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In recent months, Philippine authorities have sought to strengthen their nation’s anti-money laundering and combating the financing of terrorism regime by extending customer due-diligence and reporting requirements to the gaming industry and other nonbank entities such  lawyers, accountants, and dealers of precious metals and stones.

As the Philippines prepares for its financial crime compliance regime to be assessed by representatives of the Financial Action Task Force  this year, stakeholders have also completed a national risk assessment and are finalizing a national AML and CFT strategy.

ACAMS moneylaundering.com reporter Valentina Pasquali discussed the reforms via email with Mel Georgie B. Racela, the executive director of the country’s Anti-Money Laundering Council (AMLC) Secretariat, or AMLC. Racela also discussed the response to the laundering through Philippine casinos of millions of dollars stolen from Bangladesh’s central bank in 2016.

What are some of the key AML/CFT measures that the Philippines has implemented recently?

Just last year, Republic Act No. 10927 was signed into law, designating casinos as covered persons under the AMLA (Anti-Money Laundering Act of 2001), as amended.

The casino implementing rules and regulations, as approved by the AMLC and the casino licensing agencies (Philippine Amusement and Gaming Corporation, Cagayan Economic Zone Authority, and Aurora Pacific Economic Zone and Freeport Authority), were published on Oct. 20, 2017 and took effect on Nov. 4, 2017.

The casino licensing agencies, referred to as Appropriate Government Agencies (AGAs), are currently developing their own AML regulations and examination manual.

On May 9, 2018, the AMLC approved the AML/CFT Guidelines for Designated Non-Financial Businesses and Professions (DNFBPs), such as dealers in precious stones and precious metals, lawyers, accountants and company service providers engaged in certain activities.  On June 11, 2018, these Guidelines have been published in a newspaper of general circulation, and will, thus, be effective fifteen days thereafter or on June 26, 2018.

The new guidelines take into account the intricacies of the different businesses and professions.

They also require DNFBPs to take appropriate steps to identify, assess and understand their AML/CFT risks in relation to their customers, business, products and services, geographical exposures, transactions, delivery channels and size.

Like other covered persons, the Guidelines mandate DNFBPs to comply with the usual know-your-customer, covered and suspicious transaction reporting and record-keeping requirements, among others.

Supervisory authorities (SAs) have issued the pertinent regulations to address the risks of their respective sectors (i.e. the Bangko Sentral ng Pilipinas, the Philippine central bank, has issued regulations for money services businesses and virtual currencies).

The AMLC and SAs are currently harmonizing their regulations on preventive measures to ensure effectiveness and compliance with the international standards.

What does the reform of the gaming industry’s AML/CFT regulatory framework entail exactly?

Under the amended AML legal framework, appropriately licensed casinos, including Internet- and ship-based casinos, within the territorial jurisdiction of the Philippines, are now required to comply with the Philippines’ AML regime.

Generally, casinos are required to conduct customer identification and due diligence upon opening of an account.

Customers shall be profiled according to the risk they present depending on the information provided and the casino transaction or activity.

Casinos are also required to keep customer transaction records, documents used in the conduct of customer due diligence, including copies of video recordings of customers involved in suspicious activity, for five years.

They are likewise mandated to file suspicious transaction reports based on certain circumstances mentioned in the law including casino transactions related to the proceeds of unlawful activities.

As an additional AML measure, casinos are obliged to file transaction reports when they receive cash from their customers or when they payout to their customers or their representatives an amount in nearly $95,000.

The new rules also require casinos to formulate sound risk management policies and practices.

That includes implementing institutional risk management, active board and senior oversight and internal controls and an audit program, designating a compliance officer, issuing a money laundering and terrorist financing prevention program, ensuring employee AML/CFT training and customer acceptance of monitoring polices and adopting an ML/TF alert monitoring and reporting system.

The regulation also introduced a measure wherein the casino licensing authorities and the Anti-Money Laundering Council can independently perform AML/CFT compliance inspections.

This is aligned with the concept of three layers of AML institutional controls namely: casinos – as the primary responsible institution; Authorized Government Agencies (AGAs) – who will test the effectiveness of the AML measures and controls implemented by the casinos; and AMLC – as the financial intelligence unit.

Has the country started any regulatory or legal proceedings, such as criminal prosecutions or asset forfeitures, in relation to the 2016 Bangladesh central bank heist, whose perpetrators ended up laundering some $80 million in proceeds primarily through casinos in the Philippines?

All tools available to the government were fully utilized. These include recovery of assets through the filing of civil forfeiture cases. As a result, a portion of the stolen amount was forfeited and subsequently released to the People’s Republic of Bangladesh.

In addition, other assets of personalities involved were likewise subjected to civil forfeiture proceedings.

Apart from the forfeiture proceedings, criminal proceedings were simultaneously initiated. Money laundering cases were instituted against the bank officials involved as well as the owners of the remittance company and other major players to the scheme.

Some cases are already filed with the Regional Trial Courts while some cases are still with the State Prosecutors.

In addition, in 2016, the Monetary Board of the Bangko Sentral ng Pilipinas, the Philippine’s Central Bank, approved the imposition of a supervisory enforcement action on one commercial bank, which played a major role in the scheme, to pay a record amount of nearly US$20 million, in connection with the special examination conducted in relation to the Bangladesh Bank cyber heist.

