The Philippines will undergo the third (3rd) round of mutual evaluations (ME) this year to gauge its levels of compliance with international anti-money laundering and combating the financing of terrorism (AML/CFT) standards. The country, along with twelve (12) other jurisdictions, is a founding member of the Asia Pacific Group (APG) on Money Laundering, created in 1997 in Bangkok, Thailand. To date, the APG, an autonomous and collaborative international organization, has forty-one (41) members, who all commit to a mutual peer review system.
In a Memorandum dated 22 February 2018, the Executive Secretary, Office of the President of the Philippines, has designated the Anti-Money Laundering Council (AMLC), the country’s financial intelligence unit (FIU), as the lead agency for the 2018 ME and has enjoined all departments, bureaus, offices, and agencies of the Executive Branch, including government financial institutions and government-owned or -controlled corporations, to be identified by the AMLC to actively participate and extend the necessary assistance in the conduct of the ME.
Last year, the AMLC led the second (2nd) National Risk Assessment (NRA) Report, covering the years 2015 and 2016. Participants included stakeholders from government and law enforcement agencies, and private sector institutions. The second (2nd) NRA evaluated the overall threat and effectiveness of the country’s AML/CFT mechanisms, and the report will be one of the instruments to be assessed during the ME process.
The ME process consists of two phases, namely, the technical compliance assessment and the effectiveness assessment. The first phase involves submission of the report of technical compliance, which is intended to check whether the existing laws, regulations, legal issuances, and enforceable means comply with the Financial Action Task Force (FATF) Standards and its criteria. There are four (4) possible levels of compliance: compliant, largely compliant, partially compliant, and non-compliant. This report is due in May 2018.
The second phase includes turning in the report on the effectiveness of the country’s existing AML/CFT system, due in July 2018. The said report will be validated during the onsite visit in November 2018 by the APG ME team, consisting of legal, financial, regulatory, FIU, and law enforcement experts through a series of interviews with local supervisors, government and law enforcement agencies, and private stakeholders concerned. The results of the third ME will be deliberated upon and published in 2019.
The Philippines has come a long way from the second (2nd) ME back in 2009. In 2013, the country was removed from the gray list of the FATF’s International Co-operation Review Group (ICRG), which analyses high-risk jurisdictions and recommends specific actions to deal with the ML/TF risks, as most of the deficiencies identified in the second ME have been addressed, such as the passage of Republic Act (RA) No. 10168 or the Terrorism Financing Prevention and Suppression Act of 2012. In addition, the passage of RA No. 10365 strengthened the Anti-Money Laundering Act of 2001 (AMLA), as amended, with additional predicate offenses in accordance with FATF-designated categories of offenses.
After establishing an FIU and a system for reporting covered and suspicious transactions, the country has continuously sought to strengthen its role in the financial system by enforcing its mandates under the AMLA, as amended. In 2017, the 2016 Revised Implementing Rules and Regulations were promulgated, bolstering the supervision of AML compliance of covered persons (CPs). In addition, the Rules on the Imposition of Administrative Sanctions were likewise approved, which was the first step toward enforcing the administrative supervision over CPs.
Casinos are now CPs under RA No. 10927, which amended the AMLA. In the same year, the Casino Implementing Rules and Regulations were prescribed. New AMLC Registration and Reporting Guidelines for CPs, and the AMLC Registration and Reporting Guidelines for Casinos have been adopted as well.
It is worth highlighting, too, that effective coordination mechanisms among government agencies and law enforcement agencies have led to the effective investigation and prosecution of ML/TF cases.
To equip the country for the third ME, the Australian Transaction Reports and Analysis Centre (AUSTRAC), Australia’s financial intelligence agency, has held two workshops in the Philippines, allowing participants from various local government agencies, law enforcement agencies, and private stakeholders to work together to prepare, address gaps, and collect information. AUSTRAC’s assistance was an opportunity for the Philippines to revisit the APG mutual evaluation procedures and assessment methodology, experiencing mock-interview exercises and gleaning insights that could help the country respond positively to the 2018 ME.
A poor rating in the ME, that is, an evaluation result of non-compliance with FATF Recommendations and a low level of effectiveness of the AML/CFT system, will put the country back on the ICRG’s “monitored jurisdictions,” which will once again deem the Philippines as a high-risk jurisdiction. Consequently, this will lead to additional scrutiny from regulators and financial institutions that discourages trade and investment and increases the cost of doing business.
Restrictions, such as limits to the amount of cross-border transactions with the Philippines, may be imposed. Remittance transaction fees, for example, will rise, and for overseas Filipinos, this would mean less money intended for the basic needs of their families back home.
The outcome of the ME could also reshape the country’s financial and economic landscape through the adoption of responsive and effective policies that are based on reliable data to combat ML/TF.
“Surpassing the ME requires not only narrating but also showing that the country conforms to international standards and that the systems in place achieve their purpose. Show and tell, as the APG Secretariat has mentioned,” said AMLC Secretariat Executive Director Atty. Mel Georgie B. Racela, during the Pre-Mutual Evaluation Training Workshop with AUSTRAC last 9 March 2018.
“The ME, however, is not about the AMLC or any government agency. It’s about the Philippines. Maintaining a suitable investment climate is intimately connected to preserving the integrity of the financial system, and the country’s respective agencies can contribute in a very tangible way in this regard,” Atty. Racela continued. “Ultimately, this review system among APG members is about intensifying the world’s fight against ML/TF through cooperation and commitment across borders and across cultures.”
 The technical compliance assessment addresses the specific requirements of the Financial Action Task Force (FATF) Forty (40) Recommendations as they relate to the relevant legal and institutional framework of the country, and the powers and procedures of the competent authorities.
 An international standard-setting body, FATF develops and promotes policies to protect the global financial system against money laundering, terrorism financing, and the financing of proliferation of weapons of mass destruction.
 The effectiveness assessment seeks to evaluate the adequacy of the implementation of the FATF Forty (40) Recommendations and identifies the extent to which a country achieves a defined set of outcomes that are central to a robust anti-money laundering/combating the financing of terrorism system. The focus of the effectiveness assessment is on the extent to which the legal and institutional framework is producing the expected results. There are four (4) possible ratings for effectiveness, based on the extent to which the core issues and characteristics are addressed: high, substantial, moderate, and low.