The Control of Banking

The Control of Banking

How governments control the economy?

Monetary Policy – is one of the ways the government attempts to control the economy. If the money supply grows too fast, inflation will be too high. If its too slow, economic growth slows which affects the GDP (the indicator of economic health).

Monetary policy is one of the tools that a national government uses to control its economy.

Explanation: A government tries to control the overall

level of economic activity relative to its political objectives by using its monetary authority to manage the money supply and its availability.

This objective is “macroeconomic stability” – low unemployment, low inflation, economic growth, and a balance of external payments.

The Monetary Base and Open Market Operations

Monetary policy can be implemented by changing the size of the monetary base – this directly changes the total amount of money circulating in the economy.

A CB can use open market operations to change the monetary base. The CB, in a open market operation, would buy or sell bonds in exchange for hard currency. When the CB disburses or collects this hard currency payments, it alters the amount of currency in the economy, thus altering the monetary base.

Explanation: If the CB buys bonds, money supply increases

and thus interest rates decreases; the opposite happens if bonds are sold.

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Monetary base

The Reserve Requirement The Reserve Requirement – is the

requirement regarding the amount of funds banks must hold in reserve.

Reserve requirements must be viewed as a monetary policy tool of the central bank; relates to the stability of the money multiplier. (Note that the maximum expansion deposit multiplier is the function of the reciprocal of the required reserve ratio).

If required reserves are stable, then the money multiplier will, with certain bounds, be stable.

CBs can directly alter required reserves (within the limits set by Congress) and thereby alter the size of the money supply.

Explanation: If the reserve requirement percentage

grows, money supply would decrease by requiring a larger percentage of the banks’ demand deposits to be held by the CB, thus making them out of supply.

When reserve requirements increase, interest rates also increase; less money is also available to borrowers.

RR = Int. Rates

The Reserve Requirement

The Discount Window –is where banks are able to borrow reserves from the CB at a discount rate.

Many CBs have the authority to lend funds to financial institutions within their country.

By calling in existing loans or extending new loans, the monetary authority can directly change the size of the money supply.

Note: Discounting – is the lending by CB to banks.

The Discount Window Lending

Explanation: If the CB lends unlimited quantities at

any given discount rate, it can directly control short-term interest rates.

It can do so by setting the discount below market interest rates and lending unlimited reserves to banks.

The money supply would be determined by the willingness of banks to borrow from the CB and make loans.

The Discount Window Lending

The Interest Rates The contraction of the monetary supply

can be achieved indirectly by increasing the nominal interest rates.

Explanation: The monetary authority may mandate specific interest rates on loans, savings accounts or other financial assets.

By raising the interest rates under its control, a monetary authority can contract the money supply, because higher interest rates encourage savings and discourage borrowing. Both of these effects reduce the size of the money supply.

Interest rate stability is important because fluctuations in interest rates can lead to uncertainty in the economic environment and disrupt the plan for the future.

Importance of Interest Rate Stability

Why control banks?

By their very nature, banks are quasi-public institutions.

This applies to banks which hold deposits of millions of people (which may request payment anytime).

Banks, for this reason, are affected with public interest which explain and justify for their close examination and supervision.

Banks, through its deposit creation, provides the economy with the greater bulk of money supply – makes it important and incumbent for gov’t to control them.

The Control of Money Supply– In the olden times, the sovereign

authority controls the quality and quantity of money coins.

– A registry listing all notes issued and redeemed had to be maintained, and to prevent the paper money outstanding at any single time from exceeding the amount that which has been authorized.

– Banks was able to introduce a new form of currency, the bank deposit currency (created whenever proceeds of loans are credited to borrowers’ account).

– With the advent of bank deposit currency, there is a need to regulate the nation’s money.

Why control banks?

The Evolution of Banking Regulations

Businesses fail (go bankrupt) for many different reasons, and when they do fail they cause all kinds of hardships to creditors, owners, workers, and customers.

In the US, a significant and substantial number of banks failed counting from the 1920s up to present, the reason for the establishment of the FDIC (to pay back depositors of the failed banks).

