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SBP BSC (BANK)HEAD OFFICE

KARACHI

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VISION

An independent Department entrusted with fair and just resolution of complaints in order to protect economic interest of Pakistan while ensuring the rights guaranteed by the constitution and laws of Islamic Republic of Pakistan.

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MISSIONTo develop a strong and dynamic team to perform adjudication process efficiently and effectively.

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ORGANOGRAM OF FEAD

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Director Adjudication Muhammed Saleem

Rehmani

Lahore Court I Samreen Tahir

Lahore Court II Sherafgan

Malik

Registrar North Umar Farooq

Recovery North

(Vacant)

Multan Court (1 Vacant)

Faisalabad Court Muhammad Riaz

Court I Director

Court II Abdur Rauf

Admn Data base

Mazher Ul Islam

Court III Muzaffar

Akhlaq

Registrar

Court IV (Vacant)

Sialkot Court Ejaz Ahmad

Court V

(1 Vacant)

Court VI

(1 Vacant)

Recovery South

(Vacant)

Recovery South

Bldg. Admin & Security

DIVISIONS

1. JUDICIAL

2. CO-ORDINATION & RECOVERY

3. ADMINISTRATION

4. SPECIAL STUDIES & POLICY MATTERS

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Background of Foreign Exchange Regulation Act,1947.

During the years 1914-18 many countries introduced various restrictions on free export of their currencies .

A system of exchange control was set up in India in September,1939 soon after the outbreak of world war–II for the purpose of conserving and directing best uses the limited supplies of foreign exchange available.

The provisions of the Act have been drafted in such a manner that the degree of restriction on foreign exchange transactions can be relaxed or increased by executive orders, either generally or for particular foreign currencies in accordance with the need of the trade and finance or International agreements thus ensuring that flight capital or wild speculation which proved so injurious to foreign trade in the period between two wars, can be immediately be controlled.

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Pakistan inherited this Act at the time of its independence and it has been modified from time to time. All foreign transactions involving foreign exchange in Pakistan are thus regulated by the Foreign Exchange Act,1947 as adopted by Pakistan.

The Act was not strictly enforced up to 1956, when the State Bank of Pakistan Act,XXXIII of 1956 was enacted.

The State Bank has been constituted to regulate the monetary and credit system of Pakistan and to foster its growth in the best national interest with a view to securing monetary stability and further utilization of the country’s productive resources.

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Make Laws to Protect Foreign Exchange of the Country.

The Government of Pakistan has, by its notification nos. I(6)-ECS/48 and

I(17)ECS/48 both dated the 1st July, 1948 issued in pursuance of Section 12

of the Act, prohibited the export of any goods either directly or indirectly,

to any place outside Pakistan, unless a declaration is furnished by the

exporter to the controller of Customs or to such other person as the State

Bank may specify in this behalf that foreign exchange representing the full

export value of the goods has been or will be disposed of in a manner and

within a period specified by the State Bank.

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Objectives of FERA,1947All foreign exchange transactions are regulated under the provisions of

Foreign Exchange Regulations Act, 1947 and are controlled by the State Bank of Pakistan.

The SBP has also authorized through licensing Commercial Banks and other different firms / money changers to deal in foreign exchange under the terms and conditions laid down by the State Bank of Pakistan.

No exchange control measures can be effective or successful without some sort of trade control. If export from a country was not being monitored and imports were free and unrestricted, this will lead to the deficiency of foreign currency resulting in balance of payment deficit.

The State Bank guides and facilitates the Authorized Dealers through its F. E. Circulars etc. but Foreign Exchange Manual issued by the SBP is the main source. This is the bible of bankers operating on the foreign business in Pakistan.

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Purpose of the Act,1947The Act was enforced on the 25th March,1947 vide Federal Government

Gazette, 1947,pt,1, p.362.The basic purpose of the Act is to regulate international payments and

receipts in order to Protect the economic interest of the country. It is applicable to all foreign exchange transactions in securities and bullion

involving foreign exchange or non-residents, rupee payments to or an account of non-residents and export and import of gold and silver.

The Act prohibits dealing in foreign exchange except through Authorized Dealers and money changers. The State Bank has the powers to authorize any person to deal in foreign exchange.

The full license is issued only to banks because these institutions are required, in the normal course of business, to undertake all type of transactions.

