taken to create room for economic growth and it would not trigger smuggling of goods.

He emphasised that 24% of population in the country had gained access to banks through conventional and modern technologies and the aim was to increase the percentage to 50% by 2020.

Published in The Express Tribune, March 14^th, 2017.

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