Flunking the anti-money laundering test
The Philippine Star
09/12/2003

It is ironic that the very provision most lawmakers voted to strike out in the amended Anti-Money Laundering Act (AMLA) passed last March is now being exploited to stop the Senate investigation on banks involved in the investigation of the Jose Pidal account.

Even more unfortunate is that the Pidal controversy comes at a time when the Financial Action Task Force (FATF) is currently examining whether the Philippines’ amended AMLA can withstand scrutiny and the ultimate test for which it was established.

Already, the FATF is busy recalculating and updating our scorecard even as banks and the self-confessed owner of the Jose Pidal account continue to invoke the Philippines’ rigid deposit secrecy law.

We will likely flunk on at least two major counts. Even when amendments to the AMLA were just being drafted, legislators failed to introduce provisions to relax the deposit secrecy law. They were also unable to include campaign funds solicitation as a predicate crime for money laundering.

As the recent events are telling us, it seems that these two omissions will be enough reason for the Philippines’ indefinite retention in the FATF’s laundry list of economies with weak anti-money laundering policies.

This will definitely drag the country even deeper into an economic quagmire, not to mention the inconveniences that our millions of overseas workers will experience when remitting money to the country.

With Deposit Secrecy, Cover-Up Is No Sweat

The country’s nearly half-a-century old law on deposit secrecy, by Sen. Joker Arroyo’s own admission, is stalling the investigation of the Pidal account, compounded of course by the staunch invocation to the right to privacy by no other than the Pidal account claimant, Ignacio Arroyo.

Under Republic Act 1405 passed in 1955, all bank deposits are considered absolutely confidential and may not be examined by any person or government office unless through a court order. With the way the local justice system works, the powerful and influential clearly have an edge.

During the time of the old Central Bank, Section 25 of its charter gave examiners a small leeway in prying open suspicious deposit accounts.

But even that minute window of opportunity is entirely gone today after lawmakers crudely shot down BSP Governor Rafael Buenaventura’s lobbying during Congress’s deliberations on AMLA amendments early this year.

At that time, the senators accused Buenaventura of trying to blackmail lawmakers to strengthen his own position as chairman of the Anti-Money Laundering Council when he insisted on easing the deposit secrecy provision. Buenaventura had claimed that FATF would not accept amendments if it did not call for the relaxation of deposit secrecy.

Task Force Had Been Had

As it turned out, the task force agreed to accept a provision allowing the central bank to look into deposit accounts in the course of its periodic examination. The task force did not realize that the provision was fraught with too many can’ts and don’ts.

Foremost is that accounts can be opened if only randomly chosen. BSP, for instance, can’t open the Jose Pidal account or any suspicious transactions to test whether a particular bank is complying with bank rules and regulations.

If, during the opening of the randomly selected account, the BSP finds something suspicious, it cannot – even as a regulator – act on the case.

What it could do, however, is to refer the matter to the AMLC, whose hands however are also tied. The council has to go to court for an order to freeze the account and to open it to pave the way for an investigation.

By now, the FATF should have seen the current AMLA’s weaknesses, and expect it to insist that the bank secrecy provision in the anti-money laundering law should be changed.

Campaign Funds Easily Laundered

The task force is also realizing that, even if the veracity of the Pidal account were established, campaign fund solicitations that go through the money wringer cannot be considered unlawful. Because, under the AMLA, the list of predicate crimes does not include scrounging for election funds.

So even if it were ascertained that the funds transferred into the Pidal accounts came from election campaign contributions, there would be nothing wrong with this as far as the law is concerned. Jose Pidal can just sit back and enjoy the spoils.

A case like this can only be indicted as a moral lapse, nothing earthshaking nowadays. There is no crime that can indict the principal players or even the banks that connived. Worse, there could be no money left to confiscate since the account owners may have already stashed the funds in cozier and safer havens.

Philippines Stays In ‘Dishonor’ List

If the FATF would demand a new set of amendments to strengthen an obviously inadequate law, it would take time before the Philippines could erase the stigma of being a haven for money launderers.

The FATF is scheduled to meet in November to discuss the progress of countries in the blacklist that includes the Philippines. Since 2000, we have been trying to convince the task force that we have the laws to fight money laundering.

Philippine officials were hoping that by February next year, the task force would finally remove the Philippines from the list. But it looks like the timetable has been back-pedaled by the Pidal fiasco.

With our luck, it would be like the first quarter of 2003 all over again: cost of government borrowing going up, the peso further weakening, and threats of crippling economic sanctions hanging ominously above our heads as another round of deliberations to amend our AMLA starts all over again.

Nothing Much More To Lose

Well, except for more sanctions, bond rates are already up and the peso continues to depreciate. Lawmakers could very well argue that we really have nothing to lose.

In the meantime, Joe Pidal, whoever he is, continues his merry ways with his crony bankers. Tight-lipped but heartily chuckling.

TOP