Anti-Money Laundering Law: TAX EVADERS, OTHER OFFENDERS OFF THE HOOK FOR NOW by Sheila Samonte-Pescayo, PCIJ

PHILIPPINE CENTER FOR INVESTIGATIVE JOURNALISM

 3-4 OCTOBER 2001
  by SHEILA SAMONTE-PESAYCO

Our two-part story examines the debates on the recently approved anti-money laundering law and shows that Congress has little to crow about when it passed the landmark law and beat the September 30 deadline imposed by the powerful, Paris-based Financial Action Task Force (FATF).

Rather, the law protects vested interests, including those of Congress members themselves. As pointed out in this report, the law approved over the weekend, was debated largely in secret. The law was being debated less than a year after the Estrada impeachment trial and amid allegations that Senator Panfilo Lacson hid proceeds from drugs and other illegal activities in secret overseas accounts. But as this report says, rather than providing the impetus to enact a tough law that would curb money laundering, these twin events created a “chilling effect” on lawmakers, who wanted to make sure that the law they draft today would not be used against them tomorrow.

DESPITE dire predictions, Congress passed last week a landmark anti-money laundering law, beating the deadline set by a powerful international body, the Financial Action Task Force (FATF). But unlike others who welcomed the passage of the new measure, Sen. Sergio 'Serge' Osmeña, one of the law's original sponsors, is not in a celebratory mood.

"There are hidden agendas here," he said. "We had a marvelous opportunity to collect P100 billion more in taxes but now we have a situation where we're signaling we are even condoning tax evasion."

Tax evasion was not counted as one of the 14 crimes covered by the anti-money laundering law, which provides sanctions for those who use banks to keep proceeds from the following unlawful activities: kidnap for ransom, drug trafficking, graft and corruption, plunder, robbery and extortion, jueteng and masiao, piracy on high seas, qualified theft or white-collar crimes, swindling, smuggling, electronic fraud, hijacking, destructive arson and murder, securities fraud and felony.

This omission was not surprising. After all, even the government version of the bill submitted to Congress did not include tax evasion. This was because of the objections raised in a meeting between government representatives and the influential Federation of Filipino-Chinese Chamber of Commerce and Industries.

The group, which until recently was identified with tobacco tycoon Lucio Tan, thumbed down the inclusion of tax evasion in the list of predicate offenses for fear the law would be used to harass them. The Ramos government had slapped a P26-billion tax evasion case against Tan.

Moreover, at the Sept. 11 joint hearing of three House committees, Dante Go, president of the Chinese-Filipino Business Club, endorsed the anti-money laundering bill but only if tax evasion as an offense were to be removed. During the hearing, several congressmen assured Go that his sentiments would be considered.

To be fair, there is some basis for the businessmen's fears. After all, over the years, corrupt revenue officials have used their discretionary powers to extort money from businessmen they accuse of tax evasion. But at the same time, the exclusion of this offense from the anti-money laundering law deprives the government of the additional powers it needs to clamp down on tax evasion and other crimes.

Thus, Ernest Leung, former chairman of the Philippine Deposit Insurance Corp., says the drafting of the law was a "pathetic waste of time and scarce resources to have labored on such a useless Act." He said the measure was passed merely to comply with a deadline, but many government officials themselves had been reluctant to pass an honest piece of legislation. The result, Leung said, is a law that represents "subservience to vested interests."

That may be true, but a review of the process that led to the passage of the law shows that legislators often behaved in unexpected ways and were motivated not solely by self-interest but by a number of other, sometimes incomprehensible, motives. Moreover, the executive department, including Malacañang, did not fight for the anti-money laundering law with as much conviction as it did for the power reform bill.

Ironically, it was Manila Rep. Mark Jimenez, an ally of former president Joseph Estrada who is facing charges of illegal campaign donations and tax evasion in the US, who lobbied for the inclusion of tax evasion in the law.

According to transcripts of the Sept. 12 House committee hearing, Jimenez said this was needed so the country could generate more revenues. He even produced a copy of the provisions of the US anti-racketeering law that listed violations of the Internal Revenue Code as the number one unlawful activity.

Jimenez said he feared that legislators might be "ridiculed" if they pass a law not recognizing tax evasion as a punishable crime because "we are cooperating with the (Chinese) businessmen".

Jimenez's arguments did not sit well with Makati Rep. Teodoro Locsin Jr., who said including tax evasion will make the committee renege on the "assurance" it gave to the Chinese-Filipino businessmen who had attended the previous hearing.

