Banks told to report unusually large requests for check booklets

The Bangko Sentral ng Pilipinas (BSP) has advised banks to investigate and report clients with large requests for check booklets that might be intended for use in illegal investment schemes such as pyramiding scams.

In a letter circular to all banks, BSP deputy governor Alberto V. Reyes told banks to be wary of clients asking for "unusually large volumes of check booklets", especially if the request is a deviation from the client’s profile.

The BSP’s directive came in the wake of a recommendation by the Securities and Exchange Commission (SEC) to flag such transactions as part of the list of suspicious transactions being monitored by the Anti-Money Laundering Council.

The SEC’s proposal was prompted by findings that post-dated checks were commonly used by illegal investment schemes to solicit investments from the public.

According to Reyes, the use of checks had facilitated the accomplishment of the illegal activities by unscrupulous persons that have used post-dated checks as guarantee of returns once the victims have made an investment in their scheme.

"Post dated checks provide the investor-victims with the false assurance that their investments, including the income accruing thereon will be recovered or paid," Reyes told banks. "To meet their post-dated check requirements, the perpetrators of these pseudo investment schemes would have to requisition large volumes of check booklets from their depository banks."

Although requesting for large volumes of check booklets is not itself illegal, Reyes said it should warn bank officials that their clients might be using them for illegal activities if the request deviates from their usual requirements.

Reyes said banks are required to know their costumers and therefore should be able to determine whether their profile indicates the use of large volumes of check booklets.

Under the Anti-Money Laundering Law of 2001, Reyes said deviations from the profile of the client and/or the client’s past transactions with the covered institution are considered suspicious transactions and should be reported to the AMLC.

"By applying the know-your-client principles, banks should be able to determine whether or not said requisition of large volume of check booklets is consistent with the known legitimate business activities of the client and should also be able to report those considered suspicious transactions," Reyes said.

Investigations made by the SEC revealed that illegal investment firms such as pyramiding operations and multi-level marketing schemes issue as much as six to seven checks per investor as a promissory note for future returns on investments.

The BSP said it would be easy for banks to determine whether its clients are involved in such activities based on their usage of check booklets. If the client does not normally use checks and should suddenly request for a large volume of booklets, Reyes said this should warn banks that something is up and should be investigated.