Money laundering: More fun in the Philippines

The Philippine bank secrecy laws , among the strictest in the world, have made our country extremely vulnerable to corruption, tax evasion and money laundering and  have made corruption and tax evasion investigations extremely difficult.

The bank secrecy laws here are actually one of the few remaining legacies of Ferdinand Marcos. During his martial law regime, these laws were enacted supposedly to make the Philippines a financial hub which, of course, never happened. The more probable motivation was to allow Marcos and his cronies to money launder their ill gotten wealth and stash them abroad.

Recently $81 million of Bangladesh’s money was electronically transferred out of that country’s account at the Federal Reserve Bank of New York and was money laundered through the Philippine financial system. One of the largest digital heists in history, this caper has exposed the glaring weaknesses in our extremely strict bank secrecy laws.

Anti-Money Laundering Council (AMLC)  executive director Julia Bacay Abad said it took the agency almost a month from the transfer of money to secure a court order to freeze the six bank accounts. BSP chief Tetangco explained that once the funds go into a bank deposit it is very difficult to investigate because of the bank secrecy laws. For those still unaware of money laundering, here is a definition according to the US Treasury Department:

“Money laundering is the process of making illegally gained proceeds or “dirty money” appear legal or “clean.” Typically it involves three steps: placement, layering and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated through additional transactions until the “dirty money” appears “clean.”

The Philippines has become an ideal place for money laundering because its strict bank secrecy laws make it very easy for criminals and money launderers to implement all three steps in this country.

According to Kim Henares, only three countries in the world – Switzerland, Lebanon and the Philippines –  do not allow their internal revenue offices to investigate bank accounts of corporations and individuals that are the subject of tax evasion cases. By 2017, even Switzerland will lift its bank secrecy laws to allow investigation of bank accounts that are being investigated for tax evasion.

The Philippine anti-money laundering laws also do not cover casinos and financial transactions in real estate, jewelry and non- profit organizations. These are the areas where stage two of money laundering – moving the money around to create confusion by using numerous transactions – is normally done. It is tempting to believe that these areas were deliberately not included specifically to facilitate money laundering and tax evasion practices.

The Bangladesh caper used the Philippines as a money laundering conduit for their stolen money. A more serious problem is that these same extremely strict bank secrecy laws have allowed Filipinos to money launder “dirty money” and send their money abroad to known tax havens.

Two years ago, Global Finance Integrity, an international anti-corruption group, released a report that for the period 2001 to 2010,  $5.86 trillion in illicit funds were illegally moved from developing countries to tax havens. According to that report, 60 percent to 65 percent was from tax evasion and 30 percent to 35 percent from criminal activities. The top 10 developing countries with the highest illicit cash outflows were China ($2.74 trillion), Mexico $276 billion) Malaysia ($285 billion), Saudi Arabia ($210 billion), Russia ($152 billion), Philippines ($138 Billion), Nigeria ($123 billion), India ($123 billion), Indonesia ($109 billion) and UAE ($105 billion).

Since that time, almost every country in the list – including China – has taken additional steps to try and curtail money laundering in their country. The Philippines is the notable exception.

The 2008 global financial meltdown was partly caused by illegal banking practices which escaped noticed because of lack of government monitoring and regulation. In 2009, the world’s 20 leading economies met in a Group of 20 summit in London and part of its communiqué said: “ the era of banking secrecy is over.” While the rest of the world has pursued bank accountability reforms by relaxing secrecy laws, the Philippines has gone against this global trend.

The World Bank has pointed out that laundered illegal funds are detrimental to economic development. Instead of investment in productive channels, these funds are placed in “sterile” investments like luxury estates, jewelry, art, and high value investments like luxury automobiles which do not generate additional productivity for the economy. The purpose is to preserve the value of these laundered funds and make them easily transferrable. Imagine the tremendous benefits to our people if the $138 billion money laundered had been invested properly.

Even Pope Francis, in his 2013 encyclical, condemned tax evasion, facilitated by money laundering, as one of the greatest evils of modern society.

The question is if a person has nothing to hide – is not a tax evader or money launderer or a criminal – what is there to fear about financial transparency? Why is the Philippines one of the very, very few countries in the world that still maintains extremely strict bank secrecy laws – a legacy from the Marcos years of kleptocracy? Why not make financial transactions more transparent?

The answers lie in the hands of our lawmakers and business tycoons. 

Summer creative writing classes for kids and teens

Young Writers’ Hangout : April 2, 9, 16, 23, 30, May 21, 28 and June 4 (10:30 am-12 nn except June 4, 1:30 pm-3 pm)

Wonder of Words Workshop:  May 2, 4, 6, 10, 11 and 13 (1:30-3:30 pm for 7-10 years old and 4-6 pm for 11-17 years old) with guest authors, Manix Abrera and Mina Esguerra.

Classes will be held at Fully Booked Bonifacio High Street. For registration and fee details, 0917-6240196 / [email protected]

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