MONEY LAUNDERING Money laundering is the process of concealing the source of money obtained by illicit means.

The methods by which money may be laundered are varied and can range in sophistication. METHODS Money laundering often occurs in three steps: first, cash is introduced into the financial system by some means ("placement"), the second involves carrying out complex financial transactions in order to camouflage the illegal source ("layering"), and the final step entails acquiring wealth generated from the transactions of the illicit funds ("integration"). Some of these steps may be omitted, depending on the circumstances; for example, non-cash proceeds that are already in the financial system would have no need for placement. Money laundering takes several different forms although most methods can be categorized into one of a few types. These include "bank methods, smurfing [also known as structuring], currency exchanges, and double-invoicing" Structuring: Often known as "smurfing", is a method of placement by which cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts. Bulk cash smuggling: Physically smuggling cash to another jurisdiction, where it will be deposited in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement. Cash-intensive businesses: A business typically involved in receiving cash will use its accounts to deposit both legitimate and criminally derived cash, claiming all of it as legitimate earnings. Best suited is a service business. As such business has no variable costs, it is hard to detect revenues-costs discrepancies. Examples are parking buildings, strip clubs, tanning beds or a casino. Trade-based laundering: Under- or over-valuing invoices in order to disguise the movement of money Shell companies and trusts: Trusts and shell companies disguise the true owner of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true, beneficial, owner. Round-tripping: Money is deposited in a controlled foreign corporation offshore, preferably in a Tax haven where minimal records are kept, and then shipped back as a Foreign Direct Investment, exempt from taxation. Bank capture: Money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny. Casinos: An individual will walk in to a casino with cash and buy chips, play for a while and then cash in his or her chips, for which he or she will be issued a check. The money launderer will then be able to deposit the check into his or her bank account, and claim it as gambling winnings. Real estate: Real estate may be purchased with illegal proceeds, then sold. The proceeds from the sale appear to outsiders to be legitimate income. Alternatively, the price of the property is manipulated; the seller will agree to a contract that under-represents the value of the property, and will receive criminal proceeds to make up the difference.

Black salaries: Companies might have unregistered employees without a written contract who are given cash salaries. Black cash might be used to pay them.

ENFORCEMENT Anti-money laundering (AML) is a term mainly used in the financial and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent, detect and report money laundering activities. Anti-money laundering guidelines came into prominence globally as a result of the formation of the Financial Action Task Force (FATF) and the promulgation of an international framework of anti-money laundering standards.These standards began to have more relevance in 2000 and 2001 after FATF began a process to publicly identify countries that were deficient in their anti-money laundering laws and international cooperation, a process colloquially known as "name and shame". An effective AML program requires a jurisdiction to have criminalized money laundering, given the relevant regulators and police the powers and tools to investigate; be able to share information with other countries as appropriate; and require financial institutions to identify their customers, establish risk-based controls, keep records, and report suspicious activities. Criminalizing money laundering The elements of the crime of money laundering are set forth in the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances and Convention against Transnational Organized Crime. It is knowingly engaging in a financial transaction with the proceeds of a crime for the purpose of concealing or disguising the illicit origin of the property. The role of financial institutions Today, most financial institutions globally, and many non-financial institutions, are required to identify and report transactions of a suspicious nature to the financial intelligence unit in the respective country. For example, a bank must verify a customer's identity and, if necessary, monitor transactions for suspicious activity. This is often termed as KYC "know your customer". This means, to begin with, knowing the identity of the customers, and further, understanding the kinds of transactions in which the customer is likely to engage. By knowing one's customers, financial institutions will often be able to identify unusual or suspicious behavior, termed anomalies, which may be an indication of money laundering. Bank employees, such as tellers and customer account representatives, are trained in anti-money laundering and are instructed to report activities that they deem suspicious. Additionally, antimoney laundering software filters customer data, classifies it according to level of suspicion, and inspects it for anomalies. Such anomalies would include any sudden and substantial increase in funds, a large withdrawal, or moving money to a bank secrecy jurisdiction. Smaller transactions that meet certain criteria may also be flagged as suspicious. For example, structuring can lead to flagged transactions. The software will also flag names that have been placed on government "blacklists" and transactions involving countries that are thought to be hostile to the host nation. Once the software has mined data and flagged suspect transactions, it alerts bank management, who must then determine whether to file a report with the government. ANTI-MONEY LAUNDERING ACT OF 2001 (Republic Act No. 9160) Rationale of the AMLA The Philippines, while striving to sustain economic development and poverty alleviation through, among others, corporate governance and public office transparency, must contribute its

