Passage of Anti-Money Laundering Act (AMLA) of 2001 (Republic Act No. 9160) and Subsequent AMLA Amendments (RA 9194, RA 10167 and RA 10365)
The Original AMLA under RA 9160 (September 2001)
In order to implement its continued commitment and support of the global fight against money laundering, the BSP has issued a number of measures to bring the Philippines' regulatory regime on money laundering closer to international standards. In September 2001, the Anti-Money Laundering Act (AMLA) of 2001 was passed under Republic Act No. 9160. The legislation, among others, defines money laundering as a criminal offense, prescribes penalties for such crimes committed and forms the foundation of a central monitoring and implementing council called the Anti-Money Laundering Council (AMLC). To combat money laundering, this law imposes requirements on customer identification, record keeping, reporting of covered and suspicious transactions, relaxes strict bank deposit secrecy laws, and provides for freezing/seizure/forfeiture/recovery of dirty money/property as well as for international cooperation.
The AMLC is comprised of three (3) members: the Governor of the Bangko Sentral ng Pilipinas as the Chairman and the other two (2) members are the Commissioner of the Insurance Commission and the Chairman of the Securities and Exchange Commission. It acts unanimously in the discharge of its functions. AMLC is also referred to as the country’s Financial Intelligence Unit (FIU) and is assisted by a Secretariat, otherwise known as the AMLC Secretariat (AMLCS), headed by an Executive Director.
The AMLA Implementing Rules and Regulations (IRR) was also issued in 2001.
First AMLA Amendment under RA 9194 – March 2003
To address concerns such as the high threshold level for covered transactions, the coverage of “covered institutions” and the existing Bank Secrecy Law, the amendments to the AMLA were signed into law on 7 March 2003 under Republic Act No. 9194. The amendments included the following: a) lowering the threshold for covered transactions from P4.0 million to P500,000; b) authorizing the BSP to inquire or examine any deposit or investment with any banking institution without court order in the course of a periodic or special examination; and c) removing the provision prohibiting the retroactivity of the law.
Said amendments were given favorable consideration by the Financial Action Task Force (FATF) and sanctions were not imposed on the Philippines. However, the Philippines at that time remained in the list of non-cooperative countries and territories (NCCTs) of the FATF and the country’s removal from the list will be determined by the FATF after close monitoring of the implementation issues. The Philippines was finally removed from the NCCT list of the FATF in February 2005 due to excellent progress made in combating money laundering and terrorist financing.
The Revised Implementing Rules and Regulations (RIRR) on the AMLA of 2001, as amended, was approved by the Congressional Oversight Committee on 6 August 2003 and was implemented on 3 September 2003.
Second AMLA Amendment under RA 10167 – June 2012
To further strengthen the country’s AML regime and address the concerns of the FATF, second AMLA amendment under RA 10167 was signed into law on 18 June 2012 amending for the purpose Sections 10 and 11 of the AMLA, as amended.
Section 10 relates to the “Freezing of Monetary Instrument” wherein upon verified “ex parte” petition by the AMLC, the Court of Appeals (CA) should act on the petition to freeze within twenty-four (24) hours from filing of the petition, and the freeze order shall be for a period of twenty (20) days unless extended by the Court/CA.
Section 11 relates to the “Authority to Inquire into Bank Deposits” wherein the AMLC is given authority to examine bank accounts “upon order of any competent court based on an ex parte application” which effectively expanded the instances when no such court application is required. Said provision simply means that the court may allow the AMLC to look into bank deposit accounts of suspected money launderers without notifying them. Under this Section, the CA is directed to act on the application to inquire into or examine any deposit or investment account within twenty-four (24) hours from date of filing of the application. In addition, although Section 11 of the AMLA reworded the authority of BSP to check the compliance in the course of a periodic or special examination of a covered institution with the requirements of the AMLA and its implementing rules and regulations, the sponsoring Senator when asked if the BSP, without court order, may be allowed to look into specific accounts under the proviso, Senator Guingona said that it is only to ensure compliance with AMLA.
These two amended provisions recognized the urgency of the issuance of the freeze order and the grant of authority to AMLC to conduct bank inquiry within 24 hours from the filing of the petition.
This AMLA amendment under RA 10167 resulted to favorable action of the FATF where it decided to upgrade the country's “dark gray” list to “gray”, which is just one notch away from being taken out in the FATF list of nations considered non-compliant to global AML standards.
After the passage of RA 10167, the Revised Implementing Rules and Regulations (RIRR) was approved under AMLC Resolution No. 84 dated 23 August 2012. BSP disseminated said RIRR to all BSP covered institutions under BSP Circular Letter No. CL-2012-068 dated 20 September 2012.
