68763 THE WORLD BANK ASIA/PACIFIC GROUP ON MONEY LAUNDERING PHILIPPINES ME2 Mutual Evaluation Report Anti-Money Laundering and Combating the Financing of Terrorism Republic of the Philippines 8 July 2009 The Philippines is a member of the Asia/Pacific Group on Money Laundering. This evaluation was conducted by the World Bank and was then discussed and adopted by the Plenary of the Asia/Pacific Group on Money Laundering as a 2nd mutual evaluation on 8 July 2009. © 2009 ASIA/PACIFIC GROUP ON MONEY LAUNDERING; THE WORLD BANK All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Requests for permission to further disseminate, reproduce or translate all or part of this publication should be obtained from APG Secretariat, Locked Bag A3000, Sydney South, NSW 1232, Australia. (Telephone: +612 9286 4383 Fax: +612 9286 4393 Email: mail@apgml.org) -3- TABLE OF CONTENTS Acronyms ............................................................................................................................................... 7  Preface .................................................................................................................................................... 8  1.  GENERAL..................................................................................................................................... 16  1.1.  General Information on the Philippines ..................................................................... 16  1.2.  General Situation of Money Laundering and Financing of Terrorism ....................... 21  1.3.  Overview of the Financial Sector ............................................................................... 25  1.4.  Overview of the DNFBP Sector ................................................................................. 31  1.5.  Overview of commercial laws and mechanisms governing legal persons and arrangements .............................................................................................................. 33  1.6.  Overview of strategy to prevent money laundering and terrorist financing ............... 34  2.  LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES ....................................... 46  2.1.  Criminalization of Money Laundering (R.1 & 2) ...................................................... 46  2.1.1.  Description and Analysis............................................................................... 46  2.1.2.  Recommendations and Comments ................................................................ 51  2.1.3.  Compliance with Recommendations 1 & 2................................................... 51  2.2.  Criminalization of Terrorist Financing (SR.II) .......................................................... 52  2.2.1.  Description and Analysis............................................................................... 52  2.2.2.  Recommendations and Comments ................................................................ 53  2.2.3.  Compliance with Special Recommendation II .............................................. 53  2.3.  Confiscation, freezing and seizing of proceeds of crime (R.3) .................................. 54  2.3.1.  Description and Analysis............................................................................... 54  2.3.2.  Recommendations and Comments ................................................................ 58  2.3.3.  Compliance with Recommendation 3 ........................................................... 58  2.4.  Freezing of funds used for terrorist financing (SR.III)............................................... 59  2.4.1.  Description and Analysis............................................................................... 59  2.4.2.  Recommendations and Comments ................................................................ 63  2.4.3.  Compliance with Special Recommendation III............................................. 64  2.5.  The Financial Intelligence Unit and its Functions (R.26) .......................................... 65  2.5.1.  Description and Analysis............................................................................... 65  2.5.2.  Recommendations and Comments ................................................................ 83  2.5.3.  Compliance with Recommendation 26 ......................................................... 85  2.6.  Law enforcement, prosecution and other competent authorities—the framework for the investigation and prosecution of offences, and for confiscation and freezing (R.27, & 28) ............................................................................................................... 85  2.6.1.  Description and Analysis............................................................................... 85  2.6.2.  Recommendations and Comments ................................................................ 99  2.6.3.  Compliance with Recommendations 27 & 28............................................. 100  2.7.  Cross Border Declaration or Disclosure (SR.IX) ..................................................... 100  2.7.1.  Description and Analysis............................................................................. 100  2.7.2.  Recommendations and Comments .............................................................. 106  2.7.3.  Compliance with Special Recommendation IX .......................................... 107  3.  PREVENTIVE MEASURES —FINANCIAL INSTITUTIONS ................................................ 108  3.1.  Risk of money laundering or terrorist financing ...................................................... 108  3.2.  Customer due diligence, including enhanced or reduced measures (R.5 to 8)......... 109  3.2.1.  Description and Analysis............................................................................. 109  3.2.2.  Recommendations and Comments .............................................................. 131  3.2.3.  Compliance with Recommendations 5 to 8................................................. 133  3.3.  Third Parties And Introduced Business (R.9)........................................................... 134  3.3.1.  Description and Analysis............................................................................. 134  3.3.2.  Recommendations and Comments .............................................................. 135  3.3.3.  Compliance with Recommendation 9 ......................................................... 136  3.4.  Financial Institution Secrecy or Confidentiality (R.4) ............................................. 136  3.4.1.  Description and Analysis............................................................................. 136  3.4.2.  Recommendations and Comments .............................................................. 137  3.4.3.  Compliance with Recommendation 4 ......................................................... 137  3.5.  Record keeping and wire transfer rules (R.10 & SR.VII) ........................................ 137  3.5.1.  Description and Analysis............................................................................. 137  3.5.2.  Recommendations and Comments .............................................................. 139  3.5.3.  Compliance with Recommendation 10 and Special Recommendation VII 139  3.6.  Monitoring of Transactions and Relationships (R.11 & 21) .................................... 140  3.6.1.  Description and Analysis............................................................................. 140  3.6.2.  Recommendations and Comments .............................................................. 141  3.6.3.  Compliance with Recommendations 11 & 21............................................. 141  3.7.  Suspicious Transaction Reports and Other Reporting (R.13-14, 19, 25 & SR.IV).. 142  3.7.1.  Description and Analysis............................................................................. 142  3.7.2.  Recommendations and Comments .............................................................. 146  3.7.3.  Compliance with Recommendations 13, 14, 19 and 25 (criteria 25.2), and Special Recommendation IV...................................................................... 146  3.8.  Internal Controls, Compliance, Audit and Foreign Branches (R.15 & 22) .............. 147  3.8.1.  Description and Analysis............................................................................. 147  3.8.2.  Recommendations and Comments .............................................................. 150  3.8.3.  Compliance with Recommendations 15 & 22............................................. 150  3.9.  Shell Banks (R.18) ................................................................................................... 150  3.9.1.  Description and Analysis............................................................................. 150  3.9.2.  Compliance with Recommendation 18 ....................................................... 151  3.10.  The Supervisory and Oversight System—Competent Authorities and SROs. Role, Functions, Duties, and Powers (Including Sanctions) (R. 17, 23, 25 & 29)............. 151  3.10.1.  Description and Analysis............................................................................. 151  3.10.2.  Recommendations and Comments .............................................................. 164  3.10.3.  Compliance with Recommendations 17, 23, 25 & 29................................. 165  3.11.  Money or Value Transfer Services (SR.VI) ............................................................. 165  3.11.1.  Description and Analysis (summary) .......................................................... 165  3.11.2.  Recommendations and Comments .............................................................. 170  3.11.3.  Compliance with Special Recommendation VI .......................................... 170  4.  PREVENTIVE MEASURES—DESIGNATED NON-FINANCIAL BUSINESSES AND PROFESSIONS.................................................................................................................................. 171  4.1.  Customer Due Diligence and Record-keeping (R.12).............................................. 175  4.1.1.  Description and Analysis............................................................................. 175  4.1.2.  Recommendations and Comments .............................................................. 176  4.1.3.  Compliance with Recommendation 12 ....................................................... 177  4.2.  Suspicious Transaction Reporting (R.16)................................................................. 177  4.2.1.  Description and Analysis............................................................................. 177  4.2.2.  Recommendations and Comments .............................................................. 178  4.2.3.  Compliance with Recommendation 16 ....................................................... 179  4.3.  Regulation, Supervision, and Monitoring (R.24-25)................................................ 179  4.3.1.  Description and Analysis............................................................................. 179  4.3.2.  Recommendations and Comments .............................................................. 180  4.3.3.  Compliance with Recommendations 24 & 25 (criteria 25.1, DNFBP) ....... 180  4.4.  Other Non-Financial Businesses and Professions—Modern-Secure Transaction Techniques (R.20) .................................................................................................... 180  4.4.1.  Description and Analysis............................................................................. 180  4.4.2.  Recommendations and Comments .............................................................. 181  4.4.3.  Compliance with Recommendation 20 ....................................................... 182  5.  LEGAL PERSONS AND ARRANGEMENTS & NON-PROFIT ORGANIZATIONS ............ 183  5.1.  Legal Persons—Access to Beneficial Ownership and Control Information (R.33) . 183  5.1.1.  Description and Analysis............................................................................. 183  5.1.2.  Recommendations and Comments .............................................................. 185  5.1.3.  Compliance with Recommendations 33...................................................... 186  5.2.  Legal Arrangements—Access to Beneficial Ownership and Control Information (R.34)........................................................................................................................ 186  5.2.1.  Description and Analysis............................................................................. 186  5.2.2.  Recommendations and Comments .............................................................. 187  5.2.3.  Compliance with Recommendations 34...................................................... 187  5.3.  Non-Profit Organizations (SR.VIII)......................................................................... 187  5.3.1.  Description and Analysis............................................................................. 187  5.3.2.  Recommendations and Comments .............................................................. 198  5.3.3.  Compliance with Special Recommendation VIII........................................ 199  6.  NATIONAL AND INTERNATIONAL CO-OPERATION ....................................................... 200  6.1.  National Co-Operation and Coordination (R.31) ..................................................... 200  6.1.1.  Description and Analysis............................................................................. 200  6.1.2.  Recommendations and Comments .............................................................. 202  6.1.3.  Compliance with Recommendation 31 ....................................................... 202  6.2.  The Conventions and UN Special Resolutions (R.35 & SR.I)................................. 202  6.2.1.  Description and Analysis............................................................................. 202  6.2.2.  Recommendations and Comments .............................................................. 204  6.2.3.  Compliance with Recommendation 35 and Special Recommendation I .... 204  6.3.  Mutual Legal Assistance (R.36-38, SR.V)............................................................... 204  6.3.1.  Description and Analysis............................................................................. 204  6.3.2.  Recommendations and Comments .............................................................. 210  6.3.3.  Compliance with Recommendations 36 to 38 and Special Recommendation V .................................................................................................................. 210  6.4.  Extradition (R.37, 39, SR.V).................................................................................... 210  6.4.1.  Description and Analysis............................................................................. 210  6.4.2.  Recommendations and Comments .............................................................. 213  6.4.3.  Compliance with Recommendations 37 & 39, and Special Recommendation V .................................................................................................................. 213  6.5.  Other Forms of International Co-Operation (R.40 & SR.V).................................... 213  6.5.1.  Description and Analysis............................................................................. 213  Recommendations and Comments ........................................................................... 217  6.5.2.  Compliance with Recommendation 40 and Special Recommendation V ... 217  7.  OTHER ISSUES.......................................................................................................................... 218  7.1.1.  Resources and Statistics .............................................................................. 218  Tables 1. Ratings of Compliance with FATF Recommendations.................................................................. 219 2. Recommended Action Plan to Improve the AML/CFT System..................................................... 225 Table A Financial Activity by Type of Financial Institution ............................................................... 25 Table B Progress since the last Mutual Evaluation .............................................................................. 39 Table C Sanctions applicable to MSBs .............................................................................................. 169 Table D Primary registration agencies for NPOs ............................................................................... 188 Annexes Annex 1. Authorities’ Response to the Assessment ........................................................................... 233 Annex 2. Details of All Bodies Met During the On-Site Visit........................................................... 237 Annex 3. List of All Laws, Regulations, and Other Material Received ............................................. 253 -7- ACRONYMS AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism AMLC Anti-Money Laundering Council (FIU) BL Banking Law BCP Basel Core Principles CC Criminal Code CDD Customer Due Diligence CI Covered Institutions CPC Criminal Procedure Code CSP Company Service Provider CTR Covered Transaction Report DNFBP Designated Non-Financial Businesses and Professions FATF Financial Action Task Force FI Financial institution FIU Financial Intelligence Unit FSAP Financial Sector Assessment Program FSRB FATF-style Regional Body FT Financing of terrorism IAIS International Association of Insurance Supervisors IC Insurance Commission KYC Know your customer/client MEF Ministry of Economy and Finance MFA Ministry of Foreign Affairs MFD Monetary and Financial Systems Department of the IMF MOU Memorandum of Understanding ML Money laundering MLA Mutual legal assistance NPO Nonprofit organization PEP Politically-exposed person ROSC Report on Observance of Standards and Codes SEC Securities and Exchange Commission SRO Self-regulatory organization STR Suspicious Transaction Report UN United Nations Organization UNSCR United Nations Security Council Resolution -8- PREFACE This assessment of the anti-money laundering (AML) and combating the financing of terrorism (CFT) regime of the Philippines is based on the Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 of the Financial Action Task Force (FATF), and was prepared using the AML/CFT assessment Methodology 2004, as updated in February 2008. The assessment team considered all the materials supplied by the authorities, the information obtained on site during their mission from September 22,2008 to October 6, 2008, and other verifiable information subsequently provided by the authorities. During the mission, the assessment team met with officials and representatives of all relevant government agencies and the private sector. A list of the bodies met is set out in Annex 1 to the detailed assessment report. The assessment was conducted by a World Bank team with support of the Asia Pacific Group on Money Laundering. The evaluation team consisted of: Mr. Emile van Der Does de Willebois (Legal expert, team leader) Mr. Richard Gordon (Financial sector expert), Major Tom Hansen (FIU expert), Matteo Vaccani (support) and, on behalf of the APG, Mr. Eliot Kennedy (NPO and DNFBPs) and Mr. Shaun Mark (Law enforcement expert). The assessors reviewed the institutional framework, the relevant AML/CFT laws, regulations, guidelines and other requirements, and the regulatory and other systems in place to deter and punish money laundering (ML) and the financing of terrorism (FT) through financial institutions and Designated Non-Financial Businesses and Professions (DNFBP). The assessors also examined the capacity, implementation, and effectiveness of all these systems. This report provides a summary of the AML/CFT measures in place in the Philippines at the time of the mission. It describes and analyzes those measures, sets out the Philippines’ levels of compliance with the FATF 40+9 Recommendations (see Table 1) and provides recommendations on how certain aspects of the system could be strengthened (see Table 2). The assessors would like to express their gratitude to the Philippines authorities for their open and proactive cooperation throughout the assessment mission. -9- EXECUTIVE SUMMARY Introduction 1. This summary of Key Findings regarding the compliance of the Republic of the Philippines with the FATF Forty recommendations (2003) on Anti-Money Laundering (AML) and the Nine Special Recommendations (2001 and 2004) on Combating the Financing of Terrorism (CFT) has been prepared to provide the Philippines authorities with an initial overview of the main findings following the on-site mission. It includes recommendations to enhance the compliance and effectiveness of the Philippines AML/CFT regime. The views expressed in this document are those of the assessment team and do not necessarily reflect the views of the Board of the World Bank. Information and methodology 2. The Summary was prepared by the World Bank assessment team, using the AML/CFT assessment methodology 2004 (as updated in February 2008). In preparing the detailed assessment, assessors reviewed the institutional framework, the laws, regulations, guidelines and other requirements, and the regulatory and other systems in place to deter money laundering (ML) and financing of terrorism (TF) through financial institutions and designated non-financial businesses and professions (DNFBPs). The team also considered all information relevant to assess the effectiveness of the AML/CFT framework, including issues such as transparency, good governance and the capacity of the different stakeholders. This Report takes account of the AML/CFT measures in effect in the Philippines as of October 5, 2008 based on analysis of information received during the on-site visit and soon after. 3. This summary of key findings is based on inputs given by the authorities. Much of the relevant material was received by the pre-mission date earlier agreed upon, and as required under the AML/CFT Assessment and Mutual Evaluation Procedures. The process of conducting this assessment followed closely the timetable set by APG, in order for the Report to be discussed at the APG Plenary meeting in July 2009. Key findings 4. The Government of the Philippines has taken some significant steps to address the AML/CFT concerns highlighted in the earlier assessment conducted in 2003. These reforms were no doubt challenging in terms of demands on resources and given the composite range of issues faced by authorities. It should be recognized that the Philippines continues to be an active participant in global AML/CFT efforts, a valid contributor to APG initiatives, and an active member of the Egmont Group. 5. Key components of an AML/CFT regime are in place, and the amount of progress achieved so far surely deserves to be duly noted. However, several issues remain to be tackled to achieve proper compliance with legal standards, and true effectiveness in implementation. 6. The main shortcomings in the legal AML/CFT framework are the absence of several offenses from the predicate crimes list, the failure to make terrorism financing a stand alone offense, and the deficient implementation of UNSC resolutions. Notably the trafficking in human - 10 - beings, terrorism financing, and sexual exploitation are not as yet predicate offences for money laundering. The absence of terrorism financing as a standalone offense has an impact on multiple TF- related issues, including the lack of authority for the local FIU and LEAs to conduct TF investigations. Authorities have been able to freeze and confiscate terrorist funds on the basis of ancillary offences to terrorism, albeit on a legally tentative basis. 7. The current decisional process within the Anti-Money Laundering Council (i.e. the local FIU), is seriously affecting the ability of the agency to perform its core responsibilities, namely intelligence analysis and dissemination. The Anti-Money Laundering Council is the decision- making body for virtually all AMLC functions, including the day-to-day operations of the AMLC Secretariat, in charge of intelligence gathering, analysis and ML investigations. The need for Council approval for a wide range of actions by the FIU makes the timely provision of information to outside partners and the referral of cases to judicial authorities quite difficult. 8. The AMLC’s limited authority to gain direct access to bank records is an equally challenging impediment to the fulfillment of the agency’s tasks. As a result of a recent Supreme Court ruling (AMLC vs. Eugenio) the submission of court orders ex parte allowing bank inquiries by the FIU is excluded outside a small group of predicate crimes, which renders identification and tracing of assets much more difficult. 9. Procedures for access to bank records for law enforcement agencies (LEAs).are cumbersome, and the involvement of these agencies in the financial component of predicate investigations is extremely limited. Whenever criminal investigators seek to gather evidence on predicate crimes via bank records, they have to refer the matter to the AMLC and thus add an additional step to an already wieldy process. In some instances it took several months to obtain the requested information. In addition, the engagement of LEAs in financial investigations is also minimal, leaving the AMLC as the sole agency managing all aspects of all ML cases on the national territory, even though their resources are already spread very thinly. 10. Financial Institutions (FIs) are the only entities subject to full AML provisions in the domestic financial market. With a few exceptions, DNFBPs are still not covered by the Anti-Money Laundering Act (AMLA) provisions, although a draft bill currently before Congress – if enacted – would address this issue. 11. The limited integrity of the national government ID system seriously undermines customer identity verification efforts by covered entities. The ease with which clients can obtain fraudulent identification documents renders implementation of CDD measures more difficult. Applicable rules on the inclusion of originator information when performing wire transfers will also need to be amended in order to achieve full compliance with international standards. 12. A generic issue faced by most agencies involved within the AML/CFT framework is the current mismatch between their resources and the tasks assigned to them by law. This shortcoming has been identified with reference to the AMLC, the main law enforcement agencies, and the Central Bank units in charge of bank supervision and examination. In all these cases, both human and physical resources at the disposal of the agency or body in question were not commensurate to their mandated tasks. - 11 - General 13. The Philippine archipelago consists of some 7,100 islands and islets with a total land area of approximately 300,000 square kilometers. Manila is the country’s capital. The population of the Philippines as of 1 August 2007 was 88.6 million. 14. According to local authorities, the majority of illegal proceeds of crime stem from three main sources: illegal drug trafficking, investment scams/frauds and corruption/graft. The strategic position and features of its territory make the country an appealing route for both human and drug trafficking. The presence of anti-government armed groups and terrorist groups in the southern part of the country adds a significant TF risk. 15. Corruption in the country remains a serious challenge. In the last two years, the country’s Corruption Perception Index (CPI) score1 dropped from 2.5 in 2006 to 2.3 in 2008. The Philippines currently holds the 141st position in the CPI global ranking (out of 180), having lost 20 positions since 2006. 16. While a developed financial system - including banks and non-bank financial intermediaries - the Philippines still significantly relies on cash-based transactions. In 2006, the estimated share of the adult population with access to an account with a financial intermediary was estimated at 26%. Workers’ remittances constitute one of the main financial inflows into the local economy, and were estimated at US$14 bn in 2007. According to local authorities, criminals use a range of techniques to launder money in the Philippines. Generally, money launderers are thought to use the services offered by mainstream retail banking. 17. Recent investigations of terrorism financing have been targeting financial flows from the Middle East to the regions harboring terrorist groups in the Philippines via individuals linked to Islamic charities operating in the country. Legal systems and related institutional measures 18. Republic Act No. 9160, otherwise known as the Anti-Money Laundering Act took effect in 2001 and was later amended by Republic Act No. 9194(the AMLA). The Revised Implementing Rules and Regulations (RIRRs) pursuant to the AMLA took effect on 23 September 2003. These laws and regulations form the core of the Philippines’ legislative and regulatory framework to implement a comprehensive AML regime. The AMLA provides for the creation of the Anti-Money Laundering Council (AMLC) as the Financial Intelligence Unit (FIU) of the Philippines. The core FIU functions of collection, analysis and dissemination have been delegated to the AMLC Secretariat. 19. Several serious crimes are currently not defined as predicate crimes for ML2. A Draft Bill currently before Congress will partially address this. 1 CPI Score relates to perceptions of the degree of corruption as seen by business people and country analysts, and ranges between 10 (highly clean) and 0 (highly corrupt). 2 These are: participation in an organised criminal group and racketeering, terrorist financing, trafficking in human beings and migrant smuggling, sexual exploitation, including sexual exploitation of children, illicit arms trafficking, illicit trafficking in stolen and other goods, counterfeiting currency, environmental crime, forgery. - 12 - 20. Despite ML having been an offense since 2001, so far the courts in the Philippines have only pronounced one conviction for ML, while 39 matters have been referred by the AMLC to the DOJ for approval of charges. In an attempt to bring cases to a quicker resolution, a special task force (13 prosecutors) was created to deal with ML cases, although in practice only a limited part of their time is devoted to AML. The average case load per prosecutor is around 700 cases a year. 21. As yet the crime of terrorist financing has not been provided for as a separate, autonomous crime under Philippine law, with a significant impact on the country’s compliance with TF standards. 22. The current regime still shows several weaknesses with reference to provisional and forfeiture measures. A recent Supreme Court ruling (AMLC vs. Eugenio) excludes the submission of court orders ex parte allowing bank account inquiries by the FIU other than in a small number of cases. The decision undermines the identification and tracing of assets, since it ultimately results in the notification of the suspect of an ongoing investigation. The Draft Bill mentioned earlier will rectify this. 23. Given the scale of unlawful activities in the country, the amount of assets forfeited so far through civil forfeiture is low, and a significant time lag exists between case filing and resolution. In addition, the focus of law enforcement agencies is exclusively on the predicate offence, rather than on the proceeds generated by it, with the AMLC left to handle all asset freezing/forfeiture procedures and bank inquiries with its already limited resources. 24. Concerning the freeze of assets of persons or entities designated as terrorists or terrorist organizations, be it international or national, the Philippine system suffers from several deficiencies, although authorities have succeeded in freezing assets under UNSC 1267, albeit relying on a tentative legal basis. 25. The AMLC is the agency primarily responsible for the implementation of the AMLA, and it is comprised of the Governor of the BSP as Chairman, and the Commissioner of the IC and the Chairman of the SEC as members. The AMLC Secretariat supports the Council. The AMLC has a very broad mandate encompassing traditional FIU functions, in practice delegated to and exercised by the Secretariat, as well as policy and investigative tasks. The AMLC employs qualified personnel strongly committed to tackling the wide range of issues the body has to address. However, three elements appear to limit its overall effectiveness in the general AML/CFT framework. a. The AMLC Secretariat cannot meet its very broad mandate with its current resources - both human and financial. Hiring staff from law enforcement agencies and from the private sector (including DNFBPs) would expand the pool of skills available to the FIU, currently employing mostly legal and accounting experts. b. The AMLC decision-making process results in significant delays in Secretariat operations, and limited scope for horizontal interagency cooperation and information/intelligence sharing. The Council is involved in almost all decisions on dissemination by the FIU (e.g. STR intelligence) or the launch of civil or criminal ML investigations, which limits operational independence. c. Integration and cooperation with other agencies is inadequate. As the lead agency for ML investigations in the country, the AMLC de facto handles all such cases, including referrals from other agencies. In theory, the AMLC can enlist other agencies in such endeavors via - 13 - several “AML desks� created within their structures. However, in practice these are used only as contact points, and little more. Effective real-time access to other public registries/government database on AMLC premises, to be employed for analytical purposes, does not exist. 26. Given the limited resources of the AMLC Secretariat, the lack of law enforcement agencies’ involvement in investigating the financial component of criminal cases is a significant shortcoming. Moreover, law enforcement agencies are required to refer to the AMLC (and thus seek Council approval) to obtain court orders for bank records. 27. With reference to cross-border currency declarations, the Philippines have established a system to detect excess currency import and export through its frontier. However, statistics on currency declarations do not include data on ports other than Ninoy Aquino International Airport in Manila, and the available data show a relatively low amount of reports compared to the passenger volume involved. Preventive Measures – Financial Institutions 28. Three main agencies were assigned supervisory powers on the financial market of the Philippines: the local central bank (BSP), the Securities and Exchange Commission (SEC), and the Insurance Commission (IC). In substance, financial sector supervision rules are mostly in line with international standards, but there are some weaknesses. 29. The AMLA sets out the broad parameters of preventive measures applicable to the entities supervised by the three regulators/supervisors, complemented by the RIRRs and by BSP, SEC and IC guidance. In all three sectors no formal risk-based approach has been adopted in reference to preventive measures, especially with reference to low-risk transactions and customers. 30. Because it is relatively easy to obtain fraudulent IDs, financial institutions face serious challenges in verifying customers’ identity. 31. With reference to new technologies, mitigation of AML/TF risks has been effectively addressed by the BSP. A thorough evaluation process is in place, allowing the BSP to obtain knowledge of new business models and apply specific preventive AML measures. 32. There is a critical shortcoming in the regulation of cross-border wire transfers because the requirement on the inclusion of originator information is incomplete. 33. There is no explicit requirement to report transactions connected to TF owing also to the absence of a specific criminalization of TF. 34. Due to resource constraints and the lack of formal legal authority, the BSP can only conduct on-site examinations of a fraction of registered money services businesses, and not as frequently as bank-affiliated entities. In addition, since registration and licensing of MSBs are dealt with by different government agencies (the former nationally, the latter locally), the imposition of sanctions such as the revoking of a license has to go through a cumbersome process. - 14 - Preventive Measures – Designated Nonfinancial Businesses and Professions 35. The Philippines has not yet extended AML/CFT obligations to its DNFBP sector, except for the trust departments of banks, trust corporations and investment houses licensed by the BSP. There is currently no effective regulation and supervision of casinos for AML/CFT purposes, which causes significant concerns given the yearly business volume recorded by the industry. However, the draft bill currently before Congress – if enacted – would include DNFBPs in the list of covered institutions under the AMLA. Legal Persons and Arrangements, Nonprofit Organizations 36. Under Philippine law, legal persons are governed by the provisions of the Corporation Code of the Philippines (the “Corporation Code�) of 1980. It provides for two types of corporations, stock and non-stock corporations. Non-stock companies include NPOs. Other than cooperatives and other NPOs and partnerships no other legal persons can be formed under Philippine law. 37. All corporations should register with the Securities and Exchange Commission (SEC) and are required to file annual reports, the General Information Sheet (GIS) and Audited Financial Statements (AFS) with the SEC. Unlike many registration authorities, the SEC plays an active role in verifying the information supplied to it by registered corporations. The SEC has strong enforcement powers to rectify incorrect information, to impose penalties and to revoke licenses and it uses those powers in practice. As such, the SEC is able to provide up-to-date beneficial owner information to law enforcement agencies where domestic legal persons are concerned. 38. However, in the case of foreign companies most relevant information is supplied upon request, but no information needs to be submitted on the identity of shareholders. In addition, in 1996 the Supreme Court ruled that under certain circumstances legal privilege may extend to the identity of a client, which might have far reaching implications for the availability of such information in all those cases where lawyers are acting as nominees. 39. The Philippines has a large and diverse non profit sector (500,000 as of 1997). Many NPOs are not registered because they are not required to do so by law, and the constitutional right to free association prevents any legislation being enacted that would make NPO registration mandatory. However, NPOs do need to obtain legal personality to be able to open bank accounts, to enter into contracts, and to raise public funds. 40. There has been one terrorist related case involving an NPO – the International Islamic Relief Organization (IIRO), Philippine Branch- whose funds were confiscated. Local law enforcement agencies indicated that there is a real risk of misuse of NPO funds for TF purposes in those areas of the country that have suffered from terrorist activity. As yet a coordinated strategy aimed at identifying and addressing TF risks in the NPO sector does not appear to be in place. 41. The overall finding of a recent review of the NPO sector is that the present regulatory framework in terms of registration and licensing NPOs is effective and that the rules are clear to most organizations. However, the review also noted the risks posed by the lack of government resources including government regulatory agencies, a lack of information on NPOs and risks related to the lack of formal central structures for regulation. National and International Cooperation - 15 - 42. The AMLC has made a significant commitment to building national and international relationships to improve their effectiveness in both the analytical and criminal investigative arms of their operations. These activities have engaged regulators, law enforcement, reporting agencies, government, parliament and many other key stakeholders, within the framework provided by the AMLA. Deficiencies include lack of information sharing by government agencies with AMLC and a lack of cooperation during parallel predicate and financial investigations. 43. Mutual legal assistance (MLA) is generally provided for in the different MLA treaties, currently seven, with the USA, Australia, Hong Kong, Switzerland, Spain, Korea and within ASEAN (Treaty on Mutual Legal Assistance in Criminal Matters - “ASEAN MLAT�). A bilateral MLA was also signed with the People’s Republic of China. In addition, the AMLA contains provisions on MLA in the context of ML investigations, and MLA can be provided pursuant to multilateral treaties such as the Palermo convention or the UNCAC. 44. The Philippines generally has effective measures to execute MLAT requests. Since 2004, 15 MLAT requests and 7 non-treaty requests have been responded to. Of those requests, 10 were in relation to ML, which were handled by AMLC at the direction of DOJ. 45. According to the various foreign liaison officers stationed in the Philippines, the Philippines is very cooperative when asked to provide cooperation and generally makes every effort to assist in the most efficient way possible. One APG member has raised concerns about the potentially serious implications for international cooperation of the recent verdict by the Supreme Court (AMLC vs. Hon Antonio M. Eugenio) described above. 46. The Philippines has bilateral extradition treaties in force with Australia, Canada, P.R. China, Hong Kong China, Indonesia, Korea, Micronesia, Switzerland, Thailand and the United States. The Philippines has explicitly declared that it does not accept the UNCAC as a basis for extradition. Money laundering is an extraditable offense. There is no law criminalizing terrorist financing so there is doubt if terrorist financing can be considered as an extraditable offense even if dual criminality is construed purely based upon conduct. 47. Where the person sought to be extradited does not contest the extradition proceedings in court, his or her surrender can be completed within two (2) to three (3) months from the time the order of extradition becomes final. In cases of contested extradition proceedings, surrender of the person sought generally takes three (3) to five (5) years, and in some cases, more than five (5) years. Of the 10 extradition requests currently pending 2 were filed in 1998 and two in 1999. 48. Given the potential time required to meet extradition requests under the current arrangements, combining all appeals into a single review after extradition has been ordered could enhance speed of resolution. The process could also be expedited by imposing deadlines within which steps should be taken and decisions should be made. - 16 - 1. GENERAL 1.1. General Information on the Philippines 49. The Philippine archipelago consists of some 7,100 islands and islets with a total land area of approximately 300,000 square kilometers. The islands are grouped into three geographic regions: Luzon, the largest island in the north covering an area of 141,395 square kilometers; the Visayas in the central region, covering an area of 55,606 square kilometers; and Mindanao in the south, covering an area of 101,999 square kilometers. Manila is the country’s capital. The population of the Philippines as of 1 August 2007 was 88.6 million. Political System 50. The Republic of the Philippines is a constitutional Republic. The ratification of the new Constitution in 1987 restored a presidential form of Government composed of three branches: executive, legislative and judicial. Executive power is exercised by the President, who is elected by direct vote and serves only a single term of six years. The President of the Republic is also the Chief of State and Head of Government. Her Excellency Gloria Macapagal-Arroyo is the current President and the Vice-President is Noli de Castro. Cabinet members are appointed by the President subject to their confirmation by the Commission on Appointments. 51. Legislative authority is vested in the Congress of the Philippines, which consists of the Senate and the House of Representatives. Members of the Senate are elected at large by the qualified voters of the Philippines, as may be provided by law. Members of the House of Representatives are elected from legislative districts of the provinces, cities and Metropolitan Manila and through the party-list system of registered national, regional, and sectoral parties or organizations. The Bicameral Congress consists of the Senate (24 members elected at large to serve a six-year term) and the House of Representatives (not more than 250 members to serve a three-year term, 80% of whom are district representatives and the remaining 20% of whom are sectoral representatives). 52. The Supreme Court is the highest court. The lower courts include the Court of Appeals, the Regional Trial Courts (RTC) and first-level courts, e.g. Metropolitan and Municipal Trial Courts. Special courts were also created by law, as in the case of the Sandiganbayan (anti-graft court) and the Court of Tax Appeals. Shari’a Appellate, District (equivalent in rank to RTC) and Circuit Courts also operate in the Mindanao region. Economy 53. The Philippines is a lower-middle income country, with gross per capita income estimated at US$3,730 in purchasing power parity (PPP) (spell out PPP) terms as of 2007 and characterized by a market-based economy. In 2007, real Gross Domestic Product (GDP) growth was 7.2%. This was the strongest in the past three decades and exceeded the Government’s target of 6.1-6.7% per annum. Notwithstanding this performance, the economy continued to show persistent structural weaknesses—a low tax intake, high unemployment and under-employment, and rising poverty. A slowdown in real growth is forecast for 2008. The unemployment rate declined to 7.3% in 2007 from 8.0% in 2006, but is expected to rise again in 2008. Inflation averaged 2.8% in 2007. - 17 - 54. Significant income inequalities remain in the country, with the poorest 20% of the population accounting only for 5% of the overall income as of 2003. In the same year, the richest 5% held 53.4% of total income3. Between 2003 and 2006, poverty incidence increased from 30.0 percent to 32.9 percent despite average GDP growth of 5.4 percent. The Gini coefficient remains high at 0.454. 55. Remittance inflows from abroad (14.4 bn US$ in 2007) were a decisive factor in bringing a current account surplus despite a trade deficit, while net capital inflow was positive, supported by inflows in the form of portfolio investment (US$3.1 billion) and other investment (US$1.6 billion). The Philippines Peso (PHP) exchange rate versus the US Dollar fell in early 2008, with a rate of approximately PHP 47 per US$ at the time of the assessment visit. 56. While a developed financial system - including banks and non-bank financial intermediaries - the Philippines still significantly relies on cash-based transactions. According to World Bank estimates, as of 2007 the estimated share of the adult population with access to an account with a financial intermediary was 26%. One local financial service provider estimated that about 80% of the population is currently either de-banked or unbanked. It is thus not rare to see customers engaging in significant transactions (e.g. the purchase of a real estate property or other high value items) in cash. 57. The domestic financial system exhibited resilience in the face of international market turbulence. With the exception of a handful of banks, the banking system as a whole was mildly affected given their small holdings of sub-prime linked securities (0.2% of total assets according to the BSP). Legal System 58. The Philippines legal system is a combination of civil (Roman) and common (Anglo- American) 5law. Civil code procedures on family and property and the absence of jury trial were attributable to Spanish influences, but most important statutes governing trade and commerce, labor relations, taxation, banking and currency, and governmental operations were of United States derivation, introduced at the beginning of the twentieth century6. 59. The primary sources of law are7: a. Statutes or statutory law - In the Philippines, statutory law includes constitutions, treaties, statutes proper or legislative enactments, municipal charters, municipal legislation, court rules, administrative rules and orders, legislative rules and presidential issuance b. Jurisprudence – this includes all rulings in administrative and legislative tribunals such as decisions made by the Presidential or Senate or House Electoral Tribunals. c. For Muslim law, the primary sources of Shariah are the Quran, Sunnaqh, Ijma and Qiyas. 3 ADB, Poverty in the Philippines: Income, Assets and Access, 2005. 4 World Bank East Asia update, April 2008. The Gini coefficient is a measure of statistical dispersion most prominently used as a measure of inequality of income distribution or inequality of wealth distribution. It is defined as a ratio with values between 0 and 1: A low Gini coefficient indicates more equal income or wealth distribution, while a high Gini coefficient indicates more unequal distribution. 5 NYU Law Legal Research Database. Information provided by Milagros Santos-Ong, Director of Library Services for the Supreme Court of the Philippines. 6 US Library of Congress country study 7 NYU Law - 18 - 60. Primary Authority is the only authority that is binding in the courts. 61. Judicial power is vested in the Supreme Court and in the lower courts, while two special courts also operate in the system. At the apex (fourth tier) of the judicial system is the Supreme Court, composed of a Chief Justice and 14 Associate Justices who sit en banc or in three divisions of five members each. The courts have: a. the power to settle actual controversies involving rights that are legally demandable and enforceable, and b. the power to determine whether or not there has been any grave abuse of discretion amounting to a lack or excess of jurisdiction on the part of any branch/instrumentality of government 62. The lower judicial level includes two special courts (the Sandiganbayan – SB, and the Court of Tax Appeals – CTA), the Court of Appeals (CA) and the Shari’a Appellate Court. The SB is an anti- graft court charged with criminal cases involving graft and corrupt practices as well as civil cases for the recovery of civil liability. 63. The Shari’a Appellate Court is charged to review appeals over decisions taken within Shari’a Circuit Courts and District Courts. 64. The CA is assigned to review cases from Regional Trial Courts (RTCs) and quasi-judicial agencies such as the Civil Service Commission, National Labor Relations Commission, Securities and Exchange Commission (SEC) and the Land Registration Authority. It reviews both questions of fact and of law. 65. Second Level Courts include RTCs, established in each of the 16 regions of the Philippines and each composed of several branches in each regions. RTCs act as trial courts and may receive evidence from the parties. In addition, they exercise jurisdiction over decisions of the MeTCs, Municipal Trial Courts in Cities (MTCCs), MTCs and Municipal Circuit Trial Courts (MCTCs) in their respective territorial jurisdictions. 66. First level courts include Metropolitan Trial Courts (MeTCs); Municipal Trial Courts in Cities (MTCCs) where cities are not part of a metropolitan area; Municipal Trial Courts (MTCs); and Municipal Circuit Trial Courts (MCTCs) created in circuits composed of cities/municipalities as grouped by law. Structural Elements for Ensuring an Effective Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) System Transparency and good governance 67. Corruption in the Philippines remains a serious challenge. In the last two years, the country’s Corruption Perception Index (CPI) score8 dropped from 2.5 in 2006 to 2.3 in 2008. The Philippines 8 CPI Score relates to perceptions of the degree of corruption as seen by business people and country analysts, and ranges between 10 (highly clean) and 0 (highly corrupt). - 19 - currently holds the 141st position in the CPI global ranking (out of 180), having lost 20 positions since 2006. 68. World Bank Worldwide Governance Indicators show that across the last three years, no significant improvement has been achieved in the areas of control of corruption, political stability, voice and accountability, and rule of law. In the first two indicators, the Philippines were in the second to last quartile globally as of 2007, while in the other two indicators the country was in the lowest quartile. 69. Regulatory quality remained roughly stable between 2006 and 2007, showing improvements compared to 2004. The indicator relating to government effectiveness also showed steady improvement since 2004, maintaining the country within the 50th-75th percentile range on a global scale. 70. To provide an idea of the size of the corruption phenomenon and its potential impact on local society, a 2001 World Bank study estimated that across 1995-2000 approximately US$12 bn was lost to corruption within the Philippines9. An economic adviser to President Arroyo recently acknowledged that corruption in revenue generating agencies, such as the Bureau of Customs (BOC) and the Bureau of Internal Revenue (BIR), is the principal challenge to income redistribution and economic development10. 71. A 2006 Transparency International report noticed how the perception of prevalent corruption practices is particularly high in the military, the electoral system, the business environment and the executive branch11. 72. Politics are built upon a weak party system suffering from a lack of financial independence Financial audits of political parties are considered ineffective. Coupled with a strong reliance on personal and family ties within the political system, these factors lead to a significant vulnerability to corruption12. 73. The judicial system has not been exempt from integrity critics. A 2005 US State Department report on human rights found the Philippines’ judiciary particularly vulnerable to corruption, but also to structural inefficiency. Graft cases against government officials are slow to move through the courts, averaging 6-7 years. A recent survey among lawyers operating in the major regions of the country found almost half of the respondents aware of bribing practices involving judges13. Presidential appointment of justices also seems to have contributed to the deterioration in the perception of integrity in the judicial system. 74. Civil service structures also show some vulnerability to integrity disruptions. While provided by law, the role of political figures in appointment processes is often perceived as very wide, and thus an obstacle to meritocracy, a problem compounded by high wage differentials that leave public servants vulnerable to bribery. Law enforcement agencies do not fare any better reputation: in 2005, a Transparency International report found that the Philippines National Police (PNP) was deemed the 9 World Bank. (2001).Combating Corruption in the Philippines: An Update. Pasig City: World Bank. 10 Transparency International, National Integrity Systems Country Study Report: Philippines, 2006 11 Ibid. 12 Ibid 13 Ibid. - 20 - most corrupt institution in the country, both internally (with regards to recruitment, procurement, fund disbursement and resource allocation) and externally (with the alleged participation in or support to crime). 75. The private sector and the media are also reportedly involved in corruption practices. In the first case, crony capitalism and infrastructure scams have been highlighted as matters of particular concern. In the second case, while no journalist has so far been convicted in a corruption case, the presence of media operators excessively close to political figures – especially during electoral processes - has often been reported. Anti-Corruption Measures 76. While the vulnerabilities of the Philippines system to corruption cannot be ignored, at the same time efforts within its leading bodies and groups should be mentioned. Most institutions do have accountability and integrity mechanisms, and the government has been implementing its National Anti-Corruption Program of Action (NACPA), aimed at streamlining anti-corruption efforts. 77. Anti-corruption reforms have become more of a priority, particularly through presidential initiatives in the areas of fiscal reform, corruption enforcement and prosecution through support to the Ombudsman and the Presidential Anti-Graft Commission (PAGC). Other public institutions have similarly recently acted to counter the widespread perception of low integrity in Philippines society. 78. The Office of the Ombudsman (OMB) was created under Section 5, Article XI of the 1987 Constitution (Accountability of Public Officers), with powers, among others, to investigate on its own or on complaint by any person, any act or omission of any public official, employee, office or agency, when such act or omission appears to be illegal, unjust, improper, or inefficient. 79. The Ombudsman and his Deputies are mandated to enforce their administrative, civil and criminal liability in every case where the evidence warrants in order to promote efficient service by the Government to the people. 80. The OMB is granted preventive, investigative and prosecutorial powers. OMB’s annual conviction rate rose from 23% in 2004 to 33% in 2005, and from 19% in 2006 to 55% in 2007. In the exercise of its disciplinary authority, the OMB imposed administrative penalties of reprimand, suspension and dismissal from the service on 468 respondents in 2004, 454 in 2005, 213 in 2006 and 344 in 2007. 81. On 16 April 2001, President Arroyo signed Executive Order No. 12, creating the Presidential Anti-Graft Commission (PAGC) tasked, amongst other things, “to investigate, receive, gather and evaluate evidence, intelligence reports and information on and hear administrative cases, for acts and omissions constituting violations of a specified set of laws, rules and regulations, against all presidential appointees in the Executive Branch of government and any of its agencies or instrumentalities occupying the position of Assistant Regional Director or an equivalent rank, and higher�. 82. Another initiative is the Millennium Challenge Account-Philippines Threshold Program Technical Assistance Project (MCA-PTP TAP), which ran for two years, a US-funded program aimed at reducing corruption by strengthening the OMB and intensifying the enforcement of anti-graft programs of the Department of Finance (DOF), namely, the Revenue Integrity Protection Service (RIPS), Run After Tax Evaders (RATE), and Run After the Smugglers (RATS). - 21 - 83. Article IX of the 1987 Constitution further provides for the creation of an autonomous constitutional commission tasked with the promotion of meritocracy, effective service delivery and accountability within the public administration: the Civil Service Commission (CSC). The Commission created the comprehensive Code of Conduct of Ethical Standards for Public Officials and Employees, regulating conflict of interest and mandating the submission of statements of assets and liabilities by all non-honorary officials, with criminal and administrative sanctions mandated for non-compliant personnel. The CSC sanctioned officials involved in 264 administrative cases from 2004 to 2007. 84. The Commission on Audit (COA), which is the watchdog of financial operations of the government, disallowed transactions amounting to US$91.27 million in 2007, suspended payments totaling US$539.02 million and charged public officials for fraudulent transactions amounting to US$2.88 million, due to irregular use of Government funds and properties. 85. The judiciary has also taken steps to check corruption within its ranks, by adhering to the Bangalore Principles of Judicial Conduct of judicial integrity, and implementing the Judiciary Reform Support project. 86. The PNP has recently started putting in place certain anti-corruption practices, it has begun publishing an annual report, disclosing policies and organizational charts, and allowing civil society members and private sector representatives to become active members in procurement committees. Recently, it also considered selecting civilians to head the divisions of the Directorate of Controllership and the PNP Finance Services. 87. Finally, the Philippines can count on the support of international institutions in its fight against corruption: multilateral banks (World Bank, ADB), bilateral donors (USAID, Japan International Cooperation Agency (JICA), EU and AusAID, and organizations like UN Development Programme and the Asia Foundation. In general, such institutions constantly interact with local agencies and civil society to provide both finances and knowledge to anti-corruption efforts. 1.2. General Situation of Money Laundering and Financing of Terrorism 88. Several elements render the Philippines very vulnerable to ML and TF practices. According to local authorities, the majority of illegal proceeds of crime stem from three main sources: illegal drug trafficking, investment scams/frauds and corruption/graft. 89. From a structural point of view, the strategic position and features of its territory make the country an appealing route for trafficking, both in human beings and drugs. Widespread corruption, especially in graft cases involving public officials, also generated substantial illegal proceeds. In addition, the presence of anti-government armed groups and terrorist groups in the southern part of the country adds a significant TF risk. Several groups, including terrorist cells, have also been involved in kidnapping-for-ransom cases generating illegal proceeds. Drug production and trafficking 90. The picture in the Philippines is dominated by crystal methamphetamine (locally referred to as “shabu�): the country is a significant producer, transit point and consumer country of the drug. The Philippines continues to have the world’s highest estimated annual methamphetamine prevalence rate - 22 - (6%)14. Several seizures of clandestine laboratories and chemical warehouses, (accounting for 8.4 metric tons of shabu over the 2000-2006 period) placed the country 5th on a global basis. Drug manufacture is managed by transnational organized crime syndicates together with local drug groups, smuggling chemicals into the country via mislabeled shipments and setting up laboratories first in the Metro Manila area, and later as a result of enforcement actions in other regions. 91. As an indication of the potential amount of proceeds involved, the price of a tablet of shabu as of 2005 was US$22.6 on a retail basis, and US$21.7 on a wholesale (1,000 tablets) basis. Overall, illegal drugs, controlled substances, essential chemicals and laboratory equipment valued at more than PHP34.5 billion (US$734 m) were seized/confiscated by the Philippine Drug Enforcement Agency (PDEA) from 2004 to 2007 (see Table I in the Annex): 92. As of 15 May 2008, the PDEA had filed a total of 95,762 illegal drug-related cases of which 6,226 had resulted in conviction. The number of dismissed cases totaled 4,902 while 2,008 cases were provisionally dismissed. A total of 5,430 cases resulted in acquittal. The AMLC had filed cases for forfeiture of assets amounting to PHP73,256,452.22 – approximately US$ 1.5 m - in the names of suspected illegal drug traffickers. Investment scams/fraud 93. Investment scams in the form of pyramid and ponzi schemes are often used to prey on Philippine citizens and investors. In the Philippines, fraud is generally referred to as estafa. The Philippine form of ponzi or pyramid scheme is called “networking� or “pseudo-deposit-taking activities� or “high yield investment programs� which involves the recruitment of agents/investors upon which the recruiter earns a commission even though there is no underlying product being sold. The swindle consists of the misrepresentation that the activity to solicit the so-called “investment� has been duly authorized by the SEC, when in fact, it has not. 94. In 2007, for example, a scam was perpetrated targeting the more affluent members of society. When the scheme collapsed, the principal suspect fled the country with proceeds estimated around US$200 million. In coordination with the regulatory authorities and law enforcement agencies, 27 people allegedly involved in the scam were arrested and charged with syndicated estafa. The AMLC was able to obtain a freeze on the bank deposits of the suspects. Thereafter, the AMLC secured an Asset Preservation Order from the court to prevent the suspects’ bank deposits from being withdrawn. Forfeiture proceedings against these deposits are currently pending. 95. At the moment there are two criminal complaints for money laundering predicated on investment frauds pending before the Department of Justice (DOJ), and one before court. The assessment team was also informed of attempts by at least one known individual involved in investment frauds, to engage in investments in insurance products, and then later disinvest demanding to be paid in cash. Corruption/graft 96. Corruption through bribery and embezzlement are thought to be the source of significant illegal proceeds within the Philippines. As already stated, corruption in revenue-generating agencies is 14 The rate measures the incidence of a specific phenomenon (e.g. drug abuse) in terms of share of the population involved in it. - 23 - taking a particularly heavy toll on the local economy. The Presidential Anti-Graft Commission (PAGC) has handled multiple corruption cases related to Presidential appointees in the last four years (see Table II in Annex 5). Kidnapping for Ransom 97. Kidnapping is a serious issue in the Philippines. The crime is used both as a source for income for criminal groups, and as a source for funds by armed groups acting against the government. Renegade elements of the Moro Islamic Liberation Front (MILF) and members of the Abu Sayyaf Group have often engaged in kidnapping to fund operations and general logistical expenses. Table III in Annex 5 describes trends in reported kidnapping cases and their resolution over the last four years. Human trafficking 98. While not a predicate crime under the AMLA, as amended, there are indications that human trafficking is a potentially significant source of illegal proceeds. 99. In the latest (2008) US Department of State Trafficking in Persons report, the Philippines is part of the “Tier 2� group of countries with respect to the scope and nature of the phenomenon15. While compared to 2001 the country has remained in the same Tier, across 2004-2005 the situation had been deteriorating, with the Philippines being demoted from Tier 2 to Tier 2’s “watch list�. The last three years have seen the country back again into Tier 2, but several elements suggest that it is vulnerable to human trafficking. 100. According to the US Department of State report, the Philippines is considered primarily a country of origin for individuals trafficked for sexual exploitation and forced labor. Countries where Filipino workers have been subject to involuntary servitude include Bahrain, Canada, Cyprus, Japan, Malaysia, Qatar, Singapore and the UAE. Cross-border sexual exploitation has been reportedly traced between the Philippines, Japan, the Middle East and Western Europe. Internal trafficking is also occurring, with women and children trafficked from poorer communities to Cebu and Metro Manila for sexual exploitation. Human trafficking inflows are also present (be it to a lesser extent) from China, South Korea and Russia to fuel the local commercial sexual exploitation industry, and the use of the country as a transit point has also been reported. 101. Proceeds from human trafficking usually take three forms: a) payments by workers eager to reach destination countries illegally, and later involved in slavery; b) revenues from the facilitation of flows across transit countries (e.g. Chinese victims sent to Western countries via the Philippines); and c) revenues from either sexual exploitation or coerced work of victims. Terrorism Situation in the Philippines 102. The threat of terrorism in the Philippines, and specifically in the southern part of the country (Mindanao Region), remains a major challenge to government authorities despite the recent arrests of certain key personalities. The region continues to be an area for terrorist-related activities such as small-scale training, recruitment, and fund raising. It also functions as a place of refuge or safe haven for violent jihadists and a target area for test missions on bombing operations. 15 The least affected group is Tier 1, while the group where the phenomenon has the greatest impact is Tier 3. - 24 - 103. The southern regions of the Philippines have traditionally provided bases for the operations of two local extremist groups: rogue elements of the Moro Islamic Liberation Front (MILF) and the Abu Sayyaf Group (ASG). The rogue elements of the MILF, the ASG as a whole and Jemaah Islamiyah (JI), eventually developed linkages that were mutually beneficial to their respective agendas. 104. The Moro National Liberation Front (MNLF) and the MILF have been taking part in insurrection campaigns against the Philippine government for about three decades. A cease-fire has been recently implemented, and most MILF cadres are now involved in negotiations with the national government to reach a stable and peaceful solution. However, rogue members of the group continue to challenge the local government and to nurture ties with jihadist groups like JI (involved in the past in training in MILF camps) and ASG, which have enjoyed support from renegade MILF cadres since 2002. 105. The ASG is a small, faction-ridden Muslim group operating in Western Mindanao and on the Sulu islands, engaging in urban bombings and recently resurging under Khadaffi Janjalani. Two ASG finance officers, Mohammad Hatta Haipe and Burhan Mundus, are currently detained in Malaysia following their arrest in 2006 by the Royal Malaysian Police. At present, the ASG is engaging in kidnap-for-ransom and extortion activities to replenish its dwindling funds. In addition, drug cultivation and smuggling have also been connected to the ASG as a source for funding: in 1999 Philippines security forces destroyed about 70,000 marijuana plants worth US$10 million reportedly belonging to ASG operatives. With the death of its key leaders and arrest of its foreign supported financial officers, however, major operations have gone down in recent years. The group was listed on the UN Consolidated 1267 Committee list on October 6, 2001. 106. Finally, the Rajah Sulaiman Movement (RSM), consisting of Christian converts to Islam, has recently become active in the Philippines terrorism. Particularly feared for its ability to blend in and move freely about Luzon and other urban areas of the Philippines, the group was reportedly involved in the near-simultaneous Valentine's Day bombings in Manila, Davao, and General Santos City of 2005 together with JI and ASG. The group’s leader, Ahmad Santos, was captured in 2005, but the group is still operating. Money laundering typologies and trends 107. Indications are that the majority of illicit funds are obtained through crimes committed within the Philippines, but there is also evidence of foreign persons transferring the proceeds derived from crimes committed overseas to the Philippines to conceal the funds. 108. According to local authorities, criminals use a range of techniques to launder money in the Philippines. Generally, money launderers use the services offered by mainstream retail banking. To a much lesser extent, the securities and insurance sectors are also exploited. Money laundering in the Philippines is thus predominantly carried out using the regulated financial sector, particularly through the use of false identities and false names in bank accounts facilitated by forged documents, as well as through domestic and international funds transfers. 109. A small number of cases involving the use of money changers and foreign currency dealers have also been reported. In addition, cash smuggling into and out of the Philippines has been an ongoing practice for decades. The latest case involved the seizure by the Bureau of Customs (BOC) of 19 Million Yen (US$180,402) from two Japanese arriving at the international airport, who failed to disclose that they were carrying such large amounts of currency. Similarly, three top PNP officials recently failed to declare EUR105,000 while traveling on a business trip abroad. - 25 - 110. Recent investigations of terrorism financing have been targeting financial flows from the Middle East to the regions harboring terrorist groups in the Philippines via individuals linked to Islamic charities. The organizations are used primarily for cross-border transfers, while cash couriers are the main means of internal fund transfer. In most cases the organizations were engaged in completely legal activities beneficial to the respective communities served, and the diversion of funds for violent activities had been carried out without the knowledge of the NPOs involved. 111. As described above, terrorist and guerrilla groups in the Philippines have been involved in racketeering, extortion and kidnapping. In addition, like-minded Filipino workers abroad are believed to have contributed financial support to such groups. 1.3. Overview of the Financial Sector 112. The Philippines has a large, modern financial system, with a wide range of financial institutions, ranging from banks to quasi banks and non-bank operators. Three prudential authorities are tasked with the supervision of the financial institutions operating in the market: Bangko Sentral ng Pilipinas (BSP), the Insurance Commission (IC) and the Securities and Exchange Commission (SEC). Together, the institutions operating in 2007 under these three authorities held assets totaling in excess of PHP9.5 trillion. 113. The following table sets out the types of financial institutions that can engage in the financial activities that are within the definition of “financial institutions� in the FATF 40+9. Table A Financial Activity by Type of Financial Institution FINANCIAL ACTIVITY BY TYPE OF FINANCIAL INSTITUTION Type of financial activity Type of financial institution that AML/CFT regulator & (See the Glossary of the 40 performs this activity supervisor Recommendations) 1. Acceptance of deposits and other 1. Banks 1. BSP repayable funds from the public (including private banking) 2. Lending (including consumer credit; 1. Banks 1. BSP mortgage credit; factoring, with or 2. Credit cards companies 2. [] without recourse; and finance of 3. Factoring and finance/consumer 3. [] commercial transactions (including credit companies forfeiting)) 3. Financial leasing (other than financial 1. Banks 1. BSP leasing arrangements in relation to 2.Leasing companies 2. [] consumer products) 4. The transfer of money or value 1. Banks 1. BSP (including financial activity in both the 2. Money remitters 2. BSP formal or informal sector (e.g. alternative remittance activity), but not including any natural or legal person that provides financial institutions - 26 - solely with message or other support systems for transmitting funds) 5. Issuing and managing means of payment (e.g. credit and debit cards, cheques, traveller's cheques, money orders and bankers' drafts, electronic money) 6. Financial guarantees and commitments 1. Banks 1. BSP 7. Trading in: 1. Banks 1. BSP (a) money market instruments 2. Investment companies 2. SEC (cheques, bills, CDs, derivatives etc.); (b) foreign exchange; (c) exchange, interest rate and index instruments; (d) transferable securities; (e) commodity futures trading 8. Participation in securities issues and the 1. Banks 1. BSP provision of financial services related to 2. Investment companies 2. SEC such issues 9. Individual and collective portfolio 1. Banks 1. BSP management 2. Investment companies 2. SEC 3. Investment associations 10. Safekeeping and administration of 1. Banks 1. BSP cash or liquid securities on behalf of 2. Investment companies 2. SEC other persons 3. Investment management companies. 11. Otherwise investing, administering or 1. Banks 1. BSP managing funds or money on behalf of other persons 12. Underwriting and placement of life 1. Life insurance companies 1. IC insurance and other investment related 2. Lateral pension funds 2. insurance (including insurance 3. Life insurance agents and 3. IC undertakings and to insurance brokers intermediaries (agents and brokers) 13. Money and currency changing 1. Banks 1. BSP 2. Foreign exchange offices 2. BSP Banking sector 114. As of December 2007, there were 854 operating banks (head offices) in the territory of the Philippines. Four main types of banks operate in the Philippines (Table IV in Appendix): universal banks (UBs), commercial banks (KBs), thrift banks (TBs) and rural banks (RBs). Islamic banks are also operating in selected regions of the country. In 2007 there were 4,237 bank branches of universal and commercial banks both within the national territory and offshore (41). Predictably, the bulk of banks had most of their physical network located in the Metro Manila area (34.4%), while – given their business profile – rural banks are mostly operating in the countryside (96.8% of offices located in rural areas). - 27 - 115. Total resources of the banking system stood at PHP5,288.8 billion (US$112.5 bn) as of end- 2007, 4.78% higher than 2006. UBs and KBs continued to hold the bulk of the industry’s resources, while thrift banks, rural banks and Offshore Banking Units (OBUs) accounted for 9.18%, 3.03% and 2.93%, respectively. Domestic banks dominate the sector within the universal/commercial bank groups, accounting for more than 97% of the existing network. 116. Universal banks are the largest single group in terms of assets and provide the widest set of services. Unlike KBs, UBs can engage in underwriting and other functions typically performed by investment houses. In addition, UBs can invest in equities of non-allied undertakings. 117. As a group, KBs hold the second largest pool of resources in the Philippines financial market. Thrift banks (TBs) include savings and mortgage banks, private development banks, stock savings and loan associations and microfinance TBs. TBs engage in pooling of savings and their investment, short-term working capital and medium/long –term business financing, especially to their chosen markets and constituencies (particularly small/medium enterprises and individuals). 118. Rural banks (RBs) and cooperative banks aim to promote and expand the rural economy by providing financial services in peripheral rural communities. While RBs are privately owned and managed, cooperative banks are owned/managed by cooperatives or a federation of cooperatives. Islamic banks are operating in the Autonomous Region in Muslim Mindanao, providing banking, financial and investment services to accelerate development in the region, in compliance with Islamic provisions relating to financial services. Table IV in Annex 5 summarizes the breakdown of assets and physical network by main type of banking institution 119. All banking institutions in the Philippines are subject to BSP supervision pursuant to Section 25 of Republic Act No. 7653, and R.A. No. 7721 (for local branches of foreign institutions). 120. All banks are established/organized as corporate entities subject to registration and approval by the SEC. Thereafter, the appropriate banking license is issued by the BSP for domestic and local branches of foreign banks operating in the Philippines. The BSP is the competent authority responsible for prudential or market conduct supervision as regards banking activities. 121. For banks authorized to engage in cross-selling of insurance products of their subsidiaries and affiliates, the IC is also responsible for prudential or market conduct supervision related to insurance products. UBs which are authorized to engage in underwriting and other functions of the investment houses are also subject to SEC supervision as regards prudential or market conduct for such type of investment activities. All banks in the Philippines are subject to AML/CFT preventive measures under the AMLA and other BSP AML rules and regulations. Non-bank financial institutions (NBFIs) NBFIs under BSP supervision 122. There are two main categories of NBFIs operating under BSP supervision in the Philippines (Table V): a) non-bank institutions with “quasi bank� (QB) functions, and b) other non-bank financial institutions. QBs engage in borrowing funds from 20 or more lenders for the borrower’s account via issuances, endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of relending/purchasing receivables and other obligations. Typical examples are investment houses, financing companies, securities dealers/brokers, lending investors, venture capital corporations, government NBFIs and credit card companies. Other NBFIs include subsidiaries/affiliates of - 28 - banks/non-banks and pawnshops, while the remaining entities under BSP supervision include MSBs (FX dealers, remittance agents, money changers). 123. As of end-2007, the aggregate resources of NBFIs under BSP supervision, totaled PHP235.6 billion (US$5 bn), and NBFIs without QB functions accounted for 73.9% of such resources. 124. NBFIs with QBs are subject to BSP supervision pursuant to Section 25 of RA 7653 and the BSP is the only supervisory authority authorized to issue licenses to non-banks to engage in quasi- banking activity. Other existing NBFIs not under BSP supervision are supervised by the SEC. Regarding quasi-banking activities of NBFIs, prudential or market conduct supervision is with the BSP. All NBFIs under BSP supervision are required to comply with the AMLA and the BSP is the competent authority to ensure compliance with the AMLA pursuant to Section 11 thereof. 125. Entities engaged in money value transfer system or money service businesses (MSBs) such as remittance agents (RAs), money changers (MCs) and foreign exchange dealers (FXDs) are also required to register with the BSP pursuant to BSP Circular No. 471 dated 24 January 2005, and are subject to the requirements set by the AMLA. 126. Table V in Annex 5 shows the breakdown of assets and physical outlets held by NBFIs under BSP supervision as of 2007. NBFIs under Securities and Exchange Commission (SEC) supervision 127. As regards compliance with AML/CFT preventive measures, the SEC is the competent authority responsible for monitoring compliance by SEC covered institutions. The types of financial institutions under SEC’s direct supervision are: a. Brokers: a person engaged in the business of buying and selling securities for the account of others. b. Dealers: any person who buys and sells securities for his/her own account in the ordinary course of business. c. Investment advisers of an investment company : (1) any person (other than a bonafide officer, director, trustee, member of an advisory board, or employee of such company as such) who pursuant to contract with such company regularly furnishes advice to such company with respect to the desirability of investing in, purchasing or selling securities or other property, or is empowered to determine what securities or other property shall be purchased or sold by such company, and (2) any other person who pursuant to contract with a person described in clause (1) regularly performs substantially all of the duties undertaken by such person described in said clause (1); but does not include (A) a person whose advice is furnished solely through uniform publications distributed to subscribers thereto. (B) a person who furnishes only statistical trends, or advice as to occasional transactions in specific securities, but without generally furnishing advice or making recommendations regarding the purchase or sale of securities, (C) a company furnishing such services at cost to one or more investment companies, insurance companies, or other financial institutions, (D) any person the character and amount of whose compensation for such services must be approved by a court, or (E) such other persons as the Commission may by, rules and regulations or order determine not to be within the intent of this definition. d. Transfer agents : any person who engages on behalf of an issuer of securities, or itself as an issuer of securities, in: countersigning stock certificates upon issuance; monitoring the - 29 - issuance of such securities with a view toward preventing unauthorized issuance, a function commonly performed by a person called a registrar; registering the transfer of such securities; exchanging or converting such securities; transferring record ownership of securities by bookkeeping entry without physical issuance of securities certificates. e. Pre-need Companies: any corporation registered with the SEC and authorized/licensed to sell or offer for sale Pre-Need Plans, i.e. contracts which provide for the performance of future service/s or payment of future monetary consideration at the time of actual need, payable either in cash or installment by plan holders at prices stated in the Contract with or without interest or insurance coverage and includes life, pension, education, interment, and other plans which the SEC may from time to time approve. f. Investment Houses: any enterprise which primarily engages, whether regularly or on an isolated basis, in the underwriting of securities of another person or enterprise, including securities of the Government or its instrumentalities. g. Underwriters of Securities: a UB whose authority include, in addition to commercial banking powers, the authority to exercise the powers of Investment Houses. h. Financing Companies: corporations, except banks, investment houses, savings and loan associations, insurance companies, cooperatives, and other financial institutions organized or operating under other special laws, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, by direct lending or by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable as well as immovable property. i. Mutual Funds: investment companies which offer for sale or have outstanding, any redeemable security of which it is the issuer. 128. Other market participants under SEC supervision include: j. Philippines Stock Exchange (PSE)- a self-regulatory organization that provides fair, efficient, transparent and orderly market for the buying and selling of securities. k. Securities Clearing Corporation of the Philippines (SCCP) - organized primarily as a clearance and settlement agency for depository eligible trades executed in the PSE. l. Philippine Dealing System Holdings Corp. (PDSHC) - the holding company of the Philippine Dealing System Group of Companies (the PDS Group), i.e., Philippine Dealing and Exchange Corporation, Philippine Depositary and Trust Corporation, and the Philippine Securities Settlement Corporation, referred to as the fixed income exchange ("FIE"). The FIE infrastructure is an electronic platform for trading, clearing and settlement, depositary and custodianship of fixed income securities and its derivatives. m. Philippine Securities Settlement Corporation (PSSC) – provides the technology expertise and operates the entire market infrastructure of the PDS group. It likewise operates the settlement platform for interbank US$ transfers and US-PHP transactions. n. Philippine Dealing Exchange Corporation (PDex) - licensed as an Exchange that provides a centralized and efficient infrastructure for trading securities which ensures price discovery, transparency and investor protection. 129. Between 2004 and 2007, there was a noted decline in the number of supervised financial institutions by SEC from 1,057 in 2004 to 915, down by 142 or 13%for the period. This decline was - 30 - attributed to the decline in the number of financing companies, due to the additional capital requirements imposed by SEC. 130. Table VI in Annex 5 highlights the composition of SEC-supervised financial entities currently operating on the Philippines market. Covered Institutions under Insurance Commission (IC) supervision 131. All insurance institutions/entities in the Philippines, such as insurance companies whether life, non-life insurance companies or composite (both engaged in life and non-life insurance business), insurance agents (natural persons), insurance brokers, professional reinsurers, reinsurance brokers, holding companies, mutual benefit associations, trust for charitable uses and all other persons and entities supervised and/or regulated by the Insurance Commission (IC) are considered covered institutions subject to AML/CFT preventive measures under the AMLA. 132. The AMLC and IC are tasked to monitor compliance by insurance institutions with the requirements of the AMLA and other AML rules and regulations issued. The IC is also the competent authority responsible for prudential or market supervision as regards activities of any persons (legal or natural) or entities engaged in the insurance business or offering insurance products. 133. As of year-end 2007, there were 41,943 covered institutions under IC supervision, 99% of which were insurance agents such as ordinary agents, general agents, variable life agents and non-life company underwriters. Aggregate assets held by IC-supervised entities (see Table VII in Annex 5) amounted to 468 billion PHP (almost US$10 bn). 134. IC-covered entities operating on the Philippines market include the following: a. insurance company: an entity authorized to transact insurance business in the Philippines, whether life or non-life and whether domestic, domestically incorporated or branch of a foreign entity. b. insurance agent: any person who solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiation of such insurance. c. insurance broker: any person who acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself. d. professional reinsurer: any person, partnership, association or corporation that transacts solely and exclusively reinsurance business in the Philippines whether domestic or domestically incorporated or a branch of a foreign entity. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. e. reinsurance broker: any person who, not being a duly authorized agent, employee or officer of an insurer in which any reinsurance is effected, acts or aids in any manner in negotiating contracts of reinsurance or placing risks of effecting reinsurance. f. holding company: includes any person who directly or indirectly controls any authorized insurer. A holding company system includes a holding company together with its controlled insurers and controlled persons. - 31 - g. mutual benefit associations: any society, association or corporation, without capital stock, formed or organized not for profit but mainly for the purpose of paying sick benefits to members, or of furnishing financial support to members while out of employment, or of paying to relatives of deceased members of fixed or any sum of money, irrespective of whether such aim or purpose is carried out by means of fixed dues or assessments collected regularly from the members, or of providing, by the issuance of certificate of insurance, payment of its members of accident or life insurance benefits, out of such fixed and regular dues or assessments, but in no case shall include any society, association, or corporation with such mutual benefit features and which shall be carried out purely from voluntary contributions collected not regularly and or no fixed amount from whomsoever may contribute, shall be known as a mutual benefit association. h. trust for charitable uses: includes all real or personal properties or funds as well as those acquired with the fruits or income from the same or in exchange or substitution thereof, given to or received by any person, corporation, association, foundation, or entity except the National Government, its instrumentalities or political subdivisions, for charitable, benevolent, educational, pious, religious, or other uses for the benefit of the public at large or a particular portion thereof or for the benefit of an indefinite number of persons. 1.4. Overview of the DNFBP Sector 135. All categories of DNFBPs, as defined by the FATF, are found in the Philippines. There are: a. 14 casinos; b. 49,634 lawyers; c. 124,931 certified public accountants (CPAs); d. 9,270 registered real estate brokers; and e. 739 dealers in precious metals and stones. 136. The Philippines has not yet extended AML/CFT obligations to its DNFBP sector, except the trust departments of banks, trust corporations and investment houses licensed by the BSP, which are “covered institutions� under the AMLA. 137. On 11 June 2008, amendments to the AMLA were introduced to the Philippines Congress (in House Bill No 5077) which would include all DNFBPs as “covered institutions� and which would, therefore, extend CDD and reporting obligations to casinos, including internet casinos; real estate agents; dealers in precious metals; dealers in precious stones; and lawyers, notaries and accountants when they prepare for or carry out transactions for their clients’ money, monetary instrument, property or other assets. a. Casinos 138. Casinos are regulated by the Philippine Amusement and Gaming Corporation (PAGCOR) pursuant to P.D. No. 1869. The Cagayan Economic Zone Authority (CEZA) is likewise granted by Republic Act No. 7922 the authority to license casinos. Both PAGCOR and CEZA are under the supervision of the Office of the President (OP). - 32 - 139. The total number of Gaming Licensees registered with CEZA as of 31 May 2008 is 39. The casinos and internet gaming establishments granted authority by PAGCOR to operate are 130 (see Table VIII in Annex 5). 140. The overall average turnover recorded by PAGCOR casinos over the July – August 2008 period exceeded PHP18 billion (approximately US$382.9 m). b. Lawyers, Notaries and Accountants 141. Lawyers in the Philippines are under the supervision and regulation of the Supreme Court by virtue of its constitutional power “to promulgate rules concerning pleading, practice and procedure in all courts, and the admission to the practice of law� (Section 5(5), Article VIII of the 1987 Constitution). As of 21 June 2008, there were 49,634 lawyers in the Philippines registered with the Integrated Bar of the Philippines. 142. Accountants are subject to regulation by the Professional Regulation Commission (PRC), through its Board of Accountancy, pursuant to Republic Act No. 9298. As of 20 June 2008, there were 124,931 registered Certified Public Accountants registered with the PRC. 143. As noted above, neither lawyers nor accountants are currently covered professions under the AMLA. c. Real Estate Agents 144. The Department of Trade and Industry (DTI), through its Bureau of Trade Regulation and Consumer Protection (BTRCP), has the authority to issue licenses to commercial brokers and real estate brokers and appraisers, with the exception of brokers of stocks and securities (Section 2(c) of Presidential Decree No. 721). The BTRCP provides examinations for those who want to be issued a license as a commercial broker or a real estate broker. 145. Apart from the requirement on licensing, real estate agents or brokers are required to register with the Housing and Land Use Regulatory Board (HLURB) before they can engage in the business of selling subdivision lots or condominium units. Currently, there are 9,270 real estate brokers in the Philippines. d. Dealers in Precious Metals and Dealers in Precious Stones 146. Republic Act No. 8502, the “Jewelry Industry Development Act of 1988� governs the jewelry industry in the Philippines. In order to obtain certain incentives and tax exemptions, dealers must register with both the Bureau of Customs and the Board of Investments (BOI) of the Department of Trade and Industry (DTI). There were 739 dealers in precious metals and precious stones as of 31 December 2007 (the DTI does not have information on the number of suppliers of gold). Dealers in precious metals and stones are not covered institutions under the AMLA 147. The estimated annual turnover of dealers in precious metals and precious stones in domestic sales is around PHP5 billion (US$106m). Aggregate export revenues from gold, jewels, pearls and other precious materials for 2007 are estimated at around US$264.6m. - 33 - e. Trust entities 148. A trust entity is defined within the Philippines framework by Section 79 of RA 8791 (General Banking Act) as “a stock corporation or a person duly authorized by the Monetary Board to engage in trust business shall act as a trustee or administer any trust or hold property in trust or on deposit for the use, benefit, or behoof of others.� 149. Given the definition provided by RA No. 8791, and since under Philippine law the trust entities are the only entities allowed to provide such services, they qualify as Trust or Company Service providers. 150. Trust entities qualify as covered institutions under Section 3(a) of AMLA. Currently there are 47 trust entities registered with the BSP consisting of 40 banks and 7 investment houses. No individuals, such as lawyers, are currently so qualified. 1.5. Overview of commercial laws and mechanisms governing legal persons and arrangements 151. Under Philippine law legal persons are governed by the provisions of the Corporation Code of the Philippines (the “Corporation Code�) of 1980, the Civil Code of the Philippines, and Cooperative Code of the Philippines. The Corporation Code provides for two types of corporations, stock and non- stock corporations. Non-stock corporations include non-profit organizations. Other than cooperatives and other NPOs and partnerships, no other legal persons can be formed under Philippine law. a. Corporations 152. Corporations are incorporated by natural persons. The owners of a stock corporation are called stockholders, while for non-stock corporations, they are called members. A stock corporation is run by a Board of Directors. A non-stock corporation is run by a Board of Trustees. The corporation may appoint other officers such as President, Vice-President, Secretary, Treasurer, Comptroller and General Manager. A director, including an incorporating director, must own at least one share of the capital stock, which share must stand in his name during his term. 153. All corporations should register with the Securities and Exchange Commission (SEC). Registration gives the business entity legal personality, giving it the right to operate under its corporate name in accordance with its stated purposes. 154. As of 31 August 2008, there were 295,551 active corporations (198,809 stock and 96,742 non- stock). b. Partnerships 155. Under the Civil Code of the Philippines, a partnership is formed when two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves. There are two types of partnerships, general and limited. Only a natural person can become a partner in a partnership. Every partnership is required to operate under a firm name, which may or may not include the name of one or more partners. 