Since the creation of FDIC, the number of bank failures have significantly reduced over time.

Note: At the heart of banking regulation was the desire to prevent future bank failures.

Journal ArticleCan we Still Bank on Banks?

Many banks all over the world remain in business only because of extreme measures taken by their governments to bail them out (by way of millions of cash injection and guarantees).

Banking is a business built on trust, faith that the money deposited there will be used wisely by way of loans to productive enterprises or investments in high-grade bonds or other financial instruments.

The folding up of several banks locally calls to mind a similar spate of bank closures that arose from essentially bad management practices and the tendency of many bankers to treat deposits as a private piggy bank into which they can dip their grubby hands (to fund personal ventures).

That is why it pains one when failed banks are allowed by government to get away with their crime and even file cases against regulators.

Now, depositors have to think twice before committing funds that may never get back to them.

The Government's Role in the Regulation of Banking

Banking is a licensed and regulated business. Many safeguards have been instituted by the

government for the protection of stakeholders – the depositors, stockholders, the general public, etc.

Note: What could be contrary to public interest would be undue competition between banks, dishonesty/ incompetence in bank management, and unnecessary duplication of banking facilities.

The government should exercise control (i.e., external control) to promote the public’s general welfare.

Objectives of Bank Regulations

1. Prudential: To protect depositors.2. Systemic Risk Reduction: To reduce

the risk of disruption (the “ripple effect”).3. Avoid Misuse of Banks: To reduce the

risk of banks being used for criminal purposes.

4. Confidentiality: To protect secrecy of deposits.

5. Credit Allocation: To direct credit to favored sectors.

1. Supervision2. Examinations3. Reports4. Reserve requirement

Types of Regulation and Control

Some of the forms of control on banks –1. Their establishment2. Their operation3. Their capitalization4. The kind of loans and investments they make

Unless there is economic justification, no new bank may be established.

Control Forms

Banks have been subject to rigid and comprehensive regulation.

Governmental actions may be – – Regulatory: based on laws of the land,

monetary policies/theories – Preventive: Entry of new players in a

monopolistic business, restrictions on expansion of branches, etc.

Government Actions

• Profitable operation.• Capitalization – well capitalized; its risk-based

capital adequacy ratio (CAR).• Management should have adequate experience.• Adequate reserves– should not incur “abuses”

(4x or more reserve deficiency for 2 straight weeks) nor incur “chronic” deficiencies.

• Compliance with banking laws, rules and regulations.

• Asset quality and provisions for probable losses.• Membership with PDIC

Regulatory Expectations for Banks

Cont'd.8. No float items nor past due obligation.9. Risk management system (risk measurement,

delineation of responsibilities, risk limits, internal control, etc.).

10. CAMELS Rating – at least “3”11. No “unsafe and unsound” banking practices12. Adequate accounting records, system

procedures, and internal controls.13. Good corporate governance – (2

independent directors, attendance requirements by directors, etc.)

Regulatory Expectations for Banks

Weak Internal Control

• Misappropriation of deposits• Irregular cash items• Unauthorized withdrawals from depositors’

accounts• Cash shortage• Overstatement of cash on hand• Cashing uncollectible checks• Tellers’ errors• Misappropriation of proceeds of collection

items• Forged checks10. Others

Banks with weak internal control are prone to a number of frauds:

Physical Safeguards Use of sirens and closed camera circuits are

requirements for banks. Employment of security guards (assigned on

round-the-clock basis) to counter theft, burglary, etc.

Use of time delay (for vaults). Others

Banks are required to:

Financial Reporting & Disclosure Requirements

1. Prepare annual financial statements (GAAP/international accounting standard) – have them audited, registered, and published.

2. Prepare more frequent financial disclosures, e.g. Quarterly Disclosure Statements.

3. Have directors or president/CEO attest to the accuracy of financial disclosures.

4. Prepare and have registered prospectuses detailing the terms of securities it issues (e.g. deposits) including relevant facts (that will enable investors to better assess the level and type of financial risks in investing in those securities).

5. Others

CB shall have appropriate supervising and examining departments charged with the supervision and periodic examination of banks.

