Outline in Money Laundering

Rhem Rick N. Corpuz

MONEY LAUNDERING DEFINED.
Money laundering is the generic term
used to describe the process by which criminals
disguise the original ownership and control of
the proceeds of criminal conduct by making
such proceeds appear to have derived from a
legitimate source.

The processes by which criminally
derived property may be laundered are
extensive. Though criminal money may be
successfully laundered without the assistance of
the financial sector, the reality is that hundreds
of billions of dollars of criminally derived money
is laundered through financial institutions,
annually. The nature of the services and
products offered by the financial services
industry (namely managing, controlling and
possessing money and property belonging to
others) means that it is vulnerable to abuse by
money launderers.


Rationale for Penalizing Money Laundering
The objective of the criminalization of
money laundering is to take the profit out of
crime. The rationale for the creation of the
offence is that it is wrong for individuals and
organizations to assist criminals to benefit from
the proceeds of their criminal activity or to
facilitate the commission of such crimes by
providing financial services to them.

Manner of Commission
Money laundering offences have similar
characteristics globally. There are two key
elements to a money laundering offence:
1. The necessary act of laundering itself
i.e. the provision of financial services;
and
2. A requisite degree of knowledge or
suspicion (either subjective or objective)
relating to the source of the funds or the
conduct of a client.

The act of laundering is committed in
circumstances where a person is engaged in an
arrangement (i.e. by providing a service or
product) and that arrangement involves the
proceeds of crime. These arrangements include
a wide variety of business relationships e.g.
banking, fiduciary and investment management.

Predicate Crimes for Money Laundering
Different jurisdictions define crime
predicating the offence of money laundering in
different ways. Generally the differences
between the definitions may be summarised as
follows:
1. Differences in the degree of severity of
crime regarded as sufficient to predicate
an offence of money laundering. For
example in some jurisdictions it is
defined as being any crime that would
be punishable by one or more years
imprisonment. In other jurisdictions the
necessary punishment may be three or
five years imprisonment; or
2. Differences in the requirement for the
crime to be recognized both in the
country where it took place and by the
laws of the jurisdiction where the
laundering activity takes place or simply
a requirement for the conduct to be
regarded as a crime in the country
where the laundering activity takes
place irrespective of how that conduct is
treated in the country where it took
place.

In practice almost all serious crimes,
including, drug trafficking, terrorism, fraud,
robbery, prostitution, illegal gambling, arms
trafficking, bribery and corruption are capable of
predicating money laundering offences in most
jurisdictions

Can Fiscal Offences such as tax
evasion predicate Money Laundering?
The answer depends upon the
definition of crime contained within the
money laundering legislation of a
particular jurisdiction. Tax evasion and
other fiscal offences are treated as
predicate money laundering crimes in
most of the worlds most effectively
regulated jurisdictions.


Stages of Money Laundering
1. Placement is physical disposal of the
money by moving funds from direct
association with crime and putting them
into the financial system. Robinson
(1996) refers to this part of the laundry
cycle as immersion. Criminal groups
sometimes achieve this by smurfing:
moving small amounts at time to avoid
raising suspicion. Placement or


immersion may also involves bank
complicity, the mixing of illicit with licit
funds, cash purchases and the
smuggling of currency to save havens (
Savona and De Feo 1997: 23-4)

2. Layering disguises the trail to foil
pursuit. Robinson (1996) refers to this
part of the cycle as heavy soaping. It
involves the creation of false paper trail,
conversion of cash into monetary
instruments and the conversion of
tangible assets obtained by mean of
cash purchases. The use of electronic
methods to facilitate the layering
process is increasing. According to
Savona and De Feo, electronic
processes are probably the most cost
effective layering method available to
money launderers. They offer criminals
speed, distance, minimal audit trail, and
virtual anonymity amid the enormous
daily volume of electronic transfer, all at
minimal cost. (Savona and De Feo
1997: 27)
3. Integration makes the money available
to the criminal again with its
occupational and geographical origins
hidden from view. Robinson (1996)
refers to this as the spin dry: part of the
laundry: repatriating the money in the
form of clean, often taxable, income.
This is achieved by means real state
transaction, front companies and sham
loans, foreign bank complicity and false
import and export transaction.