The inclusion of casinos in the country’s AML framework helped the Philippines avoid addition to the FATF blacklist last year. Nevertheless, the country’s own risk assessment in December labeled the money laundering threat as “high,” while the United States’ 2017 International Narcotics Control Strategy Report identified the Philippines as a “major money-laundering country” in March 2017. What is your assessment of the country’s greatest AML vulnerabilities today?

The Philippines’ AML/CFT Risk in the gaming sector was rated as “high” because the latest National Risk Assessment covered the period 2015-2016. During this period, the industry was not yet covered by the Philippines’ AML/CFT regime.

A quick, conservative, re-assessment using the same National Risk Assessment tool, however, will bring the current level of risk of the gaming industry to medium-high and is expected to decrease once the action plans are in place.

It is proper to note, however, that despite non-coverage of the gaming industry in its AML/CFT regime in 2016, the Philippines was able to recover a substantial amount (approximately $15 million). Further, the Philippine authorities were able to provide all kinds of assistance to the Bangladesh government despite the absence of a Mutual Legal Assistance Treaty including furnishing them with identification documents and other vital information to the rightful owner of the funds.

The information will help foreign authorities in the conduct of their own investigation of either predicate offense or money laundering activity.

We choose not to comment on the 2017 International Narcotics Control Strategy Report as it was written from the perspective of one country alone and does not represent the real situation in the country.

For instance, the report stated that the volume of prosecutions and convictions has been virtually nil. As of May 31, 2018, the country has seen 92 money laundering convictions. This number includes the more recent 55 convictions.

Is the government implementing or planning new measures to further improve the landscape?

The AMLC has drafted the National AML/CFT Strategy (NACS), which will address risks identified and gaps noted under the first and second National Risk Assessments (NRAs) on Money Laundering and Terrorism Financing. Various agencies significantly contributed in drafting and deliberating the action plans.

The NACS will provide a government-wide approach in combating money laundering and terrorism financing in the form of strategic action plans. In line with this, a National Coordinating Body will be established for national AML/CFT policies and monitoring of the implementation of the NACS.

The AMLC is also undergoing reorganization to further strengthen its hybrid-type organizational structure and to adequately manage and monitor the level and direction of ML/TF risks in coordination with various stakeholders.

This includes, among others, the creation of additional staff positions for the Financial Intelligence and Analysis Group, which will receive and analyze reportable financial transactions and disseminate financial intelligence to law enforcement agencies, other relevant government bodies and international counterparts, and the Compliance and Supervision Group, which will supervise all covered persons, whether or not there is a designated Supervising Authority.

The unsupervised covered persons include the Designated Non-Financial Businesses and Professions (DNFBPs).

Is there anything you can share about what exactly the national strategy will contain and what the timeline for release may be?

The NACS takes into account associated risks of current trends, as well as implementation of the Financial Action Task Force (FATF) Forty Recommendations. It identifies areas of focus in order to effectively combat money laundering and terrorism financing.

This includes passage and amendment of the legal and supervisory framework, actions to enhance investigation and prosecution of ML/TF, measures to address risks in the sectors and campaigns to increase public awareness.

In addition to action items designed to combat ML/TF, the NACS also provides for action items to address proliferation financing as set out under the FATF Standards.

The NACS was crafted in close coordination and consultation with key government agencies. Several workshops sponsored by the United Nations Office on Drugs and Crimes (UNODC) were organized leading up to the drafting of the final version.

The NACS was recently approved by the AMLC and is set to be submitted to the Office of the President for the President’s approval this month.

The Philippines will undergo the FATF mutual evaluation later this year. Could you tell us how you are preparing for the on-site visit and what you expect to come out of this process?

On Feb. 22, 2018, Executive Secretary Salvador C. Medialdea, as authorized by President Rodrigo R. Duterte, designated the AMLC as the lead agency in the conduct of the third round mutual evaluation (ME).

He directed all agencies to be identified by the AMLC to actively participate and/or extend the necessary assistance for the ME, consistent with the operational guidelines that may be issued by the AMLC.

Pursuant to the said authority, the AMLC issued Operational Guidelines for the conduct of the ME on 20 April 2018.

The operational guidelines created an inter-agency Mutual Evaluation (ME) Working Group (WG) and sub-working groups (SWGs), and enumerated the functions and obligations of the member-agencies with respect to the ME process.

The AMLC and key agencies have been closely coordinating and working together on the responses and statistics for the technical compliance and effectiveness categories.

The technical compliance response was submitted on May 4, 2018 to the assessors. The effectiveness response of the Philippines is due for submission to the assessment team by mid July 2018.

To further prepare key agencies for the on-site, the AMLC in partnership with the Australian Transaction Reports and Analysis Centre (AUSTRAC) conducted a Pre-ME workshop, with mock interviews last March 2017.

It will further conduct mock on-site interviews in the third quarter of this year. In the interim, the AMLC assists the different agencies in their preparations for the on-site visit.

The Philippines faces unique terrorist-financing challenges. What are the mechanisms terrorist groups typically use to raise funds in the country?

It is believed that local terrorist groups have engaged in “self-funding” through various criminal activities such as kidnapping for ransom, drug trafficking and other modes of extortion activities.  While government authorities cannot divulge specific actions, we can assure the public and the international community that we are utilizing every measure available to us to effectively counter terrorism and its financing.