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(Article published in the Mar 11,2003 issue of TODAY, Business Section)

Finally, we have an antimoney-laundering statute, Republic Act (RA) 9160 as amended by RA 9194, that stands a chance of taking our country off that name-and-shame roster of countries which the Financial Action Task Force (FATF) considers as not cooperating with the global fight against dirty money.

Even now, the United States, a key member of the FATF is reported to have congratulated the President and the leadership of Congress for amending our anti-money-laundering law. Although our overseas workers who openly asked the Senators to comply with the FATF requirements for the sake of the country deserved the congratulations more, the public praise from the US is a good indication of the probable outcome of the forthcoming assessment of our amended law.

Why it had to be this way – a battle where our senate had to bring the country to the edge of ruin only in the end to bite the dust and concede defeat, but not without a benighted senator or two taking a cheap shot at a hapless man whose only fault was doing his job—is grist for socio-political analysts to come. For now, time is better spent in putting on record the ebb and flow of events of the last two years so as to make us fully understand the whys and wherefores of the present law with all its quirks and warts. We have the bad habit of forgetting our differences as soon as a consensus is arrived at, even as we know full well that a proper appreciation of the consensus is dependent on remembering how differences were resolved.

Ours is probably the only antimoney-laundering law that requires the reporting to the central authority vested with the task of serving as the information hub of money flows, generically known as the Financial Intelligence Unit (FIU), of seemingly two kinds of transactions, namely a "covered transaction" and a "suspicious transaction". Our law empowers the Antimoney Laundering Council (AMLC), our home-grown FIU, to require and receive covered (as defined in the original RA 9160) or suspicious (as added by RA 9194) transaction reports from covered institutions.

What is the difference, within the meaning of an antimoney-laundering regime, between a "covered" transaction and a "suspicious" transaction?

Since one of the major purposes of an antimoney-laundering law is to create a financial data base that would enable law enforcers to recognize current and emerging patterns of laundering money, hopefully to effect the timely apprehension and eventual conviction of money launderers, the only transactions that ought to be reported to an FIU are those that bear badges of probable dirt, namely suspicious transactions, as the term is commonly understood. Thus initial drafts of antimoney-laundering bills, modeled as they are after similar statutes elsewhere, referred to reportable transactions as suspicious transactions.

Unfortunately, however, Philippine usage and social treatment of a suspect, despite the lip service we give to the oft-invoked presumption of innocence until one is proven guilty, attach to "suspicious" a negative connotation, if not an outright label of guilty. Recognizing this local aberration, proponents of the initial antimoney-laundering law, so as to avoid complicating their advocacy with resistance to the proposed law resulting from the emotional baggage of the term "suspicious", opted instead to use the neutral and politically correct "covered" transaction.

The legal sleight of hand was, however, obvious to the discerning eye. Section 3(b) of RA 9160, before amendment, defined a "covered transaction" as "a single, series, or combination of transactions involving a total amount in excess of P4 million or an equivalent amount in foreign currency based on the prevailing exchange rate within five consecutive days except those between a covered institution [a covered institution is the entity with whom the transaction is being effected and is one required to make the report] and a person, who at the time of the transaction was a properly identified client and the amount is commensurate with the business or financial capacity of the client; or those with an underlying legal or trade obligation, purpose, origin or economic justification." The term is said to further refer "to a single, series or combination or pattern of unusually large and complicated transactions in excess of P4, million especially cash deposits and investments having no credible purpose or origin, underlying trade obligation or contract."

The aforesaid definition evidently uses the amount of P4 million to trigger the analysis and determination, to be made internally by the covered institution, of whether a transaction that its client or customer is proposing, ought to be reported to the AMLC. That is why P4 million is called our law’s "threshold amount".

Any amount that crosses the threshold (a figure of speech that is lost to our countrymen because not many of our houses have identifiable thresholds) is mandated to be examined for badges of dirt. If, however, the transaction is one that is in keeping with what that the covered institution knows of the person proposing it (hence, the importance of the "Know Your Client" rule that financial institutions are supposed to strictly observe) and, furthermore, if the transaction on its face does not show the money as being used for or as having come from illegal sources, then the covered institution need not report the transaction, notwithstanding its being in excess of P4 million.

