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Tag: trade based money laundering

This tag contain stories related to trade based money laundering. Pakistan Revenue is committed to provide updates on trade based money laundering.

  • DG Customs Valuation assigned task to stop trade based money laundering

    DG Customs Valuation assigned task to stop trade based money laundering

    ISLAMABAD:  Directorate General of Customs Valuation has been assigned to stop trade based money laundering through effective monitoring of goods clearance specially those goods having lower duty rates or exempt from duty and taxes.

    The Federal Board of Revenue (FBR) on Friday issued SRO 503(I)/2021 to redefine functions of the Directorate General of Customs Valuation.

    Through the SRO it is instructed the directorate that besides focusing on under invoicing of imports, also identify cases of over-invoicing of imports of low-duty or exempt items, and mis-invoicing of exports (to prevent flight of capital or trade-based money laundering) and to convey such information to concerned formations.

     The FBR also instructed the valuation department to make special arrangements to aware trade and industry about the latest customs valuation of import and export of goods.

    The directorate has been advised to develop and maintain a center for issuing advance rulings on valuation in accordance with international best practices.

    The FBR asked the directorate to regularly obtain reference price data from accredited publications, official price list, websites, through market enquiries as well as findings of Post Clearance Audit and other authentic sources and to make such data available to all customs stations for smooth clearance of goods.

    Further, the directorate has been advised to carry out proactive monitoring of valuation of goods imported into and exported from the country vis a vis international price trends, conduct and undertake sector wise studies of items prone to mis-invoicing and to advise the field formations regarding any abnormalities in valuation during clearance.

    To maintain effective liaison with Pakistan Mission abroad for the purpose of valuation enquiries, with relevant valuation committees of World Trade Organization and World Customs Organization, and with foreign customs administration.

    The FBR further advised the directorate to develop suitable training modules, in consultation with Directorate General of Training and Research, focused and providing necessary skills from basic level to advanced level to officers and officials working in all relevant functions including Model Customs Collectorates, Post Clearance Audit and Valuation Directorates.

  • SBP issues common red flag indicators for trade based money laundering

    SBP issues common red flag indicators for trade based money laundering

    KARACHI: State Bank of Pakistan (SBP) has issued common red flag indicators for banks to take care in avoiding trade based money laundering and terrorist financing.

    Following are the common Red Flag indicators:

    i. Obvious over or under/over pricing of goods (significant discrepancies appear between the value of the goods reported on the invoice/EIF/MIF, EFE/MFE, Advance Payment Voucher and the known fair market value of the goods).

    ii. The description of goods on the Goods Declaration Form/Transport documents significantly varies from the description declared on EIF/MIF, EFE/MEF or underlying contract.

    iii. Significant variation is found between the description of the goods on the bill of lading and the invoice.

    iv. There are indications that the description of the goods is disguised.

    v. The tenor of the transaction does not commensurate with the nature of the underlying goods – for example perishable goods are traded on terms involving lengthy usance period.

    vi. Documents such as a letter of credit is received through unverified channels such as unauthenticated SWIFT message.

    vii. The type of goods being shipped appears to be inconsistent with the exporter’s or importer’s regular business activities.

    viii. The size of the shipment does not commensurate with the size of the exporter’s or importer’s regular business activities.

    ix. The packaging of goods is inconsistent with the commodity or shipping method.

    x. The goods are transshipped through one or more countries/jurisdictions for no apparent economic or logistical reason.

    xi. The country from which goods are being shipped is designated as “high risk” for money laundering activities.

    xii. The transaction involves the receipt of payments from third parties that have no apparent connection with the transaction.

    xiii. The method of payment apparently does not commensurate with the risk characteristics of the transaction e.g. the remittance of funds in advance payment for a shipment from a new supplier in a high-risk country.

    xiv. The transactions involving consecutive trade discount offered by exporters to the same importer.

    xv. The transaction involves repeatedly amended or frequently extended letters of credit.

    xvi. An exporter receives advance payment(s) but does not make shipment(s) there against.

    xvii. An Importer remits advance payment(s) but does not receive shipment(s) there against.

    xviii. The transaction appears to involve use of front or shell companies for the purpose of hiding the true parties involved.

    xix. The transaction involves import/export of dual use goods.

    xx. The item ordered is incompatible with the technical level of the country to which it is being shipped, such as semiconductor manufacturing equipment being shipped to a country that has no electronics industry.

    xxi. Where important details are missing on commercial invoice(s) or mentioned vaguely.

    xxii. Where some of the shipping documents are provided in photocopies instead of original against the regularity instructions or against normal business scenarios.

    xxiii. Where goods declarations in commercial invoice(s) are not proper, incomplete or otherwise not mentioned at all to conceal the facts.

    xxiv. Receipt of proceeds from non-cooperative countries as per FATF list against the shipment made to a third country.

    xxv. Where export proceeds are received from unrelated/third party with differing nature of business from that of exporter.

  • 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.