Anti-Fraud

It is easy for the layman to miss the actual significance of this latest piece of legislation. In fact, it is a major blow against the scourge of financial scams taking advantage of our tough bank secrecy laws and lumbering data privacy regulations.

The Anti-Financial Account Scamming Act (AFASA) drastically reduces the ability of organized criminal entities to exploit the legal protections available here. The new law empowers our financial institutions and monetary authorities to investigate suspicious accounts throughly and decisively. When a financial transaction is flagged as disputed, the veil of secrecy is effectively lifted.

Under the AFASA, the BSP is authorized to investigate and inquire into financial accounts linked to suspicious activities. In doing so, it is not constrained by the Bank Secrecy Law (RA 1405) or the Data Privacy Act (RA 10173).

For context, the two laws mentioned above caused the Financial Action Task Force (FATF) to keep the Philippines in the gray list. The FATF is a global consortium aimed at fighting money laundering, especially involving terrorist groups and organized criminal syndicates.

With less than sterling credentials for combatting money laundering, the Philippines faced sanctions from the international financial community. Despite international pressure, however, our legislators resisted reforms to our bank secrecy laws. Domestic opinion and powerful business interests did not favor reforming our bank secrecy laws.

For a while, what the FATF wanted to see and what was politically practicable for our legislators did seem irreconcilable. This is why, for a long period, the Philippines was kept on the gray list.

Through this period, however, we have been busy building up the skills of our banks and financial institutions in fighting money laundering. Strict KYC (know your customer) rules have been put in place. Banks are entitled to inquire about the sources and uses of funds before an account is accepted.

We have gone a long way since that time when anyone could walk into a bank branch, show some minimum amount of money and instantly open and account. There were even numbered accounts and accounts using aliases. Those things are no longer possible in the present regulatory environment.

Our bank officers regularly undergo training to keep abreast with new technologies for fighting money laundering. With stricter bank regulations, the operating space for criminal syndicates and financial scammers has been reduced dramatically.

Notice that when POGO operations were raided over the past few months, most of them were found to have their own vaults for keeping large amounts of cash. International money laundering networks used other means to store and exchange value. This is why there was a sudden proliferation of supercars found in the country. The luxury vehicles, because they retained value, were used as some sort of currency in the criminal effort to evade using the formal banking system.

The new regulatory framework under AFASA makes things more difficult for money laundering and financial scamming operations. Banking institutions may now temporarily hold funds, conduct coordinated verifications and investigate flagged accounts.

AFASA recognizes that privacy concerns, while important, cannot outweigh the need to secure the public from financial crimes. The objective is to eventually ensure that fraudsters can no longer operate with impunity, hiding behind bank secrecy.

With its highly targeted approach, the new law ensures that the privacy of law-abiding citizens remains protected. Only those accounts that show no clear economic purpose or are linked to possibly illegal sources are flagged for investigation.

Our bank officers are now trained in fraud management systems (FMS) that deploy the powers of advanced digital technologies to detect possibly anomalous transactions. Stronger coordination between the BSP and law-enforcement agencies such as the NBI and the PNP provides us with a more robust framework for securing the financial system.

This reform in our regulatory framework is timely. We are in the midst of a rapid revolution driven by emerging financial technologies that allows transactions to be completed in real time. More and more payments are now made over the smartphone. Strictly digital banks are proliferating. Ordinary citizens need a regulatory environment that is able to keep up with the dramatic technological changes happening before our eyes.

More and more, our financial system will depend on artificial intelligence to more quickly process transactions and keep down operational costs. We can look forward to a basically frictionless financial system, with less paper and more reliant on digital trails. We need a modern regulatory framework to cope with this financial revolution.

We can no longer think about the matter as a struggle between privacy and regulation. Technology has transcended that. If we do not have a modern regulatory system, our financial system will be vulnerable to fraud and ordinary citizens will be exposed to every sort of scam imaginable.

No economy will flourish if its financial system is unsafe for law-abiding citizens. We have seen from numerous examples how international money-laundering syndicates are able to find the talent to outrun existing security systems. They are able to spot the smallest loopholes in the financial security edifice. If our regulations do not modernize quickly enough, we lose to the criminals.

Therefore, upgraded regulations such as the AFASA are more than just enhancing enforcement capacity. They are necessary to enable our financial system to facilitate the evolution of a modern, IT-driven economy.