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Peso seen sideways ahead of US reports

THE PESO will likely trade sideways versus the greenback this week amid geopolitical noise offshore and bets of softer key US economic reports.

The peso closed at P51.49 versus the greenback on Friday, slumping 13.5 centavos from the previous session. Its finish was the local unit’s weakest close in nearly 11 years or since it ended at P51.60 a dollar on Aug. 24, 2006.

Week on week, the local currency lost 51 centavos from a P50.98-per-dollar close last Aug. 11.

An economist from a local bank said the peso may rise versus the dollar this shortened trading week, falling within P50.10 to P50.60, due to external risks, particularly the uncertain direction of US President Donald J. Trump’s economic policies.

“The dollar might depreciate this week due to uncertainty over the Trump administration’s economic agenda and amid expectations of soft US reports on manufacturing, service and housing,” Land Bank of the Philippines (Landbank) Market Economist Guian Angelo S. Dumalagan said in an e-mail over the weekend.

Reuters reported Mr. Trump last week decided to disband the American Manufacturing Council and the Strategic and Policy Forum, raising questions on the US President’s ability to organize the business community.

Today, Mr. Dumalagan said the foreign currency could trade sideways against the peso, still anchored by investor sentiment brought about by economic developments abroad.

“On Tuesday, the dollar might move sideways, as investors begin absorb mixed signals from the US,” Landbank’s economist said. “The positive impact of the better-than-expected US consumer sentiment report might be offset by the negative publicity resulting from the firing of White House senior adviser Steve Bannon.”

For the rest of the week, the greenback could continue trending downwards on the back of the market’s anticipation of weaker reports on manufacturing, services and housing, Mr. Dumalagan said.

“From Wednesday until Friday, the dollar might show a downward bias due to likely weak US data on manufacturing, services, and housing. While these reports are unlikely eliminate the possibility of another US rate hike this year, they could potentially weaken the dollar by affecting market sentiment,” he said.

Markets are anticipating another tightening move from the US Federal Reserve before the year ends. The US central bank had lifted interest rates for the second time this year to within 1% to 1.75% during its June policy meeting.

“The factors that could reverse the dollar’s projected downward trend include better-than-expected US reports on manufacturing, services, and housing as well as heightened political noise in the US,” Mr. Dumalagan said.

Meanwhile, another economist from a local bank said the peso could breach the P51.50-to-the dollar level this week anchored by negative market sentiment driven by offshore uncertainties.

“I see the peso to break further to more than PhP51.50 [this] week with more market volatility and uncertainty brought about by external issues,” Chief Economist at the Union Bank of the Philippines (UnionBank) Ruben Carlo O. Asuncion said in an e-mail on Friday.

He however noted the peso’s anticipated decline this week could be reversed on the back of favorable domestic factors.

“However, I also expect it to be stronger as investors continue to see the strength of the Philippine economic growth with the recent release of robust 2Q (second quarter) GDP (gross domestic product) growth,” Mr. Asuncion said.

The Philippine economy expanded by 6.5% in the second quarter, picking up from the 6.4% recorded in the previous quarter but slower from the 7.1% registered in the comparable period in 2016, which was fuelled by expenditures related to the May 2016 general elections.

Meanwhile, a trader said in a phone interview on Friday that the pair’s trading this week will continue be on a wide range, with its initial support at P51.20 and resistance pegged at the P51.60 level after the peso-dollar’s sessions in the past few days continued to be volatile intraday.

“For now it looks as though that has been the trend, a stronger dollar and a weaker peso. Whenever we see risk-off sentiment happening in the market, it exaggerates the peso’s finish for the day,” the trader said.

For his part, BDO Unibank, Inc.’s Chief Market Strategist Jonathan L. Ravelas said in his weekly peso outlook: “Chart-wise, continue to see the currency to range within P51.15-P51.60 levels [this week.] Watch out for a break above P51.63 as it could test the P52.00 levels.” — Janine Marie D. Soliman

Historic eclipse will test America’s grid as solar power generation waxes, wanes

IN A FEW HOURS, the first total eclipse of its kind in 99 years will plunge broad swaths of the US into darkness, sending solar supplies sliding and testing the resilience of the power grid for the first time since the rapid rise of renewable energy.

Grid operators, utilities and electricity generators are bracing for more than 12,000 megawatts of solar power to start falling offline as the moon blocks out the sun across a 70-mile-wide (113-kilometer) corridor stretching from Oregon to South Carolina.

