The long and winding road of the Anti-Money Laundering Act

The author is a policy analyst of Action for Economic Reforms, and a
lecturer at the Department of Economics, School of Social Sciences,
Ateneo de Manila University.

After months of hard and frenzied work of concerned legislative
committees and technical working groups, it now seems like the
Anti-Money Laundering Act is up for amendments. The Financial Action
Task Force (FATF) on Money Laundering, an international watchdog that
monitors efforts in fighting money laundering, has pointed out serious
flaws in the law that render it ineffective to fight the said crime.
The story of how the Anti-Money Laundering Act came to be and what has
happened since its enactment is irrefutable proof of how compromised
and ineffective a government that is captive to particularistic
interests can be.

In 1988, the Philippines signed as party to the Vienna Convention, an
international treaty that seeks to combat international drug
trafficking. It provides, among others, that parties to the treaty
commit themselves to actively fighting money laundering, an activity
that is obviously closely linked to drug trafficking.

Perhaps due to a lack of coordination among concerned agencies, gross
negligence, or simple ignorance, the fact that we had to act against
money laundering escaped our minds until our attention was called to it
in early 2000. The FATF, an organization created by the Organization
for Economic Cooperation and Development (OECD), had sent early warning
signals to our Department of Foreign Affairs in June 2001 that said
that our noncompliance with the commitments that we made in the Vienna
Convention would most likely land us in the FATF’s blacklist of
Non-Cooperative Countries or Territories (NCCTs). Again, perhaps due to
a lack of coordination, gross negligence, or plain ignorance, the DFA
sent back word to the FATF, saying the Philippines was not a member of
the FATF, thus rendering our inclusion in their blacklist without any
basis. It was not until late 2000 that the concerned agencies realized
which commitments that FATF was referring to, and only then did the
issue come to the attention of our legislators.

Unfortunately, the events in our country at that time would not permit
our legislators to focus on this issue. The impeachment trial of then
president Joseph Estrada, EDSA 2, and the 2001 elections simply far
surpassed in importance the task of enacting an anti-money laundering
law. (Incidentally, had the law been enacted at an earlier date, say
around 1998, the impeachment trial would have been much more
interesting as the prosecutors would have been able to produce more
evidence against President Velarde!!!)

In June 2001, the Philippines had finally landed on the FATF blacklist.
We were given, at that point, until September 30 of the same year to
enact a substantial law to counter money laundering in our country.
Should we fail to meet the deadline, we were told, we would face strict
counter-measures that would have burdened even further our lethargic
economy.

In fairness to our legislators who were caught surprised by our
inclusion in the blacklist, both Houses of Congress scrambled to meet
the deadline. Marathon committee meetings and sessions were not
uncommon as the deadline drew nearer. Finally, the Anti-Money
Laundering Bill was enacted into law a day before the deadline.

But as can be expected from anything done in haste, the resulting law had serious flaws.

In the bill’s drafting phase, civil society organizations like the
Action for Economic Reforms and the Institute for Politics and
Governance, along with other groups like AGILE and Akbayan, called on
legislators to concentrate not merely on meeting the deadline set by
the FATF but more importantly on drafting a bill that would be
effective in fighting money laundering. After all, money laundering
undermines our financial system and laundered money constitutes a large
tax drain on many economies. Particularly, these groups called for:

1. a complete and comprehensive list of predicate crimes from which dirty money can be obtained,
2. a realistic threshold for reporting suspicious transactions,
3. the creation of a politically independent body to
implement the law, keeping in mind the principle of parity of authority
and responsibility,
4. comprehensive institutional coverage, which means that
focus must not be limited to the financial sector alone. Dirty money
can be made clean through a myriad of ways and in a multitude of
areas… all you need is a little creativity, and
5. the vital amendment of the Bank Secrecy Law to enable
the implementing body to look into bank accounts of suspected money
launderers.

For a government, however, that is so thoroughly held captive by vested
and particularistic interests, achieving the ideal is simply an
impossibility.

As the bill had to be palatable to a number of groups to ensure wide
acceptance, the quality of the bill was compromised. With the deadline
fast approaching, crucial provisions were deleted and adjustments were
made to make the law acceptable to various interest groups.

The law defines only 17 crimes to be possible sources of dirty money.
One can immediately note that tax evasion, a crime so prevalent yet so
unpunished in our country, was excluded from this list. This was done
in order to appease some significant sectors of society (i.e. the
businessmen) and to widen public support for the bill. The Federation
of Filipino-Chinese Chamber of Commerce and Industry, for example,
stressed that their support for the bill would end once tax evasion was
included in the list of predicate crimes. This exclusion brings to the
government a great opportunity cost. The law would have armed the
government with one very effective weapon to go after tax evaders. It
would have just been a matter of comparing income tax files with bank
accounts and transactions. With its exclusion, the government is left
no more capable of weeding out tax evasion in our country.

Furthermore, the threshold amount the law sets for reporting suspicious
transactions is quite simply too high. In earlier versions,
transactions of more than P500,000 – a threshold amount equivalent to
those of other countries like the US – would be automatically reported
to the implementing agency. In the final version, however, this amount
had been increased to P4 million. This increase, according to
legislators, was done for fear of swamping the implementing agency with
reports of suspicious transactions. If the threshold were high, then
fewer reports would have to be made. With antiquated computer and
information systems, the implementing agency would simply be paralyzed
by too many reports of suspicious transactions. The higher threshold,
of course, then also means that a criminal would simply have to break
up his loot into chunks of P3 million.

To prevent abuse and harassment, the powers of the Anti-Money
Laundering Council (AMLC) have also been effectively clipped. In a
society where harassment, blackmail, and downright criminality have
pervaded almost all of its sectors, making an agency too powerful is a
daunting proposition. Thus, while the AMLC is empowered to freeze bank
accounts for 15 days, it needs to secure a court order before it can
look into the same accounts. Of course with courts swamped with cases
left and right, one can imagine that court orders are not easy to
obtain, and the provision effectively provides a loophole for money
launderers – if the court order is not issued within the 15-day freeze
period, the launderer can simply make his money disappear on the 16th
day.

As was the prediction of various groups after the law was enacted, the
law was deemed unsatisfactory under the scrutiny of the FATF. In a
resolution dated December 18, 2001, the FATF decided not to apply
countermeasures to the Philippines, but kept us on its list of
Non-Cooperating Countries and Territories. Again in a letter to the
President dated February 20, 2002, the law, even when aided by its
implementing rules and regulations, was deemed unsatisfactory by the
plenary of FATF, and while no countermeasures are yet to be applied,
the Philippines has a long way to go before getting off that blacklist.

Ironically, upon reviewing the FATF’s list of recommended amendments to
the law, one finds that these were exactly the provisions that everyone
knew were necessary as far back as September 2001. Some legislators
simply could not, or rather would not, stand for them.

We have been given until June 2002 to amend our law. Until then, we
remain blacklisted. And while legislators have proudly claimed on
broadcast media and in print that they support such amendments, one has
to wonder when serious effort will be put into making these amendments.
After all, we have known since December that the law was
unsatisfactory, and yet nothing has been done since. Are we waiting for
the deadline to draw nearer?

But perhaps the more pressing question really is not when they will,
but rather will they – or even can – ever enact a serious law that will
combat money laundering? Indeed, concerns of abuse and harassment are
quite valid, but compromising the quality of our law is hardly the
solution to these problems. Stricter enforcement of all laws would be a
more ideal response. However in a society that is overrun by ulterior
motives and misaligned incentives, the ultimate goal of rule of law is
almost never in sight.

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