A BRIEF UPDATE ON A BRIEF UPDATE ON AML/CFT RULES AND AML/CFT RULES AND

REGULATIONSREGULATIONS

Presented by

Atty. Vicente S. AquinoExecutive Director, Anti-Money Laundering Council Secretariat

andAssistant Governor, Bangko Sentral ng Pilipinas

Specially for the

RURAL BANKERS ASSOCIATION OF THE PHILIPPINES

11 November 2011Polkabol-Rigodon Ballroom, Manila Hotel

C A V E A T

Covered institutions shall formulate their respective money laundering prevention programs in accordance with the AMLA, including, but not limited to the following:- information dissemination on money laundering activities and its prevention, detection, and reporting; and - training of responsible officers and personnel of covered institutions.

(Sec. 18 of the AMLA; Rule 17.2 of the RIRRs)

I. ANTI-MONEY LAUNDERING PROGRAM (AMLP)

CIs shall adopt, as part of their money laundering prevention programs, a system of flagging and monitoring transactions. (Rule 17.2.c of the RIRRs).

All CIs shall adopt a comprehensive and risk-based money laundering prevention program to promote high ethical and professional standards and prevent the bank from being used, intentionally, or unintentionally, for money laundering and terrorism financing. (§ X805.2, BSP Circular No. 706, Series of 2011)

CIs shall provide all their responsible officers and personnel with efficient and effective training and continuing education programs to fully comply with their obligations under the AMLA and the IRR. (Rule 17.3, RIRRs)

II. AMLP’s 3 MAJOR AREAS

A. CUSTOMER IDENTIFICATION AND DUE DILIGENCE [KNOW YOUR CUSTOMER

RULE]1.(Sec. 9.a, AMLA, as amended; Rule 9.1, RIRRs)

A.1. TRUE AND FULL NAME OF THE CUSTOMER

Maintain accounts only in the true and full name of the account owner or holder.

A.2. VALID IDENTIFICATION DOCUMENTS (AMLC Resolution No. 8 dated 20 February 2008; BSP Circular No. 608 dated 20 May

2008; Section X806.2, BSP Circular No. 706)

Clients who engage in a financial transaction with covered institution for the first time shall be required to present the original and submit a CLEAR copy of at least ONE (1) valid photo-bearing identification document issued by an official authority. The term “OFFICIAL AUTHORITY” SHALL REFER TO

ANY OF THE FOLLOWING:(1) Government of the Republic of the Philippines;(2) Its political subdivisions and instrumentalities;(3) Government-owned and/or controlled corporations (GOCCs); and(4) Private entities or institutions registered with or

supervised or regulated either by the BSP or SEC or IC.

Valid IDs:

Passports including those issued by foreign governments Driver’s LicenseProfessional Regulations Commission (PRC) IDNational Bureau of Investigation (NBI) ClearancePolice ClearancePostal IDVoter’s IDTax Identification Number (TIN)Barangay CertificationGovernment Service Insurance System (GSIS) e-CardSocial Security System (SSS) CardSenior Citizen Card

Overseas Worker’s Welfare Administration (OWWA) ID

OFW ID Seaman’s Book Alien Certification of Registration/Immigrant

Certificate of Registration Government Office and GOCC ID Certification from the National Council for the

Welfare of Disabled Persons (NCWDP) Department of Social Welfare and Development

(DSWD) Certification Integrated Bar of the Philippines (IBP) Card Company IDs issued by private entities or

institutions registered with, supervised or regulated by the BSP, SEC or the IC

Students who are beneficiaries of remittances/fund transfers who are not yet of voting age, may be allowed to present the original and submit a clear copy of one (1) valid photo-bearing school ID duly signed by the principal or head of the school. (AMLC Resolution No. 8 dated 20 February 2008)

CIs can utilize their own technology to take the photo of the customer or authorized signatory in case the ID presented is non-photo-bearing ID or a copy thereof does not clearly show the face of the customer or authorized signatory. (Section X806.2.c.7, BSP Circular No. 706 dated 5 January 2011)

A.3. FACE-TO-FACE CONTACT (Rule 9.1.f, RIRRs; Section X806.1.e, BSP Circular No. 706)

No opening and creation of new accounts without face-to-face contact and full compliance with the requirements on minimum information/ documents, for individual customers.

EXCEPTIONS: No new accounts shall be opened and created without face-to-face contact and personal interview between the CI’s duly authorized personnel and the potential customer, except under the following arrangements:

•Account opened through a trustee, agent, nominee or intermediary;•Outsourcing arrangement; and•Third party reliance.

