Global advocacy group cites Philippines initiatives on illicit financial flows

MANILA, Philippines - The Global Financial Integrity (GFI) has cited the Philippines’ implementation of reforms to strengthen legal and regulatory frameworks to prevent illicit financial flows (IFF) to and from the country.

In a recent report, GFI a non-profit research and advocacy organization, said the Philippine economy continues to experience positive changes due to good governance initiatives of the Aquino administration and economic reforms.

GFI defines illicit financial flows as illegal movements of money or capital from one country to another. GFI classifies this movement as illicit flow when the funds are illegally earned, transferred, and/or utilized, making them a threat to a country’s fiscal capacity.

In its report titled “Illicit Financial Flows To and From the Philippines: A Study in Dynamic Stimulation,” GFI said illicit financial inflows and outflows may have a harmful effect on economic growth. However, the Philippine economy continues to experience an upward trajectory largely due to good governance initiatives of the Aquino administration and favorable policies brought about by the country’s prudent economic management.

During a panel discussion titled “A Conversation on Illicit Financial Flows from the Philippines” at the National Press Club in Washington, DC, Amb. Jose Cuisia Jr. tackled two thrusts of the Philippine government in addressing illicit financial flows. These are to ensure that the Philippines has a strong legal and regulatory framework to fight against IFF that is in line with international standards, and developing collaborative partnerships among all stakeholders.

Cuisia outlined initiatives undertaken by the Bangko Sentral ng Pilipinas (BSP), Bureau of Internal Revenue (BIR), and the Bureau of Customs (BOC) to address the issue of illicit financial flows.

 “The BSP continues to strengthen the anti-money laundering and counter-financing of terrorism regime for financial institutions to maintain relevance and effectiveness through increased documentary requirements for activities registered outside of the Philippines. It also oversees the implementation of risk-based customer acceptance policy processes for banks and financial institutions, among others,” said Cuisia.

According to GFI, “illicit inflows significantly reduce the collection of total taxes.” To address this issue, the government has been implementing reforms to improve the performance of the BIR and the BOC, the Philippines’ two main revenue collecting agencies.

 “Due to a more effective tax administration, collection of taxes under the Aquino administration has increased to 15.1 percent of GDP in 2014 versus 13.4 in 2010. This is expected to improve further to 17.5 percent of GDP in 2016 or $26.2 billion,” Cusia said.

A proposal to amend the 1987 Tariff and Customs Code of the Philippines is also being reviewed by Philippine Congress. If passed, the bill will establish tax exemptions, strengthen the BIR’s risk management system, and promote appropriate behavior by establishing incentives such as deferments of duties and taxes to highly compliant exporters and importers, among others.

“As for the Bureau of Customs, the agency has instituted reforms to improve its processing and valuations processes to ensure proper invoicing, valuation, and reporting. This is important in a culture that consistently and deliberately miscalculates or undervalues cargo. For example, a 2014 study reveals that only 18 percent of all Customs declarations are truthful,” he added.

BOC is likewise clamping down on smuggling, particularly oil smuggling, which accounts for losses for oil companies approximating $430 to $644 million. The government is estimated to lose approximately $2 million in foregone revenue.

The Customs agency has also entered into an information sharing partnership with the US Department of Homeland Security’s Homeland Security Investigation (DHS-HSI) through the development of corresponding Trade Transparency Units (TTU). 

Another conference panelist, DHS-HSI Trade Transparency Unit chief Hector Colón expounded that TTUs are important mechanisms that aid in the prevention of trade-based money laundering and commercial fraud mainly through the comparison and analysis of trade data to identify anomalies in trade transactions.

GFI is a non-profit, Washington, DC-based research and advisory organization that researches illicit financial flows and aims to promote pragmatic transparency measures.