Legislators protect themselves, friends

(Philippine Center for Investigative Journalism) (First of a series)

Last Sept. 24, after a series of marathon discussions, a joint Senate committee presented for floor debate an anti-money laundering bill that allows authorities to look into deposits above P1 million when there is suspicion that the money came from an illegal activity.

The following day, however, a new "working draft" replaced the Senate bill, clipping the power of regulators to access deposits of suspected money launderers. A provision in the new bill requires the government to get a court order before it can pry into suspicious accounts. As such, it was not much different from the existing Bank Secrecy Law, whose deficiencies the anti-money laundering bill was supposed to correct.

That crucial provision was introduced not on the Senate floor, but in a closed-door meeting that lasted several hours and which saw the emergence of a bipartisan consensus that is rare in the Senate. Earlier, a similar consensus to water down the bill and make it difficult for regulators to access bank deposits had been formed in the House.

The debate on the bill took place less than a year since Joseph Estrada’s fictitious "Jose Velarde" bank account became public and amid accusations that Sen. Panfilo Lacson stashed proceeds from illegal activities in secret bank accounts in the US and Hong Kong. 

Rather than providing the impetus to enact a tough law that would curb money laundering, these twin events created a "chilling effect" on lawmakers, who wanted to make sure that the law they draft today would not be used against them tomorrow. 

"The testimonies against Lacson made some (lawmakers feel) how the law could be used as a tool for harassing public officials by those who are in power," said Misamis Oriental Rep. Oscar Moreno, who was a prosecutor in the impeachment trial and a proponent of stricter anti-money laundering measures.

The law was meant to be diluted from the start, several sources in the inter-agency task force that drafted the government version of the bill say, because legislators were caught in a conflict of interest. How could lawmakers fearful for their own political and financial fortunes, these sources ask, craft a strong anti-money laundering law? 

Vested interests?

Over the years, vested interests have frustrated attempts to amend bank secrecy laws. The lobby against lifting the secrecy is quite strong, including big-time tax evaders; businessmen who fear harassment from authorities, particularly the Bureau of Internal Revenue; and those who simply do not want to disclose their wealth, especially to government regulators, corrupt public officials, extortionists and kidnapping syndicates.

These groups found a refuge in Congress, which passed a watered-down anti-money laundering law this weekend. It was evident that several legislators took care to protect the interests especially of wealthy Chinese-Filipino businessmen. This was thanks in part to former Bangko Sentral ng Pilipinas Governor Gabriel Singson, now a financial adviser to some of the country’s richest taipans, who may have acted as a mediator and lobbyist on their behalf. 

A Pangasinense, Singson wields influence on Speaker Jose de Venecia Jr., a provincemate, and Senate President Franklin Drilon, both of whom used their clout to push for provisions that diluted the anti-money laundering bill.

The debates on the Anti-Money Laundering Act of 2001 blurred political affiliations and made every politician a party of his own. 

On Sept. 27, for example, Senate officials ditched a draft bill that had been agreed upon in an earlier caucus in favor of the draft prepared by opposition party Sen. Edgardo J. Angara.  How the decision was made was not made known to the public nor entered into the records of the Senate.

What was only known was that the Senate suspended the debates the night before, and Angara held a birthday party. Congressional sources privy to the discussions, however, said the switching of bills was part of a "compromise" to get an anti-money laundering law passed in the face of the opposition to it. 

More protection to suspected launderers

In the floor debates, senators belonging to the majority were more in support of the Angara bill than the government version that was being defended by Sen. Ramon Magsaysay Jr. The Angara version gives more protection to suspected money launderers than to the authorities going after them. It cuts the clout of the proposed anti-money laundering council by exposing authorities to possible lawsuits from those they accuse of involvement in illegal activities.

The crucial decisions and major compromises on the bill, however, were made during a closed-door session that took place in the last four hours of the 16-hour bicameral conference committee meeting held at the Bangko Sentral building last Saturday. 

The media was already barred from the meeting, yet lawmakers still locked themselves up inside a smaller room starting at around 11 p.m. and prevented even congressional staff from witnessing the discussions. 

