SBP’s Trade-Based Money Laundering Framework: What It Means for Counterparty Due Diligence
Pakistani banks that deal in foreign exchange operate under the State Bank of Pakistan’s Framework for Managing Risks of Trade Based Money Laundering and Terrorist Financing. First issued in 2019 and revised in 2025, the SBP TBML framework sets out how banks should identify, assess and control the risk that trade transactions are used to move illicit funds. This article summarises what it expects and how independent counterparty reports help banks meet those expectations. It is a practical overview, not legal advice — banks should always work from the official SBP text.
What is trade-based money laundering?
Trade-based money laundering (TBML) is the use of trade transactions to disguise the proceeds of crime or move value across borders. Common techniques include over- and under-invoicing, invoicing the same shipment more than once, misdescribing goods, “phantom” shipments in which no goods move at all, and using front or shell companies as buyers or sellers. Because trade documents are negotiated and letters of credit settled through the banking system, banks are in a critical position to detect it.
Who the framework applies to
The framework applies to all banks authorised by SBP to deal in foreign exchange (Authorised Dealers). It places responsibility for overseeing trade-related money laundering, terrorist financing and proliferation financing risks with each bank’s Board of Directors, and expects clear policies, defined responsibilities and adequate systems.
Key expectations for banks
- Governance — board-level oversight, policies that cover the framework’s requirements and independent review.
- Risk-based customer due diligence — trade-related risk profiles of customers, covering the nature of their business, products, counterparties and markets, supported by analysis of financial statements.
- Transaction due diligence — checks on each trade transaction, including price verification against fair market benchmarks and due diligence on the instrument used (letter of credit, collection, advance payment, guarantee).
- Post-transaction measures — monitoring that shipments and payments match what was declared.
- Enhanced due diligence (EDD) — more extensive checks and escalation for high-risk transactions.
- Red flags and reporting — recognising warning signs and filing suspicious transaction reports with the Financial Monitoring Unit (FMU).
- Technology — systems and analytics to monitor trade transactions.
Transactions that may warrant enhanced due diligence
SBP has highlighted transaction types that carry higher risk, including:
- Trade transactions with related parties.
- Export advances with no specific timeline for shipping the goods.
- Extended credit periods for import payments, especially between unrelated parties.
- Transactions where prices differ significantly from market levels.
Banks also commonly treat as high risk any trade involving high-risk jurisdictions or unusual routing, and counterparties whose profile does not fit the goods or volumes involved.
Where counterparty reports fit
Many of these checks depend on information about parties outside the bank — the foreign beneficiary of an LC, the overseas buyer of an export, an intermediary. Banks cannot obtain that from their own customer files. An independent counterparty report provides it in a documented, dated form:
| Framework expectation | What a counterparty report provides |
|---|---|
| Understand customers’ trade counterparties | Verified identity, registration, status and business scope of the foreign party |
| Identify related-party trade | Ownership, UBOs, directors and corporate structure — revealing common owners or addresses |
| Assess whether the transaction makes sense | Business scope, size, financial capacity and trade history compared with the goods and value |
| Screen for sanctions and adverse information | Sanctions, litigation, insolvency and adverse-media screening |
| Document EDD in high-risk cases | A dated, structured report with analyst conclusions for the file |
Price verification against market benchmarks remains the bank’s own process, but a report showing that a counterparty’s activity and scale fit the transaction strengthens the overall assessment.
Red flags to watch for in counterparty reports
- The beneficiary was incorporated shortly before the transaction, with minimal capital.
- Its business scope is unrelated to the goods.
- Applicant and beneficiary share directors, shareholders or addresses.
- The registered address is in a jurisdiction unrelated to the origin of the goods.
- Adverse media mentions fraud, smuggling or sanctions evasion.
- There is no trade history for the product or the route.
Practical steps for trade operations and compliance teams
- Map which trade products and counterparties fall into high-risk categories under your bank’s policy.
- Define when a counterparty report is mandatory — for example, all new beneficiaries above a threshold, all related-party trades and all EDD cases.
- Standardise the report format so reviewers always know where to find each item.
- Set turnaround expectations so due diligence does not delay legitimate trade.
- File the report and the reviewer’s conclusion with each transaction.
For the wider trade-finance picture, see our guide to counterparty credit reports for letters of credit, and our guides to KYB and beneficial ownership.
How Raaziq BCR supports Pakistani banks
Raaziq BCR is a Lahore-based business credit intelligence company that prepares counterparty reports on foreign companies for the Pakistani banking sector. Reports cover beneficiaries, buyers and suppliers in more than 200 countries in a consistent 13-section format — ownership mapping, key persons, business scope, trade activity, financial analysis, EGA-Scan adverse-data screening, country risk and a credit rating with a recommended limit — and are delivered in 1–48 hours to keep trade transactions moving.
Frequently asked questions
When did SBP issue the TBML framework?
SBP issued its Framework for Managing Risks of Trade Based Money Laundering and Terrorist Financing in 2019 and issued a revised framework in 2025. Banks should refer to the latest official circular on sbp.org.pk.
Does the framework require a credit report on every foreign counterparty?
The framework sets risk-based due diligence expectations rather than prescribing a single document. Banks decide in their own policies when independent counterparty reports are needed; they are especially useful for new beneficiaries, related-party trades and enhanced due diligence.
What is the FMU?
The Financial Monitoring Unit is Pakistan’s financial intelligence unit. It receives suspicious transaction reports from banks and other reporting entities.
Can Raaziq BCR report on companies in hard-to-research jurisdictions?
Raaziq BCR covers more than 200 countries and territories. Where official information is limited, the report states clearly what is not disclosed, so the bank can weigh the gap in its risk assessment.
Compliance and trade operations teams: request a free sample counterparty report and discuss your bank’s turnaround and volume needs. info@raaziqbcr.com | +92-347-4597451.
Get a Credit Report → | WhatsApp +92-347-4597451 | info@raaziqbcr.com