156. In partnerships, unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. With respect to its management, the general rule is when its - 34 - manner has not been agreed upon, all the partners shall be considered agents and whatever any of them may do alone shall bind the partnership. (Article 1803, Civil Code of the Philippines). c. Sole Proprietorships 157. Only natural persons can become sole proprietors. Sole proprietorships do not have a separate juridical personality from the person conducting business under such business name or style. d. Cooperatives 158. A cooperative is composed of members who must be citizens of the Philippines. A cooperative or non-profit organization has a separate juridical personality. Cooperatives register with the Cooperative Development Authority (CDA). The authorized share capital of a cooperative may consist of common share capital issued only to regular members and preferred share capital which may be issued to regular and associate members. 159. The Board of Directors directs and supervises the business of the cooperative, manages the property of the cooperative, and may, by resolution, exercise all such powers of the cooperative as are not for the general assembly as provided in the Republic Act No. 6938 and its by-laws. e. Legal Arrangements 160. Under Philippine law the only possible legal arrangement is the trust, as defined in the Civil Code. Trustee services are governed by the provisions of the General Banking Law of 2000. 161. Trusts are governed by the Civil Code of the Philippines. Article 1440 of the Civil Code thereof provides that: “A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary. 162. According to section 79 of the Banking Law, only a stock corporation or a person duly authorized by the Monetary Board can act as a trustee or administer any trust or hold property in trust or on deposit for the use, benefit, or behalf of others. 163. Trust entities qualify as covered institutions under the AMLA (section 3 (a)). Currently there are 47 trust entities registered with the Monetary Board of which 40 are banks and 7 are investment houses. No individuals, such as lawyers, are currently so qualified. 1.6. Overview of strategy to prevent money laundering and terrorist financing AML/CFT Strategies and Priorities 164. The policy of the Philippine Government in combating money laundering is to ensure that the Philippines shall not be used as a money laundering site for the proceeds of any unlawful activity and in so doing, to ensure and preserve the integrity and confidentiality of bank accounts. The Philippines’ current strategies include: - 35 - a. To establish a sound, dynamic and strong financial system through efficient and effective examination and audit of financial institutions with regards compliance with the FATF 40 + 9 recommendations; b. To develop and conduct training and outreach programs to heighten awareness on money laundering and terrorist financing for AMLC staff, law enforcement agencies, prosecutorial agencies, the judiciary, covered institutions, their management and staff, and civil society; c. To maintain a strong regime of domestic and international cooperation by implementing a high level of coordination across government agencies through information exchange; d. To ensure effective and efficient investigation and prosecution of serious offenses and ML offenses. 165. The following actions are deemed to be of utmost priority by local authorities: a. Criminalizing terrorism financing; b. Amending the AMLA to include other designated offenses under FATF 40 Recommendations and to cover the DNFBPs in order to comply with the requirements under R.12 of the FATF 40 Recommendations. The AMLC submitted to the Congressional Oversight Committee the proposed amendments on 11 June 2008. House Bill Nos. 3053 and 4784 (“An Act to Further Strengthen the Anti-Money Laundering Law) were first deliberated on (first reading) and approved by the Committee on Banks and Financial Intermediaries of the House of Representatives on 26 August 2008 (as House Bill No. 5077). The bills will next be referred to the Plenary for second and third readings. c. Reorganizing the AMLC in response to the AMLC’s growing workload. The reorganization will increase the Secretariat’s manpower complement and is also aimed at further enhancing its analytical and investigative capabilities; d. Amending of the Human Security Act (HSA) particularly on the procedural requirements in obtaining court authorization to conduct bank inquiries and surveillance. The Anti- Terrorism Council (ATC), through its Secretariat, had already convened two inter-agency Technical Working Groups (TWGs) to discuss the proposed amendments to the HSA. The Institutional Framework for Combating Money Laundering and Terrorist Financing 166. The AMLA and RIRRs form the core of the Philippines’ legislative and regulatory framework to implement a comprehensive regime to prevent money laundering. The AMLA provides for the creation of the Anti-Money Laundering Council (AMLC) as the Financial Intelligence Unit (FIU) of the Philippines. The AMLC also has investigative functions beyond its role as an FIU. 167. Key agencies operating within this framework are16: a. AMLC 168. The AMLC is the government agency tasked to implement the AMLA. It is the local financial intelligence unit, central repository of all CTRs and STRs submitted by covered institutions. The AMLC collects, stores, and analyzes data and information from covered institutions. It is also tasked 16 For a more detailed description of law enforcement agencies and their functions, see section 2.6. - 36 - with the conduct of money laundering investigations under Section 7(7) of the AMLA, and it initiates the prosecution of ML and other violations of the AMLA. The AMLC also conducts and sponsors anti-money laundering seminars, workshops, trainings and courses. 169. The AMLC is composed of the Governor of the BSP as Chairman; and the Commissioner of the IC and the Chairman of the SEC as members. The three agencies - BSP, SEC and IC - are also the “Supervising Authorities� as defined under Section 3 (g) of the AMLA. b. Department of Justice (DOJ) 170. The DOJ acts as the principal law agency of the government and acts as its legal counsel and representative in criminal cases. It also investigates the commission of crimes, prosecutes offenders and administers the probation committee and correction systems. c. Department of Foreign Affairs (DFA) 171. The DFA is the lead agency mandated to advise and assist the President in planning, organizing, directing, coordinating and evaluating the national effort in the field of foreign relations. In the context of AML/CTF issues, the DFA is the government agency that negotiates treaties and other international agreements, deals with the international community in response to emerging transnational issues. d. Office of the Solicitor General (OSG) 172. The OSG represents the Government, its agencies and instrumentalities and its officials and agents in any civil litigation, proceeding, investigation or matter requiring the services of lawyers. The OSG is the counsel of the AMLC in civil cases. The AMLA, as amended, allows the AMLC, through the OSG, to institute remedial proceedings, including civil forfeiture, application for the inquiry of bank accounts and freezing of funds and assets. e. National Bureau of Investigation (NBI) 173. The NBI resorts under the DOJ. Its main objective is the establishment and maintenance of an effective and efficient investigative service agency. f. The Office of the Ombudsman (OMB) 174. The OMB is mandated to serve as the lead agency in the war against graft and corruption with the ultimate objective of restoring integrity and efficiency in the government service. Criminal violations of the AMLA, involving public officials and employees, as well as private individuals in conspiracy with such officials and employees are referred to the OMB for the conduct of the preliminary investigation. g. Philippine National Police (PNP) 175. The PNP is the largest law enforcement agency of the Philippines, with approximately 125,000 members. The two most relevant units in the PNP for AML/CFT purposes are the: (a) Criminal Investigation and Detection Group (CIDG); and (b) the Police Anti-Crime and Emergency Response (PACER). - 37 - h. Philippine Center on Transnational Crime (PCTC) 176. Operating under the Office of the President, PCTC aims at formulating and implementing a concerted program of action for all law enforcement, intelligence and other government agencies in the prevention and control over transnational crime. i. Philippines Drug Enforcement Agency (PDEA) 177. The PDEA was created in July 2002 and is responsible for the efficient and effective law enforcement of all provisions of the Comprehensive Dangerous Drugs Act of 2002 relating to dangerous drugs, controlled precursors and essential chemicals. 178. PDEA’s role within the AML regime is connected to the likely financial component of drug- related offenses, in particular with reference to the concealment of proceeds stemming from drug manufacturing and trafficking in/through the Philippines. j. Bureau of Customs (BOC) 179. The BOC has the authority to enforce government regulations concerning the movement of goods, including currency, into and out of the Philippine customs territory. A particularly pivotal role of the BOC in the context of AML/CFT efforts is that of lead agency implementing cross-border reporting obligations in the Philippines, in coordination with the AMLC. k. Anti-Terrorism Council (ATC) and National Intelligence Coordination Agency (NICA) 180. The ATC has the authority to conduct investigations of terrorism offences under the Human Security Act (HSA) RA 9372. 181. The National Intelligence Coordination Agency (NICA) is the primary intelligence gathering and analysis arm of the Philippine government, in charge of carrying out overt, covert, and clandestine intelligence programs. l. National Law Enforcement Coordinating Committee (NALECC) 182. NALECC is a coordinating mechanism for all government agencies with a role in: (a) formulating law enforcement policies that are currently being implemented; (b) providing inputs and recommendations; and (c) enabling the passage of important legislations affecting the country’s peace and order, economy and environment. NALECC consists of 57 member-government agencies/offices (including AMLC) and 16 sub-committees, including one specifically focused on Anti-Money Laundering/Combating Financing of Terrorism, which is chaired by the AMLC Secretariat Executive Director. m. Financial Sector Liaison Committee (FSLC) 183. The FSLC was established by the AMLC in May 2004 and serves as a coordinating mechanism for initiating dialogues/consultations with the private sector, especially on issues concerning their compliance with the AMLA and other pertinent laws and regulations. It is also a mechanism for disseminating directives, rules, regulations, as well as an effective forum for the fruitful exchange of views and relevant information among members. - 38 - 184. The AMLC Secretariat chairs the FSLC, which is composed of 35 organizations/societies, including the Bankers Association of the Philippines, and the Association of Bank Compliance Officers of the Philippines. The FSLC meets on a quarterly basis and has a purely consultative role. n. AML Desks 185. To establish an effective coordinating mechanism for all government agencies with a vital role in combating money laundering, as well as the investigation/prosecution of predicate offenses, the AMLC has initiated the creation of an “Anti-Money Laundering Desk� in several law enforcement, regulatory and supervising authorities which primarily serve as AMLC’s contact points in their respective jurisdictions for a more resolute prevention, detection and investigation of money laundering offenses. Of particular relevance are AML desks located within the law enforcement agencies, given their potential role in fostering coordination between investigators on both predicate crimes and their financial component o. The Judiciary 186. On 1 June 2004, upon the AMLC’s initiative, the Supreme Court issued Administrative Matter No. 04-4-197 RTC designating the special commercial courts in the Philippines as Special Anti- Money Laundering Courts to try money laundering cases and other violations of the AMLA. 187. Upon the AMLC’s initiative, the Supreme Court promulgated the Rule of Procedure in Cases of Civil Forfeiture, Asset Preservation and Freeze, which took effect on 15 December 2005. This Rule mandates the Executive Judge (or Vice-Executive Judge) of the Regional Trial Court to act on petitions for civil forfeiture and also requires the first three divisions of the Court of Appeals to hear and decide AMLC petitions for freeze orders. p. The Philippine Association of Securities Brokers And Dealers, Inc. (PASBDI) 188. The PASBDI is an organization of all licensed stockbrokers and independent securities brokers and dealers, as well as investment houses in the Philippines. It serves as the voice of the securities industry vis-à-vis the public and the government in all matters affecting the members, including AML/CFT regulation and implementation. 189. The PASBDI is tasked to undertake projects for the development of the securities industry and to protect its members whenever their interests are affected by certain factors, i.e., proposed government measures, which may have an adverse effect on the securities industry. The role of the association is that of providing feedback to regulators on the impact of regulation upon the sector, to minimize distortions on the market resulting from adherence to AML/CFT requirements. q. Bankers Association of the Philippines (BAP) 190. While primarily an industry lobby group to put industry concerns to the government, the BAP was a major public voice supporting the amendments to AMLA to meet international concerns about the adequacy of the law. It has traditionally recognized and publicly supported the importance of an effective AML regime to the financial well-being of the Philippines. 191. The Association of Bank Compliance Officers of the Philippines (ABComP), established within the framework of the BAP, brings together the compliance officers from both the domestic and international banks. This network provides an effective forum to: (a) discuss AML issues, conduct seminars and discussions on emerging issues; and (b) meet with AMLC to discuss issues of concern. - 39 - It was consulted during the preparation of the original IRRs under AMLA and again in the preparation of the amendments to the IRRs flowing from the amendments to the AMLA. Approach Concerning Risk 192. The Philippines has not adopted an overall risk-based approach to application of AML/CFT preventive measures on financial institutions. The AMLA and RIRRs have no provisions for a risk- based approach to AML/CFT measures. 193. The Monetary Board of the BSP, in its Resolution No. 820 (10 June 2004) approved risk-based BSP examination procedures for ensuring that supervised institutions continuously comply with prescribed rules and regulations to combat money laundering and terrorist financing. 194. Neither the SEC nor the IC has formally adopted a risk-based approach. However, efforts are currently under way to introduce gradually a mix of both compliance-based and risk-focused supervisory and examination techniques with respect to all supervisory rules. Progress Since the Last IMF/WB Assessment or Mutual Evaluation 195. The Philippines underwent an APG mutual evaluation process in November 2003 (the report being adopted at the APG annual meeting held in July 2004), using the 2002 Assessment Methodology. Below are the key findings and/or recommendations that were made in the previous report and the measures that the Philippines has taken to address those recommendations. While in some cases concrete progress has been achieved, in others the core issues remained substantially unresolved. Table B Progress since the last Mutual Evaluation Recommended Action Progress/Developments  The legislature ought to give priority to On 6 March 2007, the President of the finalising and enacting the Anti-Terrorism Philippines signed into law the HSA, the Bill. The Bill should be amended prior to Philippines’ anti-terrorism law. The law passage to fully reflect aspects of the took effect on 15 July 2007. Convention for the Suppression of Financing of Terrorism and to make it an offense to finance terrorist organizations or entities as well as terrorist acts. However, terrorism financing still has to  In addition, the financing of terrorism be made into a stand-alone criminal should be designated an unlawful activity offence and predicate crime under the under the AMLA, as amended. AMLA  Serious consideration ought to be given by the legislature to re-amending the AMLA On 11 June 2008, the AMLC submitted to and returning power to the AMLC to order the Congressional Oversight Committee on initial freezing, subject to rights of further the AMLA, its proposed AMLA amendments, which included the return of - 40 - Recommended Action Progress/Developments extension by the courts. the freeze power to AMLC, subject to extension by the Court of Appeals.  Further changes should be considered to the bank secrecy laws to enable other law Under the HSA, police and law enforcement agencies to make direct enforcement officers can conduct inquiry and examination of bank accounts surveillance/ communications interceptions by court order in relation to all serious and inquire into bank accounts; apply for criminal offenses under investigation. an order to freeze funds, property, bank deposits, assets, etc., belonging to persons suspected of or charged with terrorism or conspiracy to commit terrorism, including the financing thereof. However, other predicate crimes under the AMLA are excluded from this procedure.  Revised Rules of Court on civil forfeiture On 15 November 2005, the Philippine ought to be prepared to underpin the Supreme Court approved the Rule of section 12 procedure and to give clear Procedure on Civil Forfeiture, Asset guidance to prosecutors and the court. Preservation and Freeze. The Rule took effect on 15 December 2005.  No final forfeiture orders have yet been Since 2003, ten civil forfeiture cases have made by the courts and it is recommended been decided in favor of the Republic of that efforts be made to obtain orders as the Philippines. Seven of these decisions quickly as possible to evidence effective have been executed and the forfeited implementation. amounts of P18,483,557.78, US$21,726.74 and Y63,114.36 have been turned over to the National Treasury. - 41 - Recommended Action Progress/Developments  The authorities should take a more In kidnapping for ransom, drug trafficking proactive role in the examination of bank and terrorism cases, the AMLC may accounts. inquire into bank accounts without a court order except when the predicate offenses involved are. However, for all other predicate crimes a court order is required, which cannot be requested ex parte.  Progress should continue on effective Upgrades to the AMLC Transaction implementation of the computerization Monitoring and Analysis System (TMAS) project to receive and process STRs and and to the Network & Communication CTRs. Infrastructure have been undertaken. However, much remains to be done to adapt systems to the increasing workload sustained by the AMLC Secretariat.  Staffing levels should be increased to The AMLCS has sixty-six positions. Sixty maximum levels as soon as possible. three of these positions had been filled at the time of the on-site visit. The appointments pertaining to the vacant positions are being processed. Compared to similar countries and considering the AMLC’s mandate as the FIU and primary LEA responsible for investigating ML & TF, the resources allocated are insufficient. For AMLC as the FIU to improve effectiveness of their analysis and compliance activities, more resources are needed to properly develop these areas of operations.  The AMLC should work with the The AMLC issued AMLC Resolution No. supervisors and regulators of covered 59 dated 1 June 2005 which lists institutions to prepare and circularize suspicious transaction indicators or red detailed and cross sector consistent flags which serves as a guide for reporting guidelines to assist in the identification of institutions in the submission of reports to suspicious or unusual transactions, so as to the AMLC of suspicious transactions supplement the limited guidance given in relating to potential or actual financing of the definition of suspicious transaction in terrorism. the AMLA, as amended. - 42 - Recommended Action Progress/Developments  The AMLC is also encouraged to work The AMLC recently executed MOUs with towards establishing MOUs with foreign the FIUs of Mexico and the Netherlands counterparts to facilitate information (28 May 2008) bringing the total number exchange. of MOUs to 19.  Corruption in the public sector remains a The Philippines was a recipient of some significant problem in the Philippines. The US$21 million in grant through the Office of the Ombudsman must be given Millennium Challenge Account (MCA) of the capability to effectively tackle the United States under the MCA- corruption. Philippines Threshold Program Technical Assistance Project (MCA-PTP TAP). However, several corruption and governance indicators have been recently deteriorating  The relevant agencies should be given the The HSA criminalizes terrorism and legal mandate and necessary resources to conspiracy to commit terrorism and investigate financing of terrorism, once it is empowers the duly authorized police and criminalized under the Anti-Terrorism Bill. law enforcement agents to conduct surveillance/communications interceptions, and inquire into bank accounts belonging to persons suspected of or charged with terrorism or conspiracy to commit terrorism. It also created the ATC and made the AMLC one of its support agencies. The wording of the HSA still presents challenges for enforcers, and terrorism financing has not yet been made a standalone criminal offence. - 43 - Recommended Action Progress/Developments  The Philippines should give priority to The Philippines has existing Mutual Legal enacting a mutual legal assistance law Assistance Treaties with the United States providing a wide range of assistance to of America, Switzerland, Hong Kong and foreign States based on reciprocity and to Australia. These treaties have already establishing a much broader network of entered into force. mutual legal assistance treaties. On October 6, 2008, the Philippine Senate gave its concurrence in the ratification of the RP-Korea and RP-Spain MLATs as well as of the “ASEAN MLAT�.  Serious efforts should be made to improve No substantial improvement has been the efficacy of the extradition regime, achieved in practice. which appears to be hampered in practice by unnecessary delays in processing cases through the courts.  Consideration should be given to Sec. 13 (b) of the AMLA, authorizes the broadening and more clearly defining the AMLC to execute a request for assistance AMLC powers in assisting ML from a foreign State by: investigations under Sec. 13 of the AMLA, (1) tracking down, freezing, restraining particularly in the absence of a general and seizing assets alleged to be mutual legal assistance law. proceeds of any unlawful activity under the proceedings laid down in the AMLA, as amended; (2) giving information needed by the foreign State; (3) applying for an order of forfeiture of any monetary instrument or property in court.  A comprehensive methodology should be The AMLC maintains records of all adopted for the recording of all mutual requests for assistance by other legal assistance and extradition requests, jurisdictions involving money including requests for assistance laundering/terrorist financing, including details of the nature and result of the requests and the time taken for disposition of the request. As of 31 May 2008, the AMLC had - 44 - Recommended Action Progress/Developments received and promptly taken action on 270 international requests for mutual assistance of which not less than 202 requests were positively acted upon.  BSP may wish to enhance its AML The BSP Monetary Board approved a examination manual. revised Risk-Based and Comprehensive Anti-Money Laundering Examination Procedure for Banks and Non-Bank  BSP may wish to consider assigning a Financial Intermediaries and their rating for AML examination and seek the subsidiaries and affiliates, patterned after assistance of the APG or the IMF on the the Anti-Money Laundering Examination provision of technical assistance for the Manual of foreign regulatory agencies. development of such a framework on AML. This Examination Manual covers inter alia the assignment ratings for AML examination, taking into consideration  It would be appropriate for BSP to findings not satisfactorily acted upon by explicitly include a requirement for institutions and their over-all compliance examiners to perform sampling of with the AMLA, and related rules and accounts. regulations. The SEC and IC also have their respective  The SEC and IC to develop their respective Anti-Money Laundering Examination manuals on AML examination. Manuals.  The supervision of money changers and BSP Circular No. 471 dated 24 January remitters requires enhancing. 2005 was issued to enhance supervision of money changers and remitters. However, supervision and enforcement are still carried out on a sampling basis, with inadequate human resources and no formal authority Coordination with local licensing authorities for sanctioning needs to be streamlined and formalised. - 45 - Recommended Action Progress/Developments  To ensure that all bank-originated funds BSP Circular N0. 436 dated 18 June 2004 transfers contain full customer information, requires banks to adopt minimum it is recommended that, on the next guidelines that contain the salient and occasion when the AMLA requires relevant policies and procedures related to amendment, such a requirement be inserted electronic fund transfers.  The Evaluation Team would encourage the The BSP issued Circular No. 240 dated 5 BSP to prepare a set of guidelines to apply May 2000 and Circular No. 269 dated 21 for customer verification with internet December 2000 as guidelines concerning banking accounts. electronic banking activities to banks wishing to provide and/or offering electronic banking services.  It is recommended that the AMLA be The supervisory authorities, namely, BSP, amended to include an express provision SEC and IC, are in practice reporting to the for the SEC, the IC and external auditors to AMLC their respective findings on the make reports to AMLC. failure of covered institutions to comply with the provisions of the AMLA. However, there are still no explicit provisions mandating the practice in the AMLA.  The BSP should review its supervision of Pawnshops are regulated by the BSP. Section pawnshops to ensure they meet the 6 of PD No. 114 (Pawnshops Act), covers requirements of the legislation. their registration with the BSP. Likewise, their operations are being monitored regularly by the BSP to ensure compliance with the AMLA. BSP examiners are currently performing “spot checks� on a random sampling basis. - 46 - 2. LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES 2.1. Criminalization of Money Laundering (R.1 & 2) 2.1.1. Description and Analysis17 Legal Framework: 196. The crime of money laundering and the penalties applicable have been laid down in Republic Act (RA) 9160 of 2001, as amended by RA 9194 of 2003 (the Anti Money Laundering Act, “AMLA�). Pursuant to Section 18 of the AMLA, the BSP, the SEC and the IC shall promulgate rules and regulations to effectively implement the provisions thereof, which are to be submitted for the approval of the Congressional Oversight Committee. The Revised Implementing Rules and Regulations (the “RIRRs�) was approved by the Congressional Oversight Committee on 6 August 2003. A bill to amend the AMLA is currently pending before congress (House Bill 5077, the “Draft Bill�) a copy of which was shown to the assessment team. Criminalization of Money Laundering (c. 1.1—Physical and Material Elements of the Offence): 197. Section 4 of the AMLA, criminalizes money laundering. It states that: “Money laundering is a crime whereby the proceeds of an unlawful activity as defined therein are transacted, thereby making them appear to have originated from legitimate sources.� It is committed by the following: 1. Any person knowing that any monetary instrument or property represents, involves or relates to, the proceeds of any unlawful activity, transacts, attempts to transact said monetary instrument or property. 2. Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph (a) above. 3. Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so.� 198. The defining element of the actus reus in this definition is that the perpetrator “transacts� property. A transaction is defined in Section 3 of the AMLA as “as any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. It also includes any movement of funds by any means with a covered [i.e. reporting] institution.� A constitutive element of this definition is thus that some legal relationship be established between the perpetrator of the ML offence and another party. 17 For all recommendations, the description and analysis section should include the analysis of effectiveness, and should contain any relevant statistical data. - 47 - 199. On this same issue, of what acts constitute the crime of ML, the Vienna and Palermo Conventions mention “conversion or transfer of property�, the “concealment or disguise of the true nature, source or location, disposition, movement or ownership of or rights with respect to property� and subject to basic principles of domestic law “acquisition, possession or use of property�. 200. Although there is as yet very little case law to interpret the different elements of the offence (see below), it would appear that the requirement that there be some legal relationship established renders the ML offence more restrictive than provided for in the, more factual, provisions of the Vienna and Palermo Conventions. “Concealing or disguising� the true illegal nature of proceeds of crime for instance would not necessarily require the establishment of a legal relationship and thus would not constitute a “transaction� as required under the AMLA. Moreover, though most transfers of funds through the formal financial system would likely require the execution of a transaction, most transfers of cash would not. Based on the foregoing, on the face of it, the ML definition under the AMLA seems overly restrictive and does not cover all the elements of the Vienna and Palermo Conventions. 201. The authorities have not demonstrated why it would be contrary to constitutional principles and the basic concepts of its legal system to criminalize the “the possession, acquisition or use� of criminal property as money laundering –as provided for in both the Vienna and Palermo Conventions. The authorities argued that, as far as these acts are concerned, any person merely holding/using assets might not be chargeable as a principal but could be held liable as an accessory to ML. That argument does not take into account however that one then still requires a conviction for ML- for the principal- which requires a transaction. The point is that possession itself should be criminalized as ML, unless it’s contrary to domestic law. The Laundered Property (c. 1.2): 202. Under Section 4 of AMLA, the offence of ML applies to “any monetary instrument or property� that represents the “proceeds of unlawful activity�. Rule 3.c of the RIRRs defines monetary instrument as: 1. “coins or currency of legal tender of the Philippines, or of any other country; 2. drafts, checks and notes; 3. securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust certificates, custodial receipts or deposit substitute instruments, trading orders, transaction tickets and confirmations of sale or investments and money market instruments; 4. Contracts or policies of insurance, life or non-life; and 5. Other similar instruments where title thereto passes to another by endorsement, assignment or delivery.� 203. “Property� is further defined in the RIRRs (Rule 3.a.3.(o)) as “any thing or item of value, real or personal, tangible or intangible, or any interest therein or any benefit, privilege, claim or right with respect thereto�. 204. “Proceeds of unlawful activity� (Section 3 AMLA) is defined as “an amount derived or realized from an unlawful activity�. Rule 3.f of the RIRRs further defines this to include: 1. “All material results, profits, effects and any amount realized from any unlawful activity; - 48 - 2. All monetary, financial or economic means, devices, documents, papers or things used in or having any relation to any unlawful activity; and 3. All moneys, expenditures, payments, disbursements, costs, outlays, charges, accounts, refunds and other similar items for the financing, operations, and maintenance of any unlawful activity.� 205. As defined, “monetary instrument or property� covers any type of property, and the term “derived or realized from� in the definition of proceeds would appear to also cover indirect proceeds, particularly the term “derive� allowing for a less stringent relationship between cause (crime) and result (assets). Again in the absence of case law it is not possible to conclude this with certainty. The question does arise why the definition of proceeds – referring not to the relationship between crime and assets but to the type of assets- is necessary given that property and monetary instruments are already defined terms. As defined however, it is hard to see how this could have any negative consequences (for instance, how a defense lawyer could argue that certain assets qualify as one but not the other). Proving Property is the Proceeds of Crime (c. 1.2.1): 206. The RIRRs state in Rule 6.7 that “No element of unlawful activity [i.e. the predicate offense] however, including the identity of the perpetrators and the details of the actual commission of the unlawful activity need be established beyond reasonable doubt. The elements of the offense of money laundering are separate and distinct from the elements of the felony constituting the unlawful activity.�, thus making it clear that the ML offense is an autonomous offence, not requiring a conviction for the predicate offence. The Scope of the Predicate Offences (c. 1.3 and c. 1.4) 207. The Philippines has adopted a list approach to define the scope of predicate offenses. Section 3 (i) of the AMLA, as further expressed in Rule 3 (i) of the RIRRs, define the scope of the predicate offences. The following serious crimes, designated categories of offences under the FATF definition, are currently not defined as “unlawful activity�: 1. participation in an organised criminal group and racketeering; 2. terrorist financing; 3. trafficking in human beings and migrant smuggling; 4. sexual exploitation, including sexual exploitation of children; 5. illicit arms trafficking; 6. illicit trafficking in stolen and other goods; 7. counterfeiting currency; 8. environmental crime; and 9. forgery. 208. The Draft Bill will add a number of new categories of offences to the definition of unlawful activity. However, racketeering, illicit arms trafficking and trafficking stolen goods have not been included in the Draft Bill. Authorities argued that the inclusion of smuggling as a predicate offence also covers illicit trafficking in arms and stolen goods. That argument is not convincing: illicit trafficking has been included as a separate category precisely because it is to be distinguished from smuggling, which is also a designated category. Illicit trafficking and smuggling are criminalized for different reasons and although some acts may qualify as both, that is not necessarily the case. - 49 - Extraterritorially Committed Predicate Offences (c. 1.5): 209. Under Section 3(i)(14) of the AMLA, “felonies or offenses of a similar nature [as the acts listed under the definition of unlawful activity] that are punishable under the penal laws of other countries� also qualify as unlawful activity. Rule 3(i)(N) of the RIRRs provides that “in determining whether or not a felony or offense punishable under the penal laws of other countries, is ‘of a similar nature’ as to constitute the same as an unlawful activity under the AMLA, the nomenclature of said felony or offense need not be identical to any of the predicate crimes�. Consequently predicate offences committed abroad constitute predicate offences for the purposes of the AMLA. Laundering One’s Own Illicit Funds (c. 1.6): 210. Section 6 (a) of the AMLA, stipulates that “Any person may be charged with and convicted of both the offense of money laundering and the unlawful activity [ie the predicate offence]�, thus putting beyond doubt that the ML offence can also be applied against the perpetrators of the predicate offence Ancillary Offences (c. 1.7): 211. Facilitating and attempting ML are both explicitly criminalized under Section 4 of the AMLA. According to the authorities “facilitating� covers any form of aiding and abetting a crime. Counseling the commission of an ML offence is not criminalized. Conspiracy, according to Article 8 of the Revised Penal Code (RPC) is punishable only in cases “in which the law specially provides a penalty therefor.� The authorities have argued that the Supreme Court could nevertheless impose a penalty for conspiracy to commit ML, punishing the conspirator as a principal (i.e. the conviction would be for ML, not for conspiracy to commit ML). This seems at odds with the provision of the RPC which precisely aims to ensure that only the legislature and not the judiciary can decide in which cases conspiracy can be punished. It should be noted however that Article 10 of the RPC states that “Offenses which are or in the future may be [the RPC took effect in 1932] punishable under special laws are not subject to the provisions of this Code. This Code shall be supplementary to such laws, unless the latter should specially provide the contrary.� Although it would appear that this provision precludes the application of conspiracy to the act of ML given that the AMLA does not explicitly provide for it, the matter cannot be resolved with any degree of certainty in the absence of a provision in AMLA providing for the criminalization of the conspiracy of ML. Liability of Natural Persons (c. 2.1) and The Mental Element of the ML Offence (c. 2.2): 212. According to Section 4 of the AMLA, the perpetrator of a ML offence is required to have knowledge that the monetary instrument or property represents, involves, relates to the proceeds of unlawful activity. Knowledge may be proved based on the objective factual circumstances surrounding the case. According to Rule 6.5 of the RIRRs “Knowledge of the offender that any monetary instrument or property represents (…) the proceeds of an unlawful activity (…) may be established by direct evidence or inferred from the attendant circumstances.� Liability of Legal Persons (c. 2.3 ) and parallel criminal, civil or administrative proceedings & c. 2.4): 213. Section 3 (e) of the AMLA, defines “person� as any natural or juridical person. Consequently when the AMLA, defines the act of ML in Section 4 as “any person� who transacts monetary instruments or property and states that “any person� may be charged with and convicted of ML (Section 6) it is referring both to natural persons and to legal persons. Section 14 of the AMLA, states - 50 - that in cases in which the offender is a corporation, association partnership or any juridical person, the penalty shall be imposed upon the responsible officers and that the court may suspend or revoke the license of the legal person. 214. Where legal persons are subject to criminal liability for ML, this does not preclude the possibility of parallel criminal and civil proceedings. Article 100 of the RPC, states that: “Every person criminally liable for a felony is also civilly liable.� On the imposition of administrative sanctions, Rule 14.1.d of the RIRRs provides that “After due notice and hearing, the AMLC, shall, at its discretion, impose fines upon any covered institution, its officers and employees, or any person who violates any of the provisions of Republic Act No. 9160, as amended by Republic Act No. 9194 and rules, regulations, orders and resolutions issued pursuant thereto. The fines shall be in amounts as may be determined by the Council, taking into consideration all the attendant circumstances, such as the nature and gravity of the violation or irregularity, but in no case shall such fines be less than one hundred thousand pesos (PHP100,000.00 – US$2127) but not to exceed five hundred thousand pesos (PHP500,000.00 – US$10,638). The imposition of the administrative sanctions shall be without prejudice to the filing of criminal charges against the persons responsible for the violations.� Sanctions for ML (c. 2.5): 215. The penalties for persons, both natural and legal, found guilty of ML, are either deprivation of liberty (for natural persons) or a fine, or both. Section 14 of the AMLA, provides: “The penalty of imprisonment ranging from seven (7) to fourteen (14) years and a fine of not less than Three million Philippine pesos (PHP3,000,000.00) [63,800 US$]but not more than twice the value of the monetary instrument or property involved in the offense, shall be imposed upon a person convicted under Section 4(a) of this Act. The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than One million five hundred thousand Philippine pesos (PHP1,500,000.00) [31,900 US$] but not more than Three million Philippine pesos (PHP3,000,000.00), shall be imposed upon a person convicted under Section 4(b) of this Act. The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than One hundred thousand Philippine pesos (PHP100,000.00) but not more than Five hundred thousand Philippine pesos (PHP500,000.00), or both, shall be imposed on a person convicted under Section 4(c) of this Act.� 216. The penalties imposed under the AMLA, for ML offenses are similar in severity to those of other countries in the region (Malaysia – 7 years; Australia: 5-25 years; Indonesia – 5-15 years, Singapore – 7 years, Chinese Taipei – 3 to 7 years, Thailand, 1 to 10 years.). They are also comparable to those for financial crimes under Philippine law (bribery 9-12 years, malversation of public funds 3-20 years, swindling 5-7 years, securities violations 7-21 years, fraud 3-6 years, forgery 6-12 years). As such the penalties may be deemed proportionate to the crime. Considering that so far there has only been one conviction for ML it is difficult to establish the effectiveness of the sanction regime. Statistics (applying R.32) 217. Statistics on ML cases currently pending before regional courts, and amounts involved are available in the Appendix (Table IX). Terminated cases are included in Table X. Currently seven ML cases are pending before DOJ, involving a total of 405.7 m PHP (US$ 8.6m). Eight cases are pending before regional trial courts, for a total of PHP 235.7 m US$ 5 m). - 51 - Analysis of effectiveness 218. Despite ML having been an offense since 2001, so far the courts in the Philippines have only pronounced conviction for the offence of money laundering in one case, against a bank manager who facilitated money laundering. He was sentenced to 4 years in jail and imposed a fine of PHP1.5 million (approximately 32,000 US$). Twenty cases were pending before the Regional Trial Court as at 31 August 2008 and 11 cases were before the Department of Justice (DoJ) for the conduct of preliminary investigation to determine whether there is sufficient evidence (to open a preliminary investigation) to warrant the filing of the case in court. The case load of the courts being very high and the time of the average criminal trial long, many of the cases currently pending may be expected to take a long time to resolve. The DoJ has established a special task force of 13 prosecutors to deal with ML cases in an attempt to bring cases to a quicker resolution. This task force is not exclusively focused on AML though, in fact only a very minor part of their time is devoted to it. The average case load of a prosecutor in the Philippines is around 700 cases a year. 219. Quite apart from the criminal cases being pursued against suspected money launderers, the Anti Money Laundering Council (AMLC) is filing civil forfeiture claims to confiscate the proceeds of unlawful activity (discussed in more detail under 2.3). Since the burden of proof in civil forfeiture claims is lower than in money laundering cases (“preponderance of evidence� as opposed to “beyond all reasonable doubt�) and the process here is more straightforward, the government has so far been able to obtain civil forfeiture of assets in 7 cases, worth a total of around 19 million PHP (a little over 400,000 US$). Currently there are 19 civil forfeiture cases pending before the courts. 2.1.2. Recommendations and Comments 220. The designation of the additional serious offences as predicate crimes for money laundering as envisaged by the Draft Bill is recommended. In addition it should be ensured that those offences not covered yet in the Draft Bill (such as the illicit trafficking of stolen goods/ arms and racketeering) are covered as well. In addition authorities should consider enlarging the scope of the ML offence, extending it beyond the notion of transaction, to include notions of “concealment and disguise� and possession. 221. Although the use of civil forfeiture provisions may go some way towards achieving the general aim of AML provisions, namely to confiscate illegal proceeds, authorities should ensure that people are being brought to court and tried for ML offences. The adoption of special measures, such as the continued training and formation of DoJ prosecutors and judges and the formation of a task force are recommended. Investigative and prosecutorial authorities should enhance their focus on the proceeds of unlawful activity, rather than concentrating solely on the unlawful activity itself. In addition resources available to DoJ for dealing with ML investigations should be increased (see further under 2.6). 2.1.3. Compliance with Recommendations 1 & 2 Rating Summary of factors underlying rating18 R.1 PC  It is doubtful whether all elements of the Vienna and Palermo conventions are covered by the definition of ML and there is uncertainty as to whether the ancillary offence of conspiracy is - 52 - criminalized. In this regard, the lack of cases/ prosecutions for ML does not demonstrate the effectiveness of the provision as worded.  Many crimes are not currently defined as predicate crimes. R.2 LC  Effectiveness of sanctions not demonstrated 2.2. Criminalization of Terrorist Financing (SR.II) 2.2.1. Description and Analysis Legal Framework: 222. As yet the crime of terrorist financing has not been provided for as a separate, autonomous crime under Philippine law. Criminalization of Financing of Terrorism (c. II.1): 223. The authorities have argued that, in the absence of a separate autonomous criminalization, a terrorist financier can be prosecuted not as such, but as a terrorist, either as a principal by inducement pursuant to Article 17 of the RPC or as an accomplice (conspirator) pursuant to Section 5 of the Human Security Act (HSA). Such reasoning misses the point. Not only will there always have to be a connection to a specific act - thus in any event not allowing for TF as the financing of an individual terrorist or a terrorist organisation- but more importantly the rationale of an autonomous TF offence is that the collection or provision of funds with the mere intention that they be used for an unspecified terrorist act is sufficient for a finding of guilt. Although there certainly will be instances when this conduct can also be qualified as inducement to commit a TF offence or as conspiracy to commit a terrorist act this is not necessarily the case. Thus conspiracy and inducement to commit a terrorist act are not sufficient to conclude to a proper criminalization of terrorism financing. Predicate Offence for Money Laundering (c. II.2): 224. As noted above, terrorism financing does not currently qualify as unlawful activity. Under the Draft Bill terrorism financing is defined as unlawful activity and thus a predicate offence for ML. The question arises, however, to what extent such amendment can be effective given that TF as such is not criminalized and that there is no legislative initiative envisaging such criminalization. Jurisdiction for Terrorist Financing Offence (c. II.3): 225. Since TF is not criminalized as a separate offence under Philippine law, this criterion cannot be discussed. It may be worth noting however that Section 58 of the HSA (on extra-territorial application) explicitly indicates that the Act also applies to those persons who, although outside the territorial limits of the Philippines, conspire to commit a terrorist offence as defined in the Act within the Philippines. Should a separate offence of TF ever be included in the HSA then this provision would apply to the TF offence as well. - 53 - The Mental Element of the TF Offence (applying c. 2.2 in R.2): 226. Even in the absence of a separate criminalization of TF one may safely assume that, were TF to be criminalized in the future, the general principles of criminal law apply in establishing the kind of evidence required to convict beyond reasonable doubt. These may be direct or circumstantial evidence pursuant to the Supreme Court’s Revised Rules on Evidence and case law. Liability of Legal Persons (applying c. 2.3, c. 2.4 & c. 25 in R.2): 227. Since TF is not criminalized as a separate offence under Philippine law, this criterion cannot be discussed. Analysis of effectiveness 228. The absence of a separate TF offence renders the evaluation of effectiveness thereof difficult. It should be pointed out however that so far the AMLC has been successful in forfeiting funds belonging to an organisation listed under UNSC 1267. In establishing the grounds for forfeiture, the court order notes that the AMLC “has established that defendant account and deposit are related to terrorist activities by engaging in terrorist funding�. In a more recent case the funds of the member of another terrorist organisation were frozen on the basis that those funds “are being used by the organisation to fund the training of its members� and the bank account being used to “receive financial assistance from other extremist groups�. Clearly then, the AMLC is being successful in going after the funds of terrorist organizations and being used to fund terrorist operations. For further discussion see below under 2.4. 2.2.2. Recommendations and Comments 229. Currently, TF is not criminalized as a separate offence under Philippine law. It is recommended that the Philippine legislature take action as quickly as possible to address this situation and provide for a separate offence as defined in article 2 (1) of the United Nations Convention for the Suppression of the Financing of Terrorism, criminalizing the provision or collection of funds for terrorist acts but further extending to the financing of an individual terrorist or a terrorist organization. It should further ensure the widest definition of funds as encompassing assets of any kind, provide for adequate sanctions for TF and ensure liability of legal persons. Such criminalization will also ensure that the definition of TF as an unlawful activity under the AMLA, can be effective and put the matter of whether TF is actually a predicate offence for ML beyond doubt. 2.2.3. Compliance with Special Recommendation II Rating Summary of factors underlying rating SR.II NC  TF is not currently criminalized under Philippine law - 54 - 2.3. Confiscation, freezing and seizing of proceeds of crime (R.3) 2.3.1. Description and Analysis Legal Framework: 230. Under Philippine law, provisional measures and forfeiture provisions in money laundering cases are provided for under the AMLA. Section 10 provides for the freezing of monetary instrument or property, Section 12 provides for the Civil forfeiture, and corresponding Rules 10 and 12 of the RIRRs govern the application for freeze orders, authority to inquire into bank deposits, and forfeiture, respectively. The Rules of Procedure in cases of Civil Forfeiture, Asset Preservation and Freeze, issued by the Supreme Court in 2005 (the “RPCF�) sets forth procedures for the confiscation of monetary instruments or properties related to unlawful activities. For predicate offences applicable rules are provided for in section 126 of the Revised Rules of Criminal Procedure (the “RRCP�) (seizure) and section 45 of the RPC (confiscation). In addition certain special acts, including the HSA, contain confiscation provisions. Confiscation of Property related to ML, FT or other predicate offences including property of corresponding value (c. 3.1): 231. The AMLA, (Section 12) empowers the AMLC to institute civil forfeiture proceedings through the Office of the Solicitor General (OSG). The proceedings are to be filed in the regional trial court. If the court finds that there is a preponderance of evidence in favor of the Government, it will declare it forfeited in favor of the State. (Section 32 RPCF). The forfeiture order applies to all property “representing, involving or relating to an unlawful activity or a money laundering offence�. That definition leaves room for interpretation but according to the authorities, that includes any instruments, the subject of the offence and the proceeds (putting particular emphasis on the term “relating to�). Proceeds, as indicated earlier (see 2.1) likely includes indirect proceeds. 232. Under section 41 of the HSA the deposits, placements, trust accounts, assets, and records of a person convicted for the crime of terrorism or the crime of conspiracy to commit terrorism are forfeited in favor of the government. 233. Under Section 9 of Republic Act No. 3019, the Anti-Graft and Corrupt Practices Act, any (a) public officer or private person committing any of the unlawful acts or omissions enumerated in Sections 3, 4, 5 and 6 thereof shall be punished, among others, with confiscation in favor of the Government of any prohibited interest and unexplained wealth manifestly out of proportion to his salary and other lawful income. 234. Pursuant to Section 20 of Republic Act No. 9165 or the Comprehensive Dangerous Drugs Act (the Drugs Act), every penalty imposed for the unlawful importation, sale, trading, administration, dispensation, delivery, distribution, transportation or manufacture of any dangerous drug and/or controlled precursor and essential chemical, the cultivation or culture of plants of which are sources of dangerous drugs, and the possession of any equipment, instrument, apparatus and other paraphernalia for dangerous drugs including other laboratory equipment, shall carry with it the confiscation and forfeiture, in favor of the government, of all the proceeds and properties derived from the unlawful act, including, but not limited to, money and other assets obtained thereby, and the instruments or tools with which the particular unlawful act was committed, unless they are the property of a third person not liable for the unlawful act. It was explained that for proceeds/funds of drugs offences, particularly in big cases, PDEA could (and frequently does) enlist the assistance of - 55 - the AMLC to take provisional measures as described below (meaning AMLC would also, through the OSG, take care of the forfeiture of those assets). 235. Section 2 of Republic Act No. 7080, the Act Defining and Penalizing the Crime of Plunder, provides that any public officer who, by himself or in connivance with member of his family, relatives by affinity or consanguinity, business associates, subordinates or other persons, amasses, accumulates, or acquires ill-gotten wealth through a combination or series of overt or criminal acts as described in Section 1 of the Act, in the aggregate amount or total value of at least fifty million pesos (PHP50,000,000.00 – slightly more than US$ 1 m), shall be guilty of the crime of plunder. The court shall declare any and all ill-gotten wealth and their interests and other incomes and assets including the properties and shares of stock derived from the deposit or investment thereof forfeited in favor of the State. 236. Republic Act No. 1379, the Act Declaring in Favor of the State Any Property Found to Have Been Unlawfully Acquired by Any Public Officer or Employee, provides that in the event the respondent in a case instituted under this law is unable to show that he has lawfully acquired the property in question, the court shall declare such property, forfeited in favor of the State. 237. Article 45 of the RPC provides for the confiscation of the proceeds and instruments of crime as an accessory penalty for crimes committed in violation thereof. The proceeds or instruments are to be confiscated in favor of the Government unless they are the property of a third party not liable for the offence. As mentioned earlier the RPC shall be supplementary to violations of special laws such as the AMLA, (Article 10, RPC), unless such special laws provide the contrary. In the normal course of events however, an investigative agency would be enlisting the assistance of the AMLC to take provisional measures to secure the proceeds (as described below) and would only conduct the confiscation procedure itself if acting on behalf of a injured party (f.e. a fraud victim) seeking to reclaim losses. 238. According to section 12 (c) of the AMLA, where the property in question cannot be forfeited because, amongst others, it cannot be located, it has been destroyed or has been concealed, is located outside the Philippines, or it has been commingled with other property rendering it difficult to segregate for the purposes of forfeiture, the court may order the convicted offender to pay an amount equal to the value of the property in question. This provision applies both in criminal and civil forfeiture. While a civil forfeiture order does not require a conviction (Sec 27 RPCF), clearly the payment in lieu of forfeiture provision under section 12 (c) can only be applied when there is such a conviction. 239. Although heterogeneous in nature, the Philippine regime relies primarily on civil forfeiture procedures to enable the confiscation of the instruments, the subject of the offence and the proceeds (including indirect proceeds) of ML or unlawful activity as defined in the AMLA. In addition, special statutes provide for confiscation of assets relating to certain defined offences. Where no special statute (AMLA or otherwise) applies, the RPC provides for confiscation of all relevant assets. Finally, Section 12(c) of the AMLA provides for a payment of equivalent value by a person found guilty of an unlawful activity or ML offence. For the application of the civil forfeiture provision, it is immaterial whether the property is owned by the (alleged) offender, be it that bona fide third parties who hold such assets are protected (see below). It would appear then that in terrorist financing cases which do not qualify as ancillary offences (conspiracy) to commit terrorism, confiscation of the funds in question might be problematic. - 56 - Provisional Measures to Prevent Dealing in Property subject to Confiscation (c. 3.2) and Ex Parte Application for Provisional Measures (c. 3.3 ) : 240. The freezing of property relating to money laundering is provided for under Section 10 of the AMLA, which states that the Court of Appeals, upon application ex parte by the AMLC, as represented by the OSG (Section 44 RPCF), and after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity as defined in Section 3(i) thereof, the CA may issue a freeze order which shall be effective immediately. Pursuant to Rule 10.3 of the RIRRs, the covered institution concerned upon receipt of a freeze order shall immediately freeze the monetary instrument or property and “related web of accounts� subject thereof. Related Web of Accounts is defined as those accounts, the funds and sources of which originated from and/or are materially linked to the instruments/properties subject to the freeze order (Rule 10.4 of the RIRRs). Where those accounts are under the control of the covered institution, it is to inform the Court of Appeals and the AMLC, within 24 hours, of any information on the related web of accounts. The maximum term of a freeze order is 6 months. 241. In the context of applying for a civil forfeiture under the RCPF, Section 11 states that where the regional trial court has determined that probable cause exists that the monetary instrument, property, or proceeds subject of the petition are in any way related to an unlawful activity, the court may issue ex parte a provisional asset preservation order effective immediately forbidding any transaction, withdrawal, deposit, transfer, removal, conversion, concealment, or other disposition of the subject monetary instrument, property or proceeds. Such order shall be effective for a period of 20 days from the respective dates of service to the respondent or any person acting in his behalf, and upon each covered institution or government agency. A Provisional Asset Preservation Order (PAPO) being issued by the regional trial court is effective for a period of 20 days. This is non- extendible. However, during the 20-day effectivity of the PAPO, the court shall conduct a summary hearing to determine whether or not an Asset Preservation Order (APO) should be issued once the PAPO expires. An APO, if issued, is effective indefinitely. 242. In both the cases, it is the AMLC, acting through the OSG, that files the petition for a freeze or a provisional asset preservation order. It was explained to the assessment team that the difference in procedure is that a freeze order may be requested a) right at the beginning of an investigation when no decision has been taken yet as to whether a civil forfeiture procedure will be initiated; b) when dealing with the bank account of a terrorist listed on the UNSC Resolution No. 1267 list (further discussed below under 2.4); and, since recently, c) when conducting a inquiry into bank records (for reasons discussed hereunder c.3.4). An asset preservation order is requested in the context of a civil forfeiture procedure and thus often after the assets in question have been subject to a freeze order. There is a slight anomaly, in that the freeze order is issued by a chamber of 3 justices of the Court of Appeal, whereas the asset preservation order is issued by a single judge at the RTC, making it highly likely that the RTC judge will feel bound by the decision of the Court of Appeals, thereby rendering his order more of a formality than an independent determination of probable cause. 243. In the context of a criminal procedure the RRCP Rule 126, section 3, provides for the seizure of property that constitutes the (a) Subject of the offense; (b) Stolen or embezzled and other proceeds, or fruits of the offense; or (c) Used or intended to be used as the means of committing an offense. It was explained that this procedure does not require notification to the respondent in advance. 244. In the context of drugs offences, the Drugs Act (Section 21) provides for the power of the Philippines Drug Enforcement Agency (PDEA) to take custody of the subject of the offence and the instruments. - 57 - 245. In the context of terrorism offences, the HSA (Section 39) provides for the seizure and freezing of deposits, funds and property of any kind belonging to a person charged with a terrorism offence. 246. Based on the above, Philippine authorities can take ex parte provisional measures, except in those instances of TF offences not qualifying as offences under the HSA. Identification and Tracing of Property subject to Confiscation (c. 3.4): 247. Reference is made to part 2.5 (c 26.3) concerning the powers of the FIU and to part 2.6 (c 28.1) concerning the powers of law enforcement, suffice it here to note that competent authorities do have adequate powers to identify and trace property. Pursuant to a recent verdict by the Supreme Court (G.R. No. 174629, February 14, 2008, AMLC vs Hon Antonio M. Eugenio, currently under appeal by the government under a Motion for Reconsideration), court orders allowing the AMLC to conduct inquiries into bank accounts cannot be submitted ex parte in cases in which the alleged predicate crime is not kidnapping for ransom, drug offences or high-jacking, destructive arson or murder. To avoid tipping off the potential suspect and enabling him to put them beyond the AMLC’s reach the AMLC now first files a freezing request (which is ex parte) and then proceeds with the bank inquiry. Although this will indeed prevent the further transfer of funds, this does alert the suspect to the fact that he is being investigated. The Draft Bill provides explicitly that in all cases an order to inquiry into bank accounts will be submitted ex parte. Protection of Bona Fide Third Parties (c. 3.5): 248. The rights of third parties are protected by Section 12(b) of the AMLA, which provides that where the court has issued an order of forfeiture of the monetary instrument or property in a criminal prosecution for any money laundering offense defined under Section 4 thereof, any other person claiming an interest therein may apply, by verified petition, for a declaration that the same legitimately belongs to him and for segregation or exclusion of the monetary instrument or property corresponding thereto. This provision applies in both civil and criminal forfeiture. Section 35 of the RPCF spells out the procedure for filing such a petition. On the procedure for intervening in a case for forfeiture, the relevant provisions of Rule 19 of the Revised Rules of Court shall be observed pursuant to which a person who has a legal interest in the matter in litigation, or is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court, may be allowed to intervene in the action. Power to Void Actions (c. 3.6): 249. In all cases discussed above, courts can issue the order for forfeiture irrespective of any legal actions affecting the ownership of the assets in question. Therefore, unless the interests of a bona fide third party were to be affected, any contractual or other legal action concerning the property subject to confiscation shall not preclude the confiscation of the assets. Additional Elements (Rec 3)—Provision for a) Confiscation of assets from organizations principally criminal in nature; b) Civil forfeiture; and, c) Confiscation of Property which Reverses Burden of Proof (c. 3.7): 250. As noted above, Philippine authorities rely primarily on civil forfeiture provisions to confiscate proceeds of ML and unlawful activity. Both under the Act Declaring in Favor of the State Any Property Found to Have Been Unlawfully Acquired by Any Public Officer or Employee and under the Anti-Graft and Corrupt practices Act, property belonging to a public officer who is unable to explain the legitimate origin thereof will be confiscated in favor of the State. In those cases, the - 58 - burden of proof is thus imposed upon respondents as soon as a prima facie case has been established for the unexplained source of the assets. Statistics (applying R. 32) 251. Statistics on the number of freeze orders issued and pending to date and the amounts involved are available in Annex 5. Analysis of effectiveness 252. So far (5 September 2008) assets have been forfeited using civil forfeiture provisions in 8 cases totaling an amount of a little over PHP19 million (approximately US$400,000). Given the scale of unlawful activity in the country, this appears low. Nineteen (19) civil forfeiture cases are currently pending totaling about PHP273 million (approximately US$5.9 million). The time between filing the case and having it resolved is long. Reasons given for the limited number of cases resolved are the high case load/limited resources of the authorities concerned, the process for dealing with the requests by the Courts and the fact that law enforcement agencies are typically concentrated on collecting the evidence of the predicate criminality, not on the freezing/seizing and confiscation of the proceeds. All asset freezing/ civil forfeiture procedures and bank inquiries have to go through the AMLC, which as noted further on in this report, is already stretched for resources. For a more in depth discussion of these issues see 2.5 and 2.6. 253. The Supreme Court decision on the “Eugenio Case� is likely to have an effect on the power to identify and trace assets (and thus ultimately on the ability to freeze and confiscate them) since alerting a suspect of a pending investigation allows him to conceal and transfer other assets that will thus far have remained untargeted by the AMLC. 2.3.2. Recommendations and Comments 254. The passage of the Draft Bill, enlarging the scope of the concept of “unlawful activity� will likely facilitate the recovery of proceeds in those cases involving offences currently not so defined. In addition it will enable the ex parte filing of requests for an examination of banking records. Passing of the bill is therefore encouraged. 255. To enable a more efficient freezing process without impairing due process, serious consideration ought to be given by the legislature to amend the AMLA and return power to the AMLC to order initial freezing, subject to rights of further extension by the courts. In addition consideration should be given to grant authority to specially designated law enforcement agencies to request freeze orders and initiate civil forfeiture proceedings. 2.3.3. Compliance with Recommendation 3 Rating Summary of factors underlying rating R.3 PC  Decreased effectiveness of the ability to identify and trace property.  Confiscation/provisional measures not applicable in TF cases not qualifying as terrorism offences under the HSA.  Low number of seized/confiscated assets - 59 - 2.4. Freezing of funds used for terrorist financing (SR.III) 2.4.1. Description and Analysis Legal Framework: 256. For the freezing of funds of designated terrorists and terrorist organisations under Resolution 1267 of the United Nations Security Council (UNSC), the Philippines relies on the asset freeze provisions under the AMLA. The HSA lays down the process to designate an organization as a terrorist organization domestically. Freezing Assets under S/Res/1267 (c. III.1): 257. The process for freezing funds belonging to persons or entities designated by the UNSC under UNSC Resolution 1267 in the Philippines is as follows. Pursuant to Rule 13.7.2 of the RIRRs the AMLC is authorized “to cooperate with the National Government and/or take appropriate action in respect of conventions, resolutions and other directives of the United Nations (UN), the UN Security Council and other international organisations of which the Philippines is a member�. As soon as a person or entity is designated, the AMLC issues a resolution directing all covered institutions (ie as yet only financial institutions not DNFBPs, see part 4) to submit an STR or CTR involving the designated persons or entities, and directing supervising authorities to disseminate the resolution to all covered institutions under their jurisdiction. Even though the terminology of the resolution makes reference to a transaction, covered institutions would also file an STR in cases where there is no transaction (but simply the existence of an account). Regarding the basis for the AMLC issuing such resolution, the standard wording of the resolution is that “as a charter member of the United Nations, the Philippines, through the AMLC must actively support the actions required under the UNSC resolutions�. 258. If such an STR is filed, the AMLC, as represented by the OSG, can ex parte file a verified petition with the Court of Appeals for a freeze order on any monetary instrument relating to or involving property or proceeds in any way relating to an unlawful activity (for description see above under 2.3). Under Philippine law, the fact that a person is listed is sufficient to assume probable cause that any assets held by him relate, in any way, to unlawful activity. As mentioned earlier, the freeze order can be imposed for a maximum period of 6 months. In this period the AMLC shall complete its investigation, and if the evidence so warrants, initiate civil forfeiture proceeding. In the context of the civil forfeiture proceedings, the AMLC may seek a provisional asset preservation order that will forbid any transaction, withdrawal, deposit, transfer, removal, conversion, concealment, or other disposition of the property pending resolution of the case. Authorities indicated they believed that in cases, in which, other than the listing by the UNSC, no evidence of unlawful activity could be produced, an order could still be obtained- the argument being that mere listing would be sufficient to establish the “preponderance of evidence� required. Two cases concerning persons listed under UNSC 1267 have so far been dealt with (see below under effectiveness). Freezing Assets under S/Res/1373 (c. III.2): 259. Section 39 of the HSA declares that the deposits and their outstanding balances, placements, trust accounts, assets, and records in any bank or financial institution, moneys, businesses, transportation and communication equipment, supplies and other implements, and property of whatever kind and nature belonging to a judicially declared and outlawed organization, association, or group of persons or to a member of such organization, association, or group of persons shall be seized, sequestered, and frozen. Pursuant to Section 54(5) of the HSA, the provisions of Section 10 - 60 - of the AMLA shall be observed with respect to the freezing of terrorist funds, i.e. freezing upon ex parte request of the AMLC (see above). 260. The procedure for such proscription is outlined in section 17 of the HSA which provides that the Department of Justice (DoJ) may apply with the RTC to declare an organisation, association or group of persons organized for the purposes of terrorism a terrorist and outlawed organisation. Such application is to be filed “with due notice and opportunity to be heard� given to the organisation/association/group of persons in question. 261. Terrorism is defined in the HSA (Section 3) as the commission of certain defined acts “thereby sowing and creating a condition of widespread and extraordinary fear and panic among the populace in order to coerce the government to give in to an unlawful demand�. Since the HSA took effect in July 2007, no action for the proscription of a terrorist organization has been filed with the courts. Freezing Actions Taken by Other Countries (c. III.3): 262. When requested by a foreign state to freeze assets, the AMLC would use the power granted to it under Section 13 (b) of the AMLA to act on a request for assistance from a foreign state. Under this provision, the AMLC may give assistance by freezing assets alleged to be proceeds of any unlawful activity under the procedures laid down in the AMLA. Thus, if it found probable cause in the request of a foreign state it would request a freeze order, and, depending on the evidence submitted by the requesting state, initiate a civil forfeiture procedure. 263. The procedure for dealing with such requests is essentially the same as described above under III.1, that the AMLC would issue a resolution requesting covered institutions to file an STR of CTR. Interestingly, such resolutions use the same standard wording as cited above, namely that the Philippines must actively support actions required under the UNSC resolutions. Extension of c. III.1-III.3 to funds or assets controlled by designated persons (c. III.4): 264. As noted, the freeze order (and where relevant the provisional asset preservation order and forfeiture order) is linked to acts, not persons, such that were a person is listed, an attempt will be made to link him to certain acts and freeze his funds (see below). The link between the act and the assets in question is very wide, “in any way related to unlawful activity� (Section 10 AMLA), but it is not (in law) related to the person. It should be pointed out that in one of the cases in which assets were frozen under UNSC1267 the real estate frozen did not legally belong to the designated person but was managed and controlled by him. 265. The HSA, which does provide for a freeze based on person or entity (Section 39, see above), mentions the seizing and freezing of accounts, assets and property of whatever kind, belonging to a judicially declared and outlawed organisation or its member. According to the authorities, “belonging to� is not to be interpreted restrictively and covers indirect and partial ownership and control. As noted, it has not been tested yet so it is not possible to say this with any certainty but given the extensive interpretations used elsewhere to enable an assets freeze (see below under effectiveness) such an interpretation seems highly probable. Communication to the Financial Sector (c. III.5) and Guidance to Financial Institutions (c. III.6): 266. As stated above, when a person is designated under UNSC 1267 or by a foreign government, the AMLC issues a resolution directing covered institutions to file an STR/CTR with regard to a - 61 - listed person. Although the resolution mentions STR/CTR, it is clear to the institutions that they should conduct a search against their database and file a report even when there is no transaction. Within twenty-four (24) hours from receipt of the freeze order, the covered institution is bound to submit to the Court of Appeals and AMLC a detailed return on the freeze order. In order to ensure that the covered institutions are aware of their obligations pursuant to the AMLA, the AMLC conducts trainings and seminars aimed to provide them with knowledge of their responsibilities under the said law, the importance of compliance as well as the consequences of non-compliance. De-Listing Requests and Unfreezing Funds of De-Listed Persons (c. III.7) and Unfreezing Procedures of Funds of Persons Inadvertently Affected by Freezing Mechanism (c. III.8): 267. As stated above, the procedure for declaring an organisation, association or group of persons a terrorist organisation domestically is provided in the HSA under section 17. It states explicitly that in the process of so doing, the RTC will give due notice and opportunity to be heard to the organisation or group of persons concerned. In cases in which an organisation has been designated there is no special procedure providing for an appeal against that decision or for otherwise filing a de-listing request. Based on more general procedural law however, an aggrieved party can avail itself of the remedy under Rule 65 of the Revised Rules of Court if he determines that the freeze order was issued without or in excess of jurisdiction by the court or was made with grave abuse of discretion. Under Section 1 of Rule 65, a person aggrieved by the act of any tribunal, board or officer exercising judicial or quasi-judicial functions which has acted without or in excess of jurisdiction, or with grave abuse of discretion, and there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law, may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs as law and justice may require. 268. Concerning the freeze order, the RCPF already provides for a judicial process pursuant to which a summary hearing will be held within 20 days of issuing the order to determine whether or not to modify or lift the order, with notice to both parties (Sec 53) and any party may appeal the decision of the court by petition for review on certiorari (Sec 57 RCPF). Such procedure would also be available to the person whose funds or assets were mistakenly frozen. Access to frozen funds for expenses and other purposes (c. III.9): 269. Pursuant to section 39 of the HSA, the accused or person suspected of terrorism, which includes a member of a judicially declared and outlawed organisation may withdraw such sums as may be reasonably needed by the monthly needs of his family including the services of his or her counsel and his or her family's medical needs upon approval of the court. He or she may also use any of his property that is under seizure or sequestration or frozen because of his/her indictment as a terrorist upon permission of the court for any legitimate reason. This provision applies only to members of organisations declared outlawed under Philippine law- not to the freeze orders issued pursuant to UNSC 1267. Review of Freezing Decisions (c. III.10): 270. As mentioned the freeze is a judicial decision, in the context of which the affected party will be heard within 20 days of the issuing of the freeze order and, if unsuccessful, against which he can appeal by petition for review on certiorari under rule 45 of the Rules of Court. - 62 - Freezing, Seizing and Confiscation in Other Circumstances (applying c. 3.1-3.4 and 3.6 in R.3, c. III.11) 271. As set out under section 2.3, the relevant criteria under Recommendation 3 apply to terrorism cases in those cases in which the relevant terrorist activity qualifies as unlawful activity for the purposes of the AMLA, that is to say when it concerns, murder, destructive arson or high jacking. TF as such is not criminalized and consequently confiscation and the provisional measures discussed above do not apply where no link to the mentioned crimes can be established. Protection of Rights of Third Parties (c. III.12): 272. The AMLA recognizes that there may be parties who have a legitimate interest over the funds or properties subject of the petition for freezing, seizure or confiscation. Similar to other civil cases, third parties claiming an interest over the properties subject of the petition for forfeiture may intervene in the case. If the order of forfeiture has already been issued by the court, Section 12(b) of the AMLA provides such parties the right to claim such funds or properties (for more detailed discussion see under 2.3 c 3.5) Enforcing the Obligations under SR III (c. III.13): 273. Pursuant to Section 7(10) of the AMLA, the AMLC has the power to impose administrative sanctions for the violation of laws, rules, regulations and orders and resolutions issued pursuant thereto. Rule 14.1.d of the RIRRs further provides that after due notice and hearing, the AMLC shall impose fines upon any covered institution, its officers and employees, or any person who violates any of the provisions of the AMLA, and rules, regulations, orders and resolutions issued pursuant thereto. The fines shall be in amounts as may be determined by the council, taking into consideration all the attendant circumstances, such as the nature and gravity of the violation or irregularity, but in no case shall such fines be less than one hundred thousand pesos (PHP100,000.00) but not to exceed five hundred thousand pesos (PHP500,000.00). The imposition of the administrative sanctions shall be without prejudice to the filing of criminal charges against the persons responsible for the violations. Analysis of effectiveness 274. As of 31 December 2007, 60 AMLC Resolutions issued against UNSC designated terrorist individuals (367) and organisations (125) were disseminated to covered institutions through appropriate Supervising Authorities. In two cases, an action was taken pursuant to a filing of an STR. 275. Following the UNSC designation of the Philippine Branch of the International Islamic Relief Organisation (IIRO), on August 4, 2006, AMLC sent out a Resolution to all covered institutions instructing them to file an STR if they found they had assets belonging to, amongst others, this organisation. An STR was indeed filed and on October 6, 2006 an AMLC resolution was issued authorizing the filing of a petition to freeze the account in question. The petition was filed with the Court of Appeals on November 27, 2006 and a day later the assets in question (PHP153,176, approximately US$3,200) were frozen and, on 12 February of 2008, ultimately forfeited in favor of the government. The forfeiture decision lists three, apparently determining factors as the basis for establishing the preponderance of evidence for forfeiture, namely that IIRO is a source for funding for the Abu Sayaf Group (ASG) in Southern Mindanao, “which is involved in numerous terrorist activities such as murder destructive arson and kidnapping for ransom�, that it is listed by the UNSC and that the brother in law of Usama Bin Laden was one of the incorporators of IIRO and was the director of IIRO and maintained a close relationship with a “specially designated Global Terrorist� (the IIRO did not present any evidence). Authorities maintained that even in the absence of any other - 63 - evidence a mere listing by the UNSC would likely be sufficient to establish preponderance of evidence and thus to forfeit proceeds of listed individuals/entities. 276. The other case concerns the listing of the Rajah Solaiman Movement (RSM) and two of its members, Hilarion de los Santos and Ricardo Ayeras, which were listed more recently by the UNSC, on June 4, 2008. Following a resolution by the AMLC to authorize the filing of a petition for the issuance of a freeze order freezing real estate belonging to de los Santos and a bank account belonging to Ayeras, the petition was filed with the Court of Appeals on July 7, 2008, and the order was issued two days later on July 9, 2008 and extended on September 29, 2008. It should be pointed out that the listing by the UNSC was actually the result of a request by the Philippine government following an investigation by the Anti Terrorism Council. It was for that reason that the request for freeze order was able to specify targeted assets so quickly and to link them to specified unlawful activity. In granting the freeze order, the Court of Appeals links the real estate and the bank account to terrorist RSM training activities. When asked why the authorities had not attempted to have the RSM declared a terrorist organisation pursuant to section 17 of the HSA and have their assets frozen under section 39, the authorities declared that the threshold for such declaration was too high, the difficulty being both the requirement that the organisation “sows a condition of widespread and extraordinary fear and panic among the populace� and that it put forward “an unlawful demand�. Particularly the latter requirement poses problems of interpretation: Is the demand for a homeland/ independence unlawful? As noted section 17 HSA has never been tested yet. 277. The authority of the AMLC to take action to request a freeze of assets of UN listed individuals or entities is based upon the somewhat vague provision in the RIRR (rule 7 (8)) that the AMLC is to “take action� in respect of resolutions of the UN. Under the AMLA, and the RCPF, the freeze must be linked to ML or unlawful activity however. Thus, in cases where listed entities/individuals cannot be linked to such activity, the legal basis for the freeze order may be called into question. It would appear that it is for that very reason that the IIRO forfeiture decision states that IIRO is a source of funding for ASG, which is involved in numerous terrorist activities such as murder destructive arson and kidnapping for ransom (ie those activities which are unlawful activities under the AMLA). Such a situation of terrorist funds but no terrorist activities is unlikely to occur in the Philippines since it is not a financial center, but it certainly cannot be ruled out. 278. In addition, the maximum term of the freeze order is 6 months. Thereafter, a civil forfeiture proceeding must be initiated to maintain the freeze. If the authorities are correct that in practice, a court would allow for the civil forfeiture of funds solely based on the listing of the UN, that does raise questions as to what ‘preponderance of evidence’ really means. For such a far reaching measure, one would expect a higher standard of proof. If it is not sufficient and further evidence does need to be gathered, it is questionable whether 6 months is long enough to gather sufficient evidence to initiate civil forfeiture proceedings. 279. In the IIRO case, the delay between the designation by the UNSC and actual freezing of assets was almost four months. It should be pointed out that the reason for the delay is with the AMLC, not the courts. In all it took 52 days to freeze the funds- the AMLC process to allow for the application to be submitted took 51 of those 52 days. In the RSM case, it was a little over a month. It should be noted however that in both cases the period, between filing the petition for the freeze order and the granting thereof was very short, 1 and 2 days respectively. 2.4.2. Recommendations and Comments 280. Although in practice the Philippine authorities have managed to freeze assets linked to persons and entities designated under UNSCR 1267, the legal basis of the practice is not sound. The difficulty - 64 - is to transform a system that is intended fundamentally to be “in personam� -freezing all assets that can in the widest sense be linked to a person or entity- to one that is “in rem�- freezing all assets that can in the widest sense be linked to an activity. To that end, the boundaries of the latter are stretched to the limit to accommodate the demands of the former. 281. The international obligation is that funds belonging to certain person are to be frozen. The requirement that this be linked to acts, as under Philippine law, renders the process overly complicated and results in the freezing decisions being open to legal challenge because the link between person and activity is tenuous. It is a requirement of law that there be such a link but the factual basis for it is not necessarily strong. Also, from an international legal point of view, a decision from the UNSC issued under chapter VII of the UN Charter cannot be subjected to judicial discretion in any UN member state. 282. Authorities should consider providing for a firm legal basis to freeze funds of persons and entities listed under UNSCR 1267, ensuring a wide definition of funds. To be clear, the basis for such freezing should be the identity of the person, not his activity. Given that it is only a question of ensuring identity, rather than establishing a link between person and activity, it would appear more appropriate that such power be vested in an executive authority who could issue the names directly to financial institutions, ordering a freeze of such funds. 283. It is recommended that the use of the freeze order by the Court of Appeals be replaced by a new, sui generis freeze procedure, pursuant to which a freeze can be effected as soon as a new entity or person is designated by the UNSC. Procedures should be established to allow for the access to the frozen funds for humanitarian reasons. This will also allow for freezing “without delay�. 284. If authorities do maintain the current system of freezing funds of entities designated under UNSCR 1267, it should be ensured that the delay between the resolution to issue a petition to freeze and the actual issuing of that petition be shortened significantly. 285. The system of domestic designation only permits for designation of entities, not individuals. It is recommended that the possibility of designating an individual be added to the current system. 286. The requirement for domestic designation to be based on the definition of terrorism provided by section 17 of the HSA seems to set the bar too high for the system to be fully effective. 287. Under the current system, the respondent is heard before being designated, thereby significantly reducing the possibilities for securing assets belonging to a designated entity. Authorities should consider a designation process (either judicial- ex parte- or executive in nature) based on reasonable grounds accompanied by an immediately effective freeze, after which the affected party should be given the opportunity to be informed of the evidence against him, to be heard and to appeal. 2.4.3. Compliance with Special Recommendation III Rating Summary of factors underlying rating SR.III PC  Freezing process under 1267 not “without delay�.  Freezing process under 1267 allows judicial discretion over UNSC resolutions under Chapter VII UN Charter.  No legal powers to freeze, seize or confiscate assets related to TF, except in the context of 1267 or domestic designation. - 65 -  Doubts on the length of the freeze.  Domestic designation ineffective.  Domestic designation does not allow designation of individuals. 2.5. The Financial Intelligence Unit and its Functions (R.26) 2.5.1. Description and Analysis Overview 288. As noted previously, the AMLA took effect on 17 October 2001, creating the Anti-Money Laundering Council (AMLC) as the implementing agency for the Act. For the purposes of this section of the report, the AMLC will be referred as “the AMLC� or “the Council� and the Secretariat will be referred to as the “the AMLC Secretariat� or “the Secretariat�. 289. The broad mandate of the AMLC, as set out by the AMLA, is to act as the primary authority responsible for conducting criminal ML investigations and FIU functions within the Philippines. During the assessment it was difficult to completely separate the analysis of the various functions of the AMLC since existing duties overlap in both areas of its operations: criminal investigations and FIU functions. The AMLC Secretariat, day to day, carries out most of the functions of an FIU, but is not a typical FIU due to it diversity of responsibilities. This section of the report concentrates on the AMLC’s role as the FIU for the Philippines. 290. The AMLA creates both the AMLC and the AMLC Secretariat. Section 7 of the AMLA describes the Council and sets out its responsibilities overseeing the operations of the Secretariat. The Council is comprised of the Governor of the BSP as Chairman with the Commissioner of the IC and the Chairman of the SEC as members. This is an unusual arrangement: While technically there is no issue of autonomy/independence between the Council and the AMLC Secretariat since together they constitute the FIU, in practice, (i) it can and does slow down approval processes; and (ii) it creates a potential conflict of interest since the Council is comprised of members who could be subject to AMLA regulations and laws. 291. The functions of the FIU envisaged in FATF Recommendation 26 are prescribed by the AMLA and carried out by the Council with the assistance from the AMLC Secretariat. The AMLC Secretariat is headed by an Executive Director and consists of five divisions that are involved in the FIU and the law enforcement functions mandated by the AMLA. As of the date of the on-site visit, the AMLC employed 63 staff, including support staff. 292. Since its inception in 2001, the AMLC has made significant progress in developing its capacity as the central authority for AML, including functioning as the FIU. It was clearly evident to assessors that the AMLC has been dedicated and hard-working in its efforts to achieve the mandates prescribed by the AMLA. 293. The AMLC’s accomplishments have been achieved notwithstanding the limited resources allocated to the AMLC Secretariat. The Council and the AMLC Secretariat demonstrated repeatedly during the mission that they are committed to enhancing the Philippines’ AML/CFT. The assessors would like to stress that despite the issues identified in this part of the assessment and the recommendations made to address them, the determination of the AMLC is recognized and credit is due for their many accomplishments. - 66 - 294. The Philippine government appears committed to their AML regime. However, additional resources and budget are urgently needed for the AMLC if it is to fully meet its mandate under the AMLA. This shortage of resources limits the FIU’s capacity to perform its primary function of conducting analysis and also affects other core AMLC activities activities such as compliance, guidance and developing typologies. Improving internal processes, building IT capacities and reviewing the present authorities of the AML Council pursuant to Sec 7 AMLA, are all areas that assessors believe would improve the effectiveness of the Philippines governments efforts in combating money laundering and terrorist financing. 295. In the view of assessors, with the increased resources recommended, the AMLC could benefit from having employees with law enforcement and other financial sector experience outside of the IC, the SEC or the BSP in positions related to the FIU functions. Further, AMLC will require additional funding to support increases in staff and to secure on site access to data bases for analysis. 296. Although in practice the AMLC does deal with cases related to terrorism financing (see 2.4 above), TF is not legally part of the AMLC’s mandate and the AMLC’s capacity to conduct analysis for TF is limited. Establishment of FIU as National Centre (c. 26.1): 297. Sections 7 and 8 of the AMLA clearly create the legal authority for the establishment of the AMLC while setting out its FIU functions under the guidance of the Council. The AMLA allows the AMLC to operate as an independent agency designated to perform the core FIU functions of receiving reports, conducting analyses, disseminating intelligence and ensuring compliance.. Description of AMLC’s Organizational Structure 298. As mentioned previously, it was virtually impossible to determine the exact duties of different groups due to overlapping functions within the AMLC. FIU functions are primarily carried out by the Compliance and Investigation Group (CIG) with the assistance of the Information Management and Analysis Group (IMAG). The Anti-Money Laundering Council 299. The AMLC is comprised of the Governor of the BSP as Chairman, with the Commissioner of the IC and the Chairman of the SEC as members. Notwithstanding the fact that it has members from the three different agencies, authorities maintain that the Council acts independently of those agencies including its host, the BSP. Section 7 of the AMLA provides the legal powers and describes functions carried out by the Council. 300. Section 7 of the AMLA states: “The AMLC shall act unanimously in the discharge of its functions as defined hereunder: (1) to require and receive covered or suspicious transaction reports from covered institutions; (2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to determine the true identity of the owner of any monetary instrument or property subject of a covered transaction or suspicious transaction report or request for assistance from a foreign State, or believed by the Council, on the basis of substantial evidence, to be, in whole or in part, wherever located, representing, involving, or related - 67 - to, directly or indirectly, in any manner or by any means, the proceeds of an unlawful activity. (3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General; (4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering offenses; (5) to investigate suspicious transactions and covered transactions deemed suspicious after an investigation by the AMLC, money laundering activities, and other violations of this Act; (6) to apply before the Court of Appeals, ex parte, for the freezing of any monetary instrument or property alleged to be the proceeds of any unlawful activity as defined in Section 3(i) hereof; (7) to implement such measures as may be necessary and justified under this Act to counteract money laundering; (8) to receive and take action in respect of, any request from foreign states for assistance in their own anti-money laundering operations provided in this Act; (9) to develop educational programs on the pernicious effects of money laundering, the methods and techniques used in money laundering, the viable means of preventing money laundering and the effective ways of prosecuting and punishing offenders; (10) to enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the government, including government-owned and -controlled corporations, in undertaking any and all anti-money laundering operations, which may include the use of its personnel, facilities and resources for the more resolute prevention, detection and investigation of money laundering offenses and prosecution of offenders; and (11) to impose administrative sanctions for the violation of laws, rules, regulations and orders and resolutions issued pursuant thereto.