What will they think of next?

September 29th, 2010

In all public safety efforts, officials must keep one step ahead of their criminal counterparts.  The U.S. Military and Intelligence are constantly developing new strategies and weapons to respond to the ever-changing tactics of terrorists.  Police forces worldwide persistently apply new technologies to solve crimes and catch criminals.  It is the same for financial crimes and anti-money laundering (AML), in particular.

In the past few years the Financial Action Task Force (FATF), an intergovernmental organization founded to combat money laundering and terrorist financing, has made progress in several countries worldwide.

In the Philippines, for example, the country’s Congress passed anti-money laundering legislation in September 2001, which established the Anti-Money Laundering Council (AMLC), and followed through with amendments in 2003 to address shortcomings in the original legislation.  The new law included an effective requirement that banks and other financial institutions to report to the AMLC transactions beyond P500,000 ($10,000).  Unfortunately, however, when the Asian Pacific FATF conducted a peer review in 2008, and revealed several other concerning areas of the Philippine’s AML framework, the Congress introduced, but failed to pass, legislation to address the deficiencies.

In recent weeks the country’s failure to address these shortcomings has become even more evident, in particular with the discovery of new tactics used by jeutung lords.  Jeutung is a popular—and illegal—Filipino lottery-style numbers game that involves small bets from millions of citizens, run by small-time collectors, managers, cashiers, and bookkeepers. The enormous proceeds of the game overwhelmingly benefit a handful of operators, or “lords,” at the top of the pyramid.  According to Miriam Defensor-Santiago, a Senator in the Philippines, this practice generates P30 billion in gross receipts annually, a sizeable chunk of change for the Pacific nation.

In the last few years, as AMLC laws have gotten tougher, these juetung lords have found it harder to launder money through traditional networks, so they have turned to the art world for help.  As the AMLC recently discovered, the operators use their illicit proceeds to buy multi-million peso artworks, move them abroad, and then sell them in auction houses like Christie’s in Singapore.

The practice exposes some pretty deep holes in the Philippine’s promising, but still young, AML legislation.  In the face of these and other problems, the FATF has renewed calls for the Philippines to amend their anti-money laundering laws.  There is a great deal of domestic support for reform, as well.  As Senator Sergio Osmeña put it, the legislation is “full of loopholes.”  The Filipino AMLC has also taken heed of the recent events and asked that Congress expand the range of reporting entities to include lawyers and art dealers.

As I said at the beginning of this post, the game between criminals and law enforcement officials is never-ending, with each side always trying to stay one step in front of the other.  In all likelihood, we will never be able to predict what the criminals will think of next (although applying the lessons from other countries with older legislation and histories with such legislation can help).  But the Philippines should take heed of these lessons and realize that without passing effective legislation, their officials will be ill-equipped to handle the problems of today, let alone those of tomorrow.

Written by Ann Hollingshead

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