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Policy Decisiveness, Public Regardedness, and Unity of Purpose: The FATF and the Policymaking Process for AMLA
Bing Baltazar C. Brillo
Abstract
The story of the Anti-Money Laundering Law (AMLA) is about the contemporary impact that an international organization has on the policymaking process. The dynamics of the crafting of this law illustrated the asymmetrical relationship between the international organization and the central policy actors. The Financial Action Task Force (FATF), a nonveto player, through incentives and constraints, profoundly influenced the behavior of the veto players, determined the tempo of the process, and delineated the legislative outcome. First, the FATF, was able to set the agenda and subdue the political inertia that worked against the law in the executive and legislative branches. Second, the FATF ensured the enactment and amendment of the law. Third, it made certain that the law did not cater to vested interests and complied with international standards. The external demand was so overwhelming that the FATF was able to guarantee the unity of purpose (the threat of sanction compelled the veto players to collaborate) that in turn resulted in the policy decisiveness of the process (the unyielding deadline defined the pace and direction of the proceeding), and in the public regardedness of the policy (the global standard shaped the content of the AMLA). In the theoretical sphere, the engagement between the FATF and institutional policy actors demonstrated a new dimension in the veto players framework, and modified the conventional proposition— that the more veto players, the harder it is to generate or change policy (policy stability), and the more watered down the output policy (private regardedness) will be. Instead, the presence of an international organization “refashioned” the lawmaking process, making policy enactment easier (policy decisiveness) regardless of the number of veto players, and ensuring that the policy responds more to global interest (public regardedness,) notwithstanding the presence of a multiplicity of interests among the veto players.
Key words: Policy Decisiveness, Public Regardedness, Unity of Purpose, Anti-Money Laundering, Policymaking, Veto Players, and International Organization
Introduction
Economic globalization is usually seen in terms of the intensification of the movement of trade, finance, labor, and information across state borders (Reich, 1991; O’Brien, 1992; Ohmae, 1996). In the financial realm, this phenomenon has led to greater interconnectedness and integration of financial markets, where money is extremely mobile and financial transactions, instantaneous. The unprecedented global financial mobility has brought forth issues that demand coordination among states to manage the volatility resulting in the exponential growth in financial transactions, particularly in the banking sector, e.g., transborder deposits, loans, branch networks, and fund transfers (Scholte, 2001). One of the issues pertinent to this development is the problem of money laundering perpetuated by organized crime and terrorist groups. Money laundering, as defined by the International Monetary Fund (2008), is “a process in which the illicit source of assets obtained or generated by criminal activity is concealed to obscure the link between the funds and the original criminal activity.” Nowadays this practice is prevalent, as funding and fund transfers for organized criminal syndicates and international terrorist groups have become readily obtainable and accessible. As a result, financial regulations are called for to manage and preclude the global transmission and utilization of illegitimate money.
The foremost global financial regulation against the proliferation of illicit money is the Anti-Money Laundering Law (AMLA). So as to ensure its effectiveness, there is a need for all states not only to have an AMLA, but also to make sure that this law conforms to the global standard. The responsibility to persuade states to adopt financial regulation and comply with the global standard has been assumed by an international financial organization— the Financial Action Task Force (FATF). In carrying out its mandate, the FATF has intensified its influence on the policymaking process of each state; with FATF necessarily having to encroach on the domain usually reserved to domestic actors. To clearly see the effect of the FATF, however, there is a need to particularize, that is to conduct a study detailing the specific and distinct impact of this international organization on three fundamental aspects of the policymaking process— the behavior of institutional actors; the process of enactment; and the content of the policy.
With the engagement among policy actors deemed as a bargaining game, this study looks into the nitty-gritty of the policymaking process that led to the enactment and amendment of the AMLA. This paper analyzes the interface between an international organization and institutional policy actors. It argues that the international organization promotes unity of purpose among actors, policy decisiveness in the process, and public regardedness of the policy. The paper also contends that the interface between the FATF and the executive and legislative branches illustrates a new dimension in the veto players’ framework, as the involvement of an international organization refashions a fundamental proposition of the framework. This study proceeds as follows: first, the framework of analysis is discussed; second, the FATF demand— particularly the establishment of the global financial standard, and the utilization of the NCCT List— is presented and explained; third, the process of enacting and amending the AMLA is traced; and lastly, the effect of the international organization on institutional policy actors, the lawmaking process, and the shape of the policy are illustrated and examined in detail.
Framework of Analysis
Policymaking is a process whereby public policies are formulated and produced. The policymaking process is generally defined as the collective process of discussing, negotiating, approving, and implementing public policy (Stein et al., 2005; Stewart et al., 2008). As a collective process, policymaking necessitates engagement and interaction among policy actors in order to generate policies. In sovereign states, policymaking is conventionally deemed an endogenous process where only the government exercises the prerogative of crafting policies within its territory. As a rule, no entity whether in the domestic or international domain can legitimately enact policies without going through the governmental policymaking process. In democracies, the central institutional actors in the policymaking process are the executive and legislative branches of government. The branches are indispensable to policymaking, as both take part and manage the process.
In analyzing the policymaking process, one needs to focus on the interaction of institutional actors, as institutional engagements as well as arrangements can generate incentives or constraints that have a profound impact on the policy outcome (see Shepsle, 1979; Lancaster, 1986; North, 1990; Weaver and Rockman, 1993; Tsebelis, 1995; Cox and McCubbins, 2001; MacIntyre, 2003). In line with this, the policymaking process can be understood as a process of bargains and exchanges among policy actors (Cox and McCubbins, 2001; Stein et al., 2005; Caoili, 2006). The exchanges here can either be spot transactions or inter-temporal transactions; in the former, the exchanges are instantly consummated (e.g. release of pork barrel funds for a legislative vote), and in the latter, the exchanges take a long-term arrangement (e.g. legislative vote for electoral support in the future). The behavior of policy actors in these exchanges will depend on their preferences, incentives, or constraints, and the expectations they have on the behavior of other actors (Stein et al., 2005; see also Hall, 1986; Keohane, 1989; March and Olsen, 1996; Weingast, 1996).
One prominent way of examining the intricacies of the workings of institutions in the policymaking process is through the use of the “veto player” theory (see Immergut, 1992; Tsebelis, 1995, 2002; Haggard and McCubbins, 2001; MacIntyre, 2003). The theory contends that to generate or change policy, a certain number of institutional actors have to concur on the proposed policy. These actors are called veto players, as their agreement is necessary in producing or changing policy. Veto players are individual or collective actors whose approval is crucial, as their control of an office or branch of government empowers them to reject any policy proposal (Haggard and McCubbins, 2001; Tsebelis, 2002).
A fundamental proposition espoused in the theory is policy stability or the predisposition for maintaining the legislative status quo and the difficulty of producing or changing policy in a political system. As the number of veto players in a political system varies, the proposition asserts that policy stability increases when the number of veto players increases, and when there is significant ideological distance among them. When there is only a single veto player, such as in an absolute monarchy, his resolve alone is enough to produce or change policy. On the other hand, when there are multiple veto players, such as in a typical presidential government, the consent of each veto actor is imperative to guarantee or change a policy. Since there are more veto players in a presidential setup than in an absolute monarchy, the implication is that it is harder to pass policy in the former and easier in the latter.
