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AMLA Seminar for

Covered Persons
JERRY L. LEAL, CPA, MBA, CSEE
Manager Inspection Group
Integrated Supervision Department I
Module 1: Introduction/Amendments to AMLA

Module 2: Updated AML Rules & Regulations and


AML Risk Rating System (ARRS)

Module 3: Covered Transaction & Suspicious


Transaction Reporting and AMLC Registration

2
Module 1 - Introduction/Amendments to AMLA
LEARNING OBJECTIVES:
To be able to explain the functions of AMLC
To be able to explain the functions of AMLSG
To be able to explain the Definition/Elements/Stages
of Money Laundering
To be able to identify the different ML offenses
To be updated on the latest Amendments to AMLA
Anti-Money Laundering Council (AMLC)
Financial Intelligence Unit of the Philippines.
Created by virtue of R.A. No. 9160 (Sec. 7).
Composition
BSP Governor
Chairman

SEC Chairperson IC Commissioner


Member Member

4
AMLC Secretariat
5-year term
at least 35 years old
Member of the Philippine
Bar
good moral character,
EXECUTIVE DIRECTOR unquestionable integrity
and known probity.

served for at least


5 years in BSP, SEC, or IC.
MEMBERS
hold full-time permanent
positions within BSP.
5
AMLC Secretariat
Table of Organization
Executive Director

Technical Staff

Compliance and Legal and


Investigation Group Evaluation Group

Information
Administrative and
Management and
Finance Unit
Analysis Group

6
AMLC Functions
Requires submission of CTRs or STRs
Issues orders to supervising authority or covered
institutions
Institutes legal proceedings through the OSG
Cause the filing of complaints with DOJ or
Ombudsman
Investigates STs and CTs deemed suspicious
Applies before Court of Appeals, ex parte, for a freeze
order

7
AMLC Functions
Implements measures to counteract money
laundering.
Receives and takes action on requests from foreign
states for assistance

Develop educational programs on ML


Enlists the assistance of other government agency.

Imposes administrative sanctions


Examines or inquires into deposits or investments,
including R/A, upon order of the court.

8
Sec. 9(c) Reporting of Covered and
Suspicious Transactions to the AMLC
(w/o Court Order)

Covered persons shall report to the AMLC all


covered transactions and suspicious transactions .
When reporting covered or suspicious transactions
to the AMLC, covered persons and their officers and
employees shall not be deemed to have violated
R.A. No. 1405, as amended, R.A. No. 6426, as
amended, R.A. No. 8791 and other similar laws,
x x x.

9
Sec. 11 - AMLC Authority to Inquire
With or Without Court Order
Notwithstanding the provisions of R.A. No.
1405, as amended, R.A. No. 6426, as amended,
R.A. No. 8791, and other laws.

The AMLC may inquire into or examine any


particular deposit or investment, with any bank
or non-bank financial institution, including related
accounts upon order of the Court of Appeals based
on an ex parte application when there is probable
cause that they are related to an unlawful activity.

10
Sec. 11 - AMLC Authority to Inquire
With or Without Court Order
No Court Order needed in cases where the
unlawful activity involves Kidnapping for
Ransom (KFR), drug-related cases and
terrorist-financing cases under R.A. 10168
AMLC Resolution Court Order
KFR Other Unlawful
Drug-related Activities under
Terrorist Financing Sec 3(i) of the AMLA
under R.A. 10168

11
Sec. 11 - AMLC Authority to Inquire
With or Without Court Order
Court of Appeals shall act on the
application to inquire within 24 hours
from filing

To ensure compliance with AMLA, the


Bangko Sentral ng Pilipinas (BSP)
may, in the course of a periodic or
special examination, check the
compliance of a covered person with
the requirements of the AMLA and its
implementing rules and regulations. 12
Sec. 11 - AMLC Authority to Inquire
With or Without Court Order
Related Accounts accounts, the funds and
sources of which originated from and/or materially
linked to the monetary instrument(s) or property(ies)
subject of the freeze order
Court order ex parte needed same procedure as
in the principal account

Authority to inquire into or examine principal


account and its related accounts shall comply
with Art. III, Sections 2 (Unreasonable search &
seizure) and 3 (Inadmissible evidence) of the
13
1987 Constitution
Sec. 10 Freezing of Monetary
Instrument or Property
Freeze Order (FO)
Issued by the Court of Appeals within 24 hours
from filing of a verified application ex parte by
the AMLC and after determination that probable
cause exists that any monetary instrument or
property is in any way related to an unlawful
activity

Effective immediately

Period: not exceeding six (6) months


14
Sec. 10 Freezing of Monetary
Instrument or Property
No case filed against person whose account
has been frozen = FO deemed ipso facto lifted
A person whose account has been frozen may
file a motion to lift the freeze order and
the CA must resolve this motion before the
expiration of the FO
No court shall issue a Temporary
Restraining Order (TRO) or a writ of
injunction against any freeze order,
except the Supreme Court 15
AMLC Authority to Freeze under
TF & Suppression Act (R.A. 10168)
AMLC is authorized to issue a Freeze Order ex parte
against property of funds related to Financing of
Terrorism or Acts of Terrorism
Period of Effectivity:
General Rule: Twenty (20) days extendible to
a maximum period of six(6) months
Exception: Designated organization, group,
association or individual under UN Security
Resolution No. 1373 effective until basis
for listing is lifted
16
Duty of Covered Persons
upon receipt of Freeze Order
Immediately freeze the monetary instrument
or property and related web of accounts;
Within 24 hours, Covered Persons shall
submit to the Court of Appeals and the AMLC,
by personal delivery, a detailed written
return on the freeze order
Account numbers
Name(s) of account holders
Amount
Other relevant information
Time
17
Money Laundering
Offenses / Penalties
1. Knowingly transacting, converting,
transferring, disposing, moving,
acquiring, possessing, using,
concealing or disguising the MI/P or
attempting or conspiring to commit
ML (The money launderer
himself)
Penalty
7 to 14 years imprisonment
Fine: not less than P 3 Million but
not more than 2x the value of the
MI/P
18
Money Laundering
Offenses / Penalties
2. Knowingly aiding, abetting, assisting or
counseling ML or performing or failing
to perform an act as a result of which
he facilitates the offense of ML
(The person who assists the
money launderer)
Penalty
4 to 7 years imprisonment
Fine: not less than P1.5 Million but not
more than P3 Million.

19
Money Laundering
Offenses / Penalties
3. For knowingly failing to
report covered and
suspicious transactions to
the AMLC
Penalty
6 months to 4 years imprisonment
Fine: not less than P100,000.00 but
not more than P500,000.00,

20
Money Laundering
Offenses / Penalties
Covered Person, its
directors, officers and
personnel who knowingly
participated in the commission of
the crime of ML:
Penalty
4 years to7 years imprisonment
Fine: not more than 200% of
the value of the MI/P laundered
21
Other Offenses under
the AMLA, as amended
1. Failure to keep records
Records of all transactions of
covered persons
Maintained and safely stored
for five (5) years from date of
transaction/closure.
Penalty
6 months to 1 year
imprisonment
Fine: not less than
P100,000.00 but not more than
P500,000.00
22
Other Offenses under
the AMLA, as amended
2. Malicious Reporting
Reporting or filing a completely unwarranted or
false information relative to money laundering
transaction against any person
Penalty
6 months to 4 years imprisonment
Fine: not less than P100,000.00
but not more than P500,000.00;
Offender not entitled to the
benefits of the Probation Law.
23
3. Breach of
Confidentiality
Covered persons and their officers and employees
are prohibited from:
communicating directly or indirectly,
in any manner or by any means,
to any person or entity, the media,
the fact that a covered or suspicious
transaction report has been reported or is
about to be reported, the contents thereof,
or any other information in relation thereto.
Neither may such reporting be published or aired in
any manner or form by the mass media, e-mail or other
similar devices. 24
Penalty

3 to 8 years imprisonment and a


fine of not less than P500,000.00
but not more than P1.0 Million.
concerned officer and employee
of the covered person and media
(the responsible reporter,
writer, president, publisher,
manager and editor-in-chief)
shall be held criminally liable.
25
Anti-Money Laundering Specialist Group
Part of the reorganized SES under
MB Res. No. 1443 dated 13
December 2007.

