US-based group cites ways to improve revenue

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WASHINGTON-based Global Financial Integrity, a research and advocacy organization, has proposed three important strategies to the Philippines to reduce the illicit financial outflows and ensure better revenue collections for the government.

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In a report published on its website, the GFI said that over $410 billion flowed illegally into or out of the Philippines between 1960 and 2011, reducing domestic savings, driving the underground economy, and facilitating crime and corruption.

The GFI added that 25 percent of value of all goods imported into the Philippines goes unreported to customs.

Over the 52-year period studied, the report found that the Philippines suffered $132.9 billion in illicit financial outflows from crime, corruption and tax evasion, while $277.6 billion was illegally transferred into the country, predominantly through the misinvoicing (accounting for $23 billion since 1990) of trade transactions.

Transactions involving tax haven jurisdictions like Hong Kong, Singapore and Dubai should be treated with the highest level of scrutiny by customs, tax and law enforcement officials, the GFI said.

The group said that the Philippine government should require all banks in its jurisdiction to know the true, human, “beneficial” owner of any account opened in their financial institution.

Often, it said, banks do not know who owns or controls the accounts in their institution—they might have the name of an anonymous shell company but they don’t know the person controlling the shell company. Thus, the banks can’t monitor the accounts for money laundering.

The GFI said that requiring full knowledge of the beneficial owner is a simple step that would significantly curtail the problem.

It added that the government should significantly clean up and boost its customs enforcement, by training its officers to better detect intentional misinvoicing of trade transactions.

Software exists that can assist governments in detecting invoices that fall outside the normal range of prices for a particular good. The Philippines could make use of such software to catch individuals deliberately misinvoicing their trade transactions to launder money.

It noted that the government made significant progress on this front in January, when it launched a new portal at data.gov.ph, which publishes detailed trade, customs and revenue data. GFI urges the government to continue making progress on this front.

The GFI said that the Philippines should expand its list of crimes considered predicate offenses for money laundering to include all felonies.

Anti-money laundering legislation adopted last year expanded the list of predicate criminal offenses for money laundering to include bribery, fraud forgeries, terrorism and terrorist financing activities and misuse of public funds.

This was a laudable measure, but it still falls short of making sure that the proceeds of all criminal felonies are considered underlying crimes for money laundering.

The Philippine government should also strongly enforce all anti-money laundering laws that are already on the books.

“Of the $132.9 billion that flowed illicitly out of the archipelago, $95.2 billion—or roughly 72 percent—was via trade misinvoicing,” noted Dr. Dev Kar, the principal author of the report.

“Still, the dominance of trade misinvoicing as a conduit for illicit flows is even more apparent when examining illicit inflows. Of the $277.6 billion in illicit financial inflows over the years, some $267.8 billion—or approximately 96 percent—is attributable to trade misinvoicing,” he added.

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