THE Office of the President issued Memorandum Circular (MC) 64 on June 20, 2014, enjoining all concerned agencies to fully support and actively participate in the conduct of the Money Laundering/Terrorism Financing (ML/TF) National Risk Assessment (NRA) through involvement in the Money Laundering/Terrorist Financing NRA Working Group.
MC 64 states that the Asia/Pacific Group (APG) on Money Laundering is committed to the effective implementation and enforcement of internationally accepted standards to address ML/TF. Under the international standards on combating money laundering and terrorism financing, countries are required to identify, assess and understand the money laundering and terrorism financing risks for the country and are mandated, based on said assessment, to apply a risk-based approach to ensure that measures to prevent or mitigate money laundering and terrorism financing are commensurate with the risks identified.
The Philippines is a member of the APG and, in compliance with the international standards on combating money laundering and terrorism financing, the Philippines is taking part in the conduct of the ML/TF NRA. The Office of the President recognizes that there is therefore a need to constitute an NRA Working Group consisting of representatives from relevant government agencies and the private sector dedicated to the accomplishment of the objectives and completion of the ML/TF risk-assessment process.
The NRA has been a project of different countries. Its process is unique to each country depending on the circumstances present, and the assessment depends heavily on the collaboration of the participatory agencies and sectors involved. With this process, the country will be able to identify specific areas or sectors with low or high risk or vulnerability to ML/FT.
The Insurance Commission is actively taking part in the NRA Working Group in coordination with the different government agencies and the private insurance sector. The need to assess the vulnerability in the insurance sector is an important process to strengthen the insurance industry and be capacitated to counter ML/TF risks.
Money laundering, as briefly described, is the process by which proceeds from a criminal activity are disguised to conceal their illicit origin. According to the Vienna Convention and the Palermo Convention provisions on money laundering, it may encompass three distinct, alternative acts: (1) the conversion or transfer, knowing that such property is the proceeds of crime; (2) the concealment or disguise of the true nature, source, location, disposition, movement or ownership of or rights with respect to property, knowing that such property is the proceeds of crime; and (3) the acquisition, possession or use of property, knowing, at the time of the receipt, that such property is the proceeds of the crime.
Terrorist financing, on the other hand, involves the solicitation, collection or provision of funds with the intention of supporting terrorist acts or organizations. The funds may originate from both legal and illicit sources. According to the International Convention for the Suppression of the Financing of Terrorism, a person commits the crime of financing of terrorism “if that person, by any means, directly or indirectly, unlawfully and wilfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry an offense within the scope of the convention.” In terrorist financing, the goal is not to conceal the sources of the money but to conceal the financing and the nature of the financed activity.
The insurance sector, which is part of the financial services industry, due to the nature of its business, is potentially at risk of being used for money laundering and the financing of terrorism. Criminals and organized terrorists continue to look for ways to finance their activities and to conceal the illegitimate source of funds. The inherent nature of some products and transactions of the insurers are possible opportunities to launder money or to finance terrorism. Being a possible target for money launderers and terrorist financers, the NRA process aims to assess the vulnerability of the insurance sector to ML/TF. This will determine the weaknesses and gaps in the defense mechanisms against ML/TF of the insurers. With an effective assessment, the insurance sector should be able to take adequate measures to prevent itself from being an instrument of ML/TF and be able to address the possible cases of ML/TF.
MC 64 specifies the use of the risk-based approach. This approach is one of the recommended international standards recognized by the Financial Action Task Force (FATF), an independent intergovernmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. FATF Recommendation 1 provides that “countries should identity, assess, and understand money laundering and terrorist financing risks for the country, and should take action, including designating an authority or mechanism to coordinate actions to assess risks, and apply resources, aimed at ensuring the risks are mitigated effectively. Based on that assessment, countries should apply a risk-based approach (RBA) to ensure that measures to prevent or mitigate money laundering and terrorist financing are commensurate with the risks identified.” If the country is identified with higher risks, it should ensure that their AML/CFT regime adequately addresses such risks. However, where the country is identified with lower risks, it may decide to allow simplified measures for some of the FATF Recommendations under certain conditions.
The risk-based approach also takes into account that within a single jurisdiction, the various financial and nonfinancial sectors differ from each other. The RBA tries to address these differences by identifying the threats and vulnerabilities and determine the levels of risks in each of the identified sectors within the country. This approach is an essential foundation in the efficient allocation of AML/CFT resources and to implement international standards and risk-based measures to at least mitigate ML/TF risks, if not totally deter it.
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Atty. Liza Tubilleja is presently the Chief of the Public Assistance and Mediation Division of the Insurance Commission.