Created to address the need for


technical expertise in the
supervision of AML Compliance of
covered institutions.

Technical unit in SES that specializes in the review and


assessment of the AML framework of covered institutions.

26
AMLSG Table of Organization
Deputy Governor (SES)

Managing Director (SES III)

Deputy Director and Group Head

Group Secretary Manager

Assistant Manager
ASO II
Bank Officers

SE Specialist I

27
AMLSG Core Functions
On Site Examination
Off Site Supervision
Develop AML Policies and
Guidelines
Conduct AML Trainings and
awareness Seminars
Other tasks assigned by BSP Top
Management
28
What is Money
Laundering (ML)?
In laymans term
is an act to disguise dirty
money (criminal proceeds) as
clean money (legitimate
earnings/lawful income)
to launder means to wash
Cleaning dirty money
30
Definitions of Money
Laundering
processing of criminal proceeds in
order to disguise their illegal origin
legitimization of proceeds of
specified unlawful activity
crime whereby the proceeds of an
unlawful activity are transacted
thereby making them appear to
have originated from legitimate
sources (AMLA definition, note the
amendment)
31
Illustration of Money
Laundering
Unlawful Activity

1 2 3

transaction
proceeds
Jose Jose Jose
kidnapped demanded deposited
Robert, the and the money
son of received 5M in his bank
Mary. pesos account.
ransom
money.

32
Elements of the Crime of Money
Laundering
Monetary instrument or
property (MI/P) from an
unlawful activity
Transaction/Attempted
transaction of MI/P
Knowledge that the MI/P
represents, involves, or
relates to the proceeds of
the unlawful activity
33
Definition of Terms
Proceeds not limited to those realized/
derived from the unlawful activity.

Transaction refers to any act


establishing any right or obligation. It also
includes any movement of funds by any
means with a covered institution.

34
Why is money laundering a
problem
Undermines financial institutions, social,
economic and political structure of a society
Stifles competition
Contamination effects on legitimate
transactions
Finances terrorist activities

35
Financial Action Task Force
(FATF)
FATF 40 Recommendations
Non-Cooperative Countries and Territories
(NCCT) List (2000-2006)
International Cooperation Review
Group (ICRG)
List of Vulnerable Jurisdictions
Grey List
Dark Grey List
Black List 36
Stages

1. Placementinitial placement or
introduction of the illegal funds into
the financial system. Banks and
other financial institutions usually
used at this point.
Examples -
smurfing or structuring
converted into financial
instruments
commingled with legitimate
funds
purchases of insurance contract
Stages

2. Layering series of financial


transactions wherein the dirty money is
passed through a series of procedures,
putting layer upon layer of persons and
financial activities into the laundering
process.
Examples:
electronic transfer of funds
disguise the transfer as a
payment for goods or services
transfer the funds to shell
corporation
back-to-back scheme
Stages

3. Integration The money is once


again made available to the
criminal with the occupational
and geographic origin obscured or
concealed. The laundered funds
are now integrated back into the
legitimate economy through the
purchase of properties,
businesses and other
investments.
MONEY LAUNDERING SCHEME IN THE PHILIPPINES

41
The AML Act and its Amendments
R.A. No. 9160 - Effectivity: 17 October 2001
R.A. No. 9194 (amendatory law) - Effectivity: 23
March 2003
R.A. No. 10167 (amendatory law) - Effectivity 6 July
2012
Revised Implementing Rules and Regulation -
Effectivity 16 September 2012
R.A. No. 10365 (amendatory law) - Effectivity 7
March 2013
42
Salient Features
1. Criminalizes money laundering.
2. Creates a financial intelligence
unit or implementing agency.
3. Imposes requirements re:
customer identification, record-
keeping and reporting of
covered and suspicious
transactions.

43
Salient Features
4. Relaxes strict bank deposit
secrecy laws.
5. Provides for freezing/
seizure/forfeiture/
recovery of dirty
money/property.
6. Provides for international
cooperation.
44
R.A. No. 10167

AMLC may inquire


Court of or examine
Only the
Appeals shall deposits or
Supreme
act on the investments,
Court can
application for including related
issue a TRO
Freeze Order accounts based on
or writ of
within 24 hours ex parte
injunction.
from filing. application.

45
RELATED ACCOUNTS under the RIRR of the
AML Act, as amended by RA No. 10167
Related Accounts are accounts where:

The funds and sources originated from the monetary


instruments or properties subject of the F/O; and/or

The funds and sources are materially-linked to the


monetary instruments or properties subject of the
freeze order.

46
MATERIALLY-LINKED ACCOUNTS

All accounts or monetary instruments belonging to the


same person whose accounts, monetary instruments
or properties are the subject of the F/O;

All accounts or monetary instruments held, owned or


controlled by the owner or holder of the accounts,
monetary instruments or properties subject of the F/O,
whether such accounts are held, owned or controlled
singly or jointly with another person;

47
MATERIALLY-LINKED ACCOUNTS

All accounts or monetary instruments the funds of


which are transferred to the accounts, monetary
instruments or properties subject of the freeze order
without any legal or trade obligation, purpose or
economic justification;

All In Trust For accounts where the person whose


accounts, monetary instruments or properties are the
subject of the freeze order is either the trustee or the
trustor;

48
MATERIALLY-LINKED ACCOUNTS
All accounts held for the benefit or in the interest of
the person whose accounts, monetary instruments or
properties are the subject of the F/O;

All accounts or monetary instruments under the


name of the immediate family or household members
of the person whose accounts, monetary instruments
or properties are the subject of the F/O:
if the amount or value involved is not commensurate with the
business or financial capacity of the said family or household
member;
49
MATERIALLY-LINKED ACCOUNTS
All accounts of corporate and juridical entities that are
substantially owned, controlled or effectively controlled
by the person whose accounts, monetary instruments
or properties are subject of the F/O;

All shares or units in any investment accounts and/or


pooled funds of the person whose accounts,
monetary instruments or properties are subject of
the F/O; and

50
MATERIALLY-LINKED ACCOUNTS

All other accounts, shares, units or monetary


instruments that are similar, analogous or identical to
any of the foregoing.

51
Amendments - RA No. 10365

Covers more
Expands the predicate
definition of crimes (14 to Expands
money 34) now coverage of
laundering includes Covered
as a crime environmental Persons
crimes.

52
Salient Features RA No. 10365

Land Registration
Effectivity of Authorities and
Freeze Order Registries of
max of 6 months Deeds are
required to
submit CTRs

53
Salient Features RA No. 10365

Imposed monetary and


Introduced
criminal penalty on
forfeiture of
Covered Persons, its
equal value to
directors, officers or
that of the
personnel who knowingly
proceeds of
participated in the crime of
unlawful activity
money laundering

54
Salient Features RA No. 10365

Extended Prohibited
Includes Anti- deadline of intervention
discriminatory reporting CTs in the BIR
provision and STs from affairs
10 to 15 days

55
Money Laundering Offense and Penalties
WHO: Any person, knowing that any MI or property represents,
involves, or relates to the proceeds of any unlawful activity;

HOW:
a. Transacts MI or Property; PENALTY
b. Converts, transfers, disposes of, moves, 7 to 14 yrs.
acquires, possesses or uses MI/P; imprisonment
and a fine of not
c. Conceals or disguises the true nature,
less than P3M
source, location, disposition, movement or
but not more
ownership or rights with respect to the MIP;
than 2X the
d. Attempts or conspires to commit money value of the
laundering offense referred to in Par. a c. MI/P.
56
Money Laundering Offense and Penalties
WHO: Any person, knowing that any MI or property
represents, involves, or relates to the proceeds of any
unlawful activity;
HOW:
e. Aids, abets, assists in or counsels the PENALTY
commission of the money laundering 4 to 7 years
offenses referred to in paragraph a to c; imprisonment
and and a fine of not
f. Performs or fails to perform any act as a less than P1.5M
result of which he facilitates the offense of but not more
money laundering referred to in paragraphs than P3M.
a to c.
57
Money Laundering Offense and Penalties
OFFENSE PENALTY

Covered persons, its directors, 4 to 7 years imprisonment


officers or personnel who and a fine corresponding
to not more than 200
knowingly participated in the
percent of the value of
commission of money laundering
the MI or property
laundered.