This is the first major test of the power grid since America started bringing large amounts of intermittent solar and wind resources onto the system. It comes just as the grid is undergoing an unprecedented transformation whereby flexible resources such as battery storage will complement growing supplies of solar and wind. Solar installations have grown ninefold since 2012 and renewable sources are forecast to supply just as much of America’s electricity demand as natural gas by 2040.

The US power grid “hasn’t seen this sort of natural phenomenon since solar became a thing,” Nicholas Steckler, an analyst at Bloomberg New Energy Finance, said. “With so many renewables coming online, especially in the last five to 10 years, there is more impact from an eclipse.”

The eclipse is expected to reach the US at 9:05 a.m. local time at Lincoln Beach, Oregon, and last for about four hours. Back-up, natural-gas plants and hydroelectric dams are at the ready to fill solar’s void along with new technologies to control demand.

Regional grid operators from California to Pennsylvania plan to provide real-time updates on how their networks are handling fluctuating power flows as millions of Americans head outside to gaze at the sky.

The celestial event provides an opportunity to test plants, software and markets refined in recent years in anticipation of the day when renewable energy becomes the dominant source of power. Bloomberg New Energy Finance has projected that renewables will supply more than half of the world’s electricity in 2040.

California, home to more solar power than any other state, will tap into its network of hydropower generators and gas plants that can ramp up quickly to fill a 6,000-megawatt gap in solar energy. The state also embarked upon a public relations campaign to convince residents to conserve energy to minimize greenhouse-gas emissions while solar plants are down.

In North Carolina, part of which will see total darkness during the eclipse, Duke Energy Corp. expects about 2,000 megawatts, or 80%, of utility-scale solar farms to go offline. The utility will treat it like a “gradual sunset,” said Tammie McGee, a company spokeswoman, estimating that as many as 1,200 megawatts of gas generation will be called upon to pick up the slack.

Wholesale electricity prices may rally on solar’s sudden slide. The eclipse will start curbing power supplies a little after 9 a.m. on the West Coast, just when the work week is starting and demand is taking off. According to energy data provider Genscape, Inc., the event may extend the typical period of high power prices in California by about two hours.

Prices will probably retreat as soon as the moon starts moving past the sun and solar farms return, Genscape said. And the market impact in Texas, the Midwest and the East Coast will be limited because the region’s home to smaller concentrations of solar. — Bloomberg

The George deal

When Paul George told the Pacers in mid-June that he planned to leave after the 2017-2018 season to join the Lakers, not a few quarters in the National Basketball Association were taken by surprise. After all, he was an established star who just led a team that came closest to topping the Cavaliers in the East, and it didn’t seem like logical, success-wise, for him to move to a franchise that finished either last or next to last in the highly competitive West in each of the last four seasons. Never mind that the latter’s future looked bright, and that the prospective turn of events would put him closer to his roots.

Nonetheless, the Pacers had no choice but to field trade offers, and fast, lest they wind up losing him and getting nothing in return. As things turned out, they opted to send him to the Thunder two weeks later, netting Victor Oladipo and Domantas Sabonis in return. Considering that such notables as the Cavaliers and, yes, Lakers were likewise knocking at the door, the reaction to their decision was largely negative; their haul proved modest in comparison to those they could potentially have garnered. And, needless to say, why Kevin Pritchard, widely regarded as an astute general manager, went the way he did became the subject of speculation.

Fast forward another month, and the reasons behind George’s transfer to the Thunder remain no clearer to fans. That said, news that the Pacers have formally filed tampering charges against the Lakers have, at the very least, lent credence to arguments that there was more to the deal than met the eye. To be sure, guesswork continue to permeate back room discussions on the matter. On the other hand, it’s no longer ridiculous to suggest that Pritchard was motivated to get the best he could for his employers and make it as hard as possible for their immediate past cornerstone to get what he wanted — hence his relatively anemic gains.

In any given situation, it’s hard for any one personality to cry tampering. Given the close ties league habitues, players and front-office types included, have with each other, violations of both the letter and spirit of collective bargaining provisions against collusion are difficult to prove. Yet, the Pacers felt so aggrieved by George’s stated intentions that they thought best to cite the Lakers even if it meant souring relations and looking like sore losers in the face of the most likely outcome. Even as the NBA is looking into the complaint with all seriousness, the prevailing chummy-chummy atmosphere makes the gathering of the type of evidence required for Commissioner Adam Silver to draw a definitive conclusion a Sisyphean endeavor.

