Philippines banks have medium risk exposure to money laundering, terror financing

MANILA, Philippines — Domestic banks and other financial institutions have a medium risk exposure to money laundering, terrorist and proliferation financing, according to the result of the Third Sectoral Risk Assessment (SRA) conducted by the Bangko Sentral ng Pilipinas (BSP), Anti-Money Laundering Council (AMLC) and other relevant institutions.

BSP Governor Benjamin Diokno said the latest assessment reflects the hard work not only of the central bank, but also of BSP-supervised financial institutions (BSFI) and partner agencies to  combat money laundering and terrorist financing.

“But we should also use the results of this exercise as a reminder to remain vigilant to the threats that undermine the integrity of the Philippine financial system,” Diokno said.

Based on the report, pawning operations in the country have a  low risk exposure to   money laundering and terrorist financing.

Financial inclusion products, likewise, have a low risk exposure except for e-money and remittance services of pawnshops that were assessed as medium risk.

The Philippines is in danger of being included in the gray list and may face sanctions from Paris-based Financial Action Task Force (FATF) after the country was placed under a 12-month observation period by the Asia Pacific Group on Money Laundering (APG) in October 2019.

The deadline, however, of the 12-month observation period was extended  due to the COVID-19 pandemic, so the country has until April to effectively implement Republic Act 11521 or the amended Anti-Money Laundering Act of 2001 and RA 11479 or the Anti-Terrorism Act of 2020 to avoid being included in the list of countries with significant strategic deficiencies in countering money laundering and terrorist financing.

The country was blacklisted by the FATF in 2000 for failing to address dirty money issues, paving the way for the enactment of AMLA in 2001. It narrowly avoided being placed on blacklist in 2012 as it criminalized terrorist financing and pursued quicker freezing of suspect accounts after being subsequently removed from the blacklist in February 2005.

The latest risk assessment aims to further enhance and update the stakeholders’ understanding of the extent of proceeds of unlawful activities being coursed through banks and BSFIs.

The AMLC received 1.8 million suspicious transaction reports (STRs), 98.6 percent of which came from BSFIs, between 2017 and June 2020. The banking sector accounted for 68 percent of the total volume and almost 100 percent of the P6.15 trillion value.

Predicate offenses posing high level of criminal threat include investment fraud and swindling with 595,478 reports, violations of e-Commerce Act with 271,107 reports, trafficking in person with 42,747, corruption with 26,371, drug trafficking with 20,407, as well as forgeries and counterfeiting with 1,982.

“This is in view of the high number of incidents of varied typologies and schemes, the significant amount of criminal proceeds they generate, and materiality of impact to the sector,” the BSP said.

The regulators expect BSFIs to consider the results of the SRA in their enterprise-wide risk assessment and to use these as inputs in enhancing their risk mitigation policies and strategies.