Third AMLA Amendment under RA 10365 – February 2013
As continuing commitment to comply with FATF AML/CFT standards, the third AMLA amendment under RA 10365 was passed into law on 15 February 2013 that covered the following major amendments:
- Expansion of the definition of the crime of money laundering: AMLC can now go after persons who engage in the conversion, transfer, movement, disposal of, possession, use, and concealment or disguise, of the monetary proceeds of an unlawful activity, that was previously limited to the transaction of laundered funds and property;
- Inclusion of jewelry dealers in precious metals and stones whose transactions are in excess of P1,000,000 and company service providers as defined and listed under RA 10365, are now included as “Covered Persons”;
- Increase of unlawful activities to money laundering from 14 to 34. The 20 additional crimes include trafficking in persons, bribery, counterfeiting, fraud and other illegal exactions, forgery, malversation, various environmental crimes, and terrorism and its financing;
- Authorize the AMLC to require the Land Registration Authority and all its Register of Deeds to submit report to the AMLC covering real estate transactions in excess of P500,000.00;
- Issuance of freeze order by the Court is now valid for a maximum period of six (6) months, from the previous twenty (20) days validity under RA 10167.
Compliance with FATF International Standards
In November 2003, the Philippines’ amendments to the AMLA were evaluated by the FATF and were found to be at par with international standards. On 11 February 2005, the Philippines, Cook Islands, and Indonesia were removed from the list of NCCTs during the meeting of the FATF. After the country’s delisting from the list of NCCT’s, the AMLC of the Philippines was accepted as one of seven new members of the Egmont Group, the global network of FIUs against money laundering and terrorist financing, making the Philippines an equal partner in the global fight against money laundering and terrorist financing. Membership to the Egmont Group means affording AMLC free and unlimited access to a wealth of financial data contained in the databases of all the FIU-members of the group. All information exchanged by FIUs are subjected to strict controls and safeguards to ensure it is used only in an authorized manner, consistent with national provisions on privacy and data protection.
The recent AMLA amendments under RA 10167 and RA 10365 are testament of the Philippine’s serious commitment to further strengthen the country’s AML regime and to address the weaknesses noted by the FATF in the Philippine’s legal framework with regard to AML. Passage of these laws were officially recognized and favorably considered by the FATF that are now in substantial compliance with its AML/CFT international standards. Thus, FATF in its February 2013 plenary meeting, shielded the Philippines from being blacklisted again.
Other AML Initiatives Undertaken by BSP to Further Strengthen the Country’s AML Regime
Since 2000, the BSP continued to firmly undertake several initiatives on how to safeguard the Philippine banking system through constant reshaping of existing AML preventive measures and implementation of appropriate policies at par with global standards such as the following initiatives.
- Creation of the Anti-Money Laundering Specialist Group (AMLSG) within the Supervision and Examination Sector (SES)
The AMLSG was created on 13 December 2007 under MB Resolution No. 1443 to address the need for technical expertise in the supervision of AML activities of banks and non-bank financial institutions (NBFIs) under the supervision and regulation of the BSP. The Group became fully operational in November 2008 and currently has 34 authorized plantilla positions. It is under the direct supervision of the Managing Director, Supervision and Examination Subsector I, SES.
AMLSG aims to be BSP's core unit of highly competent, dynamic and ethical professionals who work to ensure financial institutions (FIs) adopt and maintain adequate and effective policies, systems and procedures that prevent them from being used to support the laundering of proceeds from any unlawful activity. AMLSG is tasked to develop relevant guidelines and regulations to support and guide the AML efforts of financial institutions supervised by the BSP, ensure the effective implementation of said policies through examination services and technical assistance to the SES and enhance the related technical skills of the SES human resource pool through training. In addition, AMLSG shall perform off-site monitoring to identify those FIs whose operations present an elevated risk of money laundering activities. AMLSG works closely with the AMLC Secretariat and various banking and non-bank industry associations under the regulatory ambit of the BSP to foster domestic cooperation.
Since 2008, AMLSG has conducted several AML onsite examinations, particularly commercial banks due to their significant assets size and complex banking activities. The Group was also principally involved in the crafting of AML rules and regulations, such as the issuance of Circular 706 dated 5 January 2011 and the adoption on 2 March 2012 of the AML Risk Rating System, that are discussed below.
Issuance of a consolidated AML regulations under BSP Circular No. 706 dated 5 January 2012, otherwise known as the Updated AML Rules and Regulations (UARR)
UARR was issued for the purpose of consolidating all existing BSP circulars, circular letters and other issuances related to AML. Likewise, it enhances the implementation of the existing AML legal framework to better conform with international standards as well as address the deficiencies noted by the joint team of assessors from the World Bank and Asia Pacific Group on Money Laundering during the mutual evaluation of the country in 2008.
The UARR applies to all covered institutions supervised and regulated by the BSP including Banks, Offshore banking units, quasi banks, trust entities, non-stock savings and loan associations, pawnshops, foreign exchange dealers, money changers and remittance agents, electronic money issuers including their subsidiaries and affiliates wherever they may be located.
