Proposed Amendments to the Anti-Money Laundering and Bank Secrecy Laws Submitted to Congress

The Department of Finance (DOF) transmitted to the congressional leadership a proposal prepared jointly with Anti Money Laundering Council (AMLC), and the Bangko Sentral ng Pilipinas (BSP) to strengthen the country’s Anti-Money Laundering Act (AMLA). The DOF also sent a proposal to amend the Bank Deposit Secrecy Law for tax evasion purposes.

Amendments to the AMLA have been proposed in the last two years and have been made more urgent by recent financial controversies that have exploited the weakness in the country’s tax and financial system’s legal framework: the Bangladeshi Bank heist involving a local bank and casinos; the Panama Papers exposing offshore bank transactions from across the globe that may have avoided or evaded domestic taxation; the “de-risking” phenomenon, where foreign banks are closing the accounts of our money transfer operators abroad and may double the cost of remitting money to the Philippines from abroad.

Amendments to AMLA Sought

The DOF, AMLC, and BSP proposed that Congress amend Republic Act No. 9160, also known as the Anti-Money Laundering Act of 2001 (AMLA) to include casinos among others, as mentioned in the Financial Action Task Force (FATF) recommendations, as covered persons under the law; as well as the inclusion of tax evasion, among other crimes, as a predicate crime to money laundering.

The proposal also seeks to improve the AMLC’s ability to safeguard the financial system from money laundering activities: by authorizing the AMLC to issue subpoenas, by allowing the AMLC, instead of the Court of Appeals, to issue ex parte freeze orders with respect to certain unlawful activities, and by adding unlawful activities that are exempted from the requirement of a court order before a bank inquiry may be conducted. The proposed bill also increases the monetary penalty for administrative sanctions.

Among the amendments is the designation of the BSP as the supervising authority over foreign exchange dealers, moneychangers, and remittance and money transfer businesses for purposes of the AMLA.

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. said, “The banking and financial system of the Philippines remains stable and strong. To respond to emergent risks and challenges, we are proposing a thorough update of the Anti-Money Laundering Act to further strengthen our regulatory institutions in safeguarding a robust financial system.”

In addition, a better and stronger AMLA will address de-risking, where a growing number of foreign banks close bank accounts of remittance companies or money transfer operators (MTOs) to limit their exposure to possible channels for money laundering and other financial crimes. Given its adverse impact on remittance costs and flows, de-risking could result in movement by overseas Filipinos toward informal remittance channels and subsequent financial inclusion. De-risking therefore provides another compelling reason for the passage of necessary amendments to AMLA to align it with global standards.

Amendments to the Bank Secrecy Law Proposed

In its transmittal to congress, the DOF also proposed to amend Republic Act No. 1405 or the Bank Secrecy Law and Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act of the Philippines, to lift restrictions on bank secrecy of peso deposits and foreign currency deposits for tax purposes.

Finance Secretary Cesar V. Purisima, said, “Developments in the past few months have created more impetus and pressure for what we have been advocating for the longest time: updating the laws governing our financial system for a more secure economy to flourish. Weaknesses and loopholes in our legal frameworks breeds risk; we intend to stamp these out as best we can.”

“We are one of only three countries in the entire world where our tax administration cannot access bank transactions for tax evasion purposes. We are one of only two countries in the entire world where tax evasion is not a predicate crime to money laundering. While the tax gap has narrowed since 2009, we still have a long way to go in plugging the 4% of GDP lost to tax evasion. It’s high time we keep up with international standards and pierce the veil the unscrupulous few have conveniently hidden behind,” Purisima noted.

Meanwhile, Bureau of Internal Revenue (BIR) Commissioner Kim Jacinto-Henares, long an advocate of lifting the Bank Secrecy Law for tax purposes, said that bank deposits are outpacing BIR collections. Noting that tax evaders have hidden behind the shadow of our bank secrecy law, she said, “Our unduly restrictive bank secrecy laws tie the hands of our revenue generating agencies. To illustrate, in 2013 bank deposits grew at 33% while BIR collections grew by only 15%, while in 2014 bank deposits grew at 13% while BIR collections lagged behind, growing only at 10%. When numbers don’t add up, we know something’s up. The proposed AMLA amendments ought to right this wrong.”

BSP Governor Tetangco had earlier supported the easing of the very strict bank deposit secrecy laws of the country. He had called for powers for bank regulators to look into bank deposits under certain conditions.

“Every challenge and controversy presents opportunities for reform. To keep our place as Asia’s emerging bright spot, we need to shine the light of transparency where it is appropriate,” Purisima added.