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We postpone, therefore, we suffer

(Article published in the Jul 7,2003 issue of TODAY, Business Section)

Many gasped in disbelief last month when the Antimoney Laundering Council (AMLC) admitted that despite the passage of Republic Act 9194 incorporating, after much hawing from our legislators, the amendments required by the Financial Action Task Force (FATF) to our original Antimoney Laundering Law (RA 9160), the country continues to be in the list of noncooperative countries and territories (NCCT).

Unlike business and transactions from the Grenadines and Saint Vincent, jurisdictions which have taken off the NCCT list, those from the Philippines, as the transactions from the Cook Islands, Egypt, Guatemala, Indonesia, Myanmar, Nauru, Nigeria and Ukraine, remain to be object of “special attention” from financial institutions of FATF member.  The passage of RA 1994 simply saved the country from the countermeasures threatened by the FATF members and qualified the Philippines for an invitation from the international body to submit plans on the implementation of the revised antimoney-laundering law.  Before taking us of the list, the FATF would still want to see how the law works and not just how the law is worded.

The next FATF review is just four months away, including this current July, and the Philippines does not seem to be in any particular hurry to get off the NCCT list.  While the AMLC finished the revisions on the Implementing Rules and Regulation on June 3, until now, after over a month, not all the 14 members of the oversight body of legislators have signed the revised rules.  The signatures of five lawmakers are still missing, four from the opposition-Vicente Sotto III, Edgardo Angara, Celso Lobregat and Didagen Dilangalen-and one from the administration, that is Renato Cayetano who at this point has gone to a territory farthest removed from such mundane cares as money laundering.  Hence, the AMLC still has no formal signal to enforce the new rules.

 










Such Congressional procrastination is of course not new (after all, both the original antimoney-laundering law and its amendments were passed just before the relevant deadlines) but it has made making our exit from the NCCT more difficult.  We have been overtaken by events.  While our legislators were dilly dallying, the FATF revised its Forty Recommendations, making our law (even as amended) and the revised implementing regulations (even if considered approved by the oversight committee of Congress) fall short of the new standards.  When our antimoney-laundering regime is reviewed once again in October of this year, it would not be surprising if its not tested against the old Forty Recommendations but rather against the new one passed this June. 

Responding to the increasingly sophisticated combinations of techniques used by money launderers, the FATF, in its final Plenary Meeting in June Berlin, came up with what it calls “an enhanced, comprehensive and consistent framework of measures for combating money laundering and terrorist financing” Eight major changes were made on the previous Forty Recommendations; of these eight, at least four make our present law, as amended, noncomplaint.

The first major revision involves the scope of what we call “unlawful activity” which underpin the money laundering offense, this called “predicate offenses.”  The FATF, although zeroing in only on serious offenses, wants to cast a very big net and include “the widest range of predicate offenses.”  It thus recommended that each country at a minimum include a range of offenses within each of the “designated categories of offenses.”  Those on the minimum list of “designated categories of offenses” are in our own list of “unlawful activities,” but there is at least one that is not, namely, environmental crime.  That has to be included by a statutory amendment.

Another big change is the expansion of the due diligence process for financial institutions.  FATF insists that financial institutions should be diligent in determining the legitimacy of the money they handle not only at the beginning but also throughout the life of its relationship with its clients.  Careful scrutiny must be made not only when an account is opened but every time its suspicion is aroused or doubts are raised about even a long-time client’s transaction.  In fact, an “ongoing due diligence” is expected throughout the course of the relation “to ensure that the transactions being conducted are consistent with the institution’s knowledge of the customer, their business and risk profile, including, where necessary, the source of funds.”

This insistence on continuing due diligence is not very pronounced in our antimoney-laundering regime, where the focus, even if suspicious or covered transaction are to be reported regardless of whether it is at the start or in the course of the relationship, is concentrated at the account opening stage.

The concept of “politically exposed persons” (PEP) on whom the FATF suggests due diligence measures in addition to the normal procedures is another new feature of the revised recommendations.  PEPs are “individuals who are or have been entrusted with prominent public functions in a country.”  Some examples: heads of state or governments, senior politicians, senior government, judicial or military officials, senior executives of state owned corporation, and important political party officials.  Perhaps knowing too well the influence of close relatives and friends, the FATF observes that “business relationships with family members or close associates of PEPs involve reputational risks similar to those with PEPs themselves.”  In the local environment, PEPs include, I have no doubt, lawyers of choice of the PEPs themselves.

PEPs are, of course, not singled out by our own antimoney laundering law, even as revised.  Our legislators are politicians who almost all consider themselves “senior politicians.”  They also think of themselves as part of their constituencies and therefore work for their own interest also.  That is why, I am being fecesious (spelling deliberate) here, election offenses are not on the list of “unlawful activities.”  But if our law is to adhere to the revised standards, then our lawmakers must, as in other cases of life, admit that they are a class apart and therefore should be treated differently.  I will not be surprised, of course, if some nitwit legislator were to claim that singling out PEPs for more stringent due diligence procedures by financial institutions is against the equal protection clause of the constitution.

A fourth major change in our law is the extension of antimoney-laundering measures to designated nonfinancial business and professions, like casinos, real-estate agents, dealers of precious metals/stones, accountants, lawyers, notaries, independent legal professions, and trust and company service providers.  Of these suggested new entrants into the club of “covered institutions,” lawyers present in money laundering, as in many other aspects of our national life, the most problems because of the long standing rule on professional confidentiality.

But the FATF does not seem unduly harsh on lawyers.  Under Recommendation 12, they are to be considered covered institutions “when they prepare for or carry out transactions for their client concerning the following activities: buying and selling real estate; managing of client money, securities or other assets; management of bank, sayings or securities accounts; organization of contributions for the creation, operation or management of companies; and creation, operation or management of legal persons or arrangements and buying and selling of business entities.” Consequently, countries are encouraged to make them execute, when the occasion demands, the necessary suspicious transaction report (STR).

However, Recommendation 16 quickly qualifies the duty by saying that they “ are not required to report their suspicious if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege.”  Hence, our rules on legitimate lawyering could come in handy as a defense of lawyers accused of failure to report.

Moreover, the Interpretative Notes accompanying the recommendations recognize that “it is for each jurisdiction to determine the matters that would fall under legal professional privilege or professional secrecy” and concede that “countries may allow lawyers” to send their STR to their appropriate self-regulatory organizations, provided that there are appropriate forms of cooperation between these organizations and the FIU or financial intelligence unit, like the AMLC.

Space limitations forbid discussion at this time of the remaining revision to the Forty Recommendations.  What is clear, however, is that because of our procrastination, the bar of compliance with the FATF standards was raised just when we are about to hurdle it.  Because our lawmakers were as hard-headed as asses on the matter of joining the international fight against money laundering, we now face the prospect of staying on the noncooperative list until we comply with the revised standards, instead of being off the list in the first instance, like many other wiser countries, and now adjusting to the new compliance thresholds in our own sweet time.

 

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