A few years ago, the Philippine financial industry was under the media spotlight when a massive amount of stolen money entered the country and was then spent in large casinos. It cannot be denied that this incident had a negative impact on the Philippine banking system, as well as on the credibility of the implementation of anti-money laundering laws.
These are instances which pushed the Philippines to review and amend the existing Anti Money Laundering Act of 2001 (AMLA) to tighten the watch on money laundering. In 2017, casinos were included in the “covered persons” of AMLA under a new law.
Before casinos were thrown under the spotlight, AMLA focused on bank accounts.
Regulators have since tightened monitoring to include other entities that can be instruments in money laundering (ML) or terrorism financing (TF).
AMLA classifies money laundering as a criminal offense. It can also be committed by any “covered person” who fails to report a covered or suspicious transaction to the Anti-Money Laundering Council (AMLC).
It may sound new to us but, as early as in 2013, service providers, lawyers, and accountants have been included in the “covered persons” of AMLA, specifically under Republic Act (RA) No. 10365, as Designated Non-Financial Businesses and Professions (DNFBPs). These include companies that help manage funds and investments and securities of fund owners, companies that help organize and set up new companies in the Philippines or abroad, and persons who are engaged to assist in managing companies. These service providers can be privy to the fund transactions of their clients and can be instruments of ML or TF.
DNFBP clients are, therefore, forewarned and should be more patient than their accountants, lawyers, and other service providers may be asking more questions about their transactions to comply with AMLA requirements.
AMLC published Regulatory Issuance (B) No. 1 on June 11, 2018, setting the guidelines for DNFBPs. DNFBPs must register with the financial intelligence unit as institutions required to report their transactions.
WHAT ARE THE SALIENT FEATURES OF THE GUIDELINES?
Compliance of DNFBPs. AMLC requires DNFBPs to establish programs and implement policies, processes and controls designed to prevent and detect potential ML or TF activities.
DNFBPs have 90 days from the effectivity of the Guidelines to prepare and have their established programs available for inspection. Entities with existing policies may just need to review their policies to ensure that they fully comply with the guidelines. However, it may be difficult for entities without existing policies. The guidelines require entities to set policies on assessing its risk in relation to its customers, business, products and services, and its training and screening of employees.
Customer Due Diligence (CDD). DNFBPs must adopt a policy that, before a business relationship is established, the DNFBP should take steps to identify its customers and verify their identity, enabling them to assess the extent of risk to which the customer may expose them.
The service provider must understand the nature of the customer’s business, ownership, and control structure — a good corporate practice, even without the AMLA.
A minimum requirement is the verification of the customer’s source of funds. This may be a sensitive question for some customers; thus, inform the customer about the AMLA requirement to ease out possible questions or concerns.
The guidelines may require DNFBPs to have a designated team and additional resources to comply. Thus, it may be best to evaluate whether such processes can be done internally or outsourced to a third party.
Record Keeping Management and Requirements. To allow the AMLC and the courts to establish an audit trail, DNFBPs are required to maintain records for at least five years from the dates of transaction, the dates the accounts were terminated, or from the dates of submission to the AMLC, whichever is applicable. The five-year window is within the ten-year requirement of tax laws, so it is expected that all DNFBPs can comply with this.
Reporting of Covered and Suspicious Transactions. All covered transactions and suspicious transactions must be reported to the AMLC within five working days from the occurrence. The guidelines provide an extensive list of what may be considered suspicious transactions.
Lawyers and accountants, however, are not precluded from reporting to the AMLC in utmost confidentiality any knowledge or information that their client is committing or, otherwise, contemplating to commit ML or TF, or such information outside the coverage of the rules on privileged communication.
DNFBP clients, nevertheless, can take comfort in the provision that DNFBPs are prohibited from disclosing their reports to any person, including the media. Understandably, reports of covered transactions have yet to be verified and mostly do not conclude in violations.
Registration with the AMLC. All DNFBPs must be registered with the AMLC within six months from the effectivity of the guidelines. One of the documents required to be submitted to AMLC is the list of customers which understandably cannot be easily complied with, as some customers have a non-disclosure agreement. It would be best, then, to discuss with customers such requirement and to ensure confirmation to disclose their identities with AMLC.
Compliance checking and investigation. With the issuance of the guidelines, AMLC can now check the compliance of DNFBPs. The Council may also investigate records maintained by the DNFBP on suspicious, ML, and TF activities that may lead to the freezing and forfeiture of customer cash or property.
We hope for full collaboration with the AMLC. Let us not wait for another media frenzy before we recognize the importance of each one in combating money laundering.
Marie Fe Fawagan-Dangiwan is a senior manager of the Tax Advisory and Compliance of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.