AML/KYC in the Philippines: Complete Guide 2024

Money laundering is a big problem in the Philippines due to a number of factors:

• Geographic location with its extensive coastline makes it vulnerable to various kinds of transnational crimes, including money laundering
• The country receives a significant amount of remittances from overseas workers (OFWs), and remittance channels can often be used for money laundering (ML) activities
• The country’s cash-intensive casino industry, which was one of one of the reasons why the FATF (an intergovernmental organization combatting money laundering and terrorist financing) added the country to its “grey list” of jurisdictions under increased monitoring in 2021.

Philippine regulators are working hard to remove their country from the FATF “grey list”, taking steps to enhance their AML regulations and keep a close watch on regulated industries, especially fintech and gambling.

Let’s discuss how new and existing businesses must comply with  AML laws in the Philippines.

Money laundering at a glance: The three stages

Money laundering (ML) involves disguising the source of funds derived from criminal activities, such as fraud or drug trafficking, with the aim of integrating illicit funds into the financial system as ‘clean’ money. This allows criminals to utilize the funds without drawing unwanted attention from authorities.

There are three stages of money laundering introducing laundered funds into the financial system:

• Placement (placing the ‘dirty’ money into a legitimate financial system)
• Layering (a sophisticated series of financial transactions, usually involving offshore techniques, to shift the funds into the legal financial system)
• Integration/extraction (reintegration of dirty money into the financial system, it is essentially legal tender for the criminals to use it as they like)

One common technique employed during the placement stage is to break down substantial amounts of cash into smaller, less conspicuous sums. These smaller sums can then be deposited into either a single bank account or distributed across multiple bank accounts, potentially utilizing the ‘smurfing’ technique.

Check this article to learn more about other techniques used during the placement stage, as well as other two ML stages:

Suggested read: Money Laundering and Its Impact on Business

The biggest money laundering case in the Philippines

In 2016, the Philippine government probed the largest documented case of money laundering in the country’s history. 

On February 4, 2016, hackers broke into the Bangladesh Central Bank and generated 70 fake payment orders to the Federal Reserve Bank of New York amounting to $1.94 billion.

Although the New York bank’s security system flagged the payment orders, five of them succeeded, resulting in the release of $101 million. Of this sum, $81 million was transferred to Rizal Commercial Banking Corp. (RCBC) in Manila, while $20 million found its way to Sri Lanka.

Sri Lanka promptly returned the entire amount upon exposure of the heist. However, in the Philippines, the $81 million was subsequently withdrawn, converted to pesos, and wagered in local casinos before authorities could trace it.

Eventually, RCBC got a record fine of PHP 1 billion ($19.15 million). This scandal also prompted revisions to Philippine money laundering laws, which, until 2017, excluded casinos from oversight. 

In July 2017, President Rodrigo Duterte signed Republic Act No. 10927, extending the coverage of the country’s key anti-money laundering regulation (AMLA) to include casinos—both internet-based and “ship-based” ones. Cash transactions in casinos exceeding PHP 5,000,000 ($89,406) or any equivalent are now classified as covered transactions under the law, necessitating mandatory reporting to the Anti-Money Laundering Council (AMLC).

Regulations

The country’s key AML laws include:

• ​​Anti-Money Laundering Act of 2001 (AMLA)
• The Republic Act No. 9194
• Terrorism Financing Prevention and Suppression Act of 2012 (TFPSA)

The Anti-Money Laundering Act in the Philippines

The Anti-Money Laundering Act of 2001 (Republic Act No. 9160) is the Philippines’ primary AML law. It criminalizes money laundering activities and establishes the Anti-Money Laundering Council (AMLC) as the country’s financial intelligence unit.

According to the Act, financial institutions are required to: 

• Implement Customer Due Diligence (CDD) and Know Your Customer (KYC, or eKYC in the Philippines)
• Report suspicious transactions to the AMLC
• Train stuff on AML regulations and suspicious transactions
• Keep records
• Cooperate with authorities in investigations
• Implement transaction monitoring
• Conduct regular audits
• Split clients into risk categories and monitor them accordingly
• Perform continuous monitoring.

Who’s affected?

The following entities should register in the AMLC reporting procedure to get the AMLC certification:

• Banks
• Offshore banking units
• Quasi-banks
• Trust entities
• Non-stock savings and loan associations
• Pawnshops
• Foreign exchange dealers
• Money changers
• Money remittance or transfer companies
• Electronic money issuers
• All other persons and their subsidiaries and affiliates supervised or regulated by the BSP (Bangko Sentral ng Pilipinas).

Check the full list on the AMLC website.

The registration guidelines are also available here.

What are “covered transactions” under the AMLA?

A covered transaction refers to a financial transaction that meets certain criteria (amounts, thresholds) set by AML regulations. Covered transactions require financial institutions to submit reports to relevant authorities, in efforts to monitor and detect potentially suspicious or illicit activities. 

A covered transaction differs from a suspicious transaction. A suspicious transaction is a subset of covered transactions that arouses suspicion due to its characteristics, prompting further investigation and reporting by financial institutions to regulatory authorities. 

Under the AMLA law, covered transactions are specifically defined as follows: 

• Cash transactions surpassing PHP 500,000 ($8,940)
• Casino transactions exceeding PHP 5,000,000 ($89,406)
• Engagements with dealers in jewelry, precious metals, or stones exceeding PHP 1,000,000 ($17,883)
• Electronic funds transfers beyond specified thresholds
• Investment-related transactions surpassing defined monetary limits. 

Each case requires specific reporting and compliance measures to mitigate the risks associated with money laundering in the Philippines.

Check further details on the AMLC website.

Suggested read: The APAC Sentinel: Effective Transaction Monitoring Tactics

Regulators

The following organizations are responsible for regulating the financial system and preventing crime in the Philippines:

• The Anti-Money Laundering Council (AMLA): the Philippines’ Financial Intelligence Unit (FIU).
• The Bangko Sentral ng Pilipinas (BSP):  the central bank of the Philippines. It supervises financial institutions to ensure compliance with AML regulations. This includes banks, insurance companies, and other entities.

Penalties

According to the AMLA, the crime of money laundering is punishable by “imprisonment ranging from seven (7) to fourteen (14) years and a fine of not less than PHP 3,000,000.00 (or $53,600) but not more than twice the value of the monetary instrument or property involved in the offense.”

The penalty for failure to keep records may be imprisonment from six (6) months to one (1) year or a fine of not less than PHP 100,000.00 (or $1,800), but not more than PHP 500,000.00 ($9,000), or both.

The penalty for malicious reporting, or false information in a report related to money laundering, may be six (6) months to four (4) years imprisonment, and a fine of not less than PHP 100,000.00 ($1,800), but not more than PHP 500,000.00, or ($9,000).

Challenges

The first challenge is a common belief among Philippine banks and fintechs that, once users pass the onboarding stage, fraud won’t happen. However, Sumsub’s internal statistics reveal that 70% of fraud occurs after the onboarding stage. Ongoing monitoring is therefore crucial for all regulated businesses, including financial institutions and gambling platforms, which attract the most regulatory attention in the country. Consequently, many regulated businesses will need to adapt and adopt an all-in-one platform for KYC and continuous monitoring.

On an international level, the FATF included the Philippines in the “grey list” of jurisdictions under increased monitoring in June 2021, citing concerns such as the risk of money laundering from casino junkets and the absence of prosecution in terrorism funding cases.

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