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Money laundering has aroused interest because of the impeachment trial of CJ Corona and, coincidentally, the threat of an international financial blacklisting if the Philippines does not enact into law amendments to its Anti-Money Laundering Act to suit international standards.
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This observation is obviously referring to the impeachment trial of CJ Corona and the prosecution’s request that his alleged dollar accounts in the Philippine Savings Bank be opened for public scrutiny. The allegation is that since Corona’s official Statement of Assets and Liabilities did not include any dollar deposits, then there is basis for assuming he misrepresented his SALN.
The public is aware that the Philippine Savings Bank refused to disclose the dollar accounts citing a bank secrecy law for foreign currency deposits. The Philippine Supreme Court then issued a TRO on the Senate’s order to PSBank to reveal the contents of the Corona secret dollar account. The senator-judges decided to comply with the Supreme Court decision by a vote of 13 senators in favor of not opening the secret dollar accounts and 10 in favor of requiring the PSBank to open the dollar accounts.
However, observers believe that this bank secrecy law encourages money laundering. The other question is why peso accounts can be publicly disclosed while foreign currency accounts are shielded.
There has also been a lot of questions raised on whether CJ Corona can be accused of money laundering for withdrawing over P30 million in deposit accounts in his name from the Philippine Savings Bank on December 12 last year which was the very day he was impeached by the House of Representatives.
This has aroused the general public’s curiosity about this practice. What exactly is money laundering?
Money laundering refers to the process of concealing the source of illegally obtained money. The methods by which money can be laundered are very varied. But one has to first understand the motive for this illegal practice.
The goal of a large number of criminal acts is to generate a profit for the individual or groups that commit the crime. However, in order to enjoy these profits, criminals must disguise their illegal origins.
Huge amounts of proceeds can result from activities of organized crime in activities like illegal arms sale, drug trafficking, smuggling, prostitution rings and child trafficking. Other activities like embezzlement, insider trading and computer fraud schemes can also lead to big profits.
Then there are the profits made from corrupt practices specifically bribery and tax evasion.
When substantial profits are made from these illicit practices, the individual or group must find a way to control and spend the funds without attracting attention to the underlying activity or to the perpetrators of the crime.
The way to "legitimize" these ill-gotten gains is through money laundering. Money is normally laundered in three steps or stages.
The first step is through "placement" which means introducing the money into the financial system either through a secret bank account or an offshore bank.
The second is "layering" or trying to camouflage the illegal source. The launderer normally engages in a series of conversions or movements of funds to distance them from the source. The launderer may disguise, for example, the monetary transfers as payments for goods or services to give them a legitimate appearance.
The third step is "integration" in which the funds re-enter the legitimate economy. The launderer might choose to invest the illegal funds into real estate, luxury assets or business ventures.
The different forms of money laundering are actually quite well known. In fact, I found an interesting list on the Wikipedia. Here is part of the suggested list that include "bank methods, "smurfing" or structuring, currency exchanges and double invoicing."
• Structuring: Often knowing as "smurfing," it is a method of placement by which cash is broken into smaller deposits of money, and, then used to purchase bearer instruments such as money orders and then deposits this again in smaller amounts.
• Bulk cash smuggling: Physically smuggling cash to another jurisdiction with greater bank secrecy or less rigorous money laundering enforcement.
• Cash-intensive business: A business involved in receiving cash will use its accounts to deposit both legitimate and criminally derived cash while claiming all of it as legitimate earnings even if the business has no legitimate activity.
• Trade-based laundering. Under-or over-valuing invoices in order to disguise the movement of illegally obtained money.
• Shell companies and trusts: Trusts and corporate vehicles, unless required by law, do not need to disclose their true and beneficial owner.
• Casinos: An individual can walk into a casino with cash and buy chips, play for a while and then cash his chips for which he will be issued a check. The money launderer can deposit the check and claim it as gambling winnings.
• Real estate: Real estate may be purchased with illegal proceeds and then sold. The proceeds from the sale then appears to be legitimate. However, the price of the property is manipulated. The seller will agree to a contract that under-represents the value of the property and will receive the criminal proceeds to make up the difference.
As our country seeks to become a major destination for foreign investments and an Asian economic power, the integrity of our banking and financial services is a necessary element. Money laundering also encourages corruption, like bribery and tax evasion, and organized crime. It, therefore, undermines the economic development of a country and is a principal obstacle to poverty alleviation.
The Philippines needs to join the worldwide effort to combat money laundering and to make sure that Filipino money launderers are punished.
Dr. Elfren S. Cruz is a professor of Strategic Management at the MBA Program, Ramon V. Del Rosario College of Business, De La Salle University. Please send comments or questions to elfrencruz@gmail.com
