Bank liability in Amla cases

The clock is ticking on the deadline set by the Financial Action Task Force on Money Laundering for the Philippine government to further amend the Anti-Money Laundering Act and plug perceived loopholes in the law.

Among others, FATF wants to widen Amla’s coverage to include casinos, real estate agents, dealers in precious metals and stones, foreign exchange corporations, money changers and pre-need companies.

If placed under Amla’s oversight authority, these businesses will have to report all transactions in excess of P500,000 (or its equivalent in foreign exchange) within one banking day and, even if below that benchmark, are suspicious in character.

FATF is apprehensive that terrorist organizations may be able to get hold of “dirty money” through these entities that have been left out from Amla’s coverage in the two instances that Congress amended the law to meet FATF’s requirements.

If the demands of the Paris-based financial watchdog are not met, the Philippines may be placed on the blacklist which could result in delays in the processing of international financial transactions or imposition of higher fees.

At present, the bill that seeks to address FATF’s concerns is stuck in the Senate. Sen. Joker Arroyo has opposed its passage unless it includes a provision that penalizes Philippine banks for accepting deposits from dubious sources.

He has cited the case of HSBC, a London-based bank that traces its roots to Hong Kong, which paid $1.2 billion to the US government to settle money laundering charges.

Penalties

Under the existing law, Philippine banks or financial institutions that are authorized to receive cash deposits and other monetary instruments have it easier, compared to others, in case they violate the law.

If a person, for example, transacts money that comes from a covered unlawful activity (or predicate crime), or facilitates the commission of money laundering acts, he can be imprisoned from seven to 14 years and ordered to pay a maximum fine of P3 million.

Prison terms and fines of varying lengths and amounts are also imposed for failure to keep records, malicious reporting on money laundering, failure of a public official to testify in Amla cases and breach of confidentiality.

In the case of malicious reporting, if the offender is a corporation, association, partnership or any juridical person, the penalty is imposed on the persons who participated in the commission of the crime.

But the corporation or juridical entity may go scot-free because the law merely provides that “the court may suspend or revoke its license.”

Outside of this slap-on-the-wrist sanction, the law is silent on the penalties imposable on corporations or other juridical entities that violate its other provisions.

Administrative

This oversight (deliberate or otherwise) was later cured by way of the Revised Implementing Rules and Regulations issued by the Anti-Money Laundering Council.

Rule 14.1.d of the said rules states that “after due notice and hearing, the AMLC shall, at its discretion, impose fines upon any covered institutions, its officers and employees or any person who violates” the Amla and the rules, regulations and orders issued in relation to it. The fines shall not be less than P100,000 but in no case exceed P500,000.

In what appears to be a face-saving move, the rule ends with the statement that “the imposition of the administrative sanctions shall be without prejudice to the filing of criminal charges against the persons responsible for the violations.”

Under this rule, if a bank is found to have accepted for deposit, say, P100 million worth of dirty money, either knowingly or for failure to observe the proper measures to prevent that deposit, the most that it can be held liable for is the measly sum of P500,000.

That amount is a pittance compared to the profits it could gain from lending that tainted money to third parties or investing it in lucrative financial transactions.

In the hands of skillful (read: scheming) lawyers and considering the snail pace of justice in our country, the proceedings against the bank for that offense can take from five to 10 years. By the time the fine is paid, if at all, the fine would be just spare change for the bank.

Remedies

It is no consolation that the bank officer who authorized or participated in the money laundering activity may be jailed or fined for the offense he committed on behalf of or for the benefit of the bank.

He can be easily replaced by another employee and it’s business as usual for the bank. Its public image may be temporarily tarnished but, with the right PR campaign, including a change of name, and considering the Filipinos short memory, the incident would be easily forgotten.

Unless a bank gets slapped with a hefty fine or subjected to severe administrative sanctions, such as close scrutiny of its transactions, downgrading of its banking status and stricter application of the fit-and-proper rule for its directors and officers, acceptance of deposits or investments from questionable sources would be considered one of the risks of the banking business in this country.

Aside from HSBC, the list of iconic banking institutions that have been slapped fines for violation of anti-money laundering rules include The Royal Bank of Scotland (£1.25 million), American Express International Bank ($65 million) and Coutts, the bank of the Queen of England, (£8.75 million).

After getting hit where it hurts most—their pockets—these banks have committed to adopt and implement the appropriate measures to make sure dirty money never gets into their coffers again.

Our local banks must have such a strong influence (or intimidating presence) over Congress that they have successfully fended off efforts to make them directly accountable for willful or negligent involvement in money laundering activities.

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