‘Dirty money’ deals breach P1 trillion mark

MANILA, Philippines — Proceeds from money laundering, terrorist financing and proliferation financing across the financial ecosystem have breached the P1-trillion mark, with cash remaining as the most preferred medium, the Bangko Sentral ng Pilipinas (BSP) said.

Based on the report on the risk assessment of cash, cross border and cross-sector transactions, the impact of money laundering, terrorist financing and proliferation activities on the country as well as the financial system remains high, resulting in reputational damage and financial losses.

Likewise, the BSP said impact on the customer level is assessed as medium as this may involve financial losses, reduced trust in the financial institutions, and risk to physical safety.

“These illegal activities threaten the integrity and reliability of the financial system. They can also damage national security, harm the country’s reputation and undermine economic growth,” the central bank said.

The report noted that cash has been an attractive medium for criminals because of its fungible character.

“Cash is interchangeable with another thing of value and leaves little to no evidence trail. Thus, tracing the source of criminal proceeds would be very difficult for the authorities,” the report said.

The Philippine economy is largely cash-based, with BSP-accounted total peso notes and coins in circulation reaching P1.4 trillion or 7.2 percent of gross domestic product (GDP) as of end-2019.

Based on covered transaction reports submitted to the BSP, cash transactions reached 32.2 million, amounting to P171.06 trillion or 20 percent of total value, and ranked third after wire transfers at P334.75 trillion, and check transactions at P284 trillion.

The BSP said half of low-value suspicious transaction reports covering P500,000 and below involved cash transactions at 51.4 percent in terms of value and 30.7 percent in terms of volume.

On the other hand, it added high value transactions were mostly done through checks or wire transfers.

“The level of threat arising from cash transactions is high. Criminals continue to use cash-based transactions to move illicit funds into and out of the financial system,” the BSP stated in the report.

Furthermore, the regulator said swindling ranked first accounting for 41 percent or P12.83 billion in terms of value based on suspicious transaction reports involving cash transactions as of end June last year, followed by trafficking in persons with 20 percent or P6.19 billion, and drug trafficking with 15 percent or P4.6 billion.

As bank transactions widely involve cash, the BSP urged the industry to put in place control measures to reduce risks arising from cash-based transactions.

These include strengthening customer verification procedures especially those transacting in large amounts, conducting periodic review of anti-money laundering system capabilities and threshold, adopting risk-based prioritization to focus on high risk alerts, and consistently implementing cash transaction limit.

Likewise, the BSP said exposure to use and abuse of cross-border transactions of money laundering, terrorist financing and proliferation financing activities remained high.

As part of cross border transactions, remittances from overseas Filipino workers (OFWs) reached $87.13 billion between 2017 and 2019, while total exports amounted to $157.27 billion and imports at P297.77 billion.

The report stated a total of 39, 024 suspicious transaction reports involving cross-border transactions involving P4.56 billion inflows and P1.02 billion outflows have been reported.

Data provided by various sources showed estimates of criminal proceeds in the country reached P938 billion to P1.02 trillion. Corruption topped the list with P670 to P752 billion followed by drug trafficking with P11 billion in the first half of last year, P100 billion for smuggling, P31.9 billion for intellectual property violations, P50 billion for environmental crimes, and P75 billion for tax evasion.

Top source of suspected criminal proceeds include Australia, Germany, Singapore, Hong Kong, and the US, while top destinations of suspected illicit funds are Hong Kong, Singapore, and the US.