AMLC Advisory Typologies Report on Use of Filipinos and Businesses as Dummies by Foreign Nationals

 The AMLC typologies report on money laundering related to illegal drug activities identified the modus operandi involving Filipino nationals ("front"), who register businesses with the company registries on behalf of foreign nationals, who are the actual and ultimate beneficial owners or the UBOs of the said businesses.

 These companies are under the complete control and operation of the foreign nationals. After registration with the company registry, the “front” goes to the bank (mostly commercial and universal banks are utilized) with the newly acquired business registration permit, to open an account in the name of the business. The said bank account will then be managed and controlled by the foreign nationals - the UBOs, for the purpose of receiving funds from illegal proceeds. Moreover, majority of the registered businesses, as identified in this modus operandi, are discovered to be "shell companies" or inexistent companies. The receiving and/or transacting of proceeds of illegal activities using the scheme and accounts set up by the Filipinos and foreign nationals for that purpose, is a violation of the Anti-Money Laundering Act, as amended.

 The red flag indicators and suspicious behaviors that have emerged from the analysis of the information gathered, which are related to possible money laundering activities associated with illegal drug trade are as follows:

• Significant or large transactions incurred in a short period of time;
• Unjustified large cash deposits;
• Transactions seem to be inconsistent with the customer’s financial standing;
• Transaction activity is inconsistent with what is expected from business declaration;
• Unusual transactions or activities compared with normal everyday trade or dealings;
• Application of sophisticated products or use of complex techniques;
• Multiple accounts associated with a single business;
• Structured cash deposits and money transfers;
  • Use of multiple accounts by a single transactor;
  • Use of several money service businesses to send funds; and
• Use of authorized representative with no clear and underlying valid reason or justification.

In relation to the findings of the Typologies Report, covered persons are reminded of the following obligations relating to the Customer Due Diligence (CDD):

• To conduct CDD for the following purposes: (a) To identify the customer, and its agents and beneficial owners; (b) To determine the risk posed by each customer; (c) To establish, maintain, close or terminate the account or business relationship; and (d) To assess the level of monitoring to be applied (Sec. 1.1 Rule 18 of the 2018 IRR).

• For customers that are juridical persons or legal arrangements, CPs should maintain a system of understanding the nature of the customer’s business or profession, and ownership and control structure, as well as the authority and identification of all persons purporting to act on their behalf (Sec. 4.2 Rule 18 of 2018 IRR).

• To verify the validity of the authority of the agent and in case it entertains doubts as to whether the account holder or person purporting to act on behalf of the customer is being used as a dummy in circumvention of existing laws, it shall apply enhanced due diligence and file a suspicious transaction report (STR), if warranted (Sec. 5.3 of Rule 18 of 2018 IRR).

• To identify the beneficial owner and take reasonable measures to verify the identity of the beneficial owner, using the relevant information or data obtained from a reliable source, such that the covered person is satisfied that it knows who the beneficial owner is (Sec. 6.1 Rule 18 of 2018 IRR).

• Covered persons who are unable to comply with the relevant CDD measures shall: (a) refuse to open an account, commence business relations or perform the transaction; or shall terminate the business relationship; and (b) File an STR in relation to the customer, if circumstances warrant (Sec. 12 Rule 18 of 2018 IRR).

 When reporting these transactions, CPs are encouraged to use any of these applicable keyword phrases:

1. Front business or front individual
2. Multiple accounts
3. Transactor different from account owner
4. Shell companies
5. Sole proprietorship
6. Wholesale/retail business
7. General merchandise/ Trading business
8. Newly formed business
9. Special power of attorney
10. Use of Agents or representative agents or representative office/authorized representative
11. Methamphetamine hydrochloride / Methamphetamine/Shabu/Ecstasy/Marijuana
12. Illegal drugs
13. Drug trafficking/Drug distributor/Drug peddler
14. Fake identification/IDs
15. Substantial cash deposits
16. Multiple deposits
17. Small-denominated bills

Covered persons are advised that failure to comply with the above requirements of the 2018 IRRs shall be subject to applicable sanctions under Rule IV of Rules of Procedure on Administrative Cases under Republic Act No. 9160 or the Anti-Money Laundering Act of 2001, as Amended, and its Implementing Rules and Regulations, and Guidelines and Other Issuances of the Anti-Money Laundering Council.

To download the Typologies Report on the Use of Filipinos and Businesses as Dummies

by Foreign Nationals, please click the link.