Illustrative Cases:
Cash in small denomination bills from drug
trafficking exchanged for gambling chips in a
casino. No gambling is done and the chips are
cashed in for casino checks. The checks are
carried to Hong Kong and deposited into bank
accounts, where they are wire transferred to
bank accounts in Australia. Funds are used to
purchase property in Australia.
Placement: Purchase gambling chips
and return them for casino checks.
Layering: Carry checks to HK and
deposit them into bank accounts, wire
transfer funds to Australia bank
accounts.
Integration: Purchase real estate in
Australia.

A drug dealer opened a long
term/time deposit account with ABC
Bank. Mr. Drug Dealer applied and was
granted a loan from the same bank
using his deposit account as collateral.
Loan proceeds are then used as
capital for his cash intensive business.


Techniques in Money Laundering

Smurfing
A technique used in the placement of
funds that are being laundered, where the funds
are divided into smaller amounts so that such
amounts will fall below the threshold at which
the relevant financial institution (or other body) is
required to file a suspicious transaction report.

Phantom Bank
A bank which simply does not exist, as it
is not registered or licensed anywhere; rather it
is merely a front for criminal or laundering
activity.

a. information with other countries;
b. Availability of instant corporations
c. Corporate secrecy law
d. Excellent electronic communication
e. Tight bank secrecy law
f. A large tourist trade that can help
explain major inflows of cash
g. Use of major world currency,
preferably the United States dollar,
as the local money
h. A Government that is relatively
invulnerable to outside pressure
i. A high degree of economic
dependence on the financial
service sector
j. A geographic location that facilities
business travel to and from rich
neighbors.
k. Time zone location
l. A free-trade zone
m. Availability of a flag-of-convenience
shipping registry

One analyst observed that the
secrecy haven is one of dirty
moneys most cherished privileges
and one of its most ardent
solicitors. The issue of bank secrecy
is a delicate and serious concern. For
unstable and developing countries, it
can not just relax its secrecy laws,


otherwise it would shun the interest of
would be investors, both legal and illegal
ones. It may also drive away existing
foreign companies because of mistaken
stiff regulations or too much
interference. However, it is important
not to exaggerate the significance of
bank secrecy or to lose sight of other
barriers to finding, freezing and forfeiting
criminal money because money-
laundering can very well exist even w/o
bank secrecy laws. Let us not forget
that there still the corporate secrecy
laws, w/c even we have identified the
depositor, i.e. Guns For Hire Services,
it may still impossible to identify the
people running such entity.

It is not that countries espousing bank
secrecy laws are competing for the influx of drug
money and other criminally derived funds, they
are just torn between compelling necessities: the
need to increase government resources, its
economic vulnerability and the lack of alternative
resources.


What is a Tax Haven?
Tax haven is a country which has a
low or zero rate of taxes across the
board (also see 'Offshore Financial
Centre'). The OECD define a tax haven
that conducts harmful tax competition
as:
a. any nation that imposes
nominal or no tax on income;
b. any nation offering preferential
treatment to certain types of
income at no or low tax rates;
c. any nation that offers or is
perceived to offer non-
residents the ability to escape
taxes in their country of
residence.

The OECD notes further activities
that identify a tax haven as:
a. practices that prevent the
effective exchange of relevant
information with other
governments on taxpayers
benefiting from a low or no tax
break;
b. general lack of transparency
c. the absence of a requirement
that the activity be substantial
(investment that is not purely
tax driven).


Financial Action Task Force on Money
Laundering
FATF stands for the Financial Action
Task Force on Money Laundering (also known
as GAFI: the Group d'Action Financire sur le
Blanchiment de Capitaux) which was
established by the Group of Seven Nations
summit in Paris in July 1989 to examine
methods to combat money laundering. Its
secretariat is based at the OECD in Paris . The
members of the FATF are: Argentina , Australia ,
Austria , Belgium , Brazil , Canada , Denmark ,
European Commission, Finland , France ,
Germany , Greece , Hong Kong , China , Iceland
, Ireland , Italy , Japan , Luxembourg , Mexico ,
Netherlands , New Zealand , Norway , Portugal ,
Russian Federation , Singapore , Spain ,
Sweden , Switzerland , Turkey , United Kingdom
, United States , the European Commission and
the Gulf Co-operation Council. In 1990 the FATF
issued 40 recommendations to control and
prevent money laundering, which were revised
in 1996 as a result of changing events and
trends. FATF also issues annual reports and
typology papers.

