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The money-laundering offense

(Article published in the October 13, 2001 issue of TODAY, Business Section)

During the deliberations of the House of Representatives on what is now known as the Antimoney-laundering Act of 2001, Rep. Exequiel Javier, steeped as he was in constitutional law, asked what is probably the most crucial question, striking at the very heart of the law: The law defines money laundering as "a crime whereby the proceeds of an unlawful activity are transacted, thereby making them appear to have originated from legitimate sources." The law proceeds to enumerate three modes of commission.

His question, bringing to the fore the issue of constitutional vagueness, was, what is the prohibited act, is it the transacting or the disguising?

Now that the law has been passed, it is important, initially in the regulations but eventually in the courts of law, exactly what the answer to Javier’s question is, as well as to other questions on the nature of the offense. In the meantime, it would be good to look at the text of the law for some illumination, or lack thereof.

Reading Section 4 of the law, which defines the money-laundering offense, the following appear to be elements of the crime: first, the existence of proceeds; second, the source of the proceeds being an unlawful activity; third, a transaction involving the proceeds; fourth; knowledge on the part of the one transaction, permitting the transaction or not reporting the transaction of the fact that the proceeds are in fact of an unlawful activity, and finally, as a consequence of the transaction, the proceeds are made to appear to have originated from legitimate sources.

"Proceeds" are defined, under Section 3 (f), as "an amount derived or realized from an unlawful activity." Two issues are, however, unanswered by the definition: (1) how far proceeds can change form without losing the character of being derived from an unlawful activity? and (2) are business gains resulting from the use of proceeds also "proceeds" Thus, if A hides ransom money by using it to buy a paid-up life insurance and then borrows the cash value and invests it in a business, will the borrowed money be still party of "proceeds" (question 1) and will the income of the business be also "proceeds"? (question 2).

The list of "unlawful activity," or the predicate offenses, is given under Section 3 (i). Needing clarification is the last category, "felonies or offenses of a similar nature that are punishable under the penal laws of other countries." Assuming that the "unlawful activity" was committed in country A but the proceeds, before coming to the Philippines, went through country B, which does not punish the same unlawful activity, is there money laundering?

The third element, "transaction," is also defined under Section 3. Subparagraph (h) says it "refers to any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. It includes any movement of funds by any means by a covered institution." Because the law uses the words "an act," the question that must be clarified in the regulations is whether a series of acts would qualify as a transaction. If in the affirmative, must all the persons involved know that the money is from an illegal activity? In other words, may those who know get of the hook by proving that one, whose act was essential to completing the transaction, did not know?

Knowledge that the money or property are proceeds of an illegal activity appear to be the fourth element of the offense. The law seems to require "actual knowledge" and nothing less. Thus, it is doubtful if a conviction can be sustained on proof that the accused deliberately refused to inquire into what is obviously a suspicious transaction or simply had, by virtue of his function, reason to know. In other words, was it the legislative intent to enable an accused to escape penalty by claiming "I did not know?"

Moreover, how about "after-acquired knowledge?" Let us suppose that the bank officer opened an account with funds which he did not know, at the time of the deposit, were proceeds of an illegal activity. Subsequently, the depositor confessed to him that the money were proceeds of an illegal activity. Would the bank officer be guilty of facilitating money laundering if he were to allow the depositor to withdraw the amount?

Finally, must the accused know the specific unlawful activity? In other words, supposing, in the above example, the depositor told the bank officer that the money was from "jueteng and masiao when in fact it was from kidnapping. Could the bank officer escape conviction if he proves that what he "knew" was not the true predicate offense?

The last element, the disguising is probably the most problematic. The transaction must result in making it appear that the proceeds, contrary to fact, originated from legitimate sources. The question is, must the offender intent the disguise? Or is it sufficient, for this conviction, that the result (whether intended or not) is the disguise? This is very crucial to the crime because there must be a mens rea, or criminal intent.

This brings us back to Representatives Javier’s fundamental question, what really is the gravamen of the offense, what really is the crime? The answer must be made clear, somehow or another, because, without such clarification, the law is vulnerable to challenges about constitutional vagueness, a situation abhorrent to the principles of fairness protected by the due process clause.