In a bid to mitigate the misuse of trade transactions, the State Bank of Pakistan (SBP) has issued regulatory framework for managing risks of trade based money laundering, terrorist financing and proliferation financing.
The SBP said transferring value through legitimate trade transactions has become increasingly attractive avenue for money launderers, terrorist financiers and proliferation financiers, as they are able to easily obscure their transactions in significant volumes of international trade and escape detection.
According to the central bank, the main methods by which such people transfer value through legitimate trade transactions are under invoicing, over invoicing, short/over shipment, obfuscation of type of goods/services etc.
The SBP has instructed all banks authorized by SBP to deal in foreign exchange to undertake assessment of their existing customers on the parameters defined in the draft framework and shall complete the same latest by June30, 2019.
The SBP asks ADs to conduct screening of customers for trade transactions, by identifying and monitoring of trade transactions with related party, and initiate procedure for complete risk profiling of customers involved in or intending to be involved in trade.
Other key procedures, required to be carried by ADs as per direction of SBP are; screening procedure of goods being traded as per relevant trade policy, procedure for identification of dual use of goods such as: import/export licensing requirement, identification of end usage and end user, focus on counterparties, and goods screening from UNSC resolutions.
The assessment for risk profiling may include the goods/services in which the customer usually trade in and prices thereof customer’s key buyers and suppliers, annual volume of trade transactions of customer, trade cycle of the customer, the countries of origin of goods in which the customer trades, the jurisdictions/countries of business, major methods and terms of payment and settlement, related business concerns (domestic as well as international) and third parties such as shipping agents, insurance companies, inspection companies etc.
The framework asked ADs to report suspicious transaction not later than seven working days after forming suspicion on the transaction. ADs shall install robust transaction monitoring system for monitoring trade transactions.
In this respect, ADs shall develop a comprehensive set of trade related ML risk scenarios/red flags, on the patronage of non-exhaustive list given in Annexure-A, in their transaction monitoring system and shall ensure that any alerts generated are analyzed by the AML analyst for their logical conclusion, it added.
The SBP instructed ADs to collaborate with relevant departments such as Pakistan Customs, shipping companies etc. in order to develop an understanding of their internal work and raise awareness of ADs’ staff working in trade function.
According to the framework, some key red flag indicators are; obvious over or under/over pricing of goods, significant variation is found between the description of the goods on the bill of lading and the invoice, there are indications that the descriptions of the goods is disguised, the size of the shipment does not commensurate with the size of the exporter’s or importer’s regular business activities, the country from which goods are being shipped is designated as “high risk” for money laundering activities and the transaction appears to involve use of front or shell companies for the purpose of hiding the true parties involved.
Published in Daily Times, January 25th 2019.