58
Unlawful Activity (Predicate Offense)
Any act or omission or series or combination thereof
involving or having direct relation to the following:
Kidnapping for ransom;
Drug Trafficking and other violations of the
Comprehensive Dangerous Drugs Act of 2002;
Graft and Corruption (RA No. 3019, as amended)
Plunder (R.A. No. 7080, as amended)
Robbery and extortion under the RPC
Jueteng and Masiao (PD 1602)
Piracy (RPC & PD 532)

59
Unlawful Activity (Predicate Offense)
Qualified Theft under Art. 310, RPC, as amended

Swindling under Art. 315, RPC


Smuggling under RA Nos. 455 & 1937
Violations of Electronic Commerce Act of 2000
(RA No. 8792)
Hijacking, destructive arson and murder, including
those perpetrated by terrorists against non-
combatant persons and similar targets.
Terrorism and conspiracy to commit terrorism
(RA No. 9372);

60
Unlawful Activity (Predicate Offense)
Financing of Terrorism and other offenses
(RA No. 10168);
Bribery and corruption of Public Officers,
RPC, as amended;
Frauds and Illegal Exactions and
Transactions, RPC, as amended;
Malversation of public funds and property,
RPC, as amended;
Forgeries and Counterfeiting, RPC, as
amended;
Violations of Sections 4 to 6, The Anti-
Trafficking in Persons Act (RA No. 9208);
61
Unlawful Activity (Predicate Offense)
Violations of Sections 78 to 79 of Chapter IV,
The Revised Forestry Code (PD No. 705);
Violations of Sections 86 to 106 of Chapter VI,
The Philippine Fisheries Code of 1998 (RA No. 8550);
Violations of Sections 101 to 107, and 110,
The Philippine Mining Act of 1995 (RA No. 7942);
Violations of Section 27, The Wildlife Resources
Conservation and Protection Act (RA No. 9147)
Violation of Section 7(b), The National Caves and Cave
Resources Management Protection Act (RA No. 9072);

62
Unlawful Activity (Predicate Crimes)
Violation of The Anti-Car napping Act of 2002, RA No. 6539
Violations of Sec. 1, 3 and 5, PD No. 1866
Violation of The Anti-Fencing Law, PD No. 1612
Violation of Sec. 6, The Migrant Workers and Overseas
Filipinos Act of 1995, RA No. 8042, as amended;
Violation of The Intellectual Property Code of the
Philippines, RA No. 8293;
Violation of Sec. 4 of The Anti-Photo and Video Voyeurism
Act of 2009, RA No. 9995;

63
Unlawful Activity (Predicate Crimes)
Violation of Section 4, The Anti-Child
Pornography Act of 2009, RA No. 9775
Fraudulent practices and other
violations of The Securities Regulation
Code of 2000, RA No. 8799
Violations of Sections 5, 7, 8, 9, 10(c), (d), and (e), 11, 12 and
14 of The Special Protection of Children against Abuse,
Exploitation and Discrimination, RA No. 7610

Felonies or offenses of a similar nature that are punishable


under the penal laws of other countries

64
Covered Persons
Jewelry dealers in precious metals or stones

Persons who provide services *

Company service providers

Excludes lawyers and accountants who act as independent


professionals in relation to information on clients or where
disclosure of Information would compromise client
confidences or the attorney-client relationship.

65
Freeze Orders (FO)
Verified ex-parte petition filed to CA;

CA to act on the petition within 24 hours;

Immediately effective not exceeding 6


months;

Ipso facto lifted if no case is filed;


Motion to lift FO to be resolved before
expiration of the FO; and
Only SC can stop implementation of FO.

66
The Updated AML Rules and
Regulations (UARR) & AML
Risk Rating System (ARRS)

Module 2
Learning Objectives
Give an overview of the important
features of the UARR;
Define a sound AML Risk Management System;
Discuss the salient provisions of the UARR on:
Know-Your-Customer (KYC) Process;
Covered and Suspicious Transactions Reporting;
Record keeping and retention; and
AML Training Program.
Know the enforcement actions for violations of
AML Regulations
69
Legal Basis of UARR

Rule 17.b of the Revised Implementing Rules


and Regulations (RIRR) of the AMLA, as
amended by R.A. No. 10167.

70
Policy Objective

Protect and preserve the integrity and


1 confidentiality of accounts

Ensure that the Philippines shall not be


2 used as a money laundering site

71
Salient Features of UARR
Single AML Rules for BSP supervised and regulated
Covered Persons

Applies to all Covered Institutions supervised and


regulated by BSP

Defines a Politically Exposed


Person or PEP

72
Salient Features of UARR
Enumerated the Basic Principles and Policies to
Combat Money Laundering

Designated the BOD as ultimately responsible for


AML compliance

Defined the role of the Compliance


Office in the Money Laundering
and Terrorist Financing prevention

73
Salient Features of UARR
Created the position of an AML Officer and
expanded the responsibilities of the Compliance
Office

Prescribed the minimum contents of the Money


Laundering and Terrorist Financing Prevention
Program

74
Salient Features of UARR
Defined Internal Audits role vis--vis the
Compliance Office relative to AML compliance

Required a risk-based and tiered customer


identification process

Prescribed guidelines when applying


Enhanced Due Diligence and
Reduced Due Diligence

75
Salient Features of UARR

Provided exceptions to the


Face-to-Face Requirements

Added other acceptable IDs

Included Financial Inclusion Advocacy Provisions

76
Salient Features of UARR
Required the updating of KYC documents

Required originator information on wire transfers


and prescribed procedures when a wire transfer is
unaccompanied by originator information

Identified Covered Transactions that are subject to


deferred reporting

77
Salient Features of UARR
Required an annual AML Training Program with
various focuses for various officers and staff

Prescribed enforcement actions against the BOD,


Senior Management and Line Officers

78
A. RISK MANAGEMENT (Sec. X805 )
Develop a sound risk management
policies and practices
Identify, assess, monitor, and
control money laundering risks

Ensure effective implementation of the UARR

END GOAL: CIs shall not be used as a


vehicle to legitimize proceeds of unlawful
activity or to facilitate or finance terrorism.

79
A. RISK MANAGEMENT
Areas of BOD and SM Oversight
Sound + Compliance Office

Risk Mgt. MLPP


Practices
COVERED Monitoring and
PERSON Reporting Tools

Internal Audit

80
A. RISK MANAGEMENT
BOD and SM Oversight ( X805.1.a)
Responsible for AML
Compliance

Ensure that oversight on


the institutions
compliance management
is adequate

81
A. RISK MANAGEMENT
Functions of Compliance Office ( X805.1.a)
Manage the implementation of the MLPP

Ensure compliance by all responsible


officers and employees

Conduct periodic compliance checking

Evaluate existing processes, policies


and procedures

82
A. RISK MANAGEMENT
Functions of Compliance Office ( X805.1.a)
Immediately correct infractions

Inform officers and employees


of BSP/AMLC issuances

Alert SM, BOD, or committees of failure to


address AML and TF issues

Organize timing and content of AML training


including refresher trainings
83
A. RISK MANAGEMENT
MLPP ( X805.2.)
Comprehensive and risk-based
Geared toward the promotion of high ethical
and professional standards
Consistent with the AMLA, as amended
Designed according to institutions corporate structure
and risk profile

In writing and approved by the BOD

84
A. RISK MANAGEMENT
MLPP (Subsection X805.2.)
Institution-wide/consolidated for covered institutions
with branches, subsidiaries, affiliates abroad

Readily available in user-friendly form

Well disseminated to officers and staff

Contains an audit trail on the


dissemination process

85
A. RISK MANAGEMENT
MLPP-Minimum Contents ( X805.2)
Procedures on customer identification process,
record keeping and retention, CT and ST reporting

AML Training Program to all Directors and


responsible officers and employees including
refresher courses

Know Your Employee process

86
A. RISK MANAGEMENT
MLPP - Minimum Requirements ( X805.2)
Internal Audit System

Independent audit program

Mechanism for immediate correction of


deficiencies

Cooperation with AMLC

Designation of an AML Compliance Officer

87
A. RISK MANAGEMENT
Revised and Updated MLPP ( X805.2.a)
One-time submission of a Sworn Certification that
the revised MLPP was prepared, and approved by
the BOD

Regular updating at least once every 2 years

Revision or update to be
approved by the BOD

88
A. RISK MANAGEMENT
Monitoring and Reporting Tools ( X805.3.)

Capable of Must
Appropriate
generating regularly
to risk-
timely, apprise
profile and
accurate and BOD/SM of
business
complete AML/TF
complexity
reports compliance

89
A. RISK MANAGEMENT
Monitoring and Reporting Tools ( X805.3.)
a. For Universal Banks and
Commercial Banks ( X805.3.a)
Electronic
Contains functionalities
mentioned in Subsection X807.2
b. Other CIs Manual monitoring
(Subsection X805.3.b.)