� 301. The Council has a full-time Council Secretary whose functions are to coordinate meetings of the Council, to prepare the minutes of the meetings and to monitor the implementation of Council Resolutions. In accordance with Section 7 all members of the Council must be in attendance at meetings and decisions must be unanimous. The Executive Director’s office works with the Council Secretary to determine agenda items generated either from FIU functions or criminal investigations being conducted by the AMLC. The Council also approves sanctions for non-compliance. 302. The Council usually meets monthly unless extenuating circumstances require an emergency meeting. Most meetings have agendas with 10 to 25 items and usually take a minimum of 4 to 5 hours to complete. Between January and October 2008, a total of eight meetings, dealing with a total of 109 agenda items, were held. In practice, the majority of items brought to the Council are approved since they are closely scrutinized by the AMLC Legal Department and the Executive Director before being brought forward. It was evident to assessors during interviews that the Council relies on the recommendations of the Executive Director and his staff, particularly in regards to enforcement activities of the CIG, since Council members experience in law enforcement or FIU operations is limited. Executive Director Office and Secretariat 303. Section 8 of the AMLA mandates the creation of a Secretariat. The Secretariat is headed by an Executive Director, appointed by the AMLC for a five-year term. The AMLA requires that all employees of the Secretariat have served for at least five years in the IC, the SEC or the BSP. Potential employees must hold full-time permanent positions within the BSP before they - 68 - can be considered for employment with the AMLC. These requirements limit the AMLC from hiring employees from law enforcement or other financial sectors. 304. The AMLC Secretariat consist of five divisions which at the time of the assessment had a total of 63 employees (66 when fully staffed) : a. Office of the Executive Director (9 employees), b. Legal Evaluation Group (14 employees), c. Compliance and Investigation Group (12/13 employees), d. Information Management and Analysis Group (17 employees); and e. Administrative and Financial Services Division (13 employees). 305. The present Executive Director has over 30 years experience with the BSP. The Executive Director and his staff (the Office of the Executive Director, OED) act as the head of the AMLC Secretariat. The Secretariat functions are authorized by the Council pursuant to the provisions of Sections 2 and 7 of the AMLA. Whenever authorized by the Council, the OED oversees all - 69 - administrative, budgetary, purchasing and human resources development, and implements AMLC policies, decisions, procedures and systems. 306. The OED manages the Egmont Secure Web (ESW) and acts on all requests for assistance in conjunction with the relevant group within the Secretariat. The Executive Director also represents the AMLC in public and in local/international forums. The OED organizes the monthly NALECC AML/CFT sub-committee meetings and the quarterly meetings of the Financial Sector Liaison Committee (FSLC). These committees are described in section R 40 of this report. 307. The AMLC under the direction of the OED, has taken a committed and innovative approach to increase awareness of ML in covered institutions and in the general public. The AMLC has delivered an extensive number of presentations to the public, reporting entities and other government agencies on reporting requirements and other AML programs. One unique and very successful public awareness initiative was a poster-making contest launched with local schools in October 2007. The aim of the contest was to encourage artists to submit entries related to the theme: “Sugpuin ang Money Laundering� (Combat Money Laundering). The AMLC received hundreds of entries to this contest and the event drew local media coverage and the attention of local government officials at all levels. AMLC can be complimented on these efforts. Legal Evaluation Group (LEG) (14 personnel) 308. The Legal Evaluation Group (LEG) is staffed primarily by lawyers and works closely with the CIG. 309. As with most operations within the AMLC, there is a very formal process between the LEG and the CIG, with each group having well-defined roles. The LEG determines whether any operational recommendation of the Secretariat to the council for approval has sufficient legal and factual bases and if it is sufficient in form and substance. This same approach is taken on all aspects of operations, including on the approval for the disclosure of financial intelligence by the FIU. Once reviewed, the LEG then prepares a resolution, which contains the recommended action to be taken by the Council. The CIG memorandum, together with the proposed resolution, is submitted to the head of the LEG and then to the Executive Director for review. If the Executive Director finds the memorandum in order, he signs it with a recommendation for approval by the Council. All recommendations of the Secretariat, together with the proposed resolutions, are submitted for the Council’s consideration during its meeting. If the Council approves the recommendation, the Resolution is signed. Otherwise, the memorandum is returned to the Secretariat for further action. This same approach is taken with all aspects of operations, including approval for disclosure of financial intelligence by the FIU. Compliance and Investigation Group (CIG) (13 personnel) 310. The law enforcement aspects of the CIG are described in-depth in Section 27. This part of the report concentrates on its FIU activities. It is clear that the CIG has a broad scope of responsibilities with limited staff to meet both itsmoney laundering investigation and its FIU duties. The CIG is responsible for analysis, compliance, money laundering investigations and civil forfeiture cases as dictated by Section 7 of the AMLA. Most CIG analysts have been recruited from the BSP and are primarily accountants, former bank examiners and lawyers. At present, one analyst is seconded from the PNP. 311. The CIG has three staff dedicated to compliance activities and nine investigators who perform money laundering investigations and analysis. CIG’s responsibilities include, among others: - 70 - a. processing, examining and analyzing transaction reports from covered institutions, and corroborating them via access to external partner databases (law enforcement, land titles, company records, etc.); b. issue recommendations to the Executive Director and the Council for dissemination to external law enforcement agencies, launch of investigations within AMLC (by the CIG), and to recommend non-compliance sanctions; c. addressing foreign requests received through the Egmont website; d. responding to domestic law enforcement and supervisors’ queries or referrals (relating to FIU matters); e. working with supervisory authorities (BSP, IC and SEC) on non-compliance, guidance for reporting and other regulatory requirements to ensure compliance pursuant to the authorities of the AMLA; f. developing educational programs and external presentations on anti-money laundering; g. representing the Executive Director in all dealings of the AMLC with local and foreign investigative, intelligence and law enforcement agencies and units. Information Management and Analysis Group (IMAG) (17 personnel) 312. The Information Analysis and Management Group is composed of personnel with many years of information technology (IT) experience. The IMAG consists of three units: data collection and management staff, technical support staff and applications development staff. Data Collection and Management Staff 313. This unit consists of four staff members who are involved in FIU activities that include: a. Digitalizing STRs and FX declarations to populate the AMLC database; b. Searching AMLC databases (STRs, CTRs, UN Watch Lists, SEC’s i-View database software and FX Declarations, etc.) and external sources (INTERPOL, Wolrd Check) for matching reports to received STRs; c. preparing preliminary reports on STRs for those that should to be referred to CIG for further inquiries; d. closing STRs and updating the AMLC database for those cases that do not warrant further action; e. administering the Computer Based Training program on Anti-Money Laundering for staff of the AMLC, supervisors or reporting entities and providing training to reporting entities on electronic reporting procedures; f. providing telephone assistance to covered institutions for problems with reporting procedure Technical Support Staff 314. This unit consists of four staff members who provide server and database administration by managing the IT infrastructure. This unit is also responsible for network security and for training reporting entities on how to make electronic reports. Applications Development Staff 315. This unit consists of five staff members who maintain, enhance and develop software used in analysis and by reporting entities. - 71 - 316. The IMAG completes the initial analysis of STRs by conducting on-line searches using Visual Links. The majority of these reports are submitted electronically and are available for analysis almost immediately after being received. Once analysis is completed, the STRs are either logged for future reference or, depending upon the recommendation of the IMAG analyst, referred to the CIG for their assessment and further investigation. In cases referred to the CIG, analytical reports that include charts and text showing financial transactions and target relationships are generated by the IMAG. As of the date of this assessment, the IMAG had referred 1026 cases to the CIG for follow-up. 317. At present, the IMAG analysis is focused on STR reports as they have limited data mining tools to proactively generate cases by scanning the AMLC transaction database. Receipt of STRs and other relevant information 318. The AMLC receives the following types of reports pursuant to the AMLA: a. Covered Transaction Reports (CTRs) , are, as described in Section 3 (b) of the AMLA,: “A covered transaction is a transaction in cash or other equivalent monetary instrument involving a total amount in excess of Five hundred thousand pesos (P500,000.00) within one (1) banking day� b. Suspicious Transaction Reports (STR) are transactions, regardless of the amounts involved, where any of the following circumstances exist: 1. there is no underlying legal or trade obligation, purpose or economic justification; 2. the client is not properly identified; 3. the amount involved is not commensurate with the business or financial entity capacity of the client; 4. when, taking into account all known circumstances, it is perceived that the client’s transaction is structured to avoid being the subject of reporting requirements under the Act; 5. when any circumstance related to the observed transaction deviates from the profile of the client and/or the client’s past transactions with the covered institution; 6. the transaction is in any way related to an unlawful activity or offence that is about to be, is being or has been committed; or 7. the transaction is similar or analogous to any of the forgoing. c. Cross Border Reports are declarations of outbound and incoming and seizures pursuant to Foreign Exchange Act; Bearer Monetary Instruments Declaration of monetary instruments over PHP1, 000.000; and reports of any seizures made by Bureau of Customs under this act. These reports are provided in hard copy and are - 72 - entered manually into the AMLC databank by IMAG staff. Since 2004, 3081 cross border reports and 33 forfeiture reports have been received from the BOC.19 319. From inception in 2001 to December 31, 2007, the AMLC has received a total of 10,469 STRs and 103,714,619 CTRs (see Tables XVII and XVIII in the appendix). The majority of these reports have come from banks. More than 3,100 of the STRs reported were related to credit card applications where banks reported suspicion as to the validity of credit card applicants. As such, this means that the actual STRs would be just over 7,000. Since 2004, 3081 cross border reports and 33 forfeiture reports have been received from the BOC.20 320. The total number of STRs seems low when the population of the Philippines and the number of reporting entities is considered. There has been a significant increase over the past two years of STR’s received which can be attributed to the work of the AMLC and regulators. The quality of STR’s has been an issue in the past. However, authorities now require electronic reporting with “go and no go� fields and this seems to have addressed many of the issues. The majority of STR’s submitted are from the financial institutions and authorities are now focusing on encouraging more reporting from other sectors. 321. The low number of STR reports could also be related to possible confusion amongst reporting entities that the suspected “predicate offence� must be noted in the STR in order to file a report. This notion is of concern to the assessors as some reporting entities may hesitate to report a suspicious transaction if they do not know what the predicate offence is. Assessors heard this concern expressed by several reporting entities. Authorities stated this is neither the practice nor a requirement. 322. Assessors have noted that throughout Philippine society there are concerns with confidentiality of information, including banking information, and corruption issues within government. This mindset may explain the apparent reluctance of the public to report suspicions or incidents to the authorities despite the fact that no allegations of corruption or misuse of information have ever been made against the AMLC. 323. The AMLC has worked with regulators, published a number of communication documents and made presentations to hundreds of reporting entities. Over the past two years there has been an increase in the number of STRs, which may be attributed to the AMLC outreach activities, increased guidance by supervisors and increased awareness of AML amongst reporting entities. 324. CIG’s compliance operations have matured over the past few years. The CIG has three full- time compliance officers who work closely with regulators on guidelines and who enforce non- compliance sanctions. Despite the diligent efforts of these limited resources it was evident to assessors that, considering the size of country and scope of responsibilities, the AMLC need additional resources. Based on recommendations from regulators, the AMLC has issued a number of sanctions to reporting entities for failure to comply with reporting requirements as specified under the AMLA. So far, 21 financial institutions have been sanctioned by the AMLC for violations. These violations have been published to increase the awareness of the consequences of failure to comply. These efforts by the AMLC are contributing to the increase of STRs during the past two years. 19 Statistics provided by BOC were contradictory. Reference to referrals of 1437 reports for 2007 is contradicted by other statistics in DEQ that referred to 476 reports. BOC and the AMLC have been requested to clarify this. - 73 - Reporting procedures 325. Pursuant to Sec 9.3.b.2 of the AMLA “Covered transaction reports and suspicious transaction reports shall be submitted in a secure manner to the AMLC in electronic form, either via diskettes, leased lines, or through Internet facilities, with corresponding hard copy for suspicious transactions….�. As required by the AMLA, CTRs and STRs are submitted electronically within five (5) business days by the banking sector. For institutions under the supervision and/or regulation of the IC and the BSP, CTRs and STRs are submitted within ten (10) business days. The AMLC analysts have almost immediate access to the reports for analysis once they are received. 326. The AMLC has provided training to reporting entities in electronic reporting and almost all CTR and STR reports are received electronically. Reporting of CTRs and STRs is included on one form and interviews with reporting entities confirmed that these systems for reporting are “user friendly�. However, concerns were raised by reporting entities that the requirement to report within five (5) days was too short. As well, double reporting of CTRs was occurring because of uncertainty surrounding the definition of “monetary instruments (see section 2.1 for a definition). Over reporting and the challenges of short timelines could have an impact on the quality and number of reports that the AMLC has to manage when conducting analysis. 327. Another issue raised was the requirement to hand-deliver a hard copy of all STRs to the AMLC. Hand-delivery is viewed by reporting entities as unnecessary considering that electronic submission is also required. In practical terms, this process has resulted in many institutions outside of Manila requiring staff to travel to meet this requirement. Under the present procedure, each hand- delivered STR is logged at the AMLC offices and requires sign-off by the person submitting. This involves significant resources within the FIU to manage. Assessors agree that the requirement for hand-delivery is of questionable value and may also deter a reporting entity from making a report. This cumbersome reporting procedure could impact the number of STRs that the AMLC receives. 328. Assessors were also concerned with the time spent by IMAG staff to scan and input BOC cross border reports into the AMLC databases so they are available for analysis. This process draws on valuable IMAG resources that have to manage this process. Authorities should explore whether these reports could be submitted electronically by BOC which will allow immediate access for analysis and also allow IMAG resources currently responsible for data input to be utilized for other FIU functions. If this is not possible, the AMLC should be allocated further resources to deal with this. Transaction Analysis 329. Cases for analysis are generated by the STRs received, through open source (i.e., media), by referrals from law enforcement or from reports from the general public as outlined in Resolution 6.21 21 In relation to opening cases for investigation, the AMLC, by virtue of Resolution No. 6 (Series of 2006), authorized the Secretariat to perform the investigative power thereby giving the Secretariat the discretion to take appropriate actions in the conduct of investigation triggered by the following:  Suspicious Transaction Reports (STRs);  Covered Transaction Reports (CTRs) that are or can be materially linked to any specified unlawful activity, suspicious transaction, money laundering activities and/or other AMLA related violations;  Referrals by Supervisory Authorities, law enforcement and other agencies on possible money laundering activities/offenses and other violations of the AMLA; (continued) - 74 - The quality of STR’s is adequate to allow a proper analysis to be conducted. Electronic reporting allows analysts to have almost immediate access to reports submitted. Analysis of STRs and the dissemination of intelligence responsibilities are shared between the IMAG, the CIG, and the LEG at the direction of the Secretariat with the support of the Council. Analysts in both the IMAG and the CIG have received training in ML and TF and utilized the Egmont indicators during this process. 330. The Deputy Director of the CIG reviews all cases referred by the IMAG and assigns them to an investigator who conducts further inquiries to determine if sufficient suspicion warrants the referral of the matter to the AMLC for eventual dissemination to law enforcement agencies (which could be CIG). Since January 2008, the CIG had received over 1036 referrals for follow-up from the IMAG (see Table XVIII). Of these referrals, more than 400 could not be dealt with due to limited resources. Each of the six CIG investigators was examining over 100 files for follow-up analysis. Since 2004, CIG has opened 457 criminal STR-generated investigations that were approved by the Council. Assessors are of the view that limited follow-up on STRs is primarily due to the lack of resources within the CIG. 331. The analysis process is outlined below in the diagram. 332. Analysts have the authority under Section 7 (2) of the AMLA to contact reporting entities in order to obtain information that confirms the identity of an account holder. This is done frequently to ensure that information is accurately reported and to confirm the information contained in the STRs or CTRs for analysis. 333. Original STRs or CTRs cannot be provided to law enforcement agencies as per the provisions of the AMLA, so instead a report summarizing the financial intelligence is provided. CIG develop the analytical reports with the intention that they will use the information for their criminal investigations once the case is approved to proceed by the Council. Assessors reviewed these reports and found them to include sufficient information (charts and summaries) to be of value to authorities. This view was confirmed during interviews with other domestic and foreign law enforcement authorities who had received analytical reports from the AMLC.  Subject to the rules on reciprocity, referrals by foreign jurisdictions/states or FIUs involving possible money laundering activities/offenses of similar nature to the unlawful activities under the AMLA, as amended;  Newspaper or media reports of money laundering activities which contain sufficient leads or particulars to warrant the taking of further action, provided that the predicate offense can be sufficiently established by the following: (i) proof of its on-going investigation by the concerned law enforcement agency; (ii) the filing of the corresponding criminal information; or (iii) the pendency of the criminal case for the predicate offense;  Citizens’ sworn complaints relating to money laundering activities and/or other violations of the AMLA, provided the conditions under paragraph (e) above are met with regard to sufficient leads and proof of the predicate offense.  Text scams;  Media reports in violation of Section 9 [c] of the AMLA (Breach of Confidentiality);  Sworn complaints from alleged victims of malicious reporting (Section 14 [c], AMLA); and  Such other reports, referrals or complaints similar, analogous or identical to any of the foregoing as may be determined by the council. - 75 - 334. Assessors are of the view, that the available amount of accessible intelligence, coupled with the authority to request further information from banking institutions (as established under Section 11 of the AMLA), provides important opportunities to conduct in-depth analyses of financial transactions. However, due to resource limitations, in both the areas of law enforcement and the FIU, the AMLC has not been able to capitalize on these opportunities. IT Systems 335. The AMLC has sufficient IT tools, training and transactional data to draw from, but does not have the time to optimize and develop analytical products. Currently, the technical resources allow the AMLC to conduct analyses of transactions and to search databases for matching transactions. The AMLC continues to improve the Transaction Monitoring and Analysis System (TMAS). The functionality of TMAS is limited, but does provide adequate analysis and technical support. The TMAS provides for the following components: a. data management and consolidation; b. data mining; c. link analysis and visualization; d. case management and workflow; and e. document management and imaging. 336. A recent improvement (as of August 2008) is the implementation of the Case Management System (CMS) which manages, scans and profiles hard copies of STRs and other documents acquired during investigation. The CMS allows users to create and update electronic case folders thereby - 76 - enhancing their usefulness as data analysis and investigation tools. The current development of a Legal Management and Tracking tool will enhance the CMS. 337. Further efficiencies will be realized if the requirement for the provision of hard copies to AMLC is eliminated. Profiling of STRs can be based on the electronic copy of the STR, thereby eliminating the need to scan and upload hard copies. Guidelines to Financial Institutions on Reporting STR (c. 26.2): 338. The AMLC works closely with the BSP, IC and SEC in the issuance of guidelines. Numerous resolutions have been issued by the AMLC and distributed to regulators and reporting entities. The AMLC compliance staff has also made a number of presentations to reporting entities and has distributed pamphlets, e-mail bulletins and information via their website with information on creating STRs. Feedback 339. Reporting entities requested that the AMLC provide more feedback on STRs. The AMLC Secretariat have had to stretch existing available resources (3 in compliance & 3 in IT/analysis) to undertake feedback to reporting entities while also working with regulators on guidance for STR reporting. In the view of assessors, these resources are inadequate to undertake these responsibilities as they also perform several other functions including analysis, compliance and maintaining relationships with regulators. Under the AMLA provisions, AMLC analysts can contact reporting entities for clarification regarding STRs or CTRs which are either contacted by email or by telephone. Assessors were told that AMLC staff use this opportunity to provide informal feedback on reporting but otherwise there are no other presentations given to reporting entities. A more formal method of feedback by the AMLC has been addressed in a number of guidance letters issued to reporting entities by the CIG compliance unit. Statistics on CIG guidance letters are described in Tables XIII and XIV in Annex 5. 340. Other forms of feedback undertaken by AMLC is a case-by-case diaglogue by AMLC to covered institutions which have filed suspicious transaction reports or other covered transaction reports which triggered a criminal ML or civil forfeiture case for investigation. These letters are usually sent after freeze orders are obtained, petitions for civil forfeiture have been filed, or a prosecution for money laundering has been initiated, to prevent leaks or possible tipping-off. 341. The AMLC staff has been trained by AUSTRAC to develop typologies through its many technical assistance visits. Typologies are submitted to the APG annually during the Annual Typologies meetings. 342. According to reporting entities interviewed, the AMLC needs to continue to build capacity for providing more typologies, sector-specific feedback on STR-reporting, and more information to assist reporting entities to identify ML indicators. Assessors consider that the low priority accorded to the provision of feedback within the compliance program is likely due to the considerable resource limitations of the AMLC. The AMLC needs further resources to increase their ability to provide feedback and to develop typologies and indicators that can be shared with AML partners. Access to Information on Timely Basis by FIU (c. 26.3): 343. The AMLC has sufficient access to financial, administrative and law enforcement databases required for its analysis but there is an issue regarding timely access to this information. The AMLC has limited on-site access to many government databases which slows down the analytical process. - 77 - 344. Section 7(10) of the AMLA grants the AMLC the power to seek the assistance of financial, administrative and law enforcement agencies: “ to enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the government, including government-owned and -controlled corporations, in undertaking any and all anti-money laundering operations, which may include the use of its personnel, facilities and resources for the more resolute prevention, detection and investigation of money laundering offenses and prosecution of offenders; “ 345. In the exercise of such power, the AMLC has entered into Memoranda of Agreement (MOA) with different financial, administrative and law enforcement agencies to facilitate the assistance it needs to carry out its functions. The AMLC has a MOA, which includes provision for access to information, with the following agencies: a. Philippine National Police (PNP) Criminal Investigations and Detection Group b. PNP-Police Anti- Crime and Emergence Response (kidnapping offenses) c. Department of Justice d. Office of the Ombudsman (corruption prosecution) e. Philippine Center on Transnational Crime f. Philippine Drug Enforcement Agency g. Bureau of Customs h. National Intelligence Coordinating Agency i. Bureau of Immigration j. Philippines Port Authority 346. The Executive Director and the Deputy Director of the Information Management and Analysis Group (IMAG) of the AMLC Secretariat have online access to the INTERPOL’s database through the Philippine Center on Transnational Crime’s (PCTC) I-24/7 network. This database contains information related to known criminals both local and foreign, missing persons, stolen motor vehicles, stolen travel documents, and security alerts on possible terrorist threats and related modus operandi. The PCTC has operational supervision over the INTERPOL’s National Central Bureau (NCB) – Manila. 347. The AMLC also has online access to open source data through World Check and the SEC’s i- View database, which contains all corporate registration information for the Philippines. Analysts also have access to the internet which is also used in every case during the analysis process. For all other government databases queried during analysis, letters of request are forwarded to the appropriate agencies. These letters are usually replied to in five days or longer which delays the analytical process. Assessors were told that many government and public databases could be installed at the AMLC offices which would give analysts direct access to information, thereby reducing the time required to perform their duties. Assessors recommend that on-site access be considered for the AMLC analysts to improve their effectiveness and productivity. Additional Information from Reporting Parties (c. 26.4): 348. As provided by Section 7 (2) of the AMLA, the AMLC is granted the authority to require that covered institutions provide additional information so that the AMLC can properly undertake its functions related to the investigation and prosecution of money laundering. The AMLC is not limited to requesting records on an STR only when errors are found within the report. - 78 - 349. The AMLC frequently initiated action under Section 11.2 of the AMLA (the “Authority to Inquire into Bank Deposits�) in cases linked to kidnapping, narcotics, hijacking and terrorism. Like other processes under the AMLA, this involves obtaining formal approval from the AMLC, but the threshold for disclosure is much easier to meet in these instances. Once a request is made by the AMLC, banks must provide full access to the information pursuant to the AMLA. This information is then incorporated into the analysis and subsequent disclosures. Information that can be requested and shared by the AMLC includes: a. account opening forms and all identification documents, including picture identification; b. bank statements from account opening; c. deposit/withdrawal slips, debit and credit memos, cashier cheques, transfer requests between branches and accounts; and cancelled cheques. 350. It is important to note that these same powers are used by the AMLC during analysis. This could result in the same financial intelligence being shared in these cases once they are approved by the Council. Assessors found that CIG utilizes these provisions of the AMLC resolution effectively when it seeks information from the bank for the three crimes listed above. Dissemination of Information (c. 26.5): 351. There are no legal limitations to the sharing of intelligence with authorities pursuant to Section 7 of the AMLA, which states that the AMLC has the power “to implement such measures as may be necessary and justified under this Act to counteract money laundering. 352. In its Resolution No. 59 (Series of 2006), the AMLC delegated the authority to share intelligence information with law enforcement agencies to the Executive Director of the Secretariat. No Council approval is required to share information with Foreign FIUs yet when information is to be shared domestically, Council approval is required. Under the present process, domestic law enforcement officials could receive STR intelligence from foreign law enforcement officials more expeditiously than through a direct request to the AMLC. 353. Since 2001, the Council approved 223 STRs and 6459 CTRs for distribution and follow-up to law enforcement (which is the CIG or other law enforcement agencies). Since 2004, the AMLC has also made 90 spontaneous disclosures under Resolution 59 (Kidnapping, Terrorism, Drug Trafficking and foreign FIU queries), as shown in Table XIX in the appendix. In these cases, the authority for disclosure is allocated to the Executive Director. 354. Assessors received positive feedback from domestic and foreign partners for those cases that the AMLC disseminated under Resolution 59. The feedback was not as encouraging for cases that were processed through the Council. Domestic law enforcement agencies stated it could take several weeks or even months before they received a straight-forward STR-generated analysis report case. This sort of time delay in dissemination affects the usefulness of the information to police. In the view of the assessors, the approval process as dictated by the AMLA other than those cases handled under Resolution 59, presents many challenges that affect the effectiveness of the AMLC intelligence sharing functions. 355. Statistics on the use of STRs by law enforcement (CIG and external agencies) are further referred in Table XVIII in Annex 5. - 79 - 356. Statistics for foreign FIU requests through the Egmont website are described above and in paragraph 55 and in Tables XIV and XV. Since 2001, the AMLC had received 298 requests for assistance of which 59 were from the Egmont Secure website and the others through MLAT and inquiries from foreign liaison officers. AMLC responded to 20 Egmont requests in the past two years and according to interviews conducted with foreign law enforcement liaison officers, AMLC can be commended for their past efforts in responding and sharing information requested. Most of these cases were shared pursuant to Resolution 59 under the authority of the Executive Director. AMLC requested assistance from foreign FIUs on 106 occasions through the Egmont web site during this same period. 357. In the view of assessors, the AMLC needs to continue building their capacity to deal with increasing number of reports being received and conducting more analysis with a view to increasing the amount of intelligence it shares with law enforcement. Present AMLC processes for approval to disseminate needs to be reviewed and more resources need to be allocated to analysis in order to deal with the ongoing backlog of STRs. Operational Independence (c. 26.6): 358. Authorities state that the AMLC has sufficient operational independence and autonomy to ensure that it is free from undue influence or interference, but assessors are of the view that the decision-making structure of the AMLC, in which all significant operational decisions must be made by all members of the Council, does raise concern as to the operational independence and autonomy of the AMLC. The structure of the Council appears complicated when it is considered that three members are from financial sectors that could be subject to non-compliance sanctions and that decisions to impose these sanctions would rest with the Council. 359. The authority of the Council also extends to administrative issues, financial expenditures, staffing actions and other matters such as distribution of the annual report. The AMLC’s maintenance and operating expenses (O&M) are funded from the national budget under the Annual Appropriations Act while salaries are drawn from the budget of the BSP. All of these funds are allocated to the Executive Director who can exercise sufficient independence once approved by the Council. 360. It is recognized that one of the reasons the Philippine authorities have established the Council is as a means to prevent unlawful disclosures. Assessors urge authorities to continue to be mindful of these risks but to re-examine existing processes. As the AMLC’s demands continue to grow it is not practical for the Council to deal with the operational demands of both the FIU and law enforcement responsibilities under the current structure. In the view of assessors, the role of the Council needs to be reviewed in efforts to streamline decision process to improve the timeliness of dissemination of intelligence 361. Assessors are of the opinion that the AMLC Secretariat has matured and gained the operational experience to make many of these decisions without the influence or final approval of the Council. The present process is time-consuming, bureaucratic and seems redundant considering that almost all of the Secretariat’s recommendations are apparently accepted22. Assessors are of the view that 22 Major decisions are, however, made by the Council, to wit: a. judicial applications including freezing orders and extensions for freezing orders being for criminal and civil forfeitures; b. banking inquiries (production orders) for financial evidence; c. cases of AMLC being recommended for prosecution (charge approval) by DOJ or OMB; d. imposing of administrative sanctions for violations of laws, rules, regulations for non-compliance of reporting entities; e. all domestic and international outreach activities by AMLC including the issuance of guidelines for STR and CTR reporting; (continued) - 80 - authorities may wish to consider transferring many of the decisions currently resting with the Council under the authority of the Executive Director. Such a change would bring more clarity to the independent decision-making of the FIU and would improve effectiveness of the AMLC, as experienced in those cases disclosed under Resolution 59. Protection of Information Held by FIU (c. 26.7): 362. Sections 7 and 9 of the AMLA provide measures to ensure the security of the information received by the AMLC and to impose penalties for unlawful disclosure. To date, there have been no instances where the AMLC staff has been charged or investigated pursuant to these sections. 363. Operationally, the AMLC ensures that its entire staff, including each member of the Secretariat, is aware of the confidentiality of the information received by the AMLC. CTRs and STRs are accessible to a limited number of officers including the Executive Director, and the heads of the IMAG, the CIG and the LEG. The AMLC’s premises are only accessible to staff and those authorized by the AMLC. 364. In addition, AMLC Resolution No. 408, Series of 2004, resolved to implement the File Transfer and Reporting Facility (FTRF version 1.5) that addresses the secure transfer of electronic reports from covered institutions to AMLC’s system. Covered institutions are therefore required to encrypt and digitally sign their CTRs and/or STRs before submission to the FIU. Once a report is received, the uploaded file is pulled from the open network (commonly referred to as the DMZ or demilitarized zone) and stored for processing within an internal network that is protected by a firewall. 365. All IT infrastructure of the AMLC Secretariat is secure and managed independently from the BSP. The Data Center facility is located within the IT facility of the BSP. This arrangement is provided for under a joint memorandum between the BSP and the AMLC dated May 3, 2004. The AMLC’s data center facility is protected by a smart card door access system with a biometric reader and a CCTV camera. The main entry door to the Secretariat offices and the network telecommunications room on the 5th floor are likewise protected. Only Technical Support personnel are allowed entry into the IT facilities. 366. A cold backup site is available in a remote location. Access to the database is limited to selected IT personnel. Access is protected by a username and password and an audit trail tracks the history of queries and those who log into the system. An ad hoc query into the database is triggered by a request from the Executive Director, the Deputy Director for the CIG, or, in their absence, their respective officers-in-charge. The printing of sensitive documents through the network printing facility is password protected. Sensitive printouts are shredded when no longer required. 367. Assessors were satisfied with the AMLC’s security measures to ensure that reports are kept confidential and that data holdings are protected from unlawful disclosure. The AMLC has had no incidents where information has been unlawfully released or where their database has been compromised by “hackers� or otherwise. f. staffing policies with proposed reorganization (hiring policy is in accordance with BSP Policy); g. fund expenditure in excess of Php5 million; and h. budget proposal to Congress. - 81 - Publication of Annual Reports (c. 26.8): 368. The AMLC releases annual reports, which are made available upon request. They are also distributed to Egmont Group members and to foreign and local law enforcement agencies. The reports contain annual activities of the AMLC, including: a. efforts to combat money laundering and the financing of terrorism; b. training and technical assistance and other capacity-building initiatives; c. statistics on suspicious transaction reports (STRs) and covered transaction reports (CTRs); (four pending cases); d. requests for assistance (international/domestic); e. value of assets frozen subject to forfeiture; f. accounts inquired into; g. efforts to improve technical resources; and h. plans and priorities. 369. Assessors recommend that the AMLC expand its capacity in developing typologies related to ML and TF for publication in the annual reports. Due to resource limitations, the AMLC has not developed strategic products based on financial intelligence. The AMLC needs to commit resources to produce products for feedback on TF and ML issues to reporting entities, partners and the general public. Membership of Egmont Group (c. 26.9): 370. The AMLC has been a member of the Egmont Group since June 2005. The Philippines has also been an active member of the APG since the APG’s inception in 1998 and the AMLC Secretariat acts as the main liaison with the APG on day-to-day issues. The Philippines hosted the 2006 Annual Meeting of the APG in Manila. Egmont Principles of Exchange of Information among FIUs (c. 26.10): 371. The AMLC follows the principles of information sharing with international partners. It has signed 19 MOUs with FIUs for the sharing of information and has responded to 59 requests and queried foreign FIUs on 106 occasions as of August 31st, 2008 (Tables XIV and XV). Adequacy of Resources to FIU (c. 30.1): Budget of AMLC 372. With respect to the financial resources, the national government grants the AMLC an annual budget as per the General Appropriations Act. The annual budget covers capital outlay, maintenance and other operating expenses, and personnel services (O &M). Salary costs are met from the BSP’s budget and are based on the Central Bank guidelines for salary of employees. This arrangement with the BSP is key to the AMLC’s ability to attract experience and skilled employees by being able to offer salary benefits that are higher than other government departments. As a result of these hiring practices, the AMLC has seen very little turnover within their work force. The BSP provides office space for the AMLC. 373. O & M budgets for the past two years have been averaging just over PHP15 ml (US$320,000) while salary dollars in 2007 were just under PHP85 ml (US$1.8 ml). The assessors are of the view that the salary budget is sufficient for the current complement of staff though it is recommended that the AMLC’s staffing be increased. This will require a commensurate increase in the salary budget. - 82 - However, the O & M’s budget allocated by the national government is of concern to assessors. The AMLC doubled its workforce over the past two years yet its operating budget increased only slightly by more than 50 per cent, going from PHP10,000,000 in 2005, 2006 and 2007 to PHP15,210,000 (approximately US$323,000) in 2008. 374. It became evident during the on-site visit that budget limitations challenge the AMLC when it was learned that the installation of equipment giving direct access to databases had to be deferred due to budget shortfalls. Other equipment issues were raised including having only three vehicles for all of the AMLC which seems inadequate when you consider the scope of their operations. Separate funding allocated to the IMAG to build systems in 2003 (PHP100,000,000 - US$2.1 ml) is also dwindling with only PHP40,000,000 (US$ 850,000) remaining, yet there is considerable work that still needs to be done. This could cause future budget pressures if no additional funding is secured to develop and maintain the AMLC’s large data holdings 375. The Executive Director of the AMLC Secretariat has in September 2008 presented a proposal through the Council that would see the complement of AMLC staff increase from 63 to 104. This proposal had not been approved at the time of the mission but is expected to be addressed in the near future by the AMLC and the BSP. This proposal suggests an increase of six analysts in the IMAG to perform the initial analysis function. The CIG’s resources would also be increased to include three more analysts for developing STR cases. Assessors have reviewed this proposal and strongly support it but are of the view that additional resources are needed to build the capacity of the AMLC to fully meet its primary mandate as an FIU. Integrity of FIU Authorities (c. 30.2): 376. Assessors have no concerns with the integrity or expertise of the AMLC staff and management. There have been no incidents of corruption or criminality alleged against the AMLC staff. The AMLC has an exceptional reputation amongst domestic and international law enforcement partners, foreign FIUs, banking associations, government agencies, justice officials, courts and the Philippine parliament Training for FIU Staff (c. 30.3): 377. AMLC staff has sufficient training in ML to perform the functions of analysis and compliance as mandated by the AMLA. Once the AMLC mandate is expanded to include TF, additional training will be required for those staff dedicated to this function. 378. Overall, assessors found that the staff of the AMLC Secretariat was well-trained and brought experience in the legal, banking and other financial sectors to the FIU. The AMLC states that employees have received an average of 105 days of training combined with other on-line courses. New employees are required to complete a number of core training programs relating to ML and TF including a 13-week on-line training program. The AMLC has also engaged mentors sponsored by the US Treasury Department (since the AMLC’s inception 2001) and the UNGPML (for 2 years) who worked closely with the Executive Director in the day-to-day operations of the AMLC. Staff from each area of the AMLC has engaged in a number of international ML and TF forums, which has resulted in a “train the trainer� approach where the AMLC staff share their experiences with other staff members. The AMLC has had very little turnover in the past four years resulting in a competent and experienced workforce. 379. Assessors do have concerns, however, with the limitations of Section 8 of the AMLA, which does not permit the hiring of employees from law enforcement or DNFBP sectors unless potential - 83 - staff members have been employed by the BSP, IC or SEC for five years. The AMLC would benefit from having staff from the law enforcement and DNFBP sectors whose experience would benefit the analysis process while also potentially helping AMLC build effective operational relationships with law enforcement and the non-designated financial sectors. Statistics (applying R.32 to FIU): 380. The AMLC maintains sufficient statistics on FIU functions, including the number of CTRs and STRs received and cases shared with law enforcement and international partners as described in Tables XVI – XXI in the Appendix. 2.5.2. Recommendations and Comments 381. The AMLC’s core resources of 63 official government positions, of which 11 employees are support staff, are insufficient when compared to the Council’s workload. Assessors determine that the AMLC requires more employees in all areas of its operations in order to carry out its existing and planned AMLA responsibilities and to be able to discharge its core FIU role effectively. 382. The AMLC has nine staff in the CIG responsible for analysis, reporting entity assistance and compliance. These employees are stretched between analysis and their other roles, which include the investigation of criminal and civil forfeitures. The present employees in the CIG cannot possibly cover all their responsibilities given the volume of reports and number of international requests they receive annually as well as the number of reporting entities and range of regulators in the Philippines they must maintain relationships with. The ever-growing demands in criminal investigations and in seizing the proceeds of crime is also stretching the capacity of the CIG staff. 383. The AMLC should consider establishing a separate analysis unit. At present, there are only dedicated resources for compliance with resources for analysis being drawn from the pool of investigators within CIG who also conduct criminal investigations. Dedicated resources for analysis would ensure that these functions are not overlooked due to other priorities. 384. The government should consider amending the AMLA to allow the AMLC Secretariat to make all operational decisions without prior recourse to the Council. . It is recommended that the Executive Director be given the authority to make more operational decisions without having to seek approval from the AMLC. The AMLC has matured as an organization over recent years and with increasing operational demands on their criminal investigations unit and the FIU, the existing process of seeking approval from the Council -who meets usually once per month and requires all three board members in attendance- is not efficient or practical. Assessors learned that STRs usually take a minimum of three weeks and in many cases longer, to process before they can be shared with authorities. Search warrants for banking records need to be approved by the AMLC, and, according to a law enforcement partner, “could take months� to obtain. To improve the effectiveness of their AML regime, Philippine authorities need to reduce the bureaucracy surrounding requests for banking records and the dissemination of STR intelligence. 385. The AMLC will need more resources to properly meet the additional demands of DNFBP reporting streams, which is expected to result in an increase in STRs. More resources will allow the AMLC to further focus on TF-related activities in the other areas of the Philippines. Once the AMLC becomes more engaged in some of the unregulated DNFBP activities they will require substantially more resources to ensure these reporting entities are in compliance and that guidelines are developed for these sectors. It is anticipated that non-compliance sanction cases will increase with these additional sectors and this will place further pressure on the limited resources. - 84 - 386. The AMLC also needs to consider creating a dedicated and separate unit with additional resources to build communication tools. Duties could include the maintenance and development of the AMLC’s website and the creation of other communication products that will assist with compliance by promoting and increasing AML/CFT awareness amongst the public, government and reporting entities. Authorities have confirmed that lack of resources have prevented them from undertaking initiatives such as these. 387. The AMLC and its Secretariat play a key role in coordinating a number of AML/CFT working groups with partner agencies. They have done an exceptional job in this role. In fact, the AMLC has received several awards in recognition of the Executive Director’s and the AMLC’s involvement in these coordinating committees. The OED has also been responsible for developing, drafting and advancing changes to existing legislation. This continues to involve a considerable commitment of resources by the AMLC, which exacerbates the pressure on current employees to carry out the core FIU function. New resources are required to continue developing and expanding existing relationships with external law enforcement agencies. 388. It is recommended that the AMLC consider recruiting staff with law enforcement and DNFBP financial sector (money exchanges, gems and jewelry, etc.) experience to compliment their existing expertise within the agency. At present, the AMLC has no full-time employees with law enforcement background. In order to act on this recommendation, the AMLC will have to seek changes in the existing provisions of the AMLA. 389. The AMLC needs direct access to law enforcement and other government databases to assist with analysis. Under current arrangements, the AMLC must request this cooperation in writing. These requests regularly take up to five days to be addressed thereby delaying the analysis. Assessors have been informed that many of these databases are available electronically but budget limitations have prevented securing the necessary equipment and licenses. Delays in analysis mean the FIU may fail to disseminate information in a timely fashion, which is critical to all cases under investigation. The AMLC should consider securing these databases on-site to avoid delays in obtaining this information. 390. Assessors recommend that the AMLC expand its capacity in developing typologies and further feedback to AML partners related to ML. More typologies should be incorporated into annual reports. Due to resource limitations, the AMLC has not engaged in developing strategic products from financial intelligence within its holdings. The AMLC needs to commit additional resources to produce products related to ML issues for domestic and international partners, reporting entities and the general public. 391. The AMLC requires a larger operating budget from the national government in order to meet the needs of the additional staff hired in the past two years. As the AMLC has matured, operational demands have been increasing along with the expenses associated with these activities. Since its inception, the AMLC has seen little increase in its operating budget. Further financial support should be given in these areas and for future development of IT systems to support analysis, data mining and strategic products. Existing project funding for IT development will be exhausted in the near future so the AMLC needs to seek further funding to continue the expansion of its IT capacity to support the FIU functions. Present budget proposals for increase of resources and budgets before the Philippine government are a positive step. However, assessors are of the view that further additional resources further to this proposal will be required in order for AMLC to meet the demands of their mandate. 392. Further guidance should be provided to reporting entities, clarifying that the indication of a specific predicate offense in reporting forms is not a mandatory requirement when filing STRs. - 85 - 393. TF should be explicitly included in the AMLC’s mandate. In anticipation of the expansion of its mandate, the AMLC needs to build capacity to address TF matters. 2.5.3. Compliance with Recommendation 26 Rating Summary of factors relevant to s.2.5 underlying overall rating R.26 PC  No formal TF mandate.  Insufficient resources dedicated to provide feedback and guidance to reporting entities.  Insufficient resources dedicated to FIU functions of analysis.  The structure of the AMLC and current approval processes as prescribed under the AMLA, impede its Secretariat’s full operational autonomy.  Access to relevant databases (police and others) not timely.  Insufficient funding for operating budget.  The AMLA requirements on the AMLC staff background affect overall effectiveness  Insufficient sharing of financial intelligence with law enforcement 2.6. Law enforcement, prosecution and other competent authorities—the framework for the investigation and prosecution of offences, and for confiscation and freezing (R.27, & 28) 2.6.1. Description and Analysis Legal Framework: 394. Republic Act 9160, otherwise known as the Anti-ML Act 2001 (AMLA) (as amended by Republic Act No. 9194), Republic Act 9372, otherwise known as the Human Security Act 2007 (HSA), Republic Act 9165, otherwise known as the Comprehensive Dangerous Drugs Act 2002, Republic Acts 455 and 1937 otherwise known as the Tariff and Customs Code Philippines, Act 3815 otherwise known as the Revised Penal Code, Republic Act 8799 otherwise known as the Securities Regulation Code 2000 and Republic Act 3019 otherwise known as the Anti-Graft and Corrupt Practices Act 1960. Designation of Authorities ML/FT Investigations (c. 27.1): 395. The authorities that have been mandated to investigate the 14 predicate offences of ML are all national law enforcement agencies whose powers extend across the Philippines. These agencies law enforcement agencies are the Philippines National Police (PNP), the Philippines Drug Enforcement Agency (PDEA), the National Bureau of Investigation (NBI), and the Bureau of Customs (BoC). The AMLC is mandated in investigate ML under section 7 AMLA. 396. The PNP has two main groups that investigate serious offences, the Criminal Investigation and Detection Group (CIDG) and Police Anti-Crime and Emergency Response (PACER). A further specialist investigation group, the Intelligence Group (IG) investigates terrorism offences within the - 86 - PNP. The Anti-Terrorism Council (ATC) was created in 2007 under the Human Security Act and is mandated to coordinate all national efforts to suppress and eradicate acts of terrorism. The Philippines Centre on Transnational Crime (PCTC) was implemented in 1999 to intensify focus on transnational crime. 397. Only the Anti-Money Laundering Council (AMLC) currently investigates ML offences, however law enforcement agencies conducting the predicate offence investigation can investigate ML offences if it is in aid of the predicate offence investigation. In practice this does not happen. After an initial investigation by the AMLC the matter, complaint for money laundering, is filed with the Department of Justice (DOJ) or the Office of the Ombudsmen (OMB). 398. The AMLC is not a typical law enforcement agency and does not investigate any criminal offences except ML. 399. As noted in Section 2.2 of this report terrorism financing (TF) is not a stand-alone offence in the Philippines. The ATC has the authority to conduct investigation of terrorism offenses with the help of support agencies including the AMLC. The AMLC may investigate ML in relation to the unlawful activities of hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against non-combatant persons and similar targets. The AMLC has pursued the seizure and forfeiture of funds related to a terrorist organization, however this action was pursued under the UN consolidated list and there was no actual ML investigation (see section 2.4). 400. The PNP (CIDG, IG and PACER), PDEA, NBI and BoC have the authority to investigate the predicate offences however AMLC conducts the ML and asset investigation which may lead to the confiscation of assets. The AMLC can investigate an individual in the absence of a predicate offence when it is triggered by STRs or CTRs that are or can be materially linked to any specified unlawful activity, suspicious transaction, money laundering activities and/or other AMLA related violations. AMLC 401. The AMLC is the responsible agency to investigate ML offences in the Philippines. 402. ML investigations are handled by the Compliance and Investigation Group (CIG) of the AMLC which has 13 staff, however only 6 of these staff are directly involved in investigations. The CIG builds the ML case in conjunction with the relevant law enforcement agency with recommendations for freezing and forfeiture and then forwards the case to the Legal and Evaluation Group (LEG) of the AMLC. If the LEG considers that there is probable cause, then it recommends referral of the matter to the Department of Justice (DoJ) for preliminary investigation and filing of the appropriate cases in court if approved. If the Executive Director agrees with LEG’s recommendation, the matter is formally submitted to the AMLC for referral to DoJ. 403. The AMLC Secretariat is currently drafting a reorganization plan in response to its large workload. This reorganization is expected to increase the staff levels at all areas of the AMLC Secretariat, including the CIG and LEG. DOJ 404. The DOJ acts as the principal law agency of the Government and acts as its legal counsel and representative in criminal cases. It investigates the commission of crimes and prosecutes offenders. - 87 - The DOJ is composed of the Office of the Secretary and Undersecretaries, the Technical and Administrative Service, Financial Management Service, Legal Staff and the Office of the Chief Prosecutor. The Office of the Chief State Prosecutor has a task force on Financial Fraud and ML which, inter alia, handles the conduct of the preliminary investigation and criminal prosecution of cases including offences under the AMLA. 405. After a ML investigation is referred to the DOJ, the DOJ will conduct a preliminary investigation to determine whether probable cause exists. At this stage it will subpoena the respondent(s). A copy of the criminal complaint from the AMLC is attached to the subpoena. The respondent(s) has 10 days to respond with copies of documents and other facts disproving the case against him/her. It is usual that the respondent can seek two further extensions of time. The prosecutor conducting the preliminary investigation has 60 days to make a recommendation and refer the matter to the chief prosecutor. If after the preliminary examination probable cause exists, the DOJ will file the prosecution in court. The DOJ then acts as the prosecutor for the AMLC. 406. Between 2003 and 2007, the AMLC has referred a total of 7 cases to the DOJ (Table XX). OMB 407. The OMB was established on 17 November 1989. The OMB is mandated to serve as the lead agency in the war against graft and corruption with the ultimate objective of restoring integrity and efficiency in the Government service. Criminal violations of AMLA involving public officials and employees, as well as private individuals in conspiracy with public officials and employees, are referred for the conduct of a preliminary investigation to the OMB, who like the DOJ performs an independent review function. Should the prosecutors in the OMB determine that probable cause exists the appropriate case will be filed in court. Table XXI shows the number of cases that the AMLC have referred to the OMB as of 31 December 2007. Presidential Anti-Graft Commission (PAGC) 408. The PAGC was created in 2001 to conduct investigations and hears administrative cases and complaints against Presidential Appointees in matters of graft and corruption. The PAGC is tasked to investigate, receive, gather and evaluate evidence, intelligence reports and information on and hear administrative cases, for acts and omissions constituting violations of a specified set of laws, rules and regulations, against: a. All Presidential appointees in the Executive Branch of government and any of its agencies or instrumentalities occupying the position of Assistant Regional Director or an equivalent rank, and higher, otherwise classified as Salary Grade “26� and higher, under the Compensation and Position Classification Act of 1989 (Republic Act No. 6758); b. Members of the governing board of any instrumentality, regulatory agency, chartered institution, and directors or officers appointed or nominated by the President to government owned or controlled corporations, or corporations where the government has minority interest, or who otherwise represent the interests of the government; and c. Public officers and employees, and private persons, in conspiracy with covered Presidential appointees. - 88 - NBI 409. The NBI investigate most predicate offences under the AMLA, as amended, (kidnap for ransom, robbery and extortion, jueteng and masiao, qualified theft, swindling violations of the E- Commerce Act, hijacking, destructive arson and murder). The NBI is the main law enforcement agency called upon to investigate the most difficult issues. It is modeled on the United States Federal Bureau of Investigation. It has staff recruited from law enforcement and other professional backgrounds. The NBI is an attached agency to the DOJ and its main objective is the establishment and maintenance of a modern, effective and efficient investigative service. PNP 410. The PNP is the largest law enforcement agency in the Philippines. It has approximately 125,000 members across the Philippines who are principally responsible for law and order. The main investigation units of the PNP are the CIDG, PACER and the IG. PNP – CIDG 411. The CIDG is the PNP’s principal investigation unit. CIDG has 1,400 staff and the main areas of interest are kidnap, drugs (in support of the PDEA), extortion, bank fraud, smuggling and crimes involving computers. 412. The CIDG operates nationwide through seven divisions in seventeen offices. It is the unit of the PNP which investigates most crimes that are predicate offences under the AMLA and the serious crimes investigated are likely to give rise to criminal proceeds and ML activity. The CIDG is the relevant unit of the PNP for liaison with the AMLC. PNP – PACER 413. The PACER team is a specialist investigation unit created in order to deter, detect and investigate Kidnap for Ransom (KfR) activities. PACER has 250 staff. PNP - IG 414. The IG is the agency within the PNP that is specifically responsible for the investigation of terrorism offences. The AML Desk is shared with CIDG. IG has 800 staff and they estimate that 50 of those staff have been trained in ML investigation. PCTC 415. On 15 January 1999, Executive Order No. 62 was issued creating the PCTC, as one of the functional agencies under the Office of the President. The mission of the PCTC is to formulate and implement a concerted program of action for all law enforcement, intelligence and other government agencies in the prevention and control over transnational crime. 416. Executive Order No. 100 empowers the PCTC to exercise general supervision and control of the following: a. Loop Center of the NACAHT (National Action Committee on Anti-Hijacking and Anti-Terrorism); - 89 - b. INTERPOL National Central Bureau (NCB)- Manila Secretariat; c. Police Attaché of the PNP; and d. Political Attaches/Counsellors for Security Matters of the DILG 417. The PCTC has created an Anti-Money Laundering (AML) Desk under the Directorate for Counter Terrorism. It supports the Directorate in matters involving Terrorist Financing, Narco- terrorism, cyber-terrorism and trafficking of small arms and light weapons. 418. The PCTC has 100 staff, two of which sit on the AML Desk. PDEA 419. The PDEA was established in 2002 pursuant to the Republic Act 9165, otherwise known as the Comprehensive Dangerous Drugs Act 2002. It has 17 regional offices nationwide and employs around 1,189 employees as at August 2008. It is responsible for the efficient and effective law enforcement of all provisions of RA 9165 relating to dangerous drugs controlled precursors and essential chemicals. For the purpose of carrying out its duties and powers the PDEA is organized into several units and departments: Intelligence and Investigations, International Co-operation and Foreign Affairs, Preventative Education and Community Involvement, Plans and Operations, Compliance, Legal and Prosecution, Administration and Human Resources, Financial Management, Logistics Management and Internal Affairs. The PDEA has 17 regional offices throughout the Philippines. 420. Section 86(a) Article IX of RA 9165 (IRR) states The PDEA shall be the lead agency in the enforcement of the Act, while the PNP, the NBI and other law enforcement agencies shall continue to conduct anti drug operations in support of the PDEA. BOC 421. In general, BOC is tasked with the enforcement of the Tariff and Customs Code of the Philippines (TCCP) and all other laws, rules and regulations relating to tariff and customs administration. Among the predicate crimes under the AMLA are violations of the TCCP such as smuggling, illicit arms trafficking, illicit trafficking in stolen and other goods. 422. A particularly pivotal role of the BOC in the context of AML/CFT efforts is that of lead agency implementing cross-border reporting obligations in the Philippines, in coordination with the AMLC. ATC 423. The ATC has the authority to conduct investigations of terrorism offences under the Human Security Act RA 9372 with the assistance of support agencies including the NBI, BI, AFP, AMLC, PCTC and the PNP. 424. The ATC is composed of the following government officials: a. The Executive Secretary; b. The Secretary of Justice; c. The Secretary of Foreign Affairs; d. The Secretary of National Defense; e. The Secretary of the Interior and Local Government; f. The Secretary of Finance; and - 90 - g. The National Security Advisor. 425. As part of the function of the ATC, the National Counter-Terrorism Action Group (NACTAG) was created to effectively manage any specific security threat or incident in any part of the Philippines. The NACTAG is composed of the intelligence, investigative and counter terrorism units of the following law enforcement agencies; PNP, AFP, NBI, NICA, DOJ, AMLC and the PCTC. Other government agencies including the Office of Transport Security, Philippine Coast Guard, Bureau of Immigration, Bureau of Fire Protection, Philippine Nuclear Research Institute and the Health and Emergency Management Service also form part of NACTAG. AML Desks 426. To establish an effective coordinating mechanism for Government agencies with a role in the investigation and detection of ML the AMLC initiated the creation of the AML Desks in various law enforcement and regulatory and supervising agencies. The AML Desks serve as a contact or referral point between the respective law enforcement agency and the AMLC. 427. A total of 33 AML desks have been established in local LEAs and other agencies. Almost 1/4 of AML desks are currently operating within the DOJ. (Table XXII). 428. The staff on each AML Desk is employed by the host agency, not the AMLC. Ability to Postpone / Waive Arrest of Suspects or Seizure of Property (c. 27.2): 429. The is no explicit provision under Philippine laws that will prohibit the agencies investigating ML from seeking the postponement or waiving the arrest of the suspected persons and or the seizure of the proceeds of the crimes for the purpose of identifying persons involved in ML. However while only the AMLC investigates ML offences, law enforcement agencies conducting the predicate offence investigation can investigate ML offences if in the aid of the predicate offence investigation. In practice this does not happen and the ML investigation is referred to the AMLC. 430. The ability to postpone or waive arrest has not yet been tested in ML investigations. Additional Element—Ability to Use Special Investigative Techniques (c. 27.3 and c. 27.4) : 431. The AMLC does not have the power to conduct undercover operations or controlled delivery operations. Telephone intercepts and listening devices are not allowed under law except in defined circumstances involving National Security. 432. Law enforcement agencies in the Philippines including the PDEA, NBI, CIDG and other agencies conducting predicate offence investigations do have the authority to conduct controlled operations, undercover operations, buy bust and entrapment operations. Most of these operations involve drug violations. The law enforcement agencies have the authority to share the information obtained with the AMLC for the use in the ML investigations. Organizations including the OMB rely on the law enforcement agencies to utilize special investigative techniques, including the use of undercover operations in their investigations. 433. During the on-site visit Philippine authorities advised that these special investigative techniques have been used in predicate offence investigations, primarily drug investigations, although statistics are not available on the nature or level of the techniques used. - 91 - Additional Element—Specialized Investigation Groups & Conducting Multi-National Cooperative Investigations (c. 27.5): 434. The agencies involved in investigating ML and the predicate offences have the ability to work together, as noted above, and AML Desks have been formed to coordinate the assistance of the relevant agencies. The AMLC can enlist the assistance of any agency in its conduct of the ML investigation. In practice however the AML Desks are utilized primarily to refer matters between agencies, ie as liaison and communication points. The function of the AML Desks should be reviewed and expanded to enable a more proactive approach to the provision of specialized advice and experience across the law enforcement community including the AMLC. 435. Since their establishment, the 33 existing AML desks were involved in a total of 790 referrals/information requests between AMLC and the specific agency involved. (Table XXIII). Additional Elements—Review of ML & FT Trends by Law Enforcement Authorities (c. 27.6): National Law Enforcement Coordinating Committee (NALECC) 436. The NALECC is a coordinating mechanism for all Government agencies with a role in (a) formulating law enforcement polices that are currently being implemented; (b) providing inputs and recommendations; and (c) enabling the passage of important legislation affecting the countries peace and order, economy and environment. NALECC consists of 42 member Government agencies, including the AMLC, and 15 sub committees. One of the sub committees, which meets on a monthly basis, the AML/CFT subcommittee, is one platform that the AMLC uses to share methods and trends of ML/TF trends with the applicable law enforcement partners within the Philippines. Most of the law enforcement agencies with AML Desk representatives are also members of the sub committee on AML/CFT. Ability to Compel Production of and Searches for Documents and Information (c. 28.1): 437. RA 1405, the Bank Secrecy Act of the Philippines, prohibits unauthorized access to bank deposits and investments, subject to certain exceptions. One of the exceptions is the one provided in the AMLA where the AMLC may request, without court order, from financial institutions production of bank account records, financial transaction records, customer identification records, and other records maintained by financial institutions and other entities or persons, in cases involving kidnapping for ransom, drug-related cases and hi-jacking and other violations under R.A. 6235, destructive arson and murder. In other predicate crimes listed under Section 3(i) of the AMLA, as amended, the AMLC may apply before the Regional Trial Courts for authority to inquire into and examine bank deposits and investments in covered institutions. 438. Reference is made to Part 2.3 concerning the ability of the AMLC to obtain bank inquiries orders ex parte. The Eugenio decision in February 2008 ruled that bank inquiry orders can not be issued unless notice is given to the owners of the account to allow them the opportunity to contest the issuance of the order. The AMLC made a motion for the reconsideration of this High Court ruling. On 1 December 2008 the Supreme Court Special Second Division dismissed the motion for reconsideration. Under this ruling the AMLC cannot conduct any bank inquiry order, pursuant to Section 11 of AMLA, without hearing or prior notice to the owner of the deposits or investments to be examined. 439. Statistics on the obtainment bank information from Covered Institutions by the AMLC as part of ML investigations are contained in Tables XXIV-XXV of the Appendix. - 92 - 440. The process of obtaining a court order to obtain bank statements by the AMLC involves the matter initially being investigated by the CIG. The matter is then forwarded to the LEG for evaluation. After it is evaluated by the LEG it is submitted to the Executive Director for his approval. The Executive Director will in turn submit the matter to the Council for its approval. 441. If it is approved, the Petition for Inquiry is filed before the Regional Trial Court through the OSG. This process is likely one of the major factors regarding the relatively small number of Court Orders being issued in relation to obtaining information from banks. 442. During the onsite visit, law enforcement agencies stated that the process of obtaining information from banks under court order could take several months. This time delay severely affects the results that some law enforcement agencies achieve. 443. Law enforcement agencies are given specific powers under their respective charters to obtain documents in the course of their investigations and the NBI, PNP, PDEA and PAGC can issue subpoena or subpoena duces tecum for the production of relevant papers, documents and records in accordance with the law. Law enforcement agencies cannot however obtain information from the banks and must channel their requests through the AMLC. 444. The procedure for securing search warrants is provided in Rule 126 of the Revised Rules of Court. A search warrant shall not be issued except on probable cause in connection with one specific offence to be determined personally by the Judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and describing the place to be searched and the things to be seized. 445. The BSP may also inquire into or examine any deposit or investment with any banking institution or non-bank financial institution in the course of a periodic or special examination, in accordance with the rules of examination of the BSP, in order to ensure compliance of banks with the provisions of the AMLA, as amended. NBI 446. Under Section 5 of the Republic Act 157, members of the NBI shall be peace officers and as such have the following powers:  To make arrests, searches and seizures in accordance with existing laws and rules;  To issue subpoena and subpoena duces tecum for the appearance at Government expense of any person for investigation. PDEA 447. Under Section 84 of Republic Act 9165 the PDEA shall:  Administer oath, issue subpoena and subpoena duces tecum relative to the conduct of investigation involving the violations of this Act  Arrest and apprehend as well as search all violators and seize or confiscate, the effects or proceeds of the crimes as provided by law and take custody thereof. - 93 - PNP 448. Under Section 5(9) of Republic Act 8551 the PNP can issue subpoena and subpoena duces tecum in matters pertaining to the discharge of its own powers and duties. Power to Take Witnesses’ Statement (c. 28.2): 449. The competent authorities responsible for undertaking ML investigations and investigating the predicate offences have the authority either pursuant to the AMLA, Republic Act No. 157, Republic Act No. 9165, Republic Act No. 6975 to take statements from witnesses Adequacy of Resources to Law Enforcement and Other AML/CFT Investigative or Prosecutorial Agencies (c. 30.1): AMLC 450. The number of AMLC investigators is considered insufficient when compared to the workload. If an increase in referrals were made to the AMLC by LEAs and other sources for the investigation of ML offences then the AMLC would not be in a position to adequately conduct those investigations. 451. The budget for the operating expenses of the AMLC is granted by the National Government. The 2008 budget is PHP15,210,000. (US$ 323,600). The 2009 budget is PHP15,654,000 (approximately US$333,000). Further analysis of the budget of the AMLC is contained in Section 2.5 of this report. 452. The role of the AML Council in the approval of investigations, court orders and dissemination of information is of concern to the assessors. Unanimous decisions by the AML Council are required before the AMLC Secretariat can file petitions for issuance of court orders for purposes of freezing certain accounts and bank inquiry. 453. The CIG is composed mostly of accountants and lawyers. The CIG handles all ML referrals from partner Law enforcement agencies, internally generated referrals resulting from STRs and other sources. Currently there are no police officers employed by the AMLC to assist in the investigation of the ML offences. 454. The AMLC also conducts the financial investigation in relation to the seizure of assets. The financial investigation can be conducted in the absence of any predicate offence investigation. The CIG compiles the ML case, with information provided to it from the law enforcement agency (if applicable) and where appropriate seeks information from financial institutions either by AMLC Resolution or Court Order. This is a further role of the CIG and these requests are sent to the LEG which are required to be approved unanimously by the Council. 455. The AMLC does not have access to law enforcement databases. Some of the databases that the AMLC does have access to include OFAC listings, UN Sanctions List, World Check, Interpol I24/7. If information is required from law enforcement agencies, these requests are made through the AML Desks. 456. Between 2003 and 2007, AMLC conducted a total of 1372 investigations, with 2007 seeing the highest amount (650). In all three years, swindling/estafa was the predicate offence most frequently involved in the investigation (64% of cases in 2007). See Table XXVI in the appendix. - 94 - 457. Information provided during the on site visit revealed that in 2007 there were 32 referrals from law enforcement agencies that resulted in a ML Investigation. STRs triggering investigations (650 in 2007) at AMLC over the 2003-2007 period came mostly from BSP-supervised entities (98% in 2007) as shown in Table XXVII. PDEA 458. The PDEA is currently severely under resourced. The PDEA is the lead agency on narcotic investigations in the Philippines and statistics show that the number of investigations and arrests has decreased since 2002 due to staff shortages. 459. Currently the PDEA supervises all drug investigations that are conducted by other law enforcement agencies. As at August 2008 the PDEA has 1,189 employees, 144 of whom are seconded from various law enforcement agencies including the PNP, NBI and the AFP and 145 contractual staff. 460. Following the establishment of the PDEA in 2002 it underwent continual cut backs in it budget and seconded staff began to leave the PDEA in 2005. This resulted in a decline in the operations conducted, seizures of narcotics and arrests. Since 2006 however, the number of permanent personnel has grown from 0 to 896 employees. 461. Between 2003 and 2007 the PDEA did not develop capacity and relied on support agencies including the PNP. The PDEA had only three of its own vehicles per region, no firearms, no communications and no protective equipment. During this phase the PDEA was totally reliant on seconded staff and the equipment that those agencies provided. 462. The PDEA also had no forensic or laboratory services and its regional offices were mostly rented or borrowed from other agencies. At the end of the transition period in 2006, the seconded staff returned to their law enforcement agencies, leaving the PDEA in a severely resource depleted organization. 463. There were 51,500 cases filed in court resulting from PDEA operations between 2003 and 2007. Of those matters filed in court only 100 were considered to be major drug cases. The vast majority of cases by the PDEA over the period 2003 to 2007 appear to be minor violation including trafficking and possession charges relating to small amounts of narcotics. The estimated value of seizures of narcotics was around PHP34.5 bn (US$ 734 ml). 464. During the same period vehicles valued at PHP4,490,000 (approximately US$95,500) were seized. The PDEA only seizes assets that have been used in the commission of the offence and refers all other financial investigation responsibilities to the AMLC. 465. Since the end of the transition period in 2006 the PDEA has increased the number of its own staff, and has returned seconded staff to their respective organizations. 466. The PDEA is focusing on Intelligence driven operations, but still appears to be constrained by the lack of financial and human resources at its disposal. To continue to achieve results, and to be in a position to conduct proactive investigations the resources of the PDEA will need to be increased. - 95 - NBI 467. The NBI is an agency resorting under the DOJ with 1,700 staff and offices in 13 regions throughout the Philippines. The NBI has 293 Special Investigators and 236 Agents assigned across the offices of the NBI within the Philippines. The NBI has a staffed AML desk through which there have been 11 referrals to the AMLC in 2008 and 39 in 2007. 468. The fraud unit of the NBI has seventeen staff with financial crimes experience, however the Special Investigators and Agents also assist in the investigations of financial crimes. In 2007 the NBI seized computer equipment and software valued at approximately PHP216,928,000 (US$4.6 m). 469. The predicate offences investigated include piracy which is not a predicate offence for ML. When the NBI encounters ML they refer the matter to the AMLC via the AML Desk. This process requires that NBI refer the matter formally by request. PNP CIDG 470. The CIDG is the main investigation unit of the PNP. The CIDG has 1,400 staff in 17 regional offices throughout the Philippines and would normally handle about 10,000 cases per year. 471. The CIDG investigates transnational crimes, organized criminal syndicates, kidnapping, narcotic offences, extortion, frauds, smuggling and computer crime. The serious crimes that the CIDG investigates are likely to give rise to criminal proceeds and ML. 472. The CIDG has recently established an Anti Cyber Crime Unit which complements the Fraud and Transnational Crime units. PNP PACER 473. PACER has 250 employees investigating kidnap for ransom activities. During the onsite visit PACER staff stated that KfR activities have decreased in recent years, due to active intelligence building and the successful neutralization of known KfR groups. 474. Media articles in the Philippines still indicate that there is a high level of KfR, particularly in the South of the Philippines, Mindanao. PNP IG 475. PNP Intelligence Group employees 800 staff. During the onsite visit it was stated that 50 of the staff have been trained in ML investigations. It is usual that the IG would only handle about 5 investigations per year. OMB 476. The OMB has 120 investigators and is the responsible agency to investigate all Government employees. They facilitate the investigation process particularly with regards to lifestyle checks and forged a formal partnership with the AMLC on 18 January 2007. To obtain banking records the OMB are required to go through the AMLC. - 96 - 477. All Government employees are required to submit their statement of assets and liabilities each year. It is unlikely that with the resources available that the OMB would be in a position to review all asset and liability statements received. 478. With the number of staff that the OMB has available it is likely that would only be in a position to investigate complaints, and not be in a position generate intelligence from the material referred to the OMB. DOJ 479. There are currently no prosecutors in the DOJ Task Force on ML that are quarantined to ML investigations. The ML investigations and prosecution functions are handled in addition to their current case load. This situation has led to the delay in the prosecution ML matters and also to the delay in obtaining bank inquiry orders. 480. There are 1,700 prosecutors in the DOJ. In the Philippines there are more courts than prosecutors and the DOJ believes that there should be at least two prosecutors for each Regional Trial Court. In practice however there is only one prosecutor for two Regional Trial Courts. The DOJ has an application for further prosecutors to be employed to alleviate this problem. 481. The DOJ has set up a ML Task Force and there are currently 8 prosecutors in this task force excluding the chief prosecutor and assistant chief prosecutor. They generally have between one and two years experience in the ML Task Force, however some of the prosecutors have been on the Task Force since its inception. The prosecutors handle ML matters together with their normal caseloads. It is estimated that each prosecutor within the Philippines handles on average 700 cases per year. In practice the prosecutors in the DOJ Task Force would devote less than 5% of their time to ML matters. During the on site visit it was also stated that quarantining these prosecutors to only ML matters would put further pressure on the resources of the DOJ in prosecuting other Penal Code violations. Table IX in the appendix lists the ML criminal complaints filed before DOJ between 2003 and 2007. Currently 7 ML cases are pending before DOJ, involving a total of 405.7 mil PHP (US$8.6 m). 482. Once a matter is referred to the DOJ by the AMLC, the DOJ will conduct a preliminary investigation. This involves sending a subpoena together with the case to all of the respondents. They are given 10 days to respond but can seek a further 2 extensions to enable them to compile their case against the charges. Several of these matters have been under preliminary investigation with the DOJ for more than 2 years. The resources within the Department of Justice are strained to capacity, and ML investigations are considered to be another investigation that the DOJ must handle. The investigating prosecutor has 60 days to make recommendations, as to the probable cause, and this is then handed to the Chief Prosecutor. The Chief Prosecutor is under no obligations to make recommendations within a set timeframe and makes the final decision as to whether the matter will be prosecuted. Integrity of Competent Authorities (c. 30.2): 483. As noted in Section 1 of this report corruption is on-going and a serious issue in the Philippines. The steps being undertaken by authorities to address these issues are also outlined in Section 1 of the report. - 97 - AMLC Secretariat 484. When hiring new staff the AMLC is guided by Section 8 of the AMLA, as amended, which requires that all members of the AMLCS must have served for at least five (5) years either in the IC, SEC and BSP. The AMLCS staff shall hold full-time permanent positions within the BSP. As the AMLCS staff serves as BSP employees, the hiring standards of the BSP shall likewise be observed. DOJ 485. According to authorities, among others prosecutors must: be a member of the Integrated Bar of the Philippines for at least five (5) years; Have an endorsement from Regional State Prosecutor/Provincial Prosecutor/City Prosecutor; Clearance from NBI, Ombudsman, Sandiganbayan, Civil Service Commission and Public Attorneys Office. PNP/NBI 486. According to Republic Act No. 8551, PNP agents must be of good moral conduct and passed psychiatric, and drug tests, have no pending criminal, civil or administrative charges and have never convicted of any crime (NBI agents must also be lawyers or CPAs). Training for Competent Authorities (c. 30.3): 487. AMLC have received extensive training in ML and Terrorism investigation techniques from international agencies. The AMLC conducts training for law enforcement agencies in the Philippines and the courses that the AMLC staff have received increases the effectiveness of the training they provide. Law enforcement agencies including the PNP, PDEA, NBI and the prosecutorial agencies have also received substantial national and international training in ML, Financial and Terrorism Finance Investigation techniques. Additional Element (Rec 30) - Special Training for Judges (c. 30.4): 488. On 1 June 2004 the Supreme Court issued Administrative Matter No. 04-4-197 RTC designating the special commercial courts in the Philippines as Special Anti-ML Courts to try and decide ML cases and other violations of the AMLA. To create AML/CFT awareness among members of the Judiciary, a Seminar on the Rule of Civil Forfeiture was jointly conducted in 2006 by the AMLC and the USAID-Rule of Law Effectiveness (ROLE). The AMLC sponsored two workshops in 2007 for the members of the judiciary. The Philippine Judicial Academy (PHILJA), in consultation with the AMLC, has included AML/CFT in its curriculum for members of the judiciary particularly judges of the special anti-ML courts. Statistics (applying R.32): 489. Comprehensive statistics have been maintained and provided for ML investigations, prosecutions and convictions, cases and the amounts of property frozen, seized and confiscated relating to ML and Terrorism. Statistics are also available in relation to the amount of property seized and confiscated pursuant to UNSR relation to TF. Further statistics have been made available in relation to the status of the investigation before the courts. 490. On ML, the AMLC maintains statistics on the following matters between 2003 and 2007 (Tables XXVIII-XXXVI): - 98 -  ML Prosecutions Initiated (Before the DOJ and OMB)  ML Cases filed with the RTC by DOJ/OMB  Applications for Freeze Orders/Extensions of Freeze Orders filed before the Court of Appeals and the Supreme Court  Civil Forfeiture Cases Filed  Court Based Applications for Inquiry Filed and Granted  Number of Terminated Cases  Total Amount of Assets Frozen  Total Amount of Assets Forfeited  Number of Cross Border Reports referred to AMLC Additional Elements (c32.3) 491. Statistic have been made available in relation to STRs referred to the AMLC that have resulted in investigations, criminal sanctions applied to persons convicted of a ML offence, however it should be noted that there has been only one conviction for ML offences as at the date of the onsite visit. Analysis of Effectiveness 492. It is recognized that with the resources that the AMLC has available to the investigation of ML, they have had 1 successful prosecution, and have referred 39 matters to the DOJ, 25 of which are before the RTC and 14 of which are under preliminary investigation by the DOJ. Overall this can not be considered to be an effective AML regime when the amount of profit driven crime in the Philippines is taken into account. Only an increase in the number of adequately trained and qualified investigators will ensure an increase in the number of successful prosecutions of ML matters. 493. Under the AMLA, only the AMLC is allowed to conduct ML investigations, although it can theoretically enlist the cooperation of LEAs for this purpose. LEAs cannot independently conduct ML investigations without the involvement of the AMLC. Human resources - 6 - assigned to CIG are severely inadequate to conduct all criminal ML investigations. In addition, CIG staff consist of accountants and lawyers, with little or no contemporary law enforcement experience. 494. LE authorities (including the NBI, CIDG, PACER, IG, BOC, and PDEA) only infrequently engage AMLC during the investigation stage. With the exception of NBI, LEAs demonstrated that they had limited capacity or training to conduct financial investigations. 495. Obtaining court orders to conduct inquiries into bank accounts is a lengthy process, sometimes taking up to several months. This also applies to applications for freezing orders. 496. There is an acute shortage in dedicated staff to conduct ML prosecutions and related duties. There are currently 14 matters at various stages of preliminary investigation held by the DOJ some dating back to 2006. 497. Considering the size of corruption in the Philippines there have been very few related ML and POC investigations related to this. There is only one matter before the OMB in relation to corruption. 498. Terrorism Finance is not criminalized as a separate offence in the Philippines, (see 2.2). While Terrorism Financing is not a separate offence the ATC, through the ATCCC, investigate offences of terrorism and can use the AMLC as a support agency. - 99 - 2.6.2. Recommendations and Comments 499. The AMLC should remain the primary agency for ML investigation, undertaking the complex and sensitive matters and having a coordinating role of ML investigations for the Philippines. In addition law enforcement agencies should be given a clear mandate to investigate ML offences. 500. The assessment team recommends the creation of a ML Investigation Coordination Group (MLICG) comprised of CIDG, NBI and PDEA and chaired by the Executive Director of the AMLC to allocate the investigation of the ML offences to either the agency conducting the predicate offence or to the AMLC. The MLICG would need to meet on a frequent basis. Priority cases should be given to the AMLC, possibly based on type of offence (e.g. corruption), targets and/or value of assets to be potentially seized. 501. Authorities may wish to consider either increasing resources for investigation at the AMLC, shifting investigation workload out to LEAs, or a combination of these solutions. 502. The establishment of Proceeds of Crime (POC) Units within NBI, PDEA, CIDG, whose mandates would be to collect financial evidence during predicate offence investigations, is recommended as a viable option. The POC Units will have available to them the authority to seek freezing orders and banking records. The POC Unit would incorporate the functions currently performed by the AML Desks. Within each POC Unit there should be an AMLC secondee who will be full time within that POC Unit. Each POC Unit should be encouraged to work closely with LEG within the AMLC in seeking to exercise authorities relating to seeking bank records, freezing orders and laying ML charges. 503. It is recognized that for the establishment of these units, substantial legislative changes will be needed to provide the required powers to LEAs. This will take time. In the interim, authorities may wish to consider the establishment of a task force within the AMLC with the intention of creating Proceeds of Crime (POC) teams within each law enforcement agency. The option of immediately increasing AMLC resources and seconding LE investigators to AMLC (under rule 8.3 of the RIRRs) would have an immediate impact pending the amendments (independently initiate ML investigations, grant powers to seize assets, obtain bank records) required to make POC units effective. 504. The AMLC Task Force would need to have seconded agents from each of the major law enforcement agencies, (PNP, NBI, PDEA, and possibly the OMB and PAGC, and further agencies as required). These agents will ensure that a conduit exists between the AMLC and the respective law enforcement agency. 