Chapter 1 The Problem and its Background

Introduction

The Philippines remains vulnerable to money laundering which also keeps the country
as a viable venue for dirty money. It also serves as haven for criminals to cleanse ill-gotten
funds. The Bangko Sentral ng Pilipinas (BSP) defined Money Laundering as a crime whereby
the proceeds of an unlawful activity are transacted thereby making them appear to have
originated from legitimate sources. Despite the huge efforts and cooperation by the government,
law enforcement agencies and financial institutions, money laundering still remains as a threat.

The Philippine banking industry experiences difficulties on detecting money laundering

and prove the earnings of crimes. Thus, the efforts of the banks in the fight against money
laundering cannot succeed without the support of their customers. For the customers to lend
their support, it is necessary that they should be aware of the threat of laundering and the
benefits of implementing the Anti-Money Laundering controls by banks pursuant to Anti-Money
Laundering Act of 2001. The law-abiding customers of banking services can help their banks to
eradicate the prospects who pose a serious threat with their unaccounted money. By providing
their identification documents and relevant information to banks as required under Know Your
Customer Policy (KYC Policy), make it harder for money launderers to do this unlawful activity
by closing the potential loopholes of identity theft.

The KYC policy originated as part of the fight against the laundering of illicit money
flowing from terrorism, organized crime and drug trafficking. Know Your Customer (KYC) is the
due diligence and bank regulation that financial institutions and other regulated companies must
perform to identify their clients and ascertain relevant information pertinent to doing financial
business with them. This policy is in place to ensure the integrity of financial transactions and
the easy identification of unscrupulous individuals who may be engaging in unlawful activities.

In this study, it will give an overview and discuss the KYC policy as an initiative against
money laundering. It will also provide the present scenario of Philippines and international
measures against money laundering and discuss the development of anti-money laundering
measures.
Background of the study

China Banking Corporation (China Bank) is one of the leading private universal banks in the
Philippines. They offer a full range of banking products and services to institutional (corporate,
middle market/commercial, SMEs) and individual (retail, mass affluent, high net worth)
customers, as well as thrift banking, investment banking, insurance brokerage, and
bancassurance through their subsidiaries China Bank Savings, China Bank Capital, China Bank
Securities, Chinabank Insurance Brokers, and Manulife China Bank Life Assurance.

Established in 1920 as the first privately-owned local commercial bank, China Bank has an in-
depth understanding of the way entrepreneurs and businessmen do business. While
maintaining very close multi-generational relationships with the Chinese-Filipino community,
they have since expanded the scope of their products and services to cover all market
segments as they pursue ways to create greater value for the future.

Statement of the Problem

As mentioned by the Anti-Money Laundering Council (AMLC), the Philippines, while

striving to sustain economic development and poverty alleviation through, among others,
corporate governance and public office transparency, must contribute its share and play a vital
role in the global fight against money laundering. Hence, the compelling need to enact
responsive anti-money laundering legislation in order to establish and strengthen an anti-money
laundering regime in the country which will not only increase investor’s confidence but also
ensure that the Philippines is not used as a haven to launder proceeds of unlawful activities.

Specifically, it attempts to answer the following questions:

1. What is the impact of money laundering in the banking industry of the Philippines?
2. How will banks assess the effectiveness of KYC policy as an initiative against money
laundering?
3. How to determine the level of compliance with Know Your Customer (KYC) policy
among banks in the Philippines?

Hypothesis

Accordingly, the researcher argued that:

H1 There is no significant impact of money laundering in the banking industry of the Philippines

H2 There is no significant effectiveness of KYC policy as an initiative against money laundering

H3 There is no significant level of compliance with Know Your Customer policy among banks in
the Philippines.

Significance of the Study

In this study, the researcher will discuss the effectiveness of KYC policy as an initiative
against the unlawful activity, the changing regulatory landscape and the ways for anti money
laundering prevention and control. The researcher hopes that these insights will help the
banking industry combat money laundering.
Vital results to this study could be highly significant and beneficial specifically to the
following:
Philippine Government. The information presented will enable the government help
Bangko Sentral ng Pilipinas
AMLC
Banks

Future Researchers. The ideas presented may be used as reference data in conducting new
researches or in testing the validity of other related findings. This study will also serve as their
cross-reference that will give them an overview of KYC policy as an initiative against money
laundering.
Scope and Limitation

Theoretical Framework

Conceptual Framework

Definition of Terms