Philippines Awash in Laundered Money

The equivalent of US$342.3 billion of laundered money washed through the Philippine banking system between January 2013 and December 2017, according to an estimate by the country’s Anti-Money Laundering Council in a report issued last week. That is more than the country’s entire gross national product for 2017, at US$303 billion.

The country has become the destination of illicit funding from violation of environmental laws, illegal trafficking of persons, kidnapping for ransom and terrorism and conspiracy to commit terrorism, according to the report. The bulk of laundered money moving out of the country disappeared into Nigeria, France, the US and Lebanon.

Although the report identifies alleged offenders only by their initials, it names a number of cases in which funds were laundered. It pinpoints a “Mr NK,” the director of a company “associated with the allegedly overpriced construction of the Makati City Hall.” Other illicit funds were said to be transferred to China that were linked to former politicians accused of undervaluing the privatization of water and electricity utilities in their province in 2000.

More than 7,400 suspicious transaction reports were connected to the Priority Development Assistance Fund scam, which became known as the Pork Barrel scandal, ensnaring three of the country’s most powerful lawmakers, Juan Ponce Enrile, Ramon “Bong” Revilla and Jinggoy Ejercito Estrada. According to a list referred to at the time by Sen. Panfilo Lacson, 21 of the 25 incumbent senators, 90 of the 292 congressmen and two cabinet members were implicated in the scam and a second one involving funds from energy royalties on projects off the coast of the southern island of Palawan between 2000 and 2010.

The 36-page AMLC study, titled “A Risk Assessment on the Philippines’ Exposure to External Threats based on Submitted Suspicious Transaction Reports,” is built on a sampling of so-called Suspicious Transaction Reports (STRs), which are reports to Bank Sentral ng Pilipinas, the country’s central bank, as required by the international financial system.

The STRs are required by banks and other financial institutions when their personnel detect suspicious or potentially suspicious activity. Filipino bank tellers and other personnel filed an astonishing 161,6501 such suspicious reports involving international remittances and domestic savings account transactions during the period.

The suspicious transactions were related to illegal drugs, plunder and corruption, investment scams, fraud, smuggling, intellectual property violations, illegal firearms possession, illegal trafficking of persons, kidnapping and other crimes.

It isn’t the first time concerns have arisen about the Philippine banking system. The country has some of the most restrictive banking secrecy laws on earth, which serve to protect money laundering, along with Lebanon and Switzerland – which has since relaxed its laws under international pressure. Lebanon is also under pressure. However, the Philippines expressly prohibits the Anti-Money Laundering Council from sharing information with the Bureau of Internal Revenue

In 2017, in the wake of a massive scandal in which US$81 million was stolen from the Bangladesh Central Bank and coursed through the Philippine banking system via a gambling casino junket side rooms, the US State Department named the country among 88 major money-laundering sites in its International Narcotics Control Strategy Report. The country has been on the list since 2011.

The robbery, which became known as the “Bangladesh Bank cyber heist,” occurred when hackers issued fraudulent instructions via the SWIFT network to transfer almost US$1 billion from the Bangladesh Central Bank through the Federal Reserve Bank of New York to accounts in Sri Lanka and the Philippines. Five of 35 of the hackers’ instructions went through, with US$20 million transferred to an account in Sri Lanka and US$81 million to the Philippine account. An additional 30 instructions were blocked by the Federal Reserve Bank because of misspelled instructions.

Only around $18 million of the $81 million transferred to the Philippines has been recovered. The case nearly got the Philippines reinstated to the Financial Action Task Force on Money Laundering blacklist of countries whose efforts against money laundering were deemed insufficient.

"Money laundering is a serious concern due to the Philippines' international narcotics trade, high degree of corruption among government officials, trafficking in persons, and the high volume of remittances from Filipinos living abroad," according to the report, which said transnational organized crime and drug trafficking organizations use the country as a drug transit point.

The majority of the laundered funds only circulate through the Philippine financial system, according to the report by the Philippine government although the majority of the inflows and outflows of all so-called “predicate crimes” -- crimes underlying money laundering or terrorist finance activity such as illegal drug sales, corruption, fraud, investment scams and others. -- have been linked to the United States.

In terms of peso amounts, the majority of the incoming criminal proceeds were coursed through various banks in the United Kingdom, while large amounts of outgoing illicit funds were mostly sent to Hong Kong, the report stated.

The country’s commercial banks are the preferred financial channel for the perpetrators of the majority of these crimes.

“The proceeds generated from the unlawful activities outside the Philippine jurisdiction are laundered in the country using various mechanisms in order to conceal the illicit causes through the use of different types of inward international remittances,” according to the report. “In a similar manner, the proceeds of the unlawful activities generated within the Philippine jurisdiction are laundered to the different parts of the globe via the different types of outward international remittances.”

The data “should not be interpreted to assess or estimate the full amount of criminal proceeds which may have entered, circulated and exited the Philippines,” the report states. “The actual volume and amount of illicit funds may be larger than represented in our sample.”

With regard to STR volume, the United States posed the highest threat for both inflows and outflows of all predicate crimes under review. In terms of peso amount, majority of the incoming criminal proceeds were coursed through various banks in the United Kingdom, while large amounts of outgoing illicit funds were mostly sent to Hong Kong.

The United Kingdom, USA and Oman were the countries that had the most transactions linked to drugs during the period. Similarly, the United Arab Emirates, Oman and USA were the countries having large amounts of inward remittances. The suspicious transfers originating from the United Arab Emirates, which amounted to P15.06 million, were linked to a man identified only as “Mr. TNS” who was also involved in the crimes of human trafficking and gunrunning.

Mr. TNS was said to be under investigation by the United Kingdom Private Investigators as well as the Dubai Police. Meanwhile, the 19 STRs on remittances from Oman amounting to almost P4.96 million are all connected to “Mr. AHL” who was suspected to have received various drug-related inward remittances totaling to almost P8.32 million.

Nigeria, USA, Malaysia and Costa Rica were the top countries where the proceeds of the drug-related funds go, comprising majority of the total amount of outflows from 2013 to 2017 (Philippines excluded). The two STRs reported in 2017 involving an amount of P905,005.20 going to Costa Rica were linked to the account of a “Ms. P,” subject of a negative news report who was later named in a Philippine Drug Enforcement Agency (PDEA) press release as one of the personalities arrested during a buy bust operation. Meanwhile, the 13 STRs involving remittances to Nigeria were all linked to a drug syndicate based in Country A, which are all referred for investigation.