"I don't want to go on record as a defender of tax evaders… I just feel my sense of fair play is violated… When they (Chinese businessmen) were here, we can't think of an argument for including (tax evasion) so we excluded it… they left with that assurance," Locsin said.

Jimenez, however, won over Manila Rep. Jaime Lopez who said he would talk to the Chinese- Filipino business groups to explain the inclusion of tax evasion. In the end, however, the House approved a version of the bill that left out tax evasion from the four unlawful activities it recognized. The Senate-approved bill was also silent on the matter.

Another provision that drew a lot of debates was on the agencies that will have jurisdiction over the anti-money laundering council (AMLC) that will implement the law. The inter-agency version of the bill included eight agencies - the Bangko Sentral ng Pilipinas (BSP), the Securities and Exchange Commission, the Housing and Land Use Regulatory Board, the Cooperative Development Authority, Department of Tourism, the Philippine Gaming and Amusement Corp. (Pagcor), and the Insurance Commission. This was meant to cast a wider net in tracking down the proceeds from illegal activities.

The eight "supervisory authorities" in both the House and Senate versions of the bill, however, were trimmed down to only three: the BSP, SEC and the Insurance Commission. Committee sources said there was a strong lobby not to include housing and real estate developers, cooperatives, casinos, and travel agencies from the list of entities that will be reached by the arm of the law.

House economic affairs committee chairman, Rep. Oscar Moreno admitted the authorities will not be able to trace whether the proceeds from a crime had been funneled to buy real estate, for instance, because of the limitations of the law. The only consolation, he said is that "unlike cash, which is liquid, you cannot sell land right away" to escape authorities.

The Senate initially approved a "working draft" that placed the AMLC solely under the authority of the BSP. This was despite some lawmakers' claims that they did not want to give the central bank "too much powers."

BSP Governor Rafael Buenaventura, however, lobbied against this and convinced Senate leaders to instead include the SEC commissioner and the Insurance Commission head in the three-man task force overseeing the AMLC. Aside from anticipating the load of work, Buenaventura said the BSP only has jurisdiction over banks and financial institutions. It could not supervise entities outside of the banking system.

Sen. Joker Arroyo of Makati criticized the BSP for "overloading the draft bill with unnecessary provisions that are very controversial." He cited the "enormous quasi-judicial powers" vested in the proposed AMLC which may be challenged as "unconstitutional".

"How can a bank make a determination of whether the money is clean or not? A bank is a mere depository, not a judge… We are making the Council very powerful by giving it an authority to freeze the account," he argued.

Arroyo's position on the anti-money laundering bill surprised some government officials. The former Makati congressman was a prosecutor in Estrada's botched impeachment trial yet he was also pushing for provisions that would make the anti-money laundering law almost toothless. These included the right of the suspected money launderer to sue the AMLC "to seek redress," and shifting the burden of proof to the plaintiff (the government unit filing the anti-money laundering case) from the accused.

During the floor deliberations on Sept. 27, Arroyo also pushed for the adoption of the House version on obtaining a court order to peek into bank deposits, even if, as a prosecutor in Estrada's impeachment, he was railing against banks disobeying the order from the impeachment court to pry open the former president's bank accounts.

To Arroyo, the problem was the BSP. "In the impeachment trial, he (BSP governor) didn't cooperate with us… They didn't help us one bit. We discovered all (the accounts) on our own. This shows the BSP is not immune to political pressure… That's why this bill is dangerous. Gloria might utilize it to go after the opposition," he said in an interview.

He also said his "prejudice" against the BSP is "institutional, not against the governors." He said he will oppose any move to give the BSP more teeth than it currently has because "I just cannot trust them as truly independent."

While the law only gave the AMLC the authority to freeze the suspicious account for 15 days, there were attempts to erode this power even further. Sen. Panfilo Lacson, who himself is being linked by intelligence chief Victor Corpus to money laundering, proposed an amendment that would give the owner of the suspicious account three days to explain before the deposits could be frozen. Sen. Edgardo Angara endorsed the amendment for style because it was "concise."

When Senate President Franklin Drilon banged the gavel approving the Lacson amendment, BSP Governor Buenaventura and Finance Secretary Jose Isidro Camacho, who were seated at the Senate gallery watching the proceedings, suddenly sprang from their seats and talked to Osmeña. Convinced that the amendment will erode the powers of the AMLC and enable the suspected money launderer to buy time to conceal the money, Osmeña rose to the floor and sought for a reconsideration of the Senate move.