505. DOJ should have designated prosecutors to deal with judicial applications from POC Units and the AMLC. These DOJ Prosecutors must be quarantined to ML related matters. 506. The Executive Director of the ALMC Secretariat should be given more authority to make operational decisions in relation to criminal investigations. 507. The AMLA should be amended to allow AMLC to employ staff with contemporary law enforcement investigations experience and other relevant expertise. 508. The Draft Bill amending the AMLA to allow for the obtaining of bank inquiry orders ex parte is recommended. - 100 - 509. Law enforcement agencies and the AMLC need to build their capacities in relation to Terrorism Finance investigations in anticipation of the relevant laws being amended. 510. More focus should be given by AMLC and law enforcement to freezing assets and laying ML charges in relation to the predicate offence of corruption. 2.6.3. Compliance with Recommendations 27 & 28 Rating Summary of factors relevant to s.2.6 underlying overall rating R.27 PC  Since the financing of terrorism is not a stand alone offence there is no law enforcement agency tasked with investigating this  The AMLC is the designated agency to investigate all ML matters for the Philippines, however due to resource constraints it would be unable to effectively investigate all matters referred by LEAs.  The vast majority of potential ML cases are not being referred by the LEAs to the AMLC. There were 32 referrals from Government agencies in 2007 to undertake or conduct a ML investigation. R.28 PC  Bank inquiry orders under AMLA can not be issued unless notice is given to the owner(s) of the accounts allowing them to contest the issuance of the order except where the predicate offence is kidnapping for ransom, drug offences, hijacking, destructive arson and murder. The inability to compel financial institutions to provide financial information ex parte except where these predicate offences exist severely limits the ability of the law enforcement agencies to conduct a money laundering/financial/asset investigation without the offenders being made aware of law enforcement interest.  Law enforcement agencies other than the AMLC can not compel production of documents from financial institutions. 2.7. Cross Border Declaration or Disclosure (SR.IX) 2.7.1. Description and Analysis Legal Framework: 511. Republic Acts 455 and 1937 otherwise known as the Tariff and Customs Code Philippines, BSP Circulars 98, 507, Republic Act No. 7653, otherwise known as the New Central Bank Act. Mechanisms to Monitor Cross-border Physical Transportation of Currency (c. IX.1): 512. BSP Circular Numbers 98 and 507 require all passengers traveling into or out of the Philippines to declare whether they are carrying cash or Bearer Negotiable Instruments in amounts exceeding PHP10,000 or an amount exceeding US$10,000, respectively. The Republic of Philippines requires all arriving and departing passengers to complete a customs declaration form, which contains identification information and to report if they are carrying in excess of PHP10,000 or US$10,000. - 101 - 513. BSP Circular No.98 dated 11 December 1995 - On the Bringing Into or Out of the Country Philippine Currency in an Amount Exceeding PHP 10,000 – BSP Circular No. 98 dated 11 December 1995, amending Section 4 of BSP Circular No. 1389 dated 13 April 1993, states that: “Section 4. Import/Export of Philippine Currency. — No person may import or export nor bring with him into or out of the country, or electronically transfer legal tender Philippine notes and coins, checks, money order and other bills of exchange drawn in pesos against banks operating in the Philippines in an amount exceeding P10,000.00 without authorization by the Bangko Sentral ng Pilipinas. The term 'electronic transfer' as used herein shall mean a system where the authority to debit or credit an account (bank, business or individual) is provided by wire, without a source document being mailed to evidence the authority." 514. BSP Circular No.507 dated 19 January 2006 On the Bringing Into or Out the Philippines Foreign Currencies in Excess of US$ 10,000 or Its Equivalent – BSP Circular No. 507 dated 19 January 2006, amending BSP Circular No. 308 dated 15 November 201, states that: “The Monetary Board, under its Resolution No. 1588 dated 16 December 2005, approved the amendment to Circular No. 308 dated 15 November 2001, as amended, so as to require any person who brings into or out of the Philippines foreign currency, as well as other foreign exchange- denominated bearer monetary instruments, to declare the same in writing and to furnish information on the source and purpose of the transport of such currency or monetary instrument. As used herein, “other foreign exchange-denominated bearer monetary instruments� shall refer to the following foreign exchange-denominated instruments in bearer form whereby title thereto passes to another by endorsement, assignment or delivery: travelers’ checks, other checks, drafts, notes, money orders, bonds, deposit certificates, securities, commercial papers, trust certificates, custodial receipts, deposit substitute instruments, trading orders, transaction tickets and confirmation of sale/investment. The said required declaration shall be duly accomplished using the attached Foreign Currency and Other Foreign Exchange-Denominated Bearer Monetary Instruments (FCOFEDBMI) Declaration Form.� 515. BSP Circular 98 states “No person shall import or export nor bring with him into or out of the country …. an amount exceeding PHP10,000�. It is not clear that this section covers the postal stream and further the capacity of BOC to cover postal services in relation to non declaration of currency and bearer negotiable instruments would appear to be limited. Request Information on Origin and Use of Currency (c. IX.2): 516. The Bureau of Customs has the authority to request and obtain further information from the passenger regarding the origin and intended use of the cash or the Bearer Negotiable Instruments pursuant to item C7 Section III of the MOA for the Effective Implementation of BSP Rules on Physical Cross-Border Transport of Currencies dated 17 January 2005 which states the following: 169 Section III – Functions and Responsibilities “ The BOC shall: Institute measures to ensure compliance with these rules with equal vigor and efficacy in all international airports and seaports including the detection and apprehension of undeclared or mis-declared foreign and Philippine currencies.� 517. In addition, the BOC may conduct further examination pursuant to the Supplemental Memorandum of Agreement for the Effective Implementation of BSP Rules on Physical Cross- Border Transport of Currencies dated 20 December 2006 which states: - 102 - “3. Upon initial detection and identification of currencies or other bearer monetary instruments in violation of BSP rules on cross-border transport of currencies and/or the TCCP, as amended, the Customs Examiner on duty shall immediately inform the Flight Supervisor or Duty Collector or the Customs Inspector (in the case of major seaports) thereof; and 4. The conduct of 100 percent examination or actual physical cash count shall be transferred to the designated BOC Exclusion Room or its equivalent. Upon notification, the airport/seaport authorities shall facilitate immediate access of authorized Customs personnel, the concerned passengers/crew and other screening officers to said Room.� Restraint of Currency (c. IX.3): 518. The Bureau of Customs has the authority to stop or restrain currency or bearer instruments for a reasonable time pursuant to its institutional mandate under the Memorandum of Agreement for the Effective Implementation of BSP Rules on Physical Cross-Border Transport of Currencies dated 17 January 2005 which states that the BOC shall institute measures to ensure compliance with these rules with equal vigor and efficacy in all international airports and seaports including the detection and apprehension of undeclared or misdeclared foreign and Philippine currencies. 519. The Memorandum of Agreement for the Effective Implementation of BSP Rules on Physical Cross-Border Transport of Currencies dated 17 January 2005 states that confiscated currencies arising from violations of BSP rules cited herein or AMLA shall be turned over to the BOC for seizure and forfeiture proceedings as authorized under the TCCP, as amended, without prejudice to the provisions of the New Central Bank Act and the AMLA, as amended. 520. Supplemental Memorandum of Agreement for the Effective Implementation of BSP Rules on Physical Cross-Border Transport of Currencies dated 20 December 2006 states that “Any person, passenger or crew member found to be bringing in or taking out of the country legal tender Philippine notes and coins, checks, money orders and other bills of exchange drawn in pesos against banks operating in the Philippines in excess of P10,000.00 without prior authorization from the BSP shall, after examination and inventory of the subject items as herein provided, be turned over to the Legal and Investigation Unit, Customs Police Division/Enforcement and Security Service (CPD/ESS), or its equivalent unit in other international airports and major seaports for initial investigation or, in appropriate cases, for immediate request of the Office of the City or Provincial Prosecutor having jurisdiction of the offense committed; 2. The same procedure shall be followed if any person, passenger or crew member is found to be bringing in or taking out of the country foreign currency or other foreign exchange-denominated bearer monetary instruments in excess of US$10,000 or its equivalent, without properly declaring the same in the Customs Declaration Form and/or filling-up and submitting the FCD Form at the Customs Arrival or Departure Area.� Retention of Information of Currency and Identification Data by Authorities when appropriate (c. IX.4): 521. The Bureau of Customs retains copies of the written currency declaration forms and these are forwarded to the AMLC in the first week of each month. 522. After the examination of the foreign currencies and bearer negotiable instruments, the Customs Examiner prepares a report and submits a copy to the PNP Aviation Security Group, BSP and the AMLC pursuant to the Supplemental Memorandum of Agreement for the Effective Implementation of BSP Rules on Physical Cross-Border Transport of Currencies dated 20 December 2006 which states that an - 103 - “Incident and Apprehension Report and the Issuance of Warrant of Seizure and Detention shall be completed by the Customs Examiner within twenty-four (24) hours from apprehension.� “Within twenty-four (24) hours from the completion of the incident and apprehension report, the Customs Examiner shall forward the report to the BOC District Collector, with a copy furnished to the PNP- ASG, BSP-ID and the AMLC, stating the incident and attaching the inventory report and the recommendation for the issuance of WSD; and within twenty-four (24) hours from the incident, PNP- ASG and equivalent screening agencies shall submit an initial report to the BSP-ID and AMLC.� Access of Information to FIU (c. IX.5): 523. Pursuant to the Memorandum of Agreement dated 20 June 2007 the BOC is required to provide the AMLC with reports on the examinations held relating to currency declarations. Article IIC states that “Should either of the Parties, in the exercise of their regular mandated functions, be able to receive reports of financial transactions involving ML or other related unlawful activities under Section 3(i) of the AMLA, as amended, it shall immediately inform the other of such transactions and activities. Either of the Parties may enlist the assistance of the other in conducting further investigation relative to the said information, for the purpose of prosecuting the offenders for the violation of the AMLA, and/or its predicate crimes.� 524. Further the Supplemental Memorandum of Agreement for the Effective Implementation of BSP Rules on Physical Cross-Border Transport of Currencies dated 20 December 2006 provides that the incident and apprehension report shall be completed by the Customs Examiner within twenty-four (24) hours from apprehension. Any delay in the completion of the said report shall be explained in writing to the BOC District Collector. Within twenty-four (24) hours from the completion of the incident and apprehension report, the Customs Examiner shall forward said report to the BOC District Collector, copy furnished the PNP-ASG, BSP-ID and the AMLC, stating the incident and attaching the inventory report. Within twenty-four (24) hours from the incident, PNP-ASG and equivalent screening agencies shall submit an initial report to the BSP-ID and AMLC. The AMLC shall be furnished a copy of the reports to be prepared by the Legal and Investigation Unit, Customs Police Division/Enforcement and Security Service (CPD/ESS) of their findings and recommendations after their investigation. 525. The Legal and Investigation Unit, Customs Police Division/Enforcement and Security Service or its equivalent unit in other international airports and major seaports shall then conduct and conclude its investigation within the period prescribed and submit an Investigation Report to the District Collector, with his findings and recommendation, within seven (7) workings days from the turn-over, copy furnished the BSP-ID and AMLC. Domestic Cooperation between Customs, Immigration and Related Authorities (c. IX.6): 526. There appears to be adequate cooperation between BOC, BI and other law enforcement agencies. The BOC has a member attached to the AML Desk. This desk is the contact point between other agencies and the AMLC for referrals of information. The PNP Aviation Security Group is also situated at Manila Airport. 527. During the onsite meetings the BOC stated that they have actively coordinated with partner law enforcement agencies conducting controlled deliveries of prohibited imports and narcotics, however no statistics were available. - 104 - International Cooperation between Competent Authorities relating to Cross-border Physical Transportation of Currency (c. IX.7): 528. The Philippines is a member of the World Customs Organization which helps members communicate and cooperate in the resolution of relevant customs issues. As a member of such organization, the Philippines, through the BOC, extends cooperation and assistance to its member countries. The same, however, is being extended on a per need basis or request basis. 529. With particular reference to the relationship of the Philippines with the United States of America, the Philippines signed a Mutual Assistance Agreement with the former on 27 July 2000. This agreement governs the forms of cooperation and assistance that each may give to the other on customs matters affecting their respective countries. Sanctions for Making False Declarations / Disclosures (applying c. 17.1-17.4 in R.17, c. IX.8- IX.9 530. BSP Circular 308 states that: “Any violation hereof shall be subject to the sanctions provided for in Section 36 of Republic Act No. 7653, without prejudice to the application of remedies and sanctions provided for under customs laws and regulations.� Section 36 of Republic Act No. 7653 (otherwise known as the New Central Bank Act) provides for the penalty of fine or imprisonment or both in the event of violation of BSP Circular 507 or any other BSP regulations. 531. Section 36 “Proceedings Upon Violation of This Act and Other Banking Laws, Rules, Regulations, Orders or Instructions Republic Act 7653 states that. “Whenever a bank or quasi-bank, or whenever any person or entity willfully violates this Act or other pertinent banking laws being enforced or implemented by the Bangko Sentral or any order, instruction, rule or regulation issued by the Monetary Board, the person or persons responsible for such violation shall unless otherwise provided in this Act be punished by a fine of not less than Fifty thousand pesos (P50,000) nor more than Two hundred thousand pesos (P200,000) or by imprisonment of not less than two (2) years nor more than ten (10) years, or both, at the discretion of the court�. 532. Pursuant to Item III.C.6 of the Memorandum of Agreement for the Effective Implementation of BSP Rules on Physical Cross-Border Transport of Currencies, the penalties on confiscation and seizure as provided in the provisions of the Tariff and Customs Code of the Philippines may also be imposed. Section 2530, Property Subject to Forfeiture Under Tariff and Customs Laws says “Any vessel or aircraft, cargo, articles and other objects shall, under the following conditions, be subject to forfeiture: Any article of prohibited importation or exportation, the importation or exportation of which is effected or attempted contrary to law, and all other articles which, in the opinion of the Collector, have been used, are or were intended to be used as instrument in the importation or exportation of the former.� 533. The sanctions are applicable to natural or legal persons. However, the penalty of imprisonment shall apply only to natural persons. 534. The BSP has the power to impose administrative sanctions on directors or officers/senior management of covered institutions under BSP supervision, whenever the director or officer is found to have violated any BSP rules and regulations. Section 36 of Republic Act No. 7653 clearly states - 105 - that “the person or persons responsible for the violation�, such as directors or officers, shall be the ones who will bear the penalties imposed Confiscation of Currency Related to ML/FT (applying c. 3.1-3.6 in R.3, c. IX.10): 535. No information was provided on confiscation of ML/TF related currency transported cross border. Confiscation of Currency Pursuant to UN SCRs (applying c. III.1-III.10 in SR III, c. IX.11): 536. No information was provided on confiscation of currency belonging to designated persons/entities transported cross border. Notification of Foreign Agency of Unusual Movement of Precious Metal and Stones (c. IX.12): 537. The BOC appropriately notifies competent authorities of other countries pursuant to existing international bilateral mutual agreement/cooperation entered into by BOC with its counterpart in countries on customs matter. 538. During the on site visit it was found that the Philippines provide international cooperation to their international law enforcement counterparts. The provision of information is extended to information that is held on the Bureau of Immigration and Bureau of Customs database. Safeguards for Proper Use of Information (c. IX.13): 539. No information was provided on whether there were any safeguards in place to ensure proper use of the information and data provided pursuant to the currency declaration system. Statistics 540. Statistics have been provided regarding cross border reports, seizures and apprehensions of currencies from Ninoy Aquino International Airport (Tables XXXVII-XXXVIII in Appendix). During the onsite visit further statistics were sought from other international ports, however at this time they were not made available. 541. The BOC uses intelligence methods and also targets specific flights, destinations and ports of embarkation to target passengers for random search, which they are authorized to perform. The seizure in the period January to June 2008 resulted in information from the AMLC provided to the BOC relating to 2 passengers. As a result of this information sharing the passengers were apprehended at the airport and the currency was seized. 542. It should be noted that as of the dates of the onsite visit there has been no sentences imposed for the non-declaration or false declaration of currency. Analysis of effectiveness 543. The Philippine regime has imposed measures to detect excess currencies being imported or exported to and from the Philippines. The statistics on currency declarations showed only data from the Ninoy Aquino International Airport-Manila (NAIA), and do not include reports made from other international ports in the Philippines. - 106 - 544. It should be noted that there are at least 10 airports within the Philippines that have international arrival and departure points and a further 2 under construction. There are also sea ports that have the capacity to carry international travelers to and from the Philippines. There are more than 5 million international passengers (tourists and residents) passing through international airports in the Philippines annually, and while more than 50% arrive and depart from NAIA, a significant number also come through the other airports. The level of reporting indicates that only .0003% of all passengers make a currency declaration. 545. More than 1.7 million international passengers arrived and departed at Cebu, Clarke and Davao international airports. 546. The level of reporting appears low for the number of persons arriving and departing the Philippines, with only 1,437 declarations made in 2007. More than half of these declarations are made by outgoing passengers. 547. The level of reporting in NAIA appears to be low, however it has increased between 2003 and 2007, indicating an increased awareness and policing function regarding declaring cash and bearer negotiable instruments. 548. The relationship between the BOC and AMLC appears to be working and an AML Desk has been created as a liaison point between the two agencies. 549. There is currently no information from the Philippines indicating that there are safeguards in place for the proper use of the information. 550. There is currently no information from the Philippines that indicates that they have a database that is accessible to competent authorities. 551. Considering the number of passengers and declarations made, and the amount of financial crime that occurs in the Philippines there appears to be only a small amount of currency seized (January to June 2008 PHP1,647,000 approximately US$35,000). 552. There is currently no capacity for the BOC to cover sea ports in the Philippines, and no statistics are available for the furnishing of currency declarations to BOC at seaports in the Philippines. This is considered to be a significant issue given the many islands in the Philippines and the relatively open sea borders. 553. There are currently no statistics available, or capacity for the BOC to obtain currency declarations at International airports in Southern Philippines. Considering the known terrorism vulnerabilities in Southern Philippines and the lack of BOC capacity to detect non reported or excess currency, this should be considered a serious weakness in the declaration system of the Philippines. 554. While there have been no convictions for the non declaration of currencies, cash and BNI that are not declared are subject to seizure. Generally if the cash is seized due to non declaration it will be subject to forfeiture. 2.7.2. Recommendations and Comments 555. The Philippines through the BOC should obtain statistics for all international ports and refer declarations and non-declarations to the AMLC. - 107 - 556. The BOC should build its capacity and refer all currency declarations to the AMLC electronically so that these are received in a timely manner. 557. The AMLC should be represented at NAIA initially, and extend their representation to other international airports within the Philippines as appropriate. 2.7.3. Compliance with Special Recommendation IX Rating Summary of factors relevant to s.2.7 underlying overall rating SR.IX PC  The postal stream and cargo streams do not appear to be currently covered by the declaration systems.  There is very weak implementation of the cross border reporting requirement, which appears to result from no clear policy to cover all entry points, and weak capacity to target and discover cash couriers.  Insufficient customs examiners at arrival and departure areas of international airports and seaports (except NAIA) to enable the effective implementation of the Philippine’s law relating to import and export of cash and BNI.  No statistics are available relating to the cross border declaration of cash and BNI from international airports (except NAIA), any seaports, or the portal or cargo streams.  No information showing safeguards to ensure the proper use of information and data provided pursuant to the currency declaration system. - 108 - 3. PREVENTIVE MEASURES —FINANCIAL INSTITUTIONS 3.1. Risk of money laundering or terrorist financing Risk-based approach to AML/CFT measures in the financial sector All sectors 558. The Philippines has not adopted an overall risk-based approach to application of AML/CFT preventive measures on financial institutions. Both the AMLA and the RIRRs, which together set out the broad parameters of AML preventive measure requirements on regulated/supervised financial sector, have no provisions for a risk-based approach to AML/CFT measures. 559. Because AMLC cannot issue any rules regarding any risk-based approach to application of AML/CFT preventive measures on financial institutions, any such approach must be implemented by the three regulators/supervisors, the Bangko Sentral ng Pilipinas [BSP], which regulates/supervises banks, quasi-banks, trust institutions, and FX dealers and remittance/transfer companies,, the Securities Exchange Commission [SEC] which directly or through the Philippine Stock Exchange as an SRO regulates/supervises broker/dealers, investment firms, including investment advisors, investment funds, and dealers in monetary instruments or derivatives or commodities, and the Insurance Commission [IC] which regulates/supervises insurance companies, insurance agents, insurance brokers, professional reinsurers, reinsurance brokers, and holding companies. 560. For purposes of brevity, this Report will refer to these as “banking sector,� insurance sector,� and “securities sector� respectively, or “covered sectors� collectively. Because of the relative importance of the banking over the other two sectors (and the difference in guidance and implementation) the banking sector will be covered separately in this report. Banking sector 561. The Monetary Board of BSP, in its Resolution No. 820 (10 June 2004) approved risk-based BSP examination procedures ensuring that supervised institutions continuously comply with prescribed rules and regulations to combat money laundering and terrorist financing. 562. The risk-based assessment of AMLA compliance entails evaluation of two risks: the quantity of compliance risk (low, moderate, high) based on the individual circumstances of each financial institution, based on previous examinations and improvements since then, vis-à-vis the quality of risk management (strong, acceptable, weak). Quantity of risk is assessed by determining the level of risk arising from non-compliance with AML laws, regulations, and BSP guidance. Quality of risk management is evaluated in terms of the adequacy of board and senior management oversight, comprehensiveness and effectiveness of policies and procedures, personnel competencies, management information systems, and controls in ensuring continuous compliance with AML rules, including the performance of periodic self-assessments and the adequacy and timeliness of management action to address any noted deficiencies. 563. Onsite examination is then focused on identified high-risk areas that are deemed to materially impact the institution’s risk profile and capital as well as on other banking activities that are perceived to have elevated risks of being utilized as instruments for money laundering and terrorist financing. AMLA compliance risk assessment is undertaken by designated AML examiners during the periodic - 109 - onsite examination. Results are then discussed under a separate section of the report of examination but are also ultimately incorporated into the overall assessment of the institution’s compliance risk. Securities and insurance sectors 564. The SEC has not formally adopted a risk-based approach. The IC has not formally adopted a risk-based approach. However, efforts are currently under way gradually to introduce a mix of both compliance-based and risk-focused supervisory and examination techniques with respect to all supervisory rules. 3.2. Customer due diligence, including enhanced or reduced measures (R.5 to 8) 3.2.1. Description and Analysis Description of laws, regulations, and other enforceable means 565. The most important law is the AMLA, which sets out the broad parameters of AML preventive measure requirements as they apply to the three categories of covered institutions: those supervised or regulated by the BSP, those supervised or regulated by the SEC, and those supervised or regulated by the IC.23 566. Next are the RIRRs, promulgated by the AMLC (and separately promulgated by the BSP, SEC and IC).24 Both the AML Act 2001 and the RIRRs 2003 are clearly “law and regulation� as defined by the FATF Methodology (2008).25 The AMLC also issues Resolutions that generally apply to all three sectors. Failure to follow these laws and regulations subject the covered persons to significant sanctions. Deficiencies are reported by the supervisory authority to the AMLC, which then determines whether sanctions should be applied. So far sanctions worth PHP 22 million have been applied in 21 cases, all based on referrals from the BSP. 567. Each of the three prudential regulators/supervisors/examiners, the BSP, the SEC, and the IC, also issue various documents relating to AML compliance in their respective covered sectors. 568. RIRRs 17.2.a requires that every covered person submit a comprehensive AML program to its supervisory agency “as imposed by that agency’s own regulatory powers under its own charter.� Each supervisory authority has done so, seeking to achieve the same goal through slightly different means. Banking sector 569. The BSP, under its general authority as provided in the General Banking Law section 37, issues circulars, circular letters and memoranda. The 2005 Manual of Regulations for Banks (MORB) 23 This discussion focuses primarily on preventive measures other than those that do not directly relate to money laundering, such those that relate to general issues in regulation, supervision, guidance, monitoring, and sanctions (Recommendations 17, 23, 25, 29, 30, and 32) and certain other laws and regulations that relate to bank secrecy and immunity from civil and criminal process for reporting transactions. 24 Regulations proposed by the AMLC must and approved by the AML Congressional Oversight Committee. 25 As defined by paragraph 24, page 10, and Annex 1 of the FATF, Methodology for Assessing Compliance with the FATF 40 Recommendations and the FATF 9 Special Recommendations (27 February 2004, Updated as of February 2008 -FATF Methodology 2008). - 110 - and the 2005 Manual of Regulations for Non-Bank Financial Institutions (MORNB) are largely compilations of those circulars, circular letters, and memoranda with respect to AML preventive measures. Each of these sources either uses clearly mandatory language (“shall� or “must� follow the specific rule) or the language of mandatory guidance (shall implement rules with substantially the same effect.) Failure to follow the rule or guidance is subject to sanction by the BSP. 570. One of the BSP circular letters (dated 1 July 2002) requires adoption of a manual of AML internal procedures “which shall comply� with the attached model (Model Operating Manual 2002). Covered person are required to submit AML manuals for approval by the BSP, and BSP examination of covered persons largely amounts to assessing compliance with the manual. However, the model has not been updated since 2002 based on subsequent AML circulars, circular letters, and memoranda. As a result covered persons have been required to update the model based on subsequent BSP guidance. 571. So far, the BSP has only required intermediate enforceable means (remedial measures through deficiency letters following examinations) for failure to comply with circulars, circular letters, and memoranda, particularly as expressed in the BSP approved AML operating manual. However, the BSP is ready to apply more severe sanctions for continued failure to remedy deficiencies adequately. It should be noted that deficiencies that rise to the level of breach of the law or RIRRs are referred to the AMLC for action. As a result, with respect to AML preventive measures BSP circulars, circular letters, memoranda (most of which are codified in the MORB and MORNB) are “other enforceable means.� Securities and insurance sectors 572. The SEC, under its general authority as provided in the Securities and Exchange Commission Law section 5, issues rules, circulars, and memorandum circulars, although it has not issued them in any kind of manual of regulations. As with the BSP, each of these sources either uses clearly mandatory language (“shall� or “must� follow the specific rule) or the language of mandatory guidance (shall implement rules with substantially the same effect), and failure to follow the rule or guidance is subject to sanction by the SEC. Also like the BSP, one of the SEC’s circular letters (No. 12, 2004) requires adoption of a manual of AML internal procedures “which shall comply� with the attached model (SEC Operating Manual). Covered person are required to submit AML manuals for approval by the SEC, and SEC examination of covered persons largely rests with assessing compliance with the manual. Unlike the BSP, however, the SEC Operating Manual is comprehensive (up to the date of issue) and well organized, providing a single reference for both supervisors/regulators and covered institutions for applicable AML rules.26 So far, the SEC has also only required intermediate enforceable means (remedial measures through deficiency letters following examinations) for failure to comply with circulars, circular letters, and memoranda, particularly as expressed in the SEC -approved AML operating manual. However, the SEC is also ready to apply more severe sanctions for continued failure to remedy deficiencies adequately. It should be noted that deficiencies that rise to the level of breach of the law or RIRRs could be referred to the AMLC for action, although so far none has. As a result, with respect to AML preventive measures circulars, circular letters, and memoranda (the vast majority of which are found in the SEC Operating Manual) are “other enforceable means.� 26 It does not, however, comprehensively indicate the source of particular rules, although in a number of key instances it does. The SEC is planning to consider revising the AML Operating Manual in the future. - 111 - 573. The SEC has also issued Rules on the Registration and Sale of Pre-Need Plans (i.e. retirement or superannuation plans). These are clearly mandatory statutory regulations. The Philippine Stock Exchange, a self-regulatory organization, issues rules that apply only to broker-dealers. These are cited where applicable and are not included in the model manual for internal controls]. 574. The IC, under its general authority as provided in the Insurance Commission Decree section 415, issues rules, circulars, and memorandum circulars, although it has also not issued them in any kind of manual of regulations. Each of these sources either uses clearly mandatory language (“shall� or “must� follow the specific rule) or the language of mandatory guidance (shall implement rules with substantially the same effect), and failure to follow the rule or guidance is subject to sanction by the SEC. Also like the BSP and SEC, one of the IC’s circular letters (No. 32-2006, 18 September 2006) requires adoption of a manual of AML internal procedures “which shall comply� with the attached model (IC Operating Manual). Covered persons are required to submit AML manuals for approval and examination of covered persons assessing compliance with the manual. The IC Manual is comprehensive (up to 2006) and well organized. So far, the IC has also only required intermediate enforceable means (remedial measures through deficiency letters following examinations) for failure to comply with circulars, circular letters, and memoranda, particularly as expressed in the operating manual, though ready to apply more severe if needed. As with the other sectors it should be noted that deficiencies that rise to the level of breach of the law or RIRRs could be referred to the AMLC for action, although so far none has. As a result, with respect to AML preventive measures circulars, circular letters, and memoranda (the vast majority of which are found in the IC Operating Manual) are “other enforceable means.� 575. Therefore, the AMLA and the RIRRs all constitute “law and regulation,� while circulars, circular letters, and memoranda (including operating manuals from the BSP, SEC, and IC) constitute “other enforceable means.� 576. The Legal Framework and Analysis parts of the following sections will (1) state the rules in effect (2) not repeat materially redundant rules,27 and (3) cite only the rules at the highest order of authority (e.g. will not repeat rules issued as guidance if already issued as a regulation).28 577. It appears that the vast majority of rules issued by the three supervisors have not been drafted and issued in a coordinated fashion, so that each has its own unique set of regulatory material. This means that each sector must abide by its own rules and guidance, even when they address identical issues and there is no difference among regulated entities justifying a different approach. Banking sector 578. AML preventive measures are not a model of organization. As noted above, the BSP has issued the RIRRs, circulars, circular letters, and memoranda, as well as the MORB and the MORNB, which, according to their preambles, serve as “the principal source of regulations issued by the Monetary Board and the Governor of the BSP and shall be cited as the authority for enjoining compliance with the rules and regulations embodied therein.�29 However, both volumes were released only in 2007. Unfortunately, the MORB and the MORNB have significant problems. Turning first to the MORB, there is one section (X691) and 5 related appendices (52, 52a, 52b, 52c, and 53) that address 27 In some instances rules that are not identical are nevertheless materially redundant. 28 Because MORB Section X691 Appendix A is simply a verbatim reproduction of RIRRs Rule 9.1.g this Report will not repeat that section of the MORB in the sections devoted to specific rules for the banking sector. 29 Preface, 2005 Manual of Regulations for Banks, p. v. - 112 - preventive measures issues.30 These do not note in a comprehensive fashion which (or which parts) of laws, regulations, circulars, circular letters, and memoranda are included or have not been included. Next, where laws etc. (or parts thereof) are included, they are not included in a consolidated fashion, meaning that in many instances not all matters concerning a particular subject are organized in the same place, and redundant or contradictory material are not always rationalized.31 It is up to the individual reader to do this.32 579. With respect to AML preventive measures, the MORNB has the same defects as the MORB, because the materials are identical, but matters that relate only to banks, such as checks, electronic banking, and correspondent banking, are not included. Unfortunately, however, the AML preventive measures materials in the MORNB are not organized in the same way as they are in the MORB, although nearly all are included.33 30 Other than those that relate to general issues in regulation, supervision, guidance, monitoring, and sanctions, which will be addressed infra. 31 Section X691 of the MORB contains states that covered institutions must comply with the AML Act 2001 and the RIRRs 2003, that they shall adopt “the minimum prescribed guidelines that contain the salient and relevant policies� related to electronic fund transfers and corresponding banking transactions found in Appendices 52B and 52C, and that universal banks and commercial banks are “requested� to adopt electronic monitoring systems for money laundering (and includes a list of seven short criteria to be included in its functionalities). There is also a short paragraph on sanctions. Appendix A restates the RIRRs 2003. Appendix 52a provides elucidation of section 9 of the RIRRs 2003 on customer identification, issuances of cashier’s checks, internal programs on AML. Annex A to Appendix 52a reproduces AMLC Resolution No. 292 on submission of CTRs and STRs. Annex B to the same Appendix contains a greatly shortened version of pages 6 through 14 of the Basel Committee on Banking Supervision’s paper “Customer Due Diligence for Banks� (October 2001) [Basel Committee CDD Paper], skipping much detail, including e.g. most of corporate vehicles and introduced business. Annex B-1 consist of a half page of “suggested list of identification requirements for personal customers and corporate.� Annex C consists of a verbatim reproduction of the Basel Committee on Banking Supervision’s paper “General Guide to Account Opening and Customer Identification� (February 2003) [Basel Committee ID Paper]. Annex D reproduces word for word AMLC Resolution No. 2 Series of 2005, which describes what “five working days� means with respect to filing CTRs and STRs. Appendix 52b reproduces, although without identification, Circular 436 Annex A (2004), “Minimum Guidelines for Fund Transfers,� and, finally, Appendix 52c reproduces, again without identification, Circular 428 Annex B (2004) “Minimum Guidelines for Correspondent Banking Account Opening and Customer Identification.� 32. According to the BSP the 2006 update of the MORB/MORNBFI was approved by the BSP Monetary Board under its Resolution No. 646 (29 May 2008) and is to be released to the public by “the end of October 2008.� The BSP has also stated that the 2007 update of the MORB/MORNBFI was approved by the BSP Monetary Board under its Resolution No. 1088 (21 August 2008) and will be released to the public by “the end of November 2008.� Finally, the BSP has also stated that the 2008 updates of the MORB/MORNBFIs will be completed and published “by the end of June 2009.� No copies of any of these updates were provided the Assessment Team during the mission, although the BSP stated that they will provide copies of the 2006 and 2007 updates of the MORB/MORNBFIs once they are made available. The BSP did not state why the 2006 and 2007 updates were to be released one month apart. The BSP did state, however, that the 2008 updates consist of a comprehensive set of AML regulations since there will be separate section for AML rules and regulations, and that they will be more comprehensive and consistent with the Recommendations. 33 MORB Section X691 Appendix 52a corresponds with MORNB Appendix N-3 and Appendix Q-23 (which are identical); MORB Appendix 52a Annex A corresponds with MORNB Annex N-3-b and Annex Q-23-b (which are also identical), MORB Appendix 52a corresponds with MORNB Annex Q-23-C; MORB Appendix 52a Annex B-1 corresponds with MORNB Annex Q-23-C-1; MORB Appendix 52a Annex C corresponds with MORNB Annex Q-23-D; and MORB Appendix 52a Annex D corresponds with MORNB Annex Q-23-E. - 113 - 580. While the legal framework is relatively complete (with material lacunae discussed below), there is no organized and comprehensive compilation of the set of policies, rules and regulations issued. The sources of the rules in the MORB, MORNB, and/or the Model Manual, whether it be law, or the various forms of guidance, regulation, or guidance are not always identified. Also, a number of applicable rules are included in the form of attaching Basel Committee papers, which makes ferreting out the actual rule more difficult. 581. This system of providing guidance makes it more difficult for covered institutions to know exactly the rules to follow in a particular instance. In the same manner, it makes it difficult for examiners to know exactly for the provision to apply. While the BSP requires covered institutions to maintain an up-to-date manual of procedures for AML compliance, its own Model Manual is outdated and seriously deficient. Securities and Insurance sectors 582. The SEC and IC have issued a more or less, single, well-organized, consolidated, and comprehensive list of AML-specific rules in the form of the SEC and IC Operating Manuals. The manuals are comprehensive (up to the date of issue) and well-organized, providing a single reference for both supervisors/regulators and covered institutions for the applicable AML rules. They do not, however, comprehensively indicate the source of particular rules, although in a number of key instances, they do. Prohibition of Anonymous Accounts (c. 5.1): 583. Under AMLA Section 9(a), anonymous accounts, accounts under fictitious names, and all other similar accounts are prohibited. Under RIRRs Rule 9.1.g covered institutions may maintain numbered accounts for all peso and foreign currency non-checking accounts, subject to the condition that the true identity of the account holder is established and recorded as with all other accounts When is CDD required (c. 5.2): 584. AMLA Section 9(a) requires covered institutions to establish and record the true identity of clients, which are also sometimes referred to in various guidance as “customers�. This appears to cover client identification requirements when “establishing business relations.� AMLA Section 9(c) also requires covered institutions to report to the AMLC all covered transactions. Section 3 (b) defines “covered transaction� to include any transaction in cash or other equivalent monetary instrument involving an amount in excess of PhP500,000, or around EUR7,500, within one banking day. Rule 9.3.b requires that reports be in the form prescribed by the AMLC. Because the AMLC’s required format on CTR reporting includes identification information, all covered institutions must obtain identification on the person engaging in the transaction. 585. AMLA Section 9(c) also requires covered institutions to report to the AMLC all suspicious transactions in certain circumstances.34 RIRRs Rule 3.b and 3.b.1 similarly define covered and suspicious transactions. Rule 9.3 requires that whenever a transaction is both covered and suspicious it must be reported as suspicious, and Rule 9.3.b requires that reports be in the form prescribed by the AMLC. The AMLC’s required format on STR reporting includes identification information. As a result, all covered institutions must obtain i) and (c) is that customer ID is also required when there is 34 See definition in Section 3.7 below. - 114 - suspicion of money laundering or when there are doubts about the veracity or accuracy of obtained customer ID data.35 586. In conclusion, the AMLA and its RIRRs make it is clear that covered financial institutions must undertake client identification when establishing business relationships and carrying out wire transfers. However, it requires a piecing together of different parts of various rules to determine that that client identification must also take place with occasional transactions above around EUR750, when there is a suspicion of money laundering or where there are doubts about the veracity or adequacy of previously obtained customer identification data. As such, the requirements of criterion 5.2 are met. However, such a Rube Goldberg system of establishing when CDD must be undertaken could result in problems of comprehension and interpretation, including by courts. Identification measures and verification sources (c. 5.3): 587. AMLA Section 9(a) requires covered institutions to establish the true identity of clients. RIRRs Rule 9.1.a requires covered institutions to establish and record the true identity of its clients based on official documents, and to verify their true identity. Covered institutions are also required to establish appropriate systems for verifying that identity. Rule 9.1.c. requires that covered institutions “require customers� to produce original identity documents issued by an official authority, bearing a photograph of the customer, e.g. identity cards and passports. It also requires covered institutions to obtain, among others, from each customer his or her (1) name; (2) present address; (3) permanent address; (4) date and place of birth; (5) nationality; (6) nature of work and name of employer or nature of self- employment/business; (7) contact numbers; (8) tax identification number, Social Security System number or Government Service and Insurance System number; and (9) specimen signature. Banking sector 588. Circular No. 608 (20 May 2008) provides that clients need present only 1 valid photo-bearing identification document issued by an official authority and describes in detail which specific government-issued IDs are acceptable. MORB Section X691 Appendix 52a provides some additional detail on the need to verify identity information. Securities and insurance sectors 589. SEC Operating Manual, Sec. 4.A.2 requires covered persons to obtain and record competent evidence of the true and full identity, representative capacity (i.e. if they are acting on behalf of another person), domicile, legal capacity, occupation or business purposes of clients, as well as other identifying information on those clients, through the use of documents. The section describes the type of documents used, which, under Sec.4.A.5, must be reliable. Under Sec.4.B.3, original documents are required for verification purposes. 35 MORB Section X691 Appendix 52a paragraph 2 includes special identification and record-keeping requirements regarding issuance of cashiers, managers, or certified, checks, while MORB Section X691 Appendix 52b requires CDD for funds transfers (see reply to criterion VII). SEC Operating Manual, Sec. 4.A.2, requires covered persons to obtain and record the true and full identity of all occasional or usual clients, including occupation or business purposes of clients, as well as other identifying information on those clients. IC Operating Manual, Title 3, Sec. 1.a, requires covered persons to apply all CDD measures to all clients - 115 - 590. IC Operating Manual, Title 4, Sec. 1 requires covered persons to obtain satisfactory evidence of the true and full identity of insurance applicants, including nature of work and name of employer or nature of self-employment/business; names of beneficiaries, whenever applicable; and proof of insurable interest, whenever applicable. Original documents are required for verification purposes. IC Circular 15-2007 provides that clients who engage in a financial transaction for the first time may present one “valid and highly credible photo-bearing identification document� issued and signed by an official authority. Identification of Legal Persons or Other Arrangements (c. 5.4): 591. RIRRs Section 9.1.a requires that, in case of ‘corporate’ clients, covered institutions must have a system of ‘verifying’ their legal existence and organizational structure, as well as the authority and identification of all persons purporting to act on their behalf. Rule 9.1.d requires that covered institutions, before establishing business relationships, “endeavor to ensure� that the customer is a corporate or ‘juridical’ entity which has not (or its business operations have not) (or is/are not in the process of being) been dissolved, wound up, voided, etc. Rule 9.1.d requires that covered institutions obtain from customers that are corporate or juridical entities the following minimum information/documents: (1) articles of incorporation/partnership; (2) by-laws; (3) official address or principal business address; (4) list of directors/partners; (5) list of principal stockholders owning at least 2% of the capital stock; (6) contact numbers; (7) beneficial owners, if any; and (8) verification of the authority and identification of the person purporting to act on behalf of the client. 592. RIRRs Rule 9.1.b requires that, when dealing with customers who are acting as trustee, nominee, agent or in any capacity for and on behalf of another, covered institutions must verify and record the true and full identity of the person(s) on whose behalf a transaction is being conducted. Covered institutions are also required to establish and record the true and full identity of such trustees, nominees, agents and other persons and the nature of their capacity and duties, and in the case of any doubt to “make the necessary inquiries� to verify the status of the business relationship between the parties. 593. The RIRRs provides a comprehensive set of requirements for identifying legal persons and legal arrangements meeting the requirements of criterion 5.4 Banking sector 594. MORB Section X691 Appendix 52a requires higher levels of due diligence with companies that have nominee shareholders or shareholders with shares in bearer form. It also provides some additional detail on the need to verify identity information. Securities and insurance sectors 595. SEC Operating Manual, Sec. 4.A.2 requires covered persons to ask from clients that are legal persons the following documents: (i) registration documents from the SEC or the Department of Trade and Industry; (ii) latest General Information Sheet which lists the names of the directors/partners, officers and principal stockholders; (iii) sworn statement on the existence or non- existence of beneficial owners; (iv) board of directors’ resolution; (v) signed application forms, and (vi) other identification documents where necessary. Section 4.C.3. requires that if an entity is registered outside of the Philippines comparable documents duly authenticated by the Philippine embassy or consulate are required. Under Section 4.E.2, if there are any doubts that someone is being used as a “dummy�, the covered institution must make further inquiries “to verify the status of the business relationship between the parties.� Section 4.A.2. (c), requires that covered institutions verify - 116 - the representative capacity of a person representing a legal person via a notarized special authorization for the representative. 596. The BSP has provided some additional guidance requiring additional due diligence for companies with nominees or companies with bearer shares. However, the Operating Manual did not provide for the detail of the additional due diligence. There is little reason as to why the securities sector should have less guidance than the banking sector Identification of Beneficial Owners (c. 5.5; 5.5.1 & 5.5.2): 597. RIRRs Rule 9.1.b requires that covered institutions verify and record the true identity of the person(s) on whose behalf a transaction is being conducted when dealing with customers acting “in any capacity for and on behalf of another person�. Rule 9.1.c requires that covered institutions require customers to obtain “names of beneficiaries in the case of insurance contracts and whenever applicable (emphasis added).� Rule 9.1.d requires that, before establishing business relationships with corporate or juridical entities, covered persons identify “beneficial owners, if any.� Rule 9.1.a requires covered persons to “understand the organizational structure� of corporate clients (see also criterion 5.4 above with respect to minimum information on corporate and juridical entities). 598. The RIRRs require covered institutions to identify beneficial owners, to determine if a customer is acting on behalf of another person, and to understand the ownership and control structure of the customer, as well as any beneficial owner. While the RIRRs do not specifically require covered institutions to look through the intervening legal persons to identify the ultimate physical person who owns or controls the customer, according to the authorities the word “person� in the Philippines refers to a physical person only, although they were unable to produce legal authority to support this assertion. However, discussions with both supervisors/examiners and representatives of the banking, securities, and insurance private sectors supported this interpretation, and made it clear that if the beneficial owner is another legal person it is necessary to proceed to identify the next beneficial owner until a final physical person is discovered. The RIRRs do not, however, require covered persons to identify controllers if they differ from beneficial owners, which means that the RIRRs is not in full compliance with 5.5.2 (b). Banking sector 599. MORB Section X691 Appendix 52a requires that, when there is any doubt that clients are acting for another, “reasonable measure� be taken to obtain “the true identity� of the beneficiary. It also goes into greater depth with respect to the measures required to determine the beneficial owners of specific types of corporate and other juridical entities. Securities and insurance sectors 600. SEC Operating Manual, Sec. 4.C.2 requires covered persons to obtain a sworn statement as to the existence or nonexistence of beneficial owners from corporate and other business applicants. IC Operating Manual, Title 4, Sec. 14 requires covered persons to obtain a sworn statement as to the existence or nonexistence of beneficial owners. 601. None of the sectors provides any guidance with respect to the importance of understanding the ownership and control structure of legal person and arrangements, including the need to “look through� legal arrangements until identifying the final physical persons who own and/or control legal persons and arrangements - 117 - Information on Purpose and Nature of Business Relationship (c. 5.6) and Ongoing Due Diligence on Business Relationship (c. 5.7; 5.7.1 & 5.7.2): 602. The RIRRs do not specifically require covered institutions to obtain information on the purpose and intended nature of the business relationship as described in criterion 5.6 (beyond RIRRs Rule 9.1.c, which requires that covered institutions identify an individual client’s source of funds), nor do they require covered institutions to conduct ongoing due diligence on the business relationship, including scrutinizing transactions, as described in criteria 5.7, 5.7.1, and 5.7.2. However, these requirements are implied in the Rules relating to the filing of suspicious transactions.36 As a practical matter, it would be impossible for a covered institution to comply with these STR reporting requirements unless it has obtained, and kept up-to-date, client information necessary for client profiling and monitoring. However, such an indirect way of establishing the requirement to, in effect, create and maintain an accurate client profile sufficient for suspicious transaction monitoring might be misunderstood and could result in problems of comprehension and interpretation, including by courts. Banking sector 603. MORB Section X691 Appendix 52a requires that covered institutions determine the nature and purpose of corporate and partnership business and its legitimacy. Annex B states that “Banks can only effectively control and reduce their risk if they have an understanding of normal and reasonable account activity of their customers� and requires on-going account monitoring. The Model Operating Manual contains a provision stating that the covered institution must “know enough about the customer’s business to recognize [if a] transaction (…) is unusual.� It also states that “provisions should be in place so that activity (…) is monitored by staff who are familiar with [that] account (…) [on a day to day basis].� Circular No. 495 requires all universal and commercial banks to introduce electronic monitoring systems that, inter alia, monitor transactions to detect suspicious transactions. The required minimum “functionalities� are not clear, but must include “profiling.� Securities and insurance sectors 604. SEC Operating Manual, Sec. 4.A.5 requires that if during the business relationship a covered institution has reason to doubt: (i) the accuracy of the information relating to the customer's identity; (ii) that the customer is the beneficial owner; (iii) the intermediary's declaration of beneficial ownership, or (iv) if there are any signs of unreported changes; the covered institution should take further measures to verify the identity of the customer or the beneficial owner, as applicable. SEC Operating Manual, Sec. 4.A.11 requires covered persons to know their customers well and keep current and accurate all material information with respect to their customers by regularly conducting verification and updates. 605. IC Operating Manual, Title 4, Sec. 1a requires covered institutions to create a customer profile which could serve as a reference to establish the purpose of the contract and to monitor subsequent transactions and events, to conduct ongoing due diligence on clients, including conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the 36 Rule 9.3.a requires all covered institutions to report suspicious transactions to the AMLC, while Rule 3.b.1 defines suspicious transactions to include those for which there is: (1) no underlying legal or trade obligation, purpose or economic justification; (2) (…) ; (3) the amount involved is not commensurate with the business or financial capacity of the client; (4) (…) .;. (5) any circumstance relating to the transaction which is observed to “deviate from the profile of the client (…);� (…) . - 118 - course of that relationship to ensure that the transactions being conducted are consistent with the insurer’s knowledge of the customer and/or beneficial owner, their business and risk profile, including, where necessary, the source of funds. Risk—Enhanced Due Diligence for Higher Risk Customers (c. 5.8): Banking sector 606. MORB Section X691 Appendix 52a Annex B requires that banks monitor high risk accounts, including implementing adequate management information systems to identify, analyze and effectively monitor higher risk customer accounts. Senior management in charge of private banking business should know the personal circumstances of the bank’s large/important customers and be alert to sources of third party information, and every bank must draw its own distinction between large/important customers and others, and set threshold indicators for them accordingly, taking into account the country of origin and other risk factors. Significant transactions by high-risk customers must be approved by a senior manager. The Memorandum on Customer Due Diligence Policies (17 October 2003) (which constitutes OEM see par 563-569) requires that covered institutions exercise heightened due diligence regarding business relationships with “individuals holding important/prominent positions, public or private, and high profile individuals or with persons and companies that are clearly related to or associated with them.� It also requires that covered institutions obtain senior management approval for establishing business relationships with such customers, take reasonable measures to establish the source of wealth and source of funds, and conduct enhanced on-going monitoring of the business relationship. The Model Operating Manual also states that there should be enhanced due diligence with customers and transactions involving countries that do not have sufficient AML controls. Securities and insurance sectors 607. SEC Operating Manual, Sec. 4.E.2 requires covered institutions to make “further enquiries, in the event that it doubts whether a trustee, nominee or agent is being used as a “dummy� in circumvention of existing laws.� Section 4.C.4 requires “further checks� in the event of significant changes as to the company structure or ownership, or suspicions arising as a result of a change in the payment profile as reflected in a company account on the identities of the new owners. Section 4.D.2 requires, in the event the customer is a shell company, the board of director’s certification as to the purposes of the owners/stockholders in acquiring the shell company, and satisfactory evidence obtained on the identity of the beneficial owners. Section 4.F.2 requires that transactions undertaken for non-account holders be given “special care and vigilance,� that covered institutions should determine the purposes of the transaction, and sources of the funds for any transactions involving “significant amounts�. 608. IC Operating Manual Title 4, Sec. 1.a requires covered persons to apply customer identification and customer due diligence measures depending on the risk attached to a type of customer or transaction. The extent and specific form of these measures may be determined following a risk analysis based upon relevant factors including the customer, the business relationship and the transaction(s). Decisions taken on establishing relationships with higher risk customers and/or beneficial owners should be taken by senior management. 609. The BSP, SEC, and IC have all issued helpful guidelines regarding identification of high risk clients and the imposition of enhanced due diligence measures. The BSP has issued particularly helpful guidance defining individuals holding important/prominent positions, public or private, and high profile individuals or with persons and companies that are clearly related to or associated with them, as being of high risk. Both the BSP and the IC have issued guidance requiring that decisions on - 119 - business relations with higher risk customers should be taken by senior management. The SEC has also added additional due diligence measures for customers that are shell companies. Risk—Application of Simplified/Reduced CDD Measures when appropriate (c. 5.9): Banking sector 610. There are no provisions in the BSP allowing reduced or simplified measures. Securities and insurance sectors 611. There are no provisions in the SEC allowing reduced or simplified measures. IC Circular 15- 2007 permits covered institutions to apply specified reduced CDD for low-risk products in certain specific instances: a. Certain policies with no investment component (personal accident and health, credit life (mortgage), and term life. The insurer is not required to undertake any KYC/CDD requirements not otherwise provided in the application form for underwriting purposes. b. Minimal premium� insurance policies (an annual premium not exceeding PHP50,000.00 - slightly more than US$1,000, or a single premium not over PHP125,000.00 – US$2659) contracted though telemarketing, SMS, direct marketing via mail, publication, radio, and television. In such cases, face-to-face meetings with the client are not required. c. Micro-insurance products (where the amount of premium computed on a daily basis does not exceed 10% of the current daily minimum wage rate for non-agricultural workers in Metro Manila and the maximum amount of life insurance coverage is not more than 500 times the minimum wage rate for non-agricultural workers in Metro Manila). The filing of a completed application form (containing required information) is sufficient. 612. None of the sectors adopted reduced CDD measures for financial institutions, public companies, or government enterprises as described in the examples for application of criterion 5.9. This may raise costs unnecessarily. Risk—Simplification / Reduction of CDD Measures relating to overseas residents (c. 5.10): Banking sector 613. There are no provisions in the BSP allowing reduced or simplified measures. Securities and Insurance sector 614. Under IC Circular 15-2007 any reduced CDD measures for non-residents with respect to products with an investment component would require that complete CDD measures be undertaken, which are the same as those applied by persons who are compliant with FATF Recommendations 5 and 10. Risk—Simplified/Reduced CDD Measures Not to Apply when Suspicions of ML/TF or other high risk scenarios exist (c. 5.11) 615. See response to 5.9. - 120 - Securities and insurance sectors 616. SEC Operating Manual, Sec. 4.A.8 allows simplified CDD measures only where “reasonable under the circumstances.� Under IC Circular 15-2007 any reduced CDD measures for non-residents with respect to products with an investment component would require that complete CDD measures be undertaken, which are the same as those applied by persons who are compliant with FATF Recommendations 5 and 10. Risk Based Application of CDD to be Consistent with Guidelines (c. 5.12): 617. See response to 5.9. Securities and insurance sectors 618. SEC Operating Manual, Sec. 4.A.8 allows simplified CDD measures only in cases where permitted under SEC guidance. IC Circular 15-2007 allows simplified CDD measures only in cases where permitted under IC guidance. Timing of Verification of Identity—General Rule (c. 5.13) : 619. RIRRs 9.1.f prohibits the opening of accounts without face-to-face contact and, in the case of individual customers, full client identification must be complied. Banking sector 620. As noted in 5.2 above, all “occasional� transactions above the EUR750 threshold are treated as either requiring the filing of a CTR or an STR, which require the verification of the identity of the person. Securities and insurance sectors 621. SEC Operating Manual Sec. 4.A.2 requires that covered institutions conduct verification of the identity of their clients, whether occasional or usual clients, before or during the course of establishing a business relationship by obtaining competent evidence of the true and full identity and other material information on the client and the account. Implementing Rules and Regulations of the SRC Rule 52.1. 6. B, D, I spell out that the CDD process must be completed prior to the settlement of the initial transaction of the account. IC Operating Manual, Title 4, Sec. 1 requires covered persons to obtain satisfactory evidence of the true and full identity of insurance applicants. Under Section 2 thereof, covered institutions should not conclude the insurance contract in the event of failure to: (i) complete verification of any relevant subject, or (ii) obtain information on the purpose and intended nature of the business relationship. Timing of Verification of Identity—Treatment of Exceptional Circumstances (c.5.14 & 5.14.1): All sectors 622. No exceptional circumstances are provided for. Failure to Complete CDD before commencing the Business Relationship (c. 5.15) and Failure to Complete CDD after commencing the Business Relationship (c. 5.16): 623. RIRRs 9.1.e prohibits the opening of an account without full client identification and determination of the source of funds. Rule 3.b.1 defines a suspicious transaction to include any instance where the client is “not properly identified,� and Rule 9.1 includes all customer identification requirements for physical and legal persons. This appears rather draconian (however, the SEC - 121 - appears to have interpreted it differently, see below). No exception is made for non-face-to-face business (although these are prohibited by the RIRRs, again with the SEC seeing things differently). Securities and insurance sectors 624. SEC Operating Manual, Sec. 4.A.6 requires covered institutions to have procedures for responding to circumstances when it cannot form a reasonable belief on the true identity of a customer, including: (a) when the covered institution should not open an account; (b) the terms under which a customer may conduct transactions while the covered institution is in the process of verifying the customer’s identity, and (c) when the covered institution should close an account after verification of the customer’s identity fails. However, Rule 52.1. 6.M provides that broker dealers cannot open a customer account if they are unable to complete the CDD process. 625. IC Operating Manual, Title 4, Sec. 2 requires covered institutions, not to conclude the insurance contract, perform the transaction, and/or terminate the business relationship in the event of failure to complete verification of any relevant subject or to obtain information on the purpose and intended nature of the business relationship. Existing Customers—CDD Requirements (c. 5.17): Banking sector 626. There are no provisions for application of customer identification and other CDD requirements beyond client account monitoring for suspicious and covered transactions. Beyond the requirement of monitoring transactions for suspicion, the BSP has no rule requiring the updating of information on the basis of materiality of risk. Securities and insurance sectors 627. Beyond client account monitoring for suspicious and covered transactions, Sec. 4.A.11 of the SEC Operating Manual, requires covered persons to keep current and accurate all material information by regularly conducting verification and updates. Rules 52.1.6.N and O require broker/dealers to update and/or amend all client information. The SEC requires covered persons to keep current and accurate all material information by regularly conducting verification and updates. It does not, however, require that this be done on the basis of materiality of risk. 628. Beyond client account monitoring for suspicious and covered transactions, the IC Operating Manual Title 4, Sec. 1 requires covered persons to take further measures to verify, if during the business relationship it has reason to doubt the accuracy of information relating to the customer’s identity; the client as the beneficial owner; the intermediaries’ declaration of beneficial ownership, or that there is any sign of unreported changes. This substantially complies with criterion 5.17. Existing Anonymous-account Customers – CDD Requirements (c. 5.18): 629. RIRRs Rule 9.1.g prohibits anonymous accounts. No such accounts now exist. Foreign PEPs—Requirement to Identify (c. 6.1): Banking sector 630. There is no distinction between foreign and domestic high risk clients. Banks are required to identify high risk clients. See reply to criterion 5.8. - 122 - Securities and insurance sectors 631. There are no provisions concerning high risk/politically exposed persons in the securities sector. IC Operating Manual, Title 3, Sec. 1a requires covered institutions to have appropriate risk management systems to determine whether the customer is a PEP. The extent and specific form of these measures may be determined following a risk analysis based upon relevant factors including the customer, the business relationship and the transaction. 632. Only the IC requires covered institutions to institute risk management systems to determine if clients, potential or current, or beneficial owners, are PEPs. Foreign PEPs—Risk Management (c. 6.2; 6.2.1): Banking sector 633. There is a requirement that senior management approve all business relationships with high- risk clients. See reply to criterion 5.8. Securities and insurance sectors 634. There are no provisions concerning high risk/politically exposed persons in the securities sector, and no provisions requiring senior management approval for establishing business relations with high risk/politically exposed persons in the insurance sector. Foreign PEPs—Requirement to Determine Source of Wealth and Funds (c. 6.3): 635. RIRRs Rule 9.1.c (10) requires all covered institutions to identify the source of funds of all individual clients. This requirement would include beneficial owners. The RIRRs does not specifically require identifying source of “wealth,� which in the Methodology was intended to mean a review of whether the PEP is known or has had serious and credible allegations made that she or he has significant wealth due to corruption Banking sector 636. MORB Section X691 Appendix 52a Annex B requires that senior management in charge of private banking business should know the personal circumstances of the bank’s large/important customers. The Memorandum on Customer Due Diligence Policies (17 October 2003) requires that covered institutions exercise heightened due diligence regarding business relationships with individuals holding important/prominent positions, public or private, and high profile individuals or with persons and companies that are clearly related to or associated with them and take reasonable measures to establish the source of wealth and source of funds. See answer to 5.8. Securities and insurance sectors 637. SEC Operating Manual, Sec. 4.A.11 requires that covered institutions know their customers “well.� See reply to criterion 5.9. The IC Operating Manual, Title 4, Sec. 1a requires covered institutions to conduct on-going due diligence on clients including, “where necessary,� the source of funds. See reply to criterion 5.9. Neither the SEC or the IC has issued adequate guidance directing covered institutions to establish the source of wealth of high risk/PEP clients. Foreign PEPs—Ongoing Monitoring (c. 6.4): Banking sector - 123 - 638. MORB Section X691 Appendix 52a Annex B requires that banks monitor high risk accounts, including implementing adequate management information systems to identify, analyze and effectively monitor higher risk customer accounts. Also see response to criterion 5.8 Securities and insurance sectors 639. Sec. 4.A.11 requires that covered persons know their customers well and keep current and accurate all material information with respect to their customers by regularly conducting verification and updates. See answer to criterion 5.7. IC Operating Manual, Title 4, Sec. 1a requires covered persons to conduct ongoing due diligence on clients and customer due diligence measures depending on the risk attached to a particular type of customer or transaction. See answers to criteria 5.6 and 5.8. Domestic PEPs—Requirements (Additional Element c. 6.5): Banking sector 640. Domestic high-risk clients are treated the same as foreign high-risk clients. See reply to criterion 6.1 Securities and insurance sectors 641. There are no provisions concerning high risk/politically exposed persons for the securities sector. See reply to criterion 6.1. In the insurance sector there is no difference between domestic and foreign PEPs. See reply to criterion 6.1. Domestic PEPs—Ratification of the Merida Convention (Additional Element c. 6.6): 642. The Philippines signed the convention on 9 December 2003, and ratified the Convention on 8 November 2006. Cross Border Correspondent Accounts and Similar Relationships (c. 7): Banking sector 643. MORB Section X691 Appendix 52c requires covered institutions, in addition to performing normal due diligence measures, to engage in enhanced due diligence with respect to correspondent banking, including gathering sufficient information about a respondent institution, to understand fully the nature of the respondent’s business and to determine from publicly available information the reputation of the institution and the quality of supervision. The Appendix includes significant detail on implementation of this requirement. 644. MORB Section X691 Appendix 52c requires covered institutions to assess the respondent institution’s AML/CFT controls. The Appendix includes significant detail on implementation of this requirement. It also requires covered institutions to obtain approval from senior management before establishing new correspondent relationships. The Appendix includes significant detail on implementation of this requirement. The same section requires covered institutions to document the respective responsibilities of each institution. Finally, the section requires covered institutions, with respect to “payable-through� accounts, to be satisfied that the respondent bank has verified the identity of and performed on-going due diligence on the customers having direct access accounts of the correspondent and that it is able to provide relevant customer identification data upon request to the correspondent bank. The Appendix includes significant detail on implementation of each of these requirements. - 124 - 645. The BSP has issued significant guidance regarding due diligence for correspondent banking found in criteria 7.1 though 7.5. However, the guidance is primarily in the form of standard “off the web� guidance rather than specific to the Philippines. Misuse of New Technology for ML/FT (c. 8.1): 646. RA No. 8792 (Electronic Banking Act) provides the fundamental basis for electronic business transactions and electronic signatures, by recognizing them as valid. The BSP has been identified in Section 59 of the General Banking Act (RA 8791) as having full regulatory authority over electronic transactions, defined as “the use of electronic devices, such as computers, and processes for recording, storing and transmitting information or data in connection with the operations of a bank, quasi-bank or trust entity, including the delivery of services and products to customers by such entity�. 647. Regulators have gone a long way to ensure that innovative technology would not provide an attractive means to engage in ML and TF. First, the BSP created a distinct technical unit specifically focusing on the regulation and supervision of financial services with an advanced technology component: the Core Information Technology Specialist Group (CITSG). The role of the unit is to act as the main interlocutor between private operators engaging in electronic and mobile financial services and the regulator. 648. The BSP has clearly laid out the requirements that need to be met by entities wishing to engage in new technology-based financial transactions. BSP Circular No. 240 of 2000 set out the main general guidelines on the provision of electronic banking services, where “electronic banking� is defined as a system “that enables bank customers to avail themselves of the bank’s products and services through a personal computer (…) or a mobile/non-mobile phone.� 649. Circular No. 269 of 2000, superseding No. 240, further specifies the steps to be followed to seek BSP approval for engagement in electronic banking. The process entails several stages. First, a certification signed by the President of the institution or an equivalent manager should prove that the bank has complied with minimum pre-conditions, which include among others, the setting up of “an adequate risk management process . . . to assess, control, monitor and respond to risks arising from� the activities in question; creating a manual of corporate security policy addressing key issues such as Authentication (establishes the identity of both sender and the receiver; uses trusted third parties that verify identities in cyberspace); Non-repudiation (ensures that transactions cannot be repudiated or presents undeniable proof of participation by both the sender and the receiver in a transaction); Authorization (establishes and enforces the access rights of entities (…) and locks out unauthorized entities from physical and logical access to the secured system, and Integrity (assures that the data has not been altered). The process must also include the satisfactory testing of the system prior to implementation; and the adoption of a business continuity planning process and manual to include a diction on electronic banking channels and systems. 650. Secondly, the BSP conducts a pre-screening of the entity’s prior compliance to BSP rules and regulations based on past examinations, verifying that there are no major findings/exceptions noted in the latest examination. In addition, capital adequacy of the entity is verified for the proposed operations. 651. Based upon the recommendation of BSP evaluators, the Deputy Governor of Supervision and Examination Sector (SES) will approve the application in principle. After notifying the BSP on the date of launch, banks must submit new documentation for a second round of evaluation by the regulator within 30 days, which includes among others a discussion on the services to be offered and - 125 - their corresponding procedures to be carried out through electronic banking; a description/diagram of the configuration of the electronic banking system and its capabilities; and a description of the security policies and procedures manual. 652. After the second round of evaluation, in case the BSP still has “unresolved areas�, a bank may be required to “make a presentation of its electronic banking transactions to BSP�, before the appropriate recommendation is submitted to the Monetary Board. 653. Under Sec. 7.a. to j. of Circular No. 269, among the final standard conditions for approval are that there be appropriate top-level risk management oversight at all times; that the bank’s oversight ensures that business expansion does not put undue strains on its system and risk management capability; that procedures for the regular review of the bank’s security arrangements exist to ensure that they remain appropriate having regard to the continuing developments in security technology; that there is strict adherence to BSP regulations on funds transfers; that electronic banking is not used for ML or other illegal activities; and that the BSP be notified in writing within 30 days in advance of any enhancements to the electronic banking service. 654. The Circular thus provides for ample evaluation powers to the BSP’s dedicated unit, and sets in place an elaborate evaluation process that is designed to follow the application of technological innovation for financial services, and its evolution through constant entity-regulator interplay. 655. Furthermore, the provisions of Circular No. 269 were also directed at banks which were already engaging in electronic banking, specifying that in case such entities did not qualify under the pre-screening process, their electronic banking services would be temporarily suspended unless the existing shortcomings were to be addressed within 3 months. 656. Circular No. 269 also provides for penalties for failure to seek BSP approval and/or for non- submission/ delayed submission of required documents: for officers and/or directors responsible a penalty of PHP 200,000 and for the banking institution a PHP30,000 penalty per day from the day the offense was committed up to the time it was corrected. 657. Further strengthening the framework built upon Circular 269, the BSP issued Circular No. 542 in 2006, which provides additional guidelines to banks engaging in electronic banking and to address consumer protection for e-banking products and services. “Prevention of money laundering and terrorist financing� is one of the stated objectives of the guidelines, together with fraud reduction, theft reduction of sensitive customer information and enforceability of banks’ electronic agreements and transactions. 658. Circular 542 provides for the requirements in addressing e-banking providers on the following main elements: a. E-banking oversight: boards of directors and compliance officers are required to ensure that a comprehensive risk management policy and strategy are in place and that business development is carried out in consultation with compliance experts to avoid delays/redesign of products based on non-compliance. b. E-banking Risk Management: information security programs, information security measures (amounting at least to those specified by Appendix A and B for ATM facilities and internet/mobile facilities) and appropriate identity authentication protocols should be in place. In addition, providers are explicitly required to address two dimensions correlated to AML/CFT (2. d) and e)): - 126 - i. Account origination and customer verification: “banks should use reliable methods of originating new customer accounts (…). Thus, in an electronic banking environment, banks need to ensure that in origination new accounts, the KYC (…) requirements which involves a “face-to-face� process is strictly adhered to�. ii. Monitoring and Reporting of E-banking Transactions: “the activation and maintenance of audit logs can help banks to identify unauthorized activities, (…) reconstruct events, and promote employee and user accountability. This control process also facilitates banks in the submission of suspicious activities reports as required by the Anti-Money Laundering Council (AMLC) and other regulatory bodies�. c. Consumer awareness Program: banks are required to implement and update consumer awareness programs, as provided by Appendix C of the circular, specifying the minimum Consumer Awareness Program that banks should convey. d. Disclosure and business availability: banks shall match information disclosures/transparency, protection of customer data and business availability standards obtainable from traditional banking services, and apply record retention provisions required for paper-based transactions to e-banking. e. Complaint resolution: banks should ensure adequate complaint reception mechanisms and dispute resolution systems for e-banking transactions. 659. The provisions contained in the aforementioned circulars show how the BSP has made efforts to keep up with technological developments on the local financial market, by creating a specific unit within its organization and by seeking to understand the details of proposed e-banking /mobile banking systems through an elaborate evaluation process. In other words, a long-term engagement in electronic or mobile banking in the Philippines can be achieved only upon full approval by the BSP via the Monetary Board, after all the aspects of the proposed business model are examined. 660. The most recently issued guidelines go even further in aiming to reconcile risk mitigation requirements compatible with business requirements and client satisfaction. The rapid growth of mobile financial services in the country, and the opinions of service providers met by assessors have confirmed this. The BSP has appears to be taking a proactive stance and involving providers at the early stages of their innovation endeavors. 661. A case in point in this regard is that of the two main mobile financial services (m-FS) providers currently operating in the Philippines: Globe and Smart, which are both registered as TelCos. Different in terms of products offered, different in terms of nature of the vehicle used to provide the services, the two entities are successfully engaging in high-technology transactions while complying with AML/CFT requirements and submitting themselves to BSP supervision. 662. Smart’s main product is “Smart money�, a reloadable electronic cash Mastercard that can be activated and used only with Smart mobile phones. Smart’s model entails a bank-centered, mobile- delivered system where the TelCo acts as an enabler for a partner bank (Banco De Oro – BDO) and its partners. Users can make payments via the handset if the other party also has a subscription to Smart, or use the card at a Point of Sale (POS) or at ATMs. - 127 - 663. Globe’s business model is different, being a purely branchless, bank-less system where the mobile phone is de facto turned into an electronic wallet containing electronic money, i.e. “G-Cash�. The user converts cash into G-cash and can then send a text message to perform a payment to a third party also holding a G-cash account, who can then convert the electronic money back to cash at an accredited cash-out agent. The system is marketed especially as a remittance transfer system based on text messaging and cashing in accredited outlets. 664. In terms of regulation and supervision of their respective business models, the two operators are subject to BSP oversight on an ad hoc basis. In the case of Smart, the company is a pure TelCo, and as such not covered by the General Banking Act, the AMLA or the aforementioned circulars. 665. However, Smart agreed to be subject to BSP oversight, and to comply with reporting requirements. The company registered its business centers or wireless centers nationwide last March 2008 as remittance agents (RA) in compliance with the BSP circular no. 471. Although Smart registered the business centers as covered institutions, the data regarding transactions are still owned by its partner bank (Banco de Oro) and thus submitted to Banco de Oro for AML processing. Suspicious transactions are flagged based on frequency, amount and location. 666. At the same time, For Money-in/Money-out transactions at the Smart Business centers or Wireless centers, Smart is required to report the CTRs and STRs directly to AMLC. Smart is subject to periodic examinations as any other entity supervised and/or regulated with the BSP. The fundamental element that needs to be kept in mind, however, is that – except for its business/wireless centers - Smart is not a financial institution, but a mere tool in the hands of a banking institution. 667. In the case of Globe, the company opted for the creation of a fully-owned, separate entity registered as a remittance agent (GXI) under BSP Circular No.471 of 2005, and as such, it is subject to the oversight by the BSP and to the reporting requirements. Interestingly enough, however, GXI was engaging in mobile financial services even before the BSP began to look into the market. GXI was thus subject to a new system review in 2008 and the Monetary Board set out specific conditions for G-cash operations, including the reliance on registered RAs as partners, limits to daily and monthly transacted amounts per account (see below) and the verification of adequate KYC compliance by partner retailers and RAs. 668. AML/CFT requirements common to the two operators are to limit transactions to a maximum of PHP100,000 (US$2,100) per month and PHP 40,000 (US$850) per day; to perform face-to-face KYC at the onset of the relationship with clients (conversion of cash into G-cash and enrollment in the Smart-money system, and in the case of G-cash, face-to-face KYC is currently required for any conversion of money into g-cash and vice versa); and to keep records of account and transaction records on company servers. Securities and insurance sectors 669. There is no specific guidance regarding the misuse of new technologies in these sectors. However, while there may be some additional risk from effecting transactions via the internet both for securities trading and insurance policies with a significant investment components, the current level of risk for these sectors in the Philippines is considerably less than that for banking services. Risk of Non-Face to Face Business Relationships (c. 8.2 & 8.2.1): 670. RIRRs Rule 9.1.f forbids account opening or creation without face-to-face contact. - 128 - Securities and insurance sectors 671. Although forbidden in RIRRs Rule 9.1.f, the SEC is still allowing non-face-to-face account opening. Under SEC Operating Manual, Sec. 4.B.3.C, where covered persons are allowed to open accounts without face-to-face contact provided that the covered institutions take “particular care� and that the following customer identification procedures have been undertaken: a) telephone contact with the applicant at an independently verified home or business number; b) telephone confirmation, subject to the applicant’s consent, of his employment with the employer’s personnel department at a listed business number; c) income or salary details appearing on recent bank statements, income tax returns, or any other document evidencing income or compensation; c) confirmation of the address through an exchange of correspondence or by other appropriate methods, d) an initial deposit check drawn on another financial institution regulated by the BSP. Analysis of effectiveness 672. The Philippines has an extensive network of banks. Universal and commercial banks offer the widest range of services and include a large number of banks headquartered, and subject to AML rules and consolidated supervision, of FATF member countries. These banks also tend to have extensive correspondent banking relationships with banks subject to AML rules and consolidated supervision, of FATF member countries. Not surprisingly, discussions with banks suggest that, as a general matter, these banks appear to have effective AML and TF preventive measures, directed not only by Philippine requirements but by the requirements imposed by the various FATF member countries. A review of the internal AML procedures by a number of these banks indicates an attempt to reach a level of compliance comparable to that of banks in FATF member countries. 673. With respect to CDD issues, the BSP’s Examination Procedures Manual, and examinations per se, focus on a number of areas. First, they focus on whether banks have effective systems to ensure that each part of each customer’s account opening information contains the required identification information, including proof of the presentation of a government issued customer ID, and whether such information has been verified and how it was verified. A review of sanitized examination reports suggests that examiners undertake a significant number of checks of individual client accounts. Given the problems with fraudulent IDs, this focus is wise. 674. The examinations also focus on whether banks have effective systems to ensure high net worth and high risk clients such as both domestic and foreign PEPs and private banking clients are effectively identified and their transactions monitored. Given the Philippines considerable past (and apparently, at least in some areas, continuing) problems with graft and corruption, this focus is well chosen. A review of examination reports suggests that an in-depth examination of private banking files, including both identification of high risk clients and the depth of client profiles, is completed. 675. Discussions with representatives of covered financial institutions and supervisors suggest that by far the greatest risk identified in the CDD area was fraudulent government identification cards. While such fraudulent ID is not typically an issue for corporate client identification, all financial institutions, including universal and commercial banks, have experienced the use of fraudulent IDs with respect to individual customers. Further production of fraudulent documents indicating allegedly legitimate sources of funds and other key elements of customer profiling are also not difficult to procure in the Philippines. On the other hand, verification by financial institutions of such documents is relatively difficult. Communications with the databases of those government agencies that issue official licenses is done manually and can sometimes be time-consuming, depending on the type of government ID. This is also true for other databases, such as those relating to land and automobile registration. - 129 - 676. The BSP allows covered institutions to maintain numbered accounts for all peso and foreign currency non-checking accounts, provided that the account holder’s identity is established and recorded as with all other accounts. According to the BSP and various associations and individual covered institutions, the reasons for allowing such accounts to keep confidential the wealth of rich individuals who may be the subject/target of crimes such as kidnapping. Given past problems with such crimes, and given that large numbers of people come into contact with checks issued by a client this makes some intuitive sense. However, the reason why only foreign currency non-checking accounts are included is less clear. Nevertheless, according both to the BSP and representatives of the banking private sector, use of these types of accounts is decreasing, and is now estimated at being fewer than 4,000. In examinations, the BSP tends to conduct significantly more ID assessments for these types of accounts, in part because they tend to represent wealthier clients, and therefore higher risk, customers. 677. The RIRRs provide a comprehensive set of requirements for identifying legal persons and legal arrangements meeting the requirements of criterion 5.4 . However, one of the requirements, that is, principal stockholders owning “at least 2% of the capital stock� of any company, is quite onerous because it does not except financial institutions, public companies, or government enterprises, as described in the examples for application of criterion 5.9. Nevertheless, representatives of the banking, securities, and insurance private sectors indicated that neither they nor their supervisors/examiners follow this requirement, which raises some questions about effectiveness of implementation in other areas where actual rules are particularly onerous to apply. 