Examination may include “on-site inspection” and “special” examination.

Some functions of the supervising and examining departments:

Bank Supervision

1. Administer oaths to any director, officer, or employee of banks under their respective supervision.

2. Compel presentation of all books, documents, papers or records necessary in their judgment to ascertain facts relative to the true condition of banks/institutions.

The CB has adopted general guidelines on targets for bank examination.

The frequency of examination is established by law.

To examine simultaneously the head office and branches (to allow comprehensive analysis of operation).

For banks owned by a same set of shareholders, examinations are made with the same cut-off date (avoid concealing violations, window dressing, transfer of funds, etc.).

Bank Examination

Bank Examiners Responsible for the technical and arithmetical

accuracy of the work.

Chief Bank Examiner Responsible for the scheduling of examination work Supervises the examination team Makes the recommendations (including monetary

penalty, if any), in consultation with the examination team and his superiors.

Assistant Director in Charge Makes the overall evaluation.

Bank Examination

Loans and Investment Accounts Particular attention is given to Loans and

Investment Accounts for the following reasons:– to evaluate the quality of each item, estimating probable bad debt losses – to form a conclusion whether the capital is still adequate). – whether deposit/other liabilities are adequately cushioned by a comfortable balance on capital accounts, net of valuation reserves, and other examiners adjustments.

Items in the Bank Examination

Cont'd. Banks may be restricted from having

imprudently large exposures to individual counterparties or groups of connected counterparties. This may be expressed as a proportion of the bank's assets or equity, and different limits may apply depending on the security held and/or the credit rating of the counterparty.


Liquidity Examination on the liquidity – matching of the

various assets and liability accounts. (Note: It is important that banks possess sufficient reserves of cash or near-cash items assets).

This is achieved by: – Adequate level of reserve assets – Through a comparison of he nature form, maturity and liquidity patterns of asset and liability accounts.



Capital Adequacy A bank’s capital – is the cushion for potential losses

which protects depositors and other lenders. Sometimes measured in terms of relative size of risk

assets and capital accounts. This is a legal requirement which calls for assets that

may be subject to a decline in value (“risk assets”) to be a maximum of 10x acceptable capital accounts.

Note: To ensure that capital is adequate and that capital account may be able to absorb even as much as loss of 10% on assets subject to such risks.


Cont’d. CAR – is the ratio which determines the capacity

of the bank in meeting its liabilities and other risks (i.e., credit risks, liquidity risks, etc.)

The Formula:

Banking regulators define and monitor CAR to protect depositors thereby maintaining confidence in the banking system

Assets

Capital CoreCAR


Cont’d. Types of Capital (per Basel Rules):

1. Tier 1 (may be 4%) : Actual contributed + retained earnings2. Tier 2 (may be 8%): Preferred shares + 50% of subordinated debts

Note: There is a maximum Tier 2 Capital depending on the jurisdiction

Profitability Considered as a general test of a bank’s

soundness (which can continue to exist only if its operations are sufficiently efficient and profitable).

Capital can accumulate if the bank is profitable (eroded, if the opposite is true).

Some ratios include the rates of return earned on assets and equity.

Determine how a bank utilizes its resources or capital.


Compliance Test of compliance with MB regulations on the

adequacy of reserves, maintenance of arms-length transactions with directors, officers, shareholders, and their related-interests (DOSRI), observance of ceilings on interest rates, and other regulations.


Corporate governance requirements are intended to encourage banks to be well managed and is an indirect way of achieving other objectives:


1. To be a body corporate (not individual, or unincorporated entity).

2. To be incorporated locally (rather than foreign jurisdiction).

3. To have a minimum number of directors.4. To have an organizational structures including

committees, offices and officers. Officers may need to be approved persons, or from an approved class or persons.

5. To have an approved charter or constitution that enable directors to act in the best interest of the corporation.

Banks may be restricted from incurring exposures to related parties such as the bank's parent company or directors. Typically the restrictions may include:


1. Exposures to related parties must be in the normal course of business and on normal terms and conditions.

2. Exposures to related parties must be in the best interests of the bank.

3. Exposures to related parties must be not more than limited amounts or proportions of the bank's assets or equity.

Audit Methods

• Spot audit – examination made on the spot without any advance notice. The auditor takes immediate charge of all records in the department, verifies them whether they are in order.

