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US tags PHL as ‘major’ dirty money site

Posted on March 06, 2017

THE PHILIPPINES remained a “major” site for money laundering in 2016, the US State Department said in a report, citing last year’s $81-million cyber heist, an ongoing drug problem and a number of businesses that have been kept out of regulatory scrutiny.

This handout photo from the central bank on August 5, 2016 shows P38.82-million worth of cash that casino junket operator Kam Sin Wong turned over to authorities -- believed to be part of the $81 million stolen from Bangladesh Bank’s account with the New York Federal Reserve.
Joining the Philippines are 87 other economies considered major money laundering hubs under the International Narcotics Control Strategy Report, Money Laundering and Financial Crimes 2017 published by the US State Department this month.

“Money laundering is a serious concern due to the Philippines’ international narcotics trade, high degree of corruption among government officials, trafficking in persons and the high volume of remittances from Filipinos living abroad,” the report read.

“Sophisticated transnational organized crime and drug trafficking organizations use the Philippines as a drug transit country,” it noted.

“Criminal groups use the Philippine banking system, commercial enterprises, and particularly casinos, to transfer drug and other illicit proceeds from the Philippines to offshore accounts.”

The US classifies money laundering as a “serious global threat” as it allows criminals get hold of funds across borders.

In particular, the $81-million Bangladesh Bank heist -- which saw hackers channel funds stolen from Dhaka’s accounts with the Federal Reserve Bank of New York to a Philippine bank in February 2015 -- exposed gaping holes in local laws against dirty money, particularly the exclusion of casinos and unclear supervision over money service businesses by the Anti-Money Laundering Council (AMLC).

The loot was deposited in four bogus accounts under a Makati City branch of Rizal Commercial Banking Corp., withdrawn, converted into pesos, and used to buy chips for casino players, with whom the money trail eventually vanished.

Some $15 million has been returned to Bangladesh in over a year since the cross-border crime occurred.

Weak implementation of the law and the lack of clear legal provisions prevent the AMLC, the country’s financial intelligence unit, from going after illicit funds effectively, the US State Department said.

“The Philippines’ bank secrecy provisions are among the world’s strictest, requiring investigators to obtain a court order to access bank records in most cases,” the report noted.

“The most pressing AMLC deficiency is the continuing non-inclusion of casino operators and other DNFBPs (designated non-financial business professions) as covered entities. Legislation to correct this deficiency has been languishing for many years,” it added, citing the need to cover real estate brokers, car and art dealers, while placing remittance agents and money changers under the central bank’s watch.

Republic Act No. 9160, or the Anti-Money Laundering Act of 2001, has been revised four times since its enactment, although proposals to include casino transactions were left out. Officials have revived these measures under the 17th Congress, but these have not been approved so far.

Other economies on the State Department’s list are China, Cambodia, Hong Kong, India, Indonesia, Iran, Iraq, Malaysia, North Korea, Thailand, United Arab Emirates, United Kingdom, and Vietnam, to name a few.

The Philippines has been identified as a “major crime enabler” under the AMLC’s National Risk Assessment covering the years 2011 to 2014, with “high” risk of money laundering given a huge informal sector.

Drug trafficking was the biggest source of illicit funds amounting to about P6.18 billion in 2014, followed by proceeds from plunder and corruption, according to the report.

The Philippines has been on the so-called “gray list” of the Financial Action Task Force (FATF) since 2012 after making a “high-level political commitment” to address deficiencies in local laws, particularly to include casinos and the real property sellers as covered institutions to better keep track of dirty money deals.

A return to the FATF’s watch list could mean higher borrowing costs for Filipinos, alongside heightened “de-risking” among offshore firms in dealing with Philippine counterparts. -- Melissa Luz T. Lopez