90
A. RISK MANAGEMENT
Internal Audit (IA) Function ( X805.4.)
Periodic and independent evaluation of
the risk management system
Degree of adherence to internal control
mechanisms
Adequacy and effectiveness of other
internal controls
UBs and KBs: Efficiency of the electronic
monitoring systems functionalities
91
A. RISK MANAGEMENT
Results of Internal Audit ( X805.4)
Timely communicated to the BOD

Open for scrutiny by BSP examiners

Promptly communicated to the CO for


appropriate corrective action

CO regularly submit reports to the BOD

92
B. CUSTOMER IDENTIFICATION PROCESS
(Section X806)
System to verify:
true identity of customers
legal existence/organizational structure of
juridical entities
authority/identification of all persons
purporting to act on their behalf

93
B.CUSTOMER IDENTIFICATION PROCESS
(Section X806)
Risk-based and tiered:
customer acceptance
customer retention
customer due diligence (CDD)
Reduced CDD Low risk clients
Average CDD Normal or Medium risk
Enhanced CDD High risk accounts

94
B. CUSTOMER IDENTIFICATION PROCESS
Customer Acceptance Policy ( X806.1)
Clear, written, and graduated
Financially or socially disadvantaged are
not denied access to financial services
Criteria for type of customers
Standards for applying reduced, average and
enhanced due diligence
Documentation on risk profiling and standard of
customer due diligence

95
B.CUSTOMER IDENTIFICATION PROCESS
Criteria for type of customers ( X806.1.a.)
Low, normal and high risk.

Standards for applying reduced, average and


enhanced due diligence.

Documentation on risk profiling


and the standard of CDD applied.

96
B. CUSTOMER IDENTIFICATION PROCESS
Customer Acceptance Policy Design
FACTORS TO CONSIDER:
Background and source of funds
Country of origin and residence or operations
Public or high profile position of customer or its
directors/trustees, SHs, officers
and/or authorized signatory
linked accounts

97
B.CUSTOMER IDENTIFICATION PROCESS
Customer Acceptance Policy Design
FACTORS TO CONSIDER:
Watchlist of individuals and entities
(OFAC, BSP/AMLC Circulars,
International Organizations)

Business activities

Type of services/products/
transactions to be entered w/ CI

98
B.CUSTOMER IDENTIFICATION PROCESS
Customer Due Diligence

Reduced Due Diligence - Low

Average Due Diligence - Normal

Enhanced Due Diligence - High

99
B.CUSTOMER IDENTIFICATION PROCESS
Reduced Due Diligence (X806.1.d)
For customers assessed to be of low risk

Low Risk Individual Customers

With regular employment or


economically productive activity
Small account balance and transactions
Resident in the area of the CIs office or branch

100
B.CUSTOMER IDENTIFICATION PROCESS
Reduced Due Diligence (X806.1.d)
Low Risk Entities:
Banking institutions
Trust entities
Quasi-Banks authorized by BSP
Publicly listed companies
Government agencies, GOCCs

101
B.CUSTOMER IDENTIFICATION PROCESS
Reduced Due Diligence (X806.1.d)
Individual Customers
Defer acceptance of the min. info
Obtain information numbers 1 to 7 at time of
account opening
Info nos. 8-11, may be obtained w/in
reasonable time but not exceeding 90 days
from account opening

102
B.CUSTOMER IDENTIFICATION PROCESS
Reduced Due Diligence (X806.1.d.)
Corporate, Partnership, sole proprietorship
entities, banks, trust entities, quasi-banks, publicly
listed companies, government agencies:

Only Information Number 4 may be obtained at the time


of account opening

103
B.CUSTOMER IDENTIFICATION PROCESS
Average Due Diligence (X806.2.a.)
Obtain upon account opening or before
establishing business relationship all minimum
information
Confirm these information with valid identification
documents

104
B.CUSTOMER IDENTIFICATION PROCESS
Enhanced Due Diligence (X806.1.b.)
Apply to customers that are assessed as HIGH RISK
Monitor customers transactions
Obtain additional information
Conduct validation procedures
Obtain senior management approval

105
B.CUSTOMER IDENTIFICATION PROCESS
High Risk Customers (X806.2.m.)
Customer from a country with :
Inadequate AML standards
Does not sufficiently apply regulatory supervision
or the FATF recommendations
Presents greater risk for crime, corruption or TF

106
B.CUSTOMER IDENTIFICATION PROCESS
High Risk Customers - X806.2.m.
Take extreme caution and vigilance in its dealings.

In no case will reduced diligence be applied.

Secure the approval of senior


officer in accepting a high risk
customer in all instances

107
B.CUSTOMER IDENTIFICATION PROCESS
High Risk Customers - X806.2.l.
A covered institution shall require their customers who are
foreign exchange dealers, money changers and remittance
agents to submit a copy of the certificate of registration issued
to them by the BSP as part of their customer identification
document. The certificate of registration shall be for each
head office, branch, agent, sub-agent, extension office or
business outlet of foreign exchange dealers, money changers
and remittance agents.
Foreign exchange dealers, money changers and remittance
agents customers presenting greater risk, such as shell
companies shall be subject to enhanced due diligence.
108
B.CUSTOMER IDENTIFICATION PROCESS
Enhanced Due Diligence (X806.1.b.)
Obtain additional information
Individuals
List of other Banks
List of companies (DOS)
List of banking services
Corporate or Juridical Entity
Bank references
KYC information and IDs of primary officers, SHs
(2%) and Directors
109
B. CUSTOMER IDENTIFICATION PROCESS
Enhanced Due Diligence (X806.3.a.)
In the course of customer account or transaction
monitoring:
Raises doubt on the info or document provided or
the ownership of the entity
Any of the circumstance for the filing of a STR exists

Justifies reclassification to high risk

110
B.CUSTOMER IDENTIFICATION PROCESS
Minimum Validation Procedures (X806.1.c)
Individual
Confirm DOB versus duly authenticated official
document.

Verify the permanent address.

Contact by phone, e-mail or TY letters.

Determine authenticity of the IDs.

111
B.CUSTOMER IDENTIFICATION PROCESS
Minimum Validation Procedures (X806.1.c)
Corporate
Require submission of audited financial statements
Inquire status from supervising authority
Obtain bank references
On-site visitation
Contact by phone, e-mail or TY letters

112
B.CUSTOMER IDENTIFICATION PROCESS
Enhanced Due Diligence (X806.1.b.)
Additional information cannot be obtained.
Information or document provided is false.
Result of validation process is unsatisfactory.

DENY relationship

113
B.CUSTOMER IDENTIFICATION PROCESS
Face to Face Contact ( X806.1.e)
General Rule: No new accounts shall be opened and
created w/o face-to-face contact and personal interview.

Exceptions: ( X806.1.e.1 e.2)


1. Account opened through a trustee,
nominee, agent, or intermediary.
2. Outsourcing arrangement.
3. Third Party Reliance.

114
B.CUSTOMER IDENTIFICATION PROCESS
1. Account opened through a trustee, nominee,
agent, or intermediary ( X806.1.e.1)
Establish and record true and full
identity and existence of BOTH: Determine the true nature
of the parties capacities
trustee, nominee, agent or and duties.
intermediary.
trustor, principal, beneficial Apply criteria for assessing
owner, or person on whose risk profile and standard of
behalf account is being due diligence.
opened.

