Special Report: Foundations used as fronts for money laundering?

In October 2000, former Ilocos Sur governor Luis "Chavit" Singson disclosed that he had funneled P200 million in jueteng money to then President Joseph Estrada through the Muslim Youth Foundation.

Last month, Manila Rep. Mark Jimenez also said he gave checks amounting to P18 million to First Gentleman Mike Arroyo through a charity foundation identified with the First Couple. Jimenez claimed the money was a bribe; the First Gentleman said there were no strings attached to what he described as a legitimate donation to charity.

Estrada, for his part, has also denied Singson’s story. But such allegations have shaken corporate philanthropy to its core.

The proliferation of foundations in the Philippines in recent years has raised serious questions on whether donors have used their generosity — and recipients, the donors’ kindness — to mask their true motives.

Data from the Securities and Exchange Commission (SEC) show that the number of active non-stock corporations — which include foundations and other non- government organizations (NGOs) — has jumped from a little over 110,000 in December 2001 to 149,290 as of June 2002.

Benito Cataran, head of the SEC’s company registration department, said they receive applications for the establishment of a non-stock corporation every week.

He attributes this to the growing popularity of non-stock, non-profit foundations as an alternative source of income for unscrupulous individuals.

Cataran was quick to admit, though, that not all foundations are illegal.

"Some are using it to source money from other people. They are using their SEC registration license to legalize their solicitation activities. But there are also foundations that are for humanitarian projects and are not for business — those that genuinely want to help," he said.

The minimum capital required by SEC for start-up foundations is P100,000.

Cataran said it is difficult for the SEC to distinguish which among the registered foundations are legitimate because the SEC does not know where these organizations channel their money.

"We cannot require these foundations to divulge who their donors are and how one’s donation is spent," he said.

The SEC requires non-stock corporations to submit annual financial statements and general information sheets.

These documents are essential in determining whether a foundation’s funds are sourced from unlawful activities.

Under the SEC’s scale of fines, however, failure of any non-stock or stock corporation to file the required financial report carries a penalty of only P500 to P3,500 per report per year.

Cataran added that yet another reason why foundations have mushroomed in the country is because of the tax incentives they enjoy.

He said he does not discount the fact that some foundations are being used to accept bribes from political leaders and businessmen.

An example of this, he said, is the confession made by Singson in October 2000 that he deposited money from illegal gambling to the account of former President Estrada’s Muslim Youth Foundation.

Controversial lawyer Eduard Serapio, a foundation trustee, admitted that Singson asked him to deposit the donation in an Equitable PCI Bank account before transferring it to an account in the foundation’s name on a staggered basis to prevent banking personnel from getting suspicious.

Another incident that grabbed headlines in the past was the number of foundations reportedly established by Former First Lady Imelda Romualdez-Marcos to serve as depositories of her family’s alleged ill-gotten wealth.

Marcos was accused of using five foundations, with foreign bank accounts worth over $352.4 million, as conduits in transferring ill-gotten wealth to the Credit Swiss Bank.

The former first lady allegedly opened and maintained accounts for Vibur Foundation, which had a balance of $3.6 million as of December 1991; Aquamina Foundation, which had a balance of $80.1 million as of August 1991; Avertina Foundation, which had $240 million as of December 1989; and four Swiss bank accounts at the Banque Paribas with estimated total deposits amounting to $28.2 million as of November 1978.

The 1987 Constitution prohibits government officials from having pecuniary interests in private transactions.

In addition to the rise in the number of non-stock corporations in the last few years, Cataran also noted the increasing number of Muslim groups or associations in the country.

"The number of Muslim groups is growing. There is a Muslim group in every city or town," he said.

Foundations, he added, may also be used by terrorists to sustain rebellion. Idolized by many Filipino Muslims in the South, Osama bin Laden is widely known as a financial backer of the Islamic extremists waging war against the government.

Bin Laden was said to have long established and sustained "charitable centers or foundations" in depressed Muslim communities in Mindanao. These foundations were believed, at one time, to be run by his brother-in-law, whose sister was said to be one of his wives.

Bin Laden was tagged as the principal suspect in the World Trade Center and Pentagon bombings in the United States on Sept. 11, 2001. His al-Qaeda network was, in fact, involved in the assassination attempt against Pope John Paul II in January 1995.

In the absence of laws and clear-cut regulations that would effectively monitor sources and users of donations, the risk of innocent people being killed by well-funded terror groups is high.

Cataran stressed that to protect the public, there should be an agency that should monitor the operations of foundations, especially in tracking fund sources and their beneficiaries.

He said that while the SEC has jurisdiction over foundations, the agency is helpless in monitoring their activities as its primary concern is the development of the equities markets and the protection of the investing public.

Foundations, he maintained, should be subject to regular audits, which should include surprise visits to the supposed beneficiary organizations to ensure that their operations are legitimate.