SEC: Capital market at ‘medium’ risk to becoming haven for money launderers


The Philippine capital market is at “medium” risk of being exploited for money laundering and terrorist financing activities, especially as the rise of digitalization makes it easier for criminals to avoid detection and conceal their financial pipeline, according to a Securities and Exchange Commission (SEC) assessment.

On money laundering risks, the Anti-Money Laundering Council (AMLC) has received a total of 774 suspicious transaction reports (STRs) involving P11.5 billion from 2017 to 2019, according to the SEC, which is part of the inter-agency AMLC. The majority of the transactions were suspected to have been facilitated for the commission of predicate crimes onshore, while five transactions were suspected to have been committed in China. Predicate crimes are components of larger crimes that may include racketeering, terrorist financing and money laundering.

Of all transaction reports or STRs submitted by the securities sector to the AMLC, 4.9 percent was linked to the predicate crime of plunder, 2.5 percent to graft and corruption practices, 0.9 percent to drug trafficking and related offenses, and 0.6 percent to fraudulent practices and other violations of the Securities Regulation Code (SRC).

The report was based on the 2021 securities sector risk assessment conducted by the SEC with technical assistance from the Asian Development Bank covering all of supervised 304 brokers, dealers, investment houses, underwriters of securities, government securities eligible dealers (GESDs), investment company advisers, mutual fund distributors and investment companies.

Such assessment did not cover the banking sector, which is separately supervised by the Bangko Sentral ng Pilipinas (BSP). Back in 2016, the Philippines was thrust into the global spotlight when some $81 million which was stolen by cyber-hackers from the Bank of Bangladesh found its way into the local banking system – particularly through the Jupiter branch of RCBC – and disappeared into local casinos.

As far as terrorist financing is concerned, the risk faced by the securities sector based on the volume of reports submitted to the AMLC was “extremely low or nil,” posing medium to low risks to the sector, the SEC said in the report issued on Tuesday.

Nonetheless, the SEC noted that the sector “attracts various criminal threats, with moderate level of sophisticated tactics and methods to commit offenses.”

“The cheap availability of internet access, increasing functionality of mobile phones, and technological advancements that speed up transactions… have provided criminals with tools to escape detection or to hide the proceeds of their illegal activities,” the SEC pointed out.

The sector’s risk exposure is likewise deemed as medium in terms of vulnerabilities, or characteristics that make it susceptible to criminal exploitation such as nature, size and complexity of business, as well as products and services, among others.

Still, a number of factors is seen to render the sector vulnerable to abuse. For instance, brokers/dealers have to deal with high liquidity and the speed at which trades can be made without suspicion make the capital market vulnerable to money laundering, the SEC said. INQ

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