115
B.CUSTOMER IDENTIFICATION PROCESS
2. Outsourcing arrangement ( X806.1.e.2.)
Face-to-face contact may be outsourced to a counter-
party
Without prior MB approval
May be a CI or non- CI
formally documented
conditions under Subsection X806.2.d. are met
Subject to existing rules on outsourcing

116
B. CUSTOMER IDENTIFICATION PROCESS
Conditions for Outsourcing:
Counterparty is a Covered Institution (CI)
Written service level agreement
Reliable and acceptable customer identification
system and training program
IDs and other documents turnover within a period
not > 90 calendar days to the CI for review and risk
assessment
B.CUSTOMER IDENTIFICATION PROCESS
Conditions for Outsourcing:
Counterparty is a Non Covered Institution
All conditions for CI counterparty
Employees have similar training program
Annual monitoring and review by the CI of the
performance of the counterparty

118
B.CUSTOMER IDENTIFICATION PROCESS
Third Party Reliance ( X806.1.e.3)
If a third party has conducted the face-to-face contact:
On its own customer
Referred to a CI
The CI may rely on the face-to-
face contact of the third party.

Provided that the pertinent requirements in


X806.2.e.1. are also met.

119
B.CUSTOMER IDENTIFICATION PROCESS
Third Party Reliance ( X806.2.e.1)
Covered Institutions may rely on the customer
identification process undertaken by third party,
defined as:

Covered Institution.
Financial institution operating abroad.

120
B. CUSTOMER IDENTIFICATION PROCESS
Third Party is a CI ( X806.2.e.1.a)
Covered Institutions shall obtain from the 3rd
PARTY a written sworn certification containing
the following:
3rd Party conducted customer identification
1 processes in accordance w/ the UARR and its
own MLPP plus face-to-face requirement.
The relying CI has the ability to obtain
2
identification documents from the 3rd Party
upon request w/out DELAY.

121
B. CUSTOMER IDENTIFICATION PROCESS
Third Party is a FI operating Abroad
1. Apply all contents required in sworn certification.
2. Laws of country where 3RD PARTY is operating has
equal or more stringent customer identification
process requirement.

3. Has not been cited in violation thereof.

4. Obtain approval from SM.

122
B. CUSTOMER IDENTIFICATION PROCESS
New Individual Customers and Authorized
Signatories (Subsection X806.2.a.)
1. Name 5. Source of funds
2. Present address 6. Permanent address
3. Date and place of birth 7. Nationality
4. Nature of work, name of 8. TIN, SSS, or GSIS
employer or nature of self
-employment/business 9. Contact details
10. Specimen Signature
11. Name, address, date and place of birth, nature of work and
12
source of funds of beneficial owner or beneficiary if applicable
3
B.CUSTOMER IDENTIFICATION PROCESS
New Corporate/Juridical Entities (X806.2.b.)
Develop a systematic procedure to identify the entity.

Open and maintain accounts in the true and full name


of the entity
Ensure that the entity has not been, or is not in the
process of being dissolved, struck-off, wound-up,
terminated or otherwise placed under receivership or
liquidation

124
B. CUSTOMER IDENTIFICATION PROCESS
New Corporate/Juridical Entities (X806.2.b.)
Certificates of Registration (DTI,SEC,BSP);
1
Articles of Incorporation or Association and By-Laws;
2
Principal business address;
3
Board or Partners Resolution duly certified by the
Corporate/Partners Secretary authorizing the signatory
4 to sign on behalf of the entity
Latest General Information Sheet (List of names of
directors/trustees/partners and principal stockholders
5 owning at least 20%; primary officers

12
5
B. CUSTOMER IDENTIFICATION PROCESS
New Corporate/Juridical Entities (X806.2.b.)
Contact number of the entity and authorized
6 signatory/ies

Source of funds and nature of business;


7
Name, present address, date and place of birth, nature
of work and source of funds of beneficial owner or
8 beneficiary, whenever applicable;

For entities outside the Philippines similar documents


9 duly authenticated by the Philippine Consulate where
said entities are registered

126
B. CUSTOMER IDENTIFICATION PROCESS
Valid Identification Documents (X806.2.c)
For all types of financial transactions.
Financial transactions involving OFWs.
First time to engage in a financial transaction:
Present original and submit a clear copy of at least (1)
valid photo-bearing ID document issued by an official
authority.

127
B. CUSTOMER IDENTIFICATION PROCESS
Official Authority
Government of the Republic of the Philippines
Its political subdivisions and instrumentalities
GOCCs
Private entities/institutions
registered with, supervised by or
regulated by the BSP, SEC or IC

12
8
B. CUSTOMER IDENTIFICATION PROCESS
Valid IDs ( X806.2.c)
Passport (local and foreign)
Drivers license
PRC ID
NBI clearance
Police clearance
Postal ID
Voters ID

129
B. CUSTOMER IDENTIFICATION PROCESS
Valid IDs (X806.2.c)
Tax Identification Number Seamans book
Barangay certification Alien Certification of
Registration/Immigrant Certificate
GSIS e-Card
of Registration
SSS card
Government office and GOCC
Senior Citizen card
Certification from the National
OWWA ID Council on Disability Affairs
OFW ID Company IDs issued by private
IBP ID entities or institutions registered
with or supervised or regulated
DSWD certification by BSP, SEC, IC.
13
0
B. CUSTOMER IDENTIFICATION PROCESS
Other Valid IDs
STUDENTS who are Beneficiaries of remittances or
fund transfers, and not yet of voting age
Present original and submit a clear copy of 1 valid
photo-bearing school ID duly signed by principal

NON-RESIDENT CUSTOMER
Similar IDs duly issued by the foreign government
where the customer is a resident/citizen

131
B. CUSTOMER IDENTIFICATION PROCESS
Valid IDs: Miscellaneous Provisions
Submission of clear copy of 1 valid ID on
one-time basis at the start of relationship.

Submission of updated photo/relevant


information based on risk and materiality

Classification of ID documents based on


reliability and ability to validate information

132
B. CUSTOMER IDENTIFICATION PROCESS
Valid IDs : Miscellaneous Provisions
Acceptance of other IDs provided that it shall not be
the sole means of identification

If ID does not bear photo or it does


not clearly show the face: CI may use
its own technology to take the
photo.

13
3
B. CUSTOMER IDENTIFICATION PROCESS
Exceptions to the Gathering of Minimum
Information
Outsourcing Arrangement (Subsection X806.2.d)

Trustee, Nominee, Agent or Intermediary Account


(Subsection X806.2.e)

Third Party Reliance


(Subsections X806.2.e.1 and X806.2.e.1.a and b

134
B. CUSTOMER IDENTIFICATION PROCESS
Outsourcing of minimum information
( X806.2.d)
Without prior MB approval

May or may not be a CI

Ultimate responsibility is with counter-party


KYC
Record keeping
compliance with conditions

13
5
B.CUSTOMER IDENTIFICATION PROCESS
Trustee, Nominee, Agent or Intermediary Account
( X806.2.e)
Establish and record the true and full identity
Determine the true nature of the parties capacities
and duties
Conduct risk profiling and determine the standard of
due diligence to be applied
In case of doubt, apply enhanced due diligence
(Subsection X806.1.b)

136
B. CUSTOMER IDENTIFICATION PROCESS
Politically Exposed Person Defined (Section X803 )
An individual who is or has been entrusted with
prominent public positions in the Philippines or in a
foreign state;
Including the following:
heads of state or of government,
senior politicians,
senior national or local government,
judicial or military officials,
senior executives of GOCCs and important political party
officials.
13
7
B. CUSTOMER IDENTIFICATION PROCESS
Politically Exposed Person (X806.2.g )
Covered Institutions shall:
Establish and record the true and full identity of
PEPs as well as their immediate family members
and the entities related to them;

Establish a policy on applicable


standard of due diligence taking
into consideration their position
and attendant risks.
138
B. CUSTOMER IDENTIFICATION PROCESS
Fund/Wire transfer ( X806.2.i.)
Minimum safeguards for CIs:
Beneficiary institution shall not accept pay-out
instructions to non-customer beneficiary unless CDD
is conducted.

If originator and beneficiary are the


same person, rules on 3rd party
reliance may be applied treating
originating institution as 3rd Party.

