The Philippines’ Efforts to Leave the FATF Gray List: A Major Milestone in Financial Security

The Philippines is one step closer to leaving the gray list of the Financial Action Task Force (FATF), the global anti-money laundering watchdog, according to the Anti-Money Laundering Council (AMLC).

In a statement, AMLC said the FATF has determined that the country has already addressed the 18 action plan items that had kept the country on the watchdog group’s “grey list” since June 2021.

FATF President Elisa de Anda Madrazo, who began her term on July 1, 2024, said an on-site visit will be made to confirm the country’s progress and decide on the country’s departure from the gray list. The visit will take place between now and February 2025.

“This milestone is a testament to the hard work and coordination between government agencies. It reflects our strong commitment to meeting the stringent standards of the FATF and ensuring the long-term protection of our financial system. We are confident that this progress will be confirmed during the on-site visit,” Lucas Bersamin, chairman of the National Anti-Money Laundering and Counter-Terrorist Financing/Counter-Proliferation Financing Coordination Committee, said in a statement.

Madrazo explained that a site visit entails the arrival of a group of experts to a country to verify the progress reported to the FATF. After verification, the FATF will decide whether the country’s efforts warrant a departure from the gray list.

The FATF has criticized the country for alleged shortcomings in the effectiveness of the targeted financial sanctions framework (TFS) for both terrorist financing and proliferation financing.

Landing on the FATF gray list will not automatically trigger sanctions, but could trigger lengthy procedures in some financial transactions, which could impact not only Filipinos traveling abroad but also Overseas Filipino Workers (OFWs) and Migrants.

“The Philippines has already gone through this process, and we are very pleased to report and share with you that the Plenary this week examined the Philippines’ progress and considers that the Philippines has indeed substantially completed this action plan completed,” Madrazo said.

“The Philippines is another example of the positive impact this process can have in a country. “With billions of dollars flowing into the country every year and the sheer volume of cross-border transactions, the progress the Philippines is making will have a huge impact on the security of the international financial system,” she also said.

University of Santo Tomas Research Center for Social Sciences and Education (RCSSED) Director Jeremaiah M. Opiniano told the BusinessMirror that overseas Filipinos in certain countries will benefit from the country leaving the gray list.

AMLC says FATF member states may impose restrictions and additional controls, and may deny financial transactions with blacklisted countries. This results in failed transactions, delays and costs that can be passed on to consumers.

Opiniano, who is also executive director of the Institute for Migration and Development Issues (IMDI), said there are host countries that are wary of certain transactions with countries on the FATF watchlist. Some include banks in the United Kingdom asking for more documentation for money sent to the Philippines.

He added that there are reports in Korea that Filipinos who applied for a simple debit card there were asked for all kinds of additional documentation – and that the debit card was not guaranteed.

Opiniano, however, stressed that leaving the gray list is not a silver bullet that could protect OFWs from illegal activities.

“If the country leaves the FATF watchlist, but illegal activities spread both in the Philippines and abroad, we will always be vulnerable. For example, the cyberscam syndicates that operate in Laos and Cambodia and have Filipino employees there remain a tough nut to crack,” Opiniano told this newspaper.

“Simple act of buying or borrowing from ATMs owned by Filipino workers is another, like in Taiwan or Hong Kong, or Filipino foreigners getting involved in Ponzi schemes and targeting compatriots in the US,” he added to.

Meanwhile, AMLC said the Philippines has implemented the following key reforms, such as demonstrating risk-based supervision of designated non-financial businesses and professions (DNFBPs); demonstrate that regulators are using anti-money laundering and terrorist financing (AML/CFT) controls to mitigate risks associated with casino junkets; and implementing the new registration requirements for money or value transfer services (MVTS) and imposing sanctions on unregistered and illegal money transfer companies.

The country has also improved and streamlined law enforcement authorities’ (LEA) access to beneficial ownership (BO) information and taken steps to ensure that BO information is accurate and up to date, and to demonstrate an increase in use of financial intelligence and an increase in the number of ML investigations and prosecutions commensurate with the risk, and an increase in the identification, investigation and prosecution of TF cases;

AMLC also said the country has taken appropriate measures regarding the non-profit organization (NPO) sector – including unregistered NPOs – without disrupting legitimate NPO activities and improving the effectiveness of the targeted financial sanctions framework for both terrorist financing (TF ) as proliferation has increased. financing (PF).

The FATF also commended the Philippines’ high-level political commitment to strengthen the effectiveness of the AML/CTF regime. Already last year, President Ferdinand Marcos Jr. ordered agencies to develop their own anti-money laundering strategies and reorganized the government’s interdepartmental task force to include counter-terrorism financing on its agenda.

“We must continue our efforts to ensure that our reforms are implemented and sustained. Building a resilient AML/CTF regime is critical to protect our financial system and economy from illicit activities,” Bersamin said.

The interdepartmental task force has adopted an action plan to leave the FATF gray list. On July 4, 2023, Malacanang issued Executive Order No. 33 requiring all government offices and departments that are members of the NACC to implement the National Strategy on Combating Money Laundering, the Financing of Terrorism and the Financing of Proliferation (NACS) 2023 -2027 to be adopted. .

Underscoring the urgency of the strategy, the Palace also released Memorandum Circular No. 37 on October 16, 2023 to accelerate the implementation of the NACS, followed by a directive from President Marcos on January 2, 2024 to NACC member agencies to complete the remaining FATF action items by the end of 2024.

Image credits: FATF