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Application of the ActThe Act applies to whole of Pakistan and to all its citizens and persons in

the service of the Federal or Provincial Government irrespective of where they may be.

A citizen of Pakistan residing outside of the country will be subject to the provisions of this Act and any act or omission contrary to the provisions of the Act will be equally punishable.

The Act is not applicable to foreigners, however as the Act deals with foreign exchange and in such transactions foreigner can also be included.

Act enacted in interest of National Economy:The Act was enacted in the interest of national economy. A deliberate large scale contravention of its provisions would affect the interest of every man, woman and child in the country. Such Act should be constructed so as to make it workable.

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Concept of International Trade International trade is the exchange of goods and services

between countries. This type of trade gives rise to a world economy, in which prices, or supply and demand, affect and are affected by global events. Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries. A product that is sold to the global market is an export, and a product that is bought from the global market is an import. Imports and exports are accounted for in a country's current account in the Balance of Payments.

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Significance of Foreign Exchange Foreign currency means currency other than local currency OR the

currency (i.e. money) of another country. We all know that earning of foreign exchange by any country contributes

to boost up the overall volume of its economy which also enhances its foreign exchange reserves and makes it stronger in the international market but some times due to market failure or some bad intention of the importer / exporter the foreign exchange can not be repatriated.

To avoid any apprehension in such situations it is necessary to formulate certain rules & regulations with regard to FX. Particularly countries like us where in a current scenario wide rooms are open for misuse of the same.

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Formulation of Forex Rules.• Government Notifications under FERA,1947.• Trade Policy announced by the Govt. every year.• Existing Foreign Exchange Manual (8th Edition

2002).• F.E Circulars & F.E Circular Letters issued by EPD.• Guidelines given by different departments of SBP

from time to time.

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MODE OF EXPORT L/C(Documentary Credit) (Secured) complying rules of UCP-600

Advance Payment (zero risk)

C.A.D (Cash against documents) (low risk) complying rules of URC-522

D.P (Documents against payment) (low risk) complying rules of URC-522

D.A ( Documents against acceptance) (high risk) complying rules of URC-522

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Obligations of Authorized Dealers Ensuring receipt of full export value in prescribed manner and time frame.

(Para-8 Ch:XII) FE Manual,2002.Certification of export forms in, prescribed manner, lodged by exporters.

No certification of export forms unless the bank is satisfied regarding realization of export proceeds, bonafides of consignees abroad, agreement for receipt of title documents and signing of export forms by exporter or his / her authorized agent.(Para-8 Ch:XII) FE Manual,2002.

Maintenance of complete record of all export forms in a stock register and distribution thereof.(Para 10(ii). FE Manual.

Maintenance of another stock register for recording particulars of export forms issued and certified by them. .(Para 10(i). FE Manual.

Endorsement of Bill of Lading etc. to the order of their foreign correspondent . No blank endorsement or endorsement to the order of the consignee shall be made without approval of State Bank of Pakistan.(Para 14,FE Manual)

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Obligations of Authorized Dealers

The Authorized dealer shall compare bill of lading etc with form “E” and make sure they match in all respect.( Para 17 FE Manual)

In case of partial payment or payment in advance by the consignee ‘s bank, the authorized dealer will make such recording on the triplicate copy of the export form and will follow up the case to ensure realization of the remaining amount within prescribed period. The triplicate copy of the export form will remain outstanding till the realization of the full amount of export proceeds.(Para 20, FE Manual)

In case of short shipment, the authorized dealer will forward the short shipment notice duly certified by the customs along with shipping documents.(Para 21 FE Manual)

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Obligations of Exporters

Exporter will declare exports to the customs / Postal Authorities.(Para 6(i) FE Manual)

Exporter will retain export proceeds in foreign currency for no more than 03 days. .(Para 7 FE Manual)

Exporter will submit signed form“E” in quadruplicate to the Authorized dealer and after certification of the same by the Authorized dealer, these form will be submitted by the exporters to the custom authorities. Exporter will retain quadruplicate copy for their records and submit duplicate and triplicate to the Authorized dealer along with shipping documents within 14 days of date of shipment. .(Para FE Manual)

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Application of UCP 600The 6th version of UCP of ICI publication came into force w.e.f

July,2007 for Documentary Credits.UCP 600 consists of total 39 Articles.They are binding on all parties thereto unless expressly

modified or excluded by the creditor.Article 3, indicates that a credit is irrevocable even if there is

no indication to that effect.Article 5, Bank deals in documents and not with goods.