In any case, the Pacers have made their point, and have, at the very least, claimed public sympathy for their position. Nobody wants a stacked deck, and it’s the kind that living legend Magic Johnson and erstwhile super agent Rob Pelinka, newly appointed Lakers president of hoops operations and GM, respectively, always seem to have in their pockets. It’s just too bad that all and sundry are already too adept at skirting the rules to get caught red handed. And in the midst of plausible deniability, the best Pritchard and Company can hope for is to make a statement that, unfortunately, figures to be forgotten sooner rather than later.

Anthony L. Cuaycong has been writing Courtside since BusinessWorld introduced a Sports section in 1994. He is the Senior Vice-President and General Manager of Basic Energy Corp.

Is it time to discard?

It is athletes and perhaps actors or singers who have a problem of stepping down at the right time. Are they past their prime and ready to step down? Is a rematch really what the public is clamoring for? Does the new champ need to prove that his victory was not a fluke or a case of biased judging?

Stepping down after being replaced can be a traumatic experience. It needs to be viewed in a more pedestrian light.

In North America, for example, retailers can be overly accommodating in providing refund or credit card reversals for bought goods returned to the store (the color does not suit me). A shopper then can buy a tuxedo on credit for an occasion and then return it for a refund the following week. In the consumer culture of retailers there, the sales clerks are not allowed to pose snippy questions to the shopper — the tux seems sweaty in the armpits, Sir. However, they probably keep a black list of habitual offenders. (Sir, we don’t have your size. Try a rental.)

Is there an optimum time for discarding and replacing?

Replacement has at least two possible but opposite meanings. One is to return something like replacing a file back to its folder. Or, as in common usage, it can mean putting something or someone in place of or as a substitute for another. An incumbent occupying a position may be replaced by another without much warning, implemented by an e-mail announcement.

Replacements are often done only when needed. If something no longer works, it is replaced. This goes for gadgets, light bulbs, corporate structures, and advisory councils. In a disposable society where repairs no longer seem to be a viable option, and a device is dropped, bumped, or spilled with coffee and no longer works, it is simply discarded and replaced with a new one. As in replaced partnerships, only the memory is transferred, sometimes unwillingly.

Planned obsolescence is a marketing strategy. This supply concept of intentional replacement is pushed by the demand side of feeling discontent with an old model when a new version is available. Upgrades of machines and gadgets are sometimes withheld in order to spawn a new wave of longing for the latest number in the series, as if the appearance of the new model automatically renders the existing, but still serviceable, possession no longer desirable. Gadget envy has replaced the other kind.

Replacement is usually a zero sum game. One is required to give up one thing to acquire another. Often it can even be a “negative sum” option. A redundancy program, or downsizing, is intended to reduce headcount without any replacement. Thus, one who is “redundated” is by definition un-replaced, which is quite different from being irreplaceable. The negative sum game ends up with fewer employees than before. Boxes are collapsed along with their inhabitants.

Personal relationships also offer replacement options. When a relationship ends, either from the death of a partner or her straying away, a replacement, though not necessarily right away, is considered one option for moving on. Sometimes too, those who find themselves in a higher social position conclude that they need a more presentable, usually much younger, partner for their new milieu. Another ground for discarding and replacement may be incompatibility in reading auras — he thinks aura is just a mall.

Politicians are discarded in a predictable cycle of elections. Those in appointive positions are easily replaced by a new regime. Even positions with fixed terms need to have their incumbents decide whether to step down ahead as a courtesy or to escape controversy.

In top jobs there are such valuable players prized for their contribution and seemingly irreplaceable, without any possible successor, sometimes intentionally avoiding the search for one. When is it time to discard and replace? This decision is not always in the hands of the incumbent. And when a decision is made, there is always a period when the question is asked — did we discard too soon? Is the replacement an improvement over the discard?

It is no wonder that successors try to look good by upending the legacy of the one who came before. The replacement, as in the case of gadgets, should have more features… even when these are not even necessary.

A. R. Samson is chair and CEO of Touch DDB.

ar.samson@yahoo.com

Hitman bumps off Logan to claim North American box-office lead

LOS ANGELES – Two new movies – The Hitman’s Bodyguard and Logan Lucky – soared to the top three in North American theaters this weekend, with Logan scoring well with critics, but Hitman far luckier in ticket sales.

