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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.
