July 25,
2021 | 7:11 pm
Introspective By Romeo L. Bernardo
I am
pleased to share with readers a June 29 note to subscribers of GlobalSource
Partners (globalsourcepartners.com), a New York-based network of
independent emerging market analysts. Christine Tang and I are their Philippine
advisers.
At the
end of its plenary on June 25, the Paris-based Financial Action Task Force
(FATF) announced that it is adding the Philippines to its list of jurisdictions
under increased monitoring, widely referred to as the “grey list.” The latest
list contains 22 countries and includes only two other Southeast Asian nations,
Cambodia and Myanmar.
Inclusion
in the grey list does not carry sanctions but publicizes remaining deficiencies
in the country’s efforts to combat money laundering and terrorist financing and
its commitment to resolve these within agreed timeframes. Satisfactory progress
in addressing the deficiencies will lead to removal from the FATF grey list
while non-compliance risks landing the country in the dreaded “black list” or
high-risk jurisdictions subject to countermeasures. Based on the assessment of
Bangko Sentral ng Pilipinas Governor Benjamin Diokno, chairman of the
Anti-Money Laundering Council (AMLC), the Philippines can expect delisting not
earlier than January 2023, a good 18 months away.
The
Philippines was on the FATF black list for almost five years, from 2000 to
2005, and was removed only after the Anti-Money Laundering Act (AMLA) — passed
in 2001, the Act criminalized money laundering and created the AMLC — took
effect. It landed on the grey list in 2010 and was removed in 2013 after
various measures were taken to strengthen its anti-money laundering and
countering the financing of terrorism (AML/CFT) regime, including legislation
amending the CFT regime. It has since avoided the FATF’s increased scrutiny
(even after the Bangladesh bank heist in 2016) through incremental improvements
in its AML/CFT regime, including the coverage of casinos under the AMLA Law.
This time
around, the grey listing happened after the country passed the controversial
Anti-Terrorism Act last year and a stronger AMLA early this year. The former
applied tougher financial sanctions on terrorism financing while the latter
expanded the powers of AMLC and the law’s coverage to offshore gaming operators
and real estate brokers and included tax crimes among predicate money
laundering offenses. Based on the FATF summary of the Philippine action plan,
remaining deficiencies are mostly implementation/operational issues, i.e., for
authorities to demonstrate the various laws’ effectiveness.
The Philippine action plan to strengthen the AML/CFT regime follows:
1.
demonstrating that effective risk-based supervision of designated non-financial
businesses and professions (DNFBPs) is occurring;
2.
demonstrating that supervisors are using AML/CFT controls to mitigate risks
associated with casino junkets;
3.
implementing the new registration requirements for money or value transfer
services (MVTS) and applying sanctions to unregistered and illegal remittance
operators;
4.
enhancing and streamlining local enforcement agencies (LEA) access to
beneficial ownership (BO) information and taking steps to ensure that BO
information is accurate and up-to-date;
5.
demonstrating an increase in the use of financial intelligence and an increase
in ML investigations and prosecutions in line with risk;
6.
demonstrating an increase in the identification, investigation and prosecution
of terrorism financing (TF) cases;
7.
demonstrating that appropriate measures are taken with respect to the
non-profit organization (NPO) sector (including unregistered NPOs) without
disrupting legitimate NPO activity; and,
8.
enhancing the effectiveness of the targeted financial sanctions framework for
both TF and proliferation financing (PF).
Source: http://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-june-2021.html#Philippines
However,
one remaining item that requires legislation is the proposed amendment to the
bank secrecy law, reportedly the most restrictive in the world. Despite the
backing of 26 business groups, the measure has yet to be certified as urgent by
the President and appears to be languishing in both houses of Congress. In its
latest Philippine Financial System Stability Assessment (FSSA), the IMF warned
that the current arrangement, which limits direct access to information
protected by deposit secrecy only to the AMLC, could weaken the AML/CFT
regime’s effectiveness. It recommended giving direct and full access to
financial sector regulators.
OUR VIEW
We agree
with the Governor that it will take years, likely longer than he is expecting,
for the country to be delisted, especially given the upcoming election season.
Knowledgeable people we consulted think that it is unlikely the Philippines
will be removed as long as: a.) the secrecy of bank deposit law is not relaxed;
and, b.) the AMLC is unable to show that it can effectively investigate and act
on reports of suspicious transactions submitted to it.
So far,
financial markets seemed to have taken the grey listing in stride. However,
given recent IMF findings that grey listing significantly affects capital
flows, financial sector players are worried that an extended stay on the list
would over time adversely affect remittances, starting with higher fees, and
foreign investments. This would be a pity considering current efforts to
liberalize foreign investment rules in order to attract foreign capital to aid
the economy’s post-pandemic recovery.
Romeo L.
Bernardo was Finance Undersecretary during the Cory Aquino and Fidel Ramos
administrations. He serves as a Trustee/Director in the Foundation for Economic
Freedom, The Management Association of the Philippines and The Finex
Foundation.
romeo.lopez.bernardo@gmail.com