139
B. CUSTOMER IDENTIFICATION PROCESS
Fund/Wire transfer ( X806.2.i.)
The originating institution shall not accept
instructions to fund/wire transfer from a non-
customer originator, unless CDD is conducted;

If the originator is also a high risk


customer, beneficiary institution
must conduct EDD on the
beneficiary and the originator (CROSS
BORDER TRANSFERS);

140
B. CUSTOMER IDENTIFICATION PROCESS
Fund/Wire transfer ( X806.2.i.)
Beneficiary institution shall refuse to effect the
fund/wire transfer or pay-out whenever:

additional information cannot be obtained


document provided is false/falsified
unsatisfactory validation process

Note: This is w/out prejudice to the reporting of a ST


to the AMLC when circumstances warrant.
14
1
B. CUSTOMER IDENTIFICATION PROCESS
Fund/Wire transfer ( X806.2.i.)
Cross border and domestic fund/wire transfers
amounting to P50,000 or more shall include the
following originator information:

Name of originator.
Address or in its absence national identity
number or date and place of birth of originator.
Number of originator or in its absence, a
unique reference number must be included.

142
B. CUSTOMER IDENTIFICATION PROCESS
Fund/Wire transfer ( X806.2.i.)
If wire transfer (= > P50,000) is unaccompanied by
originator information, beneficiary institution shall:
Exert all efforts to establish true and full identity of
originator by requiring additional information from the
originating institution or intermediary institution.

Apply EDD

143
B. CUSTOMER IDENTIFICATION PROCESS
Buyers of CC, MC, or CC ( X806.2.j.)
May be sold only to existing customers
Maintain a register indicating the following info:
True and full name of buyer or applicant if buying on
behalf of an entity
Date of issuance and number of the check
Account number
Name of the payee
Amount
Purpose of such transaction
144
B. CUSTOMER IDENTIFICATION PROCESS
Buyers of CC, MC or CC Other than Existing
Customer ( X806.2.j.1)

Covered Institution shall:


Obtain information required in X806.2.j. and identification
documents and minimum information to establish true and
full identity and existence of applicant.
Apply EDD where circumstances
warrant, but in no case shall reduced
due diligence shall be applied.

145
B. CUSTOMER IDENTIFICATION PROCESS
Buyers of CC, MC or CC in Blank or Payable to Cash, Bearer or
Numbered Account (X806.2.j.2.)

Allowed subject to the following conditions:


Amount of each check shall not exceed P10,000
Buyer of check is properly identified
Maintain register indicating the data in X806.2.j
Ensure that instruments are not being used/resorted to by buyer or
depositor in furtherance of a money laundering activity
If deposited: Also subject to the same requirements of scrutiny
applicable to cash deposits
Reported to AMLC if there is a reasonable ground to suspect that said
transactions are being used to launder funds of illegitimate origin.
146
B. CUSTOMER IDENTIFICATION PROCESS
FX Dealers/ Money Changers/ Remittance
Agents ( X806.2.l.)

Require Certificate for each


customers to head office, Apply EDD for
submit copy of branch, agent, sub- customers
BSP issued agent, extension presenting
certificate of office or business greater risk.
registration outlet.

147
B. CUSTOMER IDENTIFICATION PROCESS
Numbered Accounts ( X806.2.o.)
PH and FX currency non-checking numbered accounts are
allowed PROVIDED, true and full identity and existence of
customers are established

Accounts existing prior to 17 October 2001


shall continue to exist PROVIDED, true and full
identity and existence of beneficial owners of
such accounts were established

Apply EDD in accordance with Subsection


X806.1.b.

148
B. CUSTOMER IDENTIFICATION PROCESS
Prohibited accounts (X806.2.p.)
anonymous accounts
accounts under fictitious names
numbered checking accounts
and all other similar accounts

Maintain accounts only in the true and full name of the


account owner.

149
B. CUSTOMER IDENTIFICATION PROCESS
On-going monitoring of customers, accounts
and transactions (Subsection X806.3)
Updating of identification information and
documents is based on materiality and risk.
A system that can recognize the
normal and reasonable account
activity of customers and detect
unusual or suspicious patterns of
account activity.

150
D. RECORD KEEPING (Section X808)
Covered Institutions shall:

Undertake the necessary adequate security


measures to ensure confidentiality.

Prepare and maintain


documentation to enable the
AMLC and/ or the courts to
establish an audit trail.

151
D. RECORD KEEPING (Section X808)
Identification records: Maintained and
safely stored as long as the account is
active.

Transaction records: Maintained and


safely stored for 5 yrs. from date of
transaction.

152
D. RECORD KEEPING
Money Laundering Case filed in Court
( X808.2.)
Retained beyond the five (5) year retention period
Until confirmed that the
case has been finally
resolved or terminated by
the court.

153
D. RECORD KEEPING
Safekeeping of records and documents ( X808.3.)
Covered Institutions shall:
Designate at least 2 officers, jointly responsible and
accountable.
Make documents and records available without
delay during BSP examinations.
Retain originals or copies in such forms that are
admissible in court.

154
D. RECORD KEEPING
Closed Accounts ( X808.1)
Preserve and safely store:
Records on customer identification
account files
business correspondences

At least five (5) years from date of closure

155
E. AML TRAINING PROGRAM (Sec. X809)

Annual
Efficient
Adequate
Continuous

156
E. AML TRAINING PROGRAM (Sec. X809)
Includes awareness of respective duties and
responsibilities under the MLPP

Customer identification process;


Record keeping requirements;

CT and ST reporting; and

Internal processes - chain of command for the


reporting and investigation of suspicious and
money laundering activities.

157
E. AML TRAINING PROGRAM (Sec. X809)
Comprises of various focuses for
different line of work
Provide regular refresher trainings

Compliance Office is the custodian of AML training


program and records

To be made available during periodic or special BSP


examination.

158
F. ENFORCEMENT ACTIONS

Sanctions and Penalties (Section X811)


Violation of UARR constitutes major violation

BOD, SM and line officers are subject to


enforcement actions and monetary penalties

159
F. ENFORCEMENT ACTIONS

Sanctions and Penalties (Section X811)


Monetary penalties
Enforcement actions
Written reprimand
Suspension or removal from office
Disqualification from holding any position in
any CI

160
AML Risk Rating System
Discussion Outline
Authority of BSP to issue the ARRS
Overview of the ARRS
Composite Ratings
Component Ratings
Enforcement Actions
Authority of BSP to Issue the ARRS

Rule 17.b of the RIRR of the Anti-Money


Laundering Act, as amended by R.A. No. 10167:
The BSP, the SEC and the IC shall issue their
respective AML/CFT Guidelines and Circulars to
assist the AMLC in effectively implementing the
provisions of the AMLA, as amended, these rules,
as well as other pertinent laws and rules.

1
6
Authority of BSP to issue ARRS

Identify, assess, and


FATF understand the ML and TF
Recommendati risks,
on No. 1 - Take action, including
Assessing risks designating an authority or
and applying a mechanism to coordinate
risk-based actions to assess risks,
approach (15 Apply resources, aimed at
February 2012) ensuring the risks are
mitigated effectively.
Authority of BSP to issue ARRS

FATF Based on that


Recommendati assessment, countries
on No. 1 - should apply a RBA to
Assessing risks ensure that measures to
and applying a prevent or mitigate ML
risk-based and TF are
approach (15 commensurate with the
February 2012) risks
Principle 19 of the Basel Core Principles of
Effective Banking Supervision
Encourages supervisors to do the following:

Develop and maintain a thorough understanding of the


operations of individual banks, banking groups and the
banking system as a whole
Strengthen regulatory and supervisory framework to
improve risk management and corporate governance of
banks and empower BSP to monitor, intervene and
enforce corrective actions

165
Monetary Board Approval

On 2 March 2012, the Anti-


Money Laundering Risk Rating
System (ARRS) was approved
for implementation by the
Monetary Board under
Resolution No. 362 .

166
BSP Issuance - ARRS

Memorandum to All
BSP Covered
Institutions No. 2012-
017 dated 4 April
2012

167
What is the ARRS?

A necessary consequence of a risk-


based approach to supervision.

Not intended to add to the


regulatory burden of BSP covered
persons (CPs) or require additional
policies or processes.
Consistent with Principle 19 of the
Basel Core Principles of Effective
Banking Supervision.
16
8
What is the ARRS?
An effective supervisory tool and internal
rating system to determine if risk management
policies and practices and internal controls of a
CP to prevent ML/TF are in place, well
disseminated and effectively implemented.

