The Philippines has one of the most vibrant economies in Southeast Asia. Prior to the COVID-19 pandemic, the country was one of the fastest-growing economies globally with its increasing urban development, large young population and a growing middle-class cluster.
With the growth of the Philippine economy came the emergence of a range of financial technology or fintech businesses. This refers to companies that offer financial services using modern technology and software to support businesses and individual consumers. Digital payments are anticipated to be fintech’s largest segment, and this year, total transaction values are expected to reach $29.6 million.
The Philippines’ shifting consumption patterns, source of income and internet use have helped establish a value chain that fintech solutions and other financing or lending businesses can bring to support the local market. However, while the country sets itself up as one of the rising fintech hubs in Asia, financing or lending companies must constantly remain aware of the increasing potential for fraud or illicit finance-related activities by businesses and/or consumers looking to take advantage of the system.
If your PH business utilizes any fintech services or is involved in any form of financing or lending activities, you should be aware of the country’s regulatory frameworks that aim to mitigate various risks to the financial system. Money laundering is just one key threat that exists today for such companies.
Want to learn more about the Anti-Money Laundering Act in the Philippines and specifically how your business can ensure compliance? Find out by reading further into this article below!
An Overview of the Anti-Money Laundering Act in the Philippines
Money laundering is the practice of receiving illegally acquired funds and then passing them off as money obtained from legal sources. Individuals or companies engaging in money laundering may seek to transfer these unlawfully obtained funds to different parts of the globe using money remittance centers, banks and/or digital payment systems.
The Anti-Money Laundering Act (AMLA) of 2001 or RA 9160 criminalizes unlawful activities such as graft and corrupt practices, fraudulent practices, robbery and extortion, swindling and plunder, amongst other activities.
In many cases, authorities will only be able to detect money laundering acts if officers or employees report suspicious financial transactions to the authorities.
Under AMLA, there are select organizations that are required to comply with the anti-money laundering regulations in the Philippines, including:
- Banks, trust entities, and other institutions regulated by the Bangko Sentral ng Pilipinas (BSP)
- Insurance companies
- Brokers, salespeople and investment agents
- Closed-end investment and pre-need companies (e.g., memorial chapels, schools)
- Money changers, payment, remittance and transfer companies
- Financing and lending companies
If your business falls under the above-mentioned organizations and fails to report such money laundering activities, you may face imprisonment from six months to four years and/or a fine of at least P100,000.
However, even if your company is well outside the scope of the AML regulations, it would still be helpful to be in a position to recognize any potentially fraudulent or illegal activities that might arise with your customers.
5 Ways Your Business Can Comply with the Anti-Money Laundering Act
The threat or risk of money laundering is always looming over a country’s financial system. Where money is involved, there will always be businesses or individuals seeking opportunities to take advantage of the system and benefit themselves — for example, through illegal or unsavory financial practices.
To mitigate this threat in the Philippines, the government has developed an AML regulatory framework to a) monitor and ensure the integrity of the country’s financial system and b) seek the support of companies and individuals to support the government’s objective of achieving a robust and fraud-free financial framework.
In addition to the requirements under AMLA, you can manage the compliance obligations of your business, whether its a controlled business under AMLA or not, by reading through these top tips:
- Review policies set by financial regulators
The BSP and the Securities and Exchange Commission (SEC) are the main financial regulators in the Philippines. These agencies supervise all bank and non-bank financial institutions by implementing and safeguarding various policies derived from the different finance-related laws and regulations in the Philippines — the AMLA included.
Make sure your business reviews and follows the guidelines and requirements of the BSP and SEC at all times! Additionally, remain aware of any updates and/or revisions to help avoid any legal issues that might arise from the perspective of the AMLA.
- Monitor customer transactions regularly
Apart from following regulatory policies, it will also be important for your business to have its own procedures in place and observe them on an ongoing basis to ensure the financial future of your business. Having a Know Your Customer (KYC) policy can help significantly to identify and prevent money laundering activities, as it would help ensure the monitoring of all customer activities and identification of financial transactions that might raise red flags.
For example, it may be an indication of money laundering when a customer’s usual and consistent transaction activities look a little bit out of the ordinary. Here are some possible characteristics of potential money laundering transactions which could require further review:
- Involves high-risk countries, where there are serious strategic deficiencies to counter money laundering, terrorist financing and financing of other suspect activities
- Involves suspicious transaction patterns, such as high frequency of transactions in a short period of time or several larger transactions out of the ordinary
- Involves persons (or countries) on sanctions lists or watch lists
- Involves oddly complex transactions that don’t fit the customer’s usual behavior
If you detect any suspicious financial activity during your review, you must immediately discuss this with company management and determine without delay if such activity requires reporting to the Anti-Money Laundering Council.
- Keep detailed records of transactions
Record management is crucial in the financial industry. Detailed transaction records assist in monitoring financial activities, making it easier to review the customer’s history and understand if there’s anything unusual arising.
Implementing a filter software or transaction monitoring system can make record management even more convenient since you can automate the flagging of suspicious activities. In fact, for a fintech business that deals with hundreds or thousands of transactions every month, it will be almost impossible to keep a close eye on possible fraudulent activities without an automated system that can identify suspicious transactions and financial activities.
For example, if a customer’s account reaches a certain number of suspicious logs or transactions in a particular period, their account may automatically be denied access.
- Screen customers and transactions
When taking on new customers, your business should screen them and their previous transaction records against international and/or local watch lists.
This step lets you verify whether a potential customer is connected to fraudulent organizations, such as those involved in funding terrorism or other forms of unwanted activities.
- Require a holding period
As a safety and monitoring mechanism, some financial institutions hold on to account deposits for a certain number of days before clearing. This additional step in the process, which usually takes about five days, grants AMLA-covered institutions more time to monitor the transaction for any fraudulent intent.
When you implement this in your company policy, you can manage any risks associated with laundered money moving through banks.
Adhere to AMLA Regulations
It takes a significant level of administrative, legal, risk mitigation and operational management to ensure compliance with the anti-money laundering regulations in the Philippines. By following the practices above, it can help to avoid serious risks and costly financial penalties when operating your business and dealing with potential or existing customers.
To easily sort out your financial compliance needs and more, partner with CloudCfo for expert support. By ensuring that you have the right team of finance specialists looking after your company’s accounts, books and finances, you will be very well placed to identify any irregular financial transactions that your business might encounter.