Fraud rampant in cheque encashment


Incidents of fraud in banks’, handily-deceivable cheque encashment procedures are increasing in the country. The Consumer Protection Department (CPD) of the State Bank of Pakistan (SBP) has received a series of complaints where certain ‘unscrupulous elements’ are defrauding the general public through ‘cheque washing.’
According to SBP, cheque washing is a practice wherein the text of a cheque is erased through the usage of 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. These fraudulent practices are not only inflicting huge financial losses upon bank customers but also causing an irreparable risk to reputation of the concerned institutions, banks and DFIs.
The central bank, therefore, took notice of such fraudulent cases, rising in the banking sector and asked banks and Development Finance Institutions (DFIs) to stay on guard with regards to the issue. “All banks are advised to assess the adequacy and implementation of their internal control procedures pertaining to encashment of cheques,” said CPD Circular No. 2 the regulator notified to presidents and chief executives of scheduled banks.
The State Bank’s circular aims to effectively prevent financial losses victims were incurring, as well as mitigate the associated risk to the concerned banks’ reputation, which could potentially arise from fraudulent cheques encashment practices. To check such wrongdoings, the banks have been asked to deploy effective equipment as well as well-trained staff on their front-desks, in addition to conformity with Clearing Bank Specification (CBS)-1 as specified in BPD Circular No. 19 issued by the SBP on June 25, 2003.
“It is highly recommended that effective equipment such as ultraviolet lamps are deployed at the branches,” the circular said. The SBP, through it’s circular, asked the banks and DFIs to 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 advised.
It further added that banks and DFIs are advised to strictly adhere to guidelines on internal controls and instructions relating to opening and operations of accounts issued by State Bank from time to time. When contacted, an SBP spokesman could not provide details, including the number of complaints the regulator had received so far and the reported losses therein.
The spokesman said officials of the concerned department, CPD, had left their offices.

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