It enables assessment of all CPs in a


comprehensive and uniform manner.

It aids to direct the focus of supervisory


attention on entities exhibiting inefficiencies
in managing AML Risks.
169
Overview of the Rating System
A CP is assigned a Numerical and
Adjectival composite rating based on four
(4) components, to wit:
Sound AML policies and procedures
Efficient BOD and SM embodied in a BOD-approved Money
oversight Laundering and Terrorist Financing
(MANAGEMENT) Prevention Program (MLPP)

Robust internal controls


and audit Effective implementation
(IMPLEMENTATION)
(CONTROLS AND AUDIT)
Composite Ratings

Assigned based on a 1 to 4 numerical scale; 1 =


Grossly Inadequate; 2 = Vulnerable; 3 = Adequately
Sound; 4 = Sound

Generally bears close relationship with Component


ratings;

Not derived by computing an arithmetic average of


Component ratings;

171
Composite Ratings

Highest rating of 4 indicates strongest RMS and most


effective operational practices that entail the least
degree of supervisory concern;

Lowest rating of 1 signifies weakest RMS and defective


implementation which requires highest degree of
supervisory concern and may place the CP within the
framework of PCA.

172
Composite 4 - SOUND
OVER-ALL FRAMEWORK
High level of RM and control
Risk and control framework is clearly defined
and fully compatible with the nature and
complexity of the institutions activities.

COMPONENT RATINGS

All or most of its component ratings are 4 with


no component rating below 3.
Composite 4 - SOUND

CAPACITY TO WITHSTAND RISKS


Most capable of withstanding ML risks and
is unlikely to be used as ML conduit for the
proceeds of unlawful activities.

ENFORCEMENT ACTION
NONE

174
Composite 3 - ADEQUATELY SOUND
OVER-ALL FRAMEWORK
Acceptable level of risk management and control with
minimal supervisory concern. The risk management
and control framework is adequately defined and
sufficiently compatible with the nature and complexity
of the institutions activities.

COMPONENT RATINGS
All or mostly 3 but no component rating less than 2.

175
Composite 3 - ADEQUATELY SOUND

CAPACITY TO WITHSTAND RISKS


Can withstand any associated AML risks and there is
low probability of it being used as a money laundering
conduit for the proceeds of unlawful activities.

ENFORCEMENT ACTION
NONE

176
Composite 2 - VULNERABLE
OVER-ALL FRAMEWORK COMPONENT
Risk Management and Control RATINGS
needs improvement and requires
more than normal supervision
All or
Risks are insufficiently controlled
and mitigated, leaving too high a mostly 2
residual risk for the institution
The risk management and control
framework is poorly defined or
insufficiently compatible with the
nature and complexity of the
institutions activities.
177
Composite 2 - VULNERABLE

CAPACITY TO
ENFORCEMENT
WITHSTAND RISKS
ACTION
Vulnerable to AML risks
Warning to written
and may be used as
reprimand.
money laundering
Monetary penalties
conduit for the
may be imposed on
proceeds of unlawful
a one-time basis.
activities.
Composite 1 - GROSSLY INADEQUATE
OVER-ALL FRAMEWORK
Risk management needs drastic and/or immediate
improvement which requires close supervisory
attention. Risks are not or inadequately mitigated and
poorly controlled. The risk management and control
framework is neither defined nor compatible with the
nature and complexity of the institutions activities.

COMPONENT RATINGS
All or mostly 1
Composite 1 GROSSLY INADEQUATE

CAPACITY TO WITHSTAND RISKS


Not capable of withstanding AML risks and may likely
be used as a conduit for the proceeds of unlawful
activities.

ENFORCEMENT ACTION
Warning, written reprimand or suspension. Monetary
penalties may be imposed computed from date of
notice until the improvement is satisfactorily effected
MANAGEMENT COMPONENT RATING

COMPONENT RATING
Numerical 4 3 2 1
Overall Strong Adequate Less than Weak
and oversight adequate Oversight
efficient
oversight
Sub- All or All or All or All or
components mostly 4, mostly 3, mostly 2 mostly 1
no < 3 no < 2
MANAGEMENT SUBCOMPONENTS
SUB-COMPONENTS RATING
Numerical 4 3 2 1
Management of High Level, Acceptable Less than Low ability,
MLPP (Ability of minor level, minimal acceptable, excessive
CO) violations violations moderate violations
violations
MIS (reliable, High Level Satisfactory Less than Low level of
timely , complete, satisfactory reliability
helpful)
RM Practices High Level Satisfactory Less than Low level
(consistent and satisfactory
effective)
Self-assessment High Level Adequate Less than Low level
systems Adequate
(independent,
accurate and useful

182
MLPP COMPONENT RATING

COMPONENT RATING
Numerical 4 3 2 1

Overall Sound, Satisfactory, Less than Deficient


appropriate proper satisfactory

Sub- All or All or mostly All or All or


components mostly 4, 3, no < 2 mostly 2 mostly 1
no < 3

183
MLPP SUBCOMPONENTS
SUB-COMPONENTS RATING
Numerical 4 3 2 1
Coverage of MLPP Comprehensive Significantly Needs Deficient,
(As to AMLA, RIRR covers all covers all improvement, majority of
and UARR) lacks some provisions not
major indicated
provisions
RM Practices All identified, Most identified, May be Deficient, not
incorporated adequately identified, identified, not
incorporated inadequately available
incorporated
Dissemination of Disseminated Disseminated Disseminated Poor
MLPP and Level of to all, Full to most, only to some, dissemination
awareness awareness Reasonable needs and awareness
awareness improvement

184
INTERNAL CONTROL AND AUDIT
COMPONENT RATING

COMPONENT RATING
Numerical 4 3 2 1
Overall Robust Satisfactory Less than Deficient
satisfactory

Sub- All or All or All or All or


components mostly 4, mostly 3, mostly 2 mostly 1
no < 3 no < 2

185
INTERNAL CONTROL AND AUDIT
SUBCOMPONENTS
SUB-COMPONENTS RATING
Numerical 4 3 2 1
Independence Fully Satisfactorily Less than Lacks
and Support independent, independent, satisfactory indepen-
total support Sufficient independenc dence and
support e and support
support
Coverage Comprehen- Significant Needs Deficient
sive coverage improvement
Timeliness Prompt, Within Needs Poor,
immediately reasonable time improvement delayed
undertaken

186
EFFECTIVE IMPLEMENTATION
COMPONENT RATING
COMPONENT RATING
Numerical 4 3 2 1
Overall High Acceptable Needs Poor
improvement

Sub- All or All or All or mostly All or


components mostly 4, mostly 3, 2 mostly
no < 3 no < 2 1

187
EFFECTIVE IMPLEMENTATION COMPONENT
SUBCOMPONENTS
SUB-COMPONENTS RATING
Numerical 4 3 2 1
Risk-based and Sound Adequate Needs Deficient
Tiered improvement
Customer
acceptance and
identification
On-going Robust Acceptable Needs Deficient
Monitoring improvement

CTR Reporting Sound Satisfactory Less than Poor


system satisfactory

188
EFFECTIVE IMPLEMENTATION COMPONENT
SUBCOMPONENTS
SUB-COMPONENTS RATING
Numerical 4 3 2 1
STR Reporting Sound Satisfactory Less than Poor
System satisfactory

Record Keeping High Adequate Needs Poor


and retention improvement
system

Continuing High Adequate Needs Weak


education and improvement
Training Program
Enforcement Action
Composite Enforcement Action
Rating
4 and 3 No Enforcement Action
2 and 1 Written Action Plan approved by
BOD, for submission to the AMLSG.
AMLSG assesses the viability of the
Plan and monitors implementation
1 Considered an Unsafe and unsound
banking practice.
Enforcement Action
non-submission of acceptable WRITTEN
ACTION PLAN within deadline, or
failure to implement the WRITTEN
ACTION PLAN,
Enforcement actions under Circular No.
706 shall be recommended on the
covered person and its responsible
officers including monetary penalties to
be computed on a daily basis.

