Analysis: Financial scandals put Philippines on 'dirty money' map

Recent local financial scandals have embraced the headlines of major news dailies the past two weeks. The double-whammy experience, no matter how you look at it, has stirred suspicions and uncertainties on our local stability and control as well as our sincerity as an investment destination. The first occurrence, the alleged large-scale swindling activity perpetrated by a former point man of the Philippine Stock Exchange (PSE), has put the agency and the entire bourse market in a fix in terms of trust and confidence that should be accorded the institution. Likewise, the occurrence of what could be the country’s biggest money laundering scandal and biggest cyber heist of recent years should be a test of mettle on the country’s financial market integrity.

The scandal has stirred suspicions and uncertainties on our local stability and control as well as our sincerity as an investment destination.

The country, particularly the financial market, has been seriously calling for active participation of people who can engage and invest in the shares market, yet the call fell on deaf ears.  Perhaps people know the risk that accompanies the trade, the uncertainty brought by the volatility of this kind of venture and the stumbling blocks behind the very low literacy rate of Filipinos behind this investment medium. The recent scam involving a former employee of the PSE who doubles as an instructor of a reputable school while sidelining as an investment advisor will not do any good to our local bourse, In fact it is certain to create a drawback in our drive to attract investors in this side of the market.

This smart alec was occupied with deceitful activities as early as 2013 despite already been out of the PSE commission. He went on and continued to pursue his ill-intent with utmost impunity. This thick-faced guy was able to cheat an undetermined number of individuals, potential and existing investors totaling to an approximate amount of P350 million which includes both the principal and interest. The amount could even be higher had we included transactions made before 2013, the time when he was still with the PSE. The amount, without doubt, has been accumulated over years of covert operation. This dishonest practice—done instead of enticing existing shareholders to expand their investment—will most likely reduce people’s interest or even cause active investors to withdraw from it, dealing a big blow to our drive of stabilizing our financial market.

The amount, without doubt, has been accumulated over years of covert operation.

The mere fact that the alleged perpetrator was an employee of an agency that promotes the interest of investors to engage in this kind of investment medium already afforded interested investors an innate confidence. He is also authorized to give seminars that provide literacy and information about financial operations. Given these responsibilities, who would not believe him? There is that big probability that you will be duped because of his background as a legitimate employee of the the PSE and fully authorized to disseminate information about the nitty gritty of the trade.

If a person, an insider of an agency, whose job is to promote and protect the welfare of an investor, is capable of committing a scam of this magnitude that has adversely affected people’s lives, then who can be trusted? How can we attract new and interested investors in the local securities market?  The occurrence has already created mixed reactions and apprehensions in the local and international scene.  The PSE, for its part, should have been extra vigilant with its job and must have released a disclaimer against the suspect as early as 2013. It seems, however, that none has been made until very recently, when the die has been cast. As a result, many have fallen prey to the scam—an offshoot of laxity of agencies that are supposed to protect people’s interest and gains.

If a person, an insider of an agency, whose job is to promote and protect the welfare of an investor, is capable of committing a scam of this magnitude that has adversely affected people’s lives, then who can be trusted?

As if the incident was not enough to cast doubt on our local financial market which in truth still needs to make its mark,  a case of money laundering, perhaps the biggest in our history, and a high-level conspiracy allegedly involving prominent names in business through a reputable bank has been perpetrated. This “dirty money” upon investigation came from a bank robbery in Manhattan, allegedly owned by the Bangladesh Central Bank, transferred to the local bank via cross-border electronic fraud. It can qualify as the world’s biggest cybercrime heist and has put the Philippines on the map as a destination for dirty money. Initial amount uncovered was $81 million with a peso value of at least P4 billion was traced to a local bank and wired back overseas, in a span of only a few days. The total amount stolen and hacked from the victimized country, Bangladesh, could reach $1 billion. The stashed amount, meanwhile, could have been bigger had it not been for the timely detection of concerned authorities.

The activity should require intense investigation. Foreign as well as local investors who wanted extreme protection for hard-earned currency might fall prey to this kind of cyber criminals in the midst of the country’s thrust for development. The government, for its part, should take a proactive position to protect not only local financial stability but likewise our image in the international financial community.

Emmanuel J. Lopez, Ph.D. is an associate professor at the University of Santo Tomas and the chair of its Department of Economics. Views reflected in this article are his own.  For comments email: [email protected]