Grey list

Grey is just a shade lighter than black. Being on the grey list is just one grade better than being on the black list. Not too many shades there.

The Philippines has been on the grey list of the influential Financial Action Task Force (FATF) for too many years because of a number of issues that prevent us from properly enforcing anti-money laundering measures. From all indications, we will remain on that list.

Remaining on that list inflicts huge costs on our economic development. It raises costs for our overseas workers wanting to remit their earnings. It invites more stringent requirements on cross-border transactions. It inhibits upgrade of our credit rating.

A paper prepared by the International Monetary Fund (IMF) found substantial reductions in capital inflows for countries in the grey list. This could be a major reason why the Philippines receives only four percent of investment flows into the ASEAN region.

We have been trying to graduate from the grey list, to little avail. The last time, the FATF gave us January 2023 as deadline to introduce new bank policies and financial regulations to improve our standing. The FATF said it “urges the Philippines to swiftly implement its action plan to address the above-mentioned strategic deficiencies before that date.”  That deadline has long passed. We continue to wallow in financial purgatory.

Even as a great toll is being taken on our economic progress, our legislators continue to drag their feet on the reforms that need to happen.

Meanwhile, new financial technologies come into play, increasing the gap between us and the compliant economies. We have had difficulty reforming our banking laws for so many years, with little success. Now we have to improve on our regulation of such things as cryptocurrency exchanges to improve our standing.

Unchallenged by regulations, cryptocurrency companies have found our domestic market welcoming. One such is cryptocurrency giant Binance Holdings Inc. which has mounted an aggressive promotions campaign in the Philippine market using social media.

Recently, a US federal court fined Binance CEO Changpeng Zhao over $4 billion after he admitted guilt. That is many times more than the staggering fine a judge in New York imposed on Donald Trump and his real estate company this month. The ruling is expected extinguish the Trump organization.

Binance, for its part, was accused of engaging in money laundering, unlicensed money transfer and other violations of banking laws including the Bank Secrecy Act and the International Emergency Economic Powers Act. The crippling fine notwithstanding, Binance continues to operate in more hospitable economies.

In the wake of the US court ruling, the Nigerian government undertook its own measures to restrict the activities of Binance. It directed its telcos to block access to Binance and other unregulated crypto exchanges.

Other countries are taking steps to curtail the activities of Binance. This is quickly becoming a global trend.

The Philippines, as part of our efforts to graduate from the FATF grey list and also to protect Filipino consumers of financial products, began taking steps to restrict Binance’s activities in our economy. Our Securities and Exchange Commission (SEC) announced last November that, in tandem with the National Telecommunications Commission (NTC), a ban will be imposed on Binance.

The ban will take effect at the end of February – which is today. We will see how effectively this ban is enforced.

Binance was charged in the US for its failure to register in that country as a money transmitting business. This is also the same violation cited by our SEC in its move to ban the company.

It turns out that Binance is, in fact, not a registered corporation in the Philippines. It was operating with impunity without the necessary license and authority to sell or offer any form of securities.

This case should be an eye-opener. With new finance technologies, it is possible for companies such as Binance to engage in trade outside the pale of prevailing country regulations by conducting its business entirely on the web. As of this writing, the Binance app continues to be available in the Google and Apple stores.

More than just a ban by way of the telcos, the peril posed by cryptocurrency transfers ought to involve intensive coordination among the Anti-Money Laundering Council (AMLC), the Bangko Sentral ng Pilipinas (BSP) and possibly the Department of Trade and Industry (DTI). Everything should be done to protect Filipinos from financial vultures.

Our anti-money laundering effort has been far from sterling. This is the reason we continue to languish in the FATF grey list. Weak anti-money laundering strategies are particularly perilous when loopholes are exploited by terrorist groups.

It was reported, for instance, that during the year leading to the murderous Oct. 7 attack on Israeli settlements, the Hamas, Palestinian Islamic Jihad and the Hezbollah received more than $93 million by way of cryptocurrency channels. Hamas alone received $41 million.

Israel’s National Bureau for Counter-Terror Financing began proceedings to seize 67 Binance accounts believed linked to the terrorists. Israeli hostages and their families in the US have sued Binance for helping the terrorists fund their attacks.

We need not go too far.

A few weeks ago, law enforcers arrested a woman in Sulu suspected to be an Al Qaeda financier. She is accused of facilitating transfer of funds to the ISIS-Maute group that bombed a Catholic mass at the MSU campus in Marawi last year.

A weak regulatory environment is dangerous.