In the final version that was ratified, the suspected money launderer has 72 hours or three days to explain why the freeze order should be lifted. The depositor would be notified that his account has been frozen "simultaneously" with the release of the freeze order. While the provision relaxes the bank secrecy rule, it added a bureaucratic layer that would delay the opening of suspicious deposits.

Sen. Aquilino Pimentel, Jr. also proposed to lessen the penalty and jail terms for convicted money launderers. He said the imprisonment term of seven to 14 years under the proposed bill is "a draconian approach" and should be shortened to one to five years. The senator, however, failed to push strongly for the move.

Congress made sure it will exert influence over the anti-money laundering body by inserting a provision giving itself oversight powers on the drafting of the implementing rules and regulations of the law.

The truth is that, were it not for the threats from the FATF, Philippine officials would not have mustered the political will to pass an anti-money laundering law. Three administrations - under former presidents Corazon Aquino, Fidel Ramos and Joseph Estrada - failed to fulfill the country's international commitment to criminalize and combat money laundering.

Thus, on March 12, 2000, the US State Department issued a scathing report citing the Philippines as one of six Asian countries being used as money laundering centers. The report rated the Philippines "a concern," with because of rising crime, pervasive corruption and the absence of anti-money laundering laws.

The report came just three months ahead of the FATF announcement listing the Philippines among 15 countries and territories not doing enough to fend off the flow of dirty money. Then in early August 2000, the US abstained from voting for the approval of a $1.4-billion International Monetary Fund facility for the Philippines. The US, which entered the lone abstention, reportedly raised doubts the Estrada administration was sincere and serious in curbing money laundering.

At a luncheon at the White House the same month, then US President Bill Clinton also followed up on the Philippines' international commitment from then President Estrada who was there on a state visit. A Philippine senator who was in the meeting said Treasury Secretary Lawrence Summers also pressed Buenaventura and then Finance Secretary Jose Pardo, "and gave them a mouthful."

Despite the opposition, the bill relaxing the deposit secrecy law was miraculously approved on second reading at the Lower House on December 7, 2000. This was amid raging controversy during the impeachment trial on Estrada, linking banks used as depositories of the president's alleged illegal funds. Barely a week later, however, the Lower House suddenly recalled the bill due to a technicality. "Clean copies" of the bill were not distributed before its approval, reportedly a violation of the House rules.

The measure thus went back to second reading and never saw the light of day. Dust started to accumulate when Congress had a Christmas break last year, and thickened when Estrada was ousted.

In April, the Macapagal-Arroyo administration called for a special session of Congress to pass one of the two pending bills: the power reform bill. A top government official who attended the first Legislative-Executive Development Advisory Council said: "The President pushed for the one that is less controversial and has more likelihood of getting approved." Pushing for the deposit secrecy bill would be a costly political exercise given the many vested interests involved, the source said.

The President reportedly said she would include the anti-money laundering bill in her list of legislative priorities to be announced at her State of the Nation Address, but she did not. On August 29, 2001, the joint Senate committee on banks and financial institutions, and justice and human rights held its first hearing on four anti-money laundering bills - not one of which came from Malacañang.  Government officials present at the hearing said the draft legislation had just been endorsed by DoJ to the Palace when banks committee chairman Ramon Magsaysay, Jr. asked which one is the government version. The draft bill had not been certified urgent and had not yet found a sponsor only a month before the FATF deadline.

Sources said it was only when Bangko Sentral Governor Rafael Buenaventura and Finance Secretary Jose Camacho came home empty-handed from a trip to Paris that the President realized the FATF was not bluffing when it threatened to impose sanctions on the Philippines by end-September if an anti-money laundering law is not yet in place. There was no choice now but to rush the bill through Congress.

"We were rushed certainly," said Drilon. "There was no specific notice to us about the warnings of the FATF." Last April, when the government was lobbying for the power reform bill, an administration-party senator said Arroyo "would call up three, four times" a day to speed up passage of the bill. In the case of the anti-money laundering bill, however, he said "there was no such urgency."

Government sources said Malacañang actually had a dilemma in deciding whether to certify the bill or not. Given the number of solons who filed their own versions of the anti-money laundering bill, the sources said the president did not want to "endorse just one and offend the others."

"In the end, it was a political decision," said another official who declined to be named.

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PHILIPPINE CENTER FOR INVESTIGATIVE JOURNALISM