DESIGNATED NON-FINANCIAL BUSINESSES’ AND PROFESSIONS’ GUIDE FOR AMLA COMPLIANCE

 

The banking industry is a highly regulated  institution, being one imbued with public interest, and thus, it is mandated to exercise the highest degree of diligence in all its dealings. Aside for the Bangko Sentral ng Pilipinas—which has the power of supervision over banking operations—banks are likewise regulated by the Anti-Money Laundering Council (AMLC), a committee created by the Anti-Money Laundering Act (AMLA) of 2001. The AMLA was enacted primarily to implement the mandates of the State, i.e., to ensure that the Philippines is not used as a money laundering site for the proceeds of any unlawful activity.

 

To succeed in its end goal of protecting the integrity of the banking system, the AMLC needs the active participation of various stakeholders—the so-called covered persons under the AMLA—to report certain monetary transactions involving the general public, subject to exceptions. Compliance with the AMLA provisions by the covered persons is essential, otherwise, they may be subjected to fines and penalties, as will be discussed below. Thus, this article will discuss how covered persons can properly comply with the relevant AMLA provisions and its rules and regulations.

  

Background

 

In Republic v. Hon. Eugenio, Jr., G.R. No. 174629 (2008) , the Court explained, “Money laundering has been generally defined by the International Criminal Police Organization (Interpol) as any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources. Legislative proscription was necessary, especially with the inclusion of the Philippines in the Financial Action Task Force’s list of non-cooperative countries and territories in the fight against money laundering.”

 

            To protect and preserve the integrity and confidentiality of bank accounts, and to ensure that the Philippines shall not be used as a money laundering site for the proceeds of any unlawful activity, the Congress passed the AMLA of 2001 which, to date, has undergone various amendments already, the most recent of which is the enactment of Rep. Act No. 11521, which took effect on 8 February 2021. In addition to the State’s obligation to extend cooperation in transnational investigations and prosecutions of persons involved in money laundering activities, Rep. Act No. 11521 further commits to cooperate in the implementation of targeted financial sanctions related to terrorism, proliferation of weapons of mass destruction, and their financing.

 

The Anti-Money Laundering Council

 

The AMLA created the Anti-Money Laundering Council (AMLC), which is the financial intelligence unit tasked to receive and analyze the covered transaction reports and suspicious transaction reports submitted to it. Aside from collecting and analyzing reports of covered and suspicious transactions, the AMLC is also tasked to be the investigator and complainant in money laundering or money terrorism finance cases (Republic v. Sandiganbayan, G.R. Nos. 232724-27 (2021)).

 

To perform these functions, the AMLC is authorized to issue orders addressed to the appropriate supervising authority or the covered person to determine the true identity of the owner of any monetary instrument or property (Republic v. Sandiganbayan, G.R. Nos. 232724-27 (2021)).

 

Covered Persons

 

            The AMLA applies to covered persons who may be natural or juridical persons, entrusted with the duties to, among others, report to the AMLC covered and/or suspicious transactions, as defined under the law. These covered persons are regulated by either the Bangko Sentral ng Pilipinas (BSP), the Insurance Commission (IC), the Securities and Exchange Commission (SEC), or those designated by the AMLA, which are also known as the Designated Non-Financial Businesses and Professions (DNFBPs), such as:

 

  1. certain jewelry dealers in precious metals and precious stones;
  2. certain company service providers;
  3. lawyers, accountants, and other professionals who provide managing of client assets, management of bank accounts, excluding lawyers and accountants acting as independent legal professionals where the disclosure would compromise the attorney-client fiduciary relationship;
  4. casinos, including internet and ship-based casinos;
  5. real estate developers and brokers, excluding real estate salespersons; and
  6. offshore gaming operators.

 

Covered Transactions

 

            A covered transaction is a transaction in cash or other equivalent monetary instrument involving a total amount in excess of PHP 500,000.00 within one banking day. For casinos, a covered transaction is a single casino cash transaction involving an amount in excess of PHP 5,000,000.00 or its equivalent in any other currency, while for real estate developers and brokers, it is a single cash transaction involving an amount in excess of PHP 7,500,000.00 or its equivalent in any other currency.

 

Suspicious Transactions

 

Suspicious transactions are transactions with covered persons, regardless of the amounts involved, where any the following circumstances exist:

 

  1. no underlying legal or trade obligation, purpose or economic justification;
  2. client is not properly identified;
  3. amount involved is not commensurate with the business or financial capacity of the client;
  4. taking into account all known circumstances, it may be perceived that the client's transaction is structured in order to avoid being the subject of reporting requirements under the Act;
  5. circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client's past transactions with the covered person;
  6. transaction is in any way related to an unlawful activity or offense under this Act that is about to be, is being or has been committed; or
  7. transaction that is similar or analogous to any of the foregoing.

 

AMLA Penal Provisions

 

Covered persons are expressly mandated to report covered and suspicious transactions. Besides, these covered persons are protected by the Safe Harbor provision of the AMLA which exempts them from administrative, criminal, or civil proceedings, provided that they made the report in the regular performance of their duties, and in good faith. This is true whether or not such reporting results in any criminal prosecution under the AMLA or any other Philippine laws.