share and play a vital role in the global fight against money laundering. Hence, the compelling need to enact responsive anti-money laundering legislation in order to establish and strengthen an anti-money laundering regime in the country which will not only increase investors confidence but also ensure that the Philippines is not used as a site to launder proceeds of unlawful activities. HISTORY Republic Act No. 9160 otherwise known as The Anti-Money Laundering Act of 2001 was signed into law on September 29, 2001 and took effect on October 17, 2001. The implementing Rules and Regulations took effect on April 2, 2002. On March 7, 2003, R.A. No. 9194 (An Act Amending R.A. No. 9160) was signed into law and took effect on March 23, 2003. The revised Implementing Rules and Regulations took effect on September 7, 2003. SALIENT FEATURES Criminalizes money laundering Creates a financial intelligence unit Imposes requirements on customer identification, record keeping and reporting of covered and suspicious transactions Relaxes strict bank deposits secrecy laws Provides for bank inquiry and freeze ex parte petition/seizure/forfeiture/recovery of dirty money/property Provides for international cooperation Money Laundering is a crime whereby the proceeds of an unlawful activity as defined in the AMLA are transacted or attempted to be transacted to make them appear to have originated from legitimate sources. MONEY LAUNDERING OFFENSES AND PENALTIES Knowingly transacting or attempting to transact any monetary instrument/property which represents, involves or relates to the proceeds of an unlawful activity. Penalty is 7 to 14 years imprisonment and a fine of not less than P3M but not more than twice the value of the monetary instrument/property. Knowingly performing or failing to perform an act in relation to any monetary instrument/property involving the proceeds of any unlawful activity as a result of which he facilitated the offense of money laundering. Penalty is 4 to 7 years imprisonment and a fine of not less than P1.5M but not more than P3M. Knowingly failing to disclose and file with the AMLC any monetary instrument/property required to be disclosed and filed. Penalty is 6 months to 4 years imprisonment or a fine of not less than P100,000 but not more than P500,000, or both. Unlawful Activity is the offense which generates dirty money or property. It is commonly called the predicate crime. It refers to any act or omission or series or combination thereof involving or having direct relation to the following: Kidnapping for ransom Drug trafficking and related offenses Graft and corrupt practices Plunder Robbery and Extortion

Jueteng and Masiao Piracy Qualified theft Swindling Smuggling Violations under the Electronic Commerce Act of 2000 Hijacking; destructive arson; and murder, including those perpetrated by terrorists against non-combatant persons and similar targets Fraudulent practices and other violations under the Securities Regulation Code of 2000 Felonies or offenses of a similar nature that are punishable under the penal laws of other countries. Terrorism financing and organizing or directing others to commit terrorism financing (R.A. 10168). Attempt/conspiracy to commit terrorism financing and organizing or directing others to commit terrorism financing (R.A. 10168). Attempt/conspiracy to commit dealing with property or funds of designated person. Accomplice to terrorism financing or conspiracy to commit terrorism financing. Accessory to terrorism financing. Failure to keep records is committed by any responsible official or employee of a covered institution who fails to maintain and safely store all records of all transactions of said institution, including closed accounts, for five (5) years from the date of the transaction/closure of the account. Penalty is 6 months to 1 year imprisonment or a fine of not less than P100,000 but not more than P500,000, or both. OTHER PENALTIES AND OFFENSES Malicious reporting is committed by any person who, with malice or in bad faith, reports/files a completely unwarranted or false information relative to money laundering transaction against any person. Penalty is 6 months to 4 years imprisonment and a fine of not less than P100,000 but not more than P500,000, at the discretion of the court. The offender is not entitled to avail the benefits of the Probation Law. If the offender is a corporation, association, partnership or any juridical person, the penalty shall be imposed upon the responsible officers, as the case may be, who participated in, or allowed by their gross negligence, the commission of the crime. If the offender is a juridical person, the court may suspend or revoke its license. If the offender is an alien, he shall, in addition to the penalties prescribed, be deported without further proceedings after serving the penalties prescribed. If the offender is a public official or employee, he shall, in addition to the penalties prescribed, suffer perpetual or temporary absolute disqualification from office, as the case may be. Breach of confidentiality. When reporting covered or suspicious transactions to the AMLC, covered institutions and their officers/employees are prohibited from communicating directly or indirectly, in any manner or by any means, to any person/entity/media, the fact that such report was made, the contents thereof, or any other information in relation thereto. In case of violation thereof, the concerned official and employee of the covered institution shall be criminally liable. Neither may such reporting be published or aired in any manner or form by the mass media, electronic mail or other similar devices. In case of a breach of confidentiality published or reported by media, the

