Mon, Oct 15, 2001 page19

• Philippine banking system ready to tackle money laundering

  Still operating under a strict law drafted in 1955, the country's banks have made it nearly impossible to trace the flow of money. That is about to change

  • By Mark Landler / NY TIMES NEWS SERVICE
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  The US thrust this Asian country into an awkward spotlight last month, declaring that Muslim militants in the southern Philippines had financial ties to Osama bin Laden.

  The Philippines has promised to help the US pursue the flow of money from bin Laden's network, al-Queda, to terrorist organizations here. The trouble is that the country's strict laws on bank secrecy make it nearly impossible to trace the movement of money into local bank accounts.

  "We are almost sure the banks would not allow us to have access to suspicious accounts," said Juan de Zuniga Jr, the general counsel of the Philippine central bank.

  Among the many collateral effects of the Sept. 11 terrorist attacks is a heightened scrutiny of money laundering across borders. For developing countries like the Philippines, it is forcing a recognition that old laws are wholly inadequate against new methods of disguising illicit gains.

  The banking law here was passed in 1955, a decade after the Philippines emerged from 400 years of colonial rule. As the country struggled to attract foreign capital, the law's guarantee of confidentiality reassured potential investors that they could trust local banks with their money.

  Now, the Philippines has an established banking system, but the once-salutary law has helped turn the country into a haven for the laundering of proceeds from drug trafficking, kidnapping and gambling.

  "Nobody knows the extent of money laundering in the Philippines," Roberto Romulo, a former foreign minister, said. "But in the context of transparency, we are hardly role models. We had to change our ways."

  On Sept. 30, the Philippines passed a law intended to address the deficiencies of the banking law. It requires banks to disclose suspicious deposits of more than US$80,000 to the authorities.Previously, banks did not have to disclose deposits of any amount unless investigators obtained a court order as part of a pending legal case.

  "These are giant strides," said de Zuniga, who helped draft the law. "We have for the first time criminalized money laundering."

  De Zuniga said the Philippines was seeking to end a legacy of official corruption that extended from Ferdinand Marcos, the late dictator accused of looting billions of dollars in the 1970s and 1980s, to Joseph Estrada, the president toppled in a popular revolt last January.

  Indeed, the Philippines is bowing to international pressure. The Financial Action Task Force on money laundering, a group convened by the major industrialized nations in 1989, had threatened to impose sanctions on Manila by Sept. 30 if it did not take steps to curb the practice here. Four months earlier, the task force had put the Philippines, along with Russia and Nauru, on a list of countries that had made "inadequate progress" in the global campaign against money laundering. The task force said it would hold off on sanctions while it studied the new law. Critics say the Philippine Congress watered down the law. They note that the threshold amount for banks to disclose deposits is eight times that in the United States. Under US law, banks must disclose suspicious deposits of more than $10,000 to the Treasury Department.

  The committee that drafted the legislation proposed setting the threshold at US$20,000, twice the level in the US. But in a heated closed-door debate, the House and Senate quadrupled that number. Some say the lawmakers are protecting ethnic Chinese tycoons, who like to keep their finances under wraps, in part to reduce their tax bills. Many of these tycoons are generous campaign contributors.

  Even critics acknowledge that the law will enable investigators to detect the most flagrant cases of money laundering. Estrada, who became president in 1998, is a case in point. In his impeachment trial in the Senate, prosecutors asserted that Estrada had laundered more than US$8 million in proceeds from illegal gambling rings through various bank accounts. While backed by testimony from people involved in the scheme, the case against the former president was weakened because the banks did not release records of deposits made by Estrada or his associates. Only when one bank, Equitable PCI, allowed a clerk to testify about the president's use of an account under a fictitious name did the extent of his chicanery become evident.

  Officials said that under the new law the deposits into that account could have been easily traced. "It would have been labeled as a suspicious transaction because the identification on the account was not complete," de Zuniga said. "That would be a red flag under an anti-money-laundering program."

  Estrada's impeachment trial was suspended, but his criminal trial on charges of plunder began here Oct. 1.

  Despite its origins in domestic corruption, the new law may get its first test in the US-led campaign against terrorism. On Sept. 24, the Bush administration froze the assets of 27 organizations suspected of terrorism. Among those was a Philippine Muslim rebel group, the Abu Sayyaf.

  Officials have acknowledged that they have little clue where the group's assets are. But the law gives them fresh tools. They said it was likely that terrorists would open accounts under aliases, or in the names of spouses. By having access to deposit records, the police have a better chance of tracking the money.

  "If it comes through banks, there are several trigger points," de Zuniga said. "From the moment it enters the country, it can be flagged. Even if it is broken down into smaller amounts, it can be flagged."
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