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Continue, Article 7, Issuing bank undertaking: Provided that the

stipulated documents are presented to the nominated bank or to the issuing bank and they constitute a complying presentation, the issuing bank must honor.

Article 14, Standards for examination of documents : A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of Five Banking days following the day of presentation to determine if a presentation is complying.

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Article 15, complying presentation: When an issuing bank determines that a presentation is complying, it must honor.

Article 16, Discrepant Documents, Waiver and Notice: when an issuing bank determines that a presentation does not comply, it may in its sole judgment approached the applicant for a waiver of the discrepancies with in 5 banking days.

Article36, Force Majeure: A bank assumes no liability or responsibility for the consequences arising out of the interruption of its business by Acts of God, riots, civil commotions, wars, act of terrorism, causes beyond its control.

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International Standard Banking Practice (ISBP)For the Examination of Documents under Documentary CreditsApproved by the ICC Banking Commission International Standard Banking Practice for the Examination of Documents

under Documentary Credits (ISBP), explains how the practices articulated in ICC's Uniform Customs and Practice for Documentary Credits are applied in everyday practice by documentary credit practitioners around the world.

ISPB relating to the examination of drafts, multimodal transport documents, insurance documents, certificates of origin and a range of other documents associated with letters of credit.

60%-70% of letters of credit documents are rejected for discrepancies on first presentation. ISBP, by encouraging a uniformity of practice worldwide, is expected to cut these figures dramatically and, by doing so, will facilitate the flow of world trade.

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continuePrevious International Standard Banking Practice which is called ISBP

2007 published in year 2007 by ICC was covering below trade documents: DRAFTS INVOICES TRANSPORT DOCUMENT COVERING AT LEAST TWO DIFFERENT MODES OF

TRANSPORT BILL OF LADING CHARTER PARTY BILL OF LADING AIR TRANSPORT DOCUMENT ROAD, RAIL OR INLAND WATERWAY TRANSPORT DOCUMENTS INSURANCE DOCUMENT AND COVERAGE CERTIFICATES OF ORIGIN

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Continue In addition to above stated documents International Standard Banking

Practice - ISBP 2013 also covers; PACKING LIST WEIGHT LIST BENEFICIARY CERTIFICATE NON-NEGOTIABLE SEA WAYBILLS ANALYSIS, INSPECTION, HEALTH, QUANTITY AND QUALITY CERTIFICATE

In case the Importer / buyer claims discrepancy in documents which are not covered by the above standards the Authorized Dealer must ask the reasons for rejection of L/C documents from the applicant bank / importer.

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URC-522 (Rules for collection)

The Uniform Rules for Collections, 1995 (total 26 Articles) Revision, ICC Publication No.522, shall apply to all collections as defined in Article 2 where such rules are incorporated into the text of the “collection instruction” referred or contrary to the provisions of a national, state or local law and / or regulation which cannot be departed from.

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Collection Instruction

All documents sent for collection must be accompanied by a collection instruction indicating that the collection is subject to URC 522 and giving complete and precise instructions. Banks are only permitted to act upon the instructions given in such collection instruction, and in accordance with these Rules.

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Terms of delivery of documents against :

1) Payment and/or acceptance2) Others terms and conditions It is the responsibility of the party preparing

the collection instruction to ensure that the terms for the delivery of documents are clearly and unambiguously stated, otherwise banks will not be responsible for any consequences arising there from.

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Continued, Release of Commercial DocumentsDocuments Against Acceptance (D/A) vs. Documents

Against Payment (D/P)Collections should not contain bills of exchange payable

at a future date with instructions that commercial documents are to be delivered against payment.

If a collection contains a bill of exchange payable at a future date, the collection instruction should state whether the commercial documents are to be released to the drawee against

acceptance (D/A) or against payment (D/P)

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Continued, In the absence of such statement commercial documents

will be released only against payment and the collecting bank will not be responsible for any consequences arising out of any delay in the delivery of documents.

If a collection contains a bill of exchange payable at a future date and the collection instruction indicates that commercial documents are to be released against payment, documents will be released only against such payment and the collecting bank will not be responsible for any consequences arising out of any delay in the delivery of documents.

