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Why not a two-tier anti-money laundering law?

(Article published in the Feb 24,2003 issue of TODAY, Business Section)

This week, officials from the Financial Action Task Force (FATF), apparently in response to the request of President Arroyo, will hold a face-to-face meeting with our honorable leaders in the Senate. I do not know how many members of the Senate will be present in the exercise because I am not entirely sure of how many of the senators are leaders, how many are honorable, and how many are both. Neither do I know the level of the visiting officials because I do not think any one, within the FATF organization, can do anything at this time to alter the plenary’s decision junking the Congressional Conference Committee Report version of the amendments as non-compliant with its requirements.

At any rate, the meeting is expected to be a dialogue during which the senators can be expected to articulate how desirous they are to protect what they think is the national interest and the FATF officials are to explain the organization’s rationale for the amendments to our Antimoney Laundering Law (AMLA) that it is insisting on. The end game is supposed to be a bill amending the current law to make it consistent both with our national interest and satisfactory to the task force.

It is a typical Filipino, if not Asian, mode of resolving a conflict. Although both have already a list of nonnegotiables at the back of their heads, they will pretend that they are coming to the table, open and ready to give and take, as the process of negotiation flows. After the dialogue, both sides in unison will claim that they have arrived at a greater understanding of where each one was coming from. Some agreement, in whatever shape or form, will be shown as the product of the endeavor. After the speeches and the press releases and photos of handshaking, each side will go its separate way and do what it had planned to do, anyway, even before it went into the ceremonial dance. To fight and dance again, some other day, some other place, some other ostensible issue. Because no real compromise had occurred during the ritual.

To better appreciate the gestures and pantomime that both the FATF and the senators will perform this week, it would be instructive to clear away the polemics of internal politics and the predictions of dire consequences for business and labor abroad, and focus on the hard facts.

Bedrock is the fact that the FATF is an organization, led by the United States, of 29-member countries and governments, with the common objective of ensuring that the international financial system is not abused by money launderers, terrorist financiers, and other criminals.

The method for achieving this purpose is to "recommend" to each member countries steps to take steps designed to deny money launderers, terrorist financiers and other criminals, use of facilities in their respective jurisdictions for the flow of dirty money from source to user. "Recommend" is the operative word, because the organizations’ resolutions do not have the force of law. It is a club of sovereigns, remember?

Since dirty money does not go around with a label, it is essential to the achievement of the FATF objective that every channel where money flows internationally has at critical points effective "filters" to separate the dirty from the clean money. A sort of the automatic sorting that occurs when colored clothes are placed in a laundry bag different from the bag for the whites. Hence, the fundamental recommendation of the FATF is for every country participating in the international flow of funds to have an adequate anti-money laundering legislation. And the primary recommendation to members with respect to a country that does not have such a law is for the member countries to institute measures in their own jurisdictions that would make up for the lack of filters in the noncooperative countries. In much the same way you tell your kid in school to keep away from child with a runny nose.

In a sense, the FATF is like a group of people in a car pool deciding that, for their common well being, every member of the group must bathe daily and use an effective deodorant. If someone body-odor challenged comes along and wants to join the car pool, he is asked to bathe daily and use the group’s brand of deodorant. If the applicant refuses, the car pool members as a group either refuse to take him in, or, if, for some reason like he is the son of the mayor or congressman, he cannot be refused a ride, then the car pool members are told to bring gas masks or cover their noses in his presence so as to make sure that the air they breathe in is not contaminated. As of today, the FATF considers our antimoney-laundering law, RA 9160, as insufficient to give us the right body aura for their car pool. The amendments worked out by the Bicameral Conference Committee recently are still not acceptable. But we have up to March 15 of this year to bathe some more and use a stronger deodorant. Or else.

The FATF January 30 to February 1, 2002 Plenary had a list of adverse observations on the RA 9160 and, while vigorious attempts were made to meet some issues raised by the FATF through the implementing regulations of the Bangko Sentral, the FAFT remained unconvinced and was critical of four major features.

Its first issue was the P4 million threshold for reporting. It was found to be too high. Attempts at requiring reporting suspicious transactions "regardless of amount" in the BSP circulars were found "ineffective". The second was the ability of the Antimoney Laundering Council (AMLC) to look into bank deposits and investments. It was found to be "limited" due to our strict bank secrecy laws. The third was the application of the rules prospectively. This was viewed as seriously inhibiting the investigative power of the council. Finally, the BSP was seen as having limited authority to determine the owners of "nonchecking" numbered accounts. The communication of February 20, 2002 to the AMLC relaying these objections was careful to point out that the listing of the issues raised was not exclusive.

The implementing rules and regulations, effective starting April 2, 2002, had the blessings of the Congressional Oversight Committee. Presumably to have the blessings of the legislators, they tried to meet some of the FATF’s concerns. But the June 18 –21, 2002 Plenary was still skeptical. It recommended that a statutory mandate be made to report suspicious transactions regardless of amount (telling us in the process that they cannot be fooled into believing that the regulations, which contained such a rule, could amend the law), delegate supervisory responsibilities for compliance to the BSP and lift secrecy provisions restricting BSP access to account information, grant the AMLC full access to account information on accounts opened prior to the coming into effect of RA 9160, and ensure that the AMLC had adequate authority to respond to foreign authorities’ requests with respect to those accounts opened prior to said effectivity. These were relayed in July last year to the AMLC and reiterated the following October. All these communications were shared by the AMLC to the leadership in both houses of Congress.