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RYAN REYNOLDS and Samuel L. Jackson star in The Hitman’s Bodyguard.

Lionsgate’s Hitman pulled in an estimated $21.6 million to lead the three-day weekend, according to industry Web site Exhibitor Relations. That was considered a respectable take on what has been the lowest-grossing weekend of the year.

The film tells the story of a famous bodyguard (Ryan Reynolds) hired to protect a notorious hitman (Samuel L. Jackson) who is about to testify in a high-profile trial.

Salma Hayek, as Jackson’s formidable wife, adds to the movie’s star power, but critics gave it an unimpressive 39% rating on RottenTomatoes.com.

Steven Soderbergh’s Logan came in third in its first week out – after Warner Bros.’s Annabelle: Creation – but with ticket sales of just $8.1 million.

Critics, however, loved Soderbergh’s first film since his self-proclaimed retirement four years ago, giving it a 93% rating.

The Bleecker Street production stars Channing Tatum, Adam Driver, and Riley Keough in an unconventional heist comedy, with a sort of dysfunctional Oceans 11-style team planning a huge robbery at a NASCAR race.

The relatively low-budget Annabelle continued to pull in viewers, slipping slightly from last week’s No. 1 opening to take in $15.5 million.

The horror flick, starring Stephanie Sigman, Talitha Bateman, Miranda Otto, and Anthony LaPaglia, is part of the Conjuring franchise, which has now grossed more than $1 billion worldwide.

Warner Bros.’s war film Dunkirk remained a strong performer, placing fourth with sales of $6.7 million. The movie depicts the heroic 1940 evacuation of hundreds of thousands of Allied troops from Northern France.

And in fifth place was Nut Job 2: Nutty by Nature from Open Road Films, with sales of $5.1 million. The animated adventure tells the story of a group of animals trying to save their home from the bulldozer.

Overall, it has been a tough season for the studios: summer ticket sales are about 13% behind last summer, according to ComScore.

Rounding out the top 10 were: The Emoji Movie ($4.4 million); Spider-Man: Homecoming ($4.3 million); Girls Trip ($3.8 million); The Dark Tower ($3.7 million); and, Wind River ($3 million). – AFP

Grab awaits LTFRB permit for GrabCar test run in Davao City

GRAB PHILIPPINES (MyTAXI.PH, Inc.) is looking at launching the GrabCar service, which involves bookings for private vehicles, in Davao City, in addition to its existing taxi operations. Grab Philippines Public Affairs Manager Leo Emmanuel K. Gonzales, who was in town last week for the Kadayawan Festival, said they have a pending application before the Land Transportation Franchising and Regulatory Board (LTFRB) for a test run to study GrabCar’s viability in the city. Mr. Gonzales said in a press conference Friday that they want to see if there is demand and “how it will also impact the (Grab) taxis.” “We have to look for that balance,” he added. Meanwhile, Grab Philippines has also signed an agreement with the Davao-Philippine National Police Highway Patrol Group (HPG) for road safety and security. Grab country manager Brian Cu said under the partnership, Grab drivers will undergo trainings on road safety and courtesy as well as anti-car theft, anti-highway robbery, and other anti-crime orientations from the HPG. Mr. Cu said their partnership with the local police is part of Grab’s continuing commitment to provide safe and secure transportation to passengers and partner drivers. — Maya M. Padillo

Gokongwei finds more ways to build hotel empire in Mindanao

By Maya M. Padillo, Correspondent

DAVAO CITY — Robinsons Land Corp. is set to open its budget Go Hotels branch in Iligan City by the third quarter of this year, while its boutique hotel brand Summit Hotels and Resorts continues to scout for locations in the country’s southern mainland.

Go Hotels Iligan will be the builder’s third branch in Mindanao.

“Mindanao has a vibrant economy and there are a lot of areas there for strong commercial developments,” said Elizabeth D. Gregorio, general manager of Summit Hotels and Resorts in a recent interview in Cebu City.

While the Gokongwei-owned real estate group primarily considers putting up either a Summit or Go Hotels in locations with an existing Robinsons shopping mall already, it remains open to other business “formats,” Ms. Gregorio said.

“We are also open to different formats and we’re not limited to Robinsons Malls, for now it’s how the development is looking,” she said.

“If there’s an opportunity to put up a Summit Hotel in Davao then why not?”

