Exiting the ‘gray list’

Following the conclusion of the latest plenary meeting of the Financial Action Task Force in Singapore on June 26-28, the Philippines has once again failed to exit the FATF “gray list.” In a press conference, then FATF president Raja Kumar noted that the Philippines has three out of 18 action items that remain outstanding and urges the country to “swiftly” tackle the remaining deficiencies in its “defenses” against money laundering and terrorist financing.

The FATF is a global money laundering and terrorist financing watchdog, and the Philippines has been on its gray list since June 2021. I wrote about this subject in this paper in November 2021 following the FATF’s review of the Philippines in June 2021 which acknowledged the high-level political commitment and progress made by the Philippines on its action plans since 2019, but still proceeded anyway to place the country under increased monitoring or its gray list until it can complete the implementation of action plans to address 17 identified deficiencies. Considering that we are now down to three deficiencies in 2023 from 17 in 2021 shows that considerable progress has been made in the past two years. However, it still begs the question of why we still haven’t managed to exit the gray list by now. This isn’t a new issue and goes back to the early 2000s. In fact, the Philippines was even on the FATF “black list” from 2000-2005 and amendments to existing legislation and passage of new ones were required to get us out of that situation. Now, more than a decade later, our country finds itself on the gray list once more.

Why is it so important that the country exits the gray list? Well, being placed under the gray list or increased monitoring runs the risk of the Philippines being reclassified as a high-risk jurisdiction subject and having a call for action against it, which is also known as being on the FATF black list that results in the imposition of enhanced due diligence measures meant to counter money laundering, terrorism financing, and corruption that will negatively affect the local business environment and even overseas Filipinos.

But even just being on the gray list poses some difficulties already for Filipinos who conduct overseas financial transactions such as our overseas Filipino workers and businesses with foreign clients and suppliers. Higher transaction costs and additional documentary requirements would likely be imposed as financial institutions implement “de-risking” measures on Filipinos remitting money to the Philippines or conducting overseas business transactions in light of this gray list classification.

As such, various governments through the years have made falling into, or exiting the gray list a priority, but despite all that effort our country somehow continues to fall short and even failed to meet the 2023 deadlines. The government is now hoping to meet a new deadline of October this year. While some analysts have noted that this is achievable provided the government urgently implements the needed reforms, it isn’t comforting to note that the number of money laundering events added in the Philippines increased by 45 percent from 2022 to 2023 as shown from data from Moody’s during the period 2018-2023 where the Philippines was among the top five countries in Southeast Asia with money laundering activity events added over the five-year period. Even Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. thinks it is unlikely for the Philippines to exit by October. He foresees the possibility of an exit by January next year if the remaining deficiencies concerning mitigating money laundering and terrorist financing risks linked to casino junkets, detecting false currency declarations and the confiscation of illicit proceeds, and the prosecution of cases related to terrorist financing can be adequately addressed by October.

Looking at what needs to be done, it appears to be measures of a technical and operational nature that could be addressed with corresponding resources and political will. Perhaps following the illicit money trail that is so prevalent in Philippine offshore gaming operators as currently being revealed in the ongoing Senate hearings on the issue and prosecuting those liable under relevant laws might be a good step toward helping our country exit the FATF gray list.

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Moira G. Gallaga served three Philippine presidents as presidential protocol officer and was posted as a diplomat at the Philippine Consulate General in Los Angeles, and the Philippine Embassy in Washington.