 

A.4. CRITERIA FOR TYPE OF CUSTOMERS (Section X806, BSP Circular No. 706 dated 5 January 2011)

Formulate a risk-based and tiered customer acceptance policy, customer retention policy and customer identification process that involves reduced Customer Due Diligence (CDD) for potentially low risk clients and enhanced CDD for higher risk accounts.

Specify the criteria and description of the types of customers that are likely to pose low, normal or high risk to their operations. Rely on the customer identification process undertaken by a third party.

A.5. AVERAGE DUE DILIGENCE (Section X806.2, BSP Circular No. 706 dated 5 January 2011)

A.5.1. Individual customers

•Obtain at the time of account opening all the following minimum information and confirming these information with the valid identification documents from individual customers and authorized signatory/ies of corporate and juridical entities:

1. Name2. Present address3. Date and place of birth4. Nature of work, name of employer or nature

of self-employment/business5. Contact details6. Specimen signature7. Source of funds

8. Permanent address9. Nationality10. Tax Identification Number, Social Security

System Number or Government Service Insurance Number, if any

11. Name, present address, date and place of birth, nature of work and source of funds of beneficial owner or beneficiary, whenever applicable

A.5.2. Corporate and juridical entities Obtain before establishing business relationships the

following minimum information and/or documents:

1. Certificates of Registration issued by the DTI, SEC or BSP, as the case may be

2. Articles of Incorporation or Association and By-Laws3. Principal business address4. Board or Partners’ Resolution duly certified by the

Corporate/Partners’ Secretary authorizing the signatory to sign on behalf of the entity

5. Latest General Information Sheet6. Contact numbers of the entity and the authorized

signatory/ies7. Source of funds and nature of business8. For entities registered outside of the Philippines,

similar documents and/or information shall be obtained duly authenticated by the Philippine Consulate where the entities are registered

A.6. REDUCED DUE DILIGENCE (Section X806.1.d, BSP Circular No. 706 dated 5 January 2011)Examples of customers assessed to be of low risk:

An individual customer with regular employment or economically productive activity, small account balance and transactions and a resident in the area of the CI’s office or branch;Banking institutions, trust entities and quasi-banks authorized by the BSP to operate as such;Publicly listed companies subject to regulatory disclosure requirements;Government agencies including GOCCs.

A.6.1. Individual customers

•Deferred acceptance of minimum information

(obtaining information Nos. 1-7 at the time of account opening while the rest, Nos. 8-11, may be obtained within a reasonable time no exceeding 90 days from account opening)

A.6.2. Corporate and juridical entities

• CI may open account under official name with only No. 4 (Board or Partner’s Resolution duly certified by Corporate or Partners’ Secretary authorizing signatory to sign on behalf of the entity) obtained at the time of account opening

A.7. ENHANCED DUE DILIGENCE (Section X806.3.a, BSP Circular No. 706 dated 5 January 2011)• shall be applied to customers that are assessed

by the CI or by these Rules as high risk for money laundering and terrorist financing

• whenever enhance due diligence is applied, the CI shall, in addition to profiling of customers and monitoring of their transactions, do the following:

1. Obtain additional information other than the minimum information and/or documents required for the conduct of average due

diligence

A.7.1.1. Individual customers- List of banks where the individual has

maintained or is maintaining an account; a list of companies where he is a director, officer or stockholder; and banking services to

be availed of.

A.7.1.2. Corporate and juridical entities - Prior or existing bank references; name, present

address, date and place of birth, nature of work, nationality and source of funds of each primary officers; stockholders owning at least 2% of the voting stock; and directors/trustees/partners as

well as their respective identification documents

2. Conduct validation procedures on any or all of the information provided

A.7.2.1. Individual customers

Validation for individual customers shall include but is not limited to the following:

•Confirming the date of birth from a duly authenticated official document;•Verifying the permanent address through evaluation of utility bills, bank or credit card statement or other documents showing permanent address or through on-site visitation;•Contacting the customer by phone, email or letter (such as sending “Thank You Letters”); and•Determining the authenticity of the identification documents through validation of its issuance by requesting a certification from the issuing authority or by any other means

For corporate or juridical entities, validation procedures shall include the following:

•Requiring the submission of audited financial statements conducted by a reputable accounting/auditing firm;•Inquiring from the supervising authority the status of the entity;•Obtaining bank references;•On-site visitation of the company; and•Contacting the entity by phone, email or letter (such as “Thank You Letters”)

A.7.2.2. Corporate and juridical entities

A.7.2.3. Politically Exposed Persons (Section X806.2.g, BSP Circular No. 706 dated

5 January 2011) Covered institutions shall endeavor to establish

and record the true and full identity of politically exposed persons as well as their immediate family members and the entities related to them and establish a policy on what standard of due diligence will apply to them taking into consideration their position and the risks attendant thereto.