As to ideological distances, if all the veto players in the presidential system espouse a similar ideology (e.g. free market liberal), then, passing a policy consistent with the ideology is faster and less complicated. On the other hand, if the veto players adhere to different and discordant ideologies (e.g. free market liberal versus socialist democrat), the clash of political ideas among the partisan veto players makes policymaking difficult and complicated. Thus, the closer the political ideologies among veto actors, the easier it generally is to pass policy.
The veto players approach was discussed further by Cox and McCubbins (2001). The authors assert that institutional arrangement ramifies into different configurations among veto players and impacts on the policymaking process. Utilizing the concept of effective veto players to determine the actual number of veto actors, both the separation of powers and the separation of purpose must be considered. The former refers to the number of policy actors possessing veto powers, and the latter refers to the differences in interest among veto players. For instance, the number of effective veto players in an institutional arrangement with three veto actors will depend on whether they have unity or separation of purpose. If there is separation of purpose (i.e. diverse interests among policy actors), three veto players is considered the effective number; while if there is unity of purpose (i.e. similarity of interest among policy actors), then one veto player is considered the effective number. In effect, an institutional arrangement with multiple veto players but with unity of purpose reduces the actual number of veto points, thus making it easier to pass or change policy.
In particular, Cox and McCubbins noted that the interplay between separation of power and separation of purpose ramifies into two key trade-offs. The first trade-off is between policy decisiveness, which is the ability to change policy, and policy stability, the ability to stick to the prevailing policy. The authors contend that the greater the number of effective veto players, the more stable and less decisive the policymaking process tends to be. Here, changing a policy is difficult but once that is accomplished, then the veto players tend to adhere to the maintenance of the policy. Inversely, when the number of effective veto players is small, the policymaking process tends to be more decisive and less stable. Here, changing the policy is relatively easy; however, the policy is unstable as it is susceptible to change from time to time.
The second trade-off pertains to the degree the policy output serves public or private interest— i.e. the public regardedness or private regardedness of the policy. The policy produced for the former resembles public goods, improves efficiency of allocations, and promotes the general welfare. The policy produced for the latter funnels private benefits such as projects, subsidies, or loopholes to individuals, groups, or regions (Cox and McCubbins, 2001). Cox and McCubbins argue that when the number of effective veto players is large, the policy tends to be more private regarding and less public regarding. This outcome is the consequence of the bargaining game played by policy actors, where each veto player can demand and receive “side payments” in exchange for their agreement to the proposed policy (Cox and McCubbins, 2001). These side payments tend to increase the “transaction cost” of the process and to dilute the policy, as more concessions are made to fit private demands.
Veto players are typically specified by the constitution. These players are considered institutional actors, whose agreement is indispensable to the enactment of policies. In a presidential setup, the principal institutional actors in the policymaking process are the President, the Senate, and the House of Representatives. The unanimous decision of all three is necessary to pass policies; while the dissent of one of them is enough to halt the process and prevent the enactment of a policy. A proposed policy will not materialize into law if the President and the members of the House of Representatives agreed to it but the Senators did not; or if legislators in both Chambers agreed to pass a policy and the President vetoed the bill (as experience shows that the executive veto is hardly ever overcome by the legislators) . Hence, in this institutional arrangement the policymaking process is basically defined by consensus among veto players.
Other actors that have the potential to affect the policymaking process are considered as non-veto players. Unlike institutional veto players, the consent or dissent of these non-veto players, as well as their participation, is not considered crucial to the policymaking process. The non-veto players are considered exogenous to the process and their influence is always channeled through the veto players. Moreover, non-veto players could be either internal or external actors. The former operate within and are subjected to the authority of the state (e.g. domestic business groups, labor unions, and the media), while the latter operate from the outside and are independent of the authority of the state (e.g. multinational corporations, international organizations, and foreign governments). But whether internal or external actors, their inputs eventually appear directly or indirectly in the executive-legislative interface.
At present, international organizations have evolved as one of the more active non-veto players in the policymaking process. Despite their being external entities, international organizations have emerged as influential and dominant actors, as they increasingly shape the policy process and outcome (e.g. see Woods, 2000; Nye, 2001; Ougaard and Higgott, 2002; Sorensen, 2006). Howlett and Ramesh (1995) suggest that their influence is strongest in policy areas with international character and implications. One of these areas is global finance whereby in the quest to manage the global financial mobility and the integration of financial markets, international financial organizations have put up global standards. Governments are “required” to conform to such standards by enacting specific policies, regulations, or measures. To ensure this, sustained pressure is applied to institutional actors as well as on the policymaking process. In effect, noncompliance is made politically and economically costly. As a result of this practice, international organizations acquire enormous leverage to set legislative agenda and shape policy outcome.
This development has changed the dynamics of the policymaking process as well as the configurations of policy actors, as a non-veto player dominates institutional veto players and determines policy outcome. The engagement results in an asymmetrical relationship, where the international organization, using the threat of sanctions, is able to promote unity of purpose among veto players, to ensure policy decisiveness of the process, and to shape the outcome by ensuring public regardedness of the policy. This engagement— between institutional veto actors and a non-veto actor, although efficient in producing policies, gives rise to the issue of international override on the policymaking process. Consequently, overall the policymaking process becomes externally driven, as the behavior of the policy actors, the process, and the policy are extensively determined by an international organization and less by institutional actors.
This study follows the traditional perception that institutional arrangements matter. This paper looks into the impact of an international organization on institutional veto actors in the policymaking process as well as on the policy outcome. In particular, the emphasis is on the engagement of the FATF, and the executive and legislature branches (the Senate and the House of Representatives) in the enactment of the AMLA (Republic Act 9160) and its amendment (Republic Act 9194). Here, the interface of policy actors in the policymaking process is analyzed in order to determine why a non-veto player dominated the veto players in performing their institutional role, and how the international organization redefined the bargaining exchanges among the actors as well as the equation of the process.
Schematic Diagram of the Framework of Analysis
The FATF Demand: Global Standard and the NCCT List
At present, the principal international organization that promotes the adoption of the anti-money laundering law as a financial regulation policy is the FATF. This international organization was established by leading industrial states to specifically combat the global problem of money laundering. The FATF was formally convened during the 1989 G-7 Summit in Paris, but it does not have a tightly defined constitution or an unlimited life span. The organization reviews its mission every five years and requires a specific decision among its members to continue its operation. In 2004 the Ministry representatives of FATF agreed to extend the term of the organization to 2012.
Initially, the FATF was mandated to deal mainly with global proliferation of illicit drug money in banks and other financial institutions. However, after the September 11 terrorist attack in the United States, the mandate was expanded in October 2001 to include terrorist financing. The change is reflected in the formal description of the organization— “ FATF is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing” (FATF 2008a, p. 1). Here, the FATF operates as a quasi policymaking body, persuading states to legislate anti-money laundering laws. The international organization has three fundamental activities: first, it sets international standards to combat money laundering and terrorist financing; second, it ensures effective compliance with the FATF standards; and third, it reviews money laundering and terrorist financing techniques and countermeasures (FATF 2008b).