The AMLC, heaven knows, tried its best to get the AMLC to agree that the amendments being considered by Congress would be sufficient. Our Congress cranked out, and you already know how, what it believed was a compliant law. But the February 2003 Plenary still wanted to see in black and white, in the law itself, four items.

First, the FATF would like to see mandatory reporting of suspicious transactions regardless of amount, thereby rendering the stated amount as the reporting threshold to be largely for record purposes. Second, it continues to lodge in the BSP supervisory responsibilities for money laundering compliance and to "lift secrecy provisions restricting BSP access to account information". Our laws on the secrecy of bank deposits remain a stumbling block. Third and fourth, FATF wants full access by the AMLC and ability to respond to foreign authorities inquiries on deposits and investments before the effectivity of RA 9160. The significant part of February 14, 2003 communication from the FATF relaying these sentiments is that the listing is apparently exclusive. Instead of "including but not limited to", the FATF simply said, "the following legislative amendments are therefore still required". The clear signal is therefore, just clean these up, and you are on your way to being considered as in the club.

We may, of course, decide to turn the FATF recommendations on our law down. What is expected of the FATF on March 15, 2003? We may find guidance on what the FATF had already done regarding other countries like Nuaru and Ukraine which had subject of what they call "countermeasures". In the case of Ukraine, the countermeasures were lifted but it remains in the non-cooperative list, until the FATF is satisfied that the acceptable law was being implemented properly. Notice, by the way that the FATF responses are not "sanctions" because, the steps to be taken are imposed on the failing country; they are suggested to club members for their self-protection. Something like the recommendation to use condoms if the members could not abstain from touching us.

The basic recommendation is implementation what is known as Recommendation 21 in a stringent manner. Recommendation 21 tells financial institutions to give "special attention" to business relations and transactions with persons from countries in the non-cooperative list. In particular, "when these transactions have no apparent economic or visible lawful purpose, their background and purpose should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies." We can choose to bask in that "special attention" which, of course, will mean additional time for processing Philippine and Filipino transactions. But, we have delay all the time, so what’s the big deal, you may ask.

The big deal comes in the form of "Annex A" which comes with the advisory to members and it contains a listing of specific things the member countries are exhorted to do. They will be:

First, stringent requirements for identifying clients and enhancement of advisories, including jurisdiction specific financial advisories, to financial institutions for identification or the beneficial owners before business relationships are established with us. How would you like a requirement, for instance, of a certificate from the Department of Foreign Affairs, consularized by foreign embassy, that you are who you say you are when you remit to your kid studying abroad his or her monthly allowance?

Second, financial institutions are also asked to establish enhanced relevant reporting mechanism or systematic reporting of financial transactions on the basis that financial transactions with such countries are more likely to be suspicious. This means a lot more paper work to establish the legitimacy of your transactions.

Third, in considering requests for approving the establishment by Philippine banks of branches, subsidiaries or representative offices, member countries are told to take into account the fact that the bank comes from a non-cooperative country. That is similar to the question in your application form for life insurance, "is there anyone in your family who died of a heart disease?"

And fourth, non-financial sector businesses are warned that they are running the risk of money laundering when they deal with us. So, you want to buy a residence in California? Well, then, please give assurances that you are not buying the property with ill-gotten money only to sell it later and give the proceeds to your favorite terrorist.

What will these measures make of us? Like someone driving on the left side of the road, BSP Governor Buenaventura suggests. An international pariah, says Jaime Augusto Zobel de Ayala. Not very good images, because we in this country, particular convoys bearing public officials and their hangers on, drive against the traffic and get away with it. And not too many people, much less senators, can distinguish pariah from Mariah.

The apt image is like one with strong body odor. We all understand that and know how we ourselves handle that. As we deal with armpit power, so shall the international financial community deal with funds from us. But, it is very unlikely that FATF will budge this week from its position. It is just unlikely that our senators, despite the correct imagery, will pretend to be better enlightened from the meeting. Although, Loren Legarda and John Osmena might be able to convince their colleagues of the importance of pleasant body scent. A break must be sought in this impasse.

My suggestion is a two tier antimoney laundering law. Let the present law and regulations stay as they are for purely domestic financial transactions. This will leave our politicians, businessmen, public officials and tax evaders the benefit of the loopholes that were placed in the law when it was first enacted. But for transactions with foreign elements, such as when the funds are foreign currency, when the remitter or the remittee is a foreigner or a foreign resident, when the funds are to or from outside of the Philippines, or when the funds are to be spent abroad, let’s comply to the full with the FATF recommendations.

We should have no problem with such a double standard. As far as I can remember Fr. Jaime Bulatao, SJ has been telling us we have a double standard of morality. In planes, we have business and first class for the rich and economy for the poor, even if the rich and poor arrive at the same time. We have private schools for those who can afford and the public schools for those who cannot, together with those who would not. We have laws limiting some activities and businesses to locals only. So what’s another double standard, huh?

A two-tier money-laundering law is a win-win solution. The FATF should be satisfied since its concern is international not domestic money laundering. We can launder our own jueteng and drug and bribe money as much as we want for all it cares. Thus, our "national interest" will be served because it will be, for those so minded, business as usual. We come clean only when we face the foreigner. It is just like skipping a bath during the holidays. No need to bathe when there is no school or office because you just stay home and everyone smells as strongly as you. But when you go out, of course, it is our national trait, you must take a bath and apply your deodorant.