• Continuous audit – requires a daily record of certain transactions, the maintenance of control accounts, and use of interdepartmental balancing (in order to verify the work).

Fundamental Aspects of Audit

• Verification of assets – involves verification of all bank assets and properties entrusted to the bank for custody. They should be reflected on the books of the bank as to their proper value.

• Verification of liabilities – involves verification of all existing bank liabilities. The actual and contingent liabilities should be reflected on the records of the bank.

• Verification of income – after assets and liabilities, it becomes incumbent to look into the income of the bank. Income should be proved to its various income account and reflected in the accounting records.

Fundamental Aspects of Audit

4. Verification of expense – involves verification of expenses covering the operation of the bank. All expenses should be properly authorized, made for legitimate purposes, disbursed properly, and paid to the proper parties. These accounts should be properly captioned in the accounting records.

5. Verification of net worth – involves the verification of the capital accounts, including stocks, surplus, undivided profits, and reserves.

Report of Examination (ROE) – contains the findings of the financial examination.

Bank findings may include the following:

Bank Examination Report

Summary of the financial condition of the bank A listing of violations found (including financial

findings) Identification trends and underlying strengths/

weaknesses in the operation Major financial ratios Monetary penalties, if applicable Recommendations – may be in the form of

directives regarding violations and improvement of the bank’s operation.

Approval of the Report This represents the signal of the appropriate

supervising and examining department of the central bank to require the board of directors and officers of the bank on the action or steps taken/ to be taken to correct exceptions.(Note: The central bank monitors the directives until final compliance is made).

Examination findings that are serious (affecting stability of the bank) is reported immediately in advance to senior management in the central bank (for corrective measures for immediate implementation).

Bank Examination Report

Banks may be required to obtain and maintain a current credit rating from an approved credit rating agency, and to disclose it to investors and prospective investors.

banks may also be required to maintain a minimum credit rating, such as the CAMELS Rating for banks.

The Credit Rating Requirement

The CAMELS Rating CAMELS – is referred to as the Capital Adequacy, Asset Quality,

Management, Earnings, Liquidity, and Sensitivity to Market Risks.

The 5-point rating include the following:5- Strong 4 - Satisfactory 3 - Fair 2 - Marginal 1 - Unsatisfactory

Sound in every respect

Fundamentally sound Some concern in one or more areas

Unsafe and unsound Extremely unsafe and unsound

Minor weaknesses

Correctable weaknesses

May lack ability to correct concerns

Weaknesses not being addressed

Volume/ severity of problems

Compliant Satisfactory risk management (RM)

Less than satisfactory RM

RM is unacceptable Weakest RM practice

No supervisory concern

Supervisory response is limited

More than normal supervision

Close supervisory attention

On-going supervisory attention

Serious financial/ managerial deficiencies

• Truth in Lending Act

• Single Borrower’s Limit (SBL)

• Loans to Deposit Ratio

• Loans Secured by Real Estate Mortgage

• Ceiling on Real Estate Loans

• DOSRI

Some of the Major Regulations

7. Agri-Agra8. Small, Medium

Enterprises (SMEs)9. Allowance for

Probable Losses (APL)

10.Money Laundering11.Bank Secrecy Act12.Required Deposit

Reserves13.Risk-Based Capital

Adequacy Ratio (RBCAR)

Truth in Lending Act Banks, among others, shall furnish its borrowers the

following information:

1. The cash price price of the property/service to be acquired

2. The amount to be credited3. The total amount to be financed4. The charges and finance charges ( which are to be

paid in connection with the transaction)5. Others

The Truth in Lending Act

Single Borrower’s Limit (SBL) The total amount of loans and credit accommodations,

say 25% of the bank’s net worth, that may be extended by a bank to a person, partnership, corporation or other entity.

Net Worth – shall mean the bank’s unimpaired paid-in capital including paid-in surplus, retained earnings and undivided profit, net of valuation reserves and other adjustments.

