Group 2
Andaya, Arnie
Barroso, Joshua Rolando
Estacio, Angeli
Pendatun, Anwar
COMMERCIAL LAWS I
1. What is the primary purpose of the Anti-Money Laundering Act of 2001?
What are the three stages of money laundering? Define each one.
The primary purpose of the Anti-Money Laundering Act is enshrined under the
declaration of policy of R.A No. 9160, as amended.
Under the said provision, the law protects the integrity and confidentiality of
bank accounts and ensures that the Philippines shall not be used as a money
laundering site for the proceeds of any unlawful activity. Further, Consistent with its
foreign policy, the law also aims to extend cooperation in transnational investigations
and prosecutions of persons involved in money laundering activities.
Accordingly, the three stages of money laundering are recognized under Rule
4 of the same act. As such, under the said Rule, money laundering is a crime
whereby the proceeds of an unlawful activity are transacted, thereby making them
appear to have originated from legitimate sources. Thus, money laundering involves
three stages;
a.) Any person knowing that any monetary instrument or property
represents, involves, or relates to, the proceeds of any unlawful activity,
transacts or attempts to transact said monetary or property. This is otherwise
known as the placement of the monetary instrument or property;
b.) Layering, or any person knowing that any monetary instrument or
property involves the proceeds of any unlawful activity, performs or fails to
perform any act as a result of which he facilitates the offense of money
laundering referred above; and
c.) Finally, the process concludes with integration, where the laundered
funds are reintroduced into the economy as seemingly legitimate wealth, such
as through real estate investments.
2. What is the mandate and role of the Anti-Money Laundering Council? Do
these mandates contradict the directive to uphold bank secrecy? Why or why
not? Do these mandates carve out an exemption from bank secrecy?
The primary role of the Anti-Money Laundering Council is colored with
investigative powers under Rule 7 of the Anti-Money Laundering Act, the Council is
primarily tasked with the investigation of suspicious transactions, covered
transactions, and money laundering activities. The role extends to the enforcement
of the law by causing the filing of complaints with the Department of Justice or the
Ombudsman for the prosecution of money laundering offenses. The AMLC’s
mandate is to investigate money laundering and prosecute offenders. It does not
"contradict" bank secrecy; rather, it acts as a legally mandated exception. Under
Rule 7 and Section 11, the AMLC is authorized to inquire into bank deposits upon
order of the court, or without a court order for specific heinous crimes.
While R.A. 1405 (Bank Secrecy Act) protects confidentiality, it is not absolute.
AMLA carves out a specific exception to prevent the law from being used as a shield
for criminal activity. The mandate is a valid exercise of police power to protect public
interest, effectively piercing the veil of secrecy for law enforcement purposes.
Further, the Council may apply before the Court of Appeals for the freezing of
monetary instruments or properties to secure assets believed to be the proceeds of
the said unlawful activity. Lastly, the Council may act as the primary liaison for
international cooperations, executing requests from foreign jurisdictions to assist in
global anti-money laundering efforts.
How does the Council balance financial transparency with bank secrecy?
The Council balances these through judicial oversight and strict confidentiality
protocols. Most bank inquiries require a court order based on probable cause,
ensuring that "fishing expeditions" are prohibited.
Furthermore, the AMLC is bound by strict "Gag Orders"; they cannot disclose
the existence of an investigation to the account holder or the public, preserving the
reputation of innocent depositors while ensuring financial transparency. The balance
is maintained by requiring a high threshold of evidence (probable cause) before
secrecy is breached.
3. What institutions are considered “covered persons” under AMLA?
"Covered Persons" refers to a broad spectrum of natural or juridical persons
required to comply with the registration, record-keeping, and reporting mandates of
the AMLA. Under Section 3(a) of R.A. 9160, as amended by R.A. 10365 and R.A.
10927, the scope of "covered persons" encompasses a broad range of entities,
including the financial sector—comprising banks, offshore banking units,
quasi-banks, trust entities, pawnshops, money changers, and remittance agents—as
well as the insurance and securities sectors, which cover insurance and pre-need
companies, brokers, and investment houses. The definition further extends to
Designated Non-Financial Businesses and Professions (DNFBPs), specifically
jewelry dealers, real estate brokers and developers, and certain legal or accounting
intermediaries, while also incorporating land-based, internet, and ship-based casinos
to ensure comprehensive oversight of all high-risk financial venues.
The law applies to any entity that facilitates the movement of large sums of
money or high-value assets. By "covering" these persons, the state ensures that all
potential entry points for "dirty money" are monitored. Therefore, "covered persons"
are the designated gatekeepers of the financial system, tasked with preventing the
integration of illicit funds into legitimate commerce.