Republic act no. 9160 otherwise known as
The Anti-Money Laundering Act Of 2001
as amended by Republic Act No. 9194

R.A. 9160: The Anti-Money Laundering
Act of 2001 was promulgated primarily to allow
the examination of bank accounts suspected to
be sourced from illegal activities but which
otherwise are protected from examination or
freezing under existing laws on secrecy of bank
deposits.

R.A. 1405 (An Act Prohibiting
Disclosure of or Inquiry into Deposits with any
Banking Institution and Providing Penalty
Therefor) was promulgated forty-six years ago
to encourage people to deposit their money in
banking institutions and to discourage private
hoarding so that these private funds may be
properly utilized to assist in the economic
development of the country. Under said law, all
deposits of whatever natures which are
deposited with banks or banking institutions are
considered as of an absolutely confidential
nature. Examination of the account is allowed
only by way of exception in four (4) cases: a)


upon written permission of the depositor; b) in
cases of impeachment; c) upon order of a
competent court in cases of bribery or dereliction
of duty of public officials; or d) in cases where
the money deposited is the subject matter of the
litigation.

Similarly, R.A. 6426 (An Act Instituting
Foreign Currency Deposit System in the
Philippines, and for Other Purposes)
promulgated on April 4, 1972 extended the veil
of absolute confidentiality and immunity from
examination to foreign currency deposits with
authorized Philippines banks and banking
institutions.

With the passage of time and the
phenomenon referred to as globalization, these
laws originally promulgated with a noble purpose
were taken advantage of to conceal illegal
banking activities such that the Philippines was
cited as among the money laundering centers of
Asia. Hence international pressure was imposed
to goad our government into passing an anti-
money laundering law.

The key to a proper appreciation of the
law is in its definition of terms, particularly: a)
Covered Institutions b) Covered Transactions
and c) Unlawful Activity.

The term covered institutions
embraces any institution supervised or regulated
by either the Banko Sentral ng Pilipinas (BSP) or
the Insurance Commission and any institution or
entity dealing in currency, commodities or
financial derivatives supervised or regulated by
the Securities & Exchange Commission.

Covered Transaction is a single, series
or combination of transactions involving a total
amount in excess of P4M or its equivalent in
foreign currency. Expressly excluded are
transactions involving a person, who at the time
of the transaction was a properly identified client
and the amount is commensurate with the
business or financial capacity of the client or
those with an underlying legal or trade
obligation.

Unlawful Activity refers to any act or
omission involving the following crimes/offenses:
1. Kidnapping for ransom under Article
267 of Act No. 3815, otherwise known
as the Revised Penal Code, as
amended;
2. Sections 3, 4, 5, 7, 8 and 9 of Article
Two of Republic Act No. 6425, as
amended, otherwise known as the
Dangerous Drugs Act of 1972;
3. Section 3 paragraphs B, C, E, G, H
and I of Republic Act No. 3019, as
amended; otherwise known as the
Anti-Graft and Corrupt Practices Act;
4. Plunder under Republic Act No. 7080,
as amended;
5. Robbery and extortion under Articles
294, 295, 296, 299, 300, 301 and 302
of the Revised Penal Code, as
amended;
6. Jueteng and Masiao punished as
illegal gambling under Presidential
Decree No. 1602;
7. Piracy on the high seas under the
Revised Penal Code, as amended
and Presidential Decree No. 532;
8. Qualified theft under, Article 310 of the
Revised Penal Code, as amended;
9. Swindling under Article 315 of the
Revised Penal Code, as amended;
10. Smuggling under Republic Act Nos.
455 and 1937;
11. Violations under Republic Act No.
8792, otherwise known as the
Electronic Commerce Act of 2000;
12. Hijacking and other violations under
Republic Act No. 6235; destructive
arson and murder, as defined under
the Revised Penal Code, as
amended, including those perpetrated
by terrorists against non-combatant
persons and similar targets;
13. Fraudulent practices and other
violations under Republic Act No.
8799, otherwise known as the
Securities Regulation Code of 2000;
and
14. Felonies or offenses of a similar
nature that are punishable under the
penal laws of other countries.