In executing its functions, the FATF has instituted a global standard to ensure that anti-money laundering laws legislated by states are harmonized. The standard is laid out in the Forty Recommendations and the Nine Special Recommendations on Terrorist Financing or the so-called 40 + 9 Recommendations. The former calls for the criminalization of money laundering (FATF 2004b), and the latter calls for the criminalization of terrorist financing (FATF 2004a). The 40 + 9 Recommendations serve as the basic framework or the comprehensive plan of action for each state in enacting its anti-money laundering law. The Recommendations are designed for universal application, as the law is mandatory to all countries, members or nonmembers, and territories. Thus, complying with FATF standards means that not only must a state enact a law, that law must also conform to FATF Recommendations.
To guarantee worldwide adherence and reach, the FATF monitors the progress of legislation in each state and collaborates with other international organizations, such as FATF— style regional bodies (FSRBs), the International Monetary Fund (IMF), the World Bank (WB), the Financial Stability Forum, and the Egmont Group of Financial Intelligence Units. Furthermore, FATF employs the Non-Cooperative Countries and Territories (NCCT) initiative, where states and territories identified as lacking compliance or as noncompliant are blacklisted. In assessing the conformity of states, the FATF makes use of the so-called List of Criteria for Defining Non-Cooperative Countries or Territories. The List comprises 25 criteria that enumerate the detrimental rules and practices in each state which hinder international cooperation in combating money laundering. The criteria fall under four categories: (1) loopholes in financial regulations; (2) obstacles raised by other regulatory requirements; (3) obstacles to international cooperation; and (4) inadequate resources for preventing and detecting money laundering activities (FATF 2007).
States classified as NCCT are required to take the necessary action to address their deficiencies identified in the List of Criteria. Failure to do so would keep the state blacklisted, and at risk of “bearing the brunt “of the imposition of countermeasures by FATF. The countermeasures are sanctions that FATF can impose on rogue states. The countermeasures are based on Recommendation 21 and 22:
21. Financial institutions should give special attention to business relationships and transactions with persons, including companies and financial institutions, from countries which do not or insufficiently apply the FATF Recommendations. Whenever these transactions have no apparent economic or visible lawful purpose, their background and purpose should, as far as possible, be examined, the findings established in writing, and be available to help competent authorities. Where such a country continues not to apply or insufficiently applies the FATF Recommendations, countries should be able to apply appropriate countermeasures.
22. Financial institutions should ensure that the principles applicable to financial institutions, which are mentioned above are also applied to branches and majority owned subsidiaries located abroad, especially in countries which do not or insufficiently apply the FATF Recommendations, to the extent that local applicable laws and regulations permit. When local applicable laws and regulations prohibit this implementation, competent authorities in the country of the parent institution should be informed by the financial institutions that they cannot apply the FATF Recommendations (FATF 2004b, p. 7).
The sanctions directed to states can take the following forms:
(1) Stringent requirements for identifying clients and enhancing advisories (including jurisdiction specific financial advisories) to financial institutions for identification of the beneficial owners before business relationships are established with individuals or companies from these countries;
(2) Enhanced relevant reporting mechanisms or systematic reporting of financial transactions on the basis that financial transactions with such countries are more likely to be suspicious;
(3) Taking into account the fact that the relevant bank is from an NCCT, when considering requests for approving the establishment in FATF member countries of subsidiaries or branches or representative offices of banks;
(4) Warning non-financial sector businesses that conducting transactions with entities within the NCCTs might run the risk of money laundering (FATF 2007, p. 4).
These sanctions imply enormous consequences for uncooperative states.
Out of the 47 countries assessed based on the List of 25 criteria, a total of 23 countries and territories, 15 in 2000 and 8 in 2001, were identified as NCCTs (FATF 2007). The Philippines was one of the states identified as not complying with the FATF standard. As stated in the FATF’s June 2000 Report:
1. The Philippines meets criteria 1, 2, 3, 4, 5, 6, 7, 8, 10, 11, 12, 14, 19, 23, 24 and 25.The country lacks a basic set of anti-money laundering regulations such as customer identification and record keeping. Bank records have been under excessive secrecy provisions. It does not have any specific legislation to criminalize money laundering per se. Furthermore, a suspicious transaction reporting system does not exist in the country.
2. During the past few years, the government has been seeking unsuccessfully for the Congress to pass several anti-money laundering Bills. The Government of the Philippines urgently needs to enact an anti-money laundering Bill during the current session of the Congress (June 2000 to May 2001), to criminalize money laundering, require customer identification as well as record keeping, introduce suspicious transaction reporting system and relax the bank secrecy provisions (FATF 2000, p. 9).
As a blacklisted state in 2000 the Philippines, following FATF Recommendations 21 and 22, was subjected to routine countermeasures. As a consequence, the financial transactions involving the country were stringently scrutinized and examined to ensure the lawfulness of the transactions. FATF gave the Philippines up to 30 September 2001 to comply and pass the anti-money laundering law. Failure to pass the said law before the deadline meant that the country would face severe countermeasures.
A Look into the Enactment and Amendment of the AMLA
The initiative to enact an anti-money laundering law began when President Arroyo made a commitment to FATF in May 2001 that she would certify to the newly elected Twelfth Congress the urgency of passing said law (FATF 2001). The formal government action commenced in the executive department when the Inter-agency Committee composed of the Department of Justice (DOJ), Department of Finance (DOF), Securities and Exchange Commission (SEC), and Bangko Sentral ng Pilipinas (BSP) was formed. The Inter-agency Committee conducted preliminary hearings where key stakeholders such as the Banking Association of the Philippines (BAP), enforcers such as the National Bureau of Investigation (NBI) and the Philippine National Police (PNP), and legal experts from the University of the Philippines Law Center were invited. The hearings resulted in the executive version of the anti-money laundering law.
Preliminary action in the legislature commenced when the Senate and the House of Representatives conducted parallel committee hearings. In the House, the hearings were handled jointly by the Committee on Banks and Financial Intermediaries as the lead committee headed by Congressman Jaime Lopez, and the Committee on Justice and the Committee on Economic Affairs. In the Senate, the hearings were conducted jointly by the Committee on Banks, Financial Institutions and Currencies, chaired by Senator Ramon Magsaysay, and the Committee on Justice and Human Rights, chaired by Senator Francis Pangilinan. The hearings commenced on August 22nd in the House and on August 29th in the Senate, for 39 and 32 days, respectively, before the September 30, 2001 deadline of FATF.
After the committee hearings, on the 24th of September both chambers immediately sponsored in plenary and approved for Second Reading Committee Report no. 7 on House Bill 3083 for the House of Representatives, and Committee Report no. 1 on Senate Bill 1745 for the Senate. For its immediate enactment on the same day, the President certified the committee report on both chambers in line with Constitutional provision Article VI, Section 26, paragraph 2, which states that:
No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency.
In effect, the certification dispensed with the three readings on separate days, so that the Second and Third Readings could be done on the same day.
Immediately after the approval of the committee report, the Bicameral Conference Committee (BCC) convened and started its deliberations on the following day, September 28th. The BCC took only a day— the deliberation started at 8:30 in the morning and finished at 10:00 at night. On the next day, September 29th, the BCC Report was ratified in both chambers, and the resulting law, Republic Act 9160 or the Anti-Money Laundering Act was signed by the President in Malacañang Palace, all on the same day. Thus, in record time of a little over a month, the AMLA was enacted a day before the September 30th FATF deadline.
After complying with the deadline, however, there was indication that R. A. 9160 did not fully satisfy FATF standards. FATF indicated that some stipulations inserted in the law were inconsistent with the 49 + 9 Recommendations. With these deficiencies, the FATF again called for the Philippine Government to take the necessary steps to amend the AMLA so as to comply with FATF standards. The move to amend the AMLA began in the House of Representatives on September 4, 2002, when the Committee on Banks and Financial Intermediaries, Committee on Economic Affairs, and Committee on Justice conducted a joint committee hearing for House Bill no.5168. In the Senate, the move commenced on August 29, 2002, when the Committee on Banks, Financial Institutions and Currencies and the Committee on Constitutional Amendments, Revision of Codes and Laws conducted a joint committee hearing for Senate Bills no. 2040, 2198, and 2262.
After the committee hearings in both chambers, the respective committee reports were sponsored in the plenary session on November 25, 2002 in the Senate and on January 29, 2003 in the House of Representatives. Because the bill was certified as urgent by President Arroyo on November 21, 2002, it was approved after the Second and Third Readings on February 10, 2003 in both chambers as Senate Bill no. 2419 (Committee Report no. 110) and as House Bill no. 5655 (Committee Report no. 1181). To consolidate the Senate Bill and the House Bill, the BCC was convened on February 11th. The BCC was able to come up with a Conference Committee Report close to midnight of February 12th. Subsequently, both chambers approved the Conference Committee Report on the following day, February 13, 2003.
After the approval, however, there were immediate indications to the Government that the BCC report would not be acceptable to FATF. With this apprehension, the ratification in plenary in both chambers of the approved BCC report was put on hold; so was the signing of the law by the President. Through the efforts of the Arroyo government, a dialogue between FATF delegates and the lawmakers was held on February 18th to address the concerns of FATF. After conferring their “approval” on the proposals of the lawmakers, FATF delegates reminded the latter that in order to avoid countermeasures, the amendment to the AMLA had to be done on or before the March 15th FATF deadline.
On February 19th in the Senate and February 27th in the House, on the basis of the “informal” agreement between the lawmakers and FATF delegates, there was a move in both chambers for the reconsideration of the approved BCC Report. As a consequence, the BCC was reconstituted on March 4th to modify and incorporate the agreed-upon amendments into the AMLA. On the next day, March 5th, the reconstituted BCC Report was ratified in both chambers, and the resulting law, Republic Act 9194, was signed by the President on March 7, 2003.Thus, Congress formally amended RA 9160. As FATF (2003a, pp. 9-10) reported:
[RA 9194] amends the AMLA and addresses the legal deficiencies. It requires the reporting of all suspicious transactions, grants the BSP (the banking supervisor) full access to account information to examine for anti-money laundering compliance, and allows the AMLC [Anti-Money Laundering Council] to inquire into deposits and investments made prior to the AMLA coming into effect.
As the compliance was made ahead of the deadline, FATF decided not to impose countermeasures on the Philippines (FATF 2003b), but was quick to remind the Philippine Government that as there was already the appropriate law; the government must now adequately implement the anti-money laundering measures. Enforcement of the AMLA would be monitored by FATF, while its members evaluated the removal of the Philippines from the blacklist.
Afterwards, after almost two years of monitoring, FATF removed the Philippines from the NCCT list in February 2005. However, it continued to monitor the country for a period of time as part of its standard monitoring process for delisted countries so as to ensure continuous adequate implementation (FATF 2005). After a year, in February 2006, FATF eventually decided to end its formal monitoring of the Philippines (FATF 2006).
Influence of an International Organization on Veto Players, Process, and Outcome
Impact of FATF on Institutional Policy Actors
The Philippine commitment to enact the AMLA started way back when the government became a signatory to three international accords— the 1988 Vienna Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substance; the 1998 United Nations Political Declaration and Action Plan Against Money Laundering; and the 2000 United Nations Convention Against Transnational Organized Crime. As a signatory to these multilateral agreements, the Government was mandated to enact an anti-money laundering law. Congress over the years had been trying to enact the law. For instance, in the Tenth and Eleventh Congresses, Congressman Raul Gonzales filed the so-called Rico bill, which was approved in the House but which did not prosper in the Senate. The anti-money laundering bill filed by the late Senator Robert Barbers likewise did not prosper beyond the Senate committee level. The failure of the legislature to take decisive action, despite the existence of a political obligation, seems to suggest the strong political inertia among legislators, as they did not see the urgency of the anti-money laundering law as mandated by such international agreements.
The political inertia among legislators was shared by the executive branch. The Aquino, Ramos, Estrada, and Arroyo administrations were apparently halfhearted in their attempts to push the law. No definite advisory declaring the urgency of such a measure came from the Office of the President. The Department of Foreign Affairs (DFA), which handled the correspondence of the government with international organizations, appeared not to see the necessity, as it did not bother to inform Congress of the discussions with FATF. Furthermore, the Eleventh Congress, before it adjourned sine die, held a special session, yet the anti-money laundering bill was not included in the agenda. Two bank-related laws— the revision of the General Banking Act and the amendments to the Bangko Sentral Act— were acted upon, yet no government agency brought up the concern of the FATF.
The apathy of the executive and legislative branches toward the enactment of the AMLA, however, suddenly changed when FATF placed the Philippines in the NCCT list. A repercussion was the imposition on the Philippines of routine countermeasures following Recommendations 21 and 22, as well as the need to undergo the process of delisting or removal from the blacklist. To be delisted, the country needed to take necessary steps to remedy deficiencies identified by FATF; otherwise additional countermeasures would be imposed in the event of nonaction. The essential initial steps in delisting are the following:
1. An NCCT must enact laws and promulgate regulations that comply with international standards to address the deficiencies identified by the NCCT report that formed the basis of the FATF’s decision to place the jurisdiction on the NCCT list in the first instance.
2. The NCCTs that have made substantial reform in their legislation should be requested to submit to the FATF, through the applicable regional review group, an implementation plan with targets, milestones, and time frames that will ensure effective implementation of the legislative and regulatory reforms. The NCCT should be asked particularly to address the following important determinants in the FATF’s judgment as to whether it can be delisted: filing of suspicious activity reports, analysis and follow-up of reports, the conduct of money laundering investigations, examination of financial institutions (particularly with respect to customer identification), international exchange of information, and the provision of budgetary and human resources (FATF 2007, p. 11).
The principal prerequisite for delisting was for the Philippines to legislate an anti-money laundering law that conformed to the 40 + 9 Recommendations of the FATF. With this in mind, the executive and legislative branches manifested a more determined attitude toward enacting the AMLA. This concern had moved the institutional policy actors— the President, by calling the attention of lawmakers and instructing appropriate agencies to make a draft of the law, as well as coordinate with legislature; and Congress, by concentrating their efforts as well as by giving precedence to AMLA over other bills. Evidently, the desire to be removed from the FATF blacklist was the impetus that drove the Government to action. Thus, the circumstance showed that the legislative agenda was set by FATF, as the initiative for the policy came from the international financial organization.
