A US State Department report says letters of credit (L/Cs) are playing a very large part in the Far Eastern illegal drugs trade.

The 2006 International Narcotics Control Report focuses on the role of the Philippines in the narcotics trade, but points out that the illicit transactions often involve foreign organised criminality based in China, Hong Kong, and Taiwan.

L/Cs favoured

"Most of the narcotics trafficking transiting through the Philippines is exchanged using letters of credit," the annual report says bluntly.

"There is little cash and negligible amounts of US dollars used in the transactions, except for the small amounts of narcotics that make it all the way to the United States for street sale. Drugs circulated within the Philippines are usually exchanged for local currency," it adds.

In its report, the State Department expresses its concerns that insurgency groups operating in the Philippines fund their activities, in part, through the trafficking of narcotics and arms, as well as engaging in money laundering through alleged ties to organised crime.

FATF blacklist

The report describes the problems in the banking sector leading up to the June 2000 decision by the Financial Action Task Force (FATF) to place the Philippines on its list of Non-Cooperative Countries and Territories (NCCT) for lacking basic anti-money laundering regulations, including customer identification and record keeping requirements, and excessive bank secrecy provisions.

For several years after the country first appeared on the black list, the authorities in the Philippines were concerned that L/Cs may grind to a halt ifthe country didnot implement financial sector legislation to combat money laundering and illicit financing demanded by the FATF (DC World News, 19 August 2004).

No comment

The Philippines was removed in February 2005 from the NCCT list because, according to FATF, it deemed that sufficient amendments had been made to address the main legal deficiencies in the original Philippines anti-money laundering regime.

The State Department report does not say whether it agrees or not with the FATF decision to remove the Philippines from its NCCT list.

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