MANILA, Philippines — The Philippines needs to promptly address the strategic deficiencies pointed out by global dirty money watchdog Financial Action Task Force (FATF) in order to minimize the risks from the potential adverse impact on the economy, according to the International Monetary Fund.
IMF resident representative Yongzheng Yang told The STAR that an early exit from the gray list, or jurisdictions with increased FATF monitoring, may happen if the identified strategic deficiencies are resolved within an agreed timeframe.
“Building on recent progress, important steps going forward should include applying risk-based supervision of high-risk sectors, increasing the transparency of beneficial ownership information, strengthening financial intelligence activity on proceeds-generating crimes (e.g., corruption and tax evasion) and implementing targeted financial sanctions for terrorist financing and proliferation financing,” Yang said.
Yang also said the inclusion in the FATF list could lead to hightened anti-money laundering scrutiny of the Philippines’ capital flows and correspondent banking relationships, including cross-border transactions and remittances, which could potentially affect investor confidence.
Yang cited an IMF working paper titled “The impact of gray-listing on capital flows: An analysis using machine learning” written by Mizuho Kida and Simon Paetzold, which enumerated the economic costs of being included in the gray list.
“The paper finds that gray-listing has a significant negative impact on a country’s capital flows. The magnitude of the negative effect is large – on average −7.6 percent of GDP. It varies, however, by type of capital flow,” the IMF working paper stated.
With the inclusion of the Philippines in the gray list, Yang explained the FATF has not called for its members to apply enhanced due diligence measures to these jurisdictions, but encourages its members and all jurisdictions to take into account the information on these deficiencies in their risk analysis.
“While there are no sanctions imposed at this stage, the failure to complete the action plan within the agreed timeline could subsequently result in further designation as a high-risk jurisdiction and the application of counter-measures by FATF members,” Yang said.
Jose Teodoro Limcaoco, president and chief executive officer at Ayala-led Bank of the Philippine Islands, said the Philippines has put in place the necessary laws and regulations including the amendments to Republic Act 9160 or the Anti-Money Laundering Act (AMLA) of 2001.
Limcaoco said the FATF needs to observe and validate that the Philippines would be able to effectively implement these laws and regulations.
“I am hopeful that the Philippines will soon be taken out of this list as we fight crime, corruption and terrorism through regulatory policies and greater awareness of the need to address emerging market risks in international finance,” Limcaoco told The STAR.
On the other hand, Union Bank of the Philippines president and CEO Edwin Bautista said the inclusion of the Philippines in the gray list would have no immediate impact. “No immediate impact as this has been an ongoing process and the government has been implementing measures,” he said.
Bautista said Congress is expected to act on other measures such as the amendments to Republic Act 1405 or the Bank Secrecy Law passed in 1955.
AMLC chairman and Bangko Sentral ng Pilipinas Governor Benjamin Diokno is confident the Philippines would be removed from the FATF watch list on or before January 2023 as the country has committed to swiftly resolve the identified strategic deficiencies within agreed timeframes.
Diokno said the Philippines has worked vigorously to address the deficiencies identified in the 2018 mutual evaluation review of the Asia Pacific Group on Money Laundering (APG).
“We should take this key development as an additional impetus to work together and adopt a whole-of-country approach to achieve the main goal of further intensifying the country’s legal framework and implementation mechanisms to effectively fight money laundering and financing of terrorism and proliferation of weapons of mass destruction,” Diokno said.