wmlro.com: Phils proposes relaxation on international currency transactions

Senator. Loren Legarda is not happy: she is worried that plans to exempt outbound investment transactions of less than USD30 million from scrutiny by the Philippines Central Bank will lead to a risk of money laundering.

And her concerns are well founded; she is concerned that a person may borrow a substantial amount from a bank in the Philippines and then simply send it overseas for investment. That she says, might increase the risk of laundering.

We asked the consultancy department at The Anti Money Laundering Network, our parent company, how this would work. It's simple, we were told. "A criminal wants to expatriate the proceeds of his crimes. He can't simply put the money in a bag and carry it to another country: that kind of thing is found out all the time with sniffer dogs, pat downs and x-rays. So he needs another way. The easiest way is to send the money overseas by bank transfer, either by the deposit of a bankers' draft which can be hand carried without much risk of discovery or by an instruction to wire the funds.

"But the bank might become suspicious and make a report, so he would dream up an investment in a scheme - perhaps buying a company or taking part in a construction consortium. Then the bank will send the money without question.

"That presupposes that the money is already in the bank: if it's not, then the criminal has to find a way to put it into the bank without suspicion. That's where the loan comes in.

"The criminal uses an asset he has purchased with the proceeds as security for a loan; the bank sends the money; he defaults perhaps claiming that the investment failed; the bank sells the security.

"The criminal now has the amount of the loan in another country, he has liquidated the property in the Philippines without the risk that anyone will ask how he came to own it - and even tax records on the sale will relate to the bank not him. The nett effect is that the proceeds are now out of the jurisdiction and - probably - out of suspicion."

Legarda is campaigning against corruption: she says that a new government will come in in six months - and the change in policy by the central bank will afford a golden opportunity for those who have been corrupt in recent years to get their money out before questions are asked.

But she is also concerned about the economy: she points out that the last thing the Philippines needs is to encourage capital flight - and that it should be encouraging domestic investment and FDI.