The debates at the committee were so intense, said congressional sources, that Magsaysay, who co-chaired the bicameral conference committee hearing with Manila Rep. Jaime Lopez, suggested that lawmakers engaged in heated debates first cool their heads in another room.

Aside from the deposit secrecy rule, the most contentious provision was one granting authorities the right to be indemnified or reimbursed for the cost of lawsuits filed against them by suspected money launderers. 

While the provision is contained in the House-approved bill, the sources said most of those who were opposing it were congressmen belonging to the minority bloc, such as Iloilo Rep. Rolex Suplico, an alleged member of the notorious "Gang of 5" in the House, and Zamboanga City Rep. Celso Lobregat.

The law ratified no longer contains the provision, which was intended to protect government regulators. Instead, the new law protects money-laundering suspects. It includes a provision on "restitution," which gives the "aggrieved party," that is, the suspected money launderer, the right to seek damages from authorities under the New Civil Code, in effect acting as a dampener to those who would initiate anti-money laundering proceedings. Already, a limited indemnification provision in the Central Bank charter has discouraged regulators from going after erring banks.

Antiquated secrecy laws

For many years, authorities had attempted to amend antiquated bank secrecy laws for various reasons. For one, they have no way of checking whether proper taxes are being paid, whether banks are not bilking their depositors dry, or whether the health of the financial system is being ensured. There is also no way for authorities to verify if money from criminal activities, both local and transnational, is being coursed through Philippine banks. 

The 46-year-old Republic Act No. 1405 bars any person from peeking into peso deposits, except when there is a court order, an impeachment, or when the money is the subject of a court case. Another law, Republic Act No. 6246, enacted in 1972, provides for an "absolute confidentiality" of foreign currency deposits. Not even a court can order the lifting of the secrecy on these deposits. 

Former Finance Secretary Ernest Leung, one of the strongest lobbyists for relaxing secrecy laws, said getting a court order to open the accounts "under the Philippine context" is almost impossible. "You have to bribe the judge and then by the time he issues an order, the deposit is gone." 

When he was chairman of the Philippine Deposit Insurance Corp. (PDIC), Leung said, bank examination was always done as "an act of faith." State examiners such as his agency just had to take the banks’ word about deposits. 

The urgency for lifting bank secrecy became evident during the Estrada impeachment trial, when several banks resisted opening up accounts that supposedly contained hundreds of millions of pesos in funds illegally accumulated by the former president.

FATF pressure

But it was only when an international organization called the Financial Action Task Force (FATF)threatened sanctions on the Philippines in June 2000 that an anti-money laundering bill was seriously considered. The FATF, whose 29 members include the United States, Japan, China and most European countries, warned that the Philippines would have a hard time dealing with the international financial community if it does not pass such a law by Sept. 30. 

The FATF has a list of 40 criteria that have to be followed for countries like the Philippines to be stricken off a "blacklist" of suspected money laundering havens in the world. 

One of these criteria is that "competent administrative authorities" should have access to the bank accounts of suspected money launderers. The government task force that drafted the anti-money laundering bill, carefully wrote this provision into the bill as an "additional exemption" to deposit secrecy laws. 

The task force, composed of various government agencies, including the finance and justice departments, knew that this provision would be the "most contentious." And it was. 

De Venecia was to be the principal sponsor of the task force’s version of the bill but modified the provision on the secrecy of deposits. Instead of empowering the proposed anti-money laundering unit to look into suspicious accounts, the De Venecia bill preserves secrecy by requiring the unit to obtain a court order to gain access to deposits. 

De Venecia said he insisted on the provision "because that is the law of the land, the constitutional process." He also admitted giving a marching order to Manila Rep. Jaime Lopez, who chairs the House banks and financial intermediaries committee that defended the bill, not to touch that provision.  "While we are putting teeth into the law, we must also protect the depositors," De Venecia explained. Asked if the move meant giving in to the lobby of the Chinese community, he said, "No. (But) Syempre, they are the biggest depositors in the land. They also have a reason (to lobby). If they pull out (their funds), mahihirapan ang ating banking system. (If they pull out their funds, our banking system will have a hard time recovering)." 