191
MODULE 3: COVERED AND SUSPICIOUS
TRANSACTIONS
Covered and Suspicious Transaction Reporting
(Section X807)
Submitted to the AMLC within ten (10) working
days from occurrence thereof

Transactions which both a covered and suspicious


are reported as a suspicious transaction.

192
MODULE 3: COVERED AND SUSPICIOUS
TRANSACTIONS
BSP Memo # 2013-0151

States that AMLC registration procedures for CIs


are available at www.amlc.gov.ph

Requires CIs to immediately register with AMLC to


facilitate reporting of CTR and STR.

193
Covered Transaction

A transaction in cash or other


equivalent monetary instrument
involving an amount in excess of
P500,000.00 within one (1)
banking day.
C. COVERED AND SUSPICIOUS TRANSACTIONS
Suspicious Transaction Reporting

No underlying legal or trade obligation, purpose or


economic justification;

The client is not properly identified;

The amount involved is not commensurate with the


business or financial capacity of the client;

195
C. COVERED AND SUSPICIOUS TRANSACTIONS
Suspicious Transaction Reporting

The clients transaction is structured in order to avoid


being the subject of reporting requirements;

The transaction is in any way related to an unlawful


activity or any money laundering activity or offense or

196
C. COVERED AND SUSPICIOUS TRANSACTIONS
Suspicious Transaction Reporting

Any circumstance relating to the transaction which is


observed to deviate from the profile of the client
and/or clients past transactions;

Any transaction that is similar or analogous to any of


the foregoing.

197
C. COVERED AND SUSPICIOUS TRANSACTIONS
STR or Not

A domestic helper pawned a rolex watch worth P1


million, she has not declared other source of income;

A suspicious looking man sent money to Basilan,


Maguindanao and Sulu allegedly for salaries of their
company, he presented a company ID which showed
he is a messenger.

198
C. COVERED AND SUSPICIOUS TRANSACTIONS
STR or Not
Jose filed for a payout as beneficiary of various
remittances from abroad. Per his ID he is a resident of
Quezon City but is cashing out in Cotabato City. His
explanation on the circumstances is evasive.

199
C. COVERED AND SUSPICIOUS TRANSACTIONS
Deferred reporting
Circular Letter No. CL-2013-011 dated 26 Feb 2013

Adopted AMLC Resolutions No. 10 and 10-A both dated 24


January 2013
Superseded the AMLC Resolution Nos. 58 and 24, dated 25
June 2005 and 18 March 2009, respectively.
Partly X807.1.)
Increased the number of no/low risk covered transactions
from six to thirteen.

200
C. COVERED AND SUSPICIOUS TRANSACTIONS
Addtl Covered Transactions subject to deferred reporting
AMLC Resolution No. 10 dated 24 January 2013:
1. Transactions between BSP supervised CI and the BSP;
2. Transactions between banks operating in the Phils.;
3. Roll-overs of placements of time deposit and/or other clients
investment
4. Transactions involving transfer of funds from one deposit account to
another deposit account of the same person within the same bank
5. Bank-initiated (transactions of the bank) or system generated
transactions
i. Internal operating expenses and capital expenditures of CIs;
C. COVERED AND SUSPICIOUS TRANSACTIONS
Addtl Covered Transactions subject to deferred reporting
AMLC Resolution No. 10 dated 24 January 2013:
5. Bank-initiated (transactions of the bank) or system generated
transactions
ii. Remittance by a bank, acting as a collecting agent, of taxes
and other government fees collected from the public, to the
Bureau of Internal Revenue and other government agencies;
iii. Remittance by a bank, acting as collecting agent, of
customers bills and payment (e.g. utilities);
iv. Adjusting entries or reclassification of accounts;
C. COVERED AND SUSPICIOUS TRANSACTIONS
Addtl Covered Transactions subject to deferred reporting
AMLC Resolution No. 10 dated 24 January 2013:
5. Bank-initiated (transactions of the bank) or system generated
transactions
v. Service fees, proprietary revenue fees, arrangement fees,
loan syndication fees and other form of fees incidental to loans
granted or investments sold, provided that the loans granted or
the sale of investment was reported at gross or at its principal
amount; and
vi. Investments of covered institutions in government
securities, or in companies listed in the local or international
Stock Exchanges.
C. COVERED AND SUSPICIOUS TRANSACTIONS
Addtl Covered Transactions subject to deferred reporting
AMLC Resolution No. 10 dated 24 January 2013:
6. Payment of loan and/or its corresponding interest regardless of the
manner of payment (cash, fund transfer, debit of account, check),
provided that the grant of loan was previously reported as covered
transaction;
7. Reclassification of loan to Real and other Properties Acquired (ROPA);
provided that the loan availment was previously reported;
8. Installment of partial payment in the sale of ROPA, provided that the
total selling price of the ROPA in excess of P500,000.00 was reported
at the time of the execution of the contract to sell or sales contract
receivable, or deed of sale;
C. COVERED AND SUSPICIOUS TRANSACTIONS
Addtl Covered Transactions subject to deferred reporting
AMLC Resolution No. 10 dated 24 January 2013:

9. Loan repricing, loan renewal, loan restructuring, provided that there is


no change in borrowers name, otherwise, the loan shall be
considered as new loan, hence, reportable;
10. Transactions of the Trust department of a bank:
i. Investment/divestment of Unit Investment Trust Fund (UITF) and
Trust and Other Fiduciary Activities (TOFA);
ii. Investment/divestment of Investment Management Account (IMA),
such as Special Deposit Account, government securities, equities
traded in the Philippines Stock Exchange, real estate properties, and
deposits with own bank or other banks, and loans granted;
C. COVERED AND SUSPICIOUS TRANSACTIONS
Addtl Covered Transactions subject to deferred reporting
AMLC Resolution No. 10 dated 24 January 2013:

10. Transactions of the Trust department of a bank:


iii. Rollover of Investment of UITF, TOFA, and IMA, provided that the
initial contribution or placement was previously reported. Any
redemption, termination, or cancellation of investment resulting in
the closure of the trust account of a client shall be reported;
11. Transaction of government agencies with banks, except the
following:
i. Disbursements of government agencies that passed through the
Modified Disbursement Scheme (MDS), which
C. COVERED AND SUSPICIOUS TRANSACTIONS
Addtl Covered Transactions subject to deferred reporting
AMLC Resolution No. 10 dated 24 January 2013:

11. Transaction of government agencies with banks, except the following:


cont. disbursements are payable to private entities; non-
governmental organizations (NGOs); non-profit, charitable or religious
foundation; or to individual persons;
ii. Disbursement of government agencies coursed through other
depository banks, other than the MDS accounts, that are payable to
private entities; non-governmental organizations (NGOs); non-profit,
charitable or religious foundations; or to individual persons;
C. COVERED AND SUSPICIOUS TRANSACTIONS
Addtl Covered Transactions subject to deferred reporting
AMLC Resolution No. 10 dated 24 January 2013:

12. Agrarian Reform Receivables;


13. Payment for agricultural lands under the Agrarian Reform
Law.

Government agency refers to any of the various units of the


Government, including a department bureau, office,
instrumentality, or government-owned or controlled
corporations, or a local government or a distinct unit.
C. COVERED AND SUSPICIOUS TRANSACTIONS
Electronic Monitoring System ( X807.2)

MINIMUM: Detect transactions/accounts that


qualify as CTs or STs.
AUTOMATED FUNCTIONALITIES
CT/ST transaction monitoring
Watch list monitoring
Investigation
Generate accurate and complete CTRs
209
C. COVERED AND SUSPICIOUS TRANSACTIONS
Electronic Monitoring System ( X807.2 )
AUTOMATED FUNCTIONALITIES (Continued)
Aggregating activities of a customer with multiple
accounts
Complete audit trail
Record all STs and support
investigation of alerts

210
C. COVERED AND SUSPICIOUS TRANSACTIONS
Manual Monitoring ( X807.3)
CIs (other than UBs and KBs) must have a system of
flagging and monitoring functionalities.

Register of all STs brought to the attention of SM


whether or not the same has been reported with the
AMLC.

211
Compliance is our key role..

It is time to get rid of the concept that


AML is costly and non-profitable.
Hue Dang,
ACAMS Head, Asia Chapter

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