Suspicious transactions

The central bank of a country, at times, has to take certain decisions which are not to the liking of the banking community or their clients. In a circular issued to the financial institutions on 5th April, 2010, State Bank of Pakistan (SBP) asked the banks and development finance institutions (DFIs) to cooperate with the law enforcement agencies (LEAs) by providing all information regarding suspicious transactions.
"The banks and DFIs should provide timely information related to suspicious transactions to the domestic law enforcement agencies, sought in terms of legal powers available to them under their respective laws in order to support investigations or prosecutions," said the circular. However, the SBP instructions did not define suspicious transactions, nor named the authority who would declare a bank account or transaction suspicious.
The purpose of fresh instructions of the SBP is obvious. There is no doubt that rising terrorism and lawlessness in the country has forced the State Bank to be proactive in supporting the LEAs fighting against the elements involved in these heinous crimes. The new circular on the subject would make it mandatory for the financial institutions to provide a regular flow of vital information to the law enforcement agencies that have been struggling for a long time to trace the funding channels of terrorists' organisations, especially in the northern parts of Pakistan. The provision of timely information on the flow of money together with its sources and beneficiaries would certainly make it easier for the LEAs to do their job more methodically and efficiently.
While the introduction of such a measure was the need of the hour and probably overdue, it is going to face a negative reaction from the banking community and certain other stakeholders. Argument could easily be made that the instructions of the SBP are against the banking principles of secrecy which protect their clients and oblige the banks not to declare the financial position or transaction of any individual or company. Some of the clients could also express their reservations about the new measure or even close their accounts on the pretext of violation of their financial secrecy.
It may be recalled that a similar decision was taken during the previous regime, directing the banks to furnish details of interest income on accounts, which earned Rs 500,000 and above on their deposits. The government had to subsequently withdraw this decision due to serious opposition by the bankers. Another argument against the measure in our context may well be the general tendency of the government functionaries involved in such exercises to extract bribes and other undue favours from the concerned parties on some pretext or the other. However, this time the situation is so vastly different because of the urgent need to equip the LEAs with all sorts of instruments/weapons to trace the funding roots of terrorism that withdrawal of the measure does not appear to be an option and we may have to live with it for an indefinite period.
Nonetheless, certain improvements could be made to make the task easier and more useful. The State Bank, in particular, needs to be specific about the classification of suspicious transactions and place the responsibility of reporting such transactions to the SBP, LEAs or courts on certain cadres of a financial institution.
Also, since the job would be specialised and involve scrutiny of millions of accounts, it would be extremely important to impart the necessary training to the concerned staff to accurately identify the suspicious accounts and scrutinise them from various angles in detail. Therefore, the State Bank would need to take the responsibility itself or join forces with the financial institutions to ensure that its instructions are adhered to in letter and spirit and meet the intended objectives of curbing terrorism and ensuring security in the country. Training sessions or workshops should be organised expeditiously to prepare the staff of the banks for this important assignment.