THE ongoing RCBC money-laundering investigation has evidently become a topic of conversation from New York to Singapore; besides major newspapers in both those cities (and elsewhere outside the Philippines) reporting on the story, I also received phone calls from people in both places eager to discuss the matter.
That should come as no surprise given the magnitude of the crime, but unfortunately not many people here seem to have grasped yet just how damaging this is to the country. The sad reality is that the all-too-typical way this scandal is being addressed only serves to camouflage the relatively simple, broad facts of the case, and almost certainly won’t lead to the swift, decisive solutions the country needs to implement to avoid becoming a financial pariah.
Grandstanding Senators displaying their lack of knowledge about how banking works or
CBCP priests offering tangential complaints about the evils of gambling are not the way to reveal these uncomfortable truths about the scandal:
This is not the first time this has happened at RCBC. As one correspondent—a regional investment banker, who called in from Singapore—put it, “They expect us to believe it’s like that line in Casablanca: ‘Of all the gin joints, in all the towns, in all the world, she walks into mine.’ The choice of RCBC couldn’t have been chance, or a thief just picking a bank at random to launder his money. The people involved either worked with RCBC, or with some of the people in it, sometime in the past, or RCBC has a reputation for doing this kind of business.”
The people behind RCBC would certainly hotly dispute that accusation, but it is eminently logical—no thief or group of thieves smart enough to successfully carry out the theft of the mind-boggling sum of $100 million would take the stupid step of entrusting their loot to any person or organization in whom they did not have absolute confidence. The conspirators knew, through prior experience or otherwise reliable information, that RCBC could handle a transaction of this unusual kind and scale.
Casinos are not really the issue. “Laundering money through a casino? That’s like money laundering 101,” my Singapore caller observed. “That’s probably the first lesson they give at the money-laundering seminar.”
In one respect, the CBCP’s condemnation of the gaming industry is justifiable—if it did not exist, it would not be available as a conduit for illicit financial transactions.
“It could be argued that casinos shouldn’t have been exempted from the anti-money laundering reporting provisions, as you suggested,” my New York caller (also an investment banker) observed. “I don’t know that I’d disagree with that. But there are two things I would say should be considered. First, the casino is basically the last step in the process—the real crime has already happened by the time the money reaches that stage, which makes finding a substitute path easier if the casino option isn’t available.
“Second, imposing anti-money laundering restrictions on casinos, beyond the relatively strict operating guidelines they already have to follow, essentially criminalizes the industry,” he added. “That sounds harsh, but that’s exactly what it boils down to: Transactions above a certain amount are presumed to be illicit and must be reported, and possibly investigated. As I said, that may still be the way to go. But if that’s the case, it’s going to put a limit on investment in that sector…you’re as much as telling investors, ‘There’s a limit on how much money we’ll let you make.’ At least that’s how it will come across. And given the Philippines’ enthusiasm for trying to build up its casino sector, I’m not sure that’s the message they want to convey.”
Legislation is not the answer to a management problem. Both of my callers scoffed at the Senate hearing ostensibly being held “in aid of legislation.”
“The narrative coming out of this ridiculous Senate hearing is that the conspirators ‘exploited loopholes in the law,’” one said. “They didn’t exploit loopholes, they flat-out broke the law that already exists. Passing a new law is not going to help that at all.”
Further adding credence to the assertion that despite its scale, the scam is most likely symptomatic of a localized management problem is the ownership structure of RCBC, which my Singapore caller, who is familiar with the people behind most of the big banks in Asean, highlighted: After the Yuchengco family, the next two biggest stakeholders in RCBC are Cathay Financial, the Taiwan-based insurance concern, and the International Finance Corp. (IFC), an arm of the World Bank.
“Do you really think those kinds of organizations would tolerate being part of a money-laundering scheme, if they were aware of it?” he asked, rhetorically. Making the reasonable assumption that they would not, suggests a personnel rather than a systemic issue.
Which personnel? One bank president I spoke to here found it difficult to believe that top-level executives were not involved. “If an $80 million deposit comes into our bank, I can tell you I would know who sent it, from where, and who was receiving it. Now, I’m certainly not accusing [RCBC CEO Lorenzo] Tan of anything, and how they work over at RCBC is their business. As far as that goes, I’ve never known them to do anything improper at all, before this. It’s just a little hard to believe the head office would be completely in the dark.”
My Singapore caller, who is acquainted with Mr. Tan personally, had a more charitable point of view. “I would be very, very surprised, shocked really, if it turned out he was involved in this at all. He’s got his flaws, but being a crook is not one of them. That’s not who he is.
“But,” he added, “There was obviously a serious breakdown in management. And that’s his responsibility. It’s ironic; in one family you have what seems like the best and worst of Philippine banking. Nestor [the brother of RCBC CEO Lorenzo]runs BDO, and they win ‘best bank’ awards all the time. It’s the only Philippine bank to win ‘best bank in Asia.’ Then over at RCBC, well, it’s kind of a mess, isn’t it?”
What he suggested should happen, and quickly, is that the BSP exercise its regulatory power over banking management, something for which there is a fairly recent precedent: On mere accusations (albeit strong ones), Roberto Ongpin was removed from his position at Development Bank of the Philippines by regulators. If political considerations are not part of the equation—which was a persistent rumor in the DBP case, although that is a notion that certainly does not square with the professional and unassailably ethical character of BSP’s current leadership—removing Tan and any other officers who may be under suspicion is a unilateral step the BSP could take quickly, and should, my caller opined, if the Philippines has any desire to avoid being heavily sanctioned.
Unless clear steps are taken toward a resolution of the RCBC scandal, he concluded, “This is going to be a disaster for the country. The additional scrutiny is going to hurt the banking industry, but the ones who are likely to suffer most are the OFWs,” whose remittances would be affected by new anti-money laundering measures—measures that in any case may neither be necessary nor effective.