IMF: Fight money laundering, terror financing

MANILA, Philippines - Inflows and outflows stemming from money laundering and terrorist financing activities could result in financial instability, the International Monetary Fund (IMF) said as it cited the need for country policies to address these challenges.

“Money laundering, terrorist financing and the related predicate crimes can undermine the stability of a country’s financial system or its broader economy in a number of ways and may have adverse spillover effects on global stability,” the IMF said in a policy paper dated Dec. 14.

In issuing the report, the IMF said it has made its policy to include in its annual Article IV consultations a “mandatory assessment” of country policies to fight money laundering and terrorist financing activities.

The Philippines is scheduled to undergo its Article IV examination this week.

The IMF has also ordered its review missions to look at the vulnerability of the financial system, estimate the possible amount of proceeds that can be laundered in the country and determine if those problems are “potential sources” of financial instability.

Officials of the Bangko Sentral ng Pilipinas (BSP) and the Anti-Money Laundering Council (AMLC) could not be reached for comment.

The country has yet to pass a bill that would expand predicate crimes related to money laundering as required by the Financial Action Task Force (FATF).

FATF’s recommendations are “recognized” by the IMF, although it is not clear how the Philippines’ failure to comply with FATF’s requirement will impact on its recommendations.

Last week, Finance Assistant Secretary Ma. Teresa Habitan said the country is no longer required to adopt all IMF suggestions.

In the policy paper, the multilateral institution highlighted the pressure a country’s balance of payments (BOP) may experience as a result of money laundering (ML) and terrorist financing (TF) activities.

It said “illegal transactions” could be channeled through banks, affect banks’ status, and undermine the economy.

The BOP summarizes all inflows and outflows in an economy and the IMF said proceeds from these activities may be “significant in relation to the size” causing, among others, volatility in the financial markets – stock and foreign exchange markets.

“ML or TF activities may give rise to significant levels of criminal proceeds or ‘hot money’ flowing into and out of financial institutions in ways that are destabilizing for these institutions,” the IMF explained.

“As a result, policy-making could be put to test,” the IMF said as stolen money would most likely remain unaccounted for and affect government data. Foreign exchange and stock market transactions “may not fully reflect the underlying economic realities.”

As for predicate crimes, IMF cited corruption as an example that could adversely affect economic growth.

“Corruption, especially grand corruption at the national level and in the revenue administration, has a demonstrated negative effect on fiscal balances, foreign direct investment, and growth,” the agency explained.