Tax evasion seen a hurdle to FATF compliance

THE Anti-Money Laundering Council (AMLC) said the legal treatment of tax evasion and loopholes involving real estate brokers are keeping the country from achieving full compliance with international standards for money laundering regulation.

AMLC Secretariat Executive Director Mel Georgie B. Racela made the remarks to BusinessWorld on the sidelines of the Tax Management Association of the Philippines General Membership Meeting on Thursday, where he was invited as a speaker.

Mr. Racela said that the Philippines is currently not compliant with the requirement that tax evasion be considered a predicate offense to money laundering. As such, it cannot conduct parallel money laundering investigations into tax crimes.

The other area of noncompliance is that real estate brokers are not considered covered persons under Republic Act No. 10365, or the Anti-Money Laundering Act (AMLA).

“We are confident that we can meet the requirements of the FATF (Financial Action Task Force),” he said, but added: “what are we not compliant with so far (are) two major provisions that are not in our law.”

The Philippines is undergoing a third review led by the Sydney-based Asia Pacific Group (APG) on Money Laundering, the designated regional body that tracks the anti-money laundering regimes of the Philippines and 40 other states on behalf of the FATF.

Mr. Racela said that the AMLC will present “stop-gap measures” to the evaluators, to remain compliant with international best practices.

“The requirement is that there should be a body that will investigate tax evasion cases. But we’d like to think the BIR (Bureau of Internal Revenue) has sufficient powers to investigate tax evasion. They don’t need this to refer to AMLC. Foreign jurisdictions can seek assistance from the BIR and the BIR can look into specific bank accounts. That’s in the NIRC (National Internal Revenue Code). We will cite that provision. and that’s our stop-gap measure for tax evasion not being a predicate offense,” he said during the discussion.

“Second is the designation of real estate brokers as covered persons. They want real estate brokers to be included as covered persons. However, there’s strong resistance in the Senate,” Mr. Racela said.

“But we have a stop-gap measure. There’s a provision in the AMLA that says the Land Registration Authority (LRA) and the Register of Deeds should submit real estate transactions to AMLC for real estate transactions exceeding P500,000,” he said.

“But our agreement with LRA is we can access all real estate transactions, not just those exceeding P500,000,” he added.

Asked whether these measures would be sufficient to remain compliant, Mr. Racela said: “I think so.”

In AMLC’s second national risk assessment report 2015-2016 published in December, the overall money laundering threat remained “high.” It also said that the threat posed by tax evasion as an indication of money laundering is “high,” while the real estate broker loophole was assessed as a “medium” threat.

Tax evasion is one of several offenses in the list of crimes related to money laundering. The AMLC in its report included smuggling, intellectual property violations, illegal manufacturers, environmental crimes, investment fraud, dangerous drugs, plunder, web-related crimes, human trafficking, and kidnapping for ransom.

Real estate brokers are viewed as among the sectors that pose a risk of money laundering along with banks, money service businesses, nonprofit organizations, and the insurance and securities sectors.

A poor rating due to non-compliance and low effectiveness of anti-money laundering and measures to combat the financing of terrorism will return the Philippines to “high-risk” status along with North Korea, Iraq, Bosnia and Herzegovina, Ethiopia, Yemen, among others. The Philippines has managed to stay out of the global watch list as of July 2017.

Mr. Racela added that the implementing rules and regulations (IRRs) for the watch on dirty money in casinos should also positively contribute to the overall assessment.

“We issued the guidelines on casinos. When we passed the law, we issued the IRRs and now we are supervising our casino operators. As a matter of fact, four casino operators have registered with the AMLC,” he said.

He added that the Philippines submitted compliance reports to the FATF in May, ahead of the country visit in November.

Apart from the FATF review, Mr. Racela said that the Philippine regulatory regime is also under review by the Organization for Economic Cooperation and Development (OECD) and for compliance with the terms of the United Nations Convention against Corruption.

“The initial feedback that I got is our rating is ‘largely compliant,’” he said, noting that this rating is unchanged from the previous assessment.

“That’s good news for us. Even from the UN, our rating is good, also largely compliant.” — Elijah Joseph C. Tubayan