How does AMLA apply to non-bank financial institutions?
AMLA applies to NBFIs by imposing the same stringent compliance standards
required of traditional banks to prevent regulatory arbitrage. Under the Revised
Implementing Rules and Regulations (RIRR), NBFIs such as money service
businesses (MSBs), pawnshops, and electronic money issuers must register with the
AMLC.
NBFIs often handle cash-heavy transactions or cross-border remittances
(which are high-risk for "layering"), they are required to implement Know Your
Customer (KYC) protocols, maintain transaction records for five years, and report all
covered and suspicious transactions. They are also subject to periodic "on-site"
compliance checking by their respective primary regulators (e.g., the Bangko Sentral
ng Pilipinas for MSBs). Thus, NBFIs are not exempt; they must maintain a
compliance infrastructure equivalent to banking institutions to ensure there are no
"weak links" in the national anti-money laundering framework.
4. What are “covered transactions” and what is the threshold amount?
"Covered Transaction" is a transaction involving a total amount that exceeds a
specific statutory threshold within a single banking day, regardless of whether it
appears suspicious. Under Section 3(b) of AMLA and the RIRR, the General
Threshold applies to a transaction in cash or other equivalent monetary instrument
exceeding Php 500,000.00. The Casino Threshold applies for casinos, a single
transaction (or a series of transactions) exceeding Php 5,000,000.00 or its equivalent
in foreign currency. Lastly, the Real Estate Threshold applies for real estate
developers/brokers, a single cash transaction exceeding Php 7,500,000.00.
These thresholds act as an objective "tripwire." Once the amount is breached,
the reporting obligation is triggered automatically by operation of law, moving the
burden of monitoring from the bank's discretion to an absolute requirement.
Consequently, a CT is defined by the quantum of the money involved, providing the
AMLC with a database of all high-value movements within the economy.
What reporting obligations do banks have under AMLA?
Banks have the primary obligation to act as the "eyes and ears" of the AMLC
through mandatory and timely reporting. Under Rule 9 of the RIRR, banks must
adhere to strict reporting protocols, primarily ensuring that Covered Transaction
Reports (CTRs) and Suspicious Transaction Reports (STRs) are submitted within
five working days from the date of occurrence, unless the AMLC extends this period
to a maximum of 10 (ten) days. Central to these duties is the "Gag Order," which
strictly prohibits banks from disclosing to the client or any unauthorized party that a
report has been filed, thereby maintaining the confidentiality of the investigation.
Furthermore, all reports must be transmitted using the specific electronic format
prescribed by the AMLC to facilitate seamless and immediate data integration into
the Council’s monitoring systems.
These obligations are non-discretionary. Failure to report constitutes a
criminal offense under the AMLA. By mandating these reports, the law enables the
AMLC to perform financial intelligence and link seemingly unrelated transactions to
predicate crimes. Thus, the reporting obligation is the critical link between private
financial activity and state law enforcement, ensuring that high-value or suspicious
fund movements are transparent to regulators.
5. What are “suspicious transactions”? Give at least three examples.
Suspicious transactions are defined as those which, regardless of the amount
involved, deviate from normal business logic or the expected behavior of a client.
The Revised Implementing Rules and Regulation of R.A No. 9160, as amended,
provides that a suspicious transactions are transactions, regardless of amount,
where any of the following circumstances exists:
1.) there are no underlying legal or trade obligations, purpose or economic
justifications;
2.) the client is not properly identified;
3) the amount involved is not commensurate with the business or financial capacity
of the client;
4.) the client’s transaction is structured to avoid being the subject of reporting
requirements under the act;
5.) any 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 institution;
6.) the transaction is in any way related to an unlawful activity or any money
laundering activity or offense under this act that is about to be, is being or has been
committed; and
7.) any transactions that are similar, analogous or identical to any of the foregoing.
Thus, examples of suspicious transactions as contemplated by the above rule
includes:
a. A high-value fund transfer between two individuals without any
apparent business relationship, familial tie, or legal obligations that
would justify such a substantial amount;
b. A student or unemployed individual with no known source of income
suddenly making multiple million-peso deposits or investment that far
exceed their financial capacity; or
c. A client making several consecutive deposits of P490,000.00 at
different branches of the same bank on the same day, which may be
perceived as a deliberate attempt to stay just below P5000,000.00 to
avoid automatic reporting.