Moreover, the commitment of executive officials and lawmakers to action intensified when they became cognizant of the implications of the NCCT list, as well as the possible additional countermeasures. Being on the blacklist meant that financial transactions involving the Philippines would be examined more closely by the international financial community. The lack of an anti-money laundering law would mean that financial transactions relating to the country would be deemed suspicious. Other countries, particularly FATF members, in turn, would inquire, investigate, and verify transactions emanating from the Philippines. As a consequence, these actions might result in delays and additional costs.
The influence exerted by FATF over institutional policy actors was amplified considerably by the alliance with other international organizations, in particular the IFIs. FATF had underscored the fact that in the performance of its activities, it would collaborate with other international bodies involved in combating money laundering and the financing of acts of terrorism. For instance, it acknowledged the important contribution made by the IMF and the WB in their efforts to implement the AML/CFT Regime in non-FATF member countries (FATF 2008b). The global cooperation implied that those international institutions would provide the necessary support to ensure compliance with the global standard; and that FATF could count not only on its member countries but also on influential international institutions to recognize and support its actions against a noncomplying state. For executive officials and lawmakers, this translated into enormous pressure when they recognized the backlash that could ensue, inasmuch as the Philippines had robust political and economic ties with most FATF member countries as well as with the IFIs.
Cause for apprehension over countermeasures as well as additional countermeasures was unambiguously stressed to the lawmakers by way of the seemingly conspiring “chorus” of threats consistently underscored by executive officials. For instance, DOF Secretary Isidro Camacho said that “the sanctions that we can expect are things that could impede our transactions, private sector transactions between our country and other countries which, over time if it were to be maintained, could make us uncompetitive either as an exporter or importer of trade and services.” DOJ Undersecretary Jose Calida also cautioned the lawmakers that “if we don’t want to listen to FATF, fine, but let’s be prepared for the additional countermeasures.” According to him, the additional countermeasures could be any or all of the following: first, enhanced surveillance of all transactions; second, more stringent requirements for identifying clients; third, intensified advisories to financial institutions to make strict identification of beneficial owners; fourth, an enhanced mechanism for the systematic reporting of all financial transactions; and fifth, a warning to the international business community who might want to set up business in the Philippines. He estimated that the transaction cost due to delays per day could reach P116 million in imports, P169 million in exports, P65 million in tourism, and around $4 billion in OFW remittances (Congress of the Philippines-Senate and House of Representatives Committee Hearings on Money Laundering 2001).
BSP Governor Rafael Buenaventura reported that a “particular correspondent bank has already requested that their banking correspondence here request for waiver of secrecy of deposits on any transactions they have before they handle the transactions. . . . In effect, normal transactions that normally will just go through the normal business of remitting in and out are now being required to give more information on who is the remitter, the source of the remittance.” The governor further warned that noncompliance would be very inconvenient and costly for everyone; as legitimate business transactions would be subjected to more scrutiny, where ordinary transactions that normally flow in and flow out would be subjected to flagging; such that more verification would be required on deposit accounts, remittances, import and export trade, and issuance of visas. These actions would consequently result in significant delays as well as a substantial increase in the cost of financial transactions. International financial transactions of local banks and other financial institutions, which run into hundreds of million pesos a day, would no longer be done automatically. Instead, requirements for flagging would force the banks to handle the transactions manually. Over time, this condition would make the Philippines uncompetitive and unattractive to investors (Congress of the Philippines-Senate and House of Representatives Committee Hearings on Money Laundering 2001).
In addition, BSP Deputy Governor Alberto Reyes cited that “on foreign remittances wherein checks are being cleared through U.S. banks, some of the checks are being returned and inquiries are being made as to the details of the addresses of the payees.” For example, the First Union Bank of Delaware in the U.S. informed its correspondent banks, 12 local banks, including the Bank of the Philippine Islands (BPI), that it would impose more stringent requirements in processing transactions while the country remained in the NCCT list. And DFA Assistant Secretary Rosalinda Tirona commented that since FATF members were major trading and investment partners of the country, there was the possibility that they might issue business advisories “warning their businessmen to deal very carefully with the banks and other financial institutions in the Philippines. . . . So it is not facilitating foreign direct investment and it is really impeding increasing the volume of trade.” (Congress of the Philippines-Senate and House of Representatives Committee Hearings on Money Laundering 2001).
This “chorus” of threats that executive officials repeatedly aired in Congress profoundly shaped the mindset of lawmakers and prompted them to work together in the deliberations. The predisposition to cooperate was evident in the remarks and comments they made during the deliberations. In the House of Representatives, Congressman Jaime Lopez, stressing the aim of Congress, cautioned that “It will be useless for us to pass a law that will not be acceptable to the FATF. . . . Our main objective here, I would like to emphasize, is for us to be delisted from the blacklist of the FATF so that we can have a reputation for integrity, that we are complying with the international standards.” Congressman Felix Alfelor reminded the body: “we should take heed of the fact that if we are not able to pass this law before September 30, there is a lot of sanction, economic sanctions which will be imposed on us, and a lot of these sanctions will be befalling our banks because a lot of the transactions that will be transacted by our banks with foreign clienteles will be prejudiced.” Congressman Oscar Moreno, in the committee hearings, candidly stated: “the issue here is whether we are willing to cooperate and align ourselves with international standards.”And Congressman Raul Gonzales, highlighting the importance of the deadline during the House Plenary debates, remarked: “there was a consultation with the Majority and the Minority and also with Office of the Speaker precisely because of the importance of this bill and considering further that we have to work [within a] certain time frame, those were the reasons why we had to hold sessions until Thursday and Friday.” (Congress of the Philippines-House of Representatives Session Proceedings on Money Laundering 2001).
In the Senate, Senator Ramon Magsaysay, as a foreword to the Senate committee hearing, stated that “the significance of the anti-money laundering legislation lies in the fact that the Philippines will remain in the blacklist of the FATF— Financial Action Task Force— and all our financial transactions will be closely scrutinized, making it difficult for the country to attract investments business and trade.” Senator Edgardo Angara, commenting on the clearance sought by AMLC on proposed amendments with the FATF, pointed out: “it is quite strange—and this is the first time I encountered this kind of procedure—that the proposed content of a law is first cleared with a body external to Congress rather than discussing these very substantive provisions first among us in Congress, among us in the Senate. I thought that was really a gross invasion and encroachment of the legislative prerogative of this Body.” (Congress of the Philippines-Senate Session Proceedings on Money Laundering 2001).
Adding pressure on the lawmakers to work together, the BAP, deemed the foremost industry that would be affected, fully supported the enactment of the anti-money laundering law. The bankers strongly lobbied the lawmakers, citing that the banking system faces not only increased transaction costs but a serious reputational risk if the law would not be passed. For instance, Mr. Leonilo Coronel, the Executive Director of BAP, informed the lawmakers that if the AMLA was not passed, this might give rise to a particular demand, such as the foreign financial community requiring customers from the Philippines to waive the bank secrecy law; or an even more extensive outcome, such as limiting foreign investments and downgrading credit ratings. He also warned of the possibility that the Philippine banking system might be isolated, thereby making it very difficult to transact business with the international community.