678. Other key issues in the CDD criteria, including identification of beneficial owners/controllers, use of shell companies or other legal persons to hide beneficial ownership, client profiling, ongoing CDD, and non-face-to-face clients do not seem to pose unduly significant risks of laundering. 679. The BSP does not appear to provide an examination focus on correspondent banking relationships. Because the requirements under Recommendation 7 are expensive and difficult to enforce, it is likely that they are not fully implemented. 680. All the regulators, either directly through guidance (IC) or indirectly through the examination process (BSP and SEC) require covered institutions (except for broker-dealers) to institute risk management systems to determine if clients, potential or current, or beneficial owners, are PEPs. As part of this requirement, each requires subscriptions to at least one data base like Worldcheck or Factiva. Representatives of the banking, securities, and insurance private sector have complained that implementing such a requirement is expensive and have suggested that a master list of PEPs identified by regulator/supervisors and covered persons be maintained by regulators. 681. Savings banks and rural banks have a reduced risk of being used for money laundering. By restricting their client base to individuals (and in the case of rural banks, small business) the problems in identifying and profiling corporate clients are obviated. It appears that most clients of savings banks and nearly all of rural banks are well known to account officers. While BSP CDD examination of smaller savings and rural banks is less rigorous, this makes sense and comports with the BSP’s risk-based system of supervision and examination. 682. There are relatively few financing companies or companies that offer mutual funds and pre- need (i.e. retirement or superannuation) products. Many are major companies headquartered in FATF member countries and subject to consolidated AML supervision there, and many are also supervised by the IC. These tend to have robust internal AML procedures and the risk of money laundering is low. The securities sector is likely to be used by money launderers only for layering transactions. However, the investing sector of the Philippines is relatively small, and most broker/dealers appear to - 130 - know their clients quite well. To protect themselves from fraud, broker/dealers in particular appear unlikely to take on any client without detailed CDD due diligence. Also, nearly all clients of this sector would also be clients of a bank. While banking and insurance sectors specifically require only one government issued ID card, the securities sector does not. Representatives of the securities sector suggested that this has made client identification in this sector more difficult for honest clients without providing any additional certainty of identification, in that it is too easy to obtain two false identifications. Fraudulent ID is less of a problem in this sector due to the extent to which broker/dealers appear to know nearly all of their customers. 683. There are relatively few insurance companies that offer high value life insurance products with significant investment components. The sector is dominated by major companies headquartered in FATF member countries and subject to consolidated AML supervision there. These similarly tend to have strong internal AML procedures and the risk of money laundering is low. Of course, in order to protect against fraud, insurance companies are especially vigilant in implementing client identification issues, particularly with respect to beneficiaries. 684. As already noted, the insurance sector is likely to be used by money launderers only for layering transactions. However, the number of investors who purchase high value life insurance products with significant investment components is relatively small. For fraud reasons as well as for AML compliance reasons, companies are unlikely to take on any client without detailed CDD due diligence. Also, nearly all clients of this sector would also be clients of a bank. Fraudulent ID is less of a problem in this sector due to the extent to which insurance companies implement rigorous client and beneficiary identification policies. 685. These conclusions were reinforced by a review of examination procedures by the SEC and the Stock Exchange (PSE). The SEC, in addition to customer identification checks for fraudulent IDs, focuses its examinations on what the SEC has perceived to be among the biggest risk for laundering, misidentification of beneficial owners and controller. However, examinations have not appeared to turn up significant problems with such identification issues. The IC has focused its AML exams primarily on high value life products, and in particular on identification of beneficial owners. It has found that, in general, covered persons are particularly responsive to beneficial owner identification, which is not a surprising result. 686. Overall, AML CDD measures appear to be relatively effective in the banking sector, with some elevated risk due to the use of fraudulent ID. AML CDD measures appear to be even more effective in the securities and insurance sectors. 687. With reference to new technologies, there are still areas for further improvements in the legal framework built upon Circulars Nos. 240, 269 and 542. In fact, in all three cases the wording of the provisions only refers to banks, while RA 8792 refers to banks, QBs and trust entities when defining electronic transactions. However, while banking institutions were the initiators of the drive towards e- banking and m-banking, new non-bank actors have already entered the market for such services. Adapting guidance to such evolution might improve the effectiveness of the regulatory framework, although in practice the issue appears not to have undermined the success of the BSP in reconciling innovation and regulation. 688. The examples provided by the two mobile operators – both successfully providing services while complying with the AML requirements and pertinent BSP rules and regulations – show that a tailored approach to regulation of new technologies is indeed possible, as long as providers and authorities engage in consultation parallel with the implementation of the business model. In the case of the Philippines, where remittances reached US$15 billion in 2007 and where 80% of the - 131 - population is either unbanked or underbanked but 99% of the territory is covered by mobile communication, the value of this pioneering success is apparent. 3.2.2. Recommendations and Comments Risk-based approach to AML/CFT measures in the financial sector 689. The SEC and IC should consider designing risk-based approaches to examination. A separate risk analysis should be provided for AML issues that are not fundamentally prudential in nature, and which focuses not only on the covered institutions’ risk profiles (the quantity of AML compliance risk based on the individual circumstances of each financial institution and on previous AML examinations and improvements) but also on securities and insurance product risk (which for insurance would be an investment-product with a high investment level). 690. The AMLC, BSP, SEC, and IC should consider ways to reconcile preventive measures guidance. This should include issuing, where possible, identical guidance to each sector, with any different guidance based on material differences between the three sectors. In areas where specific useful guidance is found in one sector but not in another, this report suggests considering its adoption in the other sector(s). 691. The BSP should consider creating a single well-organized, consolidated, and comprehensive list of applicable law, regulation, and guidance. The BSP should further consider including the source of each rule, whether in law, regulation, or guidance (circulars, circular letters, and memoranda). This consolidated and comprehensive list could be included as part of the MORB and MORNB. 692. The SEC and the IC should consider issuing a separate consolidated and comprehensive collection that would include each applicable law, regulation, and guidance. The SEC should further consider including the origins of each rule, whether in law, regulation, or guidance (circulars, circular letters, and memoranda). Customer Due Diligence and Recordkeeping 693. The BSP should consider including numbered accounts as a specific indicator of higher risk clients. 694. The AMLC should consider issuing a clear and concise regulation stating exactly when client identification should be undertaken and when other aspects of CDD apply. 695. The BSP should consider issuing clear and concise guidance stating exactly when client identification should be undertaken and when other aspects of CDD apply. 696. The Philippine authorities should consider introducing ways to resolve the problem of fraudulent identification cards. 697. The SEC should consider issuing guidance requiring only one government-issued ID card. 698. The Philippine Authorities should consider either eliminating the 2% requirement or amending it to include a specific exemption for financial institutions, public companies, or government enterprises as described in the examples for application of criterion 5.9. - 132 - 699. The BSP should consider adding the documents required by the SEC Operating Manual to its guidance on identification of legal persons and arrangements. 700. The IC should consider adding the documents required by the SEC Operating Manual to its guidance on identification of legal persons and arrangements. 701. The AMLC should consider requiring adding the need to identify beneficial controller to that of beneficial owner. 702. The BSP, SEC, and IC should consider issuing guidance with respect to identification of the physical persons who ultimately own and/or control legal persons and arrangements. 703. The AMLC should consider issuing a clear and concise regulation requiring covered institutions to obtain information on the purpose and intended nature of the business relationship and to conduct ongoing due diligence on the business relationship. 704. The SEC and IC should consider adopting the BSPs guidance relating to high profile clients. 705. The SEC should consider adopting the BSP and IC’s guidance on decisions on business relations with higher risk customers to be taken by senior management. 706. The BSP and the IC should consider adopting the SEC’s due diligence measures for customers that are shell companies. 707. The BSP, SEC, and IC should consider reduced CDD measures for financial institutions, public companies (to the extent allowed under AMLC regulations), or government enterprises as described in the examples for application of criterion 5.9. 708. The AMLC, BSP, and IC should consider rules allowing delayed verification as permitted in criterion 5.14 for non-face-to-face business in a fashion similar to that provided by the SEC. 709. The BSP should consider guidance that spells out the requirement that CDD be applied to existing customers on the basis of materiality and risk and that additional CDD be conducted at appropriate times. 710. The SEC should consider guidance that spells out the requirement that CDD be applied to existing customers on the basis of materiality and risk and that additional CDD be conducted at appropriate times. 711. The BSP should consider guidance similar to that of the IC with regard to PEPs. 712. The SEC should consider guidance similar to that of the IC with regard to PEPs, along with a requirement for senior management approval before accepting such clients. 713. The IC should consider guidance requiring senior management approval to accept PEPs clients. 714. The SEC and the IC should consider issuing guidance similar to that of the BSP directing covered persons to establish the source of wealth of high PEP clients. 715. The BSP should require that covered persons pay greater attention to due diligence with respect to correspondent banking and payable through accounts. - 133 - 716. The SEC and IC should consider if any new guidance is needed with respect to controlling risks of misuse of new technology, especially via internet transactions. 717. To further improve the current regulatory regime on financial services based on new technology, guidance contemplating the inclusion of non-bank entities into regulatory arrangements for e-banking and m-banking should be issued. The BSP is already well aware of such a need. A new “e-money� circular was being drafted at the time of the assessment, to bring all entities that might become engaged in such transactions under the BSP and AMLC umbrellas automatically. The circular was later issued on March 9, 2009. 718. The Philippines should consider amending the RIRRs allowing non-face-to-face business relationships in instances that comply with criteria 8.1, 8.2, and 8.2.1. 719. The SEC should consider issuing guidance requiring special risk management programs for non-face to face business relationships 3.2.3. Compliance with Recommendations 5 to 8 Rating Summary of factors underlying rating R.5 PC  Relative ease of counterfeiting identification documents and difficulty of verifying such documents.  No specific requirement to identify natural person exercising ultimate effective control  Requirement concerning maintenance of up to date client records unclear  BSP and SEC do not specifically require that updating of client files be applied to existing customers on the basis of materiality of risk R.6 PC  BSP and SEC have no specific requirement to implement a risk management system to determine whether a potential customer, customer, or beneficial owner is a PEP.  IC has no specific requirement for senior management approval before accepting PEPs as clients.  SEC does not require that decisions on business relations with higher risk customers be taken by senior management.  SEC and the IC have no specific requirement that covered persons to establish the source of wealth of PEPs. R.7 LC  Possible lack of implementation given generic nature of guidance and lack of supervisory attention R.8 PC  No measures in place for insurance and securities market.  Regulation currently only refers to banks for electronic financial services.  The RIRRs expressly forbids account opening or creation without face to face contact, a rule that is followed by the banking and insurance sectors. The SEC allows non-face-to-face business relationships, which - 134 - the AMLC has accepted.  The SEC’s guidance on non-face-to-face business relationships require extensive additional due diligence with respect to customer identification. No additional risk-based management procedures are provided for. 3.3. Third Parties And Introduced Business (R.9) 3.3.1. Description and Analysis Requirement to Immediately Obtain Certain CDD elements from Third Parties (c. 9.1) and Availability of Identification Data from Third Parties (c. 9.2): Banking sector 720. Banks are not permitted to rely on CDD of third parties (other than with respect to correspondent banking). Securities and Insurance sectors 721. Reliance on third party for CDD is very limited. SEC Operating Manual, Sec. 4.A.4 provides that when a covered institution acquires the business of another financial sector company or covered institution, either in whole or as a product portfolio, it is not necessary for all existing customers to be re-identified, provided that: (i) all customer account records are acquired with the business; and (ii) due diligence inquiries do not raise any doubt as to whether the anti-money laundering procedures previously adopted by the acquired business have satisfied Philippine requirements. Section 4.A.8 provides that covered institutions may rely on a bank’s CDD of a customer that is opening an account or has established an account or similar business relationship with a bank to provide or engage in services, dealings or other financial transactions, provided that: (a) reliance is reasonable under the circumstances; (b) the bank is subject to the supervision and regulation by the BSP; (c) the bank enters into a contract with the covered person requiring it to certify annually to the covered institution that it has implemented its anti-money laundering program and it will perform specified requirements of the covered institution’s CDD; and (d) the arrangement is submitted by the covered person to the SEC for its approval prior to the implementation of the arrangement. 722. IC Circular 15-2007 permits third party KYC only for policies purchased through: 1. salary allotment and/or worksite marketing implemented through an authorization issued by the insured or policyholder allowing his employer to deduct due premiums from the insured’s salary and remit such deductions to the insurer (in such instances the employer is considered to be a client and must submit KYC documents on behalf of the employees); 2. salary allotment and/or worksite marketing implemented through an authorization issued by the insured or policyholder allowing his employer to deduct due premiums from the insured’s salary and remit such deductions to the insurer( in such instances the employer is considered to be client and must submit KYC documents on behalf of the employees); and 3. supervised banks in the Philippines (KYC performed by the bank is sufficient). 723. However, where reliance on intermediaries and third parties is permitted, the following criteria should be met: (1) covered institutions should take adequate steps to satisfy themselves that copies of identification data and other relevant documentation relating to the CDD requirements will be made available from the intermediaries and (2) third parties are regulated and supervised; and (3) they have measures in place to comply with CDD requirements in line with FATF Recommendations 5 and 10. - 135 - 724. Although covered institutions are highly restricted in the instances in which they may rely on intermediaries/third parties to perform elements of CDD, and those restricted circumstances appear to have a low risk of laundering, there is no specific requirement that covered persons have immediate access to CDD information. Regulation and Supervision of Third Party (applying R. 23, 24 & 29, c. 9.3): Securities and insurance sectors 725. In the securities sector, the intermediary bank must be subject to the supervision and regulation by the BSP. In the insurance sector, intermediaries must have measures in place that comply with CDD requirements in line with FATF Recommendations 5 and 10. However, for policies purchased through salary allotment, intermediaries need not be supervised. Although the risk of laundering is extremely low, this appears to breach the criterion. Adequacy of Application of FATF Recommendations (c. 9.4): Securities and insurance sectors 726. Intermediaries must be domestic. Ultimate Responsibility for CDD (c. 9.5): Securities and insurance sectors 727. If the guidance issued by the SEC and the IC is followed by the covered person, ultimate responsibility for customer ID and verification falls on the intermediary. Although covered persons are highly restricted in the instances in which they may rely on intermediaries/third parties to perform elements of CDD, and those restricted circumstances appear to have extremely low risk of laundering, this still is a technical breach of the criterion. Analysis of effectiveness 728. Banks are not permitted to rely on intermediaries or third parties to perform CDD functions. With respect to the securities and insurance sectors, covered persons are highly restricted in the instances in which they may rely on intermediaries/third parties to perform elements of CDD, and those restricted circumstances appear to have a low risk of laundering. 729. Given the low risk of laundering to begin with, the rules on intermediaries or third parties appear to be effective. 3.3.2. Recommendations and Comments Third party intermediaries 730. The BSP should consider whether it should introduce guidance permitting banks to rely on intermediaries/third parties to perform elements of CDD consistent with the criteria in 9.1 through 9.5. 731. The SEC should consider issuing guidance requiring that covered persons have immediate access to CDD information. 732. The IC should consider issuing guidance requiring the covered person to conduct CDD in instances where policies are purchased through salary allotment (in such cases the employer could - 136 - contract with the covered person to serve as agent for CDD purposes.) The IC should further consider issuing guidance allowing reduced or simplified CDD measures. 733. The SEC and IC should consider issuing guidance stating that in all cases of intermediaries/third parties performing part or all of customer CDD, ultimate responsibility for customer ID and verification falls on the intermediary 3.3.3. Compliance with Recommendation 9 Rating Summary of factors underlying rating R.9 PC  SEC does not require covered person to have immediate access to CDD information  IC does not require the covered institutions to conduct CDD in instances where policies are purchased through salary allotment  If the guidance issued by the SEC and the IC is followed by the covered person, ultimate responsibility for customer ID and verification falls on the intermediary. 3.4. Financial Institution Secrecy or Confidentiality (R.4) 3.4.1. Description and Analysis Inhibition of Implementation of FATF Recommendations (c. 4.1): Banking sector 734. As discussed in detail in Section 2.6 of this report, the Law on Secrecy of Bank Deposits declares that all peso deposits are confidential in nature and the examination or inquiry into specific deposits or investments by any person, as well as the disclosure by any official or employee of a bank of any information, is prohibited. The Foreign Currency Deposit Act similarly declares that foreign currency deposits are absolutely confidential. Exceptions in the secrecy law include written permission of the depositor, in cases of impeachment, upon order of a competent court in cases of bribery or dereliction of duty; and in cases where the money deposited or invested is the subject matter of the litigation. Another exception is on order of the competent court or tribunal in cases involving unexplained wealth under the Anti-Graft Act (PNB v. Gancayco, 15 SCRA 91.) Also as discussed in section 2.6, the AMLA provides exceptions, allowing the AMLC in certain circumstances to demand information directly and in others to seek a court order (albeit not without informing the customer). As discussed, these significant barriers to the collection of bank information appear to have hampered investigations and inhibited the implementation of FATF Recommendations. As discussed in Section 3.10 of this report, the BSP may request specific client information, but only in the course of bank examinations, not for other purposes. Also, there are no provisions permitting sharing of customer account information with any other authorities, domestic or foreign. However, there is no prohibition on sharing the results of bank examinations 735. Also as discussed in Section 2.6 of this report, information obtained by the AMLC may be shared with other competent authorities, both domestic and foreign, in a manner described therein. 736. As banks are not permitted to share information about customer accounts with anyone without the account holder’s written permission, this renders compliance with R.7, R.9 and SR.VII difficult. - 137 - Securities and insurance sectors 737. There are no specific laws regarding client account secrecy in the securities and insurance sectors. The AMLC, the SEC, and the IC all share information with competnent authorities, both foreign and domestic. Analysis of effectiveness 738. As discussed in Section 2.6 of this report, banking secrecy laws have hampered the ability of the AMLC to obtain necessary information regarding client accounts and to share that information with other competent authorities. Both the BSP and banks are very careful to respect banking secrecy and do not share information unless there is strict compliance with the exceptions provided under the law. 3.4.2. Recommendations and Comments 739. The Philippine authorities should consider amending bank secrecy laws and/or the AMLA to allow the AMLC access to client information as recommended in Section 2.6 of this report. 740. The Philippine authorities should consider amending bank secrecy laws and/or the AMLA to allow the BSP to have access to customer information outside the context of an examination and to share it with other competent authorities in the context of MOUs that provide appropriate safeguards for client confidentiality. 741. The Philippine authorities should consider amending bank secrecy laws to allow covered persons to share customer and other information with other financial institutions to meet the requirements of Recommendations 7, 9 and Special Recommendation VII. 3.4.3. Compliance with Recommendation 4 Rating Summary of factors underlying rating R.4 PC  Significant difficulties and delays in obtaining certain bank records by AMLC  BSP cannot request customer information other than in the context of examinations, or share it with other competent authorities.  Banks cannot share customer information with other financial institutions to meet the requirements of Recommendations 7, 9 and Special Recommendation VII. 3.5. Record keeping and wire transfer rules (R.10 & SR.VII) 3.5.1. Description and Analysis Record-Keeping & Reconstruction of Transaction Records (c. 10.1 & 10.1.1) and Record- Keeping for Identification Data, Files and Correspondence (c. 10.2): 742. AMLA Section 9 requires covered institutions to record the identity of all clients. Sec. 9(b) requires covered institutions to maintain records of all transactions for 5 years from the date of the transaction. With respect to closed accounts, covered institutions must keep records on customer - 138 - identification, account files, and business correspondence for 5 years. RIRRs Rule 9.2.a requires that covered institutions prepare and maintain documentation on client accounts, relationships, and transactions such that it can be reconstructed so as to enable the AMLC or courts to establish an audit trail. Sec. 9.2.b requires that all records of both new and existing accounts be kept for 5 years from the dates of the closing of the accounts or transactions. Rule 9.2.d requires covered institutions to keep records longer if “a money laundering case based on any record kept by the covered institution concerned has been filed in court�. In that case, the record must be kept until it is confirmed that the case has been resolved or terminated by the court. Rule 9.2.e requires that records be kept as originals in such forms as admissible in court pursuant to existing laws and the applicable rules promulgated by the Philippine Supreme Court. There is no specific provision for the AMLC to request, even with court approval, a specific extension of record-keeping. Securities and insurance sectors 743. SEC Operating Manual Section 5.2.i requires that a record be stored in an easily accessible place. SRC IRRs section 52.1 requires that every person covered by the Code37 must be subject at any time to such reasonable periodic, special or other examinations by the SEC. The IC Operating Manual 9.2 requires that all covered institutions maintain records on the risk profile of the policyholder and other data obtained through the CDD process. In case of long-term insurance, records usually consist of full documentary evidence gathered by the insurer or on the insurer’s behalf between entry and termination; if an agency is terminated, responsibility for the integrity of such records rests with the insurer as service provider. Availability of Records to Competent Authorities in a Timely Manner (c. 10.3): 744. RIRRs 11.2.b requires covered institutions to allow access to records “immediately� upon receipt of an AMLC resolution which applies to requests relating to predicate crimes described in paragrapgh 432. Securities and insurance sectors 745. SEC Operating Manuel Section 5.1 requires that covered institutions to comply within a reasonable time to any inquiry or order of the disclosure of client information. SRC Section 52.1 requires that covered person38 furnish copies of client other records to the SEC at any time. SRC Rule 52.1.1.B requires broker- dealers immediately to make available any records upon request of the SEC or PSE. 746. SEC Operating Manual Section 5.9.2 requires that covered persons satisfy within a reasonable time any inquiry or order from the AMLC as to disclosure of information, including but not limited to whether a particular person is the customer or beneficial owner of transactions. There is no specific rule for the IC. 37 The PSE, broker or dealer, transfer agent, clearing agency, and securities association, and other self- regulatory organization. 38 The PSE, broker or dealer, transfer agent, clearing agency, and securities association, and other self- regulatory organization - 139 - Obtain Originator Information for Wire Transfers (applying c. 5.2 & 5.3 in R.5, c.VII.1) Inclusion of Originator Information in Cross-Border Wire Transfers (c. VII.2), Inclusion of Originator Information in Domestic Wire Transfers (c. VII.3), Maintenance of Originator Information (c.VII.4): 747. Under the AMLA, as amended and its RIRRs customer, CDD is required for all transactions, including wire transactions (see discussion of criteria 5.2 and 5.3). There are no general rules regarding inclusion of originator information. Under BSP Circular No. 471 Remittance Agents (RAs) are required to collect and keep originator information, but no explicit requirement to include it in the accompanying message is contained in the regulation (see. section 3.11). Risk Based Procedures for Transfers Not Accompanied by Originator Information (c. VII.5), Monitoring of Implementation (c. VII.6), Elimination of thresholds (c. VII.8 and c. VII.9): 748. There are no rules of any kind relating to transfers not accompanied by originator information or monitoring of implementation of SR VII, resulting in a complete breach. However, The BSP has stated that it is drafting regulations that will fully comply with SR VII. Analysis of effectiveness 749. The rules regarding record-keeping are in compliance with FATF standards, except for minor deviations discussed below. The BSP, the SEC, and the IC have focused on record keeping in their examinations. None has found any significant problems. 750. As discussed earlier, there are significant issues of effectiveness with respect to the AMLC’s ability to request certain records that require the showing of probable cause and a court order. 3.5.2. Recommendations and Comments 751. The AMLC should consider recommending the amendment of RIRRs 9.2.d to allow AMLC to request an extension of record-keeping in appropriate circumstances. 752. The Republic of the Philippines should consider amending AMLA Sec. (11) to provide AMLC with access to bank records in all cases where they are conducting inquiries into a predicate crime or money laundering. 753. The AMLC and/or the BSP should consider adopting regulations and/or guidance regarding inclusion of originator information as required by criteria VII.2 through VII.4 754. The AMLC and/or the BSP should consider adopting regulations and/or guidance regarding money transfers not accompanied by originator information or monitoring of implementation as required by criteria VII.5 through VII.7 3.5.3. Compliance with Recommendation 10 and Special Recommendation VII Rating Summary of factors underlying rating R.10 LC  Requirement of “immediate� production of records applies only to certain predicate crimes. SR.VII PC  Applicable rules relating to inclusion of originator information are - 140 - incomplete.  Applicable rules relating to transfers not accompanied by originator information or to monitoring of implementation of SR VII are incomplete. 3.6. Monitoring of Transactions and Relationships (R.11 & 21) 3.6.1. Description and Analysis Special Attention to Complex, Unusual Large Transactions (c. 11.1): 755. The AMLA and RIRRs do not specifically require covered institutions to monitor transactions or to pay attention to complex, unusual large transactions, or unusual pattern of transactions. However, as discussed with respect to criteria 5.6, 5.7; 5.7.1, and 5.7.2, these requirements are impliedly covered by the rules on the filing of suspicious transactions. 756. BSP Circular No. 251 (7 July 2000) specifically requires covered institutions to give special attention to all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent or visible lawful purpose, i.e. it uses the specific language. This makes matters much clearer when banks are involved. Examination of Complex & Unusual Transactions (c. 11.2): Banking sector 757. BSP Circular No. 251 (7 July 2000) requires covered institutions to examine as far as possible the background of all and purpose of all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent or visible lawful purpose and, establish findings in writing, and make them available to help supervisors, auditors and law enforcement agencies. Securities and insurance sectors 758. SEC Model Operating Manual 6.3 requires covered institutions to investigate the sources of funds of transactions that appear unusual or suspicious. The IC does not. Record-Keeping of Findings of Examination (c. 11.3): 759. There are no specific requirements relating to retention of findings of transaction monitoring. Special Attention to Countries Not Sufficiently Applying FATF Recommendations (c. 21.1 & 21.1.1), Examinations of Transactions with no Apparent Economic or Visible Lawful Purpose from Countries Not Sufficiently Applying FATF Recommendations (c. 21.2): Banking sector 760. The BSP Model Operating Manual states that there should be increased due diligence with respect to customers and transactions involving countries that “do not have sufficient AML controls.� Securities and insurance sectors 761. The securities and insurance sectors have no such rules and therefore are in breach of the criteria. - 141 - Ability to Apply Counter Measures with Regard to Countries Not Sufficiently Applying FATF Recommendations (c. 21.3): 762. The AMLC, the BSP, SEC, and IC have the authority to issue instructions to covered institutions to apply countermeasures with regard to transactions with persons in countries that do not sufficiently apply FATF Recommendations. Analysis of effectiveness 763. The BSP, SEC, and IC focus on transaction monitoring in their examination procedures, and have found a high degree of compliance by covered institutions. This is especially true in the higher risk universal and commercial banking sector. The implementation of electronic systems for monitoring client transactions has improved capabilities in this area. While the SEC does not have formal procedures for making a written report on unusual transactions, and the IC has no formal procedures for examining the background of unusual transactions or of filing a written report, it appears from interviews with examiners and private sector representatives, as well as a review of sanitized examples of examination, that covered institutions in these sectors do include these procedures as part of their internal compliance systems. 764. Overall, the effectiveness of transaction monitoring appears to be relatively good even with breaches in the criteria. 3.6.2. Recommendations and Comments 765. The SEC and IC should consider issuing guidance similar to the one issued by the BSP that require covered institutions to examine the background of all complex and unusual transactions, establish findings in writing, and make them available. 766. The SEC and IC should consider issuing a guidance that includes the written findings of examinations of the background of complex and unusual transactions as records under the definition of records in RIRRs Rule 9.2. 767. The SEC and IC should consider issuing guidance that tracks that of the BSP’s guidance with respect to monitoring and examinations of transactions relating to countries that do not sufficiently apply FATF Recommendations. 3.6.3. Compliance with Recommendations 11 & 21 Rating Summary of factors underlying rating R.11 PC  SEC does not specifically require covered institutions to establish findings of examinations in writing  IC does not specifically require covered institutions to examine the background of all complex and unusual transactions, and establish findings in writing  The SEC and IC do not require retention of written findings of examinations of the background of complex and unusual transactions - 142 - R.21 PC  SEC and IC do not require special attention to transactions with persons in countries that do not sufficiently apply FATF Recommendations 3.7. Suspicious Transaction Reports and Other Reporting (R.13-14, 19, 25 & SR.IV) 3.7.1. Description and Analysis39 Requirement to Make STRs on ML and TF to FIU (c. 13.1 & IV.1): 768. AMLA Section 9(c) as amended, requires all covered institutions to report to the AMLC all suspicious transactions. Section 3(b)(1) defines suspicious transactions as those where: (a) there is no underlying legal or trade obligation, purpose or economic justification; (b) the client is not properly identified; (c) the amount involved is not commensurate with the business or financial capacity of the client; (d) taking into account all known circumstances, it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the act; (e) any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past transactions with the covered institution; (f) the transaction is in any way related to an unlawful activity or any money laundering activity or offense under this act that is about to be, is being or has been committed; or (g) any transaction that is similarly analogous or identical to any of the foregoing. 769. Section 9 requires that Suspicious Transaction Reports (STRs) be submitted within 5 working days from occurrence the transaction, unless the supervising authority prescribes a longer period not exceeding 10 working days. RIRRs Rule 9.3.b requires that STRs be submitted in a secured manner to the AMLC in electronic form, either via diskettes, leased lines, or through internet facilities, along with a corresponding hard copy. 770. The AMLA requires all covered institutions to report all suspicious transactions to the AMLC, but the definition of suspicious transactions only includes those where the covered institutions have concluded that one of the lists of suspicious transactions has occurred. Although called a “suspicious transaction�, they are not defined as when a covered institution“ suspects or has reasonable grounds to suspect� that one of the list of suspicious transactions has occurred. Banking sector 771. BSP Circular No. 333 (30 May 2002) requires that if there is reasonable ground to believe that funds are proceeds of an unlawful activity, covered institutions should report the transaction or attempt to transact such funds, thus covering the criterion, but not in the form of a law or regulation, as required. 772. BSP Circular No. 612 (13 June 2008) extends the deadline for submission of STRs to 10 working days from occurrence of the transaction. 39 The description of the system for reporting suspicious transactions in section 3.7 is integrally linked with the description of the FIU in section 2.5 and the two texts need not be duplicative. Ideally, the topic should be comprehensively described and analyzed in one of the two sections, and referenced or summarized in the other. - 143 - Securities and insurance sectors 773. Unlike the BSP, the SEC and IC do not cover the requirement of reporting when when a covered institution “suspects or has reasonable grounds to suspect� that one of the list of suspicious transactions has occurred with additional rules. 774. For pre-need companies SEC Resolution No. 197 (2004) extends the deadline for submission of STRs to 10 working days from occurrence of the transaction. The SEC is considering extending the reporting period for other covered institutions. For the IC, a five-working day rule for the submission of STRs and CTRs applies for covered institutions. Since neither the SEC or IC has extended reporting deadliness for the submission of STRs to the maximum period allowed in the statute, this has, according to reports, caused an unjustifiable greater burden on covered institutions in the securities and insurance sectors than in the banking sector. 775. Also, suspicious transactions must be submitted in hard copy as well as electronically, apparently to ensure that they are signed. This creates additional but perhaps unnecessary burdens on reporting institutions, especially those not headquartered in Greater Manila. STRs Related to Terrorism and its Financing (c. 13.2): 776. AMLA Section 3 (b-1) defines suspicious transactions to include transactions related in any way to an offense under the Act, which includes, among others, “hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code including those perpetuated by terrorist against non-combatant persons and similar targets�. As discussed in Section 2.2 of this report, this limited list does not include other terrorism acts, resulting in a breach of the criterion. No Reporting Threshold for STRs (c. 13.3): 777. There is no minimum threshold for reporting suspicious transactions. Making of ML and TF STRs Regardless of Possible Involvement of Tax Matters (c. 13.4, c. IV.2): 778. While tax offenses are not predicate offenses, there is no rule restricting the reporting of them suspicious transactions where the circumstances under Section 3(b)(i) of the AMLA, as amended, are met. Representatives of some private banks have been concerned that they might not be excused from potential liability for breaching bank secrecy (see criteria 14.1) if it turns out that a reported transaction involves tax offenses. Protection for Making STRs (c. 14.1) and Prohibition Against Tipping-Off (c. 14.2): 779. AMLA Section 9.c states that no administrative, criminal or civil proceedings, shall lie against any person for having made a covered or suspicious transaction report in the regular performance of his duties in good faith, whether or not such reporting results in any criminal prosecution under this Act or any other law. This limits tipping off to STRs that have been reported, not those in the process of being reported, breaching the criterion. 780. AMLA Section 9(c) provides that covered institutions and their officers and employees, (representatives, agents, advisors, consultants or associates) are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person or entity, the media, or though publication in any way, the fact that a covered or suspicious transaction report was made, its contents, - 144 - or any other information in relation to it. Violators, including any media who participate, are held criminally liable. It does not include information “in the process of being reported� Securities and insurance sectors 781. SEC Operating Manual Section 7.4 IC Operating Manuel Section 7.3 provide that covered institutions, their directors, officers and employees, may not warn their customers of the fact that information relating to them has been reported or is in the process of being reported or to communicate, directly or indirectly, such information to any person other than the AMLC. Any violation of this confidentiality provision also renders them liable. Additional Element—Confidentiality of Reporting Staff (c. 14.3) and Consideration of Reporting of Currency Transactions Above a Threshold (c. 19.1): 782. There are no rules on confidentiality of reporting staff. 783. AMLA Section 9.(c) requires covered institutions to file CTRs - a transaction in cash or other equivalent monetary instrument involving a total amount in excess PHP500,000 (around US$10,600) within 1 banking day. This means that all transactions of any kind, from any covered institutions to another, in excess of PHP 500,000, must be reported. At a minimum, this results in a considerable reporting duplication when a covered institution receives cash and then makes a related non-cash transaction, either itself or through intermediary clearing and settlement operations. Guidelines for Financial Institutions with respect to STR and other reporting (c. 25.1) 784. AMLC Resolution No. 59 (June 1, 2005) includes a list of 16 basic red flag indicators for suspicious transactions that correspond to FATF practices. The AMLC has also issued a significant number of other resolutions identifying specific AML or fraud concerns (as well as notifications concerning named terrorists and terrorist organizations). Banking sector 785. The BSP has issued a number of Circular Letters drawing attention primarily to specific AML or fraud concerns. The BSP Operating Manual includes basic guidance and red flag indictors for suspicious transactions that correspond to FATF practices up to 2002. These indicators are largely standard red flags and not Philippines specific. Securities and insurance sectors 786. The SEC has issued no specific guidelines. IC has issued a number of Circular Letters directing covered institutions to submit to AMLC reports of covered and suspicious transactions, if any, involving the suspected terrorists individuals and organizations linked to terrorist activities. Feedback to Financial Institutions with respect to STR and other reporting (c. 25.2): 787. The AMLC produces Annual Reports at the end of each calendar year, which are posted on the AMLC website. These Reports contain statistical data received by the unit on covered transaction reports and suspicious transaction reports, as well as covered transaction reports that have triggered financial investigations and those that have led to the filing of court petitions for freezing or inquiry and petition for civil forfeiture. As mentioned earlier the number of STR’s received is low in comparision to other jurisdictions of similar size (just over 7000 since 2001). However, there has been a significant increase over the past two years of STR’s received which can be attributed to the work of the AMLC and regulators. The quality of STR’s has been an issue in the past (over 3000 had - 145 - been associated to problems with credit card applications) however, ongoing efforts of AMLC and the regulators to increase feedback on reporting do seem to have addressed these issues. The STRs now being received contain sufficient information for analysis and electronic reporting requirements ensure that all fields are completed by reporting entities. The AMLC frequently review STR’s and have the authority to contact reporting entities to obtain further information on reports if insufficient details are provided by the reporting entiies which they also use as a way of providing feedback to reporting entites on reporting. 788. AMLA Sec. 7 (9) requires that the AMLC develop educational programs, among others, on the methods and techniques used in money laundering and the viable means of preventing money laundering.� In fulfilling this requirement the AMLC Secretariat conducts meetings on a regular basis with the three supervisory authorities, Financial Sector Liaison Committee, private sector associations, and covered institutions to discuss relevant issues, including STR reporting and other related obligations. Meetings are held at least once a month, although typically more frequently. The Executive Director of the AMLC Secretariat generally runs the meetings. Staff from the AMLC Secretariat also usually participates in seminars, workshops, etc. held by private sector associations, and covered persons, where they answer questions concerning STR reporting requirements and related matters. Workshops typically include the extensive use of sanitized cases. 789. The AMLC automatically acknowledges the receipt of any STRs. The AMLC also informs the filing institution via a specific feedback letter whenever an STR (or CTR) results in the filing of a case. The letter includes, inter alia, the nature of the case filed. If the client account is the subject of a proceeding in court, the feedback letter also contains a reminder to the covered institution of the duty to retain all the records related to the account even beyond the five-year statutory retention period until the case is finally resolved or terminated by the Court. 790. Feedback does not include statistics on the number of disclosures, with appropriate breakdowns, and on the results of the disclosures. Analysis of effectiveness 791. Covered institutions are generally satisfied with the level of general guidance by the AMLC. In addition to the “red flag� guidance materials provided, covered persons also regularly consult FATF, APG, and other relevant materials and methodologies. Covered persons that are subject to consolidated supervision, which includes many of the largest universal and commercial banks and the largest life insurance companies, also receive guidance from their consolidated supervisors that is forwarded by their head offices. Covered institutions and the AMLC Secretariat generally praise the high quality and frequent nature of their interaction. Discussion of general issues of compliance with AML requirements reporting is free-flowing and beneficial to both the AMLC and covered institutions. In a majority of areas where covered institutions have difficulties (e.g. indentify counterfeiting, difficulty in verifying client identity, CTR reporting, short deadlines for STR reporting, concern over reporting of suspicious transactions leading to tax investigations), they have noted that the AMLC has been sympathetic but that it is unable to provide relief (either because it is bound by law or regulation or because the issue is not under the jurisdiction of the AMLC). 792. While covered institutions are generally pleased that the AMLC automatically acknowledges the receipt of STRs and informs the filing institution via a specific feedback letter whenever an STR (or CTR) results in the filing of a case, there has been some dissatisfaction with the level of feedback over how to reduce the number of false positives and over how to improve the content of STRs that are filed. A typical complaint of covered institutions is that because so few STRS result in the filing - 146 - of cases they feel as if they are wasting time and resources in the “pointless filing of STRs.� It should be noted that this is a complaint common in FATF-member jurisdictions. 3.7.2. Recommendations and Comments 793. The AMLC should consider amending its requirement to allow only electronic transfer of STRs if an electronic signature is included. 794. Authorities should address the low numbers of STRs from sectors other than banks. 795. The AMLC should consider ways to eliminate concerns by covered persons that they might not be excused from potential liability for breaching bank secrecy if it turns out that a reported STR turns out to be a tax matter. 796. The AMLC should consider issuing regulations or guidance that prohibits tipping off for transactions that are in the process of being reported. 797. The Philippines should consider amending the AMLA to restrict the definition of “covered transactions� to avoid unnecessary duplication of reporting for the same transaction. 798. The AMLC should consider improving the quantity and quality of its feedback on STRs that comports with FATF Best Practice Guidelines on Providing Feedback to Reporting Financial Institutions and other persons. 799. Following adoption of the criminalization of TF, authorities should consider amending the AMLA to require all reporting institutions to file STRs on any (attempted) transactions, suspected of being related to TF 3.7.3. Compliance with Recommendations 13, 14, 19 and 25 (criteria 25.2), and Special Recommendation IV Rating Summary of factors underlying rating R.13 PC  Requirement to report transactions linked to TF is incomplete Insufficient STR reporting in sectors other than banks. R.14 LC  AMLA does not specifically include as part of “ tipping off� the disclosure of STRs that are in the process of being reported R.19 C R.25 PC  Feedback does not include statistics on the number of disclosures, with appropriate breakdowns, and on the results of the disclosures SR.IV NC  The requirement to report transactions linked to terrorism is incomplete - 147 - 3.8. Internal Controls, Compliance, Audit and Foreign Branches (R.15 & 22) 3.8.1. Description and Analysis Establish and Maintain Internal Controls to Prevent ML and TF (c. 15.1, 15.1.1 & 15.1.2): 800. AMLA Section 18 and RIRRs Rule No. 17.2.a require that covered persons formulate their respective money laundering prevention programs in accordance with Section 9 and other pertinent provisions of the AMLA and the RIRRs including detection and reporting of ML subject to guidelines prescribed by their respective supervisor. Rule 17.2.a requires every covered institution to submit a money laundering program to its supervising authority. 801. Rules No. 17.2.b requires that every money laundering program include detailed procedures implementing a comprehensive, institution-wide “know-your-client� policy, set-up an effective dissemination of information on money laundering activities and their prevention, detection and reporting, adopt internal policies, procedures and controls, and designate compliance officers at management level. Rule No. 17.2.c requires covered institutions to adopt a system of flagging and monitoring transactions that qualify as suspicious transactions. Banking sector 802. The BSP Operating Manual principles include requirements that covered institutions develop internal controls, policies and procedures. Appendix E includes detailed instructions on employee training. BSP Circular No. 598 (11 January 2008) requires that an independent full-time compliance officer with the rank of at least vice president must be appointed by every universal bank, commercial bank and thrift bank with total resources of at least PHP500 million. All banks are required to appoint/designate a compliance officer to oversee its implementation. For other types of banks, an incumbent senior officer may be designated concurrently as the banks’ compliance officer, provided the designation will not give rise to any conflict of interest. The compliance officer is to be in charge of developing compliance program which layout the specific rules and regulations being imposed by the regulatory bodies together with the internal control policies relative to such regulations. Securities and Insurance sectors 803. The SEC Operating Manual Section 8.1. requires that covered institutions establish and implement internal control procedures aimed at preventing money laundering. Section 8.2 requires that the procedures ensure that the covered institutions and its employees are aware of the provisions of the AMLA, its implementing rules and regulations, as well as reportorial and compliance control and procedures. Section 8.3 requires that covered institutions ensure that their policies and procedures are clearly set out and reflected in their internal operating manual, and that they include communication of firm policies relating to money laundering, including timely disclosure of information and internal audits to ensure compliance with policies, procedures and controls relating to money laundering and cooperation with the AMLC and other relevant authorities. 804. Section 8.4 requires that covered persons establish written internal reporting procedures. Section 9.2 requires that covered persons appoint a highly qualified senior officer as compliance officer. Section 9.3 places the ultimate responsibility for proper supervision, reporting, and compliance with the covered person and its Board of Directors 805. The IC Operating Manual Titles 8 and 9 cover essentially the same issues as the SEC Operating Manual Sections 8 and 9. Title 11 specifically requires that each covered institution establish an adequately resources and independent audit function to test compliance with AML procedures, policies, and controls. - 148 - Independent Audit of Internal Controls to Prevent ML and TF (c. 15.2): 806. RIRRs Rule 17.2.b requires that covered institutions set-up an audit function to test their AML system. Banking sector 807. The Model Operating Manual principles include requirements that covered institutions develop an internal control function to test their AML system. Securities and Insurance Sectors 808. The SEC Operating Manual Section 8.3 requires covered institutions to conduct internal audits to ensure compliance with policies, procedures and controls relating to money laundering. The IC Operating Manual Title 11 specifically requires that each covered institution establish an adequately resourced and independent audit function to test compliance with AML procedures, policies, and controls. 809. While as a practical matter each of the three supervisory authorities requires that an audit function be adequately resourced and independent, only the IC so requires specifically. Ongoing Employee Training on AML/CFT Matters (c. 15.3): All sectors 810. RIRRs Rule 17.3 requires that all covered institutions provide all their responsible officers and personnel with efficient and effective training and continuing education programs to enable them to fully comply with all their AML obligations. Banking sector 811. The BSP Operating Manual principles include requirements that covered institutions develop an on-going employee training program. Appendix E discusses employee training requirements in significant detail that include requiring employees to be aware of all aspects of AML laws and obligations, including CDD and STR reporting, and that they be kept abreast of new developments, trends, etc. Securities and Insurance Sectors 812. The SEC Operating Manual Section 10.1 covers essentially all of the material elements included in the BSP Operating Manual. The IC Operating Manual Title 10 covers essentially all of the material elements included in the BSP Operating Manual and the SEC Operating Manual. Employee Screening Procedures (c. 15.4): 813. RIRRs Rule No. 17.2.b requires covered institutions establish adequate screening and recruitment procedures. Banking sector 814. The BSP Operating Manual principles include requirements that covered institutions implement adequate screening procedures to ensure high standards when recruiting employees. Securities and Insurance sectors 815. SRC Rule 30.2 requires broker dealers to ensure at all times that any person he employs or appoints to conduct business for or with clients or other registered persons is qualified, including having relevant training or experience to act in the capacity so employed or appointed. The IC - 149 - Operating Manual Title 10 Section 1 requires that covered institutions have adequate screening procedures when hiring employees. Additional Element—Independence of Compliance Officer (c. 15.5): 816. AML compliance officers are able to act independently and report to senior management and/or the board of directors of each covered person. Application of AML/CFT Measures to Foreign Branches & Subsidiaries (c. 22.1, 22.1.1 & 22.1.2): Banking sector 817. RIRRs Rule 3.a. applies AML measures to offshore banking units and all other institutions, including their subsidiaries and affiliates, supervised and/or regulated by the BSP. Under MORB Subsec. X170.8 and MORNBFI Subsec. 4191Q.8 the compliance function for covered institutions that conduct business in other jurisdictions should be structured to ensure that local compliance concerns are satisfactorily addressed within the framework of the compliance policy for the organization as a whole. Compliance issues specific to each jurisdiction should be coordinated within the structure of the institution’s group-wide compliance policy. The organization and structure of the compliance function and its responsibilities should be in accordance with local legal and regulatory requirements. Securities and Insurance sectors 818. The SEC Examination Rules and Procedures on AML No. 33 require that SEC examiners evaluate the standard of AML being observed by the covered institutions when the minimum AML requirements of the home country and the Philippine laws differ. Covered institutions are required to observe the higher standards of AML compliance. IC Circular letter no. 23-2008 (August 19, 2008) applies all IC AML circulars to foreign branches and subsidiaries. 819. The result of these BSP, SEC, and IC rules is that branches and subsidiaries of covered persons must observe AML/CFT requirements when located in jurisdictions that do not observe the FATF Recommendations. However, covered entities are not specifically required to pay “particular attention� to branches and subsidiaries in countries that do not sufficiently apply the FATF recommendations. Requirement to Inform Home Country Supervisor if Foreign Branches & Subsidiaries are Unable Implement AML/CFT Measures (c. 22.2): 820. There are no specific rules. While as a practical matter the BSP requires that it be informed if a foreign branch or subsidiary cannot implement AML/CFT measures equal to or at a higher standard than those in the Philippines, no such rule is actually written down. No such rule exists for the SEC or IC. Analysis of effectiveness 821. All three sectors appear to have generally effective internal controls for AML and for identifying clients who may possibly be terrorists or terrorist organizations, and an effective internal and independent audit function, employee training, and employee screening. Banks with foreign branches and subsidiaries are required to observe the higher AML standards, either that of the Philippines or that of the host jurisdiction. In practice, Philippine headquartered securities and insurance firms have no foreign branches. - 150 - 822. Each of the three supervisors examines the covered institution’s internal compliance manual and ensures that it complies with requirements. Each also pays particularly close attention to the operation of the internal audit function as well as employee training. The ALMC secretariat assists in providing training for each sector. Employee screening for both fit and proper criteria appears to be well practiced in each sector. 3.8.2. Recommendations and Comments 823. The BSP and SEC should consider adopting the same rule on audit resources and independence as found in the SEC Operating Manual. 824. The BSP, SEC, and IC should consider issuing a rule that covered persons pay “particular attention� to branches and subsidiaries in countries that do not sufficiently apply the FATF recommendations. 825. The BSP, SEC, and IC should consider issuing a rule that covered persons inform their supervisor if a foreign branch or subsidiary cannot implement AML/CFT measures equal to or at a higher standard than those in the Philippines. 3.8.3. Compliance with Recommendations 15 & 22 Rating Summary of factors underlying rating R.15 C R.22 PC  No rule that covered persons inform their supervisor if a foreign branch or subsidiary cannot implement AML/CFT measures equal to or at a higher standard than those in the Philippines.  No specific rule that covered entities pay “particular attention� to branches and subsidiaries in countries that do not sufficiently apply the FATF recommendations 3.9. Shell Banks (R.18) 3.9.1. Description and Analysis Prohibition of Establishment Shell Banks (c. 18.1): 826. The Centralized Application and Licensing Group (CALG) of the BSP will not recommend approval and issuance of a certificate of authority for the establishment of a bank that has no physical presence in the Philippines and is unaffiliated with a regulated financial group. 827. Batas Pambansa Blg. 68 Sections 17 and 46 provides that no articles of incorporation and by- laws or any amendment thereto of banks, quasi-banking institutions, pawnshops, building and loan associations and other financial intermediaries governed by the special laws enforced by the BSP shall be approved unless accompanied by a favorable recommendation of the BSP. Prohibition of Correspondent Banking with Shell Banks (c. 18.2), Requirement to Satisfy - 151 - Respondent Financial Institutions Prohibit of Use of Accounts by Shell Banks (c. 18.3): 828. MORB Appendix 52a Annex B requires that covered persons must not enter into, or continue, a correspondent banking relationship with shell banks. Financial institutions are also required to guard against establishing relationships with respondent foreign financial institutions that permit their accounts to be used by shell banks. Analysis of effectiveness 829. There are no shell banks in the Philippines. 3.9.2. Compliance with Recommendation 18 Rating Summary of factors underlying rating R.18 C  3.10. The Supervisory and Oversight System—Competent Authorities and SROs. Role, Functions, Duties, and Powers (Including Sanctions) (R. 17, 23, 25 & 29) 3.10.1. Description and Analysis Regulation and Supervision of Financial Institutions (c. 23.1), Designation of Competent Authority (c. 23.2): 830. AMLA Section 7(7) gives the AMLC the authority to implement measures necessary and justified under the AMLA to counter money laundering, including under section 7(11) to impose administrative sanctions for the violations of laws, rules, regulations, and orders and resolutions issued pursuant to the Act. Section 18 requires the BSP, SEC, and IC to promulgate rules to implement the Act, provided that the rules are submitted to the Congressional Oversight Committee for approval. Banking sector 831. RIRRs Rule 11.3.a provides that the BSP will promulgate rules of examination for ensuring compliance by banks and non-bank financial institutions with the AMLA and the RIRRs, and that any findings of the BSP that constitute a violation of the AMLA will be transmitted to the AMLC for appropriate action. It also allows the BSP to inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution and their subsidiaries and affiliates when the examination is made in the course of a periodic or special examination, in accordance with the rules of examination of the BSP. 832. R.A. No. 7653, the New Central Bank Act (NCBA) section 25 and R.A. 8791, the General Banking Law (GBL) Section 4 provide, inter alia, that the BSP has supervision over, and conducts periodic or special examinations of, banking institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied activities. 833. For other issues concerning implementation of AML rules through the supervisory/examination process see answers to previous preventive measures criteria. - 152 - Securities and Insurance sectors 834. SRC section 5 provides that the SEC will administer the Securities Code, including regulating, investigating, and supervising the activities of persons to ensure compliance, and to supervise and monitor clearing agencies and other SROs. Presidential Decree 612, the Insurance Code [IC], Sec. 414 gives the Insurance Commissioner the responsibility to ensure that all laws relating to covered persons are faithfully executed, to issue rulings, instructions, circulars, orders and decision as he may deem necessary to secure the enforcement of the provisions of IC Code subject to the approval of the Secretary of Finance, and to have exclusive authority to regulate the issuance and sale of variable contracts (i.e. those with an investment dimension with returns that vary based on investment returns). IC Section 246 authorizes and requires the IC to examine every insurance company at least once per year. 835. As can be seen from the above description, the AMLC and the three supervisory agencies each have authority with respect to enforcing compliance with AML preventive measures found in the law and RIRRs, while the three supervisory agencies have authority with respect to AML preventive measures found in their own guidance. With respect to all AML preventive measures, it is generally the supervisory agencies that monitor compliance through the examination process, except for those measures that can be directly monitored by the AMLC through its interaction with particular covered institutions. In the event a supervisor detects a breach of the law or RIRRs, it takes up the issue with the AMLC, which then may exercise its jurisdiction to apply sanctions. The types of issues and type and number of sanctions are noted in Table XXXIX in the appendix. Fit and Proper Criteria and Prevention of Criminals from Controlling Institutions (c. 23.3 & 23.3.1): Banking sector 836. GBL Section 14 states that the SEC may not register the articles of incorporation of any bank, or any amendment thereto, unless accompanied by a certificate of authority issued by the BSP. The BSP may not issue such a certificate of authority unless it is satisfied that the integrity and responsibility of the organizers and administrators reasonably assure the safety of deposits and the public interest. GBL Section 16 states that to maintain the quality of bank management and afford better protection to depositors and the public in general the BSP must review the qualifications of individuals elected or appointed bank directors or officers and disqualify those found unfit. In determining whether an individual is fit and proper to hold the position of a director or officer of a bank, regard must be given to his integrity, experience, education, training and competence. 837. Under MORB Section X126.2, prior approval of the BSP is required for any sale or transfer of stock that would result in the transfer of ownership or control of more than twenty percent (20%) of the voting stock of a bank or that would enable someone to elect, or to be elected as, a director of such bank and on any sale or transfer that would effect a change in the majority ownership or control of the voting stock of the bank from one group of persons to another group. 838. Under MORB, Section, X102 Appendix 37, the BSP requires that incorporators/subscribers and proposed directors and officers must be persons of integrity, that they not have been convicted of any crime involving moral turpitude, and unless otherwise allowed under the provisions of existing laws are not officers or employees of a government agency, instrumentality, department or office charged with the supervision of, or the granting of loans to banks. Directors and officers of the bank must be subject to detailed fit and proper qualifications under Sections X141 through X144, which include details concerning experience in banking and general integrity, including integrity rules on disqualifications for positions as directors and officers. - 153 - Securities and Insurance sectors 839. Under Section 29.1 of the Securities Regulation Code (SRC), the SEC may refuse, suspend or revoke the registration of brokers, dealers, salesmen and associated person if: a. they have been convicted, by a competent judicial or administrative body of an offense involving moral turpitude, b. are enjoined or restrained by a competent judicial or administrative body from engaging in securities, commodities, banking, real estate or insurance activities or have violated laws governing such activities (29.e); c. are subject to an order of a competent judicial or administrative body refusing, revoking or suspending any registration, license or other permit under this Code, the rules and regulations promulgated thereunder, any other law administered by the Commission (29.f); d. are subject to an order of a self-regulatory organization suspending or expelling him from membership or participation therein or from association with a member or participant thereof (29.g); e. have been found by a competent judicial or administrative body to have willfully violated any provisions of securities, commodities, banking, real estate or insurance laws, or has willfully aided, abetted, counseled, commanded, induced or procured such violation (29.h); f. have been judicially declared insolvent. (29.i). 840. Under Section 29.4 of the SRC, it shall be sufficient cause for refusal, revocation or suspension of a broker’s or dealer’s registration, if any associated person or any juridical entity controlled by such associated person has committed any act or omission or is subject to any disability enumerated in paragraphs (a) through (i) of Subsection 29.1 of the SRC. 841. Under Rule 4.1.4.i of Pre-Need Rules the SEC will not issue a Certificate to Operate as a Financing Company (Section 4 of the Implementing Rules and Regulations of the Financing Company Act) and a Certificate of Registration of Pre-Need Plans unless the directors and officers of financing and pre-need companies are of good moral character. 842. Under Section 27 of the Corporation Code of the Philippines, no person convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of this Code committed within five (5) years prior to the date of his election or appointment, shall qualify as a director, trustee or officer of any corporation. 843. IC Section 187 states that the IC will not provide a certificate of authority to conduct insurance business unless directors and officers are of good moral character, unquestioned integrity, and recognized competence. IC circular no. 13-2004 provides details of fit and proper requirements. 844. Under IC Circular 21-2006 covered institutions are required to provide the IC with a list of inactive as well as active officers and employees who may have been found guilty or with pending complaints filed against them before the company, any administrative body or court. The list must be duly certified to by a responsible officer, with a rank of at least Vice President and to be submitted to the Commission. Likewise, in Circular 17-2006, agents are required to submit to the IC a list of active and inactive agents who may have been found guilty or with pending complaints filed against them before the company, any administrative body or court. - 154 - Application of Prudential Regulations to AML/CFT (c. 23.4): Banking sector 845. The BSP applies the key Basel Core Principles regarding licensing and structure, risk management processes, ongoing supervision, and global consolidated supervision to covered persons headquartered in the Philippines. Securities and Insurance sectors 846. The SEC applies the key International Association of Securities Commissions Objectives and Principles of Securities Regulation regarding licensing and structure, risk management processes, ongoing supervision, and global consolidated supervision to covered persons headquartered in the Philippines. 847. The IC applies the key International Association of Insurance Supervisors Insurance Core Principles regarding licensing and structure, risk management processes, ongoing supervision, and global consolidates supervision to covered persons headquartered in the Philippines. Licensing or Registration of Value Transfer/Exchange Services (c. 23.5): 848. See section 3.11 Monitoring and Supervision of Value Transfer/Exchange Services (c. 23.6): 849. See section 3.11 Licensing and AML/CFT Supervision of other Financial Institutions (c. 23.7): 850. Other than the financial institutions discussed above no others are subject to AML/CFT supervision Guidelines for Financial Institutions (c. 25.1): 851. See section 3.7. No other guidelines have been issued to financial institutions. Power for Supervisors to Monitor AML/CFT Requirement (c. 29.1): 852. See replies to criteria 23.1 and 23.2. Authority to conduct AML/CFT Inspections by Supervisors (c. 29.2): 853. See replies to criteria 23.1 and 23.2. Banking sector 854. See replies to criteria 23.1 and 23.2. BSP’s annual on-site examinations of covered institutions include a detailed review of policies, procedures, books, and records, and include sample testing. - 155 - Securities sector and Insurance sectors 855. See replies to criteria 23.1 and 23.2. The SEC’ annual40 on-site examinations of covered institutions other than PSE members include the detailed review of policies, procedures, books, and records, and include sample testing. The PSE conducts audits of the completeness of the customer account information of PSE members. The SEC maintains an oversight function over the PSE and reviews PSE audit reports on an annual basis. All audit findings, including those of the PSE, are kept by the SEC. Related sanctions imposed by the PSE are likewise recorded by the MRD and made part of its records. 856. The IC’s annual on-site examinations of covered institutions include a detailed review of policies, procedures, books, and records, and include sample testing. See the discussion of implementation of individual preventive measures through the examination process. Power for Supervisors to Compel Production of Records (c. 29.3 & 29.3.1): Banking sector 857. Under NCBL Section 25, the BSP is authorized to compel the presentation of all books, documents, papers or records necessary for an examination, subject to the provision of existing laws protecting or safeguarding the secrecy or confidentiality of bank deposits as well as investments of private persons in Government securities (see reply to criterion 4.1 for description). However, AMLA Section 8 authorizes the BSP to enquire into or examine any deposit or investment with any covered institution when the examination is made in the course of an examination to ensure compliance with the AMLA. Securities sector 858. Under SRC Section 52.1 covered institutions are required to submit to the SEC accounts, correspondence, memoranda, papers, books, and other records of covered institutions in the course of an examination or other investigation. A court order is not required. Insurance sector 859. Under IC Section 246, covered institutions are required to submit to the IC all books, papers and securities as may be required in the course of an examination. A court order is not required. Powers of Enforcement & Sanction (c. 29.4): 860. Under RIRRs Rule 14.1.d. the AMLC has the authority to impose fines on any covered institution, including its officers and employees, for violations of the AMLA, its RIRRs and any other regulation, order etc. The fines, which range from PHP100,000.00 (around US$ 2,120) to PHP500,000.00 (around US$ 10,600) are determined by the AMLC, taking into consideration all attendant circumstances, including the nature and gravity of the violation or its irregularity. Banking sector 861. Under GBL Section 37 the BSP has the authority to impose at its discretion administrative sanctions on a covered institution, its directors and/or officers for any willful delay in the submission of reports, any refusal to permit examination, any willful making of a false or misleading statement, any willful failure or refusal to comply with, or violation of, any banking law or any order, instruction 40 Pre-need companies (superannuation funds) and financing companies (that provide small loans to pensioners) are not audited every year. - 156 - or regulation.41 Sanctions include: fines as determined by the BSP with a maximum of PHP30,000 a day for each violation; suspension of rediscounting privileges or access to BSP credit facilities; suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments; suspension of interbank clearing privileges and/or revocation of banking license. 862. The BSP may also issue cease and desist orders and suspend any director or officer of a bank during the period of investigation. 863. The BSP Governor may also at his discretion impose fines to covered institutions for an amount not to exceed PHP10,000 (around US$ 110) a day for each violation for failure to comply with the requirements of law, regulations, and policies, and/or instructions.42 Securities and Insurance Sectors 864. Under SRC section 5.1, the SEC has the authority to suspend or take over the activities of SROs, including the PSE, issue cease and desist orders, punish for contempt of the SEC any person who fails or refuses to comply with an order, decision or subpoena issued by the SEC and may impose sanctions for violation of the laws and rules, regulations and orders. 865. Under IC Section 415, the IC has the authority to impose fines up to P500 a day upon covered institutions, including the insurance directors and officers for any willful failure to comply with requirements of the law, regulations, rulings etc., and to suspend or remove directors, officers, and agents. 866. In sum, this means that the maximum monetary fine under the AMLA is PHP500,000 (about US$10,500) plus daily fines of fairly small amounts. While there are dissuasive penal penalties (discussed below) and monetary and penal sanctions once convicted of ML (see discussion above in section 2 of this report), there appears to be a lack of proportionate administrative sanctions against legal persons. Availability of Effective, Proportionate & Dissuasive Sanctions (c. 17.1), Designation of Authority to Impose Sanctions (c. 17.2), Ability to Sanction Directors & Senior Management of Financial Institutions (c. 17.3), Range of Sanctions—Scope and Proportionality (c. 17.4): 867. See reply to criterion 29.4. AMLA Sections 4, 9, and 14, provide penalties of imprisonment of 6 months to 4 years and/or a fine of PHP100,000 (US$ 2100) to PHP500,000 (US$ 10,500) for any person who knowing that any monetary instrument or property is required under the Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC) fails to do so, and the penalties of imprisonment of 6 months to 1 year and or a fine of PHP100,000 to PHP500,000 for failure to keep records. Banking sector 868. See reply to criterion 29.4. NCBA Section 36 provides criminal penalties of imprisonment of 2 to 10 years and/or a fine of PHP 50,000 (US$ 1050) to PHP 100,000.00 for any covered institutions that willfully violate any relevant laws, regulations, instructions etc. 41 Under BSP Circular No. 451 (14 September 2004) this specifically includes failure to comply with or properly implement requirements to combat money laundering and terrorist financing. 42 BSP Circular No. 496 (29 September 2005) prescribes guidelines for the imposition of administrative sanctions. - 157 - Securities and insurance sectors 869. See reply to criterion 29.4. SRC section 73 provides criminal penalties of imprisonment of 7 to 21 years and/or a fine of PHP 50,000 (US$ 1050) to PHP 5,000,000 (US$ 105,000) for any covered institution (including directors and officers) that willfully violate any relevant laws, regulations, instructions etc. 870. See reply to criterion 29.4. IC Section 419 provides criminal penalties of imprisonment of 6 months and/or a fine not exceeding PHP10,000.00 (US$ 2100) for any covered institutions (including directors and officers ) that willfully violate the IC rules and regulations. 871. Once again, monetary penal sanctions do not appear to be proportionate. Adequacy of Resources for Competent Authorities (c. 30.1): Banking sector 872. BSP Resolution No. 1443 (13 December 2007) approved the structure of the reorganized Supervision and Examination Sector, which includes the creation of the Anti-Money Laundering Specialist Group (AMLSG). The AMLSG was created to address the need for technical expertise in the supervision and examinations of the anti-money laundering activities of financial institutions, and is composed of 25 professional personnel, and is headed by a Deputy Director, with 2 Managers, 2 Assistant Managers, and 20 Bank Officers and a group secretary. - 158 - 873. The AMLSG is a distinct technical unit within the Supervision and Examination Sector (SES) of the BSP that specializes in the review and evaluation of the anti-money laundering systems and high-risk financial activities of BSP regulated and/or supervised covered institutions. The AMLSG is tasked to perform off-site supervision and on-site examination on AMLA of covered institutions under the jurisdiction of the BSP. 874. Off-site, the AMLSG performs surveillance activities to determine the overall level of ML risk within the banking sector and within each individual covered institution. AMLSG assigns and maintains a risk rating on each covered person to reflect the degree of ML risk, the quality of its anti- money laundering capabilities, its enforcement of AML rules, and other specific factors such as amount/number of cash shipments, wire activity, and the number of STRs actually filed. 875. The AMLSG also provides technical assistance on a “coaching� or “consultancy� basis to examiners who are conducting the on-site examination related to AML. The human resources of the Group are allocated according to risk. 876. The AMLSG, in coordination with the Office of the Supervisory Policy Development, also develops AML policies and guidelines. This includes policies relative to the imposition of - 159 - administrative sanctions covering violations of the AML laws, regulations, rules, etc. It also develops/improves manuals on AML examination and other related areas. 877. The AMLSG also monitors BSP compliance by BSP with the Memorandum of Understanding (MOU) entered into by the AMLC and the BSP relative on the exchange of information and other requirements. 878. The AMLSG, in coordination with the AMLC, works with local and international organizations to strengthen the AML regime in the Philippines. For example, the AMLC is a regular member of the Philippines Sub-Committee on AML/CFT, which normally meets once a month. In addition, AMLSG members often attend forum/meetings related to AML sponsored by various local banking and non-banking organizations, as well as those of the Asian Development Bank, World Bank, IMF, etc. 879. The AMLSG develops and conducts AML training programs in the BSP. In addition, the AMLSG helps coordinate with other BSP units, the AMLC, and others in the development and/or implementations of seminars/training programs/presentations related to anti-money laundering activities. 880. Members of the AMLSG increasingly participate in onsite examinations. Securities sector and Insurance sectors 881. The SEC’s Market Regulation Department has allocated 16 examiners to work primarily on AML issues. Where possible, these examiners are assigned to conduct the AML part of examinations, in addition to other assignments. The Corporation Finance Department has allocated 5 examiners to work primarily on AML issues, and where possible these examiners are assigned to conduct the AML part of examinations, in addition to other assignments. The Non-Traditional Instruments and Securities Department has allocated 6 examiners to work primarily on AML issues. Again, where possible, these examiners are assigned to conduct the AML parts of examinations in addition to other assignments. The designated examiners also play a key role in developing AML policies and guidelines for the SEC. 882. The IC has designated 5 professional staff as a “core group� of experts in AML. They staff the AML Help Desk and, where possible, participate in the AML component of on-site examinations, in addition to other assignments. They also play a key role in developing AML policies and guidelines for the IC. Integrity of Competent Authorities (c. 30.2): The AMLC, BSP, SEC, and IC 883. Each agency recruits new staff in accordance with the Civil Service Qualification Standards�, a government-wide standard set by the Civil Service Commission. Among the criteria set under the Civil Service Qualification Standards when hiring new staff are his/her education, experience, training and eligibility. Banking sector 884. Under NCBL Section 6, the powers and functions of the BSP are exercised by the Monetary Board, composed of 7 members appointed by the President of the Philippines for a term of six 6 years, including the Governor, a cabinet minister, and 6 members from the private sector. Under Section 8, each must be of good moral character, of unquestionable integrity, of known probity and - 160 - patriotism, and with recognized competence. Dismissal is by the President and may only be for cause. 885. Applicants for the position of supervisor/bank examiner, including those of the AMLSG, must have: a bachelor's degree in accounting, statistics, finance, economics, or banking and related courses; at least 1 year relevant experience (which may include bank/non-bank supervision and examination, internal or external audit, financial analysis, economic analysis, statistical analysis and/or related work); and 4 hours of relevant training. If they are not CPAs, they must show proof of recognition for outstanding relevant achievement, such as academic honor and outstanding leadership awards and outstanding research. Applicants must also pass the Standardized Analytical Test and Behavior Suitability Assessment. Applicants must also be of sound moral character. Staff must undergo yearly performance evaluations. Securities and Insurance sectors 886. Under SRC Section 4 the powers and functions of the SEC are exercised by the Securities and Exchange Commission, composed of a Chairperson and four 4 Commissioners appointed by the President for a term of seven 7 years. Each must be of good moral character, of unquestionable integrity, of known probity and patriotism, and with recognized competence. They may only be removed for cause. 887. The majority of the Commissioners, including the Chairperson, shall be members of the Philippine Bar. Applicants for the Securities Specialist (I to III) must have a BA in law, business or economics, 1 to 3 years of relevant experience in a similar and/or related position, 24 hours of relevant training, familiarity with current softwares/systems applications for the registration, licensing, monitoring, and supervision of players in the capital market. 888. Applicants for Securities Examiner (I and II) of the Compliance and Enforcement Department (CED) must have BA in law or business, 2 to 3 years experience in a regulatory/investigatory environment, 24 to 26 hours of relevant training. Applicants for Securities Investigator of the CED must have Bachelor’s Degree in law or business, 2 years experience in a regulatory/investigatory environment, 24 hours of relevant training. Applicants for Securities Counsel (II to III) must have a BA in law, three (3) to four (4) years of legal work experience in a law firm/academe/legal office in a corporation, 26 to 28 hours of relevant training. 889. In terms of skills, SEC applicants must be familiar with the SRC and other pertinent laws, have good analytical and research skills, strong verbal and written communication skills, with the ability to focus on details and to work in a high-pressure environment with moderate to limited supervision, and be computer literate. For eligibility, all applicants must have passed the Board or Bar exam under Republic Act 1080. 890. Staff also must undergo a performance evaluation every semester. 891. The powers and functions of the Insurance Commission are exercised by the Insurance Commissioner, who is appointed by the President of the Philippines. 892. All applicants for a position with the IC must: (1) have the educational/work/training qualifications required; (2) pass the qualifying examinations and interviews conducted by the personnel department/selection and promotion board; (3) submit all the documents required by the personnel department. - 161 - 893. Applicants for the position of supervising insurance specialists, senior insurance specialists and insurance specialists must have a bachelor’s degree and at least one year of relevant experience for insurance specialist, two years of relevant experience for senior insurance specialists and three years relevant experience for supervising insurance specialist. He must also be a holder of career service professional eligibility and of good moral character. Training for Competent Authorities (c. 30.3): AMLC 894. See discussion in Section 2.5 of this Report. Banking sector 895. NCBA Section 24 requires the BSP to promote and sponsor the training of technical personnel in the field of money and banking, which includes AML/CFT. Toward this end, the BSP engages in extensive AML training, both in house and external. It will also defray the costs of AML study, both at home or abroad. The BSP cooperates closely with the AMLC in providing training. 896. Detailed Samples of AML Training Provided to Supervisors for the last three (3) years are provided in Tables XL-XLI in the Appendix. Securities and Insurance sectors 897. The SEC engages in AML training, both in-house and external. As with the BSP, the SEC cooperates closely with the AMLC in providing training. Detailed samples of AML training provided to supervisors for the last 2 years are provided in Table XLII in the Appendix. 898. The IC engages in AML training, both in house and external. As with the BSP and the SEC, the IC cooperates closely with the AMLC in providing training. The seminars/trainings are conducted and sponsored by, inter alia, the World Bank, Office of Technical Assistance, United States Treasury Department, US Federal Bureau of Investigation, Asian Development Bank Technical Assistance Project, US Agency for International Development, the Control Risk Group and the European Commission. 899. Detailed samples of AML training provided to supervisors for the last 3 years are provided in Table XLIII in the Appendix. Analysis of effectiveness 900. The Philippines have a fairly standard system of supervision for the three regulated financial sectors, a banking supervisor, a securities supervisor, and an insurance supervisor. Banking sector 901. The BSP’s examination program includes yearly on-site and off-site examinations of compliance. There are a number of both positive and less positive aspects to the BSP examination system. First, there is an insufficient number of specially qualified and dedicated AML staff at the BSP. As a result, as a general matter, a significant increase in the number of such specially qualified and dedicated staff would tend to increase the quality and depth of these examinations. 902. Next, the BSP has instituted a well-organized system of risk-based AML examination. This wisely concentrates AML examiners on problem areas within problem banks. A review of examination reports suggests that the risk-based system works well. - 162 - 903. The BSP’s examination procedures could be improved. As discussed earlier, neither the MOBR nor the BSP Examination Procedures Manual includes a detailed, comprehensive, and consolidated set of rules relating to preventive measures. This makes it unnecessarily difficult for BSP examiners to ensure compliance with all applicable laws, regulations, and BSP guidance. 904. The BSP appears to undertake an adequate examination of the backgrounds of incorporators/controllers, directors, and officers of covered institutions. The mission heard no comments from public or private sector suggesting a poor review process or unqualified or tainted management of covered institutions. 905. The BSP Monetary Board (including most particularly the Governor) is well regarded by the private sector as professional, independent, and of high integrity. This is also the reputation of the staff of the Supervision and Examination Sector and of the specialized Anti-Money Laundering Specialist Group (AMLSG). The mission heard no negative comments about either the skill or integrity of either. Compensation for staff appears to be acceptable, as well as its support facilities, including offices and IT. The BSP engages in extensive and often high quality training of its staff, including the AMLSG. 906. Supervisory authority to examine covered persons fits well within international best practices. However, available sanctions do not seem sufficiently proportionate and dissuasive. Although no statistics are kept, a review of bank examinations suggests that the BSP has written up many covered institutions for various AML insufficiencies. While very few have resulted in the imposition of formal sanctions, each has resulted in supervisory follow up. The total amount of civil monetary sanctions levied on covered institutions for breach of AML regulations has increased from PHP200,000 (US$ 4,250) in 2005 to PHP600,000 (US$ 12,700) in 2007, which seems rather insignificant. 907. The AMLSG plays a number of important roles, from AML policy and planning, drafting of AML guidance, liaising with other agencies regarding AML, AML private sector training, and to AML examination. There are, however, only 24 professional staff within the AMLSG, while there are 38 universal and commercial banks and 82 thrifts (some of which have significantly lower levels of AML risk), as well as 727 rural banks (most of which have significantly lower levels of AML risk). This relatively small number means that staff of the AMLSG cannot participate in all AML examinations of all banks with significant AML risk. They do, however, operate a help desk for those examiners who do participate in AML examinations. 908. All money service businesses (MSBs), including remittance agents (RAs) and money exchangers are required to register with the BSP and obtain all necessary local business licenses prior to initiating operations. Banks are also required to verify registration of MSB clients. However, the limited resources at the disposal of the BSP, and the lack of formal authority to conduct onsite examinations on MSBs cast some doubts over the effective implementation of such requirements. In addition, better coordination is needed between national and local authority to ensure both verification of requirements, and to administer sanctions when necessary. 909. Overall, the BSP’s supervisory system for implementing/enforcing AML rules appears to be relatively effective. Securities and Insurance Sectors 910. The SEC does not have a specially qualified and dedicated AML staff, nor does it have, in general, enough staff to conduct sufficiently detailed and in-depth examination; however, the staff of the SEC Operating departments, i.e., the Market Regulations Department, the Non-Traditional - 163 - Securities and Instruments Department, and the Corporation Finance Department, which are responsible for supervising and monitoring compliance by covered sectors with AML measures have undergone training and seminars on anti-money laundering and AML examination, compliance, investigation and prosecution. 911. The SEC has conducted occasional AML examinations on financing companies, mutual funds, and pre-need companies and has now moved to a system of annual examinations. The PSE also conducts yearly examinations on broker-dealers; the PSE program is subject to the overall supervision of the SEC. While SEC does not formally conduct examinations on a risk basis, it does so informally. In addition to customer identification checks for fraudulent IDs, examinations focus on what the SEC has perceived to be among the biggest risk for laundering, misidentification of beneficial owners and controllers. 912. The SEC and the Stock Market both appear to undertake an adequate examination of the backgrounds of incorporators/controllers, directors, and officers of covered institutions, including broker/dealers. The mission heard no comments from public or private sector suggesting a poor review process or unqualified or tainted management of covered institutions, especially of the broker- dealer sector. 913. The SEC is well regarded by the private sector as professional, independent, and of the high integrity. The same can be said for the governance of the PSE. 914. Supervisory authority to examine covered institutions fits well within international best practices. 