The existing Go Hotels in Davao City, the group’s biggest branch outside Metro Manila, is not linked to the Robinsons Cybergate. Instead, it is located beside a Phoenix fuel station and is a joint venture with Udenna Development Corp., the firm behind Phoenix Petroleum.

Go Hotels’ other branch in Mindanao is located in Butuan City, the regional center of Caraga Region.

The Summit Hotels and Resorts Group opened on Aug. 19 its flagship branch in Cebu City, the 220-room Summit Galleria Cebu within the Robinsons Galleria Complex.

“Summit Hotel is a unique collection of Summit boutique hotels. Each hotel has its own unique interior design and we incorporate a lot of local flavors,” Ms. Gregorio said.

Other Summit branches are the Summit Ridge Tagaytay, Summit Hotel Magnolia in Quezon City, and Summit Circle in another part of Cebu City.

Ms. Gregorio said two more Summit Hotels are under construction — one in Tacloban City, Leyte and another in Naga City, Camarines Sur.

All Summit branches are fully owned by Robinsons Land, a unit of diversified conglomerate JG Summit Holdings, Inc., which has interests in real estate and hotels, food and beverage, air transportation, banking, and petrochemical industries. The conglomerate also has core investments in telecommunications and power distribution.

Oreo-maker Mondelez targets bigger share for chocolates and biscuits

MONDELEZ Philippines, Inc. is seeing a huge room for its biscuits and chocolates product category to grow in the local market and catch up with its two-thirds share in the company’s portfolio in many overseas markets, its local head said.

“Our biscuits and chocolates [product category] is not yet anywhere near the global standards of two-thirds [of our portfolio],” said Aishish N. Pisharodi, Mondelez country head for the Philippines, in a recent interview.

“So it’s a big opportunity… if we can get our biscuits and chocolates here to also be two-thirds of our portfolio,” he added.

At present, he said that category accounts for about a third of the company’s local sales, which is dominated by its core product categories, namely cheeses under the Eden and Kraft brands, and beverages, with Tang’s growing number of flavors.

“We are aspiring to be market leader for cookies in the Philippines,” Mr. Pisharodi said.

Mondelez recently introduced to the market a new Oreo product, a thin and crispy version of its sandwich cookies with vanilla and tiramisu flavors.

In the Philippines, biscuits sales are growing at 7-8% a year, based on the company’s assessment, a growth that Mondelez has to surpass to maintain its market share.

“For cookies, Oreo is our biggest brand already but for the category to be a market leading cookie we need to grow both the core and use this new innovation [Oreo Thins] to drive the growth,” said Mr. Pisharodi, who has moved to the Philippines in 2011.

Thus far, market response to the new product is strong, drawing so-called millennials who have grown up knowing the regular Oreo cookies but have been re-introduced to their thinned and crunchy version.

“We’re gaining market share within biscuits in the Philippines, but we want to keep going and become leaders just like we are market leaders in our core categories,” the Mondelez country manager said.

“All these innovations will play a role to help us to get there because they speed up the growth. So if you have an innovation, then if your core is growing at, let’s say 20%, and the innovation adds another 5-10% of growth, that really helps you to kind of garner a larger share of the market,” Mr. Pisharodi said.

Previously known as Kraft Foods Philippines, Mondelez Philippines has been in business in the country since 1963. It has provided consumers with snack products such as Chips Ahoy!, Tang powdered beverages, Eden cheese, mayonnaise and sandwich spread, Cheez Whiz spread, Oreo cookies, Toblerone and Cadbury Dairy Milk chocolates.

The company has a manufacturing plant in Parañaque and employs around 400 people. It is the local unit of US-listed Mondelez International, Inc. — Victor V. Saulon

US probe on China

BEIJING — China on Monday expressed “strong dissatisfaction” with the US launch of an investigation into China’s alleged theft of US intellectual property.

China’s Commerce Ministry said in a statement that it would take appropriate measures to defend the country’s lawful interests, and that Washington should respect the facts and act prudently.

The US Trade Representative formally announced the investigation on Friday, a widely expected move following a call from President Donald J. Trump earlier last week to determine whether a probe was needed. — Reuters

SSS eyes to tap insurance firms to cover liabilities as costs rise

SOCIAL SECURITY System (SSS) is eyeing to tap the private sector to insure some of the state-run firm’s liabilities, as its expenditures continue to grow on the back of higher pension payments.

