Dirty money list

Score another one for the Duterte administration. We have been included in a global dirty money “gray list”. If we don’t do enough, we will end up in a blacklist that will subject our foreign exchange transactions to increased monitoring for potential money-laundering and terrorist financing.

We have been here before. We were blacklisted by the Financial Action Task Force in 2000 for failing to address “dirty” money issues. That paved the way for the enactment of AMLA in 2001. We were removed from the blacklist in February 2005 and narrowly avoided being placed on the blacklist again in 2012.

We will share honors in the FATF gray list with Haiti, Malta, and South Sudan. There are 22 countries in the watchlist.

The potential impact may be felt by our OFWs who may find it more difficult to send remittances home. Trade transactions may also require more scrutiny and paperwork.

We missed the Feb. 1 deadline set by the FATF to show tangible progress in fighting money laundering.

Republic Act 11521, which tightened the country’s Anti-Money Laundering Law, was passed only last Jan. 29. The law included new covered persons such as real estate brokers and developers following earlier findings that some dirty money proceeds went into the industry.

The FATF also wants to monitor how we are using anti money laundering controls to mitigate risks associated with casino junkets or travels granted to prominent players; implementation of new registration requirements for money service businesses, including imposing sanctions for unregistered and illegal remittance operators.

Why does the Philippines attract financial fraud?

That was the headline of an article on Nikkei.com and it is easy to answer even without reading the article. Loose law enforcement… officials cavorting with crooks if they are not crooks themselves… no one goes to jail for financial fraud.

We were warned last April by the IMF that we would be included in the gray list without major reform by June. On top of the list is our problematic bank secrecy laws.

“The banking sector is subject to bank secrecy laws that undermine financial stability, financial integrity and development, and expose the banking system to reputational risk,” the IMF said.

In fairness to the BSP and the DOF, they have been pushing for the proposed amendments to Republic Act 1405 or The Secrecy of Bank Deposits Law. But members of Congress, who represent shady characters threatened by any reform in bank secrecy, have not been helpful.

The bank secrecy law passed in 1955 only allows examination of bank accounts with a written permission of the depositor or when a court orders.

The proposed amendments to the bank deposit secrecy laws will make financial institutions comply with international standards on transparency and combat both domestic and global tax evasion, money laundering, and other financial crimes.

BSP officials have long been saying the law on secrecy of bank deposits prevents the authorities from investigating, prosecuting, and getting conviction. It also provides the enforcers some basis for not pushing on. It breeds corruption.

Recent developments like the Bangladesh Central Bank funds routed to a Philippine bank in 2016, and laundered via the gambling industry, didn’t help our reputation.

Nikkei also cites the case of Westpac Banking, accused last December by Australia’s financial crime watchdog of money-laundering breaches, which included payments to suspected child exploiters in the Philippines.

Then there was Wirecard, the German payments technology company, a fraud case where apparent business partners in the Philippines did not exist, and neither did 1.9 billion euros ($2.1 billion) supposedly held in two Philippine banks.

The Nikkei article observed the Wirecard case “call into question not just how these banks supervise internal matters, but larger issues of weaknesses in the country’s oversight of its financial system.”

What the world is seeing is a lack of enforcement capacity on the part of our Securities and Exchange Commission, the Bangko Sentral ng Pilipinas, and the Anti-Money Laundering Council or AMLC.

“What appears to be lacking are the ability and willingness of these three bodies to conduct meaningful routine monitoring and verification of financial institutions… The sieve intended to catch bad actors and protect the nation has too many holes. That needs to change…

“Incidents involving the Philippines may well be greeted with ‘here we go again’ and a sigh of disappointment bordering on disbelief. The Philippine financial system must take greater action as an industry to reduce reputational risk and strengthen its standing in international circles,” Nikkei observed.

AMLC is also called upon to increase monitoring of non-profit sector activities to ensure they operate within the framework against terrorism and proliferation financing.

Congress, on the other hand, is expected to act promptly not just on bank secrecy, but also on other legislative amendments to include designating tax crimes as predicate money laundering offenses.

The IMF also emphasized the need for the government-owned PAGCOR to resolve the conflict of interest arising from its responsibilities for operating casinos and anti- money laundering supervision.

It is a national embarrassment to be included in the list of countries under the FATF’s gray list. It shows how the bad guys get protection in our country.

Mel Racela, who heads AMLC, said our rules are in technical compliance but we need to demonstrate effective compliance. In other words, we have to start catching the bad guys and send them to jail.

Did we sanction the Chinese gambling junket operator involved in the Bangladesh case? After he gave back a token amount, last I heard he had opened a POGO island in a nearby province. And the money changer involved in that case didn’t even get a slap on the wrist.

The bank president and other senior officials lost their jobs and ended their careers as a consequence of assuming command responsibility. But only the branch manager has been sentenced to serve time for the crime.

In short, financial crime pays. It shouldn’t.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco