The Market Monitor Minding the Nation's Business
By Jerry Maglunog and Luis Leoncio
Alarm bells have sounded in the local banking sector over the money-laundering scandal involving the $81-million hacked from the deposits of the Bank of Bangadesh in New York and channeled into local banks and casinos.
The warning prompted the Bangko Sentral ng Pilipinas (BSP) to issue a statement last Friday affirming the strength of the local financial system.
Former Finance Secretary Roberto de Ocampo, now Philippine Veterans Banks (PVB) chairman, warned the public that the money-laundering issue may have “become a global spectacle for us,” although it “started outside and appears to be largely limited to one branch of one bank, and appears to be an isolated case.”
Most of the laundered money was deposited in five accounts in the Rizal Commercial Banking Corp. (RCBC), which, based on testimonies during the Senate probe, were fictitious and made to appear to have been undertaken through the collusion of junket operator Kim Wong and RCBC Branch Manager Maia Deguito.
As the investigation, aired live on television, drags on, unintended consequences are starting to emerge and be felt across the board, de Ocampo said.
“Toward this end, I suggest that subsequent hearings be held behind closed doors since they will yield even more information and thus, be more productive,” de Ocampo said.
“Thus, this investigation in aid of legislation could have a positive outcome, namely a strengthening of our AMLA (Anti-Money Laundering Act) to include casinos, in particular, and the preservation of the globally recognized reputation of our banking system.”
He added: “If we continue on this path, the gains we have had in the past will be at risk: our credit rating, foreign investments, economic growth, and even our international banking and financial operations.”
BSP Gov. Amando M. Tetangco Jr., in a statement last Friday, said the Philippine banking system remains operationally sound and fundamentally strong, as manifested by mainstream indicators on capitalization, asset quality, and the steady growth of assets, deposits and loans.
Tetangco said that, under the BSP’s legal authority to supervise the banking system, it implements a comprehensive risk-based approach that is aligned with international best practices.
“This particularly includes the Basel Committee’s standards as articulated in the updated Core Principles for Effective Bank Supervision,” he said.
De Ocampo, however, revealed that the remittance operations abroad of Philippine banks are now experiencing tighter scrutiny from their partner foreign banks.
“That is bad news to our roughly 12 million OFWs (overseas Filipino workers). And that is only one example of problems we may be creating for ourselves over an isolated situation,” he said.
De Ocampo said that, while he understands the need to investigate, he said the Senate probe should be done with sobriety and circumspection “lest we unwittingly put national interest at risk.”
“With this in mind, if we must continue to dig deeper, we must spare our institutions and our nation, which has shown tremendous growth potential in the past years,” he added.
“Our banking system is strong and our bankers are noted to be among the best in the region. Our BSP governor has even been recognized more than once as central bank governor of the year. Even the embattled RCBC is among our most reputable banks and has served the public well over many decades.
De Ocampo expressed confidence that “both our banking system and RCBC will be able to weather this storm and emerge even stronger with lessons learned from it.”
Tetangco noted that “the BSP’s track record demonstrates the will to decisively act by meting out sanctions on erring bank directors and officers, restricting imprudent activities, prohibiting unsafe or unsound practices, and even shutting down banks.”
He pointed out, nonetheless, that the strength and soundness of the banking system is underpinned by the efforts of the BSP and other government agencies to pursue financial stability as a prudential objective.
“Bank balance sheets continued to expand amid the volatilities in the global financial system. This growth was achieved while maintaining asset quality, as the non-performing loans of U/KBs represented just 1.6 percent of the industry’s total loan portfolio at end-December 2015,” Tetangco said.
“Bank supervision is focused on assuring the financial public of the safety and soundness of individual banks. Aside from the periodic on-site examination of banks, the BSP likewise employs off-site supervision on a continuing basis,” he added.
Tetangco also said well-trained (onsite) bank examiners and (offsite) bank supervisors periodically assess whether or not banks have the requisite overall governance framework to manage emerging risks.
“This includes mainstream risks on credit quality, market-price movements and bank operations. In addition, specialist examination teams are in place to evaluate the effectiveness of a bank’s prevention program to ensure bank handling of the risks out of IT (information technology) and cybersecurity issues, money laundering and terrorist financing,” he added.
Tetangco said the BSP is vested with the legal authority to take appropriate enforcement actions against individual banks and their personnel for violation of banking laws and regulations, as well as non-compliance with minimum regulatory standards on governance, risk management and market conduct.
“On our own and as a collective body with other financial regulators, we have also focused specifically on the potential build up of systemic risks,” Tetangco said.
“The issues that we have been assessing covers quite a bit of ground, but they are interrelated by the common strand that they can create comingled risks that can be systemic in nature” he added.
The BSP has established a Financial Stability Committee made up of senior officials while the Financial Stability Coordination Council is made up of the Securities and Exchange Commission, the Insurance Commission, the Philippine Deposit Insurance Corp., the Department of Finance, the Bureau of the Treasury, and the BSP.
All of the reform initiatives are ultimately meant to align the needs of a growing economy with a sound and responsive financial system.
“The BSP is very cognizant of the need to nurture financial stability but is also well aware that this must be aligned with the absolute objective of ensuring the integrity of the financial system,” Tetangco noted.
“Several third parties have commented that the Philippines remains to be in a position of strength amid global volatilities since late 2015. These reforms also enable our banks to perform their role as catalysts of development under the Asean Vision 2020,” he said.
The BSP chief said the reform agenda is a collaborative and ongoing process whose ultimate objective is not just to ensure the safety and soundness of banks but also to widen access to financial services and products that can improve the economic and financial well-being of the public.
Top bank exec spared
In the hearing last Mar. 29, witnesses said nearly $7 million (around P330 million) of the laundered amount was still in three casinos and can still be recovered if authorities are bent on doing so.
The Senate Committee on Banks, Financial Institutions and Currencies, which is conducting the investigation, asked RCBC to submit all documents relating to the five fictitious dollar accounts that received the $81 million, a demand that RCBC Legal and Regulatory Affairs Head Macel Estavillo said the bank can’t follow because doing so would mean violating the bank-secrecy law.
Since the first hearing of the Senate last Mar. 14, none among its key members, including Senators Juan Ponce Enrile, Sergio Osmeña III, Juan Edgardo Angara and Aquilino “Koko” Pimentel III have pinned the bank’s top executives to the mess.
According to Osmeña, who once served as member of the board of the defunct Republic Bank, he doesn’t see any reason RCBC President and CEO Lorenzo Tan would involve himself in the mess.
“I don’t see why a man of honor making millions per month would involve himself in such a screwed activity,” Osmeña said. The senator said the willingness of Tan to appear in all the hearings of the Senate only proved that the banker was innocent about the issue.
Less than week before the latest hearing, top management of RCBC already accepted Tan’s second urgent request for indefinite leave to give bank officials a free hand to decide what must be done at the height of the controversy.
Instead of pinning Tan, Osmeña, the chairman of the committee, said it appears that two persons have masterminded the mess—the dismissed manager Maia Santos-Deguito and Kim Wong.
Deguito, manager the RCBC’s Jupiter Street branch where the laundering was said to have happened, didn’t appear in the third hearing. Her lawyer, former Sen. Rene Saguisag, said she was suffering from severe stress.
“There is an orchestrator here, a mastermind and right now, it looks like it’s Kim Wong, but we have to give him a chance and let him come back from his trip abroad to testify before the committee,” Osmeña was quoted as having said. “He’s a big player in this. He’s a missing link.”
According to the senator, Wong requested Deguito to open five dollar accounts, providing the information sheets and introducing the account holders to her during a meeting at Midas Hotel.
Deguito checked their IDs and later she was sent $2,500 by messenger for the dollar accounts, Osmeña said.
Only four of the five accounts were used to receive the $81 million. The fifth account, under the name Picache, was not used, he said.
But when the Senate sergeant-at-arms looked for the four account holders at their given addresses to serve summons on them to appear at the blue ribbon committee hearing, the addresses turned out to be fictitious.
It was also Wong who instructed Deguito to use Philrem to remit the funds to other accounts. Wong knows Philrem, according to Osmeña.