The State Bank of Pakistan (SBP) has advised all banks to assess the adequacy and implementation of their internal control procedures pertaining to encashment of cheques to prevent financial loss and mitigate the associated reputational risk to the institution which can potentially arise from fraudulent cheques encashment practices such as 'Cheque Washing'.
The Consumer Protection Department of State Bank had received a series of complaints wherein some unscrupulous elements had defrauded the general public through 'Cheque Washing', a practice wherein the text of a cheque is erased by chemicals and then rewritten with a new payee and amount. The impact of such alteration on the surface of the cheque is difficult, or sometimes impossible, to detect with the naked eye.
To address these complaints effectively, the State Bank has asked all banks that in addition to conformity with Clearing Bank Specification (CBS) -1 as specified in BPD Circular No 19, dated June 25, 2003, effective equipment, such as ultraviolet lamps, be deployed at the branches, according to CPD circular No 2 of July 2, 2011.
Banks/DFIs should train their front-desk staff to assess the authenticity of cheques. Prudence should be exercised while making payments against cheques, and especially against bearer cheques, the circular said. In addition, banks/DFIs have also been advised to strictly adhere to guidelines on internal controls and instructions relating to opening and operations of accounts issued by State Bank of Pakistan (SBP) from time to time, the circular added.
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