Rs90m penalty slapped on banks

Five commercial banks accused of playing role in Rs70b worth of money laundering

ISLAMABAD:

The State Bank of Pakistan (SBP) has imposed a paltry penalty of Rs90 million on five commercial banks for their role in Rs70 billion worth of money laundering despite finding serious violations from these financial institutions.

Proceedings of the Senate Standing Committee on Finance on Tuesday were shocking for some members of the committee who saw the central bank protecting the banks instead of penalising them. The committee expressed dissatisfaction with the SBP’s response regarding an investigation into substantial money laundering by solar panel importers.

The Senate panel, led by Senator Saleem Mandviwalla, observed that the SBP might be withholding crucial details. Instead of making the information public, the committee decided to hold the next meeting in-camera.

The meeting had been convened to seek a report from the central bank on its investigation into money laundering of Rs70 billion.

Following repeated questions from the committee, central bank officials revealed that penalties of only Rs90 million were imposed on commercial banks for their role in money laundering.

“The Rs90 million penalty is a slap on the wrist of banks when one compares it with the total expected money laundering of Rs300 billion to Rs400 billion,” said Dr Musadiq Malik, former petroleum minister and a member of the committee. But SBP Deputy Governor Dr Inayat Hussain said that banks could not be blamed for the wrongdoing by the importers. The estimated over-invoicing of Rs300 billion to Rs400 billion had been done by the importers and it was not the fault of commercial banks, replied the deputy governor.

Pakistan’s tax chief disclosed last month that two importers of solar panels were involved in Rs70 billion worth of money laundering after an internal investigation revealed the involvement of five commercial banks in transferring funds to destinations like Switzerland and Singapore.

The money was transferred to Switzerland, Singapore and the United Arab Emirates (UAE) against imports from China, according to the FBR’s investigation. Over Rs16.5 billion was sent to the UAE and Singapore alone.

The FBR’s probe further revealed that five banks were used for money laundering overseas through heavy cash transactions.

“The SBP’s presentation is very vague and cosmetic,” remarked Standing Committee Chairman Saleem Mandviwalla.

The SBP seemed to be protecting the interests of banks, which visibly irritated the senators, though the central bank admitted some wrongdoing on the part of five banks.

Read Rs70b money laundering uncovered

The central bank told the committee that a few banks did not update customers’ risk profiles despite over 9,000 suspicious cash transaction reports. The SBP deputy governor admitted that some banks did not perform enhanced due diligence of cash transactions despite filing a number of suspicious reports.

Other banks did not engage in proper due diligence of importers and they could also not establish the link between an importer and exporter and transferred funds abroad, according to the SBP.

“If the regulator is not willing to perform its functions, then the matter should be referred for criminal investigation,” remarked Musadiq Malik.

“Commercial banks allowed the transfer of import remittances to third countries without any no-objection certificate from Chinese exporters in violation of foreign exchange regulations and SBP’s instructions,” showed the report submitted to the Senate Standing Committee on Finance by the FBR.

The committee observed that the SBP failed to provide sufficient details on actions taken against the accused parties and banks involved in money laundering. “Action was taken against 17 bank officials,” said the SBP executive director without sharing further details.

The committee argued that the penalties did not align with the gravity of the crime and advocated for enhanced legislation with stricter penalties for offences impacting the economy.

It recommended further discussions on fortifying rules and regulations, requesting a comprehensive, tabulated report on the number of banks involved, the amount of money laundering and the penalties imposed.

The FBR has registered eight FIRs covering Rs41 billion against three Quetta-based dummy companies and two Peshawar-based companies. The FIRs have recently been lodged against Bright Star Business Solution (Pvt) Ltd and Moonlight Trader (SMC) Pvt Ltd.

“Pakistan has a cash-based economy and if parliament wants to end it, then it should bring legislation,” said the SBP’s Inayat Hussain.

Published in The Express Tribune, December 20^th, 2023.

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