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what is Bill of Exchange Definition :According to Section 5 of Negotiable instrument Act, 1881 “ A

bill of exchange is a document in writing containing an unconditional order, signed by the maker, directing a certain person to paying a certain sum of money only to or to the order of a certain person, or to the bearer of instrument.

Essentials of bill of exchange:Essentials of bill of exchange are similar to the essential of

promissory note however the difference is that where a promissory note contains a promise to pay, the bill of exchange contains an order to pay.

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Advice of Non-payment and/or Non-Acceptance

The presenting bank must send without delay advice of non-payment and/or advice of non acceptance to the bank from which it received the collection instruction

On receipt of such advice the remitting bank must give appropriate instruction as to the further handling of the documents. If such instructions are not received by the presenting bank within 60 days after its advice of non-payment and/or non-acceptance, the documents may be returned to the bank from which the collection instruction was received without any further responsibility on the part of the presenting bank.

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Establishment of FEAD

FEAD is an Adjudicating forum to ensure compliance of FERA 1947 concerning repatriation of Foreign Exchange

FEAD performs its functions under Adjudication Proceedings and Appeal Rules 1988 framed by the Govt. of Pakistan vide SRO 359(1)/88 date 15th May, 1988

Pursuant to insertion of Section 23-B in FERA 1947 FEA Courts were setup in 1990

Ministry of Finance by its notification appointed Adjudication officers and set up their territorial jurisdiction on 11th August,1990.

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OBJECTIVESEfficient proceedings to provide equal opportunity to the

complainant and the defendant.

To recover / repatriate overdue export bills

Minimize non-compliance by the AD (commercial bank).

Recovery of penalty from defaulting exporters.

Recovery of un-utilized foreign exchange by the importers

and other non-compliance.

Violation of Section 12(1) of FERA

The Federal Government may, by notification in the official Gazette, prohibit the export of any goods or class of goods specified in the notification from Pakistan directly or indirectly to any place so specified unless a declaration supported by such evidence as may be prescribed or so specified, is furnished by the exporter to the prescribed authority that the amount representing the full export value of the goods has been, or will within the prescribed period be, paid in the prescribed manner. Non Realization of export proceeds constitute violation of FERA Section 12(i)

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Complaint Processing

It is the responsibility of the FEOD to lodge Complaint, within a reasonable time, against the delinquent exporter in the FEAD for taking appropriate legal action against him under the existing rules and regulations.

Similarly, complaint also be lodged by FEOD against the authorized dealers, in FEAD who fail to submit complete pre-adjudication information / documents which causes delay in taking legal action against the exporter.

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Complaint Lodged in FEADAfter collecting all the required documents from

authorized dealers, FEOD, as a complainant, finally lodges a complaint (on the prescribed format) against the exporters for non-realization of export proceeds in FEAD under Section 23B(4) of FERA, 1947.

In the same manner, complaints are also to be lodged against the concerned AD under Section 23B(5) of FERA who fails to submit pre-adjudication information/documents as and when called by FEOD, SBPBSC.

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Adjudication Proceedings & Appeal Rules,1988

In exercise of the powers conferred by section 27 of the Foreign Exchange Regulation Act,1947(VII of 1947), the Federal Government is pleased to make the rules to govern the procedure to be followed in respect of adjudication and appeal proceedings under the said act. These rules may be called the Adjudication Proceedings and Appeal Rules,1988.

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Powers of Appointment of AOs

Pursuant to modification in SBP Act, 1956 and in terms of BSC Ordinance 2001 the powers of appointment of Adjudicating Officer are now vested to the Governor, State Bank of Pakistan.

As a result, the AO can start the court proceedings immediately. Before, this the powers were vested to the Ministry of Finance which took considerable time at the cost of substantial delay in the working of courts.

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Types of complaints dealt by FEAD

Complaints against the :-1- Individuals i.e. exporters, importers for Non-

Repatriation of Foreign Exchange and 2- Banks/Authorized Dealers for non-compliance of SBP

instructions.

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Power of the AO to impose the penalties( U/S-23B)

Impose penalty not exceeding five times of the value of FE involved or five thousand rupees whichever is more in case of contravention of the provision of sub-section 12(1) is proved.

