Philippines will miss FATF deadline say reports

Even their to-the-wire parliamentary proceedings, which on the last occasion the FATF threatened sanctions, was met with new law passed at midnight Philippines time and so giving a seven hour gap to get the law to the FATF offices in Paris, looked subject to severe disruption last night (11 February) following the disclosure of a document alleging members of the legislature have substantial bank deposits.

According to the Manila Times, the document originated at a training seminar organised by a trade body. The paper says that the trade body has sent a fax to the Senate confirming that it originated the document. But not everyone agrees. There are also rumours that the list originated by the Central Bank of the Philippines, which denies having such a document.

The document has had the effect of diverting attention away from the review of the law: now attention has turned to its possible abuses.

The suggestion that politicians are on a "watch list" has angered some although it should take no one by surprise: after all, the issue of so called "politically exposed persons" has been a live issue for many years and surely if any country in South East Asia is aware of the problem of corrupt politicians, it would be The Philippines.

It's not as if the government is not trying, though. On Monday (10th February) it passed legislation amending the existing law but it may not meet the FATF demands.

The battle centres around cash transaction reporting: the Philippines wants an trigger figure that means little irrelevant data will be reported. The FATF wants a much lower figure. The US is pressing for a much lower figure, too. And the war in the press is misleading: there are repeated comments that the FATF wants the lower figure "in line with international standards."(peso 500,000 - around USD10,000. The Philippines has halved their original figure to peso 200,000) But there are no international standards as to the value: moreover, there are no international requirements that there be transaction reporting requirements at all - the FATF does not require such of its own members and of the major countries involved, only the USA and Australia have automatic reporting based on value.

Even so, there are conflicting reports coming out of Manila with some saying that the Senate did at the last moment agree to cash transaction reporting threshold of peso 500,000.

The irony is that the USA's FinCen, which is charged with receiving the USA's cash transaction reports has said that such reports produce a lot of irrelevant information which takes time and resources away from dealing with reports that have more inherent value. As a result, they have commissioned an accounting firm to review the value of the reports on a cost/benefit basis. However, US foreign policy as wielded by the FATF continues to pressure non-members to put in place measures that are not demanded of its own members.

The Senate voted down a provision that provided for previous deposits to be subject to the law - a provision that, in broad terms, is found in Malaysia's law. However, it is rare for legislation to be given retrospective effect. In relation to money laundering, though, it makes perfect sense - the act of laundering is a continuing process, renewed every moment - especially in the case of possession of proceeds. And so the Malaysian approach is to apply the law to the proceeds of criminal acts committed prior to the Anti Money Laundering Law. Technically, then, the laundering takes place after the law in relation to proceeds of crime which was committed before the law. As such, it does not, in strict terms, have retrospective effect.

Alongside all of this was the news that CalPers, the megalithic Californian state pension scheme has announced that it will no longer invest in The Philippines. After indignant protests from Malaysia, removed after 11 September 2001, that country has been returned to the list along with Thailand. The reasons given for the removal of the Philippines is political instability. The problem for CalPers is that if it reacts to political instability, its actions may further weaken economies and regimes - CalPers moves many millions of USD around financial markets daily. The fund is in a difficult position - move early and risk being a cause of the problem or move late and risk losing. The duty to those whose pension fund make this a no brainer: the fund must be protected, even if it causes upset elsewhere. However, there are those that say that the timing of such decisions is coincidentally close to calls that Washington may make if it had the power.

Malaysia said that the CalPers withdrawal meant a significant shift in capital away from the KLSE and therefore the return of this investment money will be seen as a possible boost to the local stock market. But it was much more than that - it was also a question of recognition: Malaysia could see no commercial or moral reason to make a total and highly publicised move away from the market and viewed it as a predominantly politically motivated move. CalPers, which is advised by outside consultants, denied that this was the case. Whatever the reality of the position, the fact that CalPers publicly says that it is OK to invest will do good.

And that means, by extension, that its decision to pull out of the Philippines will do harm to the Philippines. Many would be investors will follow CalPer's lead and the end result will be a tightening of capital available for businesses.

Although there is unlikely to be any significant impact on banks, there is a possibility that there will, in the short term at least, be demand for increased lending.

Back at the money laundering ranch, the Philippines continues to prove that its existing laws work - but no one listens.

The Philippines bank secrecy law prevents disclosure of information relating to bank accounts - but this can be set aside by the Court in appropriate cases. This safeguard is widespread across the world but is one of those that the EU, in particular, want to weaken. But early this week the Philippines High Court, THE SANDIGANBAYAN gave prosecutors permission to present bank account details belonging Jose Victor "JV" Ejercito's , mayor of San Juan and son of deposed president Joseph Estrada's as evidence in Estrada's trial for plunder. In an attempt to prevent disclosure, Ejercito has issued criminal proceedings against several prosecutors alleging that in obtaining the information they breached the Bank Secrecy Law.