Ex. Bank X net worth as of month-end was P2.5 billion, compute the SBL if the provision is 25% of the bank’s net worth.

Answer: P625 million (P2.5 billion x 25%)

The Single Borrower’s Limit

Loans to Deposit Ratio Banks should lend a portion, say at least

75%, of its deposit. Note: Applicable to banks which are located outside NCR regions.

FCDU Deposits and FCDU loans are excluded (so they can be included in the total loan portfolio).

Loans Secured by Real Estate Mortgage Should not exceed 60% of the collateral’s

appraised value. At least 60% of the improvements should be

insured if improvements will be included as collateral.

Loans Regulations

Exposure/Ceilings on Real Estate Loans Should not exceed 20% of the bank’s total

loan portfolio, net of interbank loans.

Agri-Agra (PD No. 717 – Agri-Agra Law) Requires banks to allocate 25% of their

loanable funds (i.e., total capital + peso deposits) for agri-agra reforms.

Agri – 15%; Agra – 10% An excess in Agra may offset deficiency in

Agri but not vice-versa

Loans Regulations

DOSRI Loans:1. Individual Ceiling: Shall be limited to an

amount equivalent to their deposits.2. Unsecured Individual Loan: Shall not

exceed 30% of the total loans/ other credit accommodations.

3. Aggregate Ceiling: Shall not exceed 15% of the total loan portfolio of the bank or 100% of networth whichever is lower.

4. Aggregate Unsecured Loan: Shall not exceed 30% of the aggregate ceiling or the outstanding DOSRI loan whichever is lower

The DOSRI Loan

Anti-Money Laundering (AML) The rules and regulations stress the customer-

identification requirements by requiring, among others, the proper identification of the payee of cashier’s or manager’s checks payable to cash or bearer.

The maintenance of banks of parallel customer-identification records for numbered foreign currency deposit accounts

Reporting of covered and suspicious transactions amounting (from P4M) to P500,000.01 and up.

The AML Regulation

Small and Medium Ents. (RA No. 6977 – Magna Carta for Small Enterprises)

Banks should allocate credit to SMEs, set aside a portion of their total loan portfolio and make it available for SMEs

Small enterprises – 6%; Medium enterprises – 2%

Allowance for Probable Losses (APL)

Maintained at a level considered adequate to provide for potential losses on loans.

The allowance is increased by provisions charged to expense and reduced by net write-offs and reversals.

The SME Magna Carta and APL

Secrecy of Bank Deposits All types of deposits in banks are

considered absolutely in confidential nature and may not be disclosed to any person, government official, bureau or office except for some instances provided for in the law.

The Secrecy of Bank Deposits

Exemptions:a. Upon written permission of the depositorb. In cases of impeachmentc. Upon order of a competent court in the case of bribery

or dereliction of duty of public officials or d. When the money deposited or invested is the subject

matter of the litigation.

The Basel Accords

The Basel (or Basle) Accords – refer to the banking supervision Accords (recommendations on banking laws and regulations), Basel I and Basel II issued by the Basel Committee on Banking Supervision (BCBS).

They are called the Basel Accords as the BCBS maintains its secretariat at the Bank International Settlements in Basel, Switzerland and the committee normally meets there.

The Basel Committee – consists of representatives from various CBs and regulatory authorities of the G10 countries. The Committee does not have the authority to enforce their recommendations, although most members tend to implement the Committee’s policies.

Note: G10 Members: Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, UK, and US.

Risk-Based Capital Adequacy Ratio (RBCAR)

The RBCAR of UBs and KBs, expressed as a percentage of qualifying capital to risk-weighted assets, shall not be less than 10%.

Since different types of assets have different risk profiles, CAR primarily adjusts for assets that are less risky by allowing banks to "discount" lower- risk assets. In the most basic application, gov’t debt is allowed a 0% "risk weighting" – i.e., they are subtracted from total assets for purposes of calculating the CAR.

