At the heart of the recent brouhaha over the Philippine Offshore Gaming Operators (POGOs), renamed Internet Gaming Licensees (IGL), in Bamban, Tarlac, and Porac, Pampanga is the reported use of POGOs in laundering money from illegal activities.

The Senate and the House probes are yet to conclude, but already we have seen the freezing of assets of those involved in what are believed to be illegal POGOs by the Court of Appeals upon the ex parte petition of the Anti-Money Laundering Council (AMLC). AMLC announced that this freeze order “aims to prevent the dissipation of assets while the investigation and legal proceedings continue.”

Actually, the probe on POGOs should have been initiated many years ago.

As early as 2017, the Philippines’ AMLC had conducted three risk assessments related to POGOs. The first was the National Risk Assessment of that year and the next two were sectoral risk assessments. These sectoral risk assessments focused on the financial impact through the use of financial flow analysis and on the money laundering and terrorist financing aspects of POGOs.

AMLC records showed at the time that the annual flow of funds, both inflows and outflows, stood at P54 billion. On a net basis, fund flows amounted to only P7 billion. Gross inflows constituted 0.29% of the total economy and net inflows a paltry 0.04%. This little was the estimated financial impact of POGOs on the Philippine economy.

On the other hand, risk assessment of POGOs indicated several aspects of vulnerability of the local economy. There was low level of awareness of the money laundering and terrorist financing threats, and therefore some serious threats coming from these potential uses of POGO operations. AMLC also warned of the increasing number of unregulated or unsupervised service providers (SPs) and hence, the likelihood of these SPs being used as a conduit of illegal funds. There was also an observed low level of beneficial ownership identification. Regulators were in the dark on the ownership of the POGOs which have proliferated in the last 20 years. Thus, legal recourse may not prosper in case of violations of relevant laws and regulations.

In his testimony before the Senate Committee on Labor on Feb. 11, 2020, then AMLC Executive Director Mel Racela recommended, among others, the increase in the level of anti-money laundering (AML) and counter-terrorist financing (CTF) effectiveness of compliance and supervision through intensified training and workshops. He also proposed revisiting supervision of internet-based casinos and SPs by way of regulatory assessment and enforcement. Indeed, four years ago, AMLC had already recommended including SPs as covered persons within the company service provider definition under the amended AML Act of 2001.

If there are attempts to limit the coverage of the President’s directive against POGOs, it would also be wise to look at the Council’s earlier national risk assessment from 2015-2016 which rated the casino sector with a high level of risk of money laundering with its rapidly rising gross gaming revenues. What makes internet-based casinos concerning is that money winnings were remitted mostly through debit cards or wire transfers, facilitated by online gaming operators and payment solutions providers. These fin-tech-based solutions can normally bypass the banking system.

Racela’s recommendations were anchored on on-site inspection of POGOs which found the following:

1. Offices of POGOs, local gaming agents and authorized representatives were non-existent in the registered addresses provided by PAGCOR. SPs, on the other hand, did hold office since they offer gaming services including software, content streaming, and other aspects of POGO operations.

2. There were no actual local agents or authorized representatives in the Philippines. A foreign-based operator is required under current rules to appoint his local agent who would represent him in various capacities.

3. POGOs’ compliance officers could not be located and contacted through the registered addresses. SPs were even clueless on the status of their compliance.

4. POGOs have no AML-CTF compliance units.

Thus, those AMLC’s proposals for strengthening the fight against money laundering and terrorist financing were supportive of the overall regulatory framework of the banking system supervised by the Bangko Sentral ng Pilipinas (BSP).

Based on the detailed assessment of the observance of the Basel Core Principles for Effective Banking Supervision in the context of the Financial Sector Assessment Program (FSAP) conducted on the Philippine banking system by the joint IMF-World Bank mission in June-July 2019, the BSP’s “regulatory framework is indeed broadly effective for the size and complexity of the Philippine banking system.”

However, the mission also noted that “legislative gaps continue to hinder effective supervision of banks.

Such gaps are due to, one, the bank secrecy laws, and two, the lack of power of the BSP to supervise the parent companies and their affiliates of banking groups.

