Money Laundering 101

The ongoing Senate hearings on money laundering have glued many to their TV-radio sets and computer monitors.  The staggering amounts and the audacity of the scheme have morbidly fascinated people. Since the facts are still being uncovered, I will not now make any conclusions or condemnations.

Definition. Simply stated, money laundering is a crime whereby the cash proceeds of an “unlawful activity” are transacted or attempted to be transacted to make them appear to have come from legitimate sources.

Otherwise stated, cash derived from certain crimes are made to appear to be “clean money,” thereby concealing their true nature as the proceeds of an “illegal activity.” Example: Money laundering is committed when ransom money is deposited in a bank. Kidnapping is one crime; laundering its proceeds (ransom) by depositing it in a bank is another crime.

The kidnappers are prosecuted and penalized separately from the launderers of the ransom. However, additional malefactors can be prosecuted for money laundering, like the bank officials who may not have participated in the kidnapping but who knew, or could have known, that the funds deposited were the ransom.

Those who conspire, aid, abet, assist in or counsel the commission of the laundering, or perform, or fail to perform, any act as a result of which money laundering is facilitated are also guilty of the crime.  The offense is also committed by those who, knowing that a “covered” or “suspicious” transaction is required under the law to be reported to the Anti-Money Laundering Council (AMLC) fail to do so.

Not all laundering is illegal. It is illegal only when the proceeds come from the crimes that are included by law in the terms “unlawful activity.”  These are:  kidnapping for ransom, drug trafficking and related offenses, graft and corruption, plunder, bribery, malversation, car theft, robbery and extortion, jueteng and masiao, piracy, qualified theft, swindling, smuggling, violations of the Electronic Commerce Act of 2000, hijacking, destructive arson, violations of the Securities Regulation Code, terrorism as defined under Republic Act No. 9372, terrorism financing and other crimes defined under the Terrorism Financing Act of 2012, and other crimes under special laws.

Is depositing funds derived from tax evasion money laundering? No, because tax evasion is not an “unlawful activity” under the cited law.

Of course, tax evasion can be prosecuted as a separate offense.

Mediums. Aside from banks, money can be laundered through 1) foreign exchange dealers, pawnshops, money changers, remittance companies and other similar entities supervised by the Bangko Sentral ng Pilipinas; 2) insurance companies, preneed companies and other companies supervised by the Insurance Commission; 3) securities dealers, brokers, investment houses, mutual funds, and certain other entities supervised by the Securities and Exchange Commission (SEC); and other entities listed in the law.

Notably, casinos are not included among the covered mediums yet cash from illegal sources can be used to buy casino chips and used for gambling. The players can ask that their winnings be paid in checks to be deposited as legal money in any bank.

The same is true with the purchase of real estate or art pieces, which can be paid in cash and then resold later with the purchase price paid by check or other legitimate monetary instruments.

Covered and suspicious transactions. Under the law, a transaction in cash, like a bank deposit or withdrawal, involving more than P500,000 is deemed a “covered” transaction which banks must report to the AMLC within five banking days.

Even amounts of P500,000 and less must also be reported to the AMLC when certain circumstances qualify them as “suspicious” transactions. Some of these circumstances are: “1) there is no underlying legal or trade obligation, purpose or economic justification [for the transaction]; 2) the client is not properly identified; 3) the amount involved is not commensurate [to the] … capacity of the client; 4) …the client’s transaction is structured … to avoid being [a covered transaction]; 5) any circumstance …[that] deviate[s] from the profile of the client and/or the client’s past transactions…; 6) the transaction is in any way related to an unlawful activity…; or 7) any transaction … [similar to] … the foregoing.”

Three stages. Money laundering is usually a three-stage process. First, criminals introduce the illegal funds into the financial system to remove them from any association with the unlawful activity. This is called placement.

Some of the ways this can be done are by breaking up large amounts of cash into smaller amounts that are deposited in a bank account, or by purchasing checks and money orders with illegal cash, which are then deposited.

Second, the money undergoes some transactions to disguise the source. Here, the money goes through several layers of financial activities to hide the laundering; hence, it is called “layering.”

In this stage, the money is further filtered via the purchase and sale of investment instruments, or by being wired to various bank accounts across the globe. The criminals can mask the transfers as payments for goods or services, thus giving them a legitimate appearance.

In the third stage called integration, criminals can openly enjoy the money since its illegal origin is now concealed. The laundered funds can now be integrated into the legitimate economy through the purchase of properties, stocks and other investments.

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