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State bank asks commercial banks to address overall risks of trade-based money laundering

Governor State Bank of Pakistan Ashraf Mahmood Wathra in a meeting with the Chief Executive Officers (CEOs) and Presidents of all the commercial banks has asked them to address overall risks of trade based money laundering. It is well known fact that trade transactions have the elements of under invoicing and over invoicing, which facilitates transfer of value across the borders.

Primary responsibility in this regard lies with Pakistan Customs, however, since documents are negotiated and L/Cs are settled through formal banking sector, banks are required to enhance their capacity to process foreign trade transactions with extreme care and diligence.

According to a senior banker, the governor asked the banks to have a look at the over invoicing or under invoicing to check the difference between import and export prices. In the new world order it is being considered all over the world that trade can also be instrumental for money laundering.

The governor also asked the commercial banks to look into the issue of sick units especially the closed textile units and if the possibility exists for their revival the banks should support them, financially, if the entrepreneurs willing to provide some equity to make the project operative and viable.


The Governor said that Illegal forex operators may have accounts with banks through which they may be conducting illegal remittance business. Banks are required to enhance their customer due diligence processes so that such relationships could be avoided. In this regards, banks should monitor the transaction patterns of their customers and report suspicious activities to FMU.

To minimize money laundering through banking channels, banks should take the following measures, the governor advised:

– Implement an in-house system to detect differences between the values declared in the documents and prevailing market prices. In addition, banks need to set out escalation procedures to manage transactions where significant differences in prices are identified.

– Perform additional due diligence when international trade transactions involve any related parties.

– The banks must put in place subjective and objective controls to identify related parties trade transactions. In such cases if there are deviations then these should be brought to SBPs attention and/or STRs may be raised.

– Must have more specific guidance, policies and procedures in place to address the overall risks of trade-based money laundering.

– Ensure that their transaction monitoring processes and systems are robust to flag suspicious transactions. Such transactions are properly investigated and escalated. Regular compliance checks, especially on transactions that were not escalated, should be performed for quality assurance purposes.

– Provide adequate and specific trainings on the financial crime risks prevalent in the trade financing and forex operations to relevant staff. SBP/SBP-BSC will support and guide any exercises by banks/financial institutions to achieve this objective.

In the end the Governor reiterated SBP’s resolve that it will continue to encourage banks to send their staff abroad for advanced trainings, technology acquisition and occasional board of directors meetings or to manage their overseas networks. “We will give banks 90 days to submit their foreign travel policy,” said the Governor.


Meanwhile, the State Bank of Pakistan has issued draft Framework on IT Governance & Risk Management for Financial Institutions for comments/feedback from interested parties.

The framework is based on international standards and recognized principles of international practice for technology governance and risk management and shall serve as SBP’s baseline requirement for all Financial Institutions (FIs). It aims to provide enabling regulatory environment for managing risks associated with use of technology.

The framework will apply to all FIs which includes commercial banks (public and private sector banks), Islamic banks, Development Finance Institutions (DFIs), and Microfinance Banks (MFBs). The framework is not “one-size-fits-all” and implementation of the same shall be risk-based and commensurate with size, nature and types of products and services and complexity of IT operations of the individual FIs.

The instructions are focused on enhancing the proactive and reactive environments in FIs to various facets and dimensions of the information technology, security, operations, audit and related domains and to create overall safe and secure technology operations in FIs, which will benefit and enhance the confidence of all the stakeholders. The FIs are expected to assess and conduct a gap analysis between their current status and the guidelines and draw a time-bound action plan to address the gaps and comply with the guidelines.


The total liquid foreign reserves held by the country stood at US$22,151.8 million on 03 March 2017. The break-up of the foreign reserves position is as under:

i) Foreign reserves held by the State Bank of Pakistan : US$ 17,139.7 million

ii) Net foreign reserves held by commercial banks: US$5,012.1 million

iii) Total liquid foreign reserves: US$22,151.8 million

During the week ending 03 March 2017, SBP’s reserves increased by US$289 million to US$17,140 million.

During the week SBP received US$350 million under Coalition Support Fund and made payments of US$62 million on account of external debt servicing.

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