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“FATF said deficiencies remain in the safeguards against dirty money, primarily in terror financing.
The first challenge facing the administration of President Ferdinand Marcos Jr. in 2024 is getting the Philippines off the money laundering watchlist of the powerful Financial Action Task Force, which is a body under the Organization for Economic Cooperation and Development, or OECD.
FATF issued an ultimatum at the end of the month to see progress on the concerns it had raised that landed the country on the
so-called gray list of nations being closely monitored for possible blacklisting.
In 2021, the Philippines’ Anti-Money Laundering Council, or AMLC, amended its rules to cover real estate developers, brokers, Philippine offshore gaming operators, and service providers under dirty money regulations.
Still, the FATF said deficiencies remained in the safeguards against dirty money, primarily on terror financing.
FATF’s beef is over the failure to convict terrorists under the Anti-Terrorism Act, which requires amendments to strengthen it to global standards.
Previously, the ATA imposed a hefty fine on law enforcers for wrongful arrests that deterred the police and other security agencies from prosecuting suspected terrorists.
Thus, those who committed terrorist acts were charged under the regular laws on possession of firearms and other charges with lighter penalties. The fine provision was removed in the revision of the law.
Retaining in the FATF gray list may profoundly affect the quick recovery of the economy since its implications will be widespread, affecting remittances and investor confidence.
It can restrict cross-border transactions, lead to difficulties for the government in obtaining credit, and limit investment inflows.
Being on the FATF list also damages the country’s reputation and reduces its international standing.
Only three countries are on the FATF blacklist — Iran, the Democratic People’s Republic of Korea, and Myanmar, which are all subjected to international sanctions.
The worry that pervades the economic team of President Marcos is that the longer the country is on the gray list, the higher the risk that it will enter the blacklist.
Under the enhanced ATA guidelines, cash transactions involving real estate developers and brokers of over P7.5 million will be included among AMLC’s covered transactions.
Some local companies striking it big in the real estate sector may be the reason for the FATF’s trepidation over property developers being used as conduits for dirty money.
The guidelines include a new section that requires designated non-financial businesses and professions to promptly file suspicious transaction reports to the AMLC within five working days after the flag was raised.
A notable reduction was cited in the ratio of foreign direct investments to GDP, or gross domestic product (on average, 2 percent if a country has low FATF scores, and reductions of up to 5 percent on average if the country is on the blacklist).
An analysis by cross-border financial system provider SWIFT showed that appearing in the FATF list appeared to lead to a reduction of up to 10 percent in foreign payments.
An analysis of bank inflows between 2010 and 2015 found that listing led to a statistically significant and substantively large decrease in cross-border liabilities of approximately 16 percent.
A recent simulation found a significant effect of gray-listing on capital inflows, with a decline on average of 7.6 percent of gross domestic product, or GDP.
The results also suggested that foreign direct investment inflows declined on average by 3 percent, portfolio inflows (in the stock market) declined on average by 2.9 percent, and other investments declined on average by 3.6 percent of GDP.
Some of the more advanced countries earnestly stamping out dirty money may resort to additional impositions on money outflows to the Philippines if it remains on the FATF list.
The recent Cabinet meeting called by President Marcos to speed up the efforts to remove the country from the gray list was a way forward as it showed to the international body that the government has taken serious cognitions of the need to plug the dirty money loopholes.
Most of all, there is a crying need to untangle the problematic provisions of the law that grafters and criminal syndicates exploit to rob the country blind.