Other powerful interest groups, such as the Overseas Filipino Workers (OFW) groups, the Trade Union Congress of the Philippines, and the Makati Business Club, also intensified pressure on the lawmakers by consistently feeding media throughout the entire process with press releases and newspaper advertisements in support of the immediate enactment of the anti-money laundering law. The news articles, columns, and advertisements served as a propaganda tool that painted the lawmakers as sluggish in performing their function, and that their supposed dillydallying put the entire country at risk of sanctions. Moreover, amid fears that FATF sanctions would hit the OFWs the hardest, unconventional tactics were also employed. According to Executive Director Noel Josue, the members of Kaibigan ng OFWs (Kaibigan), and other OFW groups here and overseas daily bombarded mobile phones and websites of each opposing senator and his staff with hate messages. These included warnings that the OFW groups would remember the names of the senators and that OFWs and their families would not vote for them in the elections (Nocum and Contreras, 2003). Obviously, the conduct of these interest groups was influenced by their apprehension over the possible effects of the actions of FATF.
Furthermore, executive officials also conspired to quell any possible resistance from “uncooperative” legislators to ensure the enactment of the AMLA. They exerted subtle efforts to hasten and facilitate the deliberations. There was apparently a deliberate attempt on their part to withhold or selectively provide information and data requested by legislators opposed to the bill. For instance, to check the truthfulness of the “common theme” of executive officials that the country would face “difficulties” in case the bill was not passed, Senator John Osmeña requested a catalog or detailed listing of all transactions in the banking sector that would experience difficulties or problems. To verify whether most countries have an anti-money laundering law, Senator Aquilino Pimentel requested the list of all countries in the world that passed or had an anti-money laundering law. He contended that “the Senate is being asked to enact a very important piece of legislation, and yet the executive department, particularly through the Finance Department and the Bangko Sentral ng Pilipinas, does not even furnish us with the required data upon which to base our actuations.” On both occasions, executive officials promised to send the requested information to the legislators but did not do so. As observed by Senator Joker Arroyo, “I think that the government agenc[ies] concerned with this—[BSP, DOF, DOJ, DFA and AMLC]—ha[ve] not been candid and frank with Senator Magsaysay and his committee. . . . In short, certain information has either been withheld from him or not necessarily misinterpreted but misstated.” The action taken by executive officials made it very difficult for dissenting legislators to thoroughly scrutinize and oppose the bill. As the deliberations accelerated, it became futile and pointless for opposing lawmakers to hinder the enactment of the anti-money laundering law (Congress of the Philippines-Senate Session Proceedings on Money Laundering 2001).
The abovementioned comments illustrated the profound influence on policy actors of FATF, an external entity whose consent and participation, by convention, were not needed in the policymaking process. FATF was able to set the legislative agenda, overwhelm the political inertia among the actors by compelling them to work together by setting party affiliations aside, and “required” other policy actors to conspire to exert more pressure on the lawmakers. FATF used the threat of sanctions to transform officials of the executive and legislative branches from disinterested to committed policy actors. The avoidance of sanctions, in particular apprehension over possible economic repercussions and ramifications of countermeasures, was the primary motive among policy actors. The absence of action among institutional policy actors was overwhelmed by the external demand, thus ensuring that deliberations on the anti-money laundering law would move forward.
Impact of the FATF on the Lawmaking Process
At the onset of the committee hearings, both chambers faced the difficult task of consolidating the multitude of bills filed before the approaching FATF September 30 deadline— 11 Senate Bills (SB 179, 279, 684, 879, 1338, 111, 1504, 1506, 1599, 1607, and 1662), and 9 House Bills (HB 39, 282, 817, 1319, 1425, 1543, 1832, 1903, and 2147). The task was made harder by the fact that enacting the law was deemed to touch on delicate matters, such as the Bank Secrecy Law, considered sacrosanct in the Philippine financial system. To further complicate matters, Congress was scheduled to adjourn on September 5th and resume only on September 23rd, which meant that it had barely two weeks left to pass the law. With those concerns, the preliminary consensus among members of the Senate and House committees was that to do so within the given time frame was highly doubtful. Experience told them that enacting a highly complex and controversial law like AMLA would take a longer time, since this type of law is usually subjected to a lot of scrutiny and objections in Congress.
Further intensifying the problem was the resentment expressed by some lawmakers over FATF’s imposition of the September 30 deadline. Although the legislators recognized the importance of having a policy for addressing the problem of money laundering, most of them believed that crafting the law must not be imposed upon them and that the process must proceed at its own pace, and not be based on an externally prescribed deadline. This sentiment was obvious from the comments of lawmakers in the deliberations. For instance, Congressman Lopez, stated: “we don’t feel that we are bound by whatever the FATF decides. . . . we are not even a part of it, and so we don’t feel that we should be forced to rush the approval of this bill.” Congressman Marcelino Libanan, chairman of the House Committee on Justice, warned that as a lot of provisions might conflict with basic rights such as the constitutional rule on double jeopardy and the right to privacy, there was a need to take time in passing the law. And Senator Angara manifested that he would not “draw up and craft a bill that will make them [FATF] happy,” instead, he would “try to draw up or draft a bill that will suit our unique culture and customs.” (Congress of the Philippines-Senate and House of Representatives Committee Hearings on Money Laundering 2001).
Adding confusion to committee hearings of both chambers was the view espoused by the DFA vis-à-vis the deadline, which opposed the position of the DOJ, DOF, and BSP. The DFA, represented by Assistant Secretary Tirona, was the lead agency that handled the correspondence of FATF with the country prior to March 2001. The DFA argued that there was no legal basis for the FATF September 30 deadline. Therefore, she urged Congress to follow instead the 2003 deadline set by the 1998 United Nations Political Declaration Against Money Laundering. The DOJ, DOF, and BSP, on the other hand, maintained that Congress should follow the FATF deadline. The split in the position of the executive agencies was resolved when President Arroyo replaced Assistant Secretary Tirona with DOF Secretary Camacho as the lead official of the Executive Department in dealing with the FATF, thus signifying the bona fide position of the Executive Department to the FATF deadline. Moreover, the seeming lack of coordination among government agencies was also manifested when the BSP complained at the committee hearings that the DFA did not inform the BSP representatives of DFA’s correspondence with FATF. BSP Governor Buenaventura pointed out that there had been no advance warning at all and that it was only in June 2000 when the NCCT list came out that the BSP became aware of the situation. The Governor also said that he took over in July 1999, and his predecessor, Governor Gabriel Singson, confirmed that the BSP was not aware of the FATF demand.
However, the rejection of the plea of the Philippine Government for the extension of the FATF deadline had a profound effect on the pace of the legislative undertaking. For instance, DOJ Undersecretary Calida informed the lawmakers that in the 4th Asia Pacific Group on Money Laundering (APG) meeting held on May 22-24, 2001, the Philippine delegates hand-carried a letter from President Arroyo to FATF President Jose Roldan. Citing the efforts taken by the government, such as administrative measures against money laundering put in place by the BSP, the letter specifically asked for leniency on the deadline. Another was the plea for the extension made by Governor Buenaventura and Secretary Camacho in their Tokyo meeting with FATF. On both occasions, FATF responded that, although they sympathized with the Philippines, the demand for criminalizing money laundering was nonnegotiable. As aptly stated by DOJ Undersecretary Calida, “unless we have that law [AMLA] no amount of pleading, or appeal for sympathy or leniency will get us out from the [NCCT] list.” Thus, the unambiguous message was— the Philippines either has the law on time or else face the countermeasures (Congress of the Philippines-Bicameral Conference Committee 2001).
