TUESDAY’S Senate hearing on the RCBC money-laundering scandal, the fifth installment in what is proving to be one of the more memorable teleserye ever aired in the Philippines, was a fascinating display of the sheer ineptitude of at least some of this country’s most important institutions.
In a way, what was divulged in the hearing could be taken as evidence that the Philippines really does enjoy God’s favor, because with these sorts of people minding the store, the only thing that could possibly be preventing even bigger financial scams from happening every day is divine intervention.
There were two points in particular that stood out in Tuesday’s discussions. First, the admission from RCBC, whose chief legal counsel Ma. Celia Estavillo seems to be finally coming around to the realization that she is the lawyer for the entire bank and not just its CEO-on-leave Lorenzo “Five Levels” Tan, that it did not consider the messages received from Bangladesh Bank on February 9 “urgent” because they were not marked as such. Estavillo’s explanation, essentially, was that the bank’s settlement department doesn’t actually bother to read all the messages it receives through the worldwide SWIFT messaging system, but just glances at the subject lines. Furthermore, no one in RCBC seems to have recognized that Bangladesh Bank is a central bank; to whoever in the settlements department was looking at the incoming messages, it was just an unfamiliar sender. (Its SWIFT code, incidentally, is BBHOBDDH, which translates to “Bangladesh Bank” [BB] “head office” [HO] “Bangladesh” [BD] “Dhaka” [DH]. Someone at RCBC might want to write that down.)
I asked an acquaintance who until recently worked in settlements for a bank that doesn’t seem to run into these sorts of difficulties, “Do you receive many spam messages through the SWIFT system?”
“Ha-ha, no,” she replied. “Okay, to be fair to the, um, other bank, many of the messages are about things that are maybe not really critical. For example, a bank might just be letting its correspondents know it’s doing some maintenance on its computer system at a certain time, or there might be an update on some contact information, things of that nature. Regardless, there’s a reason for every message. They’re all important one way or another.” Especially, she noted, if the message was from an unfamiliar source; anything that diverges from what would be considered a normal pattern should attract immediate attention.
While RCBC was making the private sector look foolish, BIR commissioner Kim Henares was on hand to make sure the government side wasn’t left behind, disclosing that remittance and foreign exchange dealer Philrem, which handled about $60 million of the $81 million that passed through RCBC, is not properly registered with the tax authority in terms of the nature of business in which it is engaged. Philrem, Henares explained, is only listed as a firm conducting “other land transportation transactions” with the BIR, despite the business having changed its articles of incorporation to reflect its financial services activities in 2005. Henares also pointed out that Philrem’s receipts are not registered with the BIR, either, in violation of a 2013 provision of the internal revenue code, something which seemed to bother Henares much more than the fact that for nearly 11 years the firm was doing millions of dollars of remittance and foreign exchange business behind a tax registration more appropriate for a bus company.
The great irony is that Henares’ receipt registration idea, which is generally regarded as a pointless pain in the ass by most businesses, has a certain logic to it in that it is intended to prevent exactly the sort of tax avoidance through misrepresentation that Philrem seems to have engaged in. Presumably, the BIR would just have to compare two databases—registered businesses and registered receipts—to spot any discrepancies that might indicate violations. It would be a relatively simple and effective monitoring practice, if anyone at the BIR was actually doing it—which they are apparently not, or not nearly as diligently as they should, if a company handling as much money as Philrem could fly under the bureau’s radar for as long as it did.
Henares’ BIR was not the only one to drop the ball, however. Completing Tuesday’s trifecta of failures was the BSP, or more specifically, the Anti-Money Laundering Council. Any business in the Philippines whose activities involve handling other peoples’ money, whether a bank, an investment broker, an insurance company, a remittance processor, a money changer, or even a pawn shop, must be licensed by the BSP. But just as at the BIR, Philrem is misrepresented in the central bank’s records, registered as just a remittance company and not a foreign exchange dealer.
Where the AMLC blew it is in evidently not conducting any sort of oversight regarding Philrem prior to the scandal—which it should have, if for no other reason than it is virtually impossible for a remittance business here to not be involved in foreign exchange in some fashion, unless it strictly limits itself to domestic remittances, or only outbound remittances. From the point of view of the anti-money laundering watchdog, a registration as a remittance business should be considered circumstantially suspect, and subject to at least a little extra scrutiny.
Once again it appears that the Philippines has left itself with the unpalatable choice of whether it would prefer to give the rest of the world the impression that this is a very stupid country, or a very careless one; the mitigating fact that the vast majority of businesses and transactions that take place here are properly monitored doesn’t do much to ease the blow for the victim—the government of Bangladesh, in this case—if it is subject to the one that “slipped through the cracks”—cracks that are seemingly growing wider with each new revelation in the money-laundering case.