Anti-money laundering and countering terrorism financing

What is money laundering? In simple terms, it is the process of using money obtained from criminal activity without its origin being detected. It’s like watching “black dirty” money turn into “white clean” money to look legal and avoid confiscation and conviction. Terrorist financing, on the other hand, is the act of raising money to provide financial support to terrorists. It doesn’t matter whether the source is legitimate or not. Money launderers and terrorism financiers take advantage of countries with weak controls. This can result in reduced investments and international capital flows, thereby weakening the economy.

It was timely that the Bankers Institute of the Philippines Inc. (BAIPHIL), in collaboration with the Bangko Sentral ng Pilipinas’ Anti-Money Laundering (AML) Specialist Group-Financial System Integrity Department, conducted a webinar on anti-money laundering and countering terrorism and proliferation financing (AML/CTPF) on June 18. It was attended by 388 directors and senior officers of various financial institutions. A good number of PNB directors and senior management attended. The speakers were Atty. Elmore O. Capule, BSP senior assistant governor and general counsel; Atty. Ruel Bumatay, deputy director of the BSP’s AML specialist group; and Atty. Rojie G. Dancel, acting deputy director of the BSP’s AML specialist group.

The webinar was designed from the BSP’s perspective and role as regulator, covering BSP’s regulations on AML. It emphasized the need to have a strong AML/CTPF culture from the board level down to the lowest level of personnel. The webinar covered the role of the board of directors and senior officers in ensuring that the provisions of the Money Laundering and Terrorist Financing Prevention Program (MTPP) are strictly implemented, that there is good governance and that the necessary controls are in place.

Why do we need to combat money laundering? Atty. Capule said it is a serious threat to the integrity of financial institutions and the legitimate economy. It can lead to more serious crimes such as drugs, human trafficking, fraud, graft, and corruption. Meanwhile, terrorism cultivates a climate of fear and causes loss of life and properties. Being involved in terrorist financing can result in the loss of reputation, status, and donor confidence. The proliferation financing of weapons of mass destruction is also a serious threat facing the international community, as it is challenging to detect.

Atty. Capule also identified the AML/CTPF regulators, namely, the BSP for banks, savings and loan associations and pawnshops, among others; the Insurance Commission for insurance companies and mutual benefit associations; the Securities and Exchange Commission for securities and investment, financing, and lending companies; and the Philippine Amusement and Gaming Corp. for casinos.

He expounded on the role of the BSP in AML/CTPF supervision as well as the BSP’s AML regulations. He said the risk management framework plays a critical role. The usual sources of risks are negligence, unethical employees, inadequate training, lack of oversight and lack of check and balance. The four elements of sound risk management practices are the board of directors (BOD) and senior management, oversight MTPP, internal controls, and a self-assessment system. The BOD approves policies, sets an institution’s risk profile and is ultimately responsible for AML/CTPF compliance. Senior management, specifically the compliance office, ensure the effective implementation of the board-approved MTPP. The MTPP should be in writing, approved by the BOD and updated regularly. The board should be proactive and require regular monitoring. On internal controls, onboarding customer due diligence and ongoing monitoring of customer accounts and transactions, continuing education and training are important. Meanwhile, self-assessment systems, which are done by audit and compliance, should ensure completeness of scope and do a deep dive into root cause analysis. These should also safeguard against inadequate manpower or the inability to do compliance testing, and alert management, among others

The Philippines is currently in the Financial Action Task Force’s (FATF) gray list, which means the country hasn’t met all the standards for fighting money laundering and terrorist financing but there is a commitment to resolve  strategic deficiencies within specific timeframes, subject to increased monitoring. Hopefully, the Philippines graduates from the FATF’s gray list soon,

Former BAIPHIL President and now PNB Director Belitte Papa said the webinar helped officials understand the similarities and differences of money laundering, terrorist financing and proliferation financing activities. The tips on how to avoid exceptions or BSP findings and how to work on a higher AML rating were also useful.

Thanks to BAIPHIL and the BSP for keeping banks well informed and vigilant!

The views expressed herein are the author’s own and do not necessarily reflect the opinion of her office as well as FINEX.

Flor G. Tarriela was former BAIPHIL president and PNB chairman. She now serves as PNB board advisor. A former undersecretary of Finance, she is lead independent director of Nickel Asia Corp., director of LTG, Inc. and FINEX. A gardener and an environmentalist, she founded Flor’s Garden in Antipolo, now an events destination.