Furthermore, stressing the urgency of enacting the anti-money laundering law before the FATF deadline, DOF Secretary Camacho warned of a world of difference between passing the law on September 30th and doing so on October 1st. Passing the law a day after the deadline could mean that countermeasures would already have been set in motion. For the countermeasures to be lifted, the Philippines would have to undergo a review process that could take several months as all major FATF decisions that affect countries were taken up in the plenary. Thus, missing the deadline by just a single day meant that the country would be burdened by the sanctions until the members would finish the delisting procedure (which might take months or years), and the countermeasures, lifted.
To ensure the passage of the anti-money laundering law before the deadline, some preliminary steps were taken. For instance, members of the committees in both chambers were advised that, if need be, they would have to work every day to meet the deadline. The advisory included the forming of a technical group that would work on the draft bill during the scheduled congressional recess. Another time-saving move was the motion in both the Senate and House committees to adopt the Executive interagency draft of the anti-money laundering law as the main template in consolidating the bills. The motion was made to expedite the lawmaking process, as that would ensure that the versions of both chambers would be as close to each other as possible.
More importantly, the legislators fasttracked the proceedings by putting the AMLA bill ahead of all other pending legislative proposals. For instance, the deliberations on the Second and Third Readings as well as the bill’s approval were held simultaneously in the Senate and the House from September 24th to 27th. The proceedings in the House were nonstop from 10:00 a.m. of September 26th to 4:15 a.m. of the following day. For the Senate, Senator Magsaysay remarked:
The Senate passed on third reading the Bill on Anti-Money laundering this morning at 12:10 a.m. This is after almost 15 hours, non-stop. From Monday, the Senate spent 26 hours and 52 minutes to deliberate on one of the hardest legislations ever discussed by the Senate.
Another instance that patently showed the intent to enact the bill before the deadline was the shortcut taken on September 25 before the start of the second day of interpellations. The senators followed an unusual practice when Senator Magsaysay announced that 22 senators had agreed to simplify the proceedings by adopting a new report by substitution, which in effect replaced the committee report with the new working draft. This move, according to Senator J. Osmeña, “is premature because we are still in the period of sponsorship and we cannot entertain amendments, even an amendment by substitution, until we close the period of sponsorship and we go to the period of amendments.” Moreover, he informed the body that “in parliamentary practice, if we were really to be strict, we would have to return that committee report to the committee and the committee would have to refer it back to the Chamber.”
This distinctly manifested how the resoluteness of FATF to enforce an unyielding deadline “controlled” the pace of the lawmaking process. The initial apprehension and complications among policy actors, such as the multiplicity of bills filed in both chambers, the resentment of some legislators on the imposition of the deadline, and the confusion among executive officials over the interpretation of the deadline—all these were overwhelmed by the fact that the FATF deadline was non-negotiable. The “complications” among lawmakers became a nonissue, as they were hard pressed to seek out ways to comply within the stipulated time frame. Thus, combined with fear of sanctions, the imposition of the FATF deadline accelerated the legislative proceedings of the AMLA, as the policy actors took extraordinary steps to meet it.
Impact of FATF on Policy Output
The FATF demand, sustained by the threat of sanctions and the firmness of the deadline, left the Philippine Government little choice but to legislate the AMLA. Not only was it imperative to pass the anti-money laundering law before the FATF deadline, the law also had to conform to the global standard; in other words, the legislature had to pass a law that complied with the 40 + 9 Recommendations of FATF. Accordingly, BSP Governor Buenaventura explained that the anti-money laundering law must address five principal criteria in order to comply with FATF standards. The first was to make any money laundering activity a criminal offence that would make it a crime per se. The second was to put a reporting system in place under which individuals or institutions covered by it were required to make reports on unusual transactions. The third was to create an implementing agency. The fourth was to “modify” the strict Bank Deposit Secrecy Law (Republic Act 1405) that made it difficult to look into suspicious accounts, since the 1993 Banko Sentral Act had removed from the Monetary Board the authority to look into suspicious accounts without a court order or a waiver from the depositor. The fifth was to make a commitment that guaranteed international cooperation, particularly the reciprocal exchange of information with foreign countries and institutions.
Despite the explicit message coming from FATF regarding the essential content of the AMLA, however, some lawmakers decided to disregard FATF “guidelines” and incorporated into the bill their own position, which contravened the global standard. As justification, the intractable lawmakers asserted that their act demonstrated the Philippine Government’s exercise of its sovereignty over the intrusion of an international organization to its policymaking process. The reality, however, was that those actions were perceived to be either a reflection of an ultranationalist sentiment or an act catering to vested interests, or as a compromise with opposing lawmakers to get them to agree to pass the bill. For instance, the most blatant deviating provision in R.A. 9160 was the threshold amount: FATF had placed the threshold amount of $10,000 (P500,000) as the global standard to trigger the mechanism for reporting suspicious transactions. Despite this “recommendation,” some lawmakers in both chambers, citing the amount as negligible, and fearing an administrative overload as well as its unacceptability to many wealthy colleagues, among others, were adamant to set a threshold amount way above the FATF ceiling. The proposals were P3 million from the Senators and P5 million from the Congressmen, eventually reaching a P4 million threshold amount as a compromise. Since the majority of legislators in both chambers agreed to the compromise threshold, it was endorsed in the final version of the AMLA. As a consequence, the resulting law, R.A. 9160, was deemed a watered down version of the AMLA, as the enacted law exhibited inconsistencies with the FATF standard.
The feat demonstrated the prevailing mind-set— a “just-to-comply attitude”-- among lawmakers. As long as Congress was be able to pass an anti-money laundering law even if it was half-baked, before the deadline, in the eyes of the lawmakers that was already fine. Because the AMLA was a regulating policy with a direct impact on financial transactions of affluent and influential individuals, there was always the strong incentive for policy actors to protect their interest by endorsing an adulterated policy. For instance, journalist Sheila Samonte-Pesayco (2001) in her observation of the deliberations on AMLA suspected that “rather than providing the impetus to enact a tough law that would curb money laundering. . . [the] events created a ‘chilling effect’ on lawmakers, who wanted to make sure that the law they draft today would not be used against them tomorrow. . . . [Moreover] it was evident that several legislators took care to protect the interests especially of wealthy Chinese-Filipino businessmen.”
FATF spotted the inconsistencies with 40 + 9 Recommendations in R.A. 9160. Therefore, it urged the Philippine Government to take the necessary steps to amend the law so as to address the deficiencies and to conform to the global standard. As FATF observed in June 2002 NCCT Report:
1. Although the Philippines’ authorities interpret the regulations as requiring the reporting of all suspicious transactions, this nevertheless conflicts with the AMLA, which only requires reporting of high threshold suspicious transactions.
2. The law allows the AMLC to access account information upon a court order, but a major loophole remains in that secrecy provisions still protect banking deposits made prior to 17 October 2001. Secrecy provisions also still restrict bank supervisor’s access to account information (FATF 2002, p. 14).
