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FATF has no power to compel anybody

(Article published in the Aug 25,2003 issue of TODAY, Business Section)

        Senator Panfilo Lacson, allegedly disappointed that the Anti-Money Laudering Council (AMLA) did not jump, like a trained dog, to freeze the bank accounts of a certain “Jose Pidal”, was reported last Friday as planning to write the Financial Action Task Force (FATF) to compel the AMLC to act on his exposé on First Gentleman Mike Arroyo.

I am a fan of neither Panfilo Lacson, who does not know me from Adam, nor Mike Arroyo, who was a few years my junior at the Ateneo (the unspoken rule among Ateneans is once your junior, always your junior), but I have a citizen’s interest in helping that a young institution, like the AMLC, is understood for what it really is and allowed undistracted to do what it is intended to do, instead of being pilloried for not condescending to the designs of those who wish to manipulate it to their advantage.

The AMLC was not conceived as another Department of Justice or Ombudsman, whose core functions involve the prosecution of wrong doers, nor as another Bangko Sentral ng Pilipinas or Securities and Exchange Commission, charged with the duty of regulating institutions. Its core duty is, instead, simply to be a low-key, information gathering and evaluating, and independent body designed to detect signs that impurities have entered the country’s money stream and, if so, take first-aid protective action and sound the alarm, when justified, for the proper government agencies to take the necessary measures to rid the system of contaminated money.
 










         

Thus, the literature on international money laundering, when referring to the functional equivalent of the AMLC in the various jurisdictions cooperating in the drive to deny criminals the benefit of the proceed of their serious crimes, use the descriptive phrase “financial intelligence unit”.  It is seen as a lymph node in the body politic, monitoring the blood stream, trapping the offending virus or bacteria, and, calling on pain and fever, when the infection reaches an intolerable level, to warn the other organs that the system appears to be under  serious attack.

It took a while for Congress to understand this primarily unobstrusive and filtering role of the AMLC and, when it finally did, we were saddled with a law that had a quaint distinction between a “suspicious transaction” and a “covered transaction”.  Be that as it may, the present law nevertheless affirms that central to the effectivity of the AMLC is its free and continuous access to transactions involving the flow of money and, for that reason, the first in the enumeration of functions of the AMLC is “to require and receive covered or suspicious transaction reports from covered institutions” (Sec.7(1), R.A. No. 9160, as amended).  Only fifth in the enumeration is the power to “investigate suspicious and covered transactions deemed suspicious after an investigation by AMLC, money laundering activities and other violations ” of the anti-money laundering law (Sec.7(5), R.A. No. 9160, as amended).

This confirms the idea, recognized also by the cooperative jurisdictions in their own laws, that the primary line of defense against money laundering, is the corps of  “covered institutions” who handle the bulk of money transactions.  It is they who must, as front liners, determine for themselves whether a client is proposing a transaction that might be primarily for the purpose of disguising dirty in order to make it appear clean.  Thus, it is they who must do their own “know your client” drills to ensure that the transactions their client is proposing are compatible with his legitimate activities.  Those that are not are supposed to be reported as “suspicious transactions”.  And to ensure that a covered institution takes its role seriously, it is also required to report to the AMLC all transactions beyond a certain threshold amount, Php 500,000.  These are called “covered transactions”.  These reports constitute the grist of AMLC’s mills (Sec. 9 (c), R.A. No. 9160, as amended).

The investigative power of the AMLC is, as previously pointed out, in Section 7(5) of the law.  That legal provision clearly limits the AMLC’s power to investigate to four areas, namely, “suspicious” transactions, “covered transactions deemed suspicious after an investigation by AMLC”, money laundering activities, and other violations of the anti-money laundering law.

What is suspicious to the goose might not be suspicious to the gander and therefore the law makes clear what is to be considered “suspicious”. 

A suspicious transaction is a transaction “with a covered institution, regardless of the amount involved, with no apparent legal and economic justification, when there is reasonable ground to believe, after an internal investigation conducted by the covered institution, is directly related to any unlawful activity or money laundering offense” as defined in Sections (3)I and 4 of the law.

Clearly then, what the AMLC may investigate as a “suspicious transaction” must be one that is reported to it as such by a covered institution which is expected by the law to have made its own internal investigation prior to making the report.

The second type of transaction that the AMLC may investigate is a “covered transaction deemed suspicious after an investigation by AMLC”.  To make sense out this curious provision that authorizes an investigation by the AMLC of what it has already investigated, one must construe this to mean an authorization for the AMLC to investigate a covered transaction (which was reported to it simply because it was above the threshold of Php 500,000) after it receives reliable information from sources other than the covered institution that the transaction is suspicious, that is, that (a) the transaction is without any legal and economic justification, or (b) there are reasonable grounds to believe that the money is related to any unlawful activity or money laundering offense.

The deliberate use of the phrase “reasonable grounds to believe” indicates the legislative intent to ensure that the standard that the AMLC uses in determining whether or not it should proceed to a more extensive investigation is the same degree of certitude that justifies a fiscal’s finding of a prima facie case against a respondent.

At any rate, it is clear that the investigative power of the AMLC may be brought to bear on a transaction only if it is either (a) determined to be suspicious by the covered institution after it has made its internal investigation; or (b) deemed suspicious by the AMLC after it has received reliable information.  In both cases, the transaction must be a transaction reported by a covered institution.

Once the AMLC’s investigations indicate that the transaction constitutes a disguising of dirty money, then the task of the AMLC is to pass the ball to the Department of Justice or the Ombudsman for the prosecution of the offense (Sec. 7(4), R.A. No. 9160, as amended, and to the Solicitor General for the forfeiture of the funds and other remedial proceedings (Sec. 7(3), R.A. No.9160).

The third and fourth areas of AMLC investigation, under Section 7(5) of R.A. No. 9160, as amended, refer not to transactions but to “money laundering activities” and “violations” of the anti-money laundering law.  Since money laundering has been criminalized under Section 4 of R.A.No. 9160, as amended, and since criminal penalties are attached to violations of the anti-money laundering law, the investigative authority of the AMLC is limited to gathering evidence that would support a prima facie finding by the Department of Justice or the Ombudsman.  The torch is then to be passed on to these agencies to do their thing.

A strong argument could be made therefore for the proposition that becausethe AMLC’s power to investigate is a limited one, not every Tom, Dick and Harry, whether plain citizen or exalted senator, could call on the AMLC to conduct an investigation on any old or new accusation against a person or institution and expect to be attended to as a matter of right.  The AMLC’s power to investigate has very narrow confines and must be exercised in the light of core obligation to act as the country financial intelligence unit.

The AMLC, in fairness, must be given an opportunity to satisfy itself that attending to the complaint would not distract it from its primary duty of keeping the money stream clean, especially when the accusation could be handled more expeditiously and fairly by another government agency.

A final note.  The good senator’s plan to ask the FATF to compel the AMLC to act on what Mike Arroyo derisively calls a “parliamentary privilege striptease”, if he indeed voiced such an intention, indicates a serious misunderstanding of the FATF.  The FATF has no power to compel anybody. 

The FATF works on the basis of “recommendations”. Even in the so-called imposition of  countermeasures, it merely recommends to its members the application of stringent standards when dealing with the non-cooperative countries.  It does not speak well of one who wants to run for president to exhibit such ignorance of the true character of the FATF.

 

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