responsible reporter, writer, president, publisher, manager and editor-in-chief shall also be held criminally liable. Penalty is 3 to 8 years imprisonment and a fine of not less than P500,000 but not more than P1M. Freezing of Monetary Instrument or Property The AMLC may file before Court of Appeals, before the verified application ex parte (without notice to the other party) after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activty. The freeze order shall be effective immediately. The freeze order shall be for a period of 20 days unless extended by the court. Authority to Inquire into Bank Deposits The AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution upon order of any competent court in cases of violation of the AMLA when it has been established that there is probable cause that the deposits or investments involved are in any way related to a money laundering offense. The Anti-Money Laundering Council (AMLC) To protect and preserve the integrity and confidentiality of bank accounts To ensure that the Philippines shall not be used as a money laundering site for proceeds of any unlawful activity. To extend cooperation in transnational investigation and prosecution of persons involved in money laundering activities wherever committed. ORGANIZATION The Anti-Money Laundering Council is composed of the Governor of the Bangko Sentral ng Pilipinas (BSP) as Chairman and the Commissioner of the Insurance Commission (IC) and the Chairman of the Securities and Exchange Commission (SEC) as members. It acts unanimously in the discharge of its functions. The AMLC is assisted by a Secretariat headed by an Executive Director and consists of five (5) units; the Compliance and Investigation Group (CIG), the Legal Evaluation Group (LEG), the Information Management and Analysis Group (IMAG), Technical Services Staff (TSS) and the Administrative and Financial Services Division (AFSD). FUNCTIONS equire and receive covered or suspicious transaction reports from covered institutions (banks and all other institutions and their subsidiaries and affiliates supervised or regulated by the BSP; insurance companies and all other institutions supervised or regulated by the IC; and securities dealers and other entities supervised or regulated by the SEC); Issue orders addressed to the appropriate Supervising Authority (the BSP, IC or SEC) or the covered institution to determine the true identity of the owner of any monetary instrument/property subject of a covered or suspicious transaction report or request for assistance from a foreign State, or believed by the AMLC, on the basis of substantial evidence, to be representing, involving, or related to the proceeds of an unlawful activity; Institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General; Cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering offenses;

Investigate suspicious transactions and covered transactions deemed suspicious after an investigation by AMLC, money laundering activities, and other violations of the AMLA, as amended; Apply before the Court of Appeals, ex parte, for the freezing of any monetary instrument/property alleged to be proceeds of any unlawful activity as defined in the AMLA; Implement such measures as may be necessary and justified to counteract money laundering; Receive and take action in respect of any request for assistance from foreign states in their own anti-money laundering operations; Develop educational programs on the pernicious effects of money laundering, the methods and techniques used in money laundering, the viable means of preventing money laundering and the effective ways of prosecuting and punishing offenders; Enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the government, including government-owned and controlled corporations in undertaking any and all anti-money laundering operations, which may include the use of its personnel, facilities and resources for the more resolute prevention, detection and investigation of money laundering offenses and prosecution of offenders; Impose administrative sanctions for the violation of laws, rules, regulations and orders and resolutions issued pursuant thereto; and Inquire or examine any particular deposit or investment, including related accounts, with any banking institution or non-bank financial institution upon order of any court based on an ex parte application in cases of violation of the AMLA, as amended, when it has been established that there is probable cause that the deposits or investments, including related accounts involved, are related to an unlawful activity or a money laundering offense under the AMLA as amended.

To ensure compliance with the AMLA, as amended, the BSP may, in the cause of a periodic or special examination, check the compliance of a covered institution with the requirements of the AMLA and its implementing rules and regulations.