Letters of credit (L/Cs) may grind to a halt in the Philippines if it does not implement financial sector legislation to combat money laundering and illicit financing demanded by the Financial Action Task Force (FATF), according to a top politician.

Chairman of the Senate committee on banks and financial institutions, Senator Sergio Osmeña III, issued this warning when he revealed earlier this month that the Philippines remains on the FATF watch list.

FATF team

The senator said a team from the international body waging a war against dirty money had expressed further dissatisfaction over how the Philippines is enforcing laws against illicit funds and money laundering.

"They know that we have the Anti-Money Laundering Act or AMLA, but they also know that we are not good at enforcing our laws," he said.

Laundering haven

"A haven for money launderers" is how the FATF officials described the Philippines according to Osmeña who said the team expressed surprise that there were "fewer reports of suspicious transactions here than there were in smaller jurisdictions."

"Obviously, they believe that our law is useless, and the Anti-Money Laundering Council is useless as well," the senator said.

The Philippines has been on the FATF watch list for more than two years. The original version of AMLA was not acceptable to the international money laundering watchdog that is still not satisfied that the Philippines has relaxed its laws on bank secrecy sufficiently enough to allow suspicious funds to be scrutinised properly.

Blacklist threat

Osmeña now fears that FATF might put the Philippines on its blacklist. "If that happens, our international transactions, including the opening of L/Cs for exports and imports, and money transfers, will grind to a halt. That will cripple our economy," he said.

A further blow to the economy would result from banks refusing to accept workers remittances from abroad since the cost of stringent checks required for financial institutions to receive these funds would be prohibitive.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.