Accordingly, the crime of money
laundering is defined as one whereby the
proceeds of an unlawful activity are transacted
and made to appear as having originated from a
legitimate source. Specifically it is committed by:

a. Any person knowing that any
monetary instrument or property
represented, involves, or relates to


the proceeds of any unlawful
activity, transacts or attempts to
transact, said monetary instrument
or property.

b. Any person knowing that any
monetary instrument or property
involves the proceeds of any
unlawful activity, perform any act as
a result of which he facilitates the
offense of money laundering
referred to in paragraph (a) above.

c. Any person knowing that any
monetary instrument or property is
required under this Act to be
disclosed and filed with the Anti-
Monetary Laundering Council
(AMLC), fails to do so.

Other significant provisions:

a. Any person may be simultaneously
charged with and convicted of both
a violation of R.A. 9160 and the
crime embraced with the definition
of unlawful activity.

b. The formation of an Anti-Money
Laundering Council composed of
the Governor of the BSP, the
Commissioner of the Insurance
Commission of the Chairman of the
SEC.

Notably, the law requires that
the AMLC must act unanimously in the
discharge of its functions. Hence, a
vacancy in any of the enumerated
offices or absence of any such member
will render the AMLC ineffective.

c. The AMLC is authorized to, upon
determination of probable cause,
issue of a freeze order which shall
be effective for at least fifteen (15)
days and except for the Court of
Appeals and the Supreme Court no
court shall issue a TRO or writ of
injunction against a freeze order
issued by the AMLC.

d. The AMLC is also authorized to
inquire into or examine any
particular deposit or investment with
a covered institution but upon order
of a competent court. Hence, while
the AMLC has powers to freeze a
suspected account, it cannot
examine same without a prior court
order.

The Anti-Money Laundering Council
(AMLC) is the countrys financial intelligence
unit which is tasked to implement R.A. 9160, as
amended assisted by a Secretariat headed
by an Executive Director. It is composed by the
foregoing:

Composition:
Chairman-----the BSP Governor
Member------the SEC Chairman
Member------the Insurance
Commissioner

The Secretariat is composed of an
Executive Director with a fixed term of 5 years,
at least 35 years old, of good moral character,
unquestionable integrity and known probity. The
members must have 5 years experience either
at the BSP, IC or SEC, and shall hold full-
time permanent positions within the BSP.

R.A. No. 10167 entitled, An Act to Further
Strengthen the Anti-Money Laundering Law,
Amending for the Purpose Sections 10 and
11 of Republic Act No. 9160, otherwise
known as the Anti- Money Laundering Act
of 2001, as amended, and for other
Purposes

The new law further strengthen the Anti-
Money laundering Act because it enhance
financial transparency and ensure capacity for
competent authorities to deal with money
laundering. The demand for the enactment of
the law was made thru Financial Action Task
Force (FATF) statements on the Philippines
dated 22 October 2010, 25 February 2011, 24
June 2011, 28 October 2011 and 16 February
2012. Section 10 and 11 are also fatally flawed
as observed in the case of Republic vs. Eugenio
(G.R. No. 174629, 14 February 2008). Section
10 was on the matter of bank account freeze.
The original law gave the Anti-Money
Laundering Council authority to freeze bank
accounts for not more than 15 days. If needed,
the freeze period may be extended upon order
of the court. Strangely, the law did not say what
court is authorized to extend the freeze. The
amendment introduced by R.A. No. 9194
removed the motu propio power to freeze from


the AMLC. If the AMLC wanted to freeze a bank
account, it was instead required to file a petition
for that purpose, albeit ex parte, with the Court
of Appeals. The initial freeze order was
lengthened to a period of twenty (20) days.
The latest law, R.A. No. 10167, made the
process a bit more stringent. It required the
petition to be verified, i.e. to sworn to by the filer
based on his or her personal knowledge. This
matter of form was not specific in the old law.