 

If a covered person, aware of any covered and/or suspicious transaction fails to report such before the AMLC, they may be penalized with an imprisonment from six months to four years, or a fine of at least PHP 100,000.00 up to PHP 500,000.00, or both imprisonment and fine.

 

AMLC Issuances for DNFBPs

 

In 2021, the AMLC issued AMLC Regulation Issuance (ARI) No. 03, establishing guidelines for the regulation of DNFBPs with regard to anti-money laundering (AML) and counter-terrorism financing (CTF), and to prevent criminals from exploiting such DNFBPs.

 

ARI No. 03, specifically Section 2(b), provides for the compliance framework for DNFBPs, including the establishment and implementation of an effective Money Laundering and Terrorism Financing Prevention Program and other controls designed to prevent and detect potential money laundering and terrorist financing (ML/TF) activities, such as customer due diligence, record keeping, detection of suspicious transactions, reporting of covered and suspicious transactions, among others.

 

            For one, company service providers which, as a business, provide any of the following services to third parties are covered by ARI No. 03:

           

  1. Acting as a formation agent of juridical persons;
  2. Acting as (or arranging for another person to act as) a director or corporate secretary of a company, a partner of a partnership, or a similar position in relation to other juridical persons;
  3. Providing a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership or any other legal person or arrangement; and
  4. Acting as (or arranging for another person to act as) a nominee shareholder for another person.

 

Moreover, under Section 2(c) of the same issuance, persons—including lawyers and accountants—who provide any of the following services are likewise covered:

 

  1. Managing of client money, securities or other assets;
  2. Management of bank, savings, securities or accounts;
  3. Organization of contributions for the creation, operation or management of companies; and
  4. Creation, operation or management of juridical persons or arrangements, and buying and selling business entities.

 

Compliance by DNFBPs with ARI No. 03

 

            The issuance provides for a compliance framework for those who are specially covered by the guidelines. For one, the DNFBPs are required to establish, implement, monitor and maintain an effective Money Laundering and Terrorism Financing Prevention Program, and to devise and implement relevant policies, procedures, processes and controls designed to prevent and detect potential ML/TF activities such as:

 

  1. Compliance Regime;
  2. Risk Assessment;
  3. Customer Due Diligence;
  4. Record Keeping;
  5. Training and awareness;
  6. Employee screening;
  7. Detection of suspicious transactions; and
  8. Reporting of covered and suspicious transactions.

 

Furthermore, DNFBPs are likewise required to ensure that relevant policies, procedures, processes and controls are communicated to all relevant employees, and to establish an ongoing employee training program to ensure that those employees are kept informed of new developments, including information on current ML/TF risks, techniques, methods and trends.

 

  1. Implementation of a Money Laundering and Terrorism Financing Prevention Program (MTPP)

 

Under Section 9 of the ARI No. 03, the DNFBP’s Board of Directors or partners, as the case may be, shall approve, and the compliance officer shall implement, a comprehensive, risk-based geared towards the promotion of high ethical and professional standards and the prevention of ML and TF.

 

At minimum, the MTPP’s provisions shall include:

 

  1. Detailed procedures of the covered person’s compliance and implementation of the following major requirements of the AMLA, and these Guidelines:

 

  1. Customer identification process, including acceptance policies and an on-going monitoring process;
  2. Record keeping and retention;
  3. Covered transaction reporting; and
  4. Suspicious transaction reporting, including the adoption of a system, electronic or manual, of flagging, monitoring and reporting of transactions that qualify as suspicious transactions, regardless of amount or that will raise a “red flag” for purposes of future reporting of such transactions to the AMLC.

 

  1. Suspicious transaction reporting shall include a reporting chain under which a suspicious transaction will be processed and the designation of a Board-Level or approved Committee or designation of a senior officer who will ultimately decide whether or not the covered institution should file a report to the AMLC;
  2. An effective and continuous AML/CTF training program for all directors, and responsible officers and employees;
  3. An adequate risk-based screening and recruitment process to ensure that only qualified and competent personnel with no criminal record or integrity-related issues are employed or contracted by DNFBPs;
  4. An internal audit system and an independent audit program that will ensure the completeness and accuracy of information obtained from customers.
  5. A mechanism that ensures all deficiencies noted during the onsite or offsite compliance checking are immediately corrected and acted upon;
  6. Cooperation with the AMLC;
  7. Designation of a Compliance Officer, who shall, at least, be of senior management level, as the lead implementer of the DNFBP’s compliance program; and
  8. The identification, assessment and mitigation of ML/TF risks that may arise from new business practices, services, technologies and products.

 

Furthermore, all DNFBPs are required to prepare and have available for inspection, an updated MTPP, wherein the compliance officer within three months thereafter, is required to submit to the AMLC a sworn certification that a new MTPP has been prepared, duly noted, and approved by the DNFBP’s Board of Directors, partners, or other governing body, as the case may be.