915. At least with respect to AML supervision the SEC is also well regarded. Much of the key AML supervisory work is undertaken by the PSE, which monitors its members (broker/dealers) for compliance, especially with respect to customer identification, which appears to be of a particularly high quality.43 The mission heard no negative comments about either the skill or integrity of either the SEC examiners or those of the Exchange. Compensation for staff appears to be acceptable. The SEC engages (along with the Exchange) in some AML training. While the number of staff of the both the SEC and PSE involved in AML activities is relatively small, this appears to match the relatively low AML risk in these sectors, especially given the relatively low level of participation in the Philippines in the securities sector. 916. The IC does not have specially qualified and dedicated AML staff, nor does it have, in general, enough staff to conduct sufficiently detailed and in-depth examinations. 917. The IC conducts annual AML examinations. While the IC does not formally conduct examinations on a risk basis, it does so informally. The examinations focus entirely on high value life products, and in particular on identification of beneficial owners. 918. The IC appears to undertake an adequate examination of the backgrounds of incorporators/controllers, directors, and officers of covered persons, which here is restricted to the relatively smaller number of companies that offer life insurance products with a significant 43 The mission did hear some suggestions that the SEC and PSE had insufficient resources adequately to investigate all cases of alleged securities laws breaches, especially with respect to self-dealing, especially insider trading. Because this is beyond the scope of the mission these issues were not further investigated. - 164 - investment component. The mission heard no comments from the public or private sector suggesting a poor review process or unqualified or tainted management of covered institutions. 919. The IC staff is well regarded by the private sector as professional and of high integrity, although there were some comments that the IC should be established as a fully independent authority along the lines of the BSP and the SEC/PSE. There were come comments from the private sector indicating that there was some perception that because of the strictly political nature of the Commissioner’s position (appointed by the President with no other review, service at the pleasure of the President) politics might influence IC activities. Given that the Commissioner also serves on the AMLC board, where the Commissioner has veto power, this issue is of additional importance. That being said, there was no suggestion raised that this lack of independence affected adversely the quality of the AML supervisory regime. 920. Supervisory authority to examine covered persons fits well within international best practices. 921. The IC is well regarded for its high level of prudential supervision. However, there were some suggestions that during examinations the IC did not pay as much attention to AML rules as did the BSP and the SEC/PSE. 922. Compensation for IC staff appears to be acceptable. The IC engages in a significant amount of AML training. While the number of staff of the IC involved in AML activities is relatively small, this may be justified by the dominance of a small number of international companies subject to FATF member consolidated supervision in the investment product sector. 923. Over all, the SEC and IC’s supervisory system for implementing/enforcing AML rules appears to be, at least as a general matter, satisfactory. However, there are no statistics with which to judge implementation, and there have been, as yet, no specific sanctions imposed for breaching AML rules. However, given the relatively low risk of breach of AML rules in these sectors it is not surprising that there have been few financial sanctions, but zero seems too low. 3.10.2. Recommendations and Comments Regulation and Supervision of Financial Institutions (c. 23.1); Designation of Competent Authority (c. 23.2); Fit and Proper criteria and Prevention of Criminals from Controlling Institutions (c. 23.3 & 23.3.1), Application of Prudential Regulations to AML/CFT (c. 23.4); Licensing or Registration of Value Transfer/Exchange Services (c. 23.5) 924. The BSP should consider increasing human resources at the disposal of SES to more effectively conduct outreach campaigns, mapping exercises and examinations. 925. The BSP should consider completing an agreement with the Ministry of Interior and Local Government to define coordination measures for sanctioning purposes and streamline the sanctioning process. Availability of Effective, Proportionate & Dissuasive Sanctions (c. 17.1); Designation of Authority to Impose Sanctions (c. 17.2); Ability to Sanction Directors & Senior Management of Financial Institutions (c. 17.3); Range of Sanctions – Scope and Proportionality (c. 17.4) 926. The Philippine authorities should consider significantly increasing the types of civil financial sanctions available for breaches of regulatory guidelines. - 165 - Adequacy of Structure and Resources for Competent Authorities (c. 30.1); Professionalism, Skill, and Integrity of Competent Authorities (c. 30.2); Training for Competent Authorities (c. 30.3) 927. The BSP should consider expanding the number of specialists in the AMLSG as well as support staffing. 928. The SEC and IC should consider creating a specialized AML/CFT group. 929. Because of the strictly political nature of the IC Commissioner’s position (appointed by the President with no other review, service at the pleasure of the President) there is some perception in the private sector that the IC may be susceptible to political pressure. Because the perception on impartiality is nearly as important as impartiality itself, the Philippines should consider establishing the IC as a fully independent authority along the lines of the BSP and the SEC/PSE. 3.10.3. Compliance with Recommendations 17, 23, 25 & 29 Rating Summary of factors underlying rating R.17 PC  Civil monetary sanctions insufficient  Civil sanctions rarely imposed R.23 PC  Doubts raised on effectiveness of implementation of MSB registration requirements  Inadequate human resources dedicated to AML/CFT at BSP, SEC, and IC R.25 PC  Other than on STRs no guidelines have been issued to financial institutions R.29 LC  Lack of effectiveness of powers due to inadequate human resources 3.11. Money or Value Transfer Services (SR.VI) 3.11.1. Description and Analysis (summary) Designation of Registration or Licensing Authority (c. VI.1): 930. The BSP has been designated as the registration authority for single/sole proprietorship and partnerships authorized to operate as money value transfer (MVT) operators or remittance agents (RAs), which is defined as “persons or entities that offer to remit, transfer or transmit money on behalf of any person to another person and/or entity�. The category includes “money or cash couriers, money transmission agents, remittance companies and the like� (BSP Circular No. 471, Section 1) 931. Other MSBs subject to BSP supervision under the above-cited provision include money changers and foreign exchange dealers, interchangeably defined as “those regularly engaged in the business of buying and/or selling foreign currencies� - 166 - 932. Pursuant to BSP Circular No. 471 (24 January 2005), MSBs are subject to: a. licensing requirements under the city/municipality having territorial jurisdiction over the place of establishment or operation; b. registration as corporation/partnership with the Securities and Exchange Commission (SEC) or registration of business name for sole/single proprietorship with the Department of Trade and Industry (DTI) c. registration with the BSP. 933. Applicants for registration with BSP have to submit the following documentation, as described in BSP Circular 471: a) “Incorporation papers duly authenticated by the Securities and Exchange Commission (for corporation/partnership); or copy of the Certificate of Registration duly authenticated by the Department of Trade and Industry (for single proprietorship); b) Copy of business license/permit from the city or municipality having territorial jurisdiction over the place of establishment and operation; c) List of stockholders/partners/proprietor/directors/principal officers as the case maybe; d) Notarized Deed of Undertaking to strictly comply with the requirements of all relevant laws, rules and regulations, signed either by the owner, partner, president of officer of equivalent rank e) Any additional documents which the BSP may require from time to time.� 934. In a BSP Circular Letter dated 26 July 2005, regulators further stressed that not only head offices, but also every “branch, agent, sub-agent, extension office of business outlet of FXDs/MCs and RAs� should register with the BSP. The system de facto generates a list of operating principal entities, agents and outlets upon registration. 935. As of September 2008, there were 5,447 MSBs registered with the BSP, of which 4,116 are RAs. While Bangko Sentral has estimated that around 90% of incoming remittance flows pass through formal channels, unregistered RAs are still regarded to be operating in the country. The BSP is periodically conducting outreach campaigns to flush out informal operators. In addition, industry associations, as in the case of money changers/fx dealers, often require full compliance with registration requirements from their members, and have filed complaint against non-compliant members in the past. 936. Verification of licensing requirements compliance is conducted by local issuing authorities, – which, pursuant to Section 455 (paragraph 3 of Item IV) of the Local Government Code of 1991 - can “suspend and revoke the same for any violation of the conditions upon which said licenses or permits have been issued pursuant to law or ordinance�. Application of FATF Recommendations (applying R.4-11, 13-15 & 21-23, & SR. I-IX)(c. VI.2): 937. All Remittance Agents are subject to the provisions of the AMLA and the RIRRs as prescribed by Section 3 of BSP Circular No. 471 (24 January 2005). 938. In particular, Sec. 9 of BSP Circular 471 requires all MSBs, including RAs, to submit to the AMLC within 5 banking days from the date of transaction, or from the date the operator received information that the transaction was used for ML purposes, or from the time the operator reasonably suspected the transaction was entered for illegal purposes: - 167 - a) suspicious transaction reports (STRs) - where the suspicion has to be inferred if any of the following circumstances apply, regardless of the amount:  No underlying legal or trade obligation, purpose, economic justification;  Client was not properly identified;  Amount involved not commensurate with business/financial capacity of client;  Apparent structuring intent to avoid AMLA reporting requirements;  Deviation from the client’s profile or client’s past transactions;  The transaction is related to an unlawful activity or any ML activity or offense under the AMLA that is about to be committed;  Any transaction similar, analogous or identical to any of the above. b) covered transaction reports (CTRs) -for transactions in cash or other equivalent monetary instruments involving a total amount in excess of PHP500,000.00 (approx US$10,000) within a single banking day. 939. Section 8 of BSP Circular No. 471 also specifies recordkeeping requirements for MAs, who shall maintain accurate and meaningful originator information on funds transferred by requiring clients to fill up an application form, duly signed, containing at a minimum the following information: a) Individual customers  Date  Name and signature of remitter  Present address of remitter  Permanent address of remitter  date and place of birth of remitter  telephone number of remitter  Nationality  Amount and currency to be transferred  Source of foreign currency  Name of and relationship with beneficiaries b) Corporate/juridical customers: in addition to a signed application containing the applicable above information, a photocopy of the authority and identification of the person purporting to act in behalf of the client is required. 940. However, no specific requirement to include this information in the transfer message in contained in the Circular. 941. For customer identification purposes, RAs shall require the presentation of “a government- issued identification document such as SSS/GSIS/voter’s ID, driver’s license or passport�. 942. Section 4 of BSP Circular No. 471 further specifies personnel of RAs should undergo AML compliance training (especially on KYC, recordkeeping and STR/CTR reporting obligations) before the BSP grants the registration certificate. Such training may be conducted by the AMLC or other recognized service providers. 943. The knowledge and information learned from the training by officers appointed after the issuance of the registration certificate, shall then be passed on to all employees within 30 days from - 168 - attendance, or anytime a new employee is hired. From April 2005 to March 2008, 5,859 Participants from 3,226 entities have attended AMLA Seminars/Trainings. Monitoring of Value Transfer Service Operators (c. VI.3): 944. There are significant concerns in relation to the effectiveness of supervision over such entities. As covered institutions under AMLA, and registered with the BSP, compliance with AML requirements is monitored through BSP examinations, which are aimed at verifying both the status of operating MSBs in terms of registration, and their compliance with AML requirements (existence of internal policies at the head office level, training of employees, record-keeping). However, the features of the implementation of such controls are very different from those employed on typical banking institutions or bank-affiliated entities. 945. First, while BSP is formally charged with the registration of MSBs, it does not have any legal power to perform on-site examinations of registered money service businesses and affiliated agents and outlets. According to BSP examiners, examinations have been so far been performed on the basis of the provisions of PD No. 114, granting such powers to the BSP as the supervisor for pawnshops. Therefore, since 2005, when MSBs were made subject to supervision, examinations have been focused on entities that were registered both as pawnshops and MSBs. 946. According to BSP examiners, a draft amendment to Circular No. 471 will be proposed in the near future, to address among other issues the lack of formal authority to conduct on-site examinations at all operating MSBs. However, to date the details of the draft are still to be defined. 947. Both the perception by examiners that MSBs are inherently low-risk entities (despite the fact that the industry accounted for more than 5% of overall STRs filed in 2007), and the aforementioned legal shortcomings have prompted the BSP to conduct spot-checks on a random sampling basis every two weeks on a limited sub-group of RAs. Examiners acknowledged that to date, no MSB has been examined twice since 2005. MSBs affiliated to banks, however, are usually subject to annual examinations, which raises concerns about the difference in supervisory burden for entities essentially engaging in the provision of the same services. 948. Furthermore, human resources constraints are also limiting the scope of BSP examinations of MSBs. 17 BSP staff members are currently handling both the registration (5) and examination (12) process for an industry that in terms of physical network has grown by 50% between 2005 and 2008, while also addressing regulatory requirements for pawnshops, numbering almost 13,400 as of 2007. 949. It should be noted, however, how incentives to compliance have been set into the market through specific BSP guidance. A BSP memorandum issued on July 18, 2005 requires banking institutions to demand a copy of the registration certificate from all client MSB holding accounts with local banks. The procedure is explicitly defined as part of banks’ KYC requirements: hence, to gain access to the formal financial sector, any non-bank affiliated MSB would have to be registered with the BSP, assuming that banking entities are fully compliant with CDD requirements. 950. However, while the measure provides an incentive to seek registration (and thus licensing as a prerequisite) before engaging in operations, it is not a guarantee for compliance with AML requirements, which can only be effectively assessed through periodic examinations. - 169 - List of Agents (c. VI.4): 951. In BSP Circular Letter dated 26 July 2005, regulators specified that not only head offices, but also every “branch, agent, sub-agent, extension office of business outlet of FXDs/MCs and RAs should register with the BSP�. Therefore, the BSP can gain knowledge of all operating MSB outlets once they apply for registration, de facto obtaining a list of principals and agents. However, to date MSBs in the Philippines are not required to maintain and update a list of agents, thus the regime does not comply with criterion VI.4. As a matter of fact, and by admission of the supervisors, there is currently no mechanism in place to verify which of the registered MSBs are no longer operating, since there is no obligation to notify BSP of ceased operations. According to BSP officials, this issue is also supposed to be addressed by the amendments to Circular No.471, which should impose both an obligation to maintain lists of agents at head offices, and a mandatory registration renewal every three years. Sanctions (applying c. 17.1-17.4 in R.17)(c. VI.5): 952. Pursuant to Section 10 of BSP Circular No. 471, monetary and other sanctions can be imposed for any violation of AML/CFT rules and regulations. Sanctions can be imposed both against natural and legal persons (based upon gravity and nature of the infraction, sanctions can be directed towards directors and senior management). 953. The following table, contained in BSP Circular No. 471, summarize the nature of sanctions applicable all MSBs: Table C Sanctions applicable to MSBs Nature of Violation/Exception Sanctions/Penalties 1. Operating without prior BSP registration  Applicable penalties under officers Section 36 of R.A. No. 7653;  Watchlisting of owners/partners/principal; 2. Violation of any of the provisions of R.A.  Applicable penalty prescribed No. 9160 (AMLA, as amended) and its under the Act; RIRRs  Penalties and sanctions, which 3. Other violations of the provisions/ may be imposed by the AMLC. requirements in this Circular 954. Since the power to issue licenses and business permits rests with the local government units, to these same bodies have the power to “suspend and revoke the same for any violation of the conditions upon which said licenses or permits have been issued pursuant to law or ordinance�. In the case of violation of the norms on registration and AML requirements, coordination among the BSP, the AMLC and local authorities is thus a precondition for the swift implementation of such sanctions. - 170 - 955. However, to date there is no established coordination procedure to ensure swift imposition of sanctions such as withdrawal of business licenses via local authorities. Currently, if there is a violation that may be sanctioned with such penalty, the matter is referred on a case-by-case basis to the Monetary Board, which in turn empowers the Supervision and Examination Sector of the BSP to delegate to the municipal or city authority the imposition of such sanctions. The current process casts some doubts over the timeframe required to implement the sanctions against non-compliant entities, and in fact has prompted the BSP to draft an MOA with the Department of Interior and Local Government to set an established procedure to achieve the objective. 3.11.2. Recommendations and Comments 956. Remittance inflows reaching the Philippines amounted to US$14.4 bn in 2007, playing a decisive role in lessening the national balance of payments. According to local authorities, 90% of remittance flows go through formal channels. This leaves more than US$140 mil along informal avenues, including informal money transfer operators. Local authorities and industry associations are aware of the issue. The identification of informal operators is an important item in both their agendas. However, both the extent of the Philippines territory and the size of remittance flows involved calls for renewed efforts and more resources dedicated to this objective. 957. The current regulation regime for MSBs has achieved substantial results compared to the previous evaluation. MSBs are now fully subject to AMLA provisions. MSBs are required to seek both licensing and registration with local and national authorities, and have limited chances of securing access to the formal financial sector if non-compliant with the basic registration provisions of BSP Circular No. 471. 958. However, the supervision framework for MSBs still suffers from significant weaknesses, ranging from the lack of formal authority to implement periodic on-site examinations to the lack of a requirement to maintain and update lists of agents (although all operating entities engaging in MSB activities are required to register) and the absence of a well-established protocol for coordination between local and national authorities for the imposition of sanctions. 959. Based on this considerations, the BSP should:  Continue and strengthen its efforts to identify informal RAs and bring them within the regulatory regime;  Proceed to draft amendments to Circular 471, addressing the current shortcomings;  Consider increasing human resources at the disposal of SES to more effectively conduct outreach campaigns, mapping exercises and examinations;  Proceed rapidly to draft and sign an agreement with the Ministry of Interior and Local Government to define coordination measures for sanctioning purposes and streamline the sanctioning process. 3.11.3. Compliance with Special Recommendation VI Rating Summary of factors underlying rating SR.VI PC  Lack of requirement to maintain and update lists of agents.  Weak implementation/supervision regime of requirements set by Circular No. 471/2005.  Resource constraints to effective monitoring and outreach.  Need for streamlined sanctioning process. - 171 - 4. PREVENTIVE MEASURES—DESIGNATED NON-FINANCIAL BUSINESSES AND PROFESSIONS Scope of application of AML/CFT requirements to DNFBPs 960. The Philippines has not yet extended AML/CFT obligations to its DNFBP sector, except the trust departments of banks, trust corporations and investment houses licensed by the BSP, which are “covered institutions� under the AMLA. 961. On 11 June 2008, further amendments to the AMLA were introduced to the Philippines Congress (in House Bill No 3053) which would include all DNFBPs as “covered institutions� and which would, therefore, extend CDD and reporting obligations to casinos, including internet casinos; real estate agents; dealers in precious metals; dealers in precious stones; and lawyers, notaries and accountants when they prepare for or carry out transactions for their clients’ money, monetary instrument, property or other assets. 962. However, because the House Bill No 5077, (substitute Bill to House Bills 3053 and 4784) had not come into force as of the time of the on-site visit or immediately thereafter, it has not been taken into account in the ratings for this assessment. 963. Discussions with DNFBP industry bodies indicate that there has been some outreach and consultation by the AMLC and there appears to be general support from DNFBPs for an expansion of AML/CFT controls over the sector. While much work remains to be done, this is a welcome initial development. Overview of the DNFBP sector in the Philippines 964. All categories of DNFBPs, as defined by the FATF, are found in the Philippines. There are approximately:  14 casinos, five of which are in the Metro Manila area;  49,634 lawyers;  124,931 certified public accountants (CPAs);  9,270 registered real estate brokers; and  739 dealers in precious metals and stones. 965. In the Philippines, notaries are members of the Bar commissioned by, and under the supervision of, Executive Judges of the Judicial Regions where they perform their notarial functions. Lawyers also usually provide trust and company services. Casinos 966. Under Presidential Decree No. 1869 entitled “Consolidating and Amending Presidential Decree Nos. 1067-A, 1067-B, 1067-C, 1399 and 1632, Relative to the Franchise and Powers of the Philippine Amusement and Gaming Corporation (PAGCOR)�, casinos are required to register with PAGCOR. In addition, Republic Act No. 7922 created the Cagayan Economic Zone Authority (CEZA) and granted CEZA the power to operate on its own, either directly or through a subsidiary entity, or license to others, tourism-related activities, including casinos, within the Cagayan Special Economic Zone. - 172 - 967. As of 31 May 2008, the number of casinos and internet gaming establishments granted authority by PAGCOR to operate was 130. 968. The total number of Gaming Licensees registered with CEZA as of 31 May 2008 is 39. Of these, none are for casinos. 969. Both PAGCOR and CEZA are government agencies under the direct supervision of the Office of the President (OP) of the Philippines. They are not, however, currently “Supervising Authorities� under the AMLA, although PAGCOR has agreed to voluntarily submit STRs to the AMLC. In 2007, the AMLC requested the OP to issue an Executive Order to require casinos and other gaming establishments, including internet casinos, to comply with the customer identification and due diligence, record keeping, and reporting of suspicious and covered transaction reports requirements of the AMLA. 970. The OP, in its letter dated 10 December 2007, advised the AMLC that a legislative amendment is needed to require casinos to comply with the aforementioned requirements as the present law did not define them as ‘covered institutions’. As noted above, a Bill is filed before the Congress to include casinos as covered institutions under the AMLA. 971. Under the PAGCOR's charter, persons allowed to play are: a) tourists and non-residents; b) residents with a gross annual income of at least US$1,000; and guests of the categories noted above. Approximately 80% of patrons are Philippine nationals and approximately 20% are from Chinese Taipei, Japan and Hong Kong, China. 972. Based on turnover figures provided by PAGCOR for July and August 2008, average monthly casino turnover is approximately PHP9 billion per month (or approximately US$180 million). 973. Casino junket operators, like casinos, are not regulated by the AMLC. In the Philippines, casino junket operators act more like tour operators, bringing patrons to a casino to gamble. It is still PAGCOR or the authorized franchisee/s which conducts the gambling operations. Unlike other casino junket operators in other jurisdictions, which are paid by the casinos based on the amount his or her customers wager or place on deposit at the casino cage as front money, Philippine casino junket operators are not paid by PAGCOR or its licensed franchisee. They gain revenue by fixing the travel logistics of the patrons. 974. There are no internet casinos in the Philippines, though internet gaming establishments, which are licensed either by PAGCOR or CEZA, do operate. 975. Overall, the assessors have serious concerns about the vulnerabilities of the casino sector in the Philippines to money laundering. The assessors were not convinced that the CDD and other measures currently in place are in any way commensurate with the risks, especially given the size of the sector, its turnover, and its client profile. Based on other countries’ experiences, typically organised crime members do frequent casinos and, unless comprehensive AML measures are in place, utilise casinos for ML purposes. In the view of the assessors, it is very important that effective AML measures be introduced to the casino sector as a matter of priority. Lawyers, Notaries and Accountants 976. The practice of law in the Philippines is under the supervision and regulation of the Supreme Court (SC) by virtue of its constitutional power “to promulgate rules concerning pleading, practice - 173 - and procedure in all courts, and the admission to the practice of law� (Section 5(5), Article VIII of the 1987 Constitution). As of 21 June 2008, there are 49,634 lawyers in the Philippines registered with the Integrated Bar of the Philippines (IBP), the SRO for lawyers. No specific AML/CFT provisions apply to lawyers. 977. A Code of Professional Responsibility was promulgated by the Supreme Court on 21 June 1988. It was initially drafted by the Committee on Responsibility, Discipline and Disbarment of the Philippines. Under Rule 139B, both the SC and the IBP can initiate a proceeding for disbarment, suspension or discipline of a lawyer upon the verified complaint of any person, appointing an investigator to probe the complaint. Whether initiated and investigated by the IBP or the SC, it is the SC which ultimately decides the case. 978. The laws and regulation governing notaries public include: Sections 231 and 252 and Sections 2632 to 2633 of the 1987 Revised Administrative Code of the Philippines; Section 11, Rule 141 of the Rules of Court; and A.M. No. 02-8-02 SC, promulgated by the Supreme Court (En Banc) on 13 August 2002 and which took effect on 2 September 2002. 979. Accountants are subject to regulation by the Professional Regulation Commission (PRC), through its Board of Accountancy (BOA), pursuant to Republic Act No. 9298. The BOA has powers to supervise the registration and licensing of accountants, to revoke licenses, to prescribe and/or adopt a Code of Ethics for the practice of accountancy; to monitor the condition affecting the practice of accountancy and adopt such measures, including promulgation of accounting and auditing standards, rules and regulations and best practices as may be deemed proper for the enhancement and maintenance of high professional, ethical, accounting and auditing standards. The Code of Ethics promulgated by the BOA in the Philippines is an adoption of the IFAC Code of Ethics. 980. The BOA has internal disciplinary procedures to handle complaints. Accountants are required to comply with a code of professional conduct and complete continuing professional education. However, the BOA does not have a specific AML/CFT role and no specific AML/CFT provisions apply to auditors or accountants. 981. As of 20 June 2008, there are 124,931 registered Certified Public Accountants registered with the PRC. The Philippine Institute of Certified Public Accountants (PICPA), the SRO for accountants, estimates that 20,000 – 25,000 of all registered accountants are currently active. In the Philippines, the PRC and BOA are the government regulating bodies to accredit CPAs and to enforce the adoption of standards of the profession. The PICPA is the citizen arm to act on the same and to assist the BOA. PICPA disseminates information for the BOA to members and provides assistance to members in accreditation and licensing matters. Unlike in other countries, PICPA is not the body which accredits individuals to practice which is done by the PRC through BOA. 982. If a complaint is received about a CPA and he/she is a member of PICPA, the complaint is received by PICPA for action by the Ethics Board. If, following investigation, the recommendation by the PICPA relates to cancellation or non-cancellation of membership, then the matter is forwarded to the BOA for further action or removal from the roster, after due investigation and review by the BOA. If the complaint is about a CPA whose membership in PICPA is not of good standing, the same is received by PICPA for forwarding to the BOA for appropriate action, the complaint can also be filed directly with the BOA. 983. On the proposed inclusion of lawyers and accountants as covered institutions/individuals under the AMLA, the AMLC sought the assistance of the SC, the IBP, and the PRC and the BOA, to comply with the requirements of the AMLA specifically in relation to CDD, record keeping and - 174 - submission of CTRs and STRs. Various dialogues have been conducted by the AMLC to explain to the SC, IBP and PRC the necessity of lawyers and accountants complying with these requirements. To date, the AMLC’s request is under evaluation by the agencies concerned. In meetings with the assessors during the on-site visit, both the IBP and the PICPA raised concerns about current client privilege and the need for amendment to current confidentiality/secrecy provisions to permit the reporting of suspicious and covered transactions. Trust and Company Service Providers (TCSPs) 984. The function and role of company service provider (as a professional service) is almost always carried out by lawyers who, as noted above, are not covered under the AMLA. However, it is not necessary to use the services of a lawyer to form a company. 985. As to trust services, as noted above, these are provided by the trust department of banks, trust corporations and investment houses, duly licensed by the BSP, under Section 79 of RA No. 8791 also known as “The General Banking Law of 2000�. Being covered institutions under BSP supervision, stock corporations or persons duly authorized by the Monetary Board to engage in trust business are subject to the same AML/CFT requirements (customer identification, record keeping and reporting of covered and suspicious transactions) as banks. Real Estate Agents 986. The Department of Trade and Industry (DTI), through its Bureau of Trade Regulation and Consumer Protection (BTRCP), has the authority to issue licenses to commercial brokers and real estate brokers and appraisers, with the exception of brokers of stocks and securities (Section 2(c) of Presidential Decree No. 721 entitled “Further Amending Part IX of the Integrated Reorganization Plan by Reconstituting the Department of Trade� and Executive Order No. 574 dated 7 December 1979). The BTRCP provides examinations for those who want to be issued a license as a commercial broker or real estate broker. 987. In addition to the licensing requirement, real estate agents or brokers are required to register with the Housing and Land Use Regulatory Board (HLURB) before they can engage in the business of selling subdivision lots or condominium units. Currently, there are 9,270 real estate brokers in the Philippines. Concerns were expressed by the industry associations concerning the operation of unlicensed brokers and attempts are being made by the DTI and the industry bodies to increase the professionalization of the industry. 988. The DTI and HLURB are not “Supervising Authorities� under the AMLA. Consequently, entities subject to their supervision or regulation are not covered institutions under the AMLA. Dealers in Precious Metals and Dealers in Precious Stones 989. Republic Act No. 8502, otherwise known as the “Jewelry Industry Development Act of 1988�, governs the jewelry industry in the Philippines. In order to avail of certain incentives and tax exemptions, dealers must register with both the Bureau of Customs and the Board of Investments (BOI) of the Department of Trade and Industry (DTI). The Revised Rules and Regulations Implementing (RIRRs) RA No. 8502, signed in 2004, set out accreditation requirements in greater detail. The BOI conducts visual inspection of the jewelry enterprise’s production premises as part of the process for registering such enterprises. - 175 - 990. Taking into account the number of dealers in precious metals and precious stones registered with the DTI and the SEC, there were 739 dealers in precious metals and precious stones as of 31 December 2007 (the DTI does not have information on the number of suppliers of gold). Of these dealers, 388 are members of one of the eight relevant industry associations, as described in Table XLIV. 991. The associations cited above compose the Confederation of Philippine Jewellers, Inc, which is the umbrella organization of jewellers’ associations in the Philippines. The Confederation estimated that there are less than 100 dealers selling precious stones. 992. The estimated annual turnover of dealers in precious metals and precious stones is PHP5 billion (US$106m) domestically, and for 2007 there were US$265 million in exports, as described in Table XLV. 4.1. Customer Due Diligence and Record-keeping (R.12) (applying R.5, 6, and 8 to 11) 4.1.1. Description and Analysis 993. CDD and record keeping requirements are generally not applicable to DNFBPs in the Philippines, except for the trust department of banks, trust corporations and investment houses licensed by the BSP, which are covered institutions under the AMLA, and are therefore required to observe the customer due diligence and other compliance requirements (see section 3 of this report for detailed description and analysis of these requirements). In addition, investment houses without quasi-banking licenses are subjected to the same supervision by the SEC for AML measures as other entities such as broker dealers, financing companies etc. 994. In the casino industry, representatives of PAGCOR (which both regulates and operates casinos in the Philippines) indicated that their playing tracking system enables the identification of many clients, but use of this system is voluntarily and does not guarantee that clients are identified. Indeed, in the view of the assessors, a person seeking to launder funds would be very unlikely to submit to such a system voluntarily. PAGCOR estimated that approximately 80% of all casino clients were domestic, though foreign nationals (from Korea, Japan and Chinese Taipei) also use casinos. As noted above, junket tours operate in the Philippines. ‘High rollers’ are required to produce a passport and to receive a clearance from the NBI. However, the mechanics and effectiveness of this system was not made clear to the assessors (for example, it is understood that the NBI clearance would only cover local databases, not foreign) and its value therefore cannot be determined. 995. In relation to accountants, the Code of Ethics does not prescribe procedures for private accountants to identify their clients, but the bigger firms do in practice have their own KYC policies and procedures and many smaller firms would in fact know their clients. 996. Real estate agents use a Buyer’s Information Sheet which requires them to sight a passport or other authenticated form of official identification. While most sales would go through banks, direct private sales do occur. 997. In relation to dealers in precious metals/stones, CDD is not stringently applied where payment is made in cash, though it was stated by industry representatives that very large cash transactions are uncommon, with many purchases being paid for by installments, in which case the dealer will gather information on the identity of their customer, or by credit card. - 176 - Proposed amendments to the AMLA 998. As noted above, House Bill No 5077 would define as “covered institutions� for the purposes of the AMLA “non-financial businesses and professions such as casinos, including internet casinos; real estate agents; dealers in precious metals; dealers in precious stones; and lawyers, notaries and accountants when they prepare for or carry out transactions for their clients’ money, monetary instrument, property or other assets.� 999. The proposed extension of the AMLA to these professions is very welcome. It should be noted that, unless specific transaction limits are to be defined elsewhere for the DNFBPs (for example in the Implementing Rules and Regulations), the proposed definition would appear to apply to all transactions undertaken by such businesses and professions regardless of threshold and might therefore impose a considerable CDD and reporting burden on DNFBPs. In other words, for CDD purposes, there appears to be no reference to the transaction threshold limits contained in the FATF definition of DNFBPs for casinos (US$/EUR 3,000) or dealers in precious metals/stones (cash transactions with a customer equal to or above US$/EUR 15,000. It is understood that the rationale behind this approach is to treat all reporting entities in a consistent manner and to avoid any confusion over transaction limits for “covered transactions� under the AMLA. This will effectively impose a higher standard for CDD for DNFBPs than is required by the FATF which will need to be carefully managed and supported by the authorities. 1000. It is also noted that, unless it is to be defined elsewhere (for example in the Implementing Rules and Regulations of the AMLA, as amended, or in other legislation), no “Supervising Authorities� are specified in House Bill No 5077 for the various non-financial businesses and professions for the purposes of the AMLA. It is understood that this approach is intended to allow the authorities some flexibility in determining the appropriate supervision/monitoring mechanism for each DNFBP, including possible use of SROs, once the amendments to the AMLA are passed. Analysis of effectiveness 1001. Given the lack of formal coverage of the DNFBP sector, there is no/very little effective implementation of AML/CFT requirements 4.1.2. Recommendations and Comments 1002. There has been outreach by the AMLC to various DNFBP sectors. There is application of AML/CFT requirements to the trust departments of banks, trust corporations and investment houses, and investment houses. Essentially, however, there are no CDD or record-keeping requirements extending to DNFBPs in the Philippines. 1003. There is, however, draft legislation filed before the Philippines Congress (House Bill No 5077) which, if enacted, would extend CDD and record keeping requirements to the sector by including DNFBPs as ‘covered institutions’ under the AMLA. 1004. The assessors recommend that the Philippines should:  Enact the necessary amendments to the AMLA and other laws, as soon as possible, including: - 177 - i. Determine how to deal with the issue of legal professional secrecy for lawyers, notaries, other independent legal professionals and accountants acting as independent legal professionals; ii. Determine the mechanics of an effective regulatory and supervisory framework for DNFBPs, designate the AML/CFT supervisory authorities for the different sectors and provide them with appropriate training, guidance and resources; iii. Request the AML/CFT supervisory authorities to prepare sector regulations, guidelines and to conduct outreach for each sector to enhance compliance with the AMLA.  Carry out further awareness programs with each of the DNFBPs. 4.1.3. Compliance with Recommendation 12 Rating Summary of factors relevant to s.4.1 underlying overall rating R.12 NC  CDD obligations do not apply to the DNFBP sector, other than the trust department of banks, trust corporations and investment houses 4.2. Suspicious Transaction Reporting (R.16) (applying R.13 to 15 & 21) 4.2.1. Description and Analysis 1005. As noted previously, except for the trust department of banks, trust corporations and investment houses duly licensed by the BSP, DNFBPs are not covered institutions, hence, they are not obliged to report suspicious transactions to the AMLC. 1006. In the absence of a requirement or authority to report STRs under the AMLA, PAGCOR has agreed to report suspicions of unlawful activity to the NBI. In one instance, PAGCOR reported the activities of an illegal internet casino to the NBI and the AMLC. An estimated PHP30 million (US$600,000) worth of equipment such as casino tables, digital video cameras, television sets, and other casino gadgets were confiscated by law enforcement authorities. The officers of the company, including four foreign nationals, are facing charges of illegal gambling. 1007. As noted above, amendments are proposed to the AMLA which would require DNFBPs to report suspicious transactions. In relation to lawyers, the IBP raised concerns with the assessors over the proposed reporting requirements and the fact that lawyers are prohibited both by the general application of legal professional privilege and by the specific application of the criminal law from reporting on the behavior of a client. This privilege is set out in Rule 130 of the Rules of Court, to wit: “24. Disqualification by reason of privileged communication. — The following persons cannot testify as to matters learned in confidence in the following cases: (…) - 178 - (b) An attorney cannot, without the consent of his client, be examined as to any communication made by the client to him, or his advice given thereon in the course of, or with a view to, professional employment, nor can an attorney's secretary, stenographer, or clerk be examined, without the consent of the client and his employer, concerning any fact the knowledge of which has been acquired in such capacity.� 1008. Similar concerns about client privilege were expressed by the accounting profession. 1009. There are no specific STR requirements for precious stones and precious metals dealers. The Confederation of Philippines Jewellers Inc, the peak industry body, indicated that it had attended training seminars on ML issues and had passed on this information to its members, and that it stood ready to play its part in the AML/CFT regime. 1010. Representatives of the real estate industry, while indicating their willingness to cooperate in AML/CFT efforts, expressed concern over the possible impact on the industry of the requirement to report all ‘covered transactions’ above the current PHP500,000-threshold. Given the cost of real estate, such transactions would constitute a majority of transactions, even in the low cost sector. Industry representatives indicated that use of cash was uncommon (less than 10% of transactions) and that most transactions were conducted through banks. Analysis of effectiveness 1011. There is no effective implementation of any requirements. 4.2.2. Recommendations and Comments 1012. The assessors recommend that the Philippines should further amend the AMLA so that:  DNFBPs are required to report STRs. In doing this, authorities should determine how to deal with the issue of legal professional secrecy, as well as practical concerns raised by the real estate industry;  DNFBPs, their directors, officers, and employees are protected from liability for reporting STRs;  DNFBPs, their directors, officers, and employees are prohibited from tipping off that an STR has been made;  DNFBPs are required to develop programs against ML and TF; and,  DNFBPs are required to give special attention to business relationships and transactions with countries that do not or insufficiently apply the FATF Recommendations as required by R.21 (also see detailed comments under Rec. 14, 15 and 21). 1013. In addition, the AMLC and the various sector-supervisors should conduct further outreach within the sectors as to the new obligations under the AMLA, and conduct training to improve the various sectors’ understanding of money laundering typologies and ability to detect suspicious transactions. - 179 - 4.2.3. Compliance with Recommendation 16 Rating Summary of factors relevant to s.4.2 underlying overall rating R.16 NC  STR obligations do not apply to the DNFBP sector, other than the trust department of banks, trust corporations and investment houses 4.3. Regulation, Supervision, and Monitoring (R.24-25) 4.3.1. Description and Analysis Regulation and Supervision of Casinos (c. 24.1, 24.1.1, 24.1.2 & 24.1.3): 1014. Casinos and gaming operators are not covered institutions under the AMLA. There is no effective regulation and supervision of casinos for AML/CFT purposes. Given the size of this sector in the Philippines, this needs to be addressed as soon as possible. 1015. Some preliminary steps have been taken. As noted above, PAGCOR has agreed to voluntarily submit reports on the suspicious activities of casino operators or their patrons, though few such reports have in fact been made. The AMLC has provided guidance to PAGCOR, as regulator and operator of casinos, through a risk assessment and gaming trainings conducted by the Office of Technical Assistance (OTA) of the US Department of Treasury, in coordination with the AMLC. While welcome, these initiatives are not however effective and comprehensive regulation and supervision of casinos for AML/CFT. 1016. Casinos are subject to a licensing requirement. The licensing process is one of the measures employed by PAGCOR and CEZA to determine whether the applicants possess the required qualifications to operate a casino. The licensing process requires a declaration as to whether an individual applicant or officers or employees of an applicant entity have been convicted of an offence, been investigated or charged by a law enforcement agency for an offence committed in the Philippines or elsewhere. In addition, the applicant must disclose whether it has been the subject of any investigation by a Government Authority or Department or any of its equivalents abroad and whether the applicant company has had civil proceedings against it and had any significant litigation in progress or pending. Monitoring Systems for Other DNFBPs (c. 24.2 & 24.2.1): 1017. In the absence of any AML/CFT requirements, the other categories of DNFBP are not subject to effective systems for monitoring and supervision for AML/CFT. Guidelines for DNFBPs (applying c. 25.1): 1018. No guidelines have been issued for DNFBPs as none of them are subject to AML/CFT requirements. Analysis of effectiveness 1019. There is no effective implementation of any requirements. - 180 - 4.3.2. Recommendations and Comments 1020. The Philippines should:  take steps to regulate/supervise/monitor the full range of DNFBPs for AML/CFT purposes as soon as possible; and  in particular, ensure that the casino sector is made subject to a comprehensive regulatory and supervisory regime for AML/CFT purposes as soon as possible, given the size of the sector in the Philippines, the proven risk of ML in the casino sector internationally, and the current lack of comprehensive and effective CDD measures and reporting in the sector. 4.3.3. Compliance with Recommendations 24 & 25 (criteria 25.1, DNFBP) Rating Summary of factors relevant to s.4.3 underlying overall rating R.24 NC  There is no effective regulation and supervision of casinos for AML/CFT purposes.  In the absence of any AML/CFT requirements, the other categories of DNFBP are not subject to effective systems for monitoring and supervision for AML/CFT. R.25 PC  No guidelines have been issued for DNFBPs as none of them are subject to AML/CFT requirements 4.4. Other Non-Financial Businesses and Professions—Modern-Secure Transaction Techniques (R.20) 1021. The Methodology provides the following examples of businesses or professions to which countries “should consider� applying the FATF Recommendations: dealers in high value and luxury goods, pawnshops, gambling, auction houses and investment advisers. 4.4.1. Description and Analysis Other Vulnerable DNFBPs (applying R. 5, 6, 8-11, 13-15, 17 &21 c. 20.1): 1022. Under the Philippines framework, pawnshops are considered Non-Bank Financial Institutions without quasi-bank functions, and are subject to BSP supervision and to AML/CFT obligations as provided by Section 3(a)(1) in the AMLA. Pawnshops are a significant presence on the Philippines landscape, accounting for more than 13,000 outlets as of 2007As provided by PD No.114, under the Philippines legal framework pawnshops shall be defined as: “a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably with pawnbroker or pawnbrokerage� 1023. It should be noted, however, that the monitoring of pawnshops has been facing resource constraints especially in terms of manpower, given the means at the disposal of the SES and the great number of operating outlets. Since the 2003 Mutual Evaluation assessors had raised the issue of - 181 - improving supervision of such entities, the BSP should consider reinforcing the unit tasked with supervision of pawnshops. Modernization of Conduct of Financial Transactions (c. 20.2): 1024. Regulators in the Philippines, and the BSP in this specific case, made very significant efforts to ensure that ML/TF risk mitigation measures could be implemented without thwarting the development and entry into the market of new financial service technologies. 1025. As described in more details in section 3.2 of this report, the BSP has issued three circulars since 2000, providing guidelines to covered institutions with regard to electronic banking and mandating any banking institutions planning to launch electronic banking products to seek the approval of the BSP. Such authorization is the result of an elaborate evaluation process aimed at verifying that all the necessary conditions in terms of risk management systems, available capital and technical arrangements are in place to comply with existing rules and to perform safe transactions. 1026. Through the process, the BSP seeks to work in close contact with the system developers and marketers, in order to tailor regulatory requirements to the specific product, and minimize the impact on access and profitability. Furthermore, the third and most recent circular on electronic banking (BSP Circular No. 542 of 2006) goes into significant detail in describing the necessary requirements that entities must satisfy to reconcile consumer protection, ML/TF and other risk management requirements and business development imperatives. The circular includes appendixes addressing such issues with specific reference to ATM operations, internet/wireless and credit card transactions. 4.4.2. Recommendations and Comments 1027. Local authorities should undertake a risk assessment of other DNFB sectors (such as luxury items dealers and auction houses) and based on that consider including them under the AMLA. 1028. There is little doubt that BSP regulators have sought to find a path to reconcile AML/CFT requirements and measures with the development of new, innovative financial transaction systems able to make transactions less costly, more secure and easier to access. No similar initiatives, however, have been initiated by other supervisors. 1029. As a matter of fact, the pioneering approach of the BSP in regulating mobile financial services is a case in point, enabling business models to provide affordable transactions to mobile phone subscribers residing in areas where traditional financial infrastructure is scarcely present. In addition, the AMLC has recognized how electronic transactions, and mobile transactions in particular, significantly enhance the traceability of financial flows for AML and CFT investigation purposes. 1030. What is needed now is to provide a legal basis to include non-banking institution not currently registered with the BSP - but eager to engage in modern technology-based services - within the existing framework. At the time of the assessment, CITSG had drafted a circular on e-money that would place non-bank institutions, such as telcos wishing to be e-money issuers, within the regulatory ambit of the BSP. The circular was eventually issued on March 9, 2009. - 182 - 4.4.3. Compliance with Recommendation 20 Rating Summary of factors underlying rating R.20 LC  Authorities have not considered AMLA coverage other than for pawnshops, efforts remain to be made to ensure effective and capillary supervision of pawnshops - 183 - 5. LEGAL PERSONS AND ARRANGEMENTS & NON-PROFIT ORGANIZATIONS 5.1. Legal Persons—Access to Beneficial Ownership and Control Information (R.33) 5.1.1. Description and Analysis Legal Framework: 1031. Under Philippine law legal persons are governed by the provisions of the Corporation Code of the Philippines (the “Corporation Code�) of 1980. It provides for two types of corporations, stock and non-stock corporations. Non-stock companies include non-profit organisations (see 5.3). Other than cooperatives and other NPOs and partnerships no other legal persons can be formed under Philippine law. Partnerships will not be further discussed in this section. Measures to Prevent Unlawful Use of Legal Persons (c. 33.1): 1032. Corporations are incorporated by natural persons. The owners of a stock corporation are called stockholders, while for non-stock corporations, they are called members. A stock corporation is run by a Board of Directors. A non-stock corporation is run by a Board of Trustees. The corporation may appoint other officers such as President, Vice-President, Secretary, Treasurer, Comptroller and General Manager. A director, including an incorporating director, must own at least one (1) share of the capital stock, which share must stand in his name during his term. 1033. All corporations should register with the Securities and Exchange Commission (SEC) Registration gives the business entity legal personality, giving it the right to operate under its corporate or partnership name in accordance with its stated purposes. Upon application for registration, corporations are required to comply with Sections 10-15 of the Corporation Code of the Philippines. They should file articles of incorporation with the SEC (Section 14 Corporation Code) containing substantially: a. The name of the corporation; b. The specific purpose or purposes for which the corporation is being incorporated. Where a corporation has more than one stated purpose, the articles of incorporation shall state the primary purpose and which is/are the secondary purpose or purposes: Provided, That a non-stock corporation may not include a purpose which would change or contradict its nature as such; c. The place where the principal office of the corporation is to be located, which must be within the Philippines; d. The term for which the corporation is to exist; e. The names, nationalities and residences of the incorporators; f. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15); g. The names, nationalities and residences of persons who shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified; h. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the Philippines, the number of shares into which it is divided, and in case the - 184 - share are par value shares, the par value of each, the names, nationalities and residences of the original subscribers, and the amount subscribed and paid by each on his subscription, and if some or all of the shares are without par value, such fact must be stated; i. If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences of the contributors and the amount contributed by each; and j. Such other matters as are not inconsistent with law and which the incorporators may deem necessary and convenient. 1034. Changes in the articles of incorporation are to be submitted for approval to the SEC (section 16). 1035. The Corporation Code of the Philippines allows a foreign corporation to acquire juridical personality in the Philippines by first obtaining a license to do business in the country from the SEC. To obtain such license the foreign corporation must submit certain information (Sec 125) amongst which name and address of the resident agent, the specific purpose which it intends to pursue, the names and addresses of the present directors and officers of the corporation and other information the SEC considers necessary or appropriate. It also needs to submit information about its authorized and outstanding capital but no information on major shareholders. Branch offices and representative offices of foreign corporations register with the SEC under the provisions of Title XV of the Corporation Code. Regional Headquarters (RHQs) and Regional Operating Headquarters (ROHs) of multinational companies must also register with the SEC. These foreign corporations are required to appoint resident agents in the Philippines. 1036. All corporations (domestic or foreign) are required to file annual reports, the General Information Sheet (GIS) and Audited Financial Statements (AFS) with the SEC. The GIS contains details on the ownership, membership and management of the corporation. The AFS reflects the financial status of the entities, which may include detailed information on the properties of the corporation. Domestic stock corporations are mandated by Section 74 of the Corporation Code of the Philippines to maintain in their principal office a Stock and Transfer Book (STB) duly registered with the SEC, containing the details on the stock ownership. The SEC, as part of its supervisory powers, may inspect the STB and other books and records of the corporation. 1037. Changes on ownership of stocks are required to be reported in the General Information Sheet (GIS) of the corporations. Before registration, corporations are required to submit Treasurer’s Affidavits, stating that the corporations allow the SEC to examine the pertinent books and records of accounts of the corporations, as well as all supporting papers to determine the utilization and disbursement of its paid-up capital. 1038. As of 31 August 2008, there were 295,551 active corporations (198,809 stock and 96,742 non- stock). Access to Information on Beneficial Owners of Legal Persons (c. 33.2): 1039. The information held by the SEC on all corporations is accessible to law enforcement agencies. In practice, the NBI and other law enforcement agencies frequently liaise with the SEC to obtain information. The information is held in a database and can be supplied instantaneously. In cases with no foreign involvement the information supplied by the SEC should be sufficient to allow for the identification of the beneficial owner the STB and the GIS supplying the necessary information. In - 185 - the case of foreign companies most relevant information is supplied, but no information needs to be submitted on the identity of shareholders. Prevention of Misuse of Bearer Shares (c. 33.3): 1040. Pursuant to Section 63 of the Corporation Code no bearer shares are allowed to be issued by legal persons. Analysis of effectiveness 1041. Unlike many registration authorities, the SEC plays an active role in verifying the information supplied to it by registered corporations. Under presidential Decree 902-A of 1976, on the reorganization of the SEC with additional powers, the SEC was granted strong enforcement powers to rectify incorrect information, to impose penalties and to revoke licenses. One of the documents that is important in this respect is the GIS, which is a notarized document with a sworn statement from the corporate secretary. If it is not filed for five years the registration of the corporation is automatically revoked. For NPOs this period is 2 years. If the information supplied on the GIS is false, the SEC can take enforcement action. Currently there are 5 criminal cases pending based on false information supplied in the GIS. The SEC will also move for filing a petition for revocation of the license of the companies involved. 1042. The SEC may take action upon complaints from the public but can also do so of its own accord. It actively monitors corporations’ compliance with reporting requirements focusing on different target groups each year. In 2007 for instance it focused on the monitoring of foundations, corporations registered in 2001 and regional operating headquarters of multinationals, revoking a total of 1,156 certificates of incorporation and imposing fines on 4,759 corporations. 1043. There is case law however which is relevant on this question. (Ref G.R. No 105938 September 20, 1996). It concerns an investigation by the Presidential Committee on Good Government seeking to recover alleged ill-gotten wealth, including shares in certain corporations. It found that the shares were held by a group of lawyers, who were all partners in the same law firm, on behalf of an undisclosed client. They refused to reveal the identity of their client and that issue went all the way up to the Supreme Court. The Supreme Court found that, although as a rule lawyers have a duty to reveal the identity of their client, it not normally being subject to legal privilege, under the circumstances of this case “where revelation of the client’s name would obviously provide the necessary link for the prosecution to build its case where none otherwise exists�, it has “no choice but to uphold petitioner’s [the law firm’s] right not to reveal the identity of their clients.� In a country where lawyers are frequently employed in corporate transactions this could constitute a serious impediment to obtaining beneficial ownership information. 5.1.2. Recommendations and Comments 1044. The relatively straightforward registration system of corporations and the activist role the SEC plays to ensure accurate and up-to-date information allow for adequate access for law enforcement to obtain beneficial ownership information, except for information on ownership of foreign corporations who have established corporations in the Philippines. Using its discretionary power to obtain further relevant information, the SEC may wish to consider obtaining information on major shareholders of non-listed corporations setting up corporations in the Philippines. - 186 - 1045. The Supreme Court ruling referenced above appears to be an obstacle to obtaining beneficial ownership information in cases where lawyers act as incorporators/shareholders for clients. It is unclear whether this is a significant problem, but the potential for abuse of legal privilege is clear. 5.1.3. Compliance with Recommendations 33 Rating Summary of factors underlying rating R.33 PC  No information on beneficial owners of foreign parent companies of Philippine corporations.  Beneficial ownership information not accessible where lawyers act as nominee shareholders. 5.2. Legal Arrangements—Access to Beneficial Ownership and Control Information (R.34) 5.2.1. Description and Analysis Legal Framework: 1046. Under Philippine law the only possible legal arrangement is the trust, as defined in the Civil Code. Trustee services are governed by the provisions of the General Banking Law of 2000. Foreign trusts are not a feature of the Phillipine system. Measures to Prevent Unlawful Use of Legal Arrangements (c. 34.1) and Access to Information on Beneficial Owners of Legal Arrangements (c. 34.2): 1047. Trusts are governed by the Civil Code of the Philippines. Article 1440 of the Civil Code thereof provides that: “A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary�. 1048. According to section 79 of the Banking Law only a stock corporation or a person duly authorized by the Monetary Board can act as a trustee or administer any trust or hold property in trust or on deposit for the use, benefit, or behalf of others. The trustee is known as a trust entity. 1049. As noted in 4.1, trust entities qualify as covered institutions under the AMLA (section 3 (a)). Currently there are 47 trust entities registered with the Monetary Board of which 40 banks and 7 investment houses. No individuals, such as lawyers, are currently so qualified. 1050. As covered entities, trust entities are obliged to conduct CDD and identify and know the trustor and beneficiary. The annual examination of trust entities has not discovered any deficiencies in this sector. 1051. In the event that law enforcement agencies would require access to information on the trustor or beneficiary of a trust, authorities stated that such a request would probably (the situation has never occurred) have to go through the AMLC. Since most assets in trust are being held in banks and non- bank financial institutions, the AMLC would use its authority to inquire into “any particular deposit or investment with any banking institution or non-bank financial institutions� pursuant to section 11 - 187 - of the AMLA to gather further information. In most cases- except for kidnapping for ransom, drugs offences and certain terrorist offences- this would require a court order. 5.2.2. Recommendations and Comments 1052. The sector of trust entities appears compact and transparent. Although there is no established procedure for obtaining information on beneficiaries and trustors, the suggested course of action seems plausible. That would allow access to beneficial ownership information, be it that the procedure of going through the AMLC and obtaining a court order can be somewhat cumbersome (see section 2.6). 5.2.3. Compliance with Recommendations 34 Rating Summary of factors underlying rating R.34 LC  Accessing beneficial ownership information on trusts likely cumbersome procedure 5.3. Non-Profit Organizations (SR.VIII) 5.3.1. Description and Analysis Overview 1053. The Philippines has a very large and diverse NPO sector. The 1987 Philippine Constitution recognizes the right to organize non-government organizations and people’s organizations. Various laws govern the operation of different types of non-profit organizations (broadly defined), including the Corporation Code, the Cooperative Code, and the Labor Code. Various government agency and local government issuances govern the registration, accreditation and licensing of non-profit organizations (NPOs), which are required for these organizations to obtain a juridical personality and to participate in public sector-initiative programs and projects and operate bank accounts. Most NPOs are tax-exempt. There have also been self-regulation initiatives in the NPO sector. 1054. According to the most recent comprehensive study, there were around a quarter of a million to half a million NPOs in the country in 1997. More than half of this number was registered with national government agencies and were accredited by local government units. Many NPOs are not registered because they are not required to do so by law, nor is there a law prohibiting them from operating without formal registration given the constitutional right to form organizations or associations. Examples of non-registered organizations/associations include neighborhood clubs and sporting groups. Some unregistered NPOs conduct activities, generate funds and use proceeds for charitable purposes. 1055. While registration is not required for the existence of NPOs, it is a requirement for NPOs to obtain a legal personality in order for them to be eligible to open bank accounts, to enter into contracts, and to raise public funds. NPOs usually obtain their primary registration from any of the following state agencies: - 188 - Table D Primary registration agencies for NPOs Registering Agency Appropriate NPO (and the legal basis) 1. Securities and Exchange Commission All non-stock, non-profit corporations (SEC) (Corporation Code of the Philippines) 2. Cooperative Development Authority Cooperatives (Cooperative Law of the (CDA) Philippines and the Cooperative Development Authority Act) 3. Department of Labor and Employment Labor unions and federations; rural (DOLE) workers’ associations (Labor Code of the Philippines) 4. Housing and Land Use Regulatory Board Homeowners’ associations (Republic Act (HLURB) 8763, Housing Guarantee Act) 1056. As of 2007-08, registered organizations include, by legal type, around 96,000 non-stock corporations (of which 19,000 are foundations), 70,000 cooperatives, 15,000 workers organizations and trade unions, and 5,000 homeowners associations. 1057. For the purposes of this analysis, only the entities registered by the SEC as non-stock, non- profit corporations have been examined in detail, following the FATF definition of ‘non-profit organisations’ (“a legal entity or organization that primarily engages in raising or disbursing funds for purposes such as charitable, religious, cultural, educational, social or fraternal purposes, or the carrying out of other types of ‘good works’�). 1058. Most non-stock organizations are small; the median size of the income and expenditures and assets and liabilities of these non-stocks is around PHP100,000.00 and PHP750,000.00 (US$2,100- 15,800). Using the weighted SEC-registered non-profit estimate of expenditures, the estimated revenues of the non-profit sector are around PHP 40.8 billion, or around US$ 864 million (or 1.7 percent of the country’s gross domestic product). 1059. Systems for licensing and accreditation vary depending on the orientation or specific purpose of particular national agency or local government units. National government agencies have developed accreditation systems, or at a minimum, have set up NPO liaison desks with screening and accreditation functions. NPOs in the Philippines have further developed the accreditation process with the launching of a certification body– the Philippine Council for NGO Certification (PCNC). 1060. Foreign NPOs wishing to do business in the Philippines are required to obtain a license from the SEC as a branch or representative office and to meet similar registration requirements to domestic NPOs, including designation of a resident agent. In addition, foreign NPOs are required to submit annual audited financial statements and a General Information Sheet to the SEC. 1061. The Philippines recently completed a comprehensive review of its NPO sector. The project’s final output, The NPO Sector Assessment: Philippine Report (the NPO Sector Report), was completed in August 2008 and describes the laws and other measures applicable to NPOs in the Philippines. The Report can be accessed at www.codengo.org. While the Report was not designed for - 189 - the specific purpose of ensuring or assessing compliance with SRVIII, the information provided in the NPO Sector Report was nonetheless very useful for the purposes of this assessment. 1062. While a formal assessment of the risk of terrorist financing through NPOs has not been conducted, there has been one terrorist related case involving an NPO – the International Islamic Relief Organization (IIRO), whose funds were made subject to confiscation pursuant to Section 12 of the AMLA. In addition, discussions with relevant agencies during the on-site visit indicated that there is a real risk of NPOs, and funds being provided to NPOs for legitimate purposes, being misused for terrorist financing purposes, given the size and profile of the NPO sector in the Philippines. Legal Framework: 1063. The following are some of the major laws and/or measures applicable to relevant NPOs in the Philippines: a. The Corporation Code of the Philippines Title XI (Sections 87-95) of the Corporation Code of the Philippines provides for the definition of non-stock corporations, its purposes, members, trustees and officers as well as distribution of their assets. Under Section 88 of the Corporation Code, non-stock corporations may be formed or organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry, agricultural and like chambers or any combination thereof. Under section 141 of the Corporation Code, all corporations are required to submit an annual report, together with a financial statement of its assets and liabilities, certified by an independent certified public accountant in appropriate case, to the SEC. b. SEC Memorandum Circular No. 8, Series of 2006, or the Revised Guidelines on Foundations, provides for the definition of foundation, registration and reporting requirements, as well as the authority of the SEC to conduct audits of foundations’ books. Section 8 of the Circular requires all Foundations to deposit all of their funds in a banking institution regulated by the BSP. Foundations are required to submit annual audited financial statements, which must include information concerning source and amount of funds, planned, ongoing and accomplished activities and application of Funds. Where a foundation fails to submit the required documents for two consecutive years, the SEC may, after due notice and hearing, revoke the registration of the foundation. c. Insurance Code. As well as covering mutual benefit associations (not considered here as NPOs), Presidential Decree No. 612 contains relevant provisions concerning ‘trusts for charitable uses’. There are five such trusts in the Philippines, which are organized without capital stock and not for profit but for the purpose of extending grants to support raising of funds for charitable, religious, educational, social welfare and other similar objectives. Before a trust for charitable uses may transact business, it must first secure a license from the Insurance Commissioner. The application for such a license must be filed with the Commissioner together with certified true copies of the articles of incorporation and by-laws of the said trust for charitable uses. Trusts for charitable purposes are also required to submit detailed annual statements, including audited financial statements. d. IC Circular Letter No. 15-2007 dated 7 August 2007. This circular provides to trust associations for charitable uses guidance in complying with the “Know-Your-Customer� and continuing due diligence requirements under the AMLA. - 190 - e. IC Circular Letter No. 32-2006 dated 18 September 2006. This circular provides guidance to all covered institutions under the supervision or regulation of the IC, including NPOs such as trusts for charitable uses in the formulation of control measures and procedures against money laundering and financing of terrorism. f. Department of Social Welfare and Development (DSWD). The DSWD, through its Standards Bureau and its regional offices, oversees the registration, licensing and accreditation of social work agencies and social welfare and development agencies. Social welfare and development agencies are non-profit or profit entities, either individual or group, public or private, that primarily engage in the provision of social welfare programs and services, to one or more disadvantaged or vulnerable groups. There are 2,273 NPOs registered with the DSWD. The DSWD also develops quality assurance measures and regulates the implementation of SWD policies, rules and regulations. The DSWD has entered into a Memorandum of Agreement with the SEC in order to promote the integrity and efficiency of the operation and regulation of social welfare and development organizations and foundations. No organization or foundation engaged in social welfare and development activities is registered by the SEC without a favorable endorsement from the DSWD. Review of Adequacy of Laws & Regulations of NPOs (c. VIII.1): 1064. The Philippines has undertaken a number of initiatives to review its domestic non-profit sector, including: a. In July 2007, the AMLC initiated the organization of a Technical Working Group (TWG) on the Non-Profit Organization which conducted a survey on the NPO sector. There are regular meetings among NPOs which provide a venue to discuss measures for the prevention of money laundering and terrorist financing within the NPO environment; b. As noted above, a pilot NPO Assessment Project was undertaken by CODE-NGO and funded by the International Monetary Fund (IMF) and United Kingdom’s Foreign Commonwealth Office. The project used a tool under copyright of and developed by Charities Commission of England and Wales (CCEW) with advice from a range of international, governmental, inter- governmental and non-governmental bodies which comprised the Global Advisory Council. 1065. The NPO Sector Assessment Project had the following objectives: 1) to pilot test and assess the Tool; 2) to gather desk-based data on the NPO sector; 3) review the existing framework of NPO regulation in the Philippines; and 4) attempt to establish key risks to the NPO sector. 1066. The NPO Sector Report provides comprehensive data on the NPO sector and its regulatory framework including: a. A profile of the Philippine NPO sector using a desk-based survey; b. Assessment of the existing legal structures governing NPOs; and c. Identification of issues relative to the regulatory framework and pinpointing strategies to mitigate risks to improve the regulatory system. 1067. The overall finding of the review is that the present regulatory framework in terms of registration and licensing NPOs is very effective; and the rules are clear to most organizations. However, there is some debate on the effectiveness of rules in the areas of protecting non-profit and mitigating risks; government and non-government organization representatives in the Local Advisory - 191 - Council (LAC)disagree based on their differing perspectives on the clarity of the guidelines issued by the government and the mandate and capacity of the government regulators. 1068. Five main types of risks to the NPO sector were identified in the report: a. risks that relate to the lack of government resources (limited resources of government regulatory agencies, incidental costs of registration for small NPOs are quite large vis-à-vis their incomes and assets); b. risks that relate to lack of information on NPOs (unevenness of information on NPOs, in terms of dissemination and availability; lack of detailed data on non-profit organizations; lack of distinction between profit and non-profit organizations in some agency databases); c. risks that relate to political influence in registration and regulation of NPOs (some for-profit institutions are registered as non-profit institutions for tax purposes or as conduit of funds of politicians; NPO self regulatory initiatives are subject to political influences); d. risks that are related to limited awareness of regulations (NPOs’ limited awareness about the regulatory measures and how they are implemented; differences in perception (between government and NPOs, and among NPOs) of ‘protection’ that has to be undertaken by government regulators); and e. risks that are related to the lack of formal structures for regulation (many non-profit organizations are not adequately regulated and supervised; limited formal structures and mechanisms for coordination among agencies in dealing with NPO matters). 1069. The main recommendations in the report are to enhance coordination of regulatory agencies and develop and enhance structures that improve dialogue between NPOs and the government, improve proportionality in terms of regulation, develop rules that would enhance formalization of NPOs, and improve data quality and dissemination of NPO information. 1070. The Philippines is to be commended for having undertaken such a comprehensive review of its NPO sector. Having been finalised only in August 2008, the Report is still being considered by the Philippine Government, but the report was endorsed in a ‘validation workshop’ held as part of the process and there are plans to hold a meeting of relevant agencies to discuss what can be done in response to the report. If adopted and implemented, the recommendations contained in the NPO Sector Report would certainly strengthen the Philippines’ regulation of its NPO sector, including in the areas of concern from an AML/CFT perspective. Outreach to the NPO Sector to Protect it from Terrorist Financing Abuse (c. VIII.2): 1071. Some outreach to the NPO sector on ML/TF issues has occurred, particularly over the past 12 months. The AMLC has conducted AML/CFT training seminars for members/accredited agencies/staff of the Philippine Council for NGO Certification, the Department of Social Welfare and Development, and the Cooperative Development Authority. From September 2007 to August 2008, five seminars for NPOs on money laundering and terrorist financing issues have been held, with 167 participants attending in total from the PCNC, the CDA, DSWD, Civil Society Organization and the Kapisanan ng mga Brodkaster ng Pilipinas (the largest organization of broadcast operators and stations in the country). Supervision or Monitoring of NPOs (c. VIII.3): 1072. As noted above, the Philippines does not have a single supervisor responsible for all entities within the NPO sector. Of the government agencies, the primary registration authority for NPOs for - 192 - the purposes of this assessment is the Securities and Exchange Commission (SEC), ie for those NPOs incorporated as non-stock corporations. Other government agencies involved in secondary registration, licensing or accreditation authorities for relevant NPOs are the Department of Social Welfare and Development (DSWD) and the Insurance Commission (IC). As noted above, the Philippine Council for NGO Certification (PCNC) acts as an NPO certification body. 1073. No study has, as yet, been made to establish which NPOs account for (i) a significant portion of the financial resources under control of the sector; and (ii) a substantial share of the sector’s international activities. The NPO Sector Report found that while some data on NPOs is available, there is a lack of detailed (or disaggregated) data on NPOs, e.g. regional location, income and assets, beneficiaries, domestic or international activities, etc. 1074. It should be noted however that all NPOs, regardless of their financial resources and international activities, are subject to the same monitoring and supervision of the SEC. 1075. At the company registration stage, anyone who wishes to register a non-stock corporation must submit some basic requirements such as, but not limited to the following: (1) Articles of Incorporation and by-laws; (2) List of members certified by the corporate secretary; and (3) List of contributors and amount contributed certified by the treasurer. There are also additional requirements for specific entities a. For foundations: a notarized certificate of Bank Deposit of the contribution of not less than P1,000,000 and a Statement of Willingness to allow the Commission to conduct an audit. b. For religious corporations: the applicable provisions in Sections 109 – 116 of the Corporation Code of the Philippines shall be complied with. There must also be submitted an affidavit or verification by the chief priest, rabbi, minister or presiding elder. c. For federations: a certified list of member-associations by the corporate secretary or president. 1076. An association or corporation may utilize the word “foundation� only if it is organized for charitable, religious, educational, professional, cultural, literary, scientific and civic services or other similar purposes and has an initial contribution of PHP1 million. Ordinary non-stock corporations registered with the SEC are required to put up an initial contribution of only PHP5,000.00, according to the Corporation Code. 1077. In addition, NPOs are obliged to regularly report and disclose information in relation to their operations, such as a certificate of donation for each donation received which should be submitted to the donor, and the Bureau of Internal Revenue. The SEC also requires that organizations undertake the following: registration or stamping of membership book (within 30 days from date of receipt of certification of incorporation), submission of general information sheet (within 30 days from date of actual meeting) and audited financial statements (within 120 days from the end of the fiscal year), affidavit of non-operation (within 120 days from the end of the fiscal year), notice of postponement or non-holding of annual meetings (within 30 days from the day of the annual meeting as specified in corporate by-laws), and report on death, resignation, cessation to hold office of a director, trustee, or officer (immediately after the incident). - 193 - 1078. The SEC has also issued Circular No. 8, Series of 2006 or the Revised Guidelines on Foundations. These additional requirements were drawn up primarily because foundations are permitted to solicit for funds, as well as to address some of the requirements of SRVIII. The Circular requires registered foundations to submit annually to the SEC information on the source and amount of funds, program/activity planned, on-going and accomplished, and application of funds. The objective of these requirements is to ensure that foundations are not abused for illegal purposes or that the funds are used for purposes other than those for which they have been authorized. 1079. As a way of validating the existence of the projects being claimed to be carried out by foundations, the SEC also requires foundations to submit a Certification from the Office of the Mayor, or the Office of the Barangay Captain, or the Head of either the DSWD or the Department of Health, on the existence of the subject Program/Activity in the locality where they exercise jurisdiction (Section 4, SEC Circular No. 8, Series of 2006). 1080. Another measure in the circular is the authority given to the SEC to conduct audits of foundations. Foundations are required to allow SEC representatives access to their corporate and accounting books, records, names of beneficiaries, agreements entered into, correspondence and all other pertinent documents for the preceding five years (Section 7, SEC Circular No. 8, Series of 2006). 1081. Section 8 of the circular requires that all the funds of foundations shall be deposited in banking institutions regulated by the BSP. Every corporation, domestic or foreign, lawfully doing business in the Philippines shall submit to the SEC an annual report of its operations, together with a financial statement of its assets and liabilities, certified by an independent certified public accountant in the appropriate case, covering the preceding fiscal year and such other requirements as the SEC may require. If a foundation fails to file its report for two years, its certification is revoked (this is more stringent than the five year period that applies for other corporations). 1082. The SEC indicated during the on-site visit that it has assisted relevant law enforcement agencies with the investigations of terrorism and terrorist financing, through the provision of company documents. Four such cases have involved NPOs, three of which were non-stock corporations (the fourth was not registered). Interestingly, the certificate of registration of the three registered NPOs had already been revoked due to their failure to submit required annual returns. 1083. The SEC also indicated that it has referred two NPOs to the PCNC (seeking further information) during its investigations and, in turn, had received one request for information from the PCNC as part of that body’s accreditation process. IC 1084. With respect to entities under the supervision or regulation of the Insurance Commission, there are measures in place to ensure that terrorist organizations cannot pose as non-profit organizations. The IC, in licensing trust institutions for charitable uses, first conducts examination of the proposed organization, including the individuals represented to compose the entity. Should there be cases where the NPO concerned is used as a vehicle or instrument in furtherance of the purposes of a terrorist organization, the veil of corporate a entity� may be pierced and the owners, contributors or members, if found to be terrorists or terrorist financiers using the corporation or organization as a cover, may be charged separately from the company. - 194 - DSWD 1085. The DSWD has rules on the registration, licensing and accreditation of social welfare and development agencies as required by DSWD Administrative Order No. 6, Series of 2005. As noted above, this includes a certificate of the agency’s personality or the SEC registration, including copy of the organization’s articles of incorporation and by-laws. All registered social welfare and development agencies employing specialized in social work are required to be licensed as social work agencies. 1086. The DSWD is able to monitor the sources and expenditures of all registered, licensed and/or accredited social welfare and development agencies. Social welfare and development agencies usually obtain funds either from abroad or from local sources through donations, priority allocation of development funds of legislators and their counterpart religious/civic organizations overseas. 1087. As required by DSWD Administrative Order No. 6, Series of 2005, social welfare and development agencies are required to submit their annual accomplishment and audited financial reports to DSWD. Failure or non-submission of said reports for two consecutive years may result in cancellation of the registration certificate of the agency. Further, DSWD issued Administrative Order No. 53, Series of 2003 (Omnibus Guidelines in the Management and Processing of Donations) to regulate and monitor donations of imported articles to registered social welfare and development agencies. Solicitation of funds is closely monitored by the concerned DSWD Field Office. 1088. The DSWD’s accreditation and licensing requirements are administered by its Standards Bureau (29 staff) and by two to three staff in each of the DSWD’s regional offices. 1089. The DSWD has Memoranda of Agreement with both the SEC and the PCNC and is able to enlist the aid of law enforcement agencies in discharging its functions. It is considering establishing an AML Desk to enhance co-operation with the AMLC. Philippine Council for NGO Certification (PCNC) 1090. Organized by six national NPO networks, in partnership with the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR), the PCNC certifies NPOs and non-stock, non-profit corporations for “donee status� after a stringent review of their qualifications. The certification becomes the basis for the BIR’s granting “donee institution� status to the organizations certified by PCNC. “Donee Institution� status is granted only to the following entities: a. non-stock corporations or associations organized and operated exclusively for religious, charitable, scientific, athletic or cultural purposes or for the rehabilitation of veterans, no part of whose net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person; b. civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; c. a non-stock and non-profit educational institution. 1091. Additional tax benefits accrue to the donors of NPOs/NGOs with “donee institution� status. Donors of non-certified NPOs are entitled only to limited deductibility from income taxes whereas donors of certified NPOs are entitled to full deductibility and exemption from payment of donors’ taxes. As of September 2008, 450 NPOs had been certified under the PCNC process. - 195 - Taxation 1092. The 1997 National Internal Revenue Code allows tax exemption for certain gifts and donations, such as dowries of gifts made on account of marriage, and donations to national government and to “non-profit education and/or charitable institutions�. According to the Code, these charitable institutions are defined as a “school, college or university and/or charitable corporation, accredited non-government organization, trust or philanthropic organization and/or research institution or organization, incorporated as a non-stock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether students' fees or gifts, donation, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation.� 1093. Tax incentives given to NPOs include: duty and tax free foreign donations; exemption from income tax; exemption from donor’s (gift) tax (if the institution has been classified as a “tax-donee� institution); and, income tax deduction for donors (if the donation is given to a “tax-donee� institution and only up to 5 percent deductibility for donors and 10 percent for individuals). To avail of these incentives, NPOs must file a secondary registration with appropriate government agencies. 1094. The 1997 National Internal Revenue Code of the Philippines exempts non-stock, non-profit corporations from income taxation (section 30); registration of an NPO with the BIR confers on it “tax-exempt status�. Other organizations exempt from taxation include labor or agricultural organizations not organized for profit, mutual savings and cooperative banks organized for mutual purposes and without profit, beneficiary society, order or association, cemetery company owned and operated exclusively for its members, business leagues or chambers of commerce, civic leagues, non- stock and non-profit and government educational institutions, mutual or cooperative organizations. As noted above, the PCNC has a process of certifying “tax-exempt donee status� for NPOs who wish the donations them to be made exempt from taxation (donor’s tax). Caucus of Development NGO Networks (CODE-NGO) 1095. CODE-NGO is a ‘third level’ body of NGOs, ie it is made up of 12 networks of NGOs representing approximately 1,800 NGOs, co-operatives and people’s organisations. CODE-NGO, which was established in the late 1980s, is the largest network of NGOs and is an advocate of self- regulation in the NPO sector. Its aims include trying to guard the NPO sector against abuse, protecting the sector’s integrity and thereby retain the support of donors. 1096. In 1990, the CODE-NGO established a Code of Conduct for Development NGOs. While there are no specific references to terrorist financing in the Code of Ethics, the Covenant does include a broader commitment to non-violence. In addition, the AMLC has provided advice and training to members on the unwitting involvement of NPOs in terrorist financing. In terms of abuse of the NPO sector, however, CODE-NGOs biggest concern is the use of the sector for corruption and the misuse of official development assistance. Sanctions 1097. Each of the relevant authorities (SEC, CDA, DSWD, HLURB, DOLE, DOH, PCNC, IC) can impose a range of sanctions for violations of oversight measures or rules by NPOs. For example, the SEC can impose administrative fines and penalties against an NPO, suspension or revocation of its certificate of registration, without prejudice to the filing of criminal cases before the regular court against the responsible officers, trustees and/or members. There have been two cases involving misrepresentation of the objectives of the NPOs where the SEC promptly revoked their certificates of registration. The list of corporations with revoked certificates of registration is published on the SEC’s website. - 196 - 1098. The DSWD has issued Administrative Order No. 17 (Series of 2008), which provides for the Rules and Regulations on the registration and licensing of social welfare and development agencies and accreditation of social welfare and development programs and agencies. Part XIV thereof provides for the schedule of penalties depending on violation. Record keeping requirements 1099. In relation to record-keeping requirements (criterion VIII.3.4), section 74 of the Corporation Code of the Philippines states that “Every corporation shall, at its principal office, keep and carefully preserve a record of all business transactions, and minutes of all meetings of stockholders or members, or of the board of directors or trustees, in which shall be set forth in detail the time and place of holding the meeting, how authorized, the notice given, whether the meeting was regular or special, if special, its object, those present and absent, and every act done or ordered done at the meeting.� 1100. The SEC has the power, under Section 142 of the Corporation Code, to examine the business operations, administration and condition of the corporation, including its books and records to determine its compliance with the laws, rules and regulations. 1101. As noted above foundations are also required to allow SEC representatives access to their corporate and accounting books, records, names of beneficiaries, agreements entered into, correspondence and all other pertinent documents for the preceding five years (Section 7, SEC Circular No. 8, Series of 2006). In addition, Section 8 of the circular requires that all the funds of foundations shall be deposited in banking institutions regulated by the BSP, to which a requirement to maintain records for five years relating to transactions applies (as outlined in section 3.5 of this report). Summary of supervision/monitoring mechanisms 1102. The recent review of the NPO sector found that while the present regulatory framework in terms of registration and licensing NPOs is very effective, there was a lack of information on NPOs (unevenness of information on NPOs, in terms of dissemination and availability; lack of detailed data on non-profit organizations; lack of distinction between profit and non-profit organizations in some agency databases) and a lack of formal structures for regulation (many NPOs are not adequately regulated and supervised; limited formal structures and mechanisms for coordination among agencies in dealing with NPO matters). Measures to ensure effective investigation and gathering of information, domestic cooperation (c. VIII.4): 1103. The domestic cooperation mechanisms for NPOs are similar to those in place in other areas. One of these mechanisms is the National Law Enforcement Coordinating Committee (NALECC) of which the SEC and the Cooperative Development Authority (CDA), two of the primary regulators of NPOs, and DSWD, a secondary NPO regulator, are members (see sections 1.6 and 6.1 of this report for a description of the role of the NALECC). During the on-site visit, the SEC indicated that, in practice, it has cooperated and shared information with law enforcement agencies in relation to the investigation of NPOs, via the NALECC mechanism. 