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Financial institutions told to tighten guard against dirty money flows related to child porn

THE CENTRAL BANK told financial institutions to address gaps in their risk management capabilities to arrest the emergence of transactions related to the online sexual exploitation of children (OSEC). 

In Memorandum No. M-2020-092, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier said BSP-supervised financial institutions are expected to boost their anti-money laundering (AML) and counter-terrorism financing (CFT) processes through the guidance paper, consistent with their respective risk profiles.

“It is essential that the Board of Directors and Senior Management set a proactive tone at the top and establish a culture of risk awareness and compliance within their organizations to ensure effective implementation of a robust AMLC/CFT framework that has the capability to detect and mitigate risks arising from OSEC-related transactions,” the BSP said.

The central bank found that BSFIs need to strengthen areas such as their conduct of risk assessment, customer due diligence, monitoring, as well as suspicious transaction reporting (STR) to better detect OSEC activities.

The regulator recommended money laundering risk assessment exercises conducted periodically, noting this should cover a risk evaluation of OSEC activities for businesses and customers.

In terms of due diligence in customer on-boarding, the BSP found that BSFIs had inadequate controls, which meant policies like customer identification were implemented unevenly in branches and remittance partners. There were also some gaps in handling high-risk customers.

Moreover, risk profiling was “unsophisticated” given the manual process and incomplete information, the BSP said. It noted that some BSFIs missed information, including purpose, expected activity on the account, frequency, volume, value of remittances, country of origin, name and address of remitter and their relationship to the recipient as part of customer risk profiling.

The BSP also flagged certain BSFIs’ practice of not keeping their watchlist database updated as existing customers and personalities with previously filed suspicious transaction reports or involved in negative media reports were not included in the list.

The central bank likewise found that STRs related to OSEC were mostly sourced only from negative media reports and referrals from the Anti-Money Laundering Council (AMLC). Only 24% were from monitoring systems, while those that were from branches and fraud complaints made up 12% and 1% of the total, respectively.

On the other hand, the BSP said BSFIs also employed some “good practices”, including the established process for customer identification and verification and adoption of automated screening process. 

It noted that some BSFIs participate in the AMLC’s Public Private Partnership Program, which gives them access to information on personalities linked to OSEC as well as unlawful activities they could monitor to determine whether transactions need to undergo further investigation.

In September, the AMLC released a study which showed child pornography-related transactions surged to 5,902 during the lockdown from March to May from 369 recorded a year ago. Such transactions would range from P1,000 to P10,000 each.

Based on the agency’s findings, 60% of these transactions were carried out through money service businesses while 35% were done through banks. — Luz Wendy T. Noble

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