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Financial firms told to strengthen systems to prevent money laundering

FINANCIAL INSTITUTIONS should strengthen their sanction screening systems to effectively identify possible threats and vulnerabilities to prevent money laundering and terrorism financing, the Anti-Money Laundering Council (AMLC) said.

The AMLC said in a guidance report that has observed an overall underperformance in most sanctions screening testing metrics among financial institutions over the last 12 months, compared with global data.

“[There are] significant weaknesses seen in the ability of covered persons to identify manipulated names in their screening system and processes,” the AMLC said.   

There is also a lack of understanding on how sanctions screening systems operate and lack of awareness of the potential risks the systems bring, the AMLC said. These result in poor performance and over-reliance on technology.   

“Due to the evolution of crime and continued usage of evasive techniques undertaken by sanctioned individuals and entities, there is a need to constantly monitor new emergent risks as well as test against the new typologies on an ongoing basis,” the AMLC said.   

“Organizations should be constantly monitoring guidelines and alerts published by competent supervisory authorities and international standards bodies as well as through continual training and skill advancements,” it added.

Sanction screening is used to identify individuals or entities that are subject to economic sanctions. It is a requirement for financial players and other regulated industries.   

The AMLC said it adheres to a risk-based approach in performing its role as the primary anti-money laundering/counter-terrorism financing (AML/CTF) supervisor and enforcer of compliance.

This includes risk-based supervision of targeted financial sanctions (TFS) on all covered persons, and ensuring effective TFS framework against terrorism financing and proliferation financing of weapons of mass destruction.

“Financial institutions should first ensure that they have the correct AML/CFT technologies in place to detect financial crime indicators,” the AMLC said.   

“This should include a robust sanction screening system which is set up to alert against names on globally important sanction lists and tuned to flag sanctioned names even when they have been altered using algorithms to assess the fuzzy logic matching capabilities of a screening system,” it added.

In the Philippines, the 2021 Sanctions Guidelines outlines the current requirements and obligations as set out by the AMLC.   

Under current legislation, all covered entities must screen all relevant parties against the Anti-Terrorism Council lists and United Nations (UN) Security Council resolutions.   

The UN Security Council keeps a wide list of country-based financial sanctions that target specific individuals and entities connected with the political leadership of targeted countries.   

Each UN sanctions regime has a relevant Security Council Committee that maintains general guidance on the implementation of financial sanctions and current lists of targeted persons and entities.

“Being able to effectively identify potential threats and vulnerabilities within the sanctions compliance context will enable organizations to enhance their programs,” the AMLC said.

It reminded financial institutions to have personnel that are adequately skilled and knowledgeable on the sanctions screening process. This could be obtained by attending trainings provided by the AMLC.   

“The Philippines must, among others, demonstrate that covered persons understand their TFS obligations and that supervisors undertake risk-based supervision of TFS measures of financial institutions,” the AMLC said.   

Global financial crime watchdog Financial Action Task Force put the country in its list of jurisdictions under increased monitoring for “dirty money” risks in June 2021.

The Philippine central bank hopes the country can exit the “gray list” by January 2024. — Keisha B. Ta-asan

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