Covered Institutions and their Obligations | Anti-Money Laundering Act (R.A. No. 9160, as amended by R.A. Nos. 9194, 10167, 10365, 10927, and 11521) | BANKING

Under the Anti-Money Laundering Act of 2001 (R.A. No. 9160), as amended by subsequent laws (R.A. Nos. 9194, 10167, 10365, 10927, and 11521), a comprehensive framework has been established to prevent, control, and penalize money laundering activities in the Philippines. This legislation places strict obligations on certain financial institutions and other sectors in the economy to identify, report, and cooperate with authorities in addressing money laundering risks.

Covered Institutions

The Anti-Money Laundering Act (AMLA), specifically Section 3(a), identifies Covered Institutions subject to compliance with its provisions. Over time, amendments have broadened the scope of these institutions to encompass various types of entities that may be susceptible to money laundering activities. The following entities are classified as covered institutions:

1. Banks and other institutions regulated by the Bangko Sentral ng Pilipinas (BSP), including:

   • Commercial banks
   • Thrift banks
   • Rural banks
   • Cooperative banks
   • Islamic banks
   • Quasi-banks

2. Non-bank Financial Institutions (NBFIs) such as:

   • Investment houses
   • Financing companies
   • Pawnshops
   • Money service businesses (e.g., money changers, remittance agents, foreign exchange dealers)

3. Insurance Companies, regulated by the Insurance Commission, including those offering life and non-life insurance products.

4. Securities Dealers and Brokers regulated by the Securities and Exchange Commission (SEC), including mutual funds, trust companies, and other similar entities.

5. Designated Non-Financial Businesses and Professions (DNFBPs) as designated by the law, including:

   • Real estate developers and brokers
   • Jewelers and precious stone dealers
   • Casinos and similar gaming establishments, including internet and ship-based casinos
   • Lawyers, notaries, accountants, and other legal professionals when they engage in financial transactions on behalf of clients

6. Virtual Asset Service Providers (VASPs), added under R.A. No. 11521, which includes cryptocurrency exchanges and related digital asset entities.

Obligations of Covered Institutions

The AMLA imposes stringent obligations on covered institutions, designed to ensure transparency, accountability, and effective monitoring to prevent, detect, and report potential money laundering activities. These obligations include:

1. Know-Your-Customer (KYC) and Customer Due Diligence (CDD):

   • Covered institutions must establish the true identity of their customers.
   • They are required to perform KYC checks before establishing a relationship with a customer, in compliance with the guidelines set forth by the Anti-Money Laundering Council (AMLC) and other relevant regulatory bodies.
   • Enhanced Due Diligence (EDD) is required for high-risk customers, which includes politically exposed persons (PEPs), individuals with a history of financial crimes, and customers involved in high-risk jurisdictions or transactions.

2. Record-Keeping Requirements:

   • Covered institutions must maintain records of all transactions for at least five (5) years from the date of the transaction or the date of account closure, whichever is applicable.
   • These records include customer identification information, transaction documents, and the results of due diligence checks.

3. Reporting of Covered and Suspicious Transactions:

   • Covered Transactions: Institutions must report transactions exceeding PHP 500,000 or its foreign equivalent within one business day. For casinos, the threshold is PHP 5 million.
   • Suspicious Transactions: Regardless of the transaction amount, covered institutions must report transactions that exhibit characteristics of money laundering or other illicit activities, including those with no clear lawful purpose or those that deviate from usual customer activities.

4. Anti-Money Laundering Programs (AML Program):

   • Covered institutions are required to establish and implement an AML Program to safeguard against money laundering risks. This program must include policies on risk assessment, employee training, and regular internal audit procedures.
   • The AML Program must designate a Compliance Officer responsible for ensuring AML compliance within the institution, reporting directly to the senior management.

5. Suspicious Transaction Monitoring:

   • Institutions are required to implement mechanisms to continuously monitor transactions and detect suspicious patterns. This includes the use of automated monitoring systems, especially for high-volume institutions such as banks, money service businesses, and casinos.

6. Periodic Reporting and Submission of Information:

   • Covered institutions are required to submit periodic reports to the AMLC regarding their compliance with AML regulations and any updates to their AML Programs.
   • When required, institutions must submit additional documentation or records to aid AMLC investigations.

7. Cooperation with the AMLC and Law Enforcement:

   • Covered institutions are required to cooperate with the AMLC and relevant authorities during investigations and inquiries into suspected money laundering activities.
   • They are also obligated to promptly respond to any AMLC orders for records, reporting, or freezing of suspicious accounts as mandated by law.

8. Freezing Orders and Compliance with Freeze Directives:

   • Under R.A. No. 10167, covered institutions must comply with AMLC’s authority to issue freeze orders on accounts suspected of money laundering.
   • The AMLC has the authority to initiate freeze orders without prior notice to the account holder for a maximum period as specified by law, subject to extensions upon judicial approval.

9. Protection of Confidentiality and Immunity for Reporting:

   • Covered institutions and their employees are protected from any liability arising from reports made in good faith. This ensures that compliance personnel are encouraged to report without fear of legal repercussions.
   • Institutions and employees are strictly prohibited from disclosing the contents of their reports to unauthorized persons, especially to the subject of the report, as this constitutes tipping-off, which is punishable under the AMLA.

Penalties for Non-Compliance

The AMLA prescribes penalties for covered institutions and responsible personnel found to be non-compliant with the Act. These penalties include:

1. Fines and Monetary Penalties:

   • Institutions and their officers may be subject to fines determined based on the degree of violation, number of infractions, and impact on AML enforcement.

2. Revocation or Suspension of Licenses:

   • For serious breaches, regulatory bodies like the BSP, SEC, or the Insurance Commission may impose administrative penalties, including the suspension or revocation of licenses to operate.

3. Criminal Liability:

   • Willful violations or refusal to cooperate with AML investigations may result in criminal charges, leading to imprisonment and fines, particularly for those involved in laundering funds.

4. Administrative Sanctions:

   • The AMLC and regulatory bodies can impose administrative sanctions, such as suspension of access to financial markets or limitations on business operations.

Key Amendments and Updates under R.A. Nos. 9194, 10167, 10365, 10927, and 11521

1. Expansion of Covered Institutions: Subsequent amendments, particularly R.A. Nos. 10365 and 11521, broadened the scope to include DNFBPs like real estate brokers, jewelry dealers, and VASPs, reflecting global standards under the Financial Action Task Force (FATF).

2. Introduction of Enhanced Compliance Measures: Amendments have emphasized more stringent KYC and CDD measures, particularly for high-risk customers, including politically exposed persons (PEPs) and non-resident clients.

3. Strengthening AMLC’s Powers: R.A. Nos. 10167 and 10365 empowered the AMLC to investigate and prosecute money laundering cases more effectively by enabling the issuance of freeze orders and the authority to examine bank accounts without court orders in specific cases.

4. Increased Thresholds for Casinos: R.A. No. 10927 incorporated casinos into the AMLA framework and set higher thresholds for reporting covered transactions due to the high-value transactions in the gaming sector.

In sum, the AMLA and its amendments impose a rigorous framework of compliance on financial institutions and other covered entities, mandating a high standard of vigilance against money laundering. Covered institutions are required to implement robust monitoring, record-keeping, and reporting mechanisms, with significant penalties for non-compliance. This legal framework aligns with international AML standards and reflects the Philippine government’s commitment to combat money laundering and terrorist financing activities.