1104. In addition, the AMLC has entered into Memoranda of Agreement (MOAs) with various government agencies as described in section 2.6 of this report. This permits the sharing of information with law enforcement and other agencies, including where necessary in relation to the NPO sector. - 197 - 1105. AML Desks have been set-up in the CDA and SEC. The DSWD is also in the process of setting-up of its own AML Desk. 1106. While the Philippines has conducted a comprehensive review of its NPO sector and has taken steps to increase awareness of TF risks in the NPO sector amongst competent authorities, and notwithstanding the mechanisms outlined immediately above, there does not appear as yet to be a coordinated strategy aimed at identifying and addressing TF risks in the NPO sector. Given the size and reach of the sector and concerns expressed by authorities concerning the risk of TF in the NPO sector, this needs to be addressed. Responding to international requests regarding NPOs - points of contacts and procedures (c. VIII.5): 1107. The Philippines has not established a separate point of contact or procedures to respond to international requests for information regarding particular NPOs that are suspected of terrorist financing or other forms of terrorist support. Such requests are handled using the normal mechanisms for formal and informal international cooperation, as described in section 6 of this report. During the on-site visit, the SEC indicated that it had, in practice, provided informal assistance to foreign regulators and law enforcement agencies in relation to NPOs and possible money laundering, though not specifically in relation to terrorist financing issues. 1108. There has been only one formal request for assistance in freezing and forfeiting of assets of a UNSC-designated NPO, namely, International Islamic Relief Organization (IIRO) – Manila Branch. The request originally came from the United States of America. When IIRO was designated by the UNSC, the AMLC filed a petition to freeze IIRO’s assets, which was granted by the Court of Appeals. Subsequently, the assets were forfeited in favor of the government. Analysis of effectiveness 1109. The Philippines has taken a number of important steps regarding its NPO sector, particularly the recent conduct of a comprehensive domestic review of its NPO sector. While of broad scope and not aimed specifically at assessing terrorist financing risks or compliance with FATF SRVIII, the NPO Sector Review was a significant initiative providing very useful information on the characteristics and scope of the NPO sector, the risks it faces, and further action required. 1110. Although registration of NPOs is not required under Philippines law per se, registration is required for NPOs wishing to have legal personality and to operate a bank account. For such NPOs created as non-stock corporations, a system of registration is in place via the SEC, through which information is generally available as to the purposes and objectives of registered NPOs, and the identity of their senior officers and board members. Secondary regulators, such as the DSWD, also hold information on NPOs as does the BIR for NPOs claiming tax exempt status. 1111. Overall, there is a reasonable amount of information available on the identity of persons who own and control NPOs’ activities and direct their activities. As noted above, the overall finding of the recent review of the NPO sector is that the present regulatory framework in terms of registration and licensing NPOs is very effective and the rules are clear to most organizations. However, the review also noted the risks posed by the lack of government resources including government regulatory agencies, a lack of information on NPOs (eg unevenness of information on NPOs, lack of detailed data on NPOs) and risks related to the lack of formal structures for regulation (many NPOs are not - 198 - adequately regulated and supervised; limited formal structures and mechanisms for coordination among agencies in dealing with NPO matters). 1112. In terms of outreach, while the AMLC has commenced outreach to the NPO sector on AML/CFT issues, much remains to be done given the enormous size of the sector. 1113. Domestic cooperation in relation to NPOs appears to be working quite well, both through the formal NALECC mechanism, the creation of AML Desks in relevant agencies, and through direct bilateral cooperation between relevant competent authorities. However, such cooperation could be further enhanced. 1114. While there is no specific point of contact or procedures for international cooperation in relation to NPOs, in practice this does not seem to have been an impediment to effective international cooperation. 5.3.2. Recommendations and Comments 1115. The authorities should consider adding to the responsibilities of an appropriate working group such as the NALECC sub-committee on AML/CFT, the development and implementation of NPO sector strategies consistent with the measures outlined in the FATF’s Interpretative Note and Best Practices Paper to SR VIII, and conducting a TF risk assessment to determine the segments of the NPO sector that are more vulnerable to abuse for terrorist purposes. 1116. As part of a coordinated strategy, steps should be taken to further enhance domestic cooperation between relevant competent authorities, in particular the SEC, AMLC, law enforcement and intelligence agencies and other secondary regulators/supervisors of NPOs. 1117. Further outreach initiatives to the NPO sector should be conducted, including jointly with the AMLC and various NPO regulators, to promote the value of transparency and integrity and to raise the awareness of the sector with regard to vulnerabilities to terrorist abuse. 1118. Sector-specific guidance should be issued to the NPO sector on AML/CFT issues. This could include issues such as vulnerabilities in the NPO sector, the requirements of SRVIII, and best practices (including on good governance and transparency, ‘know your beneficiary’ and ‘know your donor’, and specific guidance and indicators in respect of suspicious transaction reporting involving NPOs). 1119. In accordance with the key recommendations arising out of the NPO Sector Report geared towards improving the regulatory environment of the NPO sector, the Philippines should:  Improve the level of financial and human resources for NPO regulatory bodies.  Improve the systems of public access to information on NPOs.  Introduce and/or encourage/support self-regulatory (SR) mechanisms for NPOs and their networks or federations.  Enhance and strengthen awareness of regulatory measures and policies through outreach programs, forums and consultations (including in relation to AML/CFT issues). - 199 -  Develop more coordinative structures for regulation. Government regulatory agencies could develop more formal means of sharing their best practices to learn from one another. 5.3.3. Compliance with Special Recommendation VIII Rating Summary of factors underlying rating SR.VIII PC  Not all NPOs are licensed or registered  While a comprehensive review of the NPO sector was recently completed, a specific assessment of the risk of NPOs to TF has not been conducted  Authorities do not have sufficient data to identify NPOs which account for a significant portion of the financial resources under control of the sector; and a substantial share of the sector’s international activities  Further outreach to the NPO sector required  Insufficient resources in NPO regulatory bodies  Gaps in information held re NPOs - 200 - 6. NATIONAL AND INTERNATIONAL CO-OPERATION 6.1. National Co-Operation and Coordination (R.31) 6.1.1. Description and Analysis 1120. AMLC has made a significant commitment to building national and international relationships to improve their effectiveness in both the FIU and criminal investigative arms of their operations. Involvement in numerous AML domestic related committees and establishing working desks at a number of agencies has assisted AMLC in these efforts. These activities have engaged regulators, law enforcement, reporting agencies, government, parliament and many other key stakeholders. The AMLA has provided the framework for this. Mechanisms for Domestic Cooperation and Coordination in AML/CFT (c. 31.1): 1121. Executive Order No. 41 dated 9 December 1992 reorganized the different law enforcement on the national level to provide for the proper and prompt enforcement and effective enforcement and execution of the laws and to promote closer cooperation and coordination among agencies involved in the enforcement of general and special laws. This body is known as the National Law Enforcement Coordinating Committee or NALECC. The NALECC, which is chaired by the Philippine National Police Chief, serves as the forum for coordination of all official activities of various government agencies in the law enforcement, financial/regulatory and legal fields to ensure a unified direction and integration of efforts throughout the country in the detection, investigation, prosecution and suppression of criminal activities on a day-to-day basis, particularly at the operating levels. 1122. The NALECC functions are as follows a. To serve as the forum for dialogue and coordination among government agencies/entities engaged in the enforcement of general and special laws; b. To coordinate policies/procedures in order to facilitate cooperation and integration of efforts among member-agencies and ensure a unified direction in the suppression of criminal activities; c. To identify priority areas for coordinated/joint law enforcement activities; and d. To prepare and submit to the Chairman for consideration/implementation of basic strategies/plans which shall outline the law enforcement facet of the peace and order campaign, as well as to delineate policies and thrusts in the effective implementation of law enforcement functions. 1123. NALECC consists of fifty seven (57) member-agencies from police and other areas of government dealing with public safety issues. AMLC has played a very active role in this committee and sub-committees. 1124. The AMLC Secretariat is the chair of the Sub-Committee on Anti-Money Laundering/Counter Terrorism Financing (SCAML/CTF) which consists of members from 23 agencies, including among others the AMLC, the three financial supervisors (BSP, SEC, IC), law enforcement agencies (PNP, NBI, PDEA, CIDG, BOC, PCTC), intelligence agencies (NICA ISAFP). - 201 - 1125. Assessors note that the SCAML/CTF has been established to tackle issues including Terrorism Financing which is interesting since, as indicated earlier, there are is legal authority for AMLC or these agencies to be conducting TF investigations. 1126. To facilitate information exchange and operational coordination, the AMLC has executed Memoranda of Agreement with 11 government agencies. These MOAs set up the terms as to how these agencies work with AMLC during ML investigations pursuant to AMLA. 1127. As indicated in section 2.5 and 2.6, AML desks have been created in different government agencies to operate as points of contact between the AMLC and relevant competent authorities. Statistics (applying R.32), reviews of effectiveness of ML regime (c. 32.1) 1128. The AMLC, as the agency primarily tasked to implement the AMLA, adopted a log frame providing for the goals that must be achieved by the AMLC, major final outputs, specific activities that must be carried out and performance indicators. The same log frame serves as a means by which the performance of the AMLC and the effectiveness of its system can be reviewed. As a way of monitoring its performance vis-à-vis the goals set in the log frame, the AMLC maintains statistics on various matters which are used to evaluate the effectiveness of these efforts such as:  Total fines and penalties imposed in administrative cases involving violations of the AMLA, as amended, committed by covered institutions and which were remitted to the Bureau of Treasury;  Total funds or properties frozen;  Total amount of funds repatriated abroad;  Number of cases filed in courts, Department of Justice and Office of the Ombudsman;  Estimated amounts involved in pending civil forfeiture cases;  Number of terminated / decided cases;  Number of corruption-related cases being investigated by the AMLC and cases filed before courts  Resolved administrative matters related to CTRs and STRs;  Number of suspicious transactions, covered transactions and other transactions reported as of 31 December 2007;  STR-triggered investigation;  STR/CTR-triggered money laundering / civil forfeiture cases with the courts and Department of Justice/Ombudsman;  Number of STRs investigated and terminated or archived or monitored for future reference;  Inquiries or examinations conducted pursuant to resolutions of the AMLC (with and without court order);  AMLC resolutions issued against terrorists and terrorist-related groups;  AMLC educational programs; and  Number of requests for mutual assistance from / to foreign jurisdictions; and  Number of requests for assistance from / to domestic agencies. 1129. Although statistics are maintained on a wide variety of issues, it does not appear that those have been used to analyze the effectiveness of the AML/CFT regime in any meaningful way. As yet no effort appears to have been made to identify bottlenecks and to develop a strategy to deal with them. - 202 - 6.1.2. Recommendations and Comments 1130. Reference is made to R2.5 & 2.6 which entail a number of recommendations to improve national cooperation amongst AML stakeholders in law enforcement. The AMLC can be commended for what they have achieved with the available resources. However authorities need to increase the capacity of the FIU in order to fulfill their mandate and build stronger relationships with domestic law enforcement partners. The AMLC have insufficient resources in analysis (3- staff) which affects national cooperation with LEA as limited financial intelligence is shared. Authorities did state that other staff in the CIG unit (14 staff) would be involved in investigations with LEA but again the lack resources limits the number of cases they can be involved in with LEA- certainly when you consider this unit is also responsible for conducting ML investigations for the entire country. Since 2001, the AMLC approved 223 STRs and 6459 CTRs for distribution and follow-up to law enforcement (which includes CIG or other law enforcement agencies). This works out to less than 40 STR’s and 900 other transactions shared with law enforcement per year. This is not a lot when you consider the size of the data base (over 120 million transactions) and the criminal activity in the country. It was clear to assessors, based on feedback from LEA- lack of disclosures, delays in sharing intelligence- and other factors such as the size of the country that additional resources are needed to improve domestic cooperation and AMLC effectiveness. An increased focus on and more resources available for analysis will assist the AMLC in building effective relationships with law enforcement and sharing financial intelligence on a timely basis. 1131. The authorities are encouraged to develop a procedure for a periodic review of the statistics as a way of assessing the effectiveness thereof and to address identified shortcoming 1132. AMLC has established productive committees with regulatory partners to improve effectiveness of the AML activities in the areas of non-compliance and regulatory measures. AMLC is fully engaged in a number of committees and has been successful in establishing themselves as important contributors to these committee’s objectives. In the past three years, AMLC has been awarded a number of awards for this contribution and efforts. AMLC’s lead role as the chair of the SCAML/CF is an important forum for sharing of information. AMLC’s commitment and efforts to strengthening working relationships with these committee members has made these forums more effective. 6.1.3. Compliance with Recommendation 31 Rating Summary of factors underlying rating R.31 PC  Human and financial resource constraints affect operational mechanisms in place for national cooperation 6.2. The Conventions and UN Special Resolutions (R.35 & SR.I) 6.2.1. Description and Analysis 1133. The relevant UN conventions and resolutions have been implemented into the Philippine legal framework in the AMLA, the Drugs Act, R.A. No. 9208, the Anti-Trafficking in Persons Act of 2003 (the “Human Trafficking Act�) and to a very limited extent, the HSA. - 203 - Ratification of AML Related UN Conventions (c. 35.1): 1134. The Philippines signed the UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention) on December 20, 1988, the ratification of which was concurred in by the Philippine Senate on February 26, 1996. The Philippines also signed the UN Convention Against Transnational Organised Crime (Palermo Convention) and its Two Supplementing Protocols on December 14, 2000 with the Senate concurring in its ratification on October 24, 2001. 1135. The treaty obligations under the Palermo Convention were implemented in the AMLA, which criminalizes money laundering and created the AMLC. As noted in section 2.1, the ML definition under the AMLA is not quite in conformity with the definition thereof in the Palermo and Vienna conventions. In implementation of the Palermo protocols the Human Trafficking Act was enacted, which not only penalizes and defines trafficking in persons but likewise provides for institutional mechanisms for the protection and support of trafficked persons. 1136. The Drug Act implements many of the obligations imposed under the Vienna Convention, notably the criminalization of many different drug offences. 1137. Concerning confiscation measures, mutual legal assistance and extradition as provided for under the Vienna and Palermo conventions, reference is made to sections 2.3, 6.3 and 6.4 respectively. Ratification of CFT Related UN Conventions (c. I.1): 1138. On October 14, 2003, the Philippine Senate concurred in the ratification of the UN Convention on the Suppression of the Financing of Terrorism (Terrorist Financing Convention), which was signed by the Philippines on November 16, 2001. As noted in section 2.2 the Philippines has not as yet criminalized TF. Implementation of UN SCRs relating to Prevention and Suppression of FT (c. I.2) 1139. The AMLC has issued a total of 60 Resolutions based on UNSC Resolutions for dissemination to covered institutions. The said Resolutions involved 367 suspect individuals and 125 entities designated under UNSC 1267. The Resolutions required covered institutions to submit, if any, covered or suspicious transactions reports while some of the same authorized the inquiry into or examination of bank accounts of persons/entities subject of the foreign request or UNSC Resolution. As noted, although in fact in two cases freeze orders were obtained and, in one case, a forfeiture order was obtained, the process does not correspond to the intention of the designation process. Being a measure under Chapter VII of the UN Charter, member states are to implement immediately without any judicial review. For further discussion see 2.4. 1140. Concerning the domestic process, the HSA puts in place a procedure for designating terrorist organisations. It does not encompass designations of individuals, and the conditions for its application are considered overly stringent by domestic authorities and the procedure established implies that the targeted organisation is heard before being designated thus reducing the effect of a freeze order. For further discussion see section 2.4. - 204 - Additional Element—Ratification or Implementation of Other relevant international conventions (c. 35.2): 1141. The Philippines signed the UN Convention against Corruption on December 9, 2003, the ratification of which was concurred in by the Senate on November 6, 2006. 6.2.2. Recommendations and Comments 1142. Reference is made to the comments made in the relevant sections of the report, 2.1-2.4 and 6.3 and 6.4. 6.2.3. Compliance with Recommendation 35 and Special Recommendation I Rating Summary of factors underlying rating R.35 PC  Definition of ML not fully conform the Vienna/Palermo definition.  Gaps in the scope of the ML offence (coverage of predicates)  Effect of provisional measures reduced by judicial ruling to inform target of bank account inquiry. SR.I NC  TF not criminalized.  1267 procedure not compliant with UNSC  Domestic designation ineffective 6.3. Mutual Legal Assistance (R.36-38, SR.V) 6.3.1. Description and Analysis 1143. Mutual legal assistance (MLA) is generally provided for in the different MLA treaties, currently four, with the USA, Australia, Hong Kong and Switzerland. Additional bilateral treaties have been signed with the People’s Republic of China, Spain and Korea. The Philippine government has also signed the Treaty on Mutual Legal Assistance in Criminal Matters (“ASEAN MLAT�). On October 6, 2008, the Philippine Senate concurred in the ratification of the “ASEAN MLAT�, RP- Korea and RP-Spain MLATs. In addition the AMLA contains provisions on MLA in the context of ML investigations. Finally MLA can be provided pursuant to multilateral treaties such as the Palermo convention or the UNCAC. Widest Possible Range of Mutual Assistance (c. 36.1): 1144. The types of legal assistance that may be provided under existing mutual legal assistance treaties (MLATs) depend on the provisions of the applicable MLAT. However, as a general rule, assistance under the MLATs and under the applicable multilateral conventions include: a. taking the testimony or statements of persons b. providing documents, records and items of evidence c. serving documents d. locating or identifying persons or items e. transferring persons in custody for testimony or other purposes f. executing requests for searches and seizures g. assisting in proceedings related to forfeiture of assets, restitution and collection of fines h. any other form of assistance not prohibited under the laws of the Requested State. - 205 - 1145. In relation to the terrorism, terrorists and terrorist organizations, assistance is also available to countries with which the Philippines has an MLAT. The assistance shall be provided in connection with prevention, investigation and prosecution of criminal offenses in general and in proceedings related to criminal matters. 1146. Requests for legal assistance which are time-sensitive are given priority in the processing of requests. 1147. Under the AMLA, the AMLC can, in the investigation or prosecution of an ML offence, provide assistance to a foreign state by: a. Tracking down, freezing and restraining assets under the procedures of the AMLA; b. Giving information requested (for conducting an inquiry into bank accounts); c. Applying for an order of forfeiture (subject to certain conditions). Provision of Assistance in Timely, Constructive and Effective Manner (c. 36.1.1): 1148. According to the various foreign liaison officers stationed in the Philippines, the Philippines are very cooperative when asked to provide cooperation and generally make every effort to assist in the most efficient way possible. For further discussion see below, under effectiveness. No Unreasonable or Unduly Restrictive Conditions on Mutual Assistance (c. 36.2): 1149. Existing MLATs provide for mandatory and discretionary grounds for refusing legal assistance. The grounds vary from one MLAT to another. The mandatory grounds for refusal include: a. The request relates to an offense that is regarded by the Requested State as an offense of a political character or an offense solely under military law which is not an offense under ordinary criminal law. b. The request relates to an offense for which the offender has been finally acquitted or pardoned. c. The request relates to an offense in respect of which the offender has served the sentence imposed. d. There are substantial grounds for believing that the request was made for the purpose of prosecuting, punishing or otherwise causing prejudice to a person on account of that person’s race, sex, religion, nationality or political beliefs. e. The Requested State is of the opinion that the request, if granted, would seriously impair its sovereignty, security, national or similar interests. 1150. The discretionary grounds for refusal include: a. The request relates to the prosecution of a person who could no longer be prosecuted by reason of lapse of time or for any other reason if the offense had been committed within the jurisdiction of the Requested Party. b. The Requesting Party cannot comply with any conditions relating to confidentiality or limitation as to the use of the material provided. - 206 - c. The provision of assistance sought could prejudice an investigation or proceeding in the Requested Party, or endanger the safety of any person or impose an excessive burden on the resources of that Party. 1151. Before denying assistance, the Central Authority of the Requested State (in the Philippines, the DOJ is the Central Authority) shall consult with the Central Authority of the Requesting State to consider whether the latter accepts assistance subject to the conditions provided by the Requested State. If a request is denied, the Central Authority of the Requesting State shall be informed of the reasons for the denial. Efficiency of Processes (c. 36.3): 1152. Non-treaty-based requests for legal assistance are generally done through diplomatic channels and are referred by the Department of Foreign Affairs – Office of Legal Affairs (DFA-OLA) to the Department of Justice (DOJ) for appropriate action. Only requests for assistance which do not require compulsory action may be granted and only after the Requesting State has made a reciprocity undertaking to the effect that a similar request for assistance by the Philippines will likewise be granted. 1153. Generally, treaty-based requests for mutual legal assistance need not pass through diplomatic channels and are done on a Central Authority to Central Authority basis. In the Philippines, the DOJ, through the Office of the Chief State Counsel (OCSC) or the Legal Staff, is the Central Authority under existing bilateral and regional MLATs. The process of executing MLA requests for both treaty and non-treaty based requests for assistance is the same. Upon receipt of the request for legal assistance, the state counsels of the DOJ evaluate the request to see if the request complies with the provisions of the applicable MLAT, if treaty-based. 1154. It is then determined whether the assistance requested requires compulsory processes. For those requiring compulsory processes, the state counsels will then file an ex-parte application before the RTC for the issuance of an order directing the requested entities or individuals to comply with the assistance requested. If the assistance requested is within the jurisdiction of a particular government agency and can be complied with without the need for a court order, the request is referred to that agency for appropriate action. 1155. Upon receipt of the compliance of the request, the DOJ shall thereafter transmit the same to its counterpart in the Requesting State. 1156. As set out above, under the AMLA (Section 13) the AMLC is authorized to obtain assistance from foreign states and to execute or refuse to execute requests of foreign states for assistance in the investigation or prosecution of money laundering offenses. Because of this, a Supplemental Memorandum of Agreement was entered into in February 2004 between the DOJ, as Central Authority under existing MLATs, and the AMLC to the effect that requests for legal assistance involving money laundering received from or made to foreign states which have an existing MLAT with the Philippines shall pass through the DOJ as Central Authority. In the absence of an MLAT, it is the AMLC which will directly act on the request. The Supplemental Memorandum made the coordination between the DOJ and the AMLC easier. Provision of Assistance Regardless of Possible Involvement of Fiscal Matters (c. 36.4): 1157. There is nothing in the existing MLATs which provide that a request for MLA may be refused on the sole ground that the offense involves fiscal matters. In fact, there is an express provision in the - 207 - RP-Australia and RP-Hong Kong Special Administrative Region (HKSAR) MLATs that assistance may be granted in connection with offenses against a law related to taxation, customs duties, foreign exchange control or other revenue matter but not to those in connection with non-criminal proceedings relating thereto. Provision of Assistance Regardless of Existence of Secrecy and Confidentiality Laws (c. 36.5): 1158. A request for mutual legal assistance cannot be refused on the grounds of laws that impose secrecy or confidentiality requirements on financial institutions or DNFBPs. In relation to requests for assistance on matters related to money laundering (Section 13 of the AMLA), Section 11 of the AMLA provides explicitly that for the inquiry into bank deposits and investments the banking secrecy provisions of RA 1405 do not apply. Thus, as long as the deposits or investments in banks and non- bank financial institutions are related to a money laundering offense, the same may be inquired into notwithstanding the existence of laws declaring the same to be absolutely confidential. Availability of Powers of Competent Authorities (applying R.28, c. 36.6): 1159. The competent authorities can use their existing powers (see section 2.6, c 28.1 and 28.2) to access information to provide legal assistance to requesting jurisdictions. In addition, as stated above, under Section 13(b) of the AMLA the AMLC has the power to act on requests for assistance from a foreign State. Avoiding Conflicts of Jurisdiction (c. 36.7): 1160. No consideration has as yet been given to devising and applying a mechanism for determining the most appropriate venue, in those cases that may be prosecutable in more than one jurisdiction. The problem of having to decide in which country to prosecute such a case has not occurred yet. Additional Element—Availability of Powers of Competent Authorities Required under R28 (c. 36.8): 1161. The police powers available in response to MLAT’s are also available for police to police cooperation, be it that for compulsory action an MLAT between the two countries will be necessary. International Cooperation under SR V (applying c. 36.1-36.6 in R. 36, c. V.1): 1162. See response to c. 36.1,2,3,4,5,6. Although TF is not criminalized as a separate offense, the Philippines cooperation in terrorism matters with other states makes it clear that whenever there is a link to terrorism, the Philippines will offer assistance. As mentioned below, dual criminality is not a condition for MLA. Dual Criminality and Mutual Assistance (c. 37.1 & 37.2): 1163. The Philippines has no domestic legislation on MLA. With the exception of the RP-Hong Kong MLAT where dual criminality is a mandatory requirement, the existing bilateral MLATs do not require the existence of dual criminality before a request for legal assistance can be granted. However, under the RP-Australia, RP-Korea and RP-China MLATs, the absence of dual criminality is a discretionary ground for the refusal of a request for assistance. While dual criminality is required under the “ASEAN MLAT�, assistance may still be provided if permitted under the domestic laws of the Requested State. As noted, for non-compulsory measures, no MLAT is required. - 208 - Timeliness to Requests for Provisional Measures including Confiscation (c. 38.1): 1164. Section 13 of the AMLA provides for the authority of the AMLC to act on requests for mutual assistance in relation to the identification, freezing, seizure and confiscation of (a) laundered property from, (b) proceeds from, (c) instrumentalities used in, or (d) instrumentalities intended for use in, the commission of money laundering or predicate offenses. 1165. With regard to requests for mutual assistance by foreign countries relating to the identification, freezing, seizure and confiscation of funds used or intended for use in financing terrorist acts, terrorist and terrorist organizations, the AMLC may apply the relevant rules and procedures if the said activities are related to money laundering. If the same are not related to money laundering, the DOJ as the designated Central Authority for all treaty-related requests, shall respond based on the procedures laid out for addressing such requests. Property of Corresponding Value (c. 38.2): 1166. The provisions of existing MLATs on the restraint, forfeiture and confiscation of property state that when the property subject of a forfeiture or confiscation order is a real property, the Requested Party shall sell the property concerned and deliver the proceeds of the sale to the Requesting Party. 1167. Concerning ML cases, Section 12 of the AMLA allows for payment in lieu of forfeiture in case the asset in question cannot be located, has been rendered worthless or the like. Thus, since under the AMLA it is not the foreign judgment that is being executed but the judgment from the Philippine Court based upon that foreign judgment, monetary property of corresponding value can be confiscated pursuant to a foreign request. Coordination of Seizure and Confiscation Actions (c. 38.3): 1168. As noted above, the Philippines can take actions on requests involving seizure and confiscation actions of other countries pursuant to Section 13 of the AMLA or MLATs but no specific arrangements for coordinating such action are in place. International Cooperation under SR V (applying c. 38.1-38.3 in R. 38, c. V.3): 1169. The answers given are equally valid for most terrorism related cases. Although the Philippines has not criminalized TF as a stand alone offence, and thus in some cases the legal basis may be called into question the practice of dealing with any terror related funds by AMLC and law enforcement demonstrates that, by establishing a link between terrorist activity and the funds in question, in most cases the Philippines authority are able to provide assistance. Asset Forfeiture Fund (c. 38.4): 1170. The Philippines have not yet considered the establishment of an asset forfeiture funds. Sharing of Confiscated Assets (c. 38.5): 1171. There is no domestic legislation yet authorizing the sharing of confiscated assets. However, Article 16 of the MLAT with the U.S. allows sharing of confiscated/forfeited assets. - 209 - Additional Element (R 38) – Recognition of Foreign Orders for a) Confiscation of assets from organizations principally criminal in nature; b) Civil forfeiture; and, c) Confiscation of Property which Reverses Burden of Proof (applying c. 3.7 in R.3, c. 38.6): 1172. Since the Philippine system is based upon a civil forfeiture regime, civil forfeiture orders from other states would also be recognized, providing the basis for a civil forfeiture judgment from the Court of Appeal. Statistics (applying R.32): 1173. The AMLC maintains statistics on requests for mutual assistance from/to foreign jurisdictions as well as requests for assistance from/to domestic government agencies. The relevant statistics to date are contained in Tables XLVI-LII in the Appendix. Analysis of effectiveness 1174. The Philippines have effective measures to execute MLAT requests. Since 2004, a total of 26 MLA requests have been responded to. Of those requests, 10 were in relation to ML which were handled by AMLC at the direction of DOJ. Requested were various records including bank accounts, police reports, travel records, land title records, company records and a number of witness interviews. All of these requests were completed by the deadlines provided. Requests on average about took about 3 months to complete. AMLC handles MLAT requests on a priority basis to ensure that requests are dealt with in a timely manner. This is consistent with the Philippine and AMLC‘s Logframe strategic objectives for “100 % of international requests for mutual assistance based on total requests acted upon�. 1175. To date no requests pursuant to MLAT for forfeiture of assets have been received but authorities did respond they would be able to comply with such request should they ever receive one. 1176. DOJ, AMLC and Judges attended training in 2007 offered by the United Nations Global Programme against Money Laundering on MLAT and international cooperation. AMLC with the support of DOJ have made 5 MLAT request to foreign jurisdictions for assistance on ML cases. Authorities’ involvement in these activities has built their capacity to deal with MLAT requests. 1177. In determining whether a foreign request concerns a money laundering investigation, Philippine authorities would not consider the predicate criminality, but only whether it concerned a money laundering offence under the requesting countries’ laws. Thus the current absence of certain predicate offences, as outlined in section 2.1 does not appear to pose a significant impediment in this regard –although this has not been confirmed by case law yet. 1178. Foreign law enforcement officials indicated their experience with MLAT requests to the Philippines has been positive. APG members provided very few comments on cooperation received with only one country raising an issue with timeliness of response in one case. One APG member has raised concerns about the potentially serious implications for international cooperation of the recent verdict by the Supreme Court (the Eugenio case discussed under 2.3), which found that court orders allowing the AMLC to conduct inquiries into bank accounts under section 11 of the AMLA cannot be submitted ex parte in certain cases. 1179. As noted in section 2.3 of this report, to avoid tipping off the potential suspect and enabling him to put assets and evidence beyond the AMLC’s reach, the AMLC now first files a freezing request (which is ex parte) and then proceeds with the bank inquiry. Although this will prevent the - 210 - further transfer of funds, it does alert the suspect to the fact that he is being investigated. The draft amendments to the AMLA provide explicitly that in all cases an order to inquiry into bank accounts will be submitted ex parte. In the meantime, the assessors agree that as it stands the decision in Eugenio will adversely affect the domestic investigation of ML and thus could also impair the Philippines’ ability to provide effective international cooperation 6.3.2. Recommendations and Comments 1180. The expansion of its network of MLA treaties could enhance the Philippines’ ability to provide MLA. The ratification of the bilateral treaties with Spain and Korea and of the ASEAN MLA treaty is a good step in that direction. 1181. Consideration should be given to the conclusion of other treaties with countries currently requesting non-treaty based assistance. Alternatively, authorities could consider permitting MLA requiring compulsory measures without a treaty. Such measure would require the adoption of a specific act on MLA establishing the process for such assistance. 6.3.3. Compliance with Recommendations 36 to 38 and Special Recommendation V Rating Summary of factors relevant to s.6.3 underlying overall rating R.36 LC  No consideration given to devising a mechanism for determining the most appropriate venue.  Possible impediments in obtaining banking records R.37 C R.38 LC  No arrangements for coordinating seizure and confiscation.  No consideration of asset forfeiture fund. SR.V PC  No consideration given to devising a mechanism for determining the most appropriate venue.  Legal basis of rendering MLA may be called into question 6.4. Extradition (R.37, 39, SR.V) 6.4.1. Description and Analysis 1182. Presidential Decree No. 1069 (the “Philippine Extradition Law�), which was issued by then President Ferdinand E. Marcos in 1977, prescribes the procedure for the extradition of persons who have committed crimes in a foreign country. It provides for the extradition procedure when the Philippines is the Requested State. Under Section 3 of the Extradition Law, extradition may be granted only pursuant to a treaty or convention. The Palermo convention provides a basis for such extradition. The Philippines has bilateral extradition treaties in force with Australia, Canada, the People’s Republic of China, Hong Kong China, Indonesia, Korea, Micronesia, Switzerland, Thailand and the United States. The Philippines has explicitly declared that it does not accept the UNCAC as a basis for extradition. The Extradition law also requires the existence of dual criminality in extradition cases. The test for dual criminality is “actual conduct�, not terminology. - 211 - Money Laundering as Extraditable Offence (c. 39.1): 1183. Money laundering is an extraditable offense. There is no law criminalizing terrorist financing so there is doubt if terrorist financing can be considered as an extraditable offense even if applying the “conduct approach� to dual criminality. 1184. Section 13(g) of the AMLA provides that the Philippines shall negotiate for the inclusion of money laundering offenses in all future treaties. Rule 13.8 of the RIRRs, on the other hand, provides that money laundering shall be deemed to be an extraditable offense in existing treaties between the Philippines and other parties to the Palermo Convention. It is worth noting that even without Section 13(g) of the AMLA, money laundering is already an extraditable offense. 1185. Pursuant to Section 3 of the Extradition Law, extradition may be granted only pursuant to a treaty or convention, and with a view to, among others, “A criminal investigation instituted by authorities of the requesting state or government charging the accused with an offense punishable under the laws both of the requesting state or government and the Republic of the Philippines by imprisonment or other form of deprivation of liberty for a period stipulated in the relevant extradition treaty or convention�. 1186. The majority of the existing bilateral extradition treaties of the Philippines adopt the “Non-List Double Criminality Approach� which provides that for as long as an offense is punishable under the laws of both Contracting Parties and the penalty imposed for the offense is imprisonment for at least one year, or in some treaties, more than a year, the offense is already an extraditable offense. In extradition treaties which adopt the “List Double Criminality Approach�, extradition may also be granted at the discretion of the Requested Party in respect of any other crimes for which it can be granted according to the laws of both Contracting Parties. 1187. The procedures provided for in the Extradition Law also apply to requests for extradition involving money laundering. A strict interpretation of the dual criminality provision could prevent extradition in those cases where the underlying conduct cannot be construed as conspiracy to commit financing of terrorism. Given the proactive attitude of law enforcement authorities and the AMLC towards investigating any conduct terror related, and the willingness of the judiciary to construe a link between funds and terrorist activity, it appears questionable that this would be the case. However, given the absence of an offence criminalizing TF is cannot be ruled out. Extradition of Nationals (c. 39.2): 1188. Under the Philippine extradition law, extradition may be granted only pursuant to a treaty or convention. Under existing bilateral extradition treaties, extradition of one’s national is one of the discretionary grounds for refusing a request for extradition but in such cases the treaties contain a provision consistent with the principle of aut dedere, aud judicare (extradite or prosecute). To date, the Philippines has yet to refuse a request for extradition on the basis that the person sought to be extradited is its own national. 1189. The extradition treaty with the United States and India44 contain an explicit provision to the effect that extradition shall not be refused on the ground that the person sought is a citizen of the Requested State. 44 The Philippines-India extradition treaty is yet to be ratified by the Philippines. - 212 - Efficiency of Extradition Process (c. 39.4): 1190. Under the Extradition Law, the Secretary of Foreign Affairs (SFA) has the first opportunity to make a determination on whether the request for extradition complies with the requirements of the law and the relevant treaty, such as the submission of the original or authenticated copy of the decision or sentence imposed upon the accused; or the criminal charge and the warrant of arrest; a recital of the acts for which extradition is requested, containing the name and identity of the accused; his whereabouts in the Philippines; the acts or omissions complained of; the time and place of the commission of the offense/s; the text of the applicable law or a statement of the contents; and such other documents or information in support thereof. The determination by the SFA is done by the Office of the Legal Affairs (DFA-OLA). Once all requirements are complied with, the request and supporting documents are forwarded to the Secretary of Justice who shall then designate a panel of attorneys (state counsels) to handle the extradition case. 1191. The state counsels of the Office of the Chief State Counsel or the Legal Staff of the DOJ evaluate the request for extradition prior to the preparation of the petition for extradition. If the request is made pursuant to the applicable extradition treaty, the panel of state counsels will, on behalf of the requesting state, prepare the petition for extradition and then file the same with the Regional Trial Court (RTC) for hearing. It has been the practice of the DOJ, as authorized representative of the petitioner Requesting State, to request for the arrest of the person subject of the request for extradition upon the filing of the extradition petition. The judge shall then issue a warrant of arrest if, in the court’s opinion, the immediate arrest and temporary detention of the accused will best serve the ends of justice. 1192. The person sought to be extradited may also be provisionally arrested pending receipt of the formal request for extradition as long as it can be proven that there is urgency in the provisional arrest such as when the subject person is a flight risk. In this case, the DOJ, upon evaluation of the request for provisional arrest, shall thereafter endorse the request to the INTERPOL Division of the NBI, the DOJ’s investigative arm, which office shall then, file an ex-parte application for the issuance of a provisional warrant of arrest before the RTC. Upon receipt and evaluation of the formal request for extradition, the state counsels assigned shall thereafter file the corresponding petition for extradition before the RTC. 1193. Upon conclusion of the extradition hearing, the RTC shall render a decision granting the extradition, with the reasons therefor upon showing of the existence of a prima facie case (or probable cause in existing treaties). Otherwise, the petition for extradition shall be dismissed. The person sought to be extradited may challenge an order (other than the Order granting his extradition) of the RTC acting as an extradition court even up to the Supreme Court. Moreover, under Section 13 of the Extradition law: (…) The provisions of the Rules of Court governing appeal in criminal cases in the Court of Appeals shall apply in appeal in extradition cases (…)“ 1194. Once the order of the Court granting the petition for the extradition of the person sought becomes final and executory, the extraditee shall be placed at the disposal of the authorities of the Requesting State or Government, after consultation with the authorities of the Requesting State or Government. The length of time required to dispose of an extradition request largely depends on whether the person sought to be extradited opts to voluntarily surrender or to challenge the petition for extradition filed in court. - 213 - 1195. Where the person sought to be extradited does not contest the extradition proceedings in court, his or her surrender can be completed within two (2) to three (3) months from the time the order of extradition becomes final and executory. In cases of contested extradition proceedings, surrender of the person sought generally takes three (3) to five (5) years, and in some cases, more than five (5) years. Of the 10 extradition requests currently pending 2 were filed in 1998 and two in 1999. Statistics (applying R.32): 1196. Statistics have been provided on requests for extradition and related data between 2003 and 2007, as in Tables LIII-LIV. Between 2004 and 2007, the Philippines received a total of 23 extradition requests. 6 have been so far either denied or withdrawn, 16 are pending before either DOJ or the Court. 6.4.2. Recommendations and Comments 1197. Authorities should consider streamlining the extradition-related processes to reduce the amount of time required for final resolution. Combining all appeals into a single review after extradition has been ordered could enhance the speed of resolution. The process could also be expedited by imposing deadlines within which steps should be taken and decisions should be made. 6.4.3. Compliance with Recommendations 37 & 39, and Special Recommendation V Rating Summary of factors relevant to s.6.4 underlying overall rating R.39 PC  Lack of effectiveness of extradition process R.37 C SR.V PC  Absence of TF offence likely to prevent extradition 6.5. Other Forms of International Co-Operation (R.40 & SR.V) 6.5.1. Description and Analysis 1198. AMLC effectively provides assistance in both the FIU and criminal investigation aspects of their operations. They participate in MLAT requests, commonly share information within the limitations of AMLA “police to police� and they meet the Egmont requirements by responding to or pro-actively provide financial intelligence to foreign FIUs: Widest Range of International Cooperation (c. 40.1) 1199. The PCTC exercises general supervision and control over the INTERPOL National Central Bureau (NCB) – Manila. The NCB serves as the designated contact point in each country for international police liaison. The PCTC is the designated liaison with the Law Enforcement Agencies in the Philippines. 1200. The function of the PCTC is to monitor and coordinate all activities of all law enforcement agencies relative to transnational crime committed against or affecting the Philippines. - 214 - 1201. PCTC - NCB-INTERPOL Manila is the focal point for international cooperation against transnational crimes for all law enforcement agencies in the Philippines. 1202. A number of foreign law enforcement agencies have liaison officers (LOs) who are located in Manila. Discussions with some of these LOs indicated that the Philippine Law Enforcement Agencies are primarily focused on the predicate offences, however there is currently a focus on the investigation of terrorism and terrorism finance. All LO’s stated that they have had good cooperation from Law Enforcement Agencies, and all of their requests get answered. 1203. All LO’s stated that the obtaining of bank information is a major problem, and it is sometimes easier to get orders from their respective jurisdictions and have the AMLC act on those orders. 1204. In relation to these inquiries all of the LO’s stated that the willingness of the AMLC and Law Enforcement Agencies was good, however there appeared to be too much red tape for them to obtain bank and financial information. 1205. The Bureau of Customs indicated that it can and does cooperate with its foreign counterparts and is a member of the World Customs Organisation. Information is also provided on an intelligence basis on a per needs basis to ASEAN countries and some European Countries. 1206. The BOC has signed a Mutual Assistance Agreement with the United States of America in July 2000 formalising the exchange of Customs information. 1207. The AMLC may also provide information to any foreign FIU but strictly for intelligence purposes only. 1208. The BSP has existing cooperative arrangements with foreign supervisory counterparts. These arrangements provide home-host supervisory access on information regarding examination reports, banks policies and international regulations to strengthen financial sector soundness, efficiency and stability. BSP initiatives were made in compliance with the BCP for consolidated supervision among central banks. 1209. Currently there are 5 approved Memorandums of Understanding (MOUs) with foreign regulatory/supervisory authorities, 3 of which are with Asian countries. Another 5 agreements are under negotiations by the BSP, 2 of which are with Asian countries. Generally, the agreements involve sharing of information on any material supervisory concern, such as those considered as unsafe and unsound practices/manner, evidence of any material violations of laws or adverse effect on the finances of supervised/regulated entities. The agreements also cover cooperation when suspected financial crime activities, including money laundering, are identified 1210. The SEC actively cooperates with its foreign counterparts and foreign regulatory and law enforcement agencies, including the Interpol, by providing corporate records or obtaining information from other government agencies. Since 2004 it has received and acted upon 53 requests from foreign agencies (including law enforcement). In the same period is has sought the assistance of its foreign counterparts and foreign regulatory and law enforcement agencies- particularly in the areas of enforcement- in 10 cases. 1211. The IC is an active member of the International Association of Insurance Supervisors (IAIS) and has been actively coordinating with other IAIS members as well as with their counterparts in the ASEAN region largely in the area of insurance regulation. - 215 - Provision of Assistance in Timely, Constructive and Effective Manner (c. 40.1.1): 1212. AMLC responds to both FIU and criminal investigation related requests in a timely manner. International requests are dealt with on a priority basis by AMLC. Discussions with foreign law enforcement officials confirm this finding. As for the sharing of intelligence from the FIU perspective, intelligence requests are dealt with again on a priority basis and the Egmont Secure web site is used to respond to other FIU’s. No negative feedback has been received by assessors in relation to sharing of FIU information. Clear and Effective Gateways for Exchange of Information (c. 40.2): 1213. Gateways, mechanisms or channels used in international cooperation and exchanges of information (other than MLA or extradition) include laws allowing exchanges of information on a reciprocal basis; bilateral or multilateral agreements or arrangements such as Memoranda of Understanding (MOUs); and exchanges through appropriate international or regional organisations or bodies such as Interpol or the Egmont Group of FIUs. As a member of the Egmont Group, the AMLC can provide information, spontaneously or upon request, for intelligence purposes through the Egmont Secure Web (ESW). The AMLC can also exchange information with other FIUs by virtue of a Memorandum of Understanding (MOU). 1214. The AMLC has already executed 19 MOUs with foreign counterparts. By virtue of an existing Memorandum of Agreement, the AMLC can also extend assistance to the Interpol through the PCTC. 1215. In 2003 the Philippines signed an MOU with Australia in relation to the combating of international terrorism and transnational crime. The Philippines has also signed an MOU with China in 2001 covering drug trafficking, money laundering and financial crimes, terrorism, kidnapping and murder, human smuggling, counterfeiting, illegal traffic of weapons, violation of intellectual property rights, and illegal acquisition of cultural treasures. The Philippines is also a member of the Association of South East Asian Nations (ASEAN). 1216. On July 15, 2004 the BSP Monetary Board approved guidelines for the exchange of information between BSP and its foreign counterparts giving foreign/home supervisory counterparts access to BSP examination reports and other information of respective foreign-based banks in the Philippines without prior approval from the Monetary Board. The BSP also created the Ad Hoc Committee on Cross-Border Supervision tasked to implement said guidelines. 1217. The SEC provides with its foreign counterparts and foreign regulatory and law enforcement agencies corporate records or obtaining information from other government agencies. 1218. The IC has provided assistance in the form of information exchange on insurance market conditions and status of insurers with countries like Hong Kong, China, Taiwan, the United States, Australia, etc. aside from the countries in ASEAN. Spontaneous Exchange of Information (c. 40.3): 1219. Under Resolution No. 59, Series of 2006, the AMLC has authorized its Executive Director to provide timely assistance, spontaneously or upon request, to either domestic or foreign law enforcement agencies and other international bodies. - 216 - Making Inquiries on Behalf of Foreign Counterparts (c. 40.4), Conducting of Investigations on Behalf of Foreign Counterparts (c. 40.5): 1220. Presidential Memorandum Circular No. 92 (15 February 1993) has designated the Philippine National Police (PNP) as INTERPOL National Central Bureau for the Philippines. The NCB serves as the designated contact point in each country for international police liaison with the various law enforcement departments in the country and the NCBs in other countries requiring assistance with overseas investigations. Details on ML-related requests for assistance received by PCTC are contained in Table LV in Annex 5. FIU Authorized to Make Inquiries on Behalf of Foreign Counterparts (c. 40.4.1): 1221. The FIU is authorized to make inquiries on behalf of foreign counterparts. Section 13 (b)2 of the AMLA authorizes the AMLC to provide information needed by the foreign State under the procedures laid down under the AMLA, as amended. The information that may be provided are those that can be found in the AMLC database. For inquiries on identity, the AMLC may issue orders to the either the supervising authorities or covered institutions to determine the true identity of the owner of any monetary instrument or property subject, among others, of a request for assistance from a foreign State (Section 7 (2), AMLA). 1222. The AMLC may also enlist the assistance of any government office, agency or instrumentality, including government-owned and controlled corporations in response to foreign requests, which may include the use of the other agency’s personnel, facilities and resources for a more resolute prevention, detection and investigation of Money Laundering offenses and prosecution of offenders (Section 10, AMLA). No Unreasonable or Unduly Restrictive Conditions on Exchange of Information (c. 40.6), Provision of Assistance Regardless of Possible Involvement of Fiscal Matters (c. 40.7), Provision of Assistance Regardless of Existence of Secrecy and Confidentiality Laws (c. 40.8): 1223. The AMLC may refuse to extend assistance only when the action sought by the request would contravene any of the provisions of the Philippine Constitution or the execution of the request would likely prejudice the national interest unless there is a treaty between the Philippines and the requesting State relating to the provision of assistance in relation to Money Laundering offenses (Section 13 (d), AMLA). The possible involvement of fiscal matters is immaterial to the provision of assistance. 1224. As noted earlier (see section 2.6) under the existing rules the access to bank information for domestic purposes is quite cumbersome. This will have an impact upon such access in response to international requests. 1225. Both the BSP Monetary Board and the IC may undertake spontaneous exchange of information but only with respect to prudential supervisory purposes. Safeguards in Use of Exchanged Information (c. 40.9): 1226. For information dissemination with counterpart FIUs, exchanges are carried out through the ESW (for Egmont members) or strictly under the provisions of the MOUs. If the request is made by a foreign law enforcement agency, the information is released, not to the requesting foreign law enforcement agency, but through the latter’s FIU. The BSP Monetary Board, the SEC, and the IC may undertake spontaneous exchange of information. The BSP, however, does so only with respect to prudential supervisory purposes. - 217 - International Cooperation under SR V (applying c. 40.1-40.9 in R. 40, c. V.5): 1227. See responses to 40.1,2, 4-6, 8,9 Statistics (applying R.32): 1228. The AMLC maintains statistics on requests for assistance it has received from other States’ FIUs or it has forwarded to the latter. The AMLC likewise maintains statistics on the requests for assistance received from domestic agencies. Please refer to the relevant statistics mentioned in the response to the question on Criterion 32.2. While the SEC keeps statistics on requests here are apparently no statistics relating to exchange of information between the BSP and IC. Recommendations and Comments 1229. Philippine authorities have demonstrated that both AMLC and law enforcement agencies have provided assistance when requested from international agencies investigating ML relating cases. Discussions with foreign law enforcement officials and statistic support this that the “police to police� cooperation is acceptable. Further, interviews revealed that the SEC had cooperated on a financial investigation with the FBI directly without the involvement of AMLC. This is consistent with the finding of assessors relating to the authorities efforts to cooperate with foreign requests. 1230. AMLC have complied with foreign requests from FIU’s and provided assistance when requested. 6.5.2. Compliance with Recommendation 40 and Special Recommendation V Rating Summary of factors relative to s.6.5 underlying overall rating R.40 LC  Procedure for access to bank information quite cumbersome SR.V PC  Absence of TF criminalization could prove an obstacle in international cooperation - 218 - 7. OTHER ISSUES 7.1.1. Resources and Statistics 1231. The text of the description, analysis, and recommendations for improvement that relate to Recommendations 30 and 32 is contained in all the relevant sections of the report i.e. all of section 2, parts of sections 3 and 4, and in section 6. Rating Summary of factors underlying rating R.30 PC  Additional resources required to build AMLC capacity of and fully meet its primary mandate as an FIU and as the agency primarily responsible for TF and ML criminal investigations (ref 2.5)  Lack of staff in the AMLC that conducts investigative functions (ref 2.6)  Insufficient DOJ prosecutors within the ML task force (ref 2.6)  The Anti-Money Laundering Specialist Group (AMLSG) in the BSP is under-resourced (ref 3.10)  Inadequate human resources dedicated to AML?CFT at BSP, SEC and IC R.32 LC  No use of statistics to undertake a review of the effectiveness of the regime as a whole  Statistics for customs incomplete - 219 - Table 1. Ratings of Compliance with FATF Recommendations Forty Recommendations Rating Summary of factors underlying rating45 Legal systems 1. ML offense PC  Not all elements of the Vienna and Palermo convention are covered by the concept of “transaction�.  Many crimes are not currently defined as predicate crimes. 2. ML offense—mental element LC  Effectiveness of sanctions not demonstrated. and corporate liability 3. Confiscation and provisional PC  Decreased effectiveness of the ability to identify and measures trace property.  Confiscation/provisional measures not applicable in TF cases not qualifying as terrorism offences under the HSA.  Low number of seized/confiscated assets Preventive measures 4. Secrecy laws consistent with the PC  Significant difficulties and delays in obtaining certain Recommendations bank records  BSP cannot request customer information other than in the context of examinations, or share with other competent authorities.  Banks cannot share customer information with other financial institutions to meet the requirements of Recommendations 7, 9 and Special Recommendation VII. 5. Customer due diligence PC  Relative ease of counterfeiting identification documents and difficulty of verifying such documents.  No specific requirement to identify natural person exercising ultimate effective control  Requirement concerning maintenance of up to date client records unclear  BSP and SEC do not specifically require that CDD be applied to existing customers on the basis of materiality and risk and that additional CDD be conducted at appropriate times 6. Politically exposed persons PC  BSP and SEC have no specific requirement to implement a risk management system to determine whether a potential customer, customer, or beneficial owner is a PEP.  IC has no specific requirement for senior management approval before accepting PEPs as clients.  SEC does not require that decisions on business relations with higher risk customers be taken by senior management.  SEC and the IC have no specific requirement that covered persons to establish the source of wealth of 45 These factors are only required to be set out when the rating is less than Compliant. - 220 - PEPs. 7. Correspondent banking LC  Possible lack of implementation given generic nature of guidance and lack of supervisory attention 8. New technologies & non face- PC  No measures in place for insurance and securities to-face business market.  Regulation currently only refers to banks for electronic financial services.  The RIRRs expressly forbids account opening or creation without face to face contact, a rule that is followed by the banking and insurance sectors. The SEC allows non-face-to-face business relationships, which the AMLC has accepted.  The SEC’s guidance on non-face-to-face business relationships require extensive additional due diligence with respect to customer identification. No additional risk-based management procedures are provided for. . 9. Third parties and introducers PC  SEC does not require covered person to have immediate access to CDD information  IC does not require the covered institutions to conduct CDD in instances where policies are purchased through salary allotment  If the guidance issued by the SEC and the IC is followed by the covered person, ultimate responsibility for customer ID and verification falls on the intermediary. 10. Record-keeping LC  Requirement of “immediate� production of records applies only to certain predicate crimes. 11. Unusual transactions PC  SEC does not specifically require covered institutions to establish findings of examinations in writing  IC does not specifically require covered institutions to examine the background of all complex and unusual transactions, and establish findings in writing  BSP, SEC, and IC do not require retention of written findings of examinations of the background of complex and unusual transactions 12. DNFBP–R.5, 6, 8–11 NC  CDD obligations do not apply to the DNFBP sector, other than the trust department of banks, trust corporations and investment houses 13. Suspicious transaction reporting PC  Requirement to report transactions linked to terrorism is incomplete.  Insufficient STR reporting in sectors other than banks. 14. Protection & no tipping-off LC  AMLA limits tipping off of STRs that have been reported, not those in the process of being reported 15. Internal controls, compliance & C audit 16. DNFBP–R.13–15 & 21 NC  STR obligations do not apply to the DNFBP sector, other than the trust department of banks, trust corporations and investment houses 17. Sanctions PC  Civil monetary sanctions insufficient  Civil sanctions rarely imposed 18. Shell banks C  19. Other forms of reporting C - 221 - 20. Other NFBP & secure LC  Authorities have not considered AMLA coverage other transaction techniques than for pawnshops, efforts remain to be made to ensure effective and capillary supervision of pawnshops 21. Special attention for higher risk PC  SEC and IC do not require special attention to countries transactions with persons in countries that do not sufficiently apply FATF Recommendations 22. Foreign branches & subsidiaries PC  No rule that covered persons inform their supervisor if a foreign branch or subsidiary cannot implement AML/CFT measures equal to or at a higher standard than those in the Philippines.  No specific rule that covered entities pay “particular attention� to branches and subsidiaries in countries that do not sufficiently apply the FATF recommendations 23. Regulation, supervision and PC  Doubts on effectiveness of implementation of MSB monitoring registration requirements  Inadequate human resources dedicated to AML/CFT at BSP, SEC, and IC 24. DNFBP—regulation, NC  There is no effective regulation and supervision of supervision and monitoring casinos for AML/CFT purposes.  In the absence of any AML/CFT requirements, the other categories of DNFBP are not subject to effective systems for monitoring and supervision for AML/CFT. 25. Guidelines & Feedback PC  Feedback does not include statistics on the number of disclosures, with appropriate breakdowns, and on the results of the disclosures  No guidelines have been issued for DNFBPs as none of them are subject to AML/CFT requirements Institutional and other measures 26. The FIU PC  No formal TF mandate.  Insufficient resources dedicated to provide feedback and guidance to reporting entities.  Insufficient resources dedicated to FIU functions of analysis.  The structure of the AMLC and current approval processes as prescribed under the AMLA impede its Secretariat’s full operational autonomy.  Access to relevant databases (police and others) not timely.  Insufficient funding for operating budget.  The AMLA requirements on the AMLC staff background affect overall effectiveness  Insufficient sharing of financial intelligence with law enforcement 27. Law enforcement authorities PC  Since the financing of terrorism is not a stand alone offence there is no law enforcement agency tasked with investigating this  The AMLC is the designated agency to investigate all ML matters for the Philippines, however due to resource constraints it would be unable to effectively investigate all matters referred by LEAs.  The vast majority of potential ML cases are not being referred by the LEAs to the AMLC. There were 32 - 222 - referrals from Government agencies in 2007 to undertake or conduct a ML investigation. 28. Powers of competent authorities PC  Bank inquiry orders under AMLA can not be issued unless notice is given to the owner(s) of the accounts allowing them to contest the issuance of the order. This inability to compel financial institutions to provide financial information ex parte severely limits the ability of the law enforcement agencies to conduct a money laundering/financial/asset investigation without the offenders being made aware of law enforcement interest.  Law enforcement agencies other than the AMLC can not compel production of documents from financial institutions. 29. Supervisors LC  Lack of effectiveness of powers due to inadequate human resources 30. Resources, integrity, and PC  Additional resources required to build AMLC capacity training of and fully meet its primary mandate as an FIU and as the agency primarily responsible for TF and ML criminal investigations (ref 2.5)  Lack of staff in the AMLC that conducts investigative functions (ref 2.6)  Insufficient DOJ prosecutors within the ML task force (ref 2.6)  The Anti-Money Laundering Specialist Group (AMLSG) in the BSP is under-resourced (ref 3.10)  Inadequate human resources dedicated to AML?CFT at BSP, SEC and IC 31. National co-operation PC  Human and financial resource constraints affect operational mechanisms in place for national cooperation  32. Statistics LC  No use of statistics to undertake a review of the effectiveness of the regime as a whole  Statistics for customs incomplete 33. Legal persons–beneficial owners PC  No information on beneficial owners of foreign parent companies of Philippine corporations.  Beneficial ownership information not accessible where lawyers act as nominee shareholders. 34. Legal arrangements – beneficial LC  Lack of demonstrated effectiveness in accessing owners beneficial ownership information on trusts International Cooperation 35. Conventions PC  Definition of ML not fully conform the Vienna/Palermo definition.  Gaps in the scope of the ML offence (coverage of predicates)  Effect of provisional measures reduced by judicial ruling to inform target of bank account inquiry. 36. Mutual legal assistance (MLA) LC  No consideration given to devising a mechanism for determining the most appropriate venue.  Possible impediments in obtaining banking records 37. Dual criminality C - 223 - 38. MLA on confiscation and LC  No arrangements for coordinating seizure and freezing confiscation.  No consideration of asset forfeiture fund. 39. Extradition PC  Lack of effectiveness of extradition process  Limited coverage of offences 40. Other forms of co-operation LC  Procedure for access to bank information quite cumbersome Nine Special Recommendations SR.I Implement UN instruments NC  TF not criminalized.  1267 procedure not compliant with UNSC  Domestic designation ineffective SR.II Criminalize terrorist NC  TF is not currently criminalized under Philippine law financing SR.III Freeze and confiscate PC  Freezing process under 1267 not “without delay�. terrorist assets  Freezing process under 1267 allows judicial discretion over UNSC resolutions. under Chapter VII UN Charter.  No legal powers to freeze, seize or confiscate assets related to TF, except in the context of 1267 or domestic designation.  Doubts on the length of the freeze.  Domestic designation ineffective.  Domestic designation does not allow designation of individuals. SR.IV Suspicious transaction NC  The requirement to report transactions linked to reporting terrorism is incomplete SR.V International cooperation PC  Absence of TF criminalization possible impediment in MLA and particularly extradition  No consideration given to devising a mechanism for determining the most appropriate venue.  Legal basis of rendering MLA may be called into question SR.VI AML/CFT requirements PC  Lack of requirement to maintain and update lists of for money/value transfer agents. services  Weak implementation/supervision regime of requirements set by Circular No. 471/2005.  Resource constraints to effective monitoring and outreach.  Need for streamlined sanctioning process. SR.VII Wire transfer rules PC  Applicable rules relating to inclusion of originator information are incomplete  Applicable rules relating to transfers not accompanied by originator information or to monitoring of implementation of SR VII are incomplete. SR.VIII Nonprofit organizations PC  Not all NPOs are licensed or registered  While a comprehensive review of the NPO sector was recently completed, a specific assessment of the risk of NPOs to TF has not been conducted  Authorities do not have sufficient data to identify NPOs which account for a significant portion of the financial resources under control of the sector; and a substantial share of the sector’s international activities - 224 -  Further outreach to the NPO sector required  Insufficient resources in NPO regulatory bodies  Gaps in information held re NPOs SR.IX Cash Border Declaration & PC  The postal stream and cargo streams do not appear to be Disclosure currently covered by the declaration systems.  There is very weak implementation of the cross border reporting requirement, which appears to result from no clear policy to cover all entry points, and weak capacity to target and discover cash couriers.  Insufficient customs examiners at arrival and departure areas of 7 international airports and seaports (except NAIA) to enable the collection of statistics on cross border currency declarations.  No information showing safeguards to ensure the proper use of information and data provided pursuant to the currency declaration system. - 225 - Table 2 Recommended Action Plan to Improve the AML/CFT System FATF 40+9 Recommendations Recommended Action (in order of priority within each section) 1. General 2. Legal System and Related Institutional Measures Criminalization of Money  The designation of the additional serious offences as predicate crimes Laundering (R.1, 2, & 32) for money laundering as envisaged by the Draft Bill is recommended.  It should be ensured that those offences not covered yet in the Draft Bill (such as the illicit trafficking of stolen goods/ arms and racketeering) are covered as well.  Authorities should consider enlarging the scope of the ML offence, extending it beyond the notion of transaction, to include notions of “concealment and disguise� and possession.  The adoption of special measures, such as the continued training and formation of DoJ prosecutors and judges and the formation of a task force are recommended.  Investigative and prosecutorial authorities should enhance their focus on the proceeds of unlawful activity, rather than concentrating solely on the unlawful activity itself.  Resources available to DoJ for dealing with ML investigations should be increased Criminalization of Terrorist  It should be provided for a separate offence as defined in article 2 (1) Financing (SR.II & R.32) of the United Nations Convention for the Suppression of the Financing of Terrorism, criminalizing the provision or collection of funds for terrorist acts but further extending to the financing of an individual terrorist or a terrorist organization.  It should be ensured the widest definition of funds as encompassing assets of any kind.  Provide for adequate sanctions for TF and ensure liability of legal persons. Confiscation, freezing, and seizing  The authorities should consider extending provisional measures to of proceeds of crime (R.3 & 32) funds equal in value to the proceeds investigated.  The passage of the Draft Bill, enlarging the scope of the concept of “unlawful activity� and enabling the ex parte filing of requests for an examination of banking records is encouraged  To enable a more efficient freezing process without impairing due process, serious consideration ought to be given to amend the AMLA and return power to the AMLC to order initial freezing, subject to rights of further extension by the courts.  Consideration should be given to grant authority to specially designated law enforcement agencies to request freeze orders and initiate civil forfeiture proceedings. Freezing of funds used for terrorist  Authorities should consider providing for a firm legal basis to freeze financing (SR.III & R.32) funds of persons and entities listed under UNSCR 1267 based on the identity of the person, ensuring a wide definition of funds.  It is recommended that the use of the freeze order by the Court of Appeals be replaced by a new, sui generis freeze procedure, pursuant to which a freeze can be effected as soon as a new entity or person is designated by the UNSC.  Allow for the access to the frozen funds for humanitarian reasons.  It should be ensured that the delay between the resolution to issue a - 226 - petition to freeze and the actual issuing of that petition be shortened significantly.  It is recommended that the possibility of designating an individual – not only entities - be introduced into the current system.  Authorities should consider a designation process (either judicial- ex parte- or executive in nature) based on reasonable grounds accompanied by an immediately effective freeze, after which the affected party should be given the opportunity to be informed of the evidence against him, to be heard and to appeal The Financial Intelligence Unit and  AMLC requires more employees in all areas of its operations in order its functions (R.26, 30 & 32) to carry out its existing and planned AMLA responsibilities and to be able to discharge its core FIU role effectively.  The AMLC should consider establishing separate analysis unit.  The AMLC needs to streamline decision-making processes on operational issues. It is recommended that the Executive Director be given the authority to make more operational decisions without having to seek approval from the AMLC.  The AMLC also needs to consider creating a dedicated and separate unit with additional resources to build communication tools.  It is recommended that the AMLC consider recruiting staff with law enforcement and DNFBP financial sector (money exchanges, gems and jewelry, etc.) experience to compliment their existing expertise within the agency.  The AMLC needs direct access to law enforcement and other government databases to assist with analysis.  AMLC should expand its capacity in developing typologies and further feedback to AML partners related to ML.  Further guidance should be provided to reporting entity, clarifying that the indication of a specific predicate offense in reporting forms is not a mandatory requirement when filing STRs.  Additional resources further to existing budget proposals will be required in order for AMLC to meet the demands of their mandate.  TF should be explicitly included in the AMLC’s mandate. In anticipation of the expansion of its mandate, the AMLC needs to build capacity to address TF matters. Law enforcement, prosecution and  The AMLC should remain the primary agency for ML investigation, other competent authorities (R.27, law enforcement agencies should be given a clear mandate to investigate ML offences. 28, 30 & 32)  Creation of a ML Investigation Coordination Group (MLICG) comprised of CIDG, NBI and PDEA and chaired by the Executive Director of the AMLC to allocate the investigation of the ML offences to either the agency conducting the predicate offence or to the AMLC.  Consider either increasing resources for investigation at the AMLC, shifting investigation workload out to LEAs, or a combination of these solutions.  Establishment of Proceeds of Crime (POC) Units within NBI, PDEA, CIDG, whose mandates would be to collect financial evidence during predicate offence investigations, might be a viable option.  In the interim, authorities may wish to consider the establishment of a task force within the AMLC with the intention of creating Proceeds of Crime (POC) teams within each law enforcement agency.  DOJ should have designated prosecutors to deal with judicial applications from POC Units and the AMLC. These DOJ Prosecutors must be quarantined to ML related matters.  The Executive Director of the ALMC Secretariat should be given more - 227 - authority to make operational decisions in relation to criminal investigations.  There needs to be an amendment to AMLA to allow for the obtaining of bank inquiry orders ex parte.  More focus should be given by AMLC and law enforcement to freezing of assets and laying of ML charges in relation to the predicate offence of corruption. 3. Preventive Measures– Financial Institutions Risk of money laundering or  The SEC and IC should consider designing risk-based approaches to terrorist financing examination. A separate risk analysis should be provided for AML issues that are not fundamentally prudential in nature, and which focuses not only on the covered institutions’ risk profiles but also on securities and insurance product risk.  The AMLC, BSP, SEC, and IC should consider ways to reconcile preventive measures guidance.  The BSP, SEC and IC should consider creating a single well- organized, consolidated, and comprehensive list of applicable law, regulation, and guidance for each respective sector. Customer due diligence, including  The BSP should consider including numbered accounts as a specific enhanced or reduced measures indicator of higher risk clients.  The AMLC should consider issuing a clear and concise regulation (R.5–8) stating exactly when client identification should be undertaken and when other aspects of CDD apply.  The BSP should consider issuing clear and concise guidance stating exactly when client identification should be undertaken and when other aspects of CDD apply.  The Philippine authorities should consider introducing ways to resolve the problem of fraudulent identification cards.  The SEC should consider issuing guidance requiring only one government-issued ID card.  The Philippines should consider either eliminating the 2% requirement or amending it to include a specific exemption for financial institutions, public companies, or government enterprises.  The BSP should consider adding the documents required by the SEC Operating Manual to its guidance on identification of legal persons and arrangements.  The IC should consider adding the documents required by the SEC Operating Manual to its guidance on identification of legal persons and arrangements.  The AMLC should consider requiring adding the need to identify beneficial controller to that of beneficial owner.  The BSP, SEC, and IC should consider issuing guidance with respect to identification of the final physical persons who own and/or control legal persons and arrangements.  The AMLC should consider issuing a clear and concise regulation requiring covered institutions to obtain information on the purpose and intended nature of the business relationship and to conduct ongoing due diligence on the business relationship.  The SEC and IC should consider adopting the BSPs guidance relating to high profile clients.  The SEC should consider adopting the BSP and IC’s guidance relating to decisions on business relations with higher risk customers should be taken by senior management. - 228 -  The BSP and the IC should consider adopting the SEC’s due diligence measures for customers that are shell companies.  The BSP, SEC, and IC should consider reduced CDD measures for financial institutions, public companies (to the extent allowed under AMLC regulations), or government enterprises as described in the examples for application of criterion 5.9.  The AMLC, BSP, and IC should consider rules allowing delayed verification as permitted in criterion 5.14 for non-face-to-face business in a fashion similar to that provided by the SEC.  The BSP should consider guidance that spells out the requirement that CDD be applied to existing customers on the basis of materiality and risk and that additional CDD be conducted at appropriate times.  The SEC should consider guidance that spells out the requirement that CDD be applied to existing customers on the basis of materiality and risk and that additional CDD be conducted at appropriate times.  The BSP, SEC, and IC should consider maintaining a master list of PEPs identified by regulator/supervisors and covered persons  The BSP should consider guidance similar to that of the IC with regard to PEPs.  The SEC should consider guidance similar to that of the IC with regard to PEPs, along with a requirement for senior management approval before accepting such clients.  The IC should consider guidance requiring senior management approval to accept PEPs clients.  The SEC and the IC should consider issuing guidance similar to that of the BSP directing covered persons to establish the source of wealth of high PEP clients.  The SEC and IC should consider if any new guidance is needed with respect to controlling risks of misuse of new technology, especially via internet transactions.  The Philippines should consider amending the RIRRs allowing non- face-to-face business relationships in instances that comply with criteria 8.1, 8.2, and 8.2.1.  The SEC should consider issuing guidance requiring special risk management programs for non-face to face business relationships Third parties and introduced  The BSP should consider whether it should introduce guidance business (R.9) permitting banks to rely on intermediaries/third parties to perform elements of CDD consistent with the criteria in 9.1 through 9.5.  The SEC should consider issuing guidance requiring that covered person have immediate access to CDD information.  The IC should consider issuing guidance requiring the covered person to conduct CDD in instances where policies are purchased through salary allotment (in such cases the employer could contract with the covered person to serve as agent for CDD purposes.) The IC should further consider issuing guidance allowing reduced or simplified CDD measures.  The SEC and IC should consider issuing guidance stating that in all cases of intermediaries/third parties performing part or all of customer CDD, ultimate responsibility for customer ID and verification falls on the intermediary Financial institution secrecy or  The Philippines should consider amending AMLA sec. 5(11) to confidentiality (R.4) provide AMLC with access to bank records in all cases where they are conducting inquiries into a predicate crime or money laundering.  The Philippine authorities should consider amending bank secrecy laws and/or the AMLA to allow the BSP to have access to customer - 229 - information outside the context of an examination and to share it with other competent authorities in the context of MOUs that provide appropriate safeguards for client confidentiality.  The Philippine authorities should consider amending bank secrecy laws to allow covered persons to share customer and other information with other financial institutions to meet the requirements of Recommendations 7, 9 and Special Recommendation VII Record keeping and wire transfer  The AMLC should consider recommending the amendment of RIRRs rules (R.10 & SR.VII) 9.2.d to allow AMLC to request an extension of record-keeping in appropriate circumstances.  The AMLC and/or the BSP should consider adopting regulations and/or guidance regarding inclusion of originator information as required by criteria VII.2 through VII.4  The AMLC and/or the BSP should consider adopting regulations and/or guidance regarding money transfers not accompanied by originator information or monitoring of implementation as required by criteria VII.5 through VII.7 Monitoring of transactions and  The SEC and IC should consider issuing guidance similar to the one relationships (R.11 & 21) issued by the BSP that require covered institutions to examine the background of all complex and unusual transactions, establish findings in writing, and make them available.  The BSP, SEC, and IC should consider issuing a guidance that includes the written findings of examinations of the background of complex and unusual transactions as records under the definition of records in RIRRs Rule 9.2.  The SEC and IC should consider issuing guidance that tracks that of the BSP’s guidance with respect go monitoring, examinations of transactions relating to countries that do not sufficiently apply FATF Recommendations. Suspicious transaction reports and  The AMLC should consider amending its requirement to allow only other reporting (R.13, 14, 19, 25, electronic transfer of STRs if an electronic signature is included.  The AMLC should consider ways to eliminate concerns by covered & SR.IV) persons that they might not be excused from potential liability for breaching bank secrecy if it turns out that a reported tax evasion turns out to be a tax matter.  The AMLC should consider issuing regulations or guidance that prohibits tipping off of transactions that are in the process of being reported.  The Philippines should consider amending the AMLA to restrict the definition of “covered transactions� to avoid unnecessary duplication of reporting for the same transaction.  The AMLC should consider improving the quantity and quality of its feedback on STRs tat comports with FATF Best Practice Guidelines on Providing Feedback to Reporting Financial Institutions and other persons.  Following adoption of the criminalization of TF, authorities should consider amending the AMLA to require all reporting institutions to file STRs on any (attempted) transactions, suspected of being related to TF Cross Border Declaration or  The Philippines through the BOC should obtain statistics for all disclosure (SR IX) international ports and refer declarations and non-declarations to the AMLC.  The BOC should build its capacity and refer all currency declarations to the AMLC electronically so that these are received in a timely manner. - 230 -  The AMLC should be represented at NAIA initially, and to extend their representation to other international airports within the Philippines as appropriate Internal controls, compliance, audit  The BSP and SEC should consider adopting the same rule on audit and foreign branches (R.15 & 22) resources and independence as found in the SEC Operating Manual.  The BSP, SEC, and IC should consider issuing a rule that covered persons inform their supervisor if a foreign branch or subsidiary cannot implement AML/CFT measures equal to or at a higher standard than those in the Philippines. Shell banks (R.18)  The BSP should consider issuing a specific stating that it will not license a shell bank The supervisory and oversight  The BSP should consider drafting amendments to Circular 471, system–competent authorities and addressing the current shortcomings discussed above.  The BSP should consider increasing human resources at the disposal of SROs SES to more effectively conduct outreach campaigns, mapping Role, functions, duties and powers exercises and examinations. (including sanctions) (R.23, 30, 29,  The BSP should consider completing an agreement with the Ministry 17, 25, & 32) of Interior and Local Government to define coordination measures for sanctioning purposes and streamline the sanctioning process.  The Philippine authorities should consider increasing significantly the amount of civil financial sanctions available for breaches of regulatory guidelines.  The BSP should consider expanding the number of specialists in the AMLSG as well as support staffing.  The SEC and IC should consider creating an AML/CFT group.  The Philippines should consider establishing the IC as a fully independent authority along the lines of the BSP and the SEC/PSE Money value transfer services  Continue and strengthen BSP efforts to identify informal RAs and (SR.VI) bring them within the regulatory regime;  Proceed to draft amendments to BSP Circular 471, addressing the current shortcomings;  Consider increasing human resources a the disposal of SES to more effectively conduct outreach campaigns, mapping exercises and examinations;  Proceed rapidly to draft and sign an agreement with the Ministry of Interior and Local Government to define coordination measures for sanctioning purposes and streamline the sanctioning process. 4.Preventive Measures– Nonfinancial Businesses and Professions Customer due diligence and  Determine how to deal with the issue of legal professional secrecy for record-keeping (R.12) lawyers, notaries, other independent legal professionals and accountants acting as independent legal professionals;  Determine the mechanics of an effective regulatory and supervisory framework for DNFBPs, designate the AML/CFT supervisory authorities for the different sectors and provide them with appropriate training, guidance and resources;  Request the AML/CFT supervisory authorities to prepare sector regulations, guidelines and to conduct outreach for each sector to enhance compliance with the AMLA.  Carry out further awareness programs with each of the DNFBPs. Suspicious transaction reporting The Philippines should to further amend the AMLA, as amended, so that: (R.16) - DNFBPs are required to report STRs. - 231 - - DNFBPs, their directors, officers, and employees are protected from liability for reporting STRs; - DNFBPs, their directors, officers, and employees are prohibited from tipping off that an STR has been made; - DNFBPs are required to develop programs against ML and TF; - DNFBPs are required to give special attention to business relationships and transactions with countries that do not or insufficiently apply the FATF Recommendations as required by R.21 (also see detailed comments under Rec. 14, 15 and 21). Regulation, supervision,  The Philippines should take steps to regulate/supervise/monitor the full monitoring, and sanctions (R.17, range of DNFBPs for AML/CFT purposes as soon as possible; and  The Philippines should ensure that the casino sector is made subject to 24, & 25) a comprehensive regulatory and supervisory regime for AML/CFT purposes as soon as possible. Other designated non-financial  The BSP should accelerate the issuance of the “e-money� circular businesses and professions (R.20) currently being drafted to address the issue.  The IC and SEC should consider how to issue specific guidance on new technology to respective covered entities. 5. Legal Persons and Arrangements & Nonprofit Organizations Legal Persons–Access to beneficial  The SEC may wish to consider obtaining information on major ownership and control information shareholders of non-listed corporations setting up corporations in the Philippines. (R.33)  Consider whether the recent Supreme Court ruling is an obstacle to obtaining beneficial ownership information in cases where lawyers act as incorporators/shareholders for clients Legal Arrangements–Access to  Accessing beneficial ownership information on trusts likely beneficial ownership and control cumbersome procedure information (R.34) Nonprofit organizations (SR.VIII)  Improve the level of financial and human resources for NPO regulatory bodies.  Improve the systems of public access to information on NPOs.  Introduce and/or encourage/support self-regulatory (SR) mechanisms for NPOs and their networks or federations.  Enhance and strengthen awareness of regulatory measures and policies through outreach programs, forums and consultations (including in relation to AML/CFT issues).  Develop more coordinative structures for regulation. Government regulatory agencies could develop more formal means of sharing their best practices to learn from one another 6. National and International Cooperation National cooperation and  Lack of resources in AMLC for analysis and timeliness of sharing coordination (R.31 & 32) intelligence with LEA due to internal processes which impede the FIU ability to share financial intelligence for criminal investigations in a timely fashion which in turn negatively affects the relationships between the FIU and law enforcement agencies.AMLC need to strengthen “working� relationships with law enforcement partners.  AMLC desks should be involved in more active ML and TF investigations rather than just fulfilling a coordination function. The Conventions and UN Special  Reference is made to the comments made in the relevant sections of - 232 - Resolutions (R.35 & SR.I) the report, 2.1-2.4 and 6.3 and 6.4. Mutual Legal Assistance (R.36, 37,  The expansion of its network of MLA treaties could enhance the 38, SR.V & 32) Philippines’ ability to provide MLA.  Consideration should be given to the conclusion of other treaties with countries currently requesting non-treaty based assistance. Alternatively, authorities could consider permitting MLA requiring compulsory measures without a treaty. Extradition (R. 39, 37, SR.V &  Streamline extradition-related processes to reduce the amount of time R.32) required for final resolution (e.g. combine all appeals into a single review and /or impose deadlines along the extradition process). Other Forms of Cooperation (R.  