LAW enforcement agencies in Pakistan are currently engaged in conducting probes against individuals suspected of using the banking channel for financing illegal activities.

Very few are aware that their cheques may have been credited in a suspect account without their knowledge, or that a suspected individual’s cheque may have been credited in their account.

For additional protection, or to avoid its misuse, the business community ‘crosses’ the cheque, which restricts the use of the cheque for an account to account transaction only. This is done by drawing two parallel lines, either vertically across the cheque, or in the top left corner.

What people may not know is that despite the beneficiary’s name being written on the cheque, if the word ‘or bearer’ (pre-printed on cheque) is not crossed then the cheque may also be withdrawn or deposited in a 3rd person’s account.

Very few are aware that their cheques may have been credited in a suspect account without their knowledge

The re-forwarding of cheques, from one person to another, is a general practice, done without the prior permission, or even knowledge, of the actual issuer.

In this situation, if the cheque subsequently bounces due to any reason, the whole chain is impacted. It is also difficult for the ultimate depositor to take legal action against the issuer of the cheque; since the cheque was not directly handed over to the depositor by the issuer there isn’t any liability for them.

As far as, demand-drafts or pay-orders are concerned, business persons avoids making pay orders due to a lack of time, as a minimum of 15 minutes are needed for processing - after visiting the bank and submitting the application.

In the present environment law enforcement agencies are probing to ascertain the financiers and facilitators of illegal activities. An investigator spends additional time and effort trying to find out the whereabouts of counter parties, due to the practice of cheque cycling.

In majority of the cases, counter parties do not know the actual depositor or beneficiary of the cheque since they have been re-forwarded. These counter parties also fail to provide reasons for the transaction, if the matter is of an older date; thereby making the actual issuer a suspect.

In the past, paper transactions had increased since they provided the business community protection from a volatile law and order situation, and also helped investigators trace payments if needed; presently however, this trend has declined due to the levy of a 0.6pc withholding tax on debit.

Consequently paper cash has been replaced with the domestic ‘hawala’ business. With the help of ‘hawala’ agents, funds can be sent to any city within Pakistan. There is no law stopping the domestic ‘hawala’ system.

To address the issue of cheque re-forwarding the banking sector needs to take the following suggestions into account: (i) the word ‘or bearer’ be removed from the cheque, (ii) the phrase ‘reason of payment’ must be mentioned on the cheque, and (iii) the name of beneficiary must be mentioned on the cheque; so that those who are unaware of banking technicalities be protected.

On the matter of the untraceable money transfers: (i) all high value transactions be made only through the banking system, (ii) while a heavy tax on cash withdrawal is alright, there should be no tax on bank-to-bank transactions and (iii) revoke high denomination currencies.

The above suggestions will not only protect the average user from being used as a scapegoat, but will also discourage undocumented, and untaxed, transactions.

Published in Dawn, Business & Finance weekly, October 24th, 2016