The government-run pension fund also said their decision to look for private insurance companies to secure their risks and liabilities comes after the Government Service Insurance System (GSIS) declined their request.

“They answered us formally. They declined. It’s not within their mandate to cover private assets and non-government employees or workers…unless they amend their charter,” SSS President and Chief Executive Officer Emmanuel F. Dooc told reporters.

In June, the SSS chief had said they have consulted with Finance Secretary Carlos G. Dominguez III on their proposal to tap GSIS to cover some of its liabilities. Mr. Dooc had said the Finance chief was open to their proposal.

“And they (GSIS) expressed concern why a social security entity will take on the risk of another social security,” Mr. Dooc said.

The state-run pension’s funds total assets stood at P492.404 billion at end-March, while its liabilities reached P17.572 billion.

In the first quarter, SSS reported its total expenditures reached P44.772 billion, climbing 43.06% from the P31.3 billion booked in the comparable period in 2016, which was attributed to the payout of the initial P1,000 across-the-board pension hike.

President Rodrigo R. Duterte approved the release of the P1,000 pension benefit increase in January.

SSS released the amount to its more than two million pensioners last March through three tranches that covered the first three months of the year, resulting to an addition of nearly P7 billion to its net disbursements at end-March.

This caused the pension fund’s net profit to slump by 67% to P4 billion in the first quarter from the P12.3 billion recorded in the same period a year ago. Broken down, P39.547 billion came from members’ contributions while P9.233 billion were from investment and other income.

Following GSIS’ rejection, the SSS chief said they are planning to tap insurance companies who will be willing to cover their liabilities.

“The plan B will be to go private, but my concern will [be] which among our risks are they willing to cover because we have pension, which is the greatest in terms of amount. Every month, we pay out around P9 billion for pension — that can supplant the pension insurance, impairment, endowment. The closest will be annuity because they will get benefit for as long as they are alive,” Mr. Dooc said. “So the risk is very substantial. The issue here is will it be a viable business proposition to the insurer? But if they will cover this, it will be the biggest insurance business. Why? Because we have 35 million members,” he noted.

Mr. Dooc said they have not yet spoken with any insurers as of yet, but noted that they are currently in talks with The Actuarial Society of the Philippines.

“Because the insurance provider should come up with a special product to meet the current benefit cover,” the SSS chief said. “The Actuarial [Society of the Philippines] is currently studying our proposal… their concern is whether the business is viable.” — Janine Marie D. Soliman

Court cancels EDS Manufacturing tax assessment

THE Court of Tax Appeals (CTA) has ordered the cancellation of the Bureau of Internal Revenue (BIR)’s assessment of EDS Manufacturing, Inc.’s alleged tax liability of P67 million due to its officers’ lack of letter of authority (LoA).

In a decision dated Aug. 3, 2017, the Second Division of the CTA granted EDS Manufacturing’s petition for review and canceled the BIR’s assessment for the electronics manufacturing company’s alleged deficiency taxes for the fiscal year that ended March amounting to P67,663,010.38.

Petitioner EDS Manufacturing assailed the BIR’s final decision on disputed assessment dated May 9, 2014 “because the respondent assessed the former without a valid [LoA].”

EDS Manufacturing pointed out that “the revenue officers proceeded to conduct their examination even without the LoA and were only authorized by virtue of an alleged memorandum purportedly issued by the respondent.”

The BIR, for its part, argued that its assessment “is valid and lawful,” as it “empowers and enables a revenue officer to examine the books of accounts and other accounting records and of a taxpayer for the purpose of collecting the correct amount of tax.”

The court, however, ruled that BIR’s assessment of EDS Manufacturing should be declared “null and void.” It noted that there was no LoA issued by the BIR, only a memorandum of assignment to its revenue officers.

“The Court has thoroughly scrutinized and reviewed the submitted BIR records, however, the Court did not find such Letter of Authority,” the decision reads.

Using jurisprudence from the Supreme Court, the CTA held that the “Memorandum of Assignment issued to [revenue officer] cannot be converted into the LoA required under the law, even if the same was issued by the respondent.”

“As a consequence, the revenue officers had no authority to examine petitioner’s financial books and records,” the tax court ruled, stressing: “Thus, the assessment issued against petitioner is void.”