The Formula:

The RBCAR

10% a

T TCAR 21

Where: a = risk-weighted assetsT1 = absorbs losses w/o ceasing operationsT2 = absorbs losses in the event of winding-up

Ex. Risk weights: Cash and Gov’t Bonds = 0%; Residential Mortgage = 50%; Loans to Customers = 100%. If a bank has deposits of 90 units and the following assets, compute the bank’s equity and CAR:

Cash: 10 units Other loans: 50 unitsGov’t bonds: 15 units Other assets: 5 unitsMortgage loans: 20 units

The RBCAR

Cash 10 x 0 = 0

Gov’t bonds 15 x 0 = 0

Mortgage loans

20 x 0.50 = 10

Other loans 50 x 1 = 50

Other assets 5 x 1 = 5

Total Risk

Weighted Assets

65

Equity 10

CAR 15.39%

Answer:1.Equity = Asset – Liabilities = 100 – 90 = 10

2. Computing for CAR:

1. The BSP provides the CAMELS rating for banks. What does the C stand for?

2. Give at least one (1) major regulation complied by banks.

3. This is a report which contains the findings or exceptions by the BSP after its examination or audit to a bank. Which report is this?

Self-Test

The BSP is authorized to impose to banks administrative sanctions for the following reasons:

1. Willful delay of submission of reports.

2. Refusal to permit examinations.

3. Willful making of false statements to the Board or BSP.

4. Non compliance of a BSP instructions, ruling or order.

5. Commission of irregularities.

6. Conducting business in an unsafe and unsound manner.

Administrative Sanctions

Under extreme conditions, BSP may order a bank to continue operation (since it may mean probable losses to its depositors and creditors), forbid it to do business in the country, and shall take charge of its assets and proceeds according to law.

The MB will determine within 30 days if such a bank will be re-organized or placed in a condition it will resume business with a safety to its creditors.

The Solicitor General files the case to the Court of First Instance. An official shall be designated to act as liquidator (sell, assign or dispose the assets of the bank).

The concerned bank may appeal its case to the Court of First Instance if it will contest the decision of the MB.

Proceedings Upon Insolvency

Some Banking Laws in the Philippines:

1. RA No. 1405 – Secrecy of Bank Deposits

2. RA No. 9160/9164 - Anti-Money Laundering Act of 2001

Bank deposits (including investment in bonds) are considered as of absolutely confidential nature and may not be examined, inquired or looked into by any person or institution.

Exceptions:1. Upon written permission of the

depositor2. In cases of impeachment3. Upon order of court (bribery or

dereliction of duty for government officials)

4. If the deposit is the subject matter of a litigation

RA No. 1405 – Secrecy of Bank Deposits

Any one, or both (upon discretion of the court)

a. Imprisonment – not more than 5 years

b. Fine – not more than P20,000 (or upon discretion of the court)

Penalty

What is Money Laundering? The process of transforming, through a

series of stages, the proceeds of illegal or criminal activity, into apparently legitimately acquired funds.

The stages are the following:- Placement- Layering- Integration

RA No. 9160/9194 – Anti-Money Laundering Law

Remove/distance themselves from the criminal act (make for difficult prosecution or confiscation of the dirty money once caught).

To enjoy “clean” money instead of “dirty” money.

If they are clean money, then they can be invested, make it more “cleaner”.

Related Crimes:

Why Laundering Money?

Arson and murder Corruption/bribery Drugs trafficking Embezzlement Fraud/financial

crimes/racketeering

Hijacking Kidnapping Prostitution Piracy on high

seas Plunder Smuggling

Swindling Tax evasion Theft/robbery/

extortion Violation of the E-

Commerce Act

Stage 1: Placement (requires a bank or a financial institution’s “cooperation”, e.g. deposits, purchase of financial instruments, fund transfers, etc.)

Stage 2: Layering (different techniques of “hiding” away from the crime itself, e.g. “disguising”, using accomplices, dummies, nominees, even establishment of a corporation.

Stage 3: Integration (put money back in circulation – buy things, invest on things, etc.)

The Process

G-7 nations established FAT-F (Financial Action Task Force) to act as watchdog.

