MSBs have high risk exposure to money laundering

MANILA, Philippines — Money service businesses (MSBs), including remittance agents, foreign exchange dealers, electronic money issuers (EMIs) and pawnshops, have medium high risk exposure to money laundering and terrorism financing as suspicious transactions amounted to P22.66 billion as of last year, according to the Anti-Money Laundering Council (AMLC).

Based on a risk assessment report on MSBs, AMLC said the exposure of the industry is medium high, with primary focus on financing of terrorists.

“MSBs and other financial institutions must re-assess their risk procedures and customer and geographical profiling and apply commensurate customer due diligence measures to existing and emerging vulnerabilities to money laundering and terrorism financing,” the AMLC said.

According to the agency, collective mitigating strategic actions or a whole-of-government approach should be implemented from short to medium term, while regulators or supervising agencies need to determine all associated risks and apply risk-based supervision.

The Asia Pacific Group on Money Laundering (APG) noted in the Philippines’ Mutual Evaluation Report (MER) in August 2019 a range of threats and offenses that exploit the cash- and remittance-based economy, including under-resourced authorities and legislative and procedural hurdles that impede investigation and prosecution efforts.

Further, the report highlighted the risk of unregistered MSBs that may contribute to the potential facilitation of illicit proceeds.

“In the analysis of transactions and investigations of cases, certain services or products catered by MSBs are being used by criminals for their illegal activities. Remittance services and cash transactions, including money-changing facilities, were the primary means of moving illegal proceeds,” the AMLC said.

Data showed 782,399 suspicious transaction reports worth P22.66 billion were filed between 2017 and 2020. Pawnshops reported the biggest jump in STRs to 151,648 in 2020 from only 542 in 2017 followed by EMIs with 144,294 from 4,316, and stand-alone MSBs to 139,757 from 22,809.

The STRs filed by the MSB sector, the AMLC said, accounted for 32 percent of the total STRs filed by covered persons during the four-year period.

Also during the four-year period, the financial intelligence unit said the STRs covered child exploitation, child pornography, trafficking in persons, swindling or fraud and Securities Regulations Code (SRC) violations.

The AMLC said about 134,105 of the STRs worth P5.12 billion were associated with cash transactions.

In 2020 alone, the agency filed petitions for freeze order on seven cases predicated on illegal drugs, with four cases, violations of the SRC, Electronic Commerce Act of 2000, and Customs Modernization and Tariff Act.

“The MSB sector is likewise inherently vulnerable to money laundering and terrorism financing, considering its cash-intensive business, use of agents, small-value remittances, customer diversity, and vast network and geographical scope. The frequent and small-value remittances and use of cash pose a threat to the sector as these transactions add another layer of anonymity or obscurity,” the AMLC said.

The agency is pushing for enhanced regulatory controls, effective coordination mechanism and enhanced enforcement actions as well as enhanced understanding on money laundering and terrorism financing risks.

The Philippines is in danger of being included in the gray list of Paris-based Financial Action Task Force (FATF). It was blacklisted in 2000 for failing to address “dirty” money issues paving the way for the enactment of AMLA in 2001.