The great bank heist catalyst

When we consider the total amount of stolen money a Philippine bank had let slip through safety protocols at its head office (HO), add to this the total originally intended by the bank robbers who had employed this particular bank, then the monetary fines that regulators say might be imposed may actually reward than punish those derelict of their charge. 

The Bangko Sentral ng Pilipinas declared that the maximum statutory fine was merely P30,000 per day. Rather than deter criminality and compel stricter controls, such measly amount might even catalyze more criminality through the banking system.

In contrast, for the smallest infractions, smaller institutions and rural banks owned by lesser gods can be subjected to summary closures for “unsafe banking practices,” however fuzzy those terms are defined. Woe to the victims of inequity.

Clearly, there were three aspects of our financial system that attracted the global bank robbers.

The first was a slew of laxities in the internal controls of financial intermediaries.

The second were the exemptions enjoyed by gambling dens and casinos under the money-laundering statutes.

A third is the attitude of regulators when staring down institutions that carry big sticks and are considered sacred and too big to fail.

Using best practices as bases, on the first and last, analyze this list of transgressions that facilitates the slickest passage of stolen funds enabling speedy delivery to money launderers.

Allow us to start overseas. Upon instructions, the reserve account of a foreign central bank at the Federal Reserve Bank of New York is debited of humongous amounts and the sum credited to the correspondent bank of a Philippine universal bank in whose local branch are several accounts that the instructions identify as payees.

The Philippine bank may not be able to identify the original payor when the funds are eventually credited to its account with its correspondent bank in New York. But since its HO Reconciliation Department tracks its global floats, it should notice an extraordinary spike in its account. Immediately, a red flag should have been raised, given that the eventual payees are private accounts in a branch identified both by name and account number.

Through a credit memo, inward remittances are initially credited to the bank’s head office account. The first control point is the bank’s HO Inward Remittance Department. Upon consolidation, these are credited to HO Treasury. Both should have raised red flags seeing the amount’s abnormal incongruity with private accounts at the branch level.

More so since the inbound remittance passes the HO Settlement Department where requisite handling, remittance and transaction fees are debited prior to crediting balances at the branch level. Again, red flags should have been raised because the origins are offshore and involve abnormal volumes.

Prior to the inward credit memo, in anticipation, the recipient branch requested the HO Cash Department for bills beyond the insurable amounts that armored transports can safely carry, as well as beyond that which a branch normally transacts.

Another red flag should have been raised by the HO Cash Department. Especially because it would need documented approvals for the incremental cash beyond insurable and transportable limits, considering that the request was made on a Friday and delivery, possible only after banking hours on the eve of a long weekend.

Admittedly, maximum cash limits vary. A function of daily average cash levels normal for a business district branch, the maximum might average P10 million, both in transit and at the branch, as banks today rely less on paper bills under electronic banking. P20 million in paper money is definitely a multiple of that maximum.

Finally, there is the Stop-Payment Order (SPO), the brightest and reddest of flags. Implementation is a shared responsibility from HO, the head of branches and at least two area heads, to the branch operations officer who does not report to the branch manager. All are accountable.

To force stolen funds through these control points requires bankwide coordinated negligence.