IMF Risk Assessment: Enhanced AML Supervision Needed in the Philippines

The International Monetary Fund (IMF) has published a new technical note assessing the state of banking, the microfinance sector and non-financial corporates (NFCs) in the Philippines. In it, the IMF highlighted certain economic activities, such as those practiced in casinos, the gaming industry and cryptocurrency exchanges, that pose a “medium” risk to the international reputation of the Philippines in regards to the quality of its anti-money laundering (AML) efforts and steps towards combatting the financing of terrorism (CFT).

The analysis follows a joint IMF-World Bank Financial Sector Assessment Program (FSAP), which comprehensively analyzed the country’s financial sector to gauge its stability and contribution to overall growth and development. The process involves conducting stress tests and analyzing systemic and emerging risks within the banking and non-banking financial sectors, in addition to assessing the Philippines’ progress across financial inclusion and market competitiveness. 

Strict bank secrecy laws

In its technical note, the IMF indicates that the strict bank secrecy laws in the Philippines mean financial supervisors are unable to access the details of customer accounts. This could encourage criminals to use banks to launder money, commit fraud, or other financial crimes. 

In August 2021, then-President Rodrigo Duterte incorporated a bill aiming to ease bank secrecy rules into his list of legislative priorities for his final year in office. However, the bill has not been passed due to concerns about privacy violations and the potential for politicians to be targeted.

The IMF states that the limited action taken so far to amend bank secrecy laws could result in reputational risk, affecting banking relationships, access to the global financial market and the flow of international remittances. Cumulatively, these risks could lead to the devaluation of the Philippine Peso. 

The Philippines and the FATF 

The Philippines has had a long and troubled history with AML/CFT compliance. The country was originally placed on the Financial Action Task Force’s (FATF’s) blacklist from 2000 to 2005 due to the ineffectiveness of its efforts to prevent money laundering and track down criminals implicated in terrorism financing. The country’s 2019 mutual evaluation report (MER) likewise identified several gaps in its AML/CFT framework, with the country placed back on the FATF’s graylist at the agency’s fourth virtual plenary in June 2021. 

Since then, the FATF has acknowledged the Philippines’ commitment to improving its AML/CFT program, focusing on areas including casinos, designated non-financial businesses and professions (DNFBPs), and the increased use of financial intelligence. However, the agency also listed eight areas where the Philippines needs to concentrate its efforts.

The FATF requires countries on the graylist to submit three progress reports each year. The Philippines’ next report is due September 2022. 

Recent Philippines AML/CFT developments 

The Anti-Money Laundering Act of 2001 (AMLA) is the Philippines’ primary AML law. In response to a number of high-profile money laundering incidents, President Duterte signed a law in February 2021 revising the AMLA to provide financial authorities with more powers and enforcement tools. 

Under the revision, the powers of the Anti-Money Laundering Council (AMLC) were extended to permit the council to issue freeze orders to facilitate targeted financial sanctions. Additionally, two new categories of “covered person” were added, requiring “offshore gaming operators” and “real estate developers and brokers” to report suspicious transactions to the AMLC.

Other recent regulatory developments include a circular from Bangko Sentral ng Pilipinas on financial institutions implementing automated and real-time transaction monitoring, fraud monitoring and detection systems to identify & block suspicious or fraudulent online transactions as well as a push towards beneficial ownership transparency and changes to registration and reporting.

Officials remain hopeful that the Philippines will be removed from the FATF’s graylist by January 2023, with AMLC Executive Director, Mel Georgie B. Racela, stating that the AMLC “has been hiring more financial intelligence analysts, investigators, and lawyers to boost the operational capabilities of their units on compliance as well as litigation and evaluation”.