Table 2.
Comparison of the RA 9160 as
amended by RA 9194 and R.A. No. 10167
Old Provision
(RA 9160 as
amended by
RA 9194)
New Provision
(R.A. No.
10167)
Prior Notice Ex- parte Ex- parte
Where to
file
Court of
Appeals
Court of
Appeals
Form No need for
verified
petition
Verified petition
Period
within
which the
CA should
act on the
petition
No provision Within 24 hours
from filing of
the petition
*Non working
day are
excluded from
computation

Period of
Freeze
Order
20 days
unless
extended by
the CA
20 days unless
extended by
the CA
Remedy of
Account
Holder
No provision Accountholder
may file a
motion to lift the
freeze order
which should
be resolved by
the CA before
the expiration
of the 20 day
original freeze
order.
Prohibition
on TRO
No provision Only the SC
can issue a
TRO/ writ of
injunction
against any
freeze order
Freeze of
other
accounts
No provision in
the law but
related web of
accounts may
be frozen by
the court (as
per Revised
Implementing
Rules and
Regulations)
in the same
petition for the
freeze of the
principal and
identified
accounts.
Related web of
accounts are
now referred to
as related
accounts but
defined under
Section 11
(Authority to
inquire into
bank deposits).


R.A. No. 10167 forces the Court of
Appeals, stressing the urgency of the matter, to
act within twenty four (24) hours from the filing.
The proponents of the law provide that the
provision to act on the matter after twenty four
(24) hours from the filing of an money laundering
case addresses a situation where the account
holder or property owner acquires knowledge or
information about the investigation being
conducted against him by the AMLC or about
the fact that an application for freeze has been
filed against him or his bank account and/or
properties.

The affected depositor is not without his
remedies. He may contest the freeze by filing a
motion to lift. The Court of Appeals is required to
resolve the motion within the twenty (20) day
freeze period. The end result, by the squeeze of
the freeze, is the approximate restoration of the
ability of the AMLC to act as quickly as was
envisioned in the original law; but this is
balanced by the ability of the depositor to just as
quickly move for, and secure, a defrost.

The other section amended by R.A. No.
10167 is Section 11. This section relates to the
AMLCs power to inquire into bank deposits. The
most significant change in Section 11 is the
explicit statement in the law that the AMLC is
authorized to examine bank accounts upon
order of any competent court based on an ex


parte application. The second change is an
expansion of the instances when no such court
application is required. Under the new law, also
exempted are felonies or offenses of a nature
similar to those mentioned in Sections 3(i)(1),
(2), and (12) which are punishable under the
penal laws of other countries, and terrorism and
conspiracy to commit terrorism as defined and
penalized under Republic Act No. 9372. R.A.
No. 9372 is the Human Security Act of 2007.

Thirdly, in line with the repudiation of
Eugenio, it put bank inquiry at par with account
freeze and compelled the Court of Appeals to
act on the application also within 24 hours of
filing. The fourth change is enigmatic. Prior to
R.A. No. 10167, the Bangko Sentral may
inquire into or examine any deposit.... In
contrast, under the new law, the BSP may only
check the compliance of a covered institution
with the requirements of the AMLA and its
implementing regulations. It is a thorny question
whether checking compliance with law, is the
same as looking into a deposit. I tend to think,
and I hope I am wrong, BSPs power to inquire
into a deposit has been if not removed, at the
very least severely watered down.
The fifth change is the inclusion on the
coverage of AMLCs application to inquire into a
bank account of so-called related accounts.
Related accounts are those the funds and
sources of which originated from and/or are
materially linked to the monetary instrument(s)
or property(ies) subject of the freeze order(s). A
court order too is required for these related
accounts.

Finally, although the Constitution is
deemed read into every law legitimately passed,
there is an explicit requirement to comply with
the requirements of Article III, Sections 2 and 3
of the 1987 Constitution. These sections refer
to provisions against unreasonable searches
and seizures (Sec. 2) and privacy of
communication and correspondence (Sec. 3).


There is no question that, as
appreciated by the FATF, these changes
brought about by R.A. No. 10167 are steps
forward.