Criminalize TF to remove a potential obstacle to international 40, SR.V & R.32) cooperation 7. Other Issues Other relevant AML/CFT measures or issues - 233 - ANNEX I Annex 1. Authorities’ Response to the Assessment THE PHILIPPINES DETAILED ASSESSMENT REPORT RESPONSE By GOVERNOR AMANDO M. TETANGCO, JR. APG Annual Meeting Brisbane, Australia 08 July 2009 Introduction APG Co-Chairs, Commissioner Mick Keelty and Mr. Ong Hian Sun, distinguished colleagues, friends, ladies and gentlemen, Good Afternoon! On behalf of the Philippine delegation, I would like to extend our sincerest gratitude to our host country, Australia, for the warm reception and hospitality extended to all participants. The Philippines has marked another milestone in the fight against money laundering and terrorist financing. We have just undergone the second peer review of our AML/CFT regime. The World Bank and the APG jointly conducted the assessment and we would like to acknowledge and express our grateful appreciation for the hard work of the Assessment Team, headed by Mr. Emile van Der Does de Willebois and members, Mr. Richard Gordon, Mr. Tom Hansen, Mr. Shaun Mark, Mr. Matteo Vaccani and Mr. Eliot Kennedy. Their focused and diligent efforts have allowed the completion of the draft DAR, the circulation and the gathering of comments and the revision of the report, as well as the submission to the APG within the timeframe established for the purpose. To the Assessment Team, thank you for sharing your expertise and experience with us, which have undoubtedly enriched our knowledge and which will certainly provide us with important guidance in our future work. The Task Before Us – The Philippine Detailed Assessment Report Today is D-day for us. Our Detailed Assessment Report Is now being presented to the APG Plenary for approval and adoption. And we await the results with bated breaths for we will know with finality how we rate in terms of the effective implementation of our AML/CFT regime. We will then be able to move forward to implement measures to further enhance it and bring it up to par with the international standards set by the FATF. Assessment Results The assessment provided the Philippines with the opportunity to test ourselves against the FATF 40 + 9 Recommendations. For the last six (6) years, we have toiled laboriously to comply with the global standards, and we believe we have been successful in doing so. But there is nothing like an assessment by one’s peers to keep one grounded. In general, the assessment evidences the significant progress of the Philippines since the last Mutual Evaluation in 2003. This progress has been achieved with the - 234 - ANNEX I support and cooperation of all concerned Philippine government institutions and agencies, some of which are represented here today. Actions taken Since the enactment of our AMLA in 2001 and its amendment in 2003, we have continued to further improve our AML/CFT framework. Even before the assessment, proposed amendments to the AMLA were submitted to Congress in line with our own self-assessment vis-à-vis the FATF 40 + 9 Recommendations. This action has resulted in both Houses of Congress submitting their respective bills on AMLA amendments, which include the following:  Addition of more predicate crimes46,  Inclusion of an appropriate regime for DNFBPs  Provision for a system of incentives and rewards  Retention by the AMLC of a percentage of civilly forfeited monetary instruments and properties  Amendment to allow ex-parte bank inquiry applications At this point, there is no stand-alone terrorism financing offence, but there is now a draft bill prepared by the Anti-Terrorism Council (ATC) in coordination with the AMLC and other support agencies to criminalize terrorist financing. In the meantime, we would like to stress that we are updated with UNSC 1267 and 1373 lists. We disseminate these lists to financial institutions and we have processes and mechanisms to trace, freeze and forfeit terrorists’ assets and funds. The respective Supervising authorities, the Bangko Sentral ng Pilipinas (BSP), the Securities and Exchange Commission (SEC) and the Office of the Insurance Commissioner (OIC), have also adopted measures and issued regulations to implement certain reforms and/or provide necessary guidelines, and continue to do so to improve their regulatory systems. For those not familiar with the Philippine AML/CFT system, I would like to take this opportunity to comment on a matter raised by our assessors regarding the independence and autonomy of the AMLC as the Philippine FIU. The AMLC, or the Council, is the Philippines’ Financial Intelligence Unit (FIU). It is composed of 3 members who hold such positions in their ex-oficio capacities. All of us are present here today – myself, as the Governor of the Bangko Sentral ng Pilipinas, Chairman of the Council, SEC Chairperson Fe B. Barin and the OIC Commissioner Eduardo T. Malinis, represented by Deputy Commissioner Vida Chiong. The Council is supported by a Secretariat, headed by an Executive Director, the position of which is currently held by Atty. Vicente S. Aquino. In the Assessment Report, the existing decision-making structure of the AMLC was deemed to be a limiting factor to its overall effectiveness. Contrary to this finding, we believe that the membership of the Council provides the perfect balance between regulation and enforcement. When the Anti-Money Laundering Act of 2001 and its subsequent amendments were enacted, the heads of the BSP, the SEC and the OIC, were given responsibilities, which required them to fit into their days the work of the 46 Trafficking in persons, bribery, counterfeiting, forgery, malversation, environmental crimes and terrorist financing - 235 - ANNEX I AMLC, in addition to their responsibilities of regulating the financial industries and institutions under their respective jurisdictions. This set-up enables them, individually and as a group, to make sure that the need to address the threat of money laundering in the banking, securities and insurance sectors is pursued vigorously with the end in view of protecting the rights of law abiding persons and institutions. The AMLC and its Secretariat are NOT separate and distinct entities. The powers of the AMLC as the Philippines’ FIU are vested by law on its members in a collegial manner and the basic operational responsibilities and functionalities are performed by the Secretariat. Moreover, the Council members, again acting in a collegial capacity, set the policies and direction that the AMLC takes. The Council members have the ultimate responsibility and final accountability to ensure the effective functioning of the AMLC and each one of them has preserved his or her independence of judgment, without fear or favor. There are no hard and fast rules on the FIU model that may be adopted by a country, as we all know, provided that the core functions of an FIU can be discharged. When our legislators enacted the AMLA, they took into consideration the Philippines’ legal, historical, cultural, economic and social frameworks and systems to come up with the best structure for its FIU. The result is the AMLC and its decision making structure. All throughout the review process, both parties, the assessors and the assessed, maintained their open-mindedness and professionalism, in the face of differing views, a few of which have been resolved in our favor. And for this, we are grateful for the patience and understanding of our assessors. Conclusion The dynamics of the assessment process must now take place. Before we enter this next phase of the assessment, we would like to assure you that we shall continue to exert our utmost efforts to further enhance the effective implementation of our AML/CFT laws in coordination with all relevant Philippine government institutions and agencies, especially the legislative, executive and judicial branches of the government. The draft bills on additional amendments to the AMLA and the Human Security Act (to criminalize terrorist financing) are a concrete proof of the Government’s commitment to further strengthen the AML/CFT regime in the Philippines. We are aware of the existence of risks, including new ones that might arise from the aftermath of the global financial crisis. Thus, we need to continually enhance our systems to meet new challenges that come our way. This we are committed to do. Our primary objective is not simply to comply because it is being required by international standards but to further strengthen the Philippines’ AML regime within the context of national legislation and international best practices, which will redound to the benefit, not only of our country and our people, but all nations and their peoples as well. We likewise reiterate and emphasize our continuing support and commitment to the global fight against money laundering and terrorist financing. Declaring war against Money Laundering and Terrorist Financing is only the beginning. To win this war, we must be united, committed, focused and vigilant. The stakes are simply too high. I am sure you will all agree with me that our respective countries’ AML/CFT regimes have their own strengths and limitations. The key to effective implementation is in knowing what they are. Any success that we have accomplished so far can only be attributed to our ability to turn challenges into opportunities despite some limitations and using our resources that we intend to augment, in a creative and inspired manner. Definitely, this is not an easy task when viewed from an implementation - 236 - ANNEX I and compliance angle but it would become easier with the assistance of various AML/CFT donors and providers, which we intend to enlist. The future and the work that needs to be done have been clearly defined because losing this war is not an option and we know that there is no finish line in our AML/CFT efforts. Thank you. - 237 - Annex 2. Details of All Bodies Met During the On-Site Visit  AMLC  Bangko Sentral ng Pilipinas (BSP)  Securities and Exchange Commission (SEC)  Insurance Commission (IC)  Department of Justice (DOJ)  Office of the Solicitor General (OSG)  Office of the Ombudsman  Bureau of Customs (BOC), Bureau of Immigration (BI)  National Bureau of Investigation (NBI)  Philippines National Police (PNP)  Philippines Drug Enforcement Agency (PDEA)  Anti Terrorism Council (ATC), National Intelligence Coordination Agency (NICA), Anti Terrorism Council Coordination Center (ATCCC), National Counter-Terrorism Action Group (NACTAG)  Philippines Center for Transnational Crime (PCTC)  Foreign law enforcement agency representatives- LOs stationed in Manila  Cooperative Development Authority (CDA), Department of Social Welfare and Development (DSWD)  Bankers’ Association of the Philippines, selected domestic and foreign financial institutions (HSBC, BPI, Sunlife, BDO, PSE, i-remit)  Philippines Stock Exchange (PSE)  Telecommunication companies involved in mobile financial services (Smart, Globe)  Representatives from main DNFBP associations  Representatives from Congress and with the Chief Justice of the Supreme Court - 238 - Annex 3. Copies of key [sections of] laws, regulations, and other measures R.A. 9160 ANTI-MONEY LAUNDERING LAW AN ACT DEFINING THE CRIME OF MONEY LAUNDERING, PROVIDING PENALTIES THEREFOR AND FOR OTHER PURPOSES Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled: SECTION 1. Short Title. – This Act shall be known as the "Anti-Money Laundering Act of 2001." SEC. 2. Declaration of Policy. – It is hereby declared the policy of the State to protect and preserve the integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money laundering site for the proceeds of any unlawful activity. Consistent with its foreign policy, the State shall extend cooperation in transnational investigations and prosecutions of persons involved in money laundering activities wherever committed. SEC. 3. Definitions. – For purposes of this Act, the following terms are hereby defined as follows: (a) "Covered institution" refers to: (1) banks, non-banks, quasi-banks, trust entities, and all other institutions and their subsidiaries and affiliates supervised or regulated by the Bangko Sentral ng Pilipinas (BSP); (2) insurance companies and all other institutions supervised or regulated by the Insurance Commission; and (3) (i) securities dealers, brokers, salesmen, investment houses and other similar entities managing securities or rendering services as investment agent, advisor, or consultant, (ii) mutual funds, close-end investment companies, common trust funds, pre-need companies and other similar entities, (iii) foreign exchange corporations, money changers, money payment, remittance, and transfer companies and other similar entities, and (iv) other entities administering or otherwise dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary instruments or property supervised or regulated by Securities and Exchange Commission and Exchange Commission (b) "Covered transaction" is a single, series, or combination of transactions involving a total amount in excess of Four million Philippine pesos (Php4,000,000.00) or an equivalent amount in foreign currency based on the prevailing exchange rate within five (5) consecutive banking days except those between a covered institution 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. It likewise refers to a single, series or combination or pattern of unusually large and complex transactions in excess of Four million Philippine pesos (Php4,000,000.00) especially cash deposits and investments having no credible purpose or origin, underlying trade obligation or contract. - 239 - (c) "Monetary instrument" refers to: (1) coins or currency of legal tender of the Philippines, or of any other country; (2) drafts, checks and notes; (3) securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust certificates, custodial receipts or deposit substitute instruments, trading orders, transaction tickets and confirmations of sale or investments and money market instruments; and (4) other similar instruments where title thereto passes to another by endorsement, assignment or delivery. (d) "Offender" refers to any person who commits a money laundering offense. (e) "Person" refers to any natural or juridical person. (f) "Proceeds" refers to an amount derived or realized from an unlawful activity. (g) "Supervising Authority" refers to the appropriate supervisory or regulatory agency, department or office supervising or regulating the covered institutions enumerated in Section 3(a). (h) "Transaction" refers to any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. It also includes any movement of funds by any means with a covered institution. (i) "Unlawful activity" refers to any act or omission or series or combination thereof involving or having relation to the following: (1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; (2) Sections 3, 4, 5, 7, 8 and 9 of Article Two of Republic Act No. 6425, as amended, otherwise known as the Dangerous Drugs Act of 1972; (3) Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as amended; otherwise known as the Anti-Graft and Corrupt Practices Act; (4) Plunder under Republic Act No. 7080, as amended; (5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal Code, as amended; (6) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602; (7) Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree No. 532; (8) Qualified theft under Article 310 of the Revised Penal Code, as amended; (9) Swindling under Article 315 of the Revised Penal Code, as amended; (10) Smuggling under Republic Act Nos. 455 and 1937; (11) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000; - 240 - (12) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against non-combatant persons and similar targets; (13) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as the Securities Regulation Code of 2000; (14) Felonies or offenses of a similar nature that are punishable under the penal laws of other countries. SEC. 4. Money Laundering Offense. – Money laundering is a crime whereby the proceeds of an unlawful activity are transacted, thereby making them appear to have originated from legitimate sources. It is committed by the following: (a) Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property. (b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph (a) above. (c) Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so. SEC. 5. Jurisdiction of Money Laundering Cases. – The regional trial courts shall have jurisdiction to try all cases on money laundering. Those committed by public officers and private persons who are in conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan. SEC. 6. Prosecution of Money Laundering. – (a) Any person may be charged with and convicted of both the offense of money laundering and the unlawful activity as herein defined. (b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation under this Act without prejudice to the freezing and other remedies provided. SEC. 7. Creation of Anti-Money Laundering Council (AMLC). – The Anti-Money Laundering Council is hereby created and shall be composed of the Governor of the Bangko Sentral ng Pilipinas as chairman, the Commissioner of the Insurance Commission and the Chairman of the Securities and Exchange Commission as members. The AMLC shall act unanimously in the discharge of its functions as defined hereunder: (1) to require and receive covered transaction reports from covered institutions; (2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to determine the true identity of the owner of any monetary instrument or property subject of a covered transaction report or request for assistance from a foreign State, or believed by the Council, on the basis of substantial evidence, to be, in whole or in part, wherever located, representing, involving, or related to, directly or indirectly, in any manner or by any means, the proceeds of an unlawful activity; (3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General; (4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering offenses; - 241 - (5) to initiate investigations of covered transactions, money laundering activities and other violations of this Act; (6) to freeze any monetary instrument or property alleged to be proceeds of any unlawful activity; (7) to implement such measures as may be necessary and justified under this Act to counteract money laundering; (8) to receive and take action in respect of, any request from foreign states for assistance in their own anti-money laundering operations provided in this Act; (9) to develop educational programs on the pernicious effects of money laundering, the methods and techniques used in money laundering, the viable means of preventing money laundering and the effective ways of prosecuting and punishing offenders; and (10) to enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the government, including government-owned and -controlled corporations, in undertaking any and all anti-money laundering operations, which may include the use of its personnel, facilities and resources for the more resolute prevention, detection and investigation of money laundering offenses and prosecution of offenders. SEC. 8. Creation of a Secretariat. – The AMLC is hereby authorized to establish a secretariat to be headed by an Executive Director who shall be appointed by the Council for a term of five (5) years. He must be a member of the Philippine Bar, at least thirty-five (35) years of age and of good moral character, unquestionable integrity and known probity. All members of the Secretariat must have served for at least five (5) years either in the Insurance Commission, the Securities and Exchange Commission or the Bangko Sentral ng Pilipinas (BSP) and shall hold full-time permanent positions within the BSP. SEC. 9. Prevention of Money Laundering; Customer Identification Requirements and Record Keeping. (a) Customer Identification. - Covered institutions shall establish and record the true identity of its clients based on official documents. They shall maintain a system of verifying the true identity of their clients and, in case of corporate clients, require a system of verifying their legal existence and organizational structure, as well as the authority and identification of all persons purporting to act on their behalf.The provisions of existing laws to the contrary notwithstanding, anonymous accounts, accounts under fictitious names, and all other similar accounts shall be absolutely prohibited. Peso and foreign currency non-checking numbered accounts shall be allowed. The BSP may conduct annual testing solely limited to the determination of the existence and true identity of the owners of such accounts. (b) Record Keeping. - All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. With respect to closed accounts, the records on customer identification, account files and business correspondence, shall be preserved and safely stored for at least five (5) years from the dates when they were closed. (c) Reporting of Covered Transactions. - Covered institutions shall report to the AMLC all covered transactions within five (5) working days from occurrence thereof, unless the Supervising Authority concerned prescribes a longer period not exceeding ten (10) working days. When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates shall not be deemed to have violated Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791 and other similar laws, but are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. In case of violation thereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, shall be criminally liable. - 242 - However, no administrative, criminal or civil proceedings, shall lie against any person for having made a covered transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under this Act or any other Philippine law. When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person, entity, the media, the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. Neither may such reporting be published or aired in any manner or form by the mass media, electronic mail, or other similar devices. In case of violation thereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, or media shall be held criminally liable. SEC. 10. Authority to Freeze. – Upon determination that probable cause exists that any deposit or similar account is in any way related to an unlawful activity, the AMLC may issue a freeze order, which shall be effective immediately, on the account for a period not exceeding fifteen (15) days. Notice to the depositor that his account has been frozen shall be issued simultaneously with the issuance of the freeze order. The depositor shall have seventy-two (72) hours upon receipt of the notice to explain why the freeze order should be lifted. The AMLC has seventy-two (72) hours to dispose of the depositor’s explanation. If it fails to act within seventy-two (72) hours from receipt of the depositor’s explanation, the freeze order shall automatically be dissolved. The fifteen (15)-day freeze order of the AMLC may be extended upon order of the court, provided that the fifteen (15)-day period shall be tolled pending the court’s decision to extend the period. No court shall issue a temporary restraining order or writ of injunction against any freeze order issued by the AMLC except the Court of Appeals or the Supreme Court. SEC. 11. Authority to Inquire into Bank Deposits. – Notwithstanding the provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, and other laws, the AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution upon order of any competent court in cases of violation of this Act when it has been established that there is probable cause that the deposits or investments involved are in any way related to a money laundering offense: Provided, That this provision shall not apply to deposits and investments made prior to the effectivity of this Act. SEC. 12. Forfeiture Provisions. – (a) Civil Forfeiture. - When there is a covered transaction report made, and the court has, in a petition filed for the purpose ordered seizure of any monetary instrument or property, in whole or in part, directly or indirectly, related to said report, the Revised Rules of Court on civil forfeiture shall apply. (b) Claim on Forfeited Assets. - Where the court has issued an order of forfeiture of the monetary instrument or property in a criminal prosecution for any money laundering offense defined under Section 4 of this Act, the offender or any other person claiming an interest therein may apply, by verified petition, for a declaration that the same legitimately belongs to him and for segregation or exclusion of the monetary instrument or property corresponding thereto. The verified petition shall be filed with the court which rendered the judgment of conviction and order of forfeiture, within fifteen (15) days from the date of the order of forfeiture, in default of which the said order shall become final and executory. This provision shall apply in both civil and criminal forfeiture. (c) Payment in Lieu of Forfeiture. - Where the court has issued an order of forfeiture of the monetary instrument or property subject of a money laundering offense defined under Section 4, and said order cannot be enforced because any particular monetary instrument or property cannot, with due diligence, be located, or it has been substantially altered, destroyed, diminished in value or otherwise rendered worthless by any act or omission, directly or indirectly, attributable to the offender, or it has been concealed, removed, converted or otherwise transferred to prevent the same from being found or to avoid forfeiture thereof, or it is located outside the Philippines or has been placed or brought outside the jurisdiction of the - 243 - court, or it has been commingled with other monetary instruments or property belonging to either the offender himself or a third person or entity, thereby rendering the same difficult to identify or be segregated for purposes of forfeiture, the court may, instead of enforcing the order of forfeiture of the monetary instrument or property or part thereof or interest therein, accordingly order the convicted offender to pay an amount equal to the value of said monetary instrument or property. This provision shall apply in both civil and criminal forfeiture. SEC. 13. Mutual Assistance among States. – (a) Request for Assistance from a Foreign State. - Where a foreign State makes a request for assistance in the investigation or prosecution of a money laundering offense, the AMLC may execute the request or refuse to execute the same and inform the foreign State of any valid reason for not executing the request or for delaying the execution thereof. The principles of mutuality and reciprocity shall, for this purpose, be at all times recognized. (b) Powers of the AMLC to Act on a Request for Assistance from a Foreign State. - The AMLC may execute a request for assistance from a foreign State by: (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity under the procedures laid down in this Act; (2) giving information needed by the foreign State within the procedures laid down in this Act; and (3) applying for an order of forfeiture of any monetary instrument or property in the court: Provided, That the court shall not issue such an order unless the application is accompanied by an authenticated copy of the order of a court in the requesting State ordering the forfeiture of said monetary instrument or property of a person who has been convicted of a money laundering offense in the requesting State, and a certification or an affidavit of a competent officer of the requesting State stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. (c) Obtaining Assistance from Foreign States. - The AMLC may make a request to any foreign State for assistance in (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity; (2) obtaining information that it needs relating to any covered transaction, money laundering offense or any other matter directly or indirectly related thereto; (3) to the extent allowed by the law of the foreign State, applying with the proper court therein for an order to enter any premises belonging to or in the possession or control of, any or all of the persons named in said request, and/or search any or all such persons named therein and/or remove any document, material or object named in said request: Provided, That the documents accompanying the request in support of the application have been duly authenticated in accordance with the applicable law or regulation of the foreign State; and (4) applying for an order of forfeiture of any monetary instrument or property in the proper court in the foreign State: Provided, That the request is accompanied by an authenticated copy of the order of the regional trial court ordering the forfeiture of said monetary instrument or property of a convicted offender and an affidavit of the clerk of court stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. (d) Limitations on Requests for Mutual Assistance. - The AMLC may refuse to comply with any request for assistance where the action sought by the request contravenes any provision of the Constitution or the execution of a request is likely to prejudice the national interest of the Philippines unless there is a treaty between the Philippines and the requesting State relating to the provision of assistance in relation to money laundering offenses. (e) Requirements for Requests for Mutual Assistance from Foreign States. - A request for mutual assistance from a foreign State must (1) confirm that an investigation or prosecution is being conducted in respect of a money launderer named therein or that he has been convicted of any money laundering offense; (2) state the grounds on which any person is being investigated or prosecuted for money laundering or the details of his conviction; (3) give sufficient particulars as to the identity of said person; (4) give particulars sufficient to identify any covered institution believed to have any information, document, material or object which may be of assistance to the investigation or prosecution; (5) ask from the covered institution concerned any information, document, material or object which may be of assistance to the investigation or prosecution; (6) specify the manner in which and to whom said information, document, material - 244 - or object obtained pursuant to said request, is to be produced; (7) give all the particulars necessary for the issuance by the court in the requested State of the writs, orders or processes needed by the requesting State; and (8) contain such other information as may assist in the execution of the request. (f) Authentication of Documents. - For purposes of this Section, a document is authenticated if the same is signed or certified by a judge, magistrate or equivalent officer in or of, the requesting State, and authenticated by the oath or affirmation of a witness or sealed with an official or public seal of a minister, secretary of State, or officer in or of, the government of the requesting State, or of the person administering the government or a department of the requesting territory, protectorate or colony. The certificate of authentication may also be made by a secretary of the embassy or legation, consul general, consul, vice consul, consular agent or any officer in the foreign service of the Philippines stationed in the foreign State in which the record is kept, and authenticated by the seal of his office. (g) Extradition. - The Philippines shall negotiate for the inclusion of money laundering offenses as herein defined among extraditable offenses in all future treaties. SEC. 14. Penal Provisions. – (a) Penalties for the Crime of Money Laundering. The penalty of imprisonment ranging from seven (7) to fourteen (14) years and a fine of not less than Three million Philippine pesos (Php 3,000,000.00) but not more than twice the value of the monetary instrument or property involved in the offense, shall be imposed upon a person convicted under Section 4(a) of this Act. The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than One million five hundred thousand Philippine pesos (Php1,500,000.00) but not more than Three million Philippine pesos (Php3,000,000.00), shall be imposed upon a person convicted under Section 4(b) of this Act. The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than One hundred thousand Philippine pesos (Php100,000.00) but not more than Five hundred thousand Philippine pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 4(c) of this Act. (b) Penalties for Failure to Keep Records. The penalty of imprisonment from six (6) months to one (1) year or a fine of not less than One hundred thousand Philippine pesos (Php100,000.00) but not more than Five hundred thousand Philippine pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 9(b) of this Act. (c) Malicious Reporting. Any person who, with malice, or in bad faith, reports or files a completely unwarranted or false information relative to money laundering transaction against any person shall be subject to a penalty of six (6) months to four (4) years imprisonment and a fine of not less than One hundred thousand Philippine pesos (Php100, 000.00) but not more than Five hundred thousand Philippine pesos (Php500, 000.00), at the discretion of the court: Provided, That the offender is not entitled to avail the benefits of the Probation Law. If the offender is a corporation, association, partnership or any juridical person, the penalty shall be imposed upon the responsible officers, as the case may be, who participated in the commission of the crime or who shall have knowingly permitted or failed to prevent its commission. If the offender is a juridical person, the court may suspend or revoke its license. If the offender is an alien, he shall, in addition to the penalties herein prescribed, be deported without further proceedings after serving the penalties herein prescribed. If the offender is a public official or employee, he shall, in addition to the penalties prescribed herein, suffer perpetual or temporary absolute disqualification from office, as the case may be. Any public official or employee who is called upon to testify and refuses to do the same or purposely fails to testify shall suffer the same penalties prescribed herein. - 245 - (d) Breach of Confidentiality. The punishment of imprisonment ranging from three (3) to eight (8) years and a fine of not less than Five hundred thousand Philippine pesos (Php500,000.00) but not more than One million Philippine pesos (Php1,000,000.00), shall be imposed on a person convicted for a violation under Section 9(c). SEC. 15. System of Incentives and Rewards. – A system of special incentives and rewards is hereby established to be given to the appropriate government agency and its personnel that led and initiated an investigation, prosecution and conviction of persons involved in the offense penalized in Section 4 of this Act. SEC. 16. Prohibitions Against Political Harassment. – This Act shall not be used for political persecution or harassment or as an instrument to hamper competition in trade and commerce. No case for money laundering may be filed against and no assets shall be frozen, attached or forfeited to the prejudice of a candidate for an electoral office during an election period. SEC. 17. Restitution. – Restitution for any aggrieved party shall be governed by the provisions of the New Civil Code. SEC. 18. Implementing Rules and Regulations. – Within thirty (30) days from the effectivity of this Act, the Bangko Sentral ng Pilipinas, the Insurance Commission and the Securities and Exchange Commission shall promulgate the rules and regulations to implement effectively the provisions of this Act. Said rules and regulations shall be submitted to the Congressional Oversight Committee for approval. Covered institutions shall formulate their respective money laundering prevention programs in accordance with this Act including, but not limited to, information dissemination on money laundering activities and its prevention, detection and reporting, and the training of responsible officers and personnel of covered institutions. SEC. 19. Congressional Oversight Committee. – There is hereby created a Congressional Oversight Committee composed of seven (7) members from the Senate and seven (7) members from the House of Representatives. The members from the Senate shall be appointed by the Senate President based on the proportional representation of the parties or coalitions therein with at least two (2) Senators representing the minority. The members from the House of Representatives shall be appointed by the Speaker also based on proportional representation of the parties or coalitions therein with at least two (2) members representing the minority. The Oversight Committee shall have the power to promulgate its own rules, to oversee the implementation of this Act, and to review or revise the implementing rules issued by the Anti-Money Laundering Council within thirty (30) days from the promulgation of the said rules. SEC. 20. Appropriations Clause. – The AMLC shall be provided with an initial appropriation of Twenty-five million Philippine pesos (Php25,000,000.00) to be drawn from the national government. Appropriations for the succeeding years shall be included in the General Appropriations Act. SEC. 21. Separability Clause. – If any provision or section of this Act or the application thereof to any person or circumstance is held to be invalid, the other provisions or sections of this Act, and the application of such provision or section to other persons or circumstances, shall not be affected thereby. SEC. 22. Repealing Clause. – All laws, decrees, executive orders, rules and regulations or parts thereof, including the relevant provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, as amended and other similar laws, as are inconsistent with this Act, are hereby repealed, amended or modified accordingly. SEC. 23. Effectivity. – This Act shall take effect fifteen (15) days after its complete publication in the Official Gazette or in at least two (2) national newspapers of general circulation. The provisions of this Act shall not apply to deposits and investments made prior to its effectivity. - 246 - Approved, FRANKLIN M. DRILON JOSE DE VENECIA JR President of the Senate Speaker of the House of Representatives This Act which is a consolidation of House Bill No. 3083 and Senate Bill No. 1745 was finally passed by the House of Representatives and the Senate on September 29, 2001. OSCAR G. YABES ROBERTO P. NAZARENO Secretary of the Senate Secretary General of House of Representatives Approved GLORIA MACAPAGAL-ARROYO President of the Philippines - 247 - Republic of the Philippines Congress of the Philippines Metro Manila Twelfth Congress Second Regular Session ____ Begun and held in Metro Manila, on Monday, the twenty-second day of July, two thousand two. R.A. 9194 AN ACT AMENDING REPUBLIC ACT NO. 9160, OTHERWISE KNOWN AS THE "ANTI-MONEY LAUNDERING ACT OF 2001" Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled: SECTION 1. Section 3, paragraph (b), of Republic Act No. 9160 is hereby amended as follows: "(b) 'Covered transaction' is a transaction in cash or other equivalent monetary instrument involving a total amount in excess of Five hundred thousand pesos (P500,000.00) within one (1) banking day." SEC. 2. Section 3 of the same Act is further amended by inserting between paragraphs (b) and (c) a new paragraph designated as (b-1) to read as follows: "(b-1) 'Suspicious transaction' are transactions with covered institutions, regardless of the amounts involved, where any of the following circumstances exist: "1. there is no underlying legal or trade obligation, purpose or economic justification; "2. the client is not properly identified; "3. the amount involved is not commensurate with the business or financial capacity of the client; "4. taking into account all known circumstances, it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the Act; "5. any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past transactions with the covered institution; "6. the transaction is in any way related to an unlawful activity or offense under this Act that is about to be, is being or has been committed; or "7. any transaction that is similar or analogous to any of the foregoing." SEC. 3. Section 3(i) of the same Act is further amended to read as follows: "(i) 'Unlawful activity' refers to any act or omission or series or combination thereof - 248 - involving or having direct relation to the following: "(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; "(2) Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15, and 16 of Republic Act No. 9165, otherwise known as the Comprehensive Dangerous Drugs Act of 2002; "(3) Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act; "(4) Plunder under Republic Act No. 7080, as amended; - 249 - Annex 4. List of All Laws, Regulations, and Other Material Received Primary Legislation Reference No./Name Title Year Constitution 1987 Constitution of the Republic of the Philippines 1987 Batas Pambansa Bilang 68 Corporation Code of the Philippines 1980 An Act Creating a Bureau of Investigation, providing Republic Act No. 157 Funds therefor, and for other purposes. 1947 Republic Act No. 386 Civil Code of the Philippines 1949 Republic Acts No. 455 and No. 1937 Tariff and Customs Code (TCC) Republic Act No. 1405 Bank Secrecy Act 1955 Act Declaring in Favor of the State any Property Found to have been Unlawfully Acquired by Any Public Officer Republic Act No. 1379 or Employee 1955 Republic Act No 3019 Anti Graft and Corrupt Practices Act 1960 Republic Act No. 3815 Revised Penal Code (RPC) 1930 An Act Prohibiting Certain Acts Inimical to Civil Aviation, Republic Act No. 6235 and for other purposes. 1971 Republic Act No. 6426 Foreign Currency Deposit Act 1974 Republic Act No. 6758 An act prescribing a revised compensation and position classification system in the government and for other purposes 1989 Department of the Interior and Local Government Act of Republic Act No. 6975 1990 1990 Republic Act No. 7080 Act Defining and Penalizing the Crime of Plunder 1991 Republic Act No. 7653 New Central Bank Act 1993 Republic Act No. 7922 Cagayan Special Economic Zone Act of 1995 1995 Republic Act No. 8424 National Internal Revenue Code 1997 Republic Act No. 8502 Jewelry Industry Development Act 1998 RIRR of RA No. 8502 Revised Implementing Rules and Regulations - RA 8502 2004 Philippine National Police Reform and Reorganization Republic Act No. 8551 Act of 1998 1998 Republic Act No. 8791 The General Banking Law of 2000 2000 Republic Act No. 8792 Electronic Commerce Act 2000 Republic Act No. 8799 Securities Regulation Code(SRC) 2000 Republic Act No. 9160 Anti Money Laundering Act (AMLA) 2001 Republic Act No. 9165 Comprehensive Dangerous Drugs Act 2002 Republic Act No. 9194 Amendment to the AMLA 2003 Revised Implementing Rules and Regulations - RA 9160 RIRR of RA No. 9160 as amended 2003 Republic Act No. 9208 Anti-Trafficking in persons Act 2003 Republic Act No. 9298 Philippine Accountancy Act 2004 Republic Act No. 9372 Human Security Act (HSA) 2007 - 250 - Executive Acts Creating the Presidential Anti-Graft Commission and Providing For Its Powers, Duties and Functions and For Executive Order No. 12 Other Purposes 2001 Executive Order No. 41 NALECC Re-organization 1992 Executive Order No. 292 Administrative Code 1987 Presidential memorandum Circular Designation of the Philippine National Police (PNP) as No. 92 INTERPOL NCB for the Philippines 1993 Presidential Decree No. 114 Pawnshop RegulationAct 1973 Executive Order No. 574 Department of Trade Re-organization 1979 Presidential Decree No. 612 Insurance Code 1974 Presidential Decree No. 721 Department of Trade Reconstitution 1975 Presidential Decree No. 902-A SEC Reorganization Act 1976 Presidential Decree No. 1069 Philippine Extradition Law 1977 Presidential Decree No. Franchise and Powers of the Philippine Amusement and 1869 Gaming Corporation (PAGCOR) 1983 Guidance Bangko Sentral ng Pilipinas "On the Bringing Into or Out of the Country Philippine BSP Circular No. 98 Currency in an Amount Exceeding PHP 10,000" 1995 BSP Circular No. 240 Provisions of electronic banking services 2000 Rules and Regulations for banks and non-bank financial BSP Circular No. 251 institutions to combat money laundering 2000 BSP Circular No. 269 New Guidelines concerning electronic banking activities 2000 Regulation on the transport into or out of the Philippines foreign currency in excess of US$10,000 or its BSP Circular No. 308 equivalent 2001 Rules and regulations for banks, offshore banking units, quasi-banks, trust entities, non-stock savings and loan BSP Circular No. 333 associations, pawnshops and all other institutions 2002 Minimum Guidelines for Correspondent Banking BSP Circular No. 428 Account Opening and Customer Identification 2004 BSP Circular No. 436 Minimum Guidelines for Fund Transfers 2004 Incorporation of the IRR of the Anti-Money Laundering BSP Circular No. 451 Act in the 2003 updates of the MOR and MORNBFI 2004 Registration and operations of foreign exchange BSP Circular No. 471 dealers/money changers and remittance agents 2005 BSP Circular No. 495 Electronic Monitoring Systems for Money Laundering 2005 - 251 - Monetary penalty guidelines for banks/quasi-banks, their directors and/or officers for violations/offenses with BSP Circular No. 496 sanctions falling under Section 37 of R.A.No. 7653 2005 To require any person who brings into or out of the Philippines foreign currency, as well as other foreign exchange-denominated bearer monetary instruments, to BSP Circular No. 507 declare the same in writing 2006 BSP Circular No. 542 Consumer Protection for Electronic Banking 2006 Amendments to the Manual of Regulations for Banks (MORB) and the Manual of Regulations for Non-Bank Financial institutions (MORNBFI) regarding compliance BSP Circular No. 598 officers 2008 BSP Circular No. 608 Valid Identification Cards (IDs) for Financial (20 may 2008) Transactions 2008 Extension of the Deadline for the Submission of Reports BSP Circular No. 612 on Covered and Suspicious Transactions to the AMLC 2008 BSP Resolution No. 820 Risk-based BSP examination procedures 2004 BSP Circular Letter 1 Anti-Money Laundering Model Operating Manual for July 2002 Banks and Other covered Institutions 2002 BSP Circular Letter 26 July 2005 Registration requirement for each FXD/MC and RAs 2005 BSP Resolution No. 1443 2007 Certificate of registration of Foreign Exchange Dealers BSP Memorandum July (FXDs)/Money Changers (MCs) and Remittance Agents 18 2005 (RAs) 2005 Memorandum of Agreement (MOA) for the effective implementation of BSP rules on the physical cross- border transport of currencies. 2005 Supplemental MOA Supplemental Memorandum of Agreement on Physical BSP MOC Cross-Border Transport of Currencies 2006 MORB Manual of Regulations for Banks 2005 Manual of Regulations for Non-Bank Financial MORNBFI Institutions 2005 Anti Money Laundering Council (AMLC) AMLC Resolution No. Rules on Submission of STRs and CTRs by Covered 292, (2003) Institutions 2003 AMLC Resolution No. Implementation of the File Transfer and Reporting 408 (2004) Facility (FTRF) 2004 Policies and Guidelines on the development and AMLC Resolution No. 2 implementation of AMLC's Transaction Monitoring and (2005) Analysis System (TMAS) 2005 AMLC Resolution No. 59, 2006 Information sharing by AMLC 2006 AMLC Resolution No. Call for CTRs involving IIRO and other individuals 80 , 2006 involved in terrorism activities. from Fis 2006 AMLC Resolution No. Filing of petition for freeze order issuance on IIRO 54, (2008) assets 2008 - 252 - Securities and Exchange Commission (SEC) SEC Circular No. 12 (2004) SEC Operating Manual 2004 SEC Memorandum Circular No. 8 (2006) Revised Guidelines on Foundations 2006 Insurance Commission (IC) IC Circular Letter 21- Negative List of officers and employees 2006 2006 IC Circular Letter 32- 2006 IC Operating Manual 2006 Guidelines for the Implementation of Know Your IC Circular Letter 15 - Customer (KYC) and Customer Due Diligence (CDD) 2007 Requirements 2007 Department of Social Welfare and Development (DSWD) DSWD AM No. 53 Omnibus Guidelines in the Management and Processing (2003) of Donations 2003 Omnibus Guidelines on the Registration and Licensing of Social Welfare and Development Agencies and Accreditation of Social Welfare and Development DSWD AM No. 6 (2005) Programs and Services, as amended. 2005 Rules and Regulations on the Registration and Licensing of Social Welfare and Development Agencies DSWD AM No. 17 and Accreditation of Social Welfare and Development (2008) Programs and Services 2008 Supreme Court Administrative Matters / rules of procedure Code of professional Responsibility (lawyers) 1988 Rules requiring notaries public to hold office at a specific AM No. 02-8-02 SC and appropriate address / addresses 2002 AM 04-4-197 RTC Designation of Anti-Money Laundering Courts 2004 Rules of Procedures in Cases of Civil Forfeiture, Asset A.M. No. 05-11-04-SC Preservation and Freeze 2005 Rules of Civil Procedure as amended Revised Rules of Criminal Procedure, as amended Case Law GR No 105938 September 20, 1996 Regala et al vs Sandiganbayan 1996 RP v. International Islamic Relief Organization and Bank Civil Case No. 07-0001 of the Philippines Islands 2008 GR No 174629 AMLC vs Hon. Antonio M. Eugenio 2008 15 SCRA 91 PNV v. Gancayco Draft Legislation Currently before House Bill No. 5077 Amendments to RA 9160 (AMLA) Congress - 253 - Annex 5. List of Statisticsl Tables Table V Seized/confiscated assets by the Philippines Drug Enforcement Agency (PDEA), 2004-2007 Year Value in PHP 2004 20,300,967,134 2005 4,914,927,857 2006 5,052,971,213 2007 4,278,603,539 Total 34,457,469,746 Table VI Corruption cases bfore PAGC, 2004-2007 Affirmed PAGC PAGC Cases with OP Decision imposing penalties Total No. Cases with Non- YEAR of Cases Accessory Punitive Dismissal Suspension Reprimand Resolved Penalties Recommendation 2004 112 94 4 0 1 0 2005 25 16 1 0 0 0 2006 92 57 9 5 1 1 2007 112 57 11 5 3 0 TOTAL 341 224 25 10 5 1 - 254 - Table VII Kidnapping for ransom cases in the Philippines, 2004-2007 2004 2005 2006 2007 Number of incidents 29 50 45 24 Case status Solved 20 25 12 9 Unsolved 9 22 28 12 Under Investigation 3 5 3 Crime Solution Efficiency 68.9% 50% 26.66% 37.5% No. of victims 42 65 64 37 Victims Status Released 30 46 35 23 Rescued 9 12 17 8 Captive 3 5 2 Killed 2 2 1 2 Escaped 1 2 6 2 Ransom Money (Philippine Peso) Demanded 2.3 Billion 1.043 Billion 1.043Billion 608 Million Paid 52 Million 28.654 Million 28.654Million 16.509 Million Recovered 0.1 Million 0.2 Million .2Million .007 Million Status of Suspects Arrested 82 68 50 32 Killed during police 1 6 10 17 operations Surrendered 2 3 4 3 - 255 - Table VIII Banking Institutions, 2007 2007 2007 Assets Physical network (Billions PHP) (head offices and branches) Type of Banking Institutions Amt . % Amt. Universal and Commercial Banks 4,488.280 84.86 4,275 Universal Banks 3,770.250 Commercial Banks 718.030 Thrift Banks 9.18 485.594 1,336 Rural Banks 3.03 160.243 2,133 Offshore Banking Units 154.716 2.93 7 Total 5,288.833 100.00 7,751 Table IX Non-Bank Financial Institutions (NBFIs), 2007 2007 Physical network Assets Amt % billion PHP NBFIs with Quasi-Banking (QB) function 31 100.00 63.340 (US$ 1.3bn) Head Offices 12 38.71 Domestic Branches/Other Offices 19 61.29 NBFIs without QB function 13,612 100.00 172.224 (US$3.6bn) Head Offices 6,368 46.78 Domestic Branches/Other Offices 7,244 53.22 Pawnshops 13,391 100.00 Head Offices 6,207 46.35 Domestic Branches/Other Offices 7,184 53.65 Others 221 100.00 Head Offices 161 72.85 Domestic Branches/Other Offices 60 27.15 Total – NBFIs 13,643 100.00 235.564 (US$5 bn) Head Offices 6,380 46.76 Domestic Branches/Other Offices 7,263 53.24 Money Service Business 4,114 100.00 Head Offices 1,486 36.12 - 256 - Domestic Branches/Other Offices 2,628 63.88 Total –NBFIs/Other Entities 17,757 100.00 Head Offices 7,866 44.30 Domestic Branches/Other Offices 9,891 55.70 Table X Financial Entities under SEC Supervision, 2007 Covered Institutions – Supervised by Aggregate Physical SEC Resources/Assets Network Amounts in Billion PHP No. 2007 Pre-need Companies 140.420 29 Investment Company Advisers 37.593 14 Brokers Dealers 22.022 149 Transfer Agents 3,243.234 28 Investment House 53.509 31 Underwriter of securities - - Mutual Funds 89 41 Financing Companies 88.642 609 Other Market Participants - 5 Total 3,585.42 Table XI Financial Entities under IC Supervision, 2007 Type of Financial/Insurance Institution No. Composite (both life and non-life companies) 3 Life Insurance Companies 33 Non-life Insurance Companies 87 Professional Reinsurers 1 Insurance Brokers 85 Reinsurance Brokers 30 Mutual Benefit Associations 20 Trust for Charitable Uses 5 Insurance Agents 41,679 Total – Supervised by IC 41,943 Total Aggregate Assets Billion PHP 468 - 257 - Table XII Casinos and gaming establishment under PAGCOR, 2007 Type of Operation Number Land-based PAGCOR casinos 14 PAGCOR Club/Satellite Gaming 22 PAGCOR e-Games Stations 90 Other Private Gaming Facilities 4 Authorized by PAGCOR to Operate Total No. of PAGCOR Gaming 130 Facilities Table XIII ML cases pending before the court and funds involved Approximate Amount Involved Particulars in Phil. Pesos (PhP) DOJ Criminal Complaints No. 1, 2 & 3 (All related cases) PhP 203,791,458.70 Predicate Offense: Estafa in relation to Graft & Corruption Money Laundering Offense: Transacting the Proceeds of Estafa No. of Respondents: 28 Date of Filing: 3 February 2003 DOJ Criminal Complaint No. 4 Predicate Offense: Qualified Theft 142,985,567.36 Money Laundering Offense: Transacting the Proceeds of Qualified Theft No. of Respondents: 7 Date of Filing: 21 June 2004 DOJ Criminal Complaint No. 5 Predicate Offense: Violation of the Anti-Graft & Corrupt Practices Act 23,731,875.42 Money Laundering Offense: Transacting the Proceeds of Graft & Corruption No. of Respondents: 19 Date of Filing: 7 June 2004 DOJ Criminal Complaints No. 6 & 7 (Related cases) 7,700,000.00 Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) Money Laundering Offense: Transacting the Proceeds of an SRC Violation No. of Respondents: 3 Date of Filing: 11 July 2005 DOJ Criminal Complaint No. 8 - 258 - Approximate Amount Involved Predicate Offense: Estafa 15,846,711.44 Money Laundering Offense: Transacting the Proceeds of Estafa No. of Respondents: 1 Date of Filing: 4 August 2005 DOJ Criminal Complaint No. 9 Predicate Offense: Estafa 11,433,670.69 Money Laundering Offense: Transacting the Proceeds of Estafa No. of Respondents: 4 Date of Filing: 19 June 2007 DOJ Criminal Complaint No. 10 Predicate Offense: Kidnapping for Ransom 200,000.00 Money Laundering Offense: Transacting the Proceeds of Kidnapping for Ransom No. of Respondents: 1 Date of Filing: 21 January 2008 TOTAL PhP 405,689,283.61 Approximate Amount Particulars Involved in Phil. Pesos (PhP) RTC Criminal Case No. 1 PhP 7,663,475.00 Predicate Offense: Estafa Money Laundering Offense: Transacting the Proceeds of Estafa No. of Respondents: 6 Date of Filing: 22 April 2004 RTC Criminal Case No. 2 15,920,460.00 Predicate Offense: Estafa Money Laundering Offense: Non-reporting of Suspicious Transaction No. of Respondents: 1 Date of Filing: 18 October 2007 RTC Criminal Case No. 3 (involves 15 counts) 12,164,415.12 Predicate Offense: Graft & Corruption Money Laundering Offense: Non-reporting of Suspicious Transaction No. of Respondents: 1 Date of Filing: 23 August 2002 RTC Criminal Case No. 4 2,646,668.50 - 259 - Approximate Amount Particulars Involved in Phil. Pesos (PhP) Predicate Offense: Kidnapping for Ransom Money Laundering Offense: Transacting the Proceeds of Kidnapping No. of Respondents: 1 Date of Filing: 21 September 2004 RTC Criminal Case No. 5 83,325,628.97 Predicate Offense: Estafa Money Laundering Offense: Transacting the Proceeds of Estafa No. of Respondents: 1 Date of Filing: 28 July 2004 RTC Criminal Case No. 6 113,500,200.00 Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) Money Laundering Offense: Transacting the Proceeds of an SRC Violation No. of Respondents: 2 Date of Filing: 1 August 2007 RTC Criminal Case No. 7 250,000.00 Predicate Offense: Kidnapping for Ransom Money Laundering Offense: Transacting the Proceeds of Kidnapping No. of Respondents: 1 Date of Filing: 19 February 2007 RTC Criminal Cases No. 8, 9, 10, 11 & 12 (All related cases) 290,000.00 Predicate Offense: Estafa Money Laundering Offense: Transacting the Proceeds of Estafa No. of Respondents: 8 Date of Filing: 3 September 2008 TOTAL PhP 235,760,847.59 - 260 - Table XIV Terminated ML Cases Approximate Amount Particulars Involved (in PhP) RTC Terminated Criminal Case No. 1 PhP 15,920,460.00 Predicate Offense: Estafa Money Laundering Offense: Non-reporting of Suspicious Transaction No. of Respondents: 1 Date of Filing: 22 April 2004 Date Resolved: 5 September 2006 RTC Terminated Criminal Case No. 2 (6 counts) 4,574,991.31 Predicate Offense: Estafa Money Laundering Offense: Non-reporting of Suspicious Transaction No. of Respondents: 1 Date of Filing: 3 March 2003 Date Resolved: 25 April 2008 TOTAL PhP 20,495,451.31 - 261 - ANNEX IV Table XV Number of freeze orders to date and funds involved PENDING FREEZE ORDER CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING FREEZE ORDER LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) PENDING FREEZE ORDER CASES Freeze Order Case No. 1 PhP 13,666,303.74 US$ - HKD$ - ¥ - € - Predicate Offense: Estafa No. of Respondents: 5 Date of Filing: 20 September 2002 Freeze Order Case No. 2 15,739,302.81 728,066.32 - - - Predicate Offense: Violation of the Anti-Graft & Corrupt Practices Act No. of Respondents: 5 Date of Filing: 13 October 2004 Freeze Order Case No. 3 3,894,870.65 - - - - Predicate Offense: Violation of the Anti-Graft & Corrupt Practices Act No. of Respondents: 5 Date of Filing: 16 November 2004 Freeze Order Case No. 4 9,648,389.77 1,300,574.28 - - - Predicate Offense: Violation of the Anti- Graft & Corrupt Practices Act No. of Respondents: 4 - 262 - ANNEX IV PENDING FREEZE ORDER CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING FREEZE ORDER LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Date of Filing: 28 June 2005 Freeze Order Case No. 5 32,653.49 - - - - Predicate Offense: Violation of the Dangerous Drugs Act of 2002 No. of Respondents: 1 Date of Filing: 19 December 2006 Freeze Order Case No. 6 206,325.77 - - - - Predicate Offense: Estafa No. of Respondents: 2 Date of Filing: 17 March 2008 Freeze Order Case No. 7 750,086.66 - - - - Predicate Offense: Violation of the Dangerous Drugs Act of 2002 No. of Respondents: 2 Date of Filing: 18 March 2008 Freeze Order Case No. 8 10,023,907.23 - - - - Predicate Offense: Acts of Terrorism under Sec. 3(12) of the AMLA No. of Respondents: 3 Date of Filing: 4 July 2008 Freeze Order Case No. 9 427,538.52 - - - - - 263 - ANNEX IV PENDING FREEZE ORDER CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING FREEZE ORDER LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Predicate Offense: Violation of the Anti- Graft & Corrupt Practices Act No. of Respondents: 6 Date of Filing: 7 July 2008 Freeze Order Case No. 10 - 4,378.97 - - - Predicate Offense: Estafa No. of Respondents: 1 Date of Filing: 3 July 2008 Freeze Order Case No. 11 4,900,754.47 77,639.22 - - - Predicate Offense: Violation of the Anti- Graft & Corrupt Practices Act No. of Respondents: 16 Date of Filing: 30 June 2008 PENDING FREEZE ORDER CASES Sub-Total PhP 59,290,133.11 US$ 2,110,658.79 HKD$ - ¥ - € - Exchange Rate as of 06 October 2008 47.1280 6.0648 0.4480 65.0272 PENDING FREEZE ORDER CASES - PESO EQUIVALENT PhP 59,290,133.11 PhP 99,471,127.46 PhP - PhP - PhP - GRAND TOTAL (In Philippine Pesos) PhP - 264 - ANNEX IV PENDING FREEZE ORDER CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING FREEZE ORDER LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) 158,761,260.57 Number of freeze orders/ provisional asset preservation orders pending ASSET PRESERVATION ORDERS IN PENDING CIVIL FORFEITURE CASES AND PENDING FREEZE ORDER CASES As of 06 October 2008 AMOUNT SUBJECT OF ASSET PRESERVATION ORDER/FREEZE ORDER LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Asset Preservation Orders in Pending Civil Forfeiture Cases Civil Forfeiture Case No. 1 PhP 4,984,814.95 US$ 91,998.16 HKD$ - ¥ - € - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 23 Date of Filing: 21 July 2003 Civil Forfeiture Case No. 2 6,493,502.50 82,305.32 - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 3 - 265 - ANNEX IV ASSET PRESERVATION ORDERS IN PENDING CIVIL FORFEITURE CASES AND PENDING FREEZE ORDER CASES As of 06 October 2008 AMOUNT SUBJECT OF ASSET PRESERVATION ORDER/FREEZE ORDER LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Date of Filing: 18 July 2003 Civil Forfeiture Case No. 3 3,249,911.56 - - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 1 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 4 19,829,966.96 349,654.85 - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 19 Date of Filing: 21 July 2003 Civil Forfeiture Case No. 5 6,214,598.63 108,210.07 - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 4 Date of Filing: 21 July 2003 Civil Forfeiture Case No. 6 4,270,369.06 - - - - Predicate Offense: Violation of the Dangerous Drugs Act of 2002 No. of Respondents: 5 - 266 - ANNEX IV ASSET PRESERVATION ORDERS IN PENDING CIVIL FORFEITURE CASES AND PENDING FREEZE ORDER CASES As of 06 October 2008 AMOUNT SUBJECT OF ASSET PRESERVATION ORDER/FREEZE ORDER LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Date of Filing: 18 July 2003 Civil Forfeiture Case No. 7 646,509.46 - - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 4 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 8 8,028,663.47 - - - - Predicate Offense: Violation of the Anti-Graft & Corrupt Practices Act No. of Respondents: 1 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 9 21,301,430.28 - - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 1 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 10 405,074.89 1,424.37 - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 4 Date of Filing: 18 July 2003 - 267 - ANNEX IV ASSET PRESERVATION ORDERS IN PENDING CIVIL FORFEITURE CASES AND PENDING FREEZE ORDER CASES As of 06 October 2008 AMOUNT SUBJECT OF ASSET PRESERVATION ORDER/FREEZE ORDER LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Civil Forfeiture Case No. 11 150,046.65 222,805.69 - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 2 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 12 86,610,023.57 - - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 6 Date of Filing: 21 July 2003 Civil Forfeiture Case No. 13 3,235,301.71 - - - - Predicate Offense: Violation of the Anti-Graft & Corrupt Practices Act No. of Respondents: 4 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 14 772,350.40 3,526.61 - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 8 Date of Filing: 29 August 2003 Civil Forfeiture Case No. 15 10,269,987.67 - - - - - 268 - ANNEX IV ASSET PRESERVATION ORDERS IN PENDING CIVIL FORFEITURE CASES AND PENDING FREEZE ORDER CASES As of 06 October 2008 AMOUNT SUBJECT OF ASSET PRESERVATION ORDER/FREEZE ORDER LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Predicate Offense: Violation of the Dangerous Drugs Act of 2002 No. of Respondents: 3 Date of Filing: 30 March 2004 Civil Forfeiture Case No. 16 215,694.61 20,438.73 1,474,179.62 - - Predicate Offense: Violation of the Dangerous Drugs Act of 2002 No. of Respondents: 3 Date of Filing: 11 May 2005 Civil Forfeiture Case No. 17 48,111,120.67 - - - - Predicate Offense: Violation of the Dangerous Drugs Act of 2002 No. of Respondents: 7 Date of Filing: 24 August 2006 Civil Forfeiture Case No. 18 122,520.50 - - - - Predicate Offense: Kidnapping for Ransom No. of Respondents: 1 Date of Filing: 11 October 2007 Civil Forfeiture Case No. 19 576,246.21 198,224.25 - 4,299,806.20 1,000.64 Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) - 269 - ANNEX IV ASSET PRESERVATION ORDERS IN PENDING CIVIL FORFEITURE CASES AND PENDING FREEZE ORDER CASES As of 06 October 2008 AMOUNT SUBJECT OF ASSET PRESERVATION ORDER/FREEZE ORDER LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) No. of Respondents: 17 Date of Filing: 6 March 2008 Civil Forfeiture Case No. 20 - 11,856.99 - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 1 Date of Filing: 29 August 2007 PENDING CIVIL FORFEITURE CASES - SUB-TOTAL PhP 225,488,132.75 US$ 1,090,445.04 HKD$ 1,474,179.62 ¥ 4,299,806.20 € 1,000.64 Exchange Rate as of 06 October 2008 47.1280 6.0648 0.4480 65.0272 PENDING CIVIL FORFEITURE CASES SUB-TOTAL - PESO EQUIVALENT PhP 225,488,132.75 PhP 51,390,493.85 PhP 8,940,604.56 PhP 1,926,313.18 PhP 65,068.82 - 270 - ANNEX IV Number of civil forfeiture orders to date and funds involved PENDING / TERMINATED CIVIL FORFEITURE CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING/TERMINATED CIVIL FORFEITURE CASES LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Pending Civil Forfeiture Cases Civil Forfeiture Case No. 1 PhP 4,984,814.95 US$ 91,998.16 HKD$ - ¥ - € - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 23 Date of Filing: 21 July 2003 Civil Forfeiture Case No. 2 6,493,502.50 82,305.32 - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 3 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 3 3,249,911.56 - - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 1 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 4 19,829,966.96 349,654.85 - - - - 271 - ANNEX IV PENDING / TERMINATED CIVIL FORFEITURE CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING/TERMINATED CIVIL FORFEITURE CASES LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 19 Date of Filing: 21 July 2003 Civil Forfeiture Case No. 5 6,214,598.63 108,210.07 - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 4 Date of Filing: 21 July 2003 Civil Forfeiture Case No. 6 4,270,369.06 - - - - Predicate Offense: Violation of the Dangerous Drugs Act of 2002 No. of Respondents: 5 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 7 646,509.46 - - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 4 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 8 8,028,663.47 - - - - - 272 - ANNEX IV PENDING / TERMINATED CIVIL FORFEITURE CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING/TERMINATED CIVIL FORFEITURE CASES LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Predicate Offense: Violation of the Anti-Graft & Corrupt Practices Act No. of Respondents: 1 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 9 21,301,430.28 - - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 1 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 10 405,074.89 1,424.37 - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 4 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 11 150,046.65 222,805.69 - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 2 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 12 86,610,023.57 - - - - - 273 - ANNEX IV PENDING / TERMINATED CIVIL FORFEITURE CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING/TERMINATED CIVIL FORFEITURE CASES LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 6 Date of Filing: 21 July 2003 Civil Forfeiture Case No. 13 3,235,301.71 - - - - Predicate Offense: Violation of the Anti-Graft & Corrupt Practices Act No. of Respondents: 4 Date of Filing: 18 July 2003 Civil Forfeiture Case No. 14 772,350.40 3,526.61 - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 8 Date of Filing: 29 August 2003 Civil Forfeiture Case No. 15 10,269,987.67 - - - - Predicate Offense: Violation of the Dangerous Drugs Act of 2002 No. of Respondents: 3 Date of Filing: 30 March 2004 Civil Forfeiture Case No. 16 215,694.61 20,438.73 1,474,179.62 - - - 274 - ANNEX IV PENDING / TERMINATED CIVIL FORFEITURE CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING/TERMINATED CIVIL FORFEITURE CASES LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Predicate Offense: Violation of the Dangerous Drugs Act of 2002 No. of Respondents: 3 Date of Filing: 11 May 2005 Civil Forfeiture Case No. 17 48,111,120.67 - - - - Predicate Offense: Violation of the Dangerous Drugs Act of 2002 No. of Respondents: 7 Date of Filing: 24 August 2006 Civil Forfeiture Case No. 18 122,520.50 - - - - Predicate Offense: Kidnapping for Ransom No. of Respondents: 1 Date of Filing: 11 October 2007 Civil Forfeiture Case No. 19 576,246.21 198,224.25 - 4,299,806.20 1,000.64 Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 17 Date of Filing: 6 March 2008 Civil Forfeiture Case No. 20 - 11,856.99 - - - - 275 - ANNEX IV PENDING / TERMINATED CIVIL FORFEITURE CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING/TERMINATED CIVIL FORFEITURE CASES LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 1 Date of Filing: 29 August 2007 PENDING CIVIL FORFEITURE CASES - TOTAL PhP 225,488,132.75 US$ 1,090,445.04 HKD$ 1,474,179.62 ¥ 4,299,806.20 € 1,000.64 Exchange Rate as of 06 October 2008 n/a 47.1280 6.0648 0.4480 65.0272 PENDING CIVIL FORFEITURE CASES - TOTAL PESO EQUIVALENT PhP 225,488,132.75 PhP 51,390,493.85 PhP 8,940,604.56 PhP 1,926,313.18 PhP 65,068.82 PENDING CIVIL FORFEITURE CASES TOTAL (In Philippine Pesos) PhP 287,810,613.15 Terminated Civil Forfeiture Cases Terminated Civil Forfeiture Case No. 1 PhP 117,792.21 US$ 279.05 HKD$ - ¥ 63,114.36 € - Predicate Offense: Pyramiding/Ponzi Scheme - 276 - ANNEX IV PENDING / TERMINATED CIVIL FORFEITURE CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING/TERMINATED CIVIL FORFEITURE CASES LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) (SRC Violation) No. of Respondents: 17 Date of Filing: 18 July 2003 Date Resolved: 28 February 2005 Date of Execution: 22 June 2006 Terminated Civil Forfeiture Case No. 2 98,238.45 7.62 - - - Predicate Offense: Pyramiding/Ponzi Scheme (SRC Violation) No. of Respondents: 2 Date of Filing: 18 July 2003 Date Resolved: 15 April 2005 Date of Execution: 25 August 2006 Terminated Civil Forfeiture Case No. 3 250,000.00 - - - - Predicate Offense: Kidnapping for Ransom No. of Respondents: 1 Date of Filing: 18 July 2003 Date Resolved: 24 June 2005 Date of Execution: 3 May 2006 Terminated Civil Forfeiture Case No. 4 11,314,728.75 - - - - - 277 - ANNEX IV PENDING / TERMINATED CIVIL FORFEITURE CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING/TERMINATED CIVIL FORFEITURE CASES LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Predicate Offense: Estafa No. of Respondents: 4 Date of Filing: 18 July 2003 Date Resolved: 2 Febuary 2007 Date of Execution: 30 June 2007 Terminated Civil Forfeiture Case No. 5 4,011,234.16 - - - - Predicate Offense: Estafa No. of Respondents: 1 Date of Filing: 18 July 2003 Date Resolved: 2 Febuary 2007 Date of Execution: 30 June 2007 Terminated Civil Forfeiture Case No. 6 15,248.90 1,001.34 - - - Predicate Offense: Estafa No. of Respondents: 1 Date of Filing: 18 July 2003 Date Resolved: 2 Febuary 2007 Date of Execution: 30 June 2007 Terminated Civil Forfeiture Case No. 7 3,010,709.79 - - - - Predicate Offense: Estafa No. of Respondents: 1 - 278 - ANNEX IV PENDING / TERMINATED CIVIL FORFEITURE CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING/TERMINATED CIVIL FORFEITURE CASES LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Date of Filing: 18 July 2003 Date Resolved: 2 Febuary 2007 Date of Execution: 30 June 2007 Terminated Civil Forfeiture Case No. 8 2,279,048.00 - - - - Predicate Offense: Kidnapping for Ransom No. of Respondents: 1 Date of Filing: 11 March 2004 Date Resolved: 6 December 2007 Date of Execution: 29 May 2008 (claimed by third party) Terminated Civil Forfeiture Case No. 9 153,176.10 - - - - Predicate Offense: Acts of Terrorism under Sec. 3(12) of the AMLA No. of Respondents: 1 Date of Filing: 28 May 2007 Date Resolved: 12 February 2008 Date of Execution: 27 August 2008 TERMINATED CIVIL FORFEITURE CASES - TOTAL PhP 21,250,176.36 1,288.01 - 63,114.36 - - 279 - ANNEX IV PENDING / TERMINATED CIVIL FORFEITURE CASES As of 06 October 2008 AMOUNT SUBJECT OF PENDING/TERMINATED CIVIL FORFEITURE CASES LOCAL CURRENCY FOREIGN DENOMINATIONS Philippine Pesos US Dollars Hong Kong Dollars Japanese Yen Euro RESPONDENTS (PhP) (US$) (HKD$) (Y) (€) Exchange Rate as of 06 October 2008 n/a 47.1280 6.0648 0.4480 65.0272 TERMINATED CIVIL FORFEITURE CASES - TOTAL PESO EQUIVALENT PhP 21,250,176.36 PhP 60,701.34 PhP - PhP 28,275.23 PhP - TERMINATED CIVIL FORFEITURE CASES TOTAL (In Philippine Pesos) PhP 21,339,152.93 GRAND TOTAL (In Philippine Pesos) PhP 309,149,766.08 - 280 - ANNEX IV Table XVI Letters from Compliance and Investigation Group (CIG) of AMLCS (1 January 2008 to 12 September 2008) Number Feedback letters on cases 54 Table XVII Letters from Office of the Executive Director (OED) of AMLCS 2007 2006 2005 2004 To Covered Institutions 11 8 5 2 To Other Gov’t. 28 25 22 21 Agencies To International Offices 17 11 9 7 To Private 26 18 8 10 Entities/Individuals TOTAL 84 62 44 40 Table XVIII International Requests for Assistance to the AMLC as of 31 August 2008 US Embassy 99 US DOJ 23 Interpol 32 ESW 59 Others 85 TOTAL 298 Table XIX AMLC’s Requests for Assistance (international) as of 31 August 2008 Financial Intelligence Units 106 Foreign Embassies 36 Law Enforcement Agencies 7 Others 25 TOTAL 174 - 281 - ANNEX IV Table XX Number of Suspicious Transactions / Covered Transactions Reported to AMLC as of 31 December 2007 Total Number Total Banks/ PARTICULARS Insurance Securities Gov’t. of Number of NBFI's Transactions Reports No. of Suspicious 15,469 91 30 2,679 18,269 10,469 Transactions No. of Covered 103,445,9 130,311 138,355 0 103,714,619 Transactions 53 Table XXI Number of yearly STRs received for the Period 18 December 2001 to 31 December 2007: Year Ending 2001 2002 2003 2004 2005 2006 2007 Total No. of Suspicious Transaction 2 132 215 555 1,048 4,568 3,949 10,469 Reports Table XXII STR-generated Investigations Statistics since 2001 and as of August 2008 Number Of Number of Cases STRs Number of STR analyzed (files opened by the IMAG) 8,691 Number of STRs that were closed by the AMLC 5,244 (reports filed and archived) Number of cases triggered by STRs that the AMLC 107 223 * (CIG) has opened (since 2004) Number of STRs referred from IMAG or being further 1036 analyzed by the CIG Number of STRs shared based on requests to the AMLC from outside law enforcement agencies (under authority of extenuating circumstances) Total disclosures of STRs where inquiry was generated 609 * by law enforcement – (Resolution 59: kidnapping, terrorism, drug trafficking offences) STRs used in a prosecution referred by the AMLC 427 * STRs disseminated to other law enforcement agencies 237 561 * outside of the AMLC (NBI, PNP and PDEA) - 282 - ANNEX IV *** STRs that have been shared by the AMLC in analysis. STRs shared would not include the actual copy of a STR but rather a summary of information. Cases opened are criminal investigations or reports requiring more information for analysis (i.e., CTRs). Table XXIII Disclosures made pursuant to Resolution 59 : Domestic Law Enforcement Agencies Year No. of Disclosures LEAs 2008 22 NBI/PNP-CIDG 2007 12 NBI/PNP-CIDG 2006 19 NBI/PNP-CIDG 2005 13 NBI/PNP-CIDG 2004 4 NBI/PNP-CIDG Total 70 Foreign FIUs/LEAs Year No. of Disclosures LEAs/FIUs 2008 1 Norway 1 Germany 1 FinCen 1 Hongkong FIU 1 PPATK 2007 1 Cyprus 1 Seychelles 1 PPATK 1 Belgian FIU 2 Fintrac 1 Bahrain 1 Fincen 1 Hongkong FIU 2 JAFIC 1 Lebanon FIU 1 Romanian FIU 2 UAE FIU Total 20 - 283 - ANNEX IV Table XXIV Cases referred to the DOJ by the AMLC. Number of Unlawful Activity/ Money No. of Charges Date referred to Respondents Predicate Offence Laundering the DOJ Offence 28 Respondents Estafa under Article Violation of 3 Complaints 3 February 2003 315 of the revised Section 4a of the Penal Code AMLA, as amended (transacting the proceeds of Estafa) 7 Respondents Qualified Theft Violation of 1 Complaint 21 June 2004 under Article 310 of Section 4a of the the revised Penal AMLA, as Code amended (transacting the proceeds of Estafa) 19 Respondents Violation of the Violation of 1 Complaint 7 June 2004 Anti-Graft & Section 4a and 4b Corrupt Practices of the AMLA, as Act amended (transacting the proceeds of violation of the Anti-Graft and Corrupt Practices Act) 3 Respondents Pyramiding/Ponzi Violation of 2 Complaints 11 July 2005 Scheme - Violation Section 4a of of of the Securities the AMLA, as Regulation Code amended (RA 8799) (transacting the proceeds of SRC violation) 1 Respondent Estafa under Article Violation of 1 Complaint 4 August 2005 315 of the revised Section 4a of the Penal Code AMLA, as amended (transacting the proceeds of - 284 - ANNEX IV Estafa) 4 Respondents Estafa under Article Violation of 1 Complaint 19 June 2006 315 of the revised Section 4a of the Penal Code AMLA, as amended (transacting the proceeds of Estafa) 1 Respondent Kidnapping for Violation of 1 Complaint 21 January 2007 Ransom under Section 4a of of Article 267 of the the AMLA, as Revised Penal Code amended (Act No. 3815) (Transacting the Proceeds of Kidnapping for Ransom) Table XXV Cases referred to the OMB by the AMLC Number of Unlawful Activity/ Money Number of Date referred to Respondents Predicate Offence Laundering charges OMB by AMLC Offense 5 Respondents Plunder under Violation of 106 counts 20 June 2007 Republic Act No. Section 4a of the 7080 AMLA, as amended (Transacting the Proceeds of Plunder) - 285 - ANNEX IV Table XXVI AML Desks AGENCY Number of Staff BOC 3 BI 1 PNP CIDG 2 Intelligence Services Armed Forces of the Philippines 2 NBI 2 NICA 2 ATC 2 PCTC 1 PDEA 1 PACER 4 PAGC 1 PNP IG 3 DOJ (AML Task Force) 8 OMB 1 - 286 - ANNEX IV Table XXVII Referrals facilitated by AML Desks AML Desk Number of Referrals Department of Justice (DOJ) 14 cases under preliminary investigation and prosecution Philippine Drug 23 cases formally referred to Enforcement Agency AMLC for financial investigation (PDEA) National Bureau of Referred by AMLC: Investigation (NBI) 43 cases (2007) 78 cases (as of August 2008) Securities and Exchange 7 Requests of SEC to AMLC Commission (SEC) 24 Requests of AMLC to SEC Bureau of Customs (BOC) 476 cases – foreign currency declarations referred by BOC to BSP and AMLC in 2007 Philippine National Police Requests of PNP to AMLC (PNP) 14 ( 2006) 28 (2007) Requests of AMLC to PNP 33 ( 2006) 39 ( 2007) 11 ( 2008) - 287 - ANNEX IV Table XXVIII Inquiries conducted pursuant to AMLC Resolution (Without Court Order), 2003 - 2007 Unlawful No. of No. of Suspect No. of Banks No. of Bank Activity ALMC Individuals/Entities Inquired Accounts Resolutions Involved Into/Examined Inquired Issued Into/Examined Drug Trafficking 18 82 Individuals 23 220 Kidnap for 8 8 Individuals 6 28 Ransom Terrorist Related 15 41 Individuals/4 8 52 Entities Total 41 131 Individuals/4 28 300 Entities Table XXIX Inquiries conducted pursuant to AMLC Resolution (With Court Order), 2003 - 2007 Unlawful Activity No. of No. of Suspect No. of Banks No. of Bank ALMC Individuals/Entities Inquired Accounts Resolutions Involved Into/Examined Inquired Issued Into/Examined Money 1 3 Individuals 1 3 Laundering/Plunder Securities 11 122 Individuals/52 87 695 Regulation Code Entities Violation Money 10 30 Individuals/6 78 338 Laundering/Anti Entities Graft and Corrupt Practice Estafa Fraud 12 15 Individuals/3 48 210 Entities Qualified Theft 1 7 Individuals 1 18 Total 34 177 Individuals/61 215 1264 Entities - 288 - ANNEX IV Table XXX ML Investigations Conducted by AMLC, 2004-2007 Unlawful Activity Involved 2004 2005 2006 2007 Kidnapping for Ransom 0 0 2 6 Drug-Related 2 1 1 0 Plunder 38 0 0 2 Swindling/Estafa 116 99 78 416 SRC Violation 3 7 4 5 Graft & corruption 0 10 2 15 Qualified Theft 0 0 0 2 Robbery/Extortion 1 0 2 0 Jueteng 0 1 0 0 E-Commerce Violation 0 0 0 1 Terrorist Financing 8 10 19 4 Others (STR-triggered) 52 64 202 199 Total 220 192 310 650 Table XXXI STRs Investigated with ML component 2004 2005 2006 2007 BSP 216 188 310 640 SEC 2 1 IC 2 4 9 Total 220 192 310 650 - 289 - ANNEX IV Table XXXII ML Prosecutions Initiated (Before the DOJ and OMB) 2004 2005 2006 2007 DOJ 3 5 1 1 OMB 0 0 1 0 Total 3 5 2 1 Table XXXIII ML Cases filed with the RTC by DOJ/OMB 2004 2005 2006 2007 Total 5 0 0 2 Table XXXIV Applications for Freeze Orders/Extensions of Freeze Orders filed before the Court of Appeals and the Supreme Court 2004 2005 2006 2007 Total 2 3 3 3 Table XXXV Civil Forfeiture Cases Filed 2004 2005 2006 2007 Total 2 1 1 2 Table XXXVI Court Based Applications for Inquiry Filed and Granted 2004 2005 2006 2007 Total 3 6 5 5 - 290 - ANNEX IV Table XXXVII Number of Terminated Cases 2004 2005 2006 2007 ML cases filed with the RTC 0 0 1 0 Applications for Freeze Order/Extension of Freeze Order 0 1 4 2 filed before the Court of Appeals and Supreme Court Civil Forfeiture Cases 0 0 3 5 Total 0 1 8 7 Table XXXVIII Total Amount of Assets Frozen Currency 2004 2005 2006 2007 Philippine Pesos 19,634,173 13,711,284 48,143,774 860,845 US Dollars US$728,066 US$20,438 0 US$199,407 Japanese Yen 0 0 0 Y4,299,806 Hong Kong 0 HK$1,474,179 0 0 Dollars Total in 60,600,281 70,102,197 48,143,177 10,743,091 Philippine Pesos Table XXXIX Total Amount of Assets Forfeited Currency 2004 2005 2006 2007 Philippine Pesos 0 0 466,030 20,672,426 US Dollars 0 0 US$286 US$1,001 Japanese Yen 0 0 Y63,114 0 Total in 0 0 506,187 20,672,426 Philippine Pesos - 291 - ANNEX IV Table XL Number of Cross Border Reports referred to AMLC Type of 2004 2005 2006 2007 Report/Declaration Incoming 85 115 83 182 Outgoing 78 751 418 856 Other 29 66 16 399 Total 192 932 517 1437 During the onsite visit further details regarding “others� was sought. The representatives at the meetings were unable to provide what the reports under “others� referred to. Table XLI Seizure cases, 2005-2007 Seizure Cases 2005 2006 2007 2008 (Jan to June) Submitted for 0 0 2 2 Resolution Recommended for 0 2 4 2 Settlement Approved for 1 0 2 0 Settlement Released through 1 2 0 0 Settlement On-going Hearing 0 0 0 2 On Appeal 0 1 0 0 Forfeited 3 1 7 1 - 292 - ANNEX IV Table XLII Seizure of Currency 2005 2006 2007 2008 (Jan to June) Currency PHP 14,049,000 PHP 4,848,305.25 PHP 9,172,890 PHP 1,647,000 and Amount Seized US$ 79,180 THB 5,240 Table XLIII Monetary Penalties Imposed by the AMLC A. Paid Monetary Penalties as of 31 October 2008 Name of Bank Amount AMLC Resolution Date of AMLC Resolution 1 Chinatrust (Phils.) 100,000.00 AMLC Resolution 6-Dec-04 Commercial Bank Corp. No. 449 2 Metropolitan Bank & Trust 100,000.00 AMLC Resolution 13-Jun-05 Co.–Metrobank Plaza No. 63 3 Standard Chartered Bank – 100,000.00 AMLC Resolution 10-May-06 Manila Branch No. 37 4 Bank of Philippine Islands – 100,000.00 AMLC Resolution 15-Sep-06 Main Branch No. 71 5 Merchants Bank – Head 100,000.00 AMLC Resolution 31-Jan-07 Office No. 11 6 Metropolitan Bank & Trust 100,000.00 AMLC Resolution 31-Jan-07 Co.–Metrobank Plaza No. 11 7 Malayan Savings & Mortgage 100,000.00 AMLC Resolution 28-Oct-05 Bank No. 110 8 100,000.00 AMLC Resolution 28-Mar-07 Kaunlaran Rural Bank, inc, No. 22 9 100,000.00 AMLC Resolution 21-Jul-05 Unilink Bank No. 79 10 Bank of Philippine Islands – 100,000.00 AMLC Resolution 28-Feb-07 Ormoc No. 18 11 100,000.00 AMLC Resolution 17-Oct-05 Banco de Oro No. 104 12 Rizal Commercial Banking 100,000.00 AMLC Resolution 9-Dec-05 Corporation No. 122 13 100,000.00 AMLC Resolution 16-May-07 Equitable PCI Bank No. 35 - 293 - ANNEX IV Name of Bank Amount AMLC Resolution Date of AMLC Resolution 14 100,000.00 AMLC Resolution 25-Oct-06 Union Bank of the Philippines No. 89 15 Metropolitan Bank & Trust AMLC Resolution 100,000.00 19-Jul-08 Company No. 59 16 AMLC Resolution 100,000.00 20-Feb-2008 Kabalikat Rural Bank, Inc. No. 04 17 AMLC Resolution 19-Dec- 100,000.00 Accord Savings Bank No. 100. 2007 18 Philippine Bank of AMLC Resolution 06-July- 100,000.00 Communications No. 56 2007 19 Metropolitan Bank and Trust AMLC Resolution 26-March 100,000.00 Co. No. 24 2008 20 Rizal Commercial Banking AMLC Resolution 23-April 100,000.00 Corporation No. 33 20088 21 AMLC Resolution 23-April 100,000.00 DENYO III Money Changer No. 29 2008 TOTAL P2,100,000.00 B. Unpaid Penalties as of 31 October 2008 Date of Name of Bank Amount AMLC Resolution AMLC Resolution AMLC Resolution No. 1 Allied Savings Bank 100,000.00 16-Jul-08 56 AMLC Resolution No. Philippine National Bank 100,000.00 17-Jul-08 2 57 AMLC Resolution No. Land Bank of the Philippines 100,000.00 18-Jul-08 3 58 Rural Bank of Mataas na AMLC Resolution No. 100,000.00 20-Jul-08 4 Kahoy, Inc. 60 Rural Bank of Sto. Tomas AMLC Resolution No. 100,000.00 21-Jul-08 5 (Bat.), Inc. 61 Quezon Capital Rural Bank, AMLC Resolution No. 100,000.00 22-Jul-08 6 Inc. 62 AMLC Resolution No. 100,000.00 23-Jul-08 7 Rural Bank of Calaca, Inc. 63 AMLC Resolution No. 100,000.00 24-Jul-08 8 Rural Bank of Alabat, Inc. 64 - 294 - ANNEX IV Date of Name of Bank Amount AMLC Resolution AMLC Resolution Pres. J.P. Laurel Rural Bank, AMLC Resolution No. 9 100,000.00 25-Jul-08 Inc. 65 AMLC Resolution No. 10 Philippine Coast Guard SLAI 100,000.00 15-Oct-08 76 Total P1,000,000.00 Table XLIV In-House AML Training Title Period Provider BSP Examination Procedures for AML (AM Session) Jan. 06, 2005 BSP Institute BSP Examination Procedures for AML (PM Session) Jan. 06, 2005 -do- BSP AML Examination Procedure Jan. 18-19, 2005 -do- Seminar on AML and Bank Supervision Aug. 15-19, 2005 -do- Advance Course on Terrorist Financing/Money Laundering Aug. 7-11, 2006 -do- (AM Session) Basic Course on Terrorist Financing/Money Laundering Aug. 7-11, 2006 -do- Advanced Course on Terrorist Financing/Money Laundering Aug. 7-11, 2006 -do- (PM Session) Basic Course on Terrorist Financing/Money Laundering Aug. 7-11, 2006 -do- Anti-Money Laundering Oct. 15-24, 2007 -do- Table XLV Sample of AML Training Abroad: Training Name Frdate Todate conductor Anti-Money Laundering and Combating the Financing of Terrorism for Financial Sector Supervisors and Regulators 5/16/2005 5/20/2005 IMF - STI Singapore Federal Reserve Anti-Money Laundering Seminar 9/12/2005 9/16/2005 System (FRS) Federal Reserve Anti-Money Laundering Seminar 9/12/2005 9/16/2005 System (FRS) Anti-Money Laundering Terrorist Financing Office of Comptroller of School 5/23/2005 5/27/2005 Currency (OCC) Anti-Money Laundering Terrorist Financing Office of Comptroller of School 5/23/2005 5/27/2005 Currency (OCC) Anti-Money Laundering Terrorist Financing Office of Comptroller of School 5/23/2005 5/27/2005 Currency (OCC) - 295 - ANNEX IV Workshop for Criminal Justice Officials on Enforcement and Implementation Aspects of Anti-Money Laundering Legislation 7/18/2005 7/22/2005 IMF - STI Singapore Federal Reserve Anti-Money Laundering Seminar 9/11/2006 9/15/2006 System (FRS) Federal Reserve Anti-Money Laundering Seminar 9/11/2006 9/15/2006 System (FRS) Course on Anti-Money Laundering - Terrorist 8/14/2006 8/18/2006 Course on Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) 7/3/2006 7/7/2006 IMF - STI Singapore European Study Tour, Anti-Money Laundering Project, Philippines 10/15/2006 10/21/2006 B & S Europe Financial Action Task Force's Anti-Money Laundering (AML)/Combating the Financing of Terrorism (CFT) Assessment Training Workshop 9/4/2006 9/8/2006 46th SEACEN - Federal Reserve System Intermediate Course on Banking Supervision: Anti-Money Laundering SEACEN, Research Examination 6/24/2007 6/29/2007 and Training Center 46th SEACEN - Federal Reserve System Intermediate Course on Banking Supervision: Anti-Money Laundering SEACEN, Research Examination 6/24/2007 6/29/2007 and Training Center 46th SEACEN - Federal Reserve System Intermediate Course on Banking Supervision: Anti-Money Laundering SEACEN, Research Examination 6/24/2007 6/29/2007 and Training Center Anti-Money Laundering Examination Federal Reserve Seminar 8/27/2007 8/31/2007 System (FRS) Anti-Money Laundering Examination Federal Reserve Seminar 8/27/2007 8/31/2007 System (FRS) Capacity Enhancement Program in Anti- Money Laundering and Combating the Financing of Terrorism (AML/CFT) Workshop 4/30/2007 5/4/2007 World Bank Course on Anti-Money Laundering Terrorist Office of Comptroller of Financing 5/14/2007 5/18/2007 Currency (OCC) SEACEN-World Bank Regional Advanced Workshop for Banking Supervisors on Anti- Money Laudering and Couter-Financing of Terrorism 4/15/2007 4/20/2007 SEACEN SEACEN-World Bank Regional Advanced Workshop for Banking Supervisors on Anti- Money Laudering and Couter-Financing of Terrorism 4/15/2007 4/20/2007 SEACEN Seminar and Workshop on Anti-Money Laundering and Combating the Financing of Terrorism(AML/CFT) Measures for Criminal Justice Officials 4/9/2007 4/13/2007 IMF - STI Singapore - 296 - ANNEX IV Seminar and Workshop on Anti-Money Laundering and Combating the Financing of Terrorism(AML/CFT) Measures for Criminal Justice Officials 4/9/2007 4/13/2007 IMF - STI Singapore FSI Seminar on Supervising Banking Institutions' Efforts to prevent Money Laundering and Terrorism Financing - Latest Dev't and Outstanding Challenges 9/25/2007 9/27/2007 Joint FSI-CEMLA Seminar on Prevention of Money Laundering and Terrorism Financing 12/3/2007 12/5/2007 FSI – CEMLA Joint Typologies Workshop of the FATF and the APG on Money Laundering 11/28/2007 11/30/2007 FATF and APG Regional Assistance Program on Money Laundering and Terrorist Financing Through Charities and New Trends of Money United States Laundering Technology 5/21/2007 5/24/2007 Department of Justice 11th Annual Meeting of the Asia/Pacific Group on Money Laundering 7/7/2008 7/11/2008 Asia Pacific Group Anti-Money Laundering Examination Federal Reserve Seminar 9/8/2008 9/12/2008 System (FRS) Anti-Money Laundering Examination Federal Reserve Seminar 9/8/2008 9/12/2008 System (FRS) Course on Anti-Money Laundering/Terrorist Finance School 6/23/2008 6/27/2008 Course on Anti-Money Laundering/Terrorist Finance School 6/23/2008 6/27/2008 Seminar on Anti-Money Laundering 3/26/2008 3/28/2008 Seminar on Cash Management and Combating Counterfeit Money 4/7/2008 4/11/2008 Deutsche Bundesbank Seminar on Combating Money Laundering 11/17/2008 11/21/2008 Deutsche Bundesbank Table XLVI List of Training Courses for SEC Training Dates Sponsor/Conductor Anti-Money Laundering Trainer’s Jan. 15-19 2007 Anti-Money Laundering Project- Training Program Resumption of Philippines European Union. First Stage and Second Stage Course on Money Laundering and Feb. 13-15 2007 Asian Development Bank in Terrorist Financing coordination with the Anti-Money Laundering Council. Computer-Based Anti-Money on July 9-12 2007 United Nations Office on Drugs and Laundering (CBT-AML) Training Crime Programme Anti-Money Laundering Training July 30-31 2007 Anti-Money Laundering Project Layer Philippines-European Union under the Trainer’s Training Programme Computer-Based Anti-Money Aug. 1, 13, 14, 15, United Nations Office on Drugs and - 297 - ANNEX IV Laundering (CBT-ML) Training 27, 28, 29 2007 Crime (UNODC) Programme Anti-Money Laundering Layer Nov. 26-28 2007 Seminar for Compliance Officers of SEC Covered Institutions Anti-Money Laundering Layer 3 Nov. 26-28 2007 Anti-Money Laundering Project Seminar for the Compliance Philippines-European Commission. Officers of SEC Covered Institutions (Financing Companies, Pre-Need Companies, Mutual Funds and Investment Company Advisers, Securities Broker/Dealers & Investment Houses) Anti-Money Laundering Layer 3 Dec. 3-4 2007 Anti-Money Laundering Project Seminar for the Compliance Philippines-European Commission.. Officers of SEC Covered Institutions Computer-Based Anti-Money Jan. 14-16 2008 United Nations Office on Drugs and Laundering Training Crime (UNODC) (CBT_AML) Computer-Based Anti-Money Feb. 11-13 2008 United Nations Office on Drugs and Laundering Training (CBT-AML) Crime (UNODC). Computer-Based Anti-Money March 10-12 2008 Asian Development Bank and the Laundering Training Programme Anti-Money Laundering Council in coordination with the United Nations Office on Drugs and Crime. Computer-Based Anti-Money May 12-14 2008 Asian Development Bank and the Ant- Laundering Training Program Money Laundering Council in cooperation with the United Nations Office on Drugs and Crime. Computer-Based Anti-Money June 16-18 2008 Asian Development Bank and the Laundering Training Program Anti-Money Laundering Council in cooperation with the United Nations Office on Drugs and Crime. UNODC Computer-Based Anti- July 14-16, 2008 Asian Development Bank and the Money Laundering Training Anti-Money Laundering Council . Programme UNODC Computed-Based Anti- September 8-10 Asian Development Bank and the Money Laundering Training 2008 Anti-Money Laundering Council in Programme coordination with the United Nations Office on Drugs and Crime. UNODC Computer-Based Anti- November 10-12 Asian Development Bank and the Money Laundering Training 2008 Anti-Money Laundering Council in Programme coordination with the United Nations Office on Drugs and Crime. - 298 - ANNEX IV Table XLVII Training for IC Training Dates Sponsor/Conductor Capacity enhancement program 2008 World Bank on AML/CFT Phase II Video conference; Distance learning course for ASEAN countries Seminar on AML/CFT 2008 European Commission AML trainers training program 2008 AML Project Philippines and European Commission Train the trainor’s program 2007 by Asian Development Bank workshop on strengthening AML regime in the Philippines Anti-Money Laundering/Counter 2007 United States Financing of Terrorism Capacity Enhancement Program on 2007 World Bank AML/CFT Phase I- Train the trainers’ Table XLVIII Dealers in precious metals and precious stones associations and members, 2008 Name of Association Number of Members Guild of Philippine Jewellers, Inc. 80 Meycauayan Jewelry Industry Association, Inc. 136 Philippine Jewelry Business Club 19 Philippine Association of Pearl Producers and Exporters, 10 Inc. (PAPPE) Camarines Norte Jewelry Producers Association, Inc 20 Cebu FAME Foundation Philippines, Inc. 80 Guild of Baguio Jewellers, Inc. 5 Mindanao United Jewelry Association, Inc. 15 Subtotal 388 - 299 - ANNEX IV Table XLIX Annual turnover of dealers in precious metals and precious stones, 2007 Description Amount in US Dollars Gold (including gold plated with platinum) Gold Bullion 173,953,915 Gold (including gold plated with platinum) Gold wire 45,423,327 Articles of jewellery and parts thereof, of precious metal or 25,683,285 of metal clad with precious metal Pearls unworked 18,885,889 Natural or cultured pearls 630,956 Articles of goldsmiths’ or silversmith’s ware and parts 1,958 thereof, of precious metal or metal clad with precious metal of silver, whether or not plated or clad with other precious metal TOTAL 264,579,330 Table L No. of MLA Requests Received, 2004-2007 2007 2006 2005 2004 Total Treaty 9 9 4 3 25 Reciprocity 7 7 0 3 17 Total 16 16 4 6 42 Table LI Status of MLA Requests 2004-2007 2007 2006 2005 2004 Total Completed* 10 12 2 4 26 Denied** 0 2 0 2 4 For further 2 2 0 0 4 documentation/documentation Withdrawn 1 0 2 0 3 Pending*** 3 1 0 0 4 Total 16 16 4 6 42 * - 2 partially executed ** - involved compulsory processes and requesting States do not have MLAT with the Philippines *** - pending with implementing agencies - 300 - ANNEX IV Table LII Offenses Subject of MLA Requests , 2004-2007 2007 2006 2005 2004 Corruption 1 0 1 0 Drugs 0 0 0 1 Fraud 3 5 1 1 Kidnapping 1 0 1 0 Money Laundering 5 3 1 1 Murder 2 0 1 1 Obstruction 1 3 0 0 of Justice Pornography 0 1 0 0 Rape/ 2 1 1 0 Sexual Abuse Theft 1 0 0 0 Unfair Competition 1 0 0 0 Terrorism/Terrorist- 0 4 0 1 Related Offenses Table LIII Types of Assistance Requested , 2004-2007 2007 2006 2005 2004 Total Production of 3 4 0 2 10 Bank records Production of other 6 10 3 2 20 documents (investigation report, subscriber information, phone records, travel records, company registration records, etc.) Search and seizure 0 1 0 0 1 Interview/statements of 5 0 1 0 6 witnesses Locating an accused/witness 1 0 0 0 1 Forfeiture 0 1 0 0 1 Total 15 16 4 4 39 - 301 - ANNEX IV Table LIV MLA Requests Involving Money Laundering, 2004-2007 2007 2006 2005 2004 Total Treaty 5 3 1 1 10 Reciprocity 0 0 0 0 0 Total 5 3 1 1 10 Table LV MLA Requests Involving Terrorism/Terrorist-Related Activities 2007 2006 2005 2004 Total Treaty 1 2 0 0 3 Reciprocity 0 2 0 0 2 Total 1 4 0 0 5 Table LVI MLA Requests Referred to AMLC* 2007 2006 2005 2004 Total Treaty 4 4 3 2 13 Reciprocity 1 2 0 0 3 Total 5 6 3 2 16** * - Cases referred to AMLC involve ML and/or unlawful activities under the AMLA ** - Of the 16 MLA requests referred to AMLC, 13 have been completed, 2 are for further documentation and 1 is pending Table LVII No. of Extradition Requests Received 2007 2006 2005 2004 Total No. of 9 9 4 1 23 Extradition Requests Received Table LVIII Status of Extradition Requests 2007 2006 2005 2004 Total Person Sought 1 0 1 3 5 Extradited* Pending with 5 7 0 0 12 the Department of Justice** Filed/Pending 1 0 2 1 4 with the Court*** - 302 - ANNEX IV Withdrawn 2 0 1 0 3 Denied 1 1 1**** 0 3 * - involves requests received a year or years before the extradition of the person sought ** - 5 of the 7 requests on column 3 are being considered for withdrawal by Requesting State *** - As of 2007, there are 10 extradition cases pending with the trial and appellate courts (of the cases pending with the courts, 2 were filed in 2005, 1 in 2004, 2 in 2003, 1 in 2002, 2 in 1999, 2 in 1998); 1 has been archived by the court because the subject cannot be located **** - case terminated because the person sought died while case was pending in court Table LIX Money laundering-related request for assistance received by the PCTC (Interpol-Manila) from foreign counterparts: DATE COUNTRY February 2007 NCB Ottowa June 2007 NCB London November 2007 NCB Brunei and Weisbaden December 2007 NCB Weisbaden February 2008 NCB London March 2008 NCB Singapore April 2008 NCB Helsinki and Vienna May 2008 NCB Hong Kong Table LX Outgoing Cash Seizures 2005 Date Amount 17 January 2005 Php 1,050,000 28 March 2005 Php 10,899,000 16 November 2005 Php 200,000 24 November 2005 Php 1,900,000 2006 Date Amount 7 March 2006 Php 274,805 22 May 2006 Php 322,500 22 May 2006 Php 3,349,000 31 May 2006 Php 110,000 - 303 - ANNEX IV 2 June 2006 Php 390,000 21 June 2006 Php 185,000 4 August 2006 Php 94,000 4 November 2006 Php 29,000 2007 Date Amount 7 January 2007 Php 310,000 11 February 2007 Php 981,000 1 March 2007 Php 4,910,000 30 March 2007 Php 1,800,000 28 May 2007 Php 110,000 31 May 2007 Php 100,000 31 May 2007 Php 80,000 9 July 2007 Php 160,000 22 July 2007 US$39,180 29 July 2007 US$40,000 Php 28,000 THB 5,240 3 August 2007 Php 146,000 22 October 2007 Php 15,890 28 October 2007 Php 372,000 28 November 2007 Php 90,000 17 December 2007 Php 70,000 2008 Date Amount 25 January 2008 Php 70,000 29 May 2008 Php 90,000 2 June 2008 Php 500,000 18 June 2008 Php 700,000 22 June 2008 Php 287,000 29 June 2008 Php 228,000 31 October 2008 Php 962,000 22 December 2008 Php 746,000 - 304 - ANNEX IV 2009 Date Amount 5 February 2009 Php 90,000 11 February 2009 US$35,000 Php 51,000 28 February 2009 Php 61,900 29 April 2009 Php 189,000 6 May 2009 Php 760,000 Table LXI Incoming Cash Seizures 2005 Date Amount 3 November 2005 JPY 12,490,000 2006 Date Amount 13 March 2006 Php 329,000 2007 Date Amount 17 January 2007 Php 900,000 1 February 2007 Php 175,000 15 March 2007 Php 1,600,000 2008 Date Amount 17 January 2008 JPY 4,000,000 17 January 2008 JPY 5,000,000 1 July 2008 Php 8,178,643.20 - 305 - ANNEX IV Table LXII Yearly number of seizures/apprehensions Philippines and Foreign Currency Departure Operations Division 2005-2009 YEAR No. of AMOUNT No. OF AMOUNT APPREHENSIONS DEPARTURE APPREHENSIONS ARRIVAL 2005 4 PHP14,049,000 1 JPY12,490,000 2006 8 PHP4,754,305 1 PHP329,000 2007 15 PHP9,172,890 3 PHP2,675,000 US$ 79,180 Baht 5,240 2008 8 PHP3,583,000 3 JPY9,000,000 PHP8,178,643 2009 5 PHP1,151,900 0 0 US$35,000 2009 © Asia/Pacific Group on Money Laundering; 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