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Pinoy money laundering typologies

(Article published in the Sep 17, 2008 issue of Manila Standard Today)  

About two weeks ago, on 04 September, the Financial Sector Liaison Committee (FSLC), after tackling the items in the agenda of its 9th monthly meeting, listened to an interesting presentation by AMLC’s Ricky Funk of three typologies of money laundering, Pinoy style.   The FSLC, which was put together less than a year ago at the initiative of Vic Aquino, AMLC’s executive director, is a public-private sector committee comprising all the institutional organization stake holders concerned in keeping enforcing and complying with the country’s anti-money laundering regime.  If I am not mistaken, the organization of such a group – to harness the synergy of all institutions concerned, --is a first in the Asean, if not in the whole of Asia Pacific. 

 Starting the 9th meeting, a regular part of the meeting will be updating the participants’ knowledge of typologies that are drawn from actual cases handled by the AMLC.  Obviously, familiarity with the typologies will enable the covered institutions in sensing, as it were, the occurrence of money laundering, as and when it happens.

 Indeed, once the flow of funds is uncovered, it does not take a rocket scientist to recognize the attempt to launder money.  It is the detection of the operation while it is being conducted that is difficult to accomplish since taken separately, the three stages of money laundering,- i.e, the placement, the layering, and the integration, --do not give an indication that the money flowing is dirty.


After all, there is nothing wrong with placing money in an instrument or investment; breaking up one’s cash is as harmless looking as changing a one thousand peso bill for two five hundred peso bills; and buying an asset in the open market is not by itself suspicious even if the funds come from different accounts.  It is when the three of them are put together, and seen in the light of a prior crime, called predicate offense, does the money that flowed manifests itself as having been contaminated.  But precisely because of the seeming of legitimacy of each of the separate stages, gate-keepers and channels of the country’s currency flow ought to be on the look-out for typical techniques, called typologies, of money laundering. 

 The most interesting technique that Ricky Funk described is the adept exploitation of a feature often taken for granted in an industry.  For example, the standard retail marketing of insurance products through numerous agents. This familiar method of reaching customers can be perverted by the money launderer into a means of using an insurance company as a laundry shop for the proceeds of his predicate crime.  The money launderer is able to do so because very often the face-to-face contact between the perpetrator and the insurance company is only through the mediation of the latter’s agents who may themselves be unwitting instruments of the money launderer.  Take this case of hapless Rosana.

 Rosana took out insurance on her own life through agent Marina from Insurance Company with a face value of Php 5 million.  She filed her duly completed application and paid the full premium in full.  However, the policy was not issued right away because the magnitude of amount required the submission of additional documents; the documents are “to follow” as soon as put all together.  Rosana left for abroad prior to the submission of the documents; it was her kin who was entrusted with the task of finishing the transaction.

 Instead of being faithful to the trust, Rosana’s next of kin caused agent Marina to submit a withdrawal of Rosana’s initial application as well as new applications for two of Rosana’s relatives, to be paid for by the returned premiums of the cancelled policy.  The withdrawal and the new applications bore what looked like Rosana’s signature.  Shortly thereafter, even the two new applications were cancelled before the policies were issued and the premiums were asked to be refunded.

 The Insurance Company, not suspecting anything, issued two crossed checks, both payable to Rosana.  The checks were all then deposited to a bank account in the name of Rosana.  Subsequent investigation revealed, however, that the photo of Rosana submitted to the bank appeared to be of a person different from the Rosana who applied for the insurance policies.  The signature on the  withdrawal of the PhP5 million policy and the applications for the two new ones turned out to be forged.

 I had simplified the facts to expose clearly the money laundering.  The predicate offense was committed when Rosana’s signature was forged to turn the initial policy into cash; the placement occurred when, already tainted but still appearing as clean to unsuspecting eyes, the refunded premiums were used to pay for the two new policies; the layering was effected, when in order to distance the cash from the crime, legitimate checks were caused to be issued to Rosana; and, finally, the dirty money was integrated when the checks were deposited with the bank, preparatory, obviously to being withdrawn in due time by the perpetrators.

 Whereas this insurance-based scheme was singular and depended on the cunning of the perpetrator, the second type described by Funk fed on the victims’ gullibility, if not greed.  The second type was a combination of the old Ponzi scheme, laced by pyramiding, but, this time using the modern phenomenon of the internet.

 The predicate crime is the false promise of exceptionally high profits made to look even higher by fat rewards for recruiting into the system friends and relatives equally, if not more, gullible and greedy.  Cash flow to many participants is effected through a number of bank accounts, to escape detection and also facilitate the flight in case one is identified by the authorities.  These bank accounts fulfill the varying stages of placement and integration. 

 When a critical mass is already flowing through the system, the perpetrator suddenly closes the accounts and vanishes into thin air, with the funds of the “investors”, in his pocket, of course.  Invariably, both criminal and stolen funds go abroad in some haven or two.

 The third typology discussed by Funk, was the grossest.  It involved drugs as the predicate crime.  Tell tale signs of tainted sourcing, discernible to the adept as early as at the placement and layering stages, are (a) the magnitude of the amounts, uniformly in cold cash, (b) the repeated deposits in various bank accounts, (c) the recurring purchase of  government securities, and other very liquid assets, and (d) the occasional use of pre-paid insurance coverage, as in the case of the first typology.  Integration was effected in the acquisition of mansions, real estate holdings, etc. which are all common accouterments of wealth, in surfeit and overflowing.

 These three typologies, of course, do not exhaust Filipino inventiveness.  Subsequent Funk presentations in the coming meetings of the FLSC promise to be just as interesting and informative, especially in these hard times.