6. What is the Freeze Order and who may issue it?
The Revised implementing Rules and Regulations as amended, provides that
a Freeze Order is a provisional remedy intended to preserve any monetary
instrument or property alleged to be proceeds of any unlawful activity as mandated
by Rule 7 of the same act.
Accordingly, Rule 10.1 of the same act provides that the authority to issue a
freeze order is vested exclusively with the Court of Appeals. The said action is
initiated through a verified ex-parte petition filed by the Anti-Money council once it
has determined probable cause indeed exists, and that any monetary instrument or
property is related to the said unlawful activities as defined by the act. If approved,
the freeze order shall be effective for twenty days unless extended by the Court of
Appeals upon application by the Council.
A Freeze Order is a provisional remedy to preserve assets suspected of being
"dirty money." Only the Court of Appeals (CA) has the authority to issue a Freeze
Order upon a verified ex parte petition by the AMLC. It is issued upon a finding of
probable cause and is initially effective for 20 days, extendable up to six months. Its
purpose is to prevent the "flight" of funds while a formal investigation is ongoing.
7. What is the difference between a covered transaction and a suspicious
transaction?
A covered transaction is defined under Rule 3b of the Revised Implementing
Rules and Regulations, as amended, is a transaction in cash or their equivalent
monetary instrument involving a total amount in excess of P500,000.00 within one
banking day. In contrast, the following Rule provides that a suspicious transaction is
determined by the presence of any of the existing circumstances enumerated
therein, regardless of the amount involved.
The primary difference lies in the triggering factor. A Covered Transaction is
triggered purely by the amount (objective). A Suspicious Transaction is triggered by
the nature or circumstances of the transaction (subjective/behavioral). A transaction
can be both "covered" and "suspicious" at the same time, but they are reported
under different criteria.
Thus, the difference between the two lies with the monetary amount. The former
requires an excess of P500,000.00, while the latter does not.
8. Why are casinos now include as covered persons?
Casinos are included to close a significant loophole used for "layering" and
"integration." Under R.A. 10927, casinos (including internet and ship-based ones)
were added as covered persons.
High-stakes gambling allows criminals to convert illicit cash into casino chips
and back into "clean" checks, making it an ideal venue for money laundering. Their
inclusion ensures that the gambling industry is no longer a "safe haven" for
laundering large sums.
Thus, the inclusion of casinos as covered persons under the Anti-Money
Laundering Act is a strategic response to the high volume of cash transactions and
the inherent anonymity associated with gaping operations, which can be heavily
abused for the unlawful activities of money laundering in line with Section 2 of the
CIRR.
9. A customer makes multiple deposits of Php 450,000 over a course of several
days. Does this trigger reporting? What if the series of transactions appear
legal, but inconsistent with the client’s profile?
Yes, a customer making multiple deposits of Php 450,000.00 over several
days does not trigger a report for covered transactions as it is well below of the Php
500,000.00. This case involves "structuring" or "smurfing" and is reportable. While a
single Php 450,000 deposit is below the CT threshold, a series of deposits intended
to avoid reporting is a Suspicious Transaction. If the transactions are inconsistent
with the client's profile, the bank must file a Suspicious Transaction Report (STR).
Banks must look at the "big picture" of the client's behavior, not just the individual
amounts.
10. What is a Politically Exposed Person (PEP)? If a PEP opens an account,
what additional steps should the bank take?
Rule II, Section 6 of the CIRR provides that a Politically Exposed Person or
PEP refers to an individual who is or entrusted with a prominent public position in:
a.) the Philippines with substantial authority over policy, operations, or
the use or allocation of government-owned resources;
b.) a foreign State; or
c.) an international organization.
Under the RIRR, PEPs are classified as high-risk customers. Further, the
term PEP shall include the immediate family members, and close relationships with
associates that are reputedly known to have a joint beneficial ownership or a sole
beneficial ownership of a legal entity or legal arrangement that is known to exist for
the benefit of the principal PEP.
The classification of a customer as a Politically Exposed Person (PEP)
necessitates the immediate application of Enhanced Due Diligence (EDD) protocols.
This heightened level of scrutiny requires the covered institution to obtain formal
approval from senior management before establishing or continuing the business
relationship. Furthermore, the bank must take proactive and reasonable measures to
verify both the customer’s source of wealth and the specific source of funds involved
in the transaction. Finally, the account must be subjected to enhanced ongoing
monitoring to ensure that all financial activities remain consistent with the PEP’s
declared profile and to mitigate the inherent risks of corruption or money laundering
associated with such positions.
These steps are necessary due to the higher risk of corruption or public fund
diversion associated with such positions.