Despite the amendment of the BSP charter in 2019 extending its supervisory powers over more financial entities and the impending shift to the full Basel framework, current bank secrecy laws are stone, not just sand, in the wheels. The mission raised the absolute confidentiality of bank deposits that “may not be examined, inquired or looked into by any person, including the BSP, except in defined circumstance.”

Theoretically, the link to money laundering or terrorist financing of any proceeds from illegal activities associated with POGOs cannot be established unless the regulators are granted unimpaired access to information on all accounts. Even AMLC would be in the same regulatory dilemma.

As observed by the AMLC, not all SPs are within the AML/CTF supervision. Therefore, they can be abused and exploited by criminal groups. It’s a matter of record that in 2019, local authorities closed down some 200 internet-based casinos and SPs illegally servicing online gaming operations. In fact, one of the biggest SPs around was linked to an individual and entity subject of an AML investigation involved in the infamous Bangladesh Bank heist.

The same handicap could be the reason why the Bamban and Porac POGOs have flourished without the authorities doing something about them. Various crimes have been committed by several POGOs, the Bamban outfit among them, that include human trafficking, financial scams, prostitution, torture, and lately, money laundering.

In the ongoing Senate probe, some P6.1 billion was established to have been spent to construct the POGO’s 37-building complex, inclusive of residential and commercial establishments in Bamban. Sen. Sherwin Gatchalian expressed incredulity on “how the funds came in, who received them, and who dispensed them during the construction stage.”

He was also quoted saying AMLC unabashedly admitted it was clueless on the provenance and disposition of the huge amounts of money involved — P6.1 billion “is not chicken feed or something that can be nonchalantly ignored by government regulators.” Gatchalian was also doubtful mules are involved. In fact, as the broadsheets reported, “in all probability, the money was withdrawn from bank accounts in different banks in amounts below the threshold that would require a bank to report to the AMLC as a suspicious transaction.”

The issue reduces to whether the legal impediments against more effective supervision and monitoring could be mitigated by the use of the so-called algorithms used by foreign banks to monitor transactions below the suspicious threshold. Or perhaps a stronger, more intense, and more intentional monitoring of all POGOs and online gaming operations that are surprisingly bold as to even advertise their online gaming operations?

Another possibility that must be pursued by government regulators is the use of POGOs in laundering drug money. House Committee on Dangerous Drugs Chairman Robert Ace Barbers suspected a link between POGOs and drug money “because there are registered corporations whose incorporators are the same incorporators of the owner of the warehouse where P3.6 billion worth of drugs were seized in 2023.” He was referring to Empire 99’s warehouse where the prohibited drugs in Mexico, Pampanga were found, which has similar set of incorporators as one POGO.

Barbers suggested that if this link is pursued to its logical conclusion, this goes directly to businessman Michael Yang, whose brother Hong Jiang Yang, remits money to the POGO in Bamban, Tarlac.” Yang was also involved in the Pharmally anomaly at the height of the pandemic.

Herein lies the imperative of the freeze order involving former Bamban Mayor Alice Guo’s assets. Guo’s 36 accounts alone yielded a total deposit of P29 billion, excluding those of her associates. We can only imagine the repercussions of this discovery not only on the integrity of the Philippine financial system but also on state security.

Many of these POGOs are run by Chinese nationals and many lawmakers have been disturbed by these POGOs locating themselves close to military installations including naval ports and air force bases.

The other impediment to more effective discharge of BSP’s function is the limited ability to supervise the parent companies and their affiliates of banking groups. This is also related to the need to strengthen the BSP’s oversight on the assessment of ultimate beneficial ownership (UBO) of banks operating in the Philippines. AMLC itself suffers from the limited ability to identify beneficial ownership which leads to greater anonymity of illegal transactors.

Against these remaining institutional handicaps of the authorities, and the more challenging aspect of execution and implementation, the SONA message of the President on the winding down of POGOs and online gambling by the end of the year could not be more urgent.

But what is this we hear from the grapevine that some POGO operators are in fact renewing their rental contracts of building and residential spaces? Time to delete them.

Diwa C. Guinigundo is the former deputy governor for the Monetary and Economics Sector, the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was alternate executive director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.