Plugged money laundering loophole

Finally, after years of delay and a stern warning from the Financial Action Task Force of tough sanctions on foreign financial transactions, Congress enacted last month Republic Act No. 11521 that would further strengthen the country’s antimoney laundering rules.

Among others, aside from cash or equivalent monetary instrument transactions within one banking day involving amounts in excess of P500,000, the law now covers single casino cash transactions that are over P5 million or its equivalent in any other currency.

With that addition, offshore gaming operators, or entities “engaged in offering online games of chance or sporting events via the internet using a network and software program, by themselves or through local service providers,” are henceforth subject to scrutiny by the Anti-Money Laundering Council (AMLC).

The new law also expanded the list of covered persons to include real estate developers and brokers.

Real estate developers are persons or companies engaged in the business of real estate development and who offer their projects to others for sale or lease.

Real estate brokers refer to persons who, for a fee or commission, are licensed to act as agents to offer or solicit the sale, lease, joint venture or any similar transaction of real estate properties.

If any of them engage in a single cash transaction in excess of P7.5 million or its equivalent in any other currency, that deal can be looked into by the AMLC to see if it is legitimate or a scheme to cleanse money sourced from unlawful activities.

State transactions in the coverage of antimoney laundering regulations was long in coming.

Its exclusion from the list of covered persons is a loophole that has been exploited by small-scale gambling operators (in particular, of the numbers game jueteng) and government officials who think “kickbacks” from government transactions come with their territory.

Basically, the strategy involves the purchase, in cash, of real estate properties located in lower or lower middle income residential areas whose owners are in dire need of money, or are migrating elsewhere in the world and are rushing to monetize their properties, or are heirs who are feuding over the disposition of inherited property.

The choice of the site of the property is critical. High-priced residential or gated communities are avoided because they tend to attract nosy neighbors or envious fellow employees.

Upon the conclusion of the sale, the new owner engages the services of mom-and-pop building contractors who prefer their services and those of their workers to be paid in cash and not be bothered by premium contributions to the Social Security System and other government offices.

And most importantly, no income tax payment for their earnings to be bothered with.

With regard to the construction materials, they can be bought from neighborhood hardware stores that accept cash payments only and issue receipts, if at all, that often do not comply with the Bureau of Internal Revenue’s registration requirements.

Except for the deed of sale over the lot, which is placed under the name of another person, there is no paper trail in the transaction that may give rise to the application of antimoney laundering regulations.

So, after several months, the proceeds from an otherwise predicate crime under the antimoney laundering law are laundered and converted to either a new or renovated house that can be offered for sale or lease to interested parties.

Under the new law, the threshold for transactions by real estate developers and brokers is P7.5 million.

Does that figure refer to the aggregate cost of the lot and the structure built on it or will they be computed separately? What price range and reporting rule would apply if the land and the construction of a building on it are done by separate developers and brokers?

When the AMLC comes up with the implementing regulations for the new law, it better be sure all possible nuances in “legally” evading compliance with it are covered. There is no dearth in this country of imaginative tax lawyers and accountants. INQ

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