The State Bank of Pakistan (SBP) has asked all banks to assess the adequacy and implementation of internal control procedures pertaining to encashment of cheques in order to prevent financial loss and mitigate reputational risk to the institution which can potentially arise from fraudulent cheque encashment practices such as ‘cheque washing’.
In a circular on Saturday, SBP said the directive had been issued in the wake of a series of complaints received by the central bank’s Consumer Protection Department that some unscrupulous elements had defrauded the general public through cheque washing, a practice wherein the text of a cheque is erased by chemicals and then rewritten with a new payee and amount. The impact of such alteration on the surface of the cheque is difficult or sometimes impossible to detect.
To address these complaints, SBP said it had asked all banks that in addition to conformity with Clearing Bank Specification (CBS)-1, effective equipment such as ultraviolet lamps be deployed at the branches.
Banks and development finance institutions (DFIs) should train their front-desk staff to assess the authenticity of cheques and prudence should be exercised while making payments against cheques, especially against bearer cheques, SBP said.
Published in The Express Tribune, July 3rd, 2011.
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