Tuesday, July 19, 2011

Banks join fraud war



COMMERCIAL banks and financial institutions are being corralled in to assist in the fight against fraud and corruption in government, The National reports.

Stringent guidelines have been issued to cash dealers (banks) by the Financial Intelligence Unit of the Fraud Squad which direct how to deal with government payments above a certain threshold. No threshold figure is mentioned.

On the face of it, the guidelines appeared logical and effective, but banks are worried that the guidelines would create so much delay in the processing of payments which would create extra work and tension between the bank and its clientele.

In the end, the guidelines might even delay government projects for unnecessarily long periods.

The guideline, headlined “Due diligence in relation to government cheques and payments” was issued on June 2 under the Proceeds of Crime Act 2005.

In the preamble, the unit stated that the government and people of PNG “are suffering from fraud and corruption at levels that are preventing normal government functions from occurring hindering development”.

It stated in part: “Fraud against the government is currently the most significant financially motivated crime in PNG. It is estimated that about 25-30% of the government budget is misappropriated each year.

“These funds are, in most circumstances, processed through one or more of the commercial banks in PNG.

“By implementing this guideline, members of the AML Working Group acknowledge the unique opportunity available to break the cycle of fraud and corruption and, in so doing, make an unprecedented contribution to the future development of PNG.”

For government payments that are over and above the threshold amount, banks or cash

dealers are asked to:

*Obtain identification of the person or group that payment is made to;

*Names of directors or employees of the company (where government employees are directors it is an indication of fraud);

*Registration details from Investment Promotion Authority (large amounts to new companies or one that has changed its name recently is indication of fraud);

*Obtain tax records from previous years (failure to submit tax returns is evidence of illegitimacy);

*Obtain information on how and when a tender was called;

*Obtain a copy of the project proposal with details on how the money is to be applied;

*Timings of payments and when each tranche is to be released;

*Details of overseer and reporting process; and

*Obtain a detailed budget on how money is to be spent.

Banks or cash dealers will also be asked to:

*Conduct independent checks on the business of the company including identifying assets, employee numbers, previous projects, company accounts and so on;

*Checks on directors to ensure that there are no adverse records in relation to previous offences or suspicious transactions;

*Examination of previous payments from government with particular focus on how previous payments were used; and

*Search people for those on suspicious transaction listing, politically exposed persons list, and  high risk persons listing among others.

All out of court settlements and default judgments, are, by their nature “red flags” the financial intelligence unit, claims and will come under very close scrutiny.

These and other due diligence measures in the guidelines will now create a lot of problems for banks who might even be required to direct staff to travel out to remote districts to do phy­sical checks on locations of projects. This might tie down projects for long periods of time.

The guideline is signed by Bernard Barum, officer in charge of the Financial Intelligence Unit.

No comments:

Post a Comment