Understandably, the FATF, that self-appointed guardian of the cleanliness of globally flowing funds, considered P4 million much too high of a threshold. It provided a gaping hole in the information net that it wanted to cast world-wide to catch the money laundering fish. Thus, when RA 9160 was submitted by the AMLC as our contribution to the global fight against money laundering, the FATF, in its letter of December 14, 2001, brought to our attention that the P4 million threshold was "high for reporting requirements and therefore maintains important loopholes in the system". The more widespread threshold was the US standard of $10,000 and our P4 million was then roughly eight times that.

The Bangko Sentralng Pilipinas, trying its best to get the original law accepted by the FATF, pointed to its Circular 251 and Circular 253, both issued prior to the enactment of RA 9160, requiring banks to disclose to it suspicious transactions, regardless of amount. It also issued, after RA 9160 took effect, a circular-letter directing banks to report suspicious transactions, regardless of amount, as well as covered transactions, to a Special Committee. The Securities and Exchange Commission (SEC) and the Insurance Commissioner (IC), in the exercise of the regulatory power vested in them by their respective charters, likewise required covered institutions under their jurisdiction to report suspicious transactions to the AMLC. Finally, Rule 5(3) of the Implementing Rules and Regulation authorized the BSP, the SEC and the IC, to require the reporting of suspicious transactions to the AMLC. The argument went thus: The high threshold was really not a fatal defect in the law, since, on account of these circulars and regulations, suspicious transactions would still be captured by the reporting net of RA 9160.

The FATF, however, was correctly unconvinced, undoubtedly because regulations cannot cure defects in the law. The high threshold for covered transactions as well as other features of the original law, the FATF said, "significantly impair the effectiveness of the antimoney laundering system in the Philippines".

In its October 2002 Plenary meeting, the FATF saw the same threshold and thus expressed the same sentiment about it. However, because it did receive a copy of the executive department’s proposed amendments designed to address the concerns of the FATF, it gave the country until the February 2003 Plenary meeting to pass the amendatory law.

Both the Senate and the House of Representatives decided not to heed the advice of the FATF to "expand the definition of ‘covered transaction’ in the AMLA to include any suspicious transaction regardless of the threshold amount". Instead, in their respective versions, they both kept "covered transactions" and added a new term "suspicious transactions" both of which are required to be reported to the AMLC. They parted in the details.

The House of Representatives lowered the threshold to P500,000 which was more or else the international standard; the Senate lowered its own threshold figure, too, but only at P2 million. The reckoning period for both was five consecutive banking days.

The Senate defined "suspicious transactions" as "transactions with covered institutions, regardless of the amounts, with no apparent justification and appears to be directly related to any unlawful activity or money laundering offense". The House, on the other hand, had a longer definition consisting in an itemized list, most of them coming from the law and regulations implementing the original law.

Of the two versions, the House was more in keeping with a set of proposed amendments sent to the FATF on December 20, 2002.

At the conference committee, the version of the House on the threshold amount prevailed, but the Senate’s definition by description won over the House’s definition by enumeration in the concept of a suspicious transactions.

By the time both houses ratified their conference committee report, the FATF was already in Plenary for 2003. Since we still, technically speaking, have not yet amended our RA 9160, the Plenary "decided that counter-measures will now apply to the Philippines as of March 15, 2003, unless the Philippines enacts the necessary amendments to the AMLA by that time.

On February 3, the Senate had a dialogue with representatives of the member-countries of FATF, particularly those from the US, Japan and Hong Kong. The Senate agreed to reduce its P2 million threshold further to the level set by the House at P500,000. However, the reckoning period was set at one banking day. That agreement became Section 1 of RA 9194, amending the definition of "covered transaction" in Section 3, paragraph (b) of RA 9160.

In addition, the Senators agreed to define "suspicious transactions" in the same way that it was defined in the House, i.e. by enumeration. That agreement became Section 2 of RA 9194, adding a new definition in Section 3 of RA 9160.

When every thing was said and done, at least on this question of the threshold amount for reporting to the AMLC, it became clear that we could have dispensed with the services of the Senate. I cannot help, with due apologies to Shakespeare, but wish for our country that this lofty scene be acted over in laws yet unborn and issues yet unknown.