The State Bank of Pakistan (SBP) has issued draft guidelines on risk management of trade-based money laundering (TBML) and counter financing of terrorism (CFT) with the aim of increasing transparency and efficiency across trade finance.

The guidelines apply to all banks authorised by the SBP to deal in foreign exchange.

FATF compatibility

The guidelines are designed to ensure that Pakistan is compliant with the Financial Action Task Force’s (FATF) anti-money laundering and terrorist financing standards.

Pakistan is currently following a 10-point action plan to meet those standards and curb illicit financial flows (IFFs) made through money laundering and terrorist financing typologies.

TBML popularity

The central bank says that transferring value through legitimate trade transactions has become an increasingly attractive tool adopted by 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.

Under the new guidelines, banks must screen customers in trade transactions.

Heightened oversight

Banks must also follow procedures for identifying and monitoring of trade transactions with related parties.

The SBP has also advised banks to enhance the oversight of TBML and trade-related terrorist financing roles of directors and senior management.