In addition to the usual provisions on customer identification/KYC, covered and suspicious transaction reporting and record keeping and retention requirements that are found in the AMLA-RIRR, the UARR emphasizes the incorporation of a sound risk management system to ensure that risks associated with money laundering and terrorist financing are identified, assessed, monitored, mitigated and controlled by covered institutions. A sound risk management system includes adequate and active Board and Senior Management oversight, acceptable policies and procedures embodied in a Money Laundering and Terrorist Financing Prevention Program (MLPP), appropriate monitoring and Management Information System and comprehensive internal controls and audit.
UARR encourages covered institutions to formulate a risk-based and tiered customer acceptance and retention policies, adoption of a criteria for assessing customers as low, normal and high risk and standards for applying reduced, average and enhanced due diligence. It also mandates observance of extreme caution and vigilance in dealing with high risk customers such as shell companies.
The UARR also strongly supports the Financial Inclusion advocacy promoted by the BSP. For instance, it allows a) the outsourcing of the conduct of face-to-face contact as well as the gathering of the KYC documents and information to establish the identity of a customer; b) acceptance of one (1) valid ID for the conduct of financial transactions, listing for this purpose a wide variety of acceptable IDs and the utilization of the covered institution’s own technology to take the photo of their customers in case the ID presented is non-photo-bearing such as TIN, barangay and DSWD certification; and c) the third-party reliance is likewise introduced in the UARR to avoid duplication of customer identification processes so that covered institutions may refocus their resources to better serve and address the needs of customers. This principle allows a covered institution such as a Bank to rely on the KYC conducted by another covered institution.
UARR further provides that any violations of existing provisions thereof shall constitute a major violation, that may subject the bank, its directors, officers and staff to enforcement actions such as monetary and non-monetary penalties. The enforcement actions shall may be imposed on the basis of the overall assessment of a covered institution’s AML compliance system, and if found to be grossly inadequate, such may be considered as unsafe and unsound banking practice that may warrant initiation of prompt corrective action.
Adoption of AML Risk Rating System (ARRS)
A necessary consequence of a risk-based approach to supervision is the development of a risk-focused examination process that is complemented by the adoption of an AML Risk Rating System (ARRS) approved under MB Resolution No. 362 dated 2 March 2012 and disseminated to all BSP covered institutions under Memorandum to All Banks No. 2012-017 dated 4 April 2012.
ARRS is an internal rating system to be used by BSP to understand whether the risk management policies and practices as well as internal controls of Banks and NBFIs to prevent money laundering and terrorist financing are in place, well disseminated and effectively implemented. ARRS is an effective supervisory tool that undertakes to ensure that all covered institutions as defined under Circular No. 706 are assessed in a comprehensive and uniform manner, and that supervisory attention is appropriately focused on entities exhibiting inefficiencies in Board of Directors and Senior Management oversight and monitoring, inadequacies in their AML framework, weaknesses in internal controls and audit and defective implementation of internal policies and procedures.
Under the ARRS, each covered institution is assigned a Numerical and Adjectival Composite Rating (4 as the highest – sound; 3 – adequately sound; 2- vulneralbe; and 1 as the lowest – grossly inadequate) based on the assessment of the following four (4) components:
1. Component I- Efficient Board of Directors (BOD) and Senior Management (SM) Oversight (“Management”);
2. Component II- Sound AML policies and procedures embodied in a Money Laundering and Terrorist Financing Prevention Program duly approved by the Board of Directors (“MLPP”);
3. Component III- Robust internal controls and audit (“Controls and Audit”); and
4. Component IV- Effective implementation (“Implementation”).
Evaluation of the four (4) components takes into consideration the covered institution’s responses to various questions that are designed to comprehend its business operations as well as its risk profile. The responses will be assessed and on-site examination will confirm their veracity and accuracy. Based on the evaluation of the existence or non-existence of the each of the above components, BSP covered institutions are assigned a Numerical and Adjectival Component Rating that also ranges from 4 as the highest and 1 as the lowest. After considering the four components, enforcement actions proportional to the Composite Rating are recommended to ensure that BSP covered institutions take necessary measures to improve their risk management policies and practices.
Proactive issuance of AML Regulations on Ongoing Basis since 2000
Aside from AML Circulars, BSP also issues on an ongoing basis Circular-Letters since 2000 to disseminate resolutions adopted by the AMLC covering updates of guidelines on reporting of suspicious transactions or identifying suspected individuals or organizations (local and international) known to be involved in money laundering and other illegal activities, particularly those included in the United Nations Sanctions List.
In addition, BSP has issued several media releases and other public advisories to disseminate certain suspicious or illegal activities to make the public fully aware of them.