Philippine Response RA 9160 – Anti-Money Laundering Act of 2001

(with implementing rules/guidelines) RA 9194 – Amending RA 9160 (together with

its guidelines)

Global Response

1. Criminalization of money laundering2. Creation of a financial intelligence unit –

the AML Council3. Established a reporting system – the STR

and CTR4. Relaxes RA 1405 – bank secrecy on

deposits (and other related laws)5. Provision on freezing, seizure, forfeiture,

and recovery of “dirty” money6. Instituted a system which provides for

international cooperation

Salient Features

Deposits/transactions amounting to more than P500k within 1 banking day.

A covered transaction, as a general rule, is not a suspicious transaction

Suspicious Transaction The owner of an account was not properly

identified Transactions having/containing the ff:

- No underlying legal/trade obligation; no economic justification- Structured (to avoid being reported)- Amount is a deviation from the business profile (financial capacity) of client/past transactions

Covered Transaction

Those regulated by BSP - Banks - Trust entities- Non-Banks - Subsidiaries/affiliates- Quasi Banks - Others

Those regulated by IC- Insurance companies- Others

Those regulated by SEC- Investment houses - Investment companies- Mutual funds - Brokers/dealers/agents- Common trust funds - Others

Covered Institution

1. The money laundering proper

Performed (or attempted to perform) money laundering involving proceeds of the unlawful activity.

Penalty: Botha. Imprisonment – 7-14 yearsb. Fine – at least P3M (but not more

than 2x the value of the monetary instrument/ property)

Offenses

2. Facilitating money laundering proper

Knowledge that a proceed came from an unlawful activity, and performs or fails to perform an act which as a result of which he/she facilitates the unlawful act.Penalty: Botha. Imprisonment – 4 -7 yearsb. Fine – at least P1.5M (but not more than P3M)

Offenses

3. Failure to report

Knowing that reports are to be made/disclosed with the AMLC, but fails to do so.

Penalty: May be any one or botha. Imprisonment – 6 months-4 yearsb. Fine – at least P100k – P500k

Offenses

4. Confidentiality Provision

Prohibition from communicating directly/indirectly, in any manner, to any person the fact that a CTR/STR was made.

Penalty: Botha. Imprisonment – 3-8 yearsb. Fine – at least P500k (but not more than P1M)

Offenses

5. Malicious Reporting

One who reports or files (with malice or bad faith) a false/ warrantless information re: money laundering transaction.

Penalty: Botha. Imprisonment – 6 months- 4 yearsb. Fine – at least P100k (but not more than

P500k)

Offenses

6. Failure to keep records

For new accounts/transactions – 5 years from the date of opening.

For closed accounts – 5 years from the date that they were closedNote: For pending cases, retained beyond the 5 year period until case is resolved/terminated by the court.

Penalty: May be any one or botha. Imprisonment – 6 months- 1 yearb. Fine – at least P100k (but not more

than P500k)

Offenses

No administrative, criminal or civil proceedings shall lie against any person for having made a CTR or STR in the regular performance of his/her duties in good faith.

Not deemed to have violated secrecy of bank deposits, and other similar laws.

Safe Harbor Provision

Composition - BSP Gov. – Chairman- SEC Chairperson – Member- IC Commissioner - Member

Function- Requires/receives CTRs or STRs from covered institutions- Issues orders (to either the regulatory

authority or covered institution) to determine the true identity of the owner of an account/ property subject of CTR or STR - Others

The AMLC

Monetary instruments Property – Movable/immovable Related web of accounts

Effectivity of Freeze Order

20 days May be extended by the CA upon AMLC

application

What Can Be Frozen?

Jurisdiction - Non-public servants

AMLC DOJ RTC

- Public servantsAMLC Ombudsman

Sandiganbayan

Note: After AMLC commences investigation, will file to DOJ (if public servant, to Ombudsman).

DOJ will file case to RTC (Ombudsman to Sandiganbayan).

Judicial Procedure

Deprive money launderers of their “income” (thereby eliminating their main incentive for committing the crime)

Then they will discontinue their unlawful acts

Money laundering is a business! It’s all about taking profit away from their crime!

Final Word from AMLA

Documents

The Control of Banking