Drilon sponsored the government version of the bill in the Senate. His version carried a provision authorizing the proposed anti-money laundering unit to pry into deposits above P10 million - raising the threshold amount proposed in the government bill by 20 times. 

Earlier, the Senate committee on banks and financial institutions chaired by Magsaysay and the committee on justice and human rights chaired by Sen. Francis Pangilinan approved and sponsored a near replica of the inter-agency government bill. 

All these versions of the bill, however, were immediately eroded after senators, reportedly led by Angara, agreed during a caucus "not to give too much powers" to the proposed anti-money laundering unit. The "consensus" was for the proposed unit to have only the power to issue a freeze order on the suspicious account and then ask court permission to open it. 

Sen. Joker Arroyo said "there was unanimity" between the majority and minority congressmen on the modified provision. "Even in countries abroad, they have to go to court (to look into the deposits). Dito lang naman capriccio ng Bangko Sentral yang powers (It’s only here where the central bank wants the powers)," he said.

The provision was eventually adopted by the bicameral conference committee and contained in Section 11 of Republic Act 9160 or the Anti-Money Laundering Law of 2001. "The AMLC (Anti-Money Laundering Council) may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution upon order of any competent court. when it has been established that there is probable cause that the deposits or investments are in any way related to a money laundering offense."

While the new law relaxed the foreign-currency deposits law which guards "absolute confidentiality" of foreign-currency accounts, it nonetheless makes it more tedious for authorities to prosecute money launderers. For each offense, the AMLC has to file at least three cases with the courts: for the criminal act of money laundering, for seeking an extension to the 15-day freeze order required by law, and for gaining access to the deposits. It may also have to ask the Court of Appeals or the Supreme Court to lift a temporary restraining order on the frozen asset, which the law allows.

An amendment and a safeguard

Drilon, however, denied the deposit secrecy provision of the law was made stricter because of the clamor from the Chinese community. "What the Chinese community wanted from the very start was a court order, which is what the present law is," he said. "This is an amendment to the present law. This is a safeguard against a powerful arm of the government." 

But he does not deny that the final form of the law was influenced by the "free" advice to the leadership of both the Senate and the House provided by Singson. Aside from being a staunch defender of the bank secrecy laws when he was the monetary chief under the Ramos administration, Singson is also known in business circles as a lawyer and adviser to the country’s biggest Chinese-Filipino taipans. 

He currently sits on the board of the Gokongwei family’s flagship firm JG Summit Holdings, Inc., chairs the Yuchengco Group’s insurance arm Great Pacific Life Assurance Inc., and is a known adviser to Philippine Airlines, Asia Brewery and Philippine National Bank majority owner Lucio Tan. Singson is also the presidential adviser on banks and foreign loans under the Macapagal-Arroyo administration though he said this was "just a title."

In an interview, Singson admitted giving advice on the anti-money laundering bill to Drilon and De Venecia. So does his nephew, Peter Favila, who is a consultant to the House Speaker, he said. A former president of Allied Bank, Favila resigned two months ago, but was retained as a consultant of the Lucio Tan-owned bank.

Government sources said Singson was already asking the Bangko Sentral to preserve the provision of the secrecy law requiring a court order when the inter-agency bill was still being drafted in May. The former governor also reportedly argued that there should be "due process" so as not to drive away depositors, especially the Chinese. His "strong suggestions," however, were rejected by the inter-agency body, but not by Congress.

Yet, when interviewed, Singson said he believed the anti-money laundering unit did not need a court order to look into deposits. He added that he shared these views with Drilon. "I don’t think there’s a need for a court order. The case already has to pass through two collegiate bodies: the Monetary Board and the (anti-money laundering) unit. There are enough safeguards (under the law)."

Asked if he saw any conflict of interest in his role as adviser to both lawmakers and taipans, Singson said: "I do not offer my advice; I only give them when I’m asked. I do this on my own. and it’s not so often."

Drilon said he sees nothing wrong with getting advice from Singson - "a professional and good lawyer" - despite his links with the taipans. "I personally consult him because I was not familiar with this law before and he came from the central bank. Those attributions to those people are misplaced. He is very professional," Drilon said.

For his part, De Venecia said Singson "has very good ideas" on the anti-money laundering bill. (To be continued)