Decisions to enter into business relationships with high risk customers, such as individuals holding important/prominent public or private positions should be taken exclusively at senior management level. (BSP Memorandum to All Banks and NBQBs dated 1 October 2002, as amended on 17 October 2003)

Business relationships with individuals holding important/prominent public or private positions, and with persons or companies clearly related to them may expose a bank to significant reputational and/or legal risks. (BSP Memorandum to All Banks and NBQBs dated 1 October 2002, as amended on 17 October 2003)

Banks should develop clear policy and internal guidelines, procedures and controls and remain especially vigilant regarding business relationships with individuals holding important/prominent public or private positions, and high profile individuals or with persons and companies that are clearly related to or associated with them. (BSP Memorandum to All Banks and NBQBs dated 1 October 2002, as amended on 17 October 2003)

B. Record Keeping and Retention (Sec. 9.b., AMLA, as amended; Rule 9.2, RIRRs)

All covered institutions shall:

a. maintain and safely store all records of all their transactions for at least 5 years from the transaction dates.

b. ensure that said records/files contain the full and true identity of the owners or holders of the accounts involved in the transactions and all other identification documents.

c. undertake the necessary adequate measures to ensure the confidentiality of such file.

d. anent closed accounts, preserve and safely store the records on customer

identification, account files and business correspondence for at least 5 years from closure dates.e. if a money laundering case based on any record kept by the covered institution has been filed in court, retain said file until it is confirmed that the case has been finally resolved or terminated by the court.f. retain records as originals in such forms as are admissible in court.

C. Reporting of Covered and Suspicious Transactions (Sec. 9.c.,AMLA, as amended; Rule 9.3, RIRRs; AMLC Resolution No. 292 dated 24 October 2003)

C.1 REPORTING PERIOD

Covered institutions shall report to the AMLC all covered and suspicious transactions within ten (10) working days from occurrence thereof. (BSP Circular No. 612 dated 13 June 2008)

Should a transaction be determined to be both a covered transaction and a suspicious transaction, the covered institution shall be required to report the same as a suspicious transaction.

C.2. SUBMISSION OF CTRs/STRs (AMLC Resolution No. 292 dated 24

October2003; BSP Circular No. 333 dated 30 May 2002)

Requires all banks, offshore banking units, quasi-banks, trust entities, non-stock savings and loan associations, pawnshops and all other institutions, including their subsidiaries and affiliates supervised and/or regulated by the Bangko Sentral ng Pilipinas to comply with the provisions of R.A. No. 9160, otherwise known as the “Anti-Money Laundering Act of 2001” (AMLA) and its Implementing Rules and Regulations;amends BSP Circular No. 251 by requiring suspicious transactions to be reported directly to the AMLC; andamends BSP Circular No. 253 by requiring banks and non-bank financial institutions to report covered and suspicious transactions to the AMLC using AMLC-prescribed forms.

C.3. DEFERMENT OF REPORTING OF NON-CASH, NO/LOW RISK COVERED

TRANSACTIONS (AMLC Resolution No. 58 dated May 25, 2005, as amended by Resolution No. 24 dated March 18,

2009)

Defers reporting by CIs to AMLC of the following “non-cash, no/low risk” covered transactions:* Transactions between banks and the BSP;* Transactions between banks operating in the Philippines;* Internal operating expenses of the banks;* Transactions involving transfer of funds from one deposit account to another deposit account of the same person within the same bank;* Rollovers of placements of time deposits;* Loan interest/principal payment debited against borrower’s deposit account maintained with the lending bank.

C.4.TF-RELATED TRANSACTIONS AND RED FLAGS (AMLC Resolution No. 59 dated

June 1, 2005)

Requires CIs to report to AMLC as suspicious, transactions which relate to potential or actual financing of terrorism regardless of the source of the transacted or attempted-to-be transacted funds and whether the funds used or intended to be used to finance terrorism are licit or illicit.Lists down suspicious transaction indicators or red flags that will serve as a guide in the submission of reports by the covered institutions relating to potential or actual financing of terrorism to the AMLC.

