In late October the Philippines introduced a new set of rules that would allow the Anti-Money Laundering Council (AMLC) to monitor funds entering and exiting the substantial casino sector. This was a breakthrough ruling that led to the country being struck off the list of closely monitored nations from the Asia-Pacific Group on Money Laundering (APG), a watchdog supported by the World Bank and the UN. This move will be positive for the country’s, so far, isolated financial sector. 

The financial sector and casino industry had been under scrutiny after it was discovered in February 2016 that Chinese cyber-criminals had used the Philippine banking system and casinos to launder US$81m stolen from Bangladesh Bank (BB, the central bank). In September 2016 the APG gave the Philippines until June to pass anti-money laundering legislation covering casino operations. The fact that casinos had so long been excluded is attributable to the government seeing them as a strategic industry. The Philippines is one of the fastest-growing gambling hubs in Asia after Singapore and Macau. The new law reflects the government’s utmost reluctance to rein in the sector with a heavy hand: it sets the threshold of transactions that casinos must report to the AMLC at P5m (US$100,000), with no threshold for transactions that are considered to be suspicious, however. This seems at odds with a Paris-based inter-government body, the Financial Action Task Force (FATF), of which the APG is a subsidiary. The FATF recommends that casinos make all customers subject to due diligence investigations above a transaction threshold of US$3,000.

A favourable environment for money launderers

As part of efforts to ramp up the gambling sector, consecutive administrations in the Philippines have upheld the bank secrecy law, one of the strictest in the world and on par with those in Switzerland. The perverse impact of this law has been that the Philippines has become a hub for money laundering activities in Asia. The law seriously limits the ability of the AMLC to investigate funds held in suspicious bank accounts, and this became a serious issue at the time of the BB heist investigation. The bank secrecy laws in the Philippines have been put in place to protect domestic businesspeople who have in the past fallen prey to illegal information sharing and thefts. Politically, the impetus to reform this law is weak. Investigations into ill-gotten wealth and extortion have in the past hobbled many senior politicians, and the secrecy law has made it difficult to make conclusive charges on many accounts. Along with the absence of a national identity system and any real vetting process required to setup a bank account, the secrecy law allows for easy money laundering. For instance, it was discovered that most of the accounts involved in the BB case were opened under false identities.

Details in the making

The Philippines was blacklisted by the FATF in 2000 for being unco-operative in the fight against money laundering. It has since been moved to a different list of countries, those that have agreed to improve financial transparency but have made limited progress on doing so. Much of the impact of the latest anti-money laundering rules will depend on how strictly it is enforced. The proper implementation of the rules and regulations stipulated by the official law will become crucial. These will be rolled out fully by November when the law will be enforced.

Critical details such as the capability of casino personnel to determine what could be defined as a “suspicious” transaction and to establish whether the P5m-threshold is being undermined by punters dividing a large amount of money into several minor transactions. Even with the right processes in place, the casinos might still face difficulties in identification and further investigation owing to the secrecy laws that will not change. Increased security in casinos and the use of biometric technology for surveillance can help to circumvent some of these issues. However, the road to cleaning up the millions of financial transactions made in and out of the Philippines is a long one that will require a lot more resolve from the government.