The 39-paged decision was penned by Associate Justice Juanito C. Castañeda, Jr. Concurring are Associate Justices Caesar A. Casanova and Catherine T. Manahan. — Kristine Joy V. Patag

Money laundering probe exposes Australian banks’ compliance flaws

HONG KONG/SYDNEY — A money laundering probe at Commonwealth Bank of Australia (CBA) is the latest in a slew of scandals denting the reputation of Australian banks as simple, reliable lenders at the forefront in the battle against financial crime.

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This file photo taken on August 9, 2017 shows Commonwealth Bank CEO Ian Narev briefing media regarding the bank’s full-year results in Sydney. The chief executive of Australia’s biggest bank, the Commonwealth, will retire, the company said on August 14, 2017, amid pressure from regulators over alleged breaches of money laundering and terrorism financing laws. — AFP

Australian banks have lagged their global peers in both their spending and their approach on anti-money laundering and know-your-customer systems as they pursued rapid growth in customer deposits, some banking officials and experts say.

“In the last few years, regulators and banks have been focused on changing the whole bank culture to get all levels of staff taking compliance seriously,” said Philippa Allen, CEO of ComplianceAsia, which advices on compliance issues. “That is not as widespread yet in Australia,” she said. “Australian banks have not had the big fines imposed on them like their global peers have.”

Know-your-customer (KYC) and anti-money laundering (AML) processes became a key focus globally after HSBC Group and Standard Chartered were hit with hefty fines in 2012.

Major international banks are now spending between $900 million and $1.3 billion a year on financial crime compliance, according to analysis by corporate governance recruitment firm Barclay Simpson.

HSBC spent $1.6 billion on regulatory and compliance programs in the first half of 2017, up 12% from a year ago.

In comparison, CBA’s spending on risk and compliance fell 7% to A$470 million ($371 million) in the year to June, according to the bank’s annual report. CBA said the drop was a result of the “timing and completion of key phases of risk and compliance projects” in the prior year including roll-out of refreshed teller machines.

Rival National Australia Bank’s (NAB) spend on compliance and operational risk was nearly unchanged at A$167 million in its first half-year.

The Australian Bankers’ Association estimates the country’s four major banks — CBA, NAB, Australia and New Zealand Banking Group and Westpac Banking Corp. and three main regional lenders — have together spent A$1.73 billion in recent years on implementing regulatory changes including foreign account tax compliance act and anti-money laundering rules.

“There is an issue and the issue is the KYC/AML standards in Australia has lagged the global benchmarks for several years,” said a senior banker at one of Australia’s Big Four lenders.

A Thomson Reuters survey last year found that 62% of Australian financial firms had not made changes to meet the 2012 recommendations by the Financial Action Task Force, a global group of government anti-money-laundering agencies.

Most Australian firms are also less reactive to regulations: 65% said regulatory change would be an influential factor that could lead them to make changes to client due diligence, compared with a global average of 76%, the survey found.

“(Australian) banks have clearly been behind the curve when you look at the amount of details required to open a customer account and doing periodic review of those accounts,” said the banker, declining to be named due to sensitivity of the issue.

Australian banks including CBA advertise that prospective migrants or those on short-term working holiday visas can open an account prior to arrival.

CBA declined to comment on specific questions relating to opening accounts, but referred to a statement this month which said the bank was strengthening its KYC processes with investments of more than A$85 million.

CBA, Australia’s No.2 lender, is facing a potentially record fine over breaches of money-laundering and counter-terrorism financing laws. It blamed a coding error for most of the issues and says it will defend the case brought by regulator AUSTRAC.

Other scandals at Australian banks in recent years have involved interest rate rigging, product mis-selling and poor financial advice, leading to mounting pressure for a wide-ranging government inquiry into the sector.

Australian Securities & Investment Commission Chairman Greg Medcraft said this month there was a “serious cultural problem” in how the Australian banks dealt with regulators. He accused banks of being “far too legalistic” and failing to give enough attention to non-legal risks such as reputational damage.

Such criticisms come against a backdrop of cutthroat competition to lure customer deposits, the biggest source of funding for top banks, to meet the new regulatory requirements to improve their capital buffers.

Australia’s “Big Four” banks have boosted domestic deposits to about 60% of total funding from 40% in 2007. While still low compared to major lenders elsewhere in Asia, Australia’s increasing reliance on deposits has raised pressure on banks to improve their compliance systems, particularly where cash is involved.

“Anytime you’re dealing with something untraceable like cash you’ve really got to be on top of things,” said Jeremy Danon, principal at Ariel & Associates, which provides AML training to financial firms. — Reuters

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