C.5. FRAUDULENT/SPURIOUS CHECK TRANSACTION (AMLC Resolution

No. 10 dated January 31, 2007)

A bank through which a fraudulent or spurious check passes, either as depository, presenting, or drawee bank, shall file the corresponding STR pursuant to Section 9 (c) of the AMLA.The STR shall be filed within five (now 10) working days from the occurrence of the transaction, or from the time the concerned bank is notified or becomes aware of the spurious character of the check or the fraudulent nature of the transaction.

C.6. REPORTS ON CRIMES AND LOSSES (AMLC Resolution No. 10 dated January 31, 2007)

The filing with the Bangko Sentral ng Pilipinas of a Report on Crimes and Losses relating to the deposit of a fraudulent or spurious check does not dispense with the filing of an STR with the AMLC pursuant to Section 9 (c) of R.A. No. 9160, as amended.

C.7. ILLEGAL INVESTMENT SCHEMES (AMLC Resolution No. 10 dated January 31,

2007)

Requires banks to report as suspicious transactions requisitioning of unusually large volume of check booklets in compliance with Sec. 3(b-1) of R.A. 9160, as amended, which provides among other things, that the presence of 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 would render the transaction as a suspicious one.

C.8. ELECTRONIC SUBMISSION OF CTRs/STRs (BSP Circular No. 495 dated

September 20, 2005, as amended)

Requires all universal and commercial banks to adopt and put in place an electronic money laundering transaction monitoring system which at the minimum shall detect and raise to the bank’s attention, transactions and/or accounts that qualify either as “covered transactions” or “suspicious transactions”.

The system must be in place within one (1) year from effectivity of this Circular; extended to

October 17, 2006 under Circular No. 527 dated 28 April 2006, then further extended to October 14, 2007 under BSP Memo-Circular No. 2007-

3 d dated 2 February 2007.

The CTR and STR shall be submitted to the AMLC in a secured manner, in electronic form and in accordance with the reporting procedures prescribed by the AMLC. (Section X807.4, BSP Circular No. 706)

C.9. MANUAL MONITORING AND REGISTERING OF SUSPICOUS TRANSACTIONS (Section X807.3, BSP Circular No. 706)

For CIs other than UBs and KBs, an electronic system of flagging and monitoring transactions is not necessary but they shall ensure that they have the means of flagging and monitoring the transactions mentioned in Section X807.2 of BSP Circular No. 706. They shall maintain a register of suspicious transactions that have been brought to the attention of Senior Management whether or not the same was reported to the AMLC.

II. AMLA’s IMPLICATIONS ON BANKING OPERATIONS

•AMLA’s State Policies•AMLC’s powers/functions•AMLA’s major and other compliance requirements•Other AMLA provisions

- Impact on the operations of banks and other covered institutions as well as their clients and their accounts/transactions.

- Mean more concerns and new responsibilities and require more human, financial and technical resources, especially for banks and other covered institutions.

Parting Shots:

“When an administrative agency promulgates rules and regulations, it “makes” a new law with the force and effect of a valid law, while when it renders an opinion or gives a statement of policy, it merely interprets a pre-existing law (Parker, Administrative Law, p. 197; Davis, Administrative Law, p.194; Rules and regulations when promulgated in pursuance of the procedure or authority conferred upon the administrative agency by law, partake of the nature of a statute, and compliance therewith may be enforced by a penal sanction provided in the law.” (Davis, op. cit., p. 194; cited in the case of Victorias Milling Co. vs. SSS, G.R. No. L-16704)

Parting Shots:

“A regulation adopted pursuant to law has the force and effect of law. In fact, it is a wise policy that administrative regulations be given the same force as rules of court in order to maintain the regularity of administrative proceedings.” [Valerio vs. Secretary of Agriculture, et al. (G. R. No. L-18587, April 23, 1963)]

Parting Shots:

“The Supreme Court has recognized that the construction of a statute by administrative agencies is entitled to great respect and should ordinarily be controlling, unless clearly shown to be in sharp conflict with the governing statute or the Constitution and other laws.” [RP (AMLC) vs. Development Bank of the Philippines (CA-G.R. SP No. 100420, October 23, 2009 citing Republic vs. Del Monte Motors, Inc. 504 SCRA 53]

Thank you…Thank you…