 

  1.        Other Compliance Requirements

 

Aside from the MTPP which is the main framework for regulatory compliance, the following must also be established and complied with by the DNFBPs:

 

  1. Internal controls and internal audit program to ensure day-to-day compliance with its AML/CTF obligations under the AMLA.
  2. Customer Due Diligence to identify its customers and verify their identity on the basis of documents, data and information obtained from the customer and from reliable independent sources, and obtain information that should enable them to assess the extent of risk to which the customer may expose them.
  3. Monitoring and Reporting System capable of generating timely, accurate and complete reports, including covered and suspicious transaction reports (CTRs and STRs), and to regularly apprise the DNFBP’s Board of Directors, or partners, as the case may be on AML and CTF compliance.
  4. Record Keeping to keep records of customer’s/client’s transactions and documents obtained during the customer due diligence for five years.
  5. Employee Training Program that details ML and TF prevention roles and hiring standards that promote high ethical standards in order to protect the safety and integrity of the DNFBP’s business.
  6. Investigative, Administrative and Judicial Compliance procedures for cooperating and complying with investigations, assessments, directives and orders of the AMLC, the appropriate government agencies and the courts, as the case may be. When the DNFBP receives a request for information from any competent authority regarding inquiries into potential ML or TF activity carried on, the DNFBP shall promptly inform the AMLC in writing.

 

Registration with the AMLC

 

As provided in ARI No. 04, all DNFBPs are required to register with the AMLC via the Online Registration System in accordance with the AMLC Registration and Reporting Guidelines. The scanned copies of following documents shall be uploaded to the AMLC through its portal designated for the purpose:

 

  1. Most recent Articles of Incorporation and General Information Sheet from the Securities and Exchange Commission (SEC), Certificate of Registration from the Department of Trade and Industry (DTI); or proof of registration with the Cooperative Development Authority (CDA); Real Estate Brokers’ Certificate of Registration or License from the Professional Regulation Commission (PRC);
  2. Notarized Deeds of Undertaking of the entity, signed by the proprietor/partners/president/directors (attached in the Guidelines as Annexes “B” and “C”, respectively); and
  3. Notarized Board resolution or Certificate of designation as Compliance Officer.

 

A Provisional Certificate of Registration (PCOR) shall be issued to the DNFBP upon its successful registration via the AMLC’s Online Registration System and submission of the above requirements. The PCOR is valid for six months, unless the AMLC’s Executive Director or Officer-in-Charge grants a one-time extension for up to six months, upon written request with justification. The request shall be submitted to the AMLC not later than 10 working days prior to the expiration of the PCOR.

 

The AMLC shall issue a Certificate of Registration (COR) upon determination of complete submission of the following documentary requirements in addition to those already mentioned:

 

  1. Copy of business registration or permit from the city or municipality currently having jurisdiction over the place of establishment and operation of the office;
  2. List of operating office locations;
  3. Proof of attendance of the proprietor, partners, directors and principal officers in an AML seminar; and
  4. Most recent Clearance from the National Bureau of Investigation (NBI) or its equivalent in a foreign jurisdiction, of all directors and principal officers.

 

According to ARI No. 03, “For DNFBPs whose directors or officers are also directors/officers of a CP supervised by the BSP, IC, and SEC, in lieu of the NBI Clearance, the Chief Executive Officer/President/officer of equivalent rank of the DNFBP may execute a sworn statement that the institution has conducted a fit and proper test on the director/officer concerned and is taking full responsibility in ensuring that such director/officer complies with the provisions of the AMLA, as amended, the TFSA, their Implementing Rules and Regulations, these Guidelines, other relevant regulations and issuances (attached to these Guidelines as Annex E).”

 

Moreover, for newly covered persons and existing DNFBPs who have not yet registered, they shall register with the AMLC within six months from the effectivity of ARI No. 03. In the case of newly established DNFBPs, registration must be done prior to the commencement of its operation as a DNFBP.

 

Lastly, as for the notification requirements, DNFBPs shall inform AMLC the occurrence of the following:

 

  1. At the commencement of operations — The DNFBP shall notify AMLC within five business days from the start of operations of each individual office of the DNFBP.
  2. Transfer of location — The DNFBP shall notify AMLC within five business days from the actual date of transfer.
  3. Closure of office — The DNFBP shall notify AMLC within five business days from the actual date of closure.
  4. Closure of business — The DNFBP shall notify AMLC within five business days from the actual date of closure. It shall also submit:

 

  1. A certification by the ownership attesting to the closure of the DNFBP; and
  2. The original copy of AMLC COR.

 

  1. Change of name — The DNFBP shall notify AMLC before the change of name takes effect. It shall also submit:

 

  1. A COR from the DTI, SEC, or Cooperative Development Authority, indicating the new business/registered name; and
  2. Original copy of AML COR issued under the old name. The AMLC will then issue a new COR indicating the new registered name.

 

  1. Change of ownership or control — The DNFBP shall notify AMLC before the change of ownership or control takes effect. Change of ownership or control shall refer to any transaction involving the transfer of equity that will result in ownership or control of at least twenty percent (20%) of the assets or voting shares of stock, as the case may be, of the DNFBP by any person, whether natural or juridical, or any transfer of interest or equity, which will enable the buyers to elect or to be elected as, a director or officer of equivalent power or authority.

 

 

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