Penalize the A.Ds in case they fail to submit any return, statement, declaration or other document required for the purpose by any provision of FER Act.

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Powers of the Adjudicating Officer (U/S 23E)

The AO has all the powers of a civil court under the code of civil procedure 1908 while trying a suit, in respect of the following matters:-a) Summon and enforce the attendance of any person and examining him on oath.b) Requiring the discovery and production of any document.

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Powers of the Adjudicating Officer (U/S 23E)c) Requisitioning any public record or copy thereof from any court or office.d) Receiving evidence on affidavits.e) Appointing guardians or next friends of persons

who are minors or of unsound mind.f) Adding legal representatives of the accused persong) Enforcing any order made by him.

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Powers of Adjudicating Officer to recover the amount of penalty(23J)

The Adjudicating Officer may recover the amount so payable by detaining or selling, or ordering the detention and sale of, any goods belonging to such person which are under the custody, power or control of any Adjudicating Officer or any other person; or

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Powers of Adjudicating Officer to recover the amount of penalty (23J)The Adjudicating Officer may deduct, or direct

the deduction of, the amount so payable from any money which is owed to such person, and which may be under the custody, power or control of an Adjudicating Officer or any other person; or

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Powers of Adjudicating Officer to recover the amount of penalty (23J)In case the penalty is payable by an authorized

dealer, the State Bank may, without further reference to him, recover the amount of penalty from him by debiting the account or accounts then held or held at any time thereafter with the State Bank by the authorized dealer; or

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Powers of Adjudicating Officer to recover the amount of penalty (23J)

The Adjudicating Officer may issue Order to the Revenue Authorities to recover the penalty amount from the accused as arrear of Land Revenue

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Right of Appeal in Appellate BoardAccused has the right to appeal before the appellate

Board within 30 days against the decision of the A.O.Appellate Board may entertain an appeal after the expiry

of the said period but not later than sixty days from the date of the aforesaid order if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal in time.

The Appellate Board has the rights to call for original case file of the complaint along with the court proceedings.

As per the Adjudication process and appeal rules, the Director of Adjudication shall also be respondent.

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Details of FER Cases Since Inception As on 30th June,2014

COURT RECEIVED DISPOSED OUTSTANDING

KARACHI 15001 6722 8279

LAHORE 9484 6313 3171

FAISALABAD 6115 4101 2014

MULTAN 974 776 198

SIALKOT 5159 3102 2057

TOTAL 36733 21014 15719

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PERFORMANCE EXPORT PROCEEDS REALIZED SINCE INCEPTION AS ON 30th JUNE,2014

COURT US DOLLORS (US$) IN MILLIION

KARACHI 143,794,355 143.8

LAHORE 68,884,956 68.9

FAISALABAD 69,268,383 69.1

MULTAN 11,389,459 11.4

SIALKOT 53,153,180 53.2

TOTAL 346,490,333 346.4

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Achievements

I. Since inception of the department till June, 2014, US$ 346.4 million repatriated.

II. Since inception of the department till June, 2014 recovered penalty of Rs27.2

million from the exporters / authorized dealers.

III. During the financial year 2013-14 stuck up export proceeds equivalent to US$49.4

were realized by all Courts

IV. Capacity Building – 5 days training with Sindh Judicial Academy

V. Comprehensive Data Base of Defaulters updation up to 30-06-2014.

VI. Department is in process to develop FER Complainants Management System for

issuance of consolidated show cause notices and maintenance of FER complaints

data base.

Future outlookAs part of the business process re-engineering , the department plans for FY-15

include:-

I. Already developed data base system for non compliance will be provided to offer

on line information to bank, relevant departments of SBP and other stake holders

for better due diligence.

II. Staff training on foreign trade and documentation

III. Establishment of new Courts at Karachi

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ISSUESDelay in lodgments of complaints.Disappearance / Dislocation of exporter.Bankruptcy of Importer.Non availability of shipping documents from banks.Recovery of penalty(23-J).Prosecution of casesUnderstanding of UCP-600, URC-522 & other International

standards.Bank’s compliance in overdue cases.Delay / in-appropriate response of banks.IT and HR support.Lack of timely input by the internal stake holders.Most of the banks do not have their centralized system for

processing of the cases.

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CHALLENGES

Overall departmental capacity.Policy gaps.Gaps in legal frame work.

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THANKS