Resistance in classifying real estate transactions among businesses that should be subjected to thorough review for possible money laundering was identified as among those which have spoiled the Senate version of the bill seeking to align the Anti-Money Laundering Act (AMLA) to international standards.
Senate Bill 1945 omitted the inclusion of real estate brokers and developers as covered persons for stricter rules on huge transactions, which is a key recommendation of the powerful Financial Action Task Force (FATF).
FATF is made up of developed nations under the Organization for Economic Cooperation and Development.
One of the conditions it issued for the Philippines to steer clear of the graylist that will automatically require extra procedures on financial transactions, mainly on remittances of foreign workers, was reforms in the property deals which is a booming business.
FATF particularly sought real estate developers and brokers to be required to report the buying and selling of property to regulators.
“Since real estate brokers and developers have direct contact with their customers, they are in the best position to execute anti-money laundering and on countering terrorist financing (AML/CTF) preventive measures in the sector as they are primarily involved in the buying and selling of real estate, where money laundering may occur,” AMLC Executive Director Mel Georgie Racela said.
Somebody in the Senate resisted putting the sector under the close watch of the AMLC was the indirect implication of AMLC’s assessment of the deficiencies in the bill that the Senate passed last Monday.
According to financial experts, property purchases have become a favorite in recycling dirty money.
Criminals are drawn to laundering through real estate since it is uncomplicated and requires little expertise.
Real estate is bought using cash with true ownership disguised. The investment is secure with a good potential to increase in value, particularly in the fast expanding Philippine market.
Real estate can be purchased using a third party or someone with no criminal record as a legal owner. Property is either purchased on its behalf, or proceeds of crime are deposited into its bank account to make the purchase. Such method allows the proponent of the illicit deal to avoid direct involvement in the laundering process.
Loans and mortgages can also be used as a cover for laundering proceeds and their repayment can be used to mix illicit with legitimate funds.
Launderers can also connive with real estate agents to under or overestimate the value of a property.
The difference between the contract price of the property and its true worth is paid secretly by the purchaser to the vendor using illicit funds.
If the property is sold at the market for higher value, the apparent profits would serve to legitimize illicit funds. This method is also used to pay less stamp duty.
Criminals also overvalue real estate with the aim of obtaining the largest possible loan from a lender. The larger the loan, the greater the amount of illicit funds that can be laundered to service the debt, according to an expert.
The audit trail is erased by reselling property in quick succession. The property is sold at a higher value, either to related or acquainted third parties, or to companies or trusts controlled by the launderer, giving an appearance of seemingly legitimate profits while the criminal maintains ultimate control over the property.
Front or shell companies or trusts established overseas are also used to launder money through real estate. Property held in the name of one of these companies allows launderers to distance themselves from ownership.
Several other methods make property a favored method in hiding illicit funds that may have resulted to the income of companies in the business to rocket.
Racela said passing the Senate version will again find the AMLC seeking further amendments in the next few months, but not after the country is graylisted.
The House version was preferrable for the AMLC since it addressed most of the deficiencies identified by the FATF.
Some inappropriate interests within the august halls of the Senate are willing to risk the country’s welfare, particularly those of the 10 million overseas Filipino workers, just to protect their source of wealth.