Open account, advance payments considered as higher risk transactions for trade based money laundering

Open account, advance payments considered as higher risk transactions for trade based money laundering

KARACHI: State Bank of Pakistan (SBP) has advised financial institutions dealing foreign exchange to enhance due diligence on higher risk transactions to stop trade based money laundering.

The SBP on Tuesday issued Framework for Managing Risks of Trade Based Money Laundering and Terrorist Financing and said that banks and financial institutions should ensure that high risk transactions in the area of trade business are subject to more extensive due diligence and are escalated, where required, to the higher management.

ii. In this respect, following transactions may have higher Money Laundering/Terror Financing risks and may be considered for Enhanced Due Diligence (EDD):

a) Open Account

b) Advance Payments (Import & Export of Goods)

c) Import/Export of Services

d) Import/Export of Free of Cost Goods

e) Trade transactions with related party

f) Import of goods that are exempt from import related duties

g) Import of goods that are subject to over 25% import duties

h) Export of goods on which export related rebates are allowed by the Government of Pakistan

i) Where an exporter allows trade discounts to the same importer consistently by the way of deduction of amount of discount from the proceeds of export bills.

j) Trade transaction of sole proprietorship or partnership concern received by centralized trade processing unit from a different branch of an AD with whom their relationship is not generally associated or frequent switching of branch for trade transactions by such concerns.

k) Trade transactions with high-risk jurisdictions or jurisdictions with lax AML/CFT regulations and implementations

l) Outward remittance from personal FCY account of the importer

m) Unusually relaxed terms for settlement of counter value both for exports as well as imports e.g. no specific timeline for shipment of goods against exports advance payment, extended credit period for payment against import of goods especially between unrelated parties.

Due weightage shall be given by authorized dealers to the risk rating of the customer while allowing high-risk transactions.

In this respect, a criteria shall be developed by the ADs whereby transactions falling in high-risk category specifically Advance Payments (Import & Export), where clients have outstanding overdues/poor performance history, shall be escalated to the higher management for taking appropriate decision about the fate of transactions.

In case of recurrence of non-performance post allowing the transaction, the higher management of financial institutions may subject the customer to enhance/continuous monitoring.

However, in case of persistent non-performance during the period in which the customer has been subjected to enhance/continuous monitoring, the AD may evaluate the transaction for filing an Suspicious Transaction Report (STR) with Financial Monitoring Unit (FMU) if they have sufficient grounds to form suspicion that the customer is using trade transaction to launder money, finance terrorism etc. ADs, in such circumstance, should also evaluate the risks of continuing relationship with the customer.

Notwithstanding the above, even if the senior management of ADs on the matter escalated to it does not find sufficient grounds for filing of an STR, they may consider subjecting the customer to enhanced/continuous monitoring.

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