Accordingly, the need for amendment was echoed by Mr. Vicente Aquino, the Executive Director of the newly operating Anti-Money Laundering Council (AMLC). He reported that discussions with FATF revealed that the latter’s major concerns were the following: first, the threshold was too high and should be lowered to the equivalent of US $10,000.00 or roughly P 500,000.00 in Philippine currency; second, although incorporated in the implementing rules and regulations, the suspicious transaction reporting requirement was not included in the law; third, the AMLC lacked the authority to inquire into or examine bank accounts or investments without the order of a competent court; and fourth, bank deposits and transactions prior to the effectivity of the law may be examined for the purpose of investigation and not for the purpose of prosecution (Congress of the Philippines-Senate and House of Representatives Committee Hearings on the Amendments to the Anti-Money Laundering Act 2002).
The firm stance of FATF that the AMLA conform to the global standard was made plain when the call for amendments was accompanied by an advisory that the process of delisting from the NCCT could not commence and that the country might still face sanctions in case of noncompliance. FATF warned:
FATF has taken the serious step of recommending that its members impose additional countermeasures against [the] Philippines due to the failure of the Philippines to enact legislation to address previously identified deficiencies in their anti-money laundering regime. The FATF calls upon the Philippine Government to enact the appropriate legislative amendments by 15 March 2003. Failure would lead to countermeasures to the Philippines as of that date. FATF will continue to monitor ongoing legislative development within that time (FATF 2003c, p. 1).
The warning was seriously received by government officials. Apprehension was evident, for instance, on the part of the lawmakers. Senator Magsaysay, the Chairman of the Committee on Banks, Financial Institutions and Currencies, at the opening of the committee hearings to amend R.A. 9160 stated:
Our law was enacted last September 29, 2001 as the Philippines’ response to the call of the Financial Action Task Force or FATF, to address the problem of money laundering activities all over the world. However, compared with the money laundering laws in other countries, RA 9160 imposes a very high threshold level which the FATF believes is too high for reportorial and monitoring purposes. To this date, we remain in the list of non-cooperative countries and territories, NCCT, for failure of the Philippines to comply with the recommendations of the FATF, hence, the need to amend our present law so that countermeasures will not be imposed on our financial system and jurisdiction in the assessments to be conducted by FATF this October, this year, in Paris.
On the part of executive officials: AMLC Executive Director Aquino reported during the committee hearings in both chambers that until pertinent amendments in R.A. 9160 were made, FATF “would start imposing drastic sanctions and countermeasures against the Philippines.” He further cautioned legislators that the effect of FATF’s action would be more severe on the Philippines, considering that the economy was dependent on the dollar remittances of OFWs.
Another instance of the relentless pursuit of the FATF to influence the content of the law was palpable in the amendment proceedings; specifically, the rejection of the BCC report. The approved BCC report that both chambers formally deliberated and voted on, and endorsed, was not acceptable to the FATF. FATF indicated that if Congress would pass the law in its current form, the amendments to R.A. 9160 would not be enough to comply with the 40 + 9 Recommendations. This remark implied that the legislators needed to rework the already approved BCC report. The main concern of FATF was the “intractable insertions” contributed and incorporated by some legislators. The President of FATF identified essential aspects that the amendment needed to address, such as: to expand the definition of “covered transaction” to include any suspicious transaction regardless of threshold amount; to make P500,000.00 the threshold for reporting covered transactions; and to broaden the definition of suspicious transactions.
To address the concerns of FATF as well as to salvage the amendment to the AMLA, the Arroyo Government arranged a dialogue between FATF delegates and lawmakers. Led by Senator Franklin Drilon, 16 senators and a number of congressmen came to the meeting. The lawmakers addressed the concerns of FATF by presenting to the delegates their objections as well as the specific stipulations and provisions they wanted to include as well as those to exclude in the AMLA. After concretely ascertaining the “wishes” of FATF, lawmakers suggested proposals and sought the approval of the delegates. Moreover, Senate President Drilon requested that the verbal approval of FATF delegates be put in writing to make sure that there would be no “slipup” in redrafting the bill.
The gentlemen’s agreement between legislators and FATF delegates effectively discarded the ratified BCC Report and entailed the reconstitution of the BCC. The agreement made it problematic for legislators to make any changes in the reconstituted BCC outside those things approved by FATF. In effect, this placed lawmakers in “estoppel” as the dinner meeting practically bound the whole of Congress. In addition, the rejection of the BCC Report implied that the inputs made during committee hearings, debates in plenary, and the discussions in the BCC were negated and subordinated to the demand of FATF because approval of FATF became the defining factor in the shape the amended AMLA would take. For instance, both the Sotto amendment to change the threshold amount from P500,000 to P2 million, and the Arroyo amendment to require a court order to open suspicious transactions and the deletion of retroactive effect, were voted upon and approved by the senators. However, these amendments were modified in the BCC.
Moreover, during deliberations of the reconstituted BCC, executive officials and the leadership of both chambers conspired to ensure that the content of the bill was consistent with the agreement with FATF, and to thwart any last-minute attempt by opposing legislators to alter the bill beyond the agreement. For instance, the BCC meeting was held strategically at the Executive Lounge on the 5th floor of the Central Bank building, so that the committee questions could immediately be addressed by the BSP and DOF. Senator Arroyo and Senator Sergio Osmeña grumbled that “while the bicameral meeting was ongoing, our own finance executive officials were frantically consulting on the phone with the foreign entities [FATF] while attempting to influence the outcome of the Report.” Moreover, Senate President Drilon took an unofficial role (since he was not officially a member of the BCC) of presiding over the opening of the meeting to “remind” his colleagues of the necessity that the body abide by the agreement with FATF. In arguing against the changes proposed by some members of BCC, Senate President Drilon appealed to them not to make any substantial changes as there is the danger of “inadvertently” inserting provisions unacceptable to FATF.
We have crafted this provision, we have shown this to the FATF, and in writing they said. . . . It’s acceptable to them. . . . I read the sentence no less than five times; no less than five times, the FATF agreed; no less than five times, we agreed during a meeting with them. This agreement was confirmed in this written document that they sent to me, Now, if you want to alter it, you know, that’s a judgment call of the BCC (Congress of the Philippines- Bicameral Conference Committee 2003).
Clearly, the statement cautions the members of the BCC that it was risky to make changes, and a lot safer not to touch the provisions anymore. In support, Senator Panfilo Lacson stated that to avoid being accused of not honoring the agreement, they should just limit the discussions to what the senators and FATF agreed on. Senator Angara cautioned that if they added one word or another, it may require another round of negotiation or consultation. These cautionary statements made certain that the resulting amendment, R.A. 9194, met FATF standards.
The effect of the FATF demand was not only on the behavior of the policy actors (i.e. it compelled them to work together) and the pace of the lawmaking process (i.e. it accelerated the enactment proceedings), but also on the shape the policy took (i.e. it forced them to comply with the FATF standard). The ultimate shape of the AMLA was delineated by the firmness of the FATF in insisting that the law conform to the global standards. FATF’s intent was clearly shown in the rejection of R.A. 9160 on the grounds of possessing inconsistencies that led to its amendment, and the unacceptability of the approved BCC report based on some deficiencies that consequently led to the reconstitution of the BCC as well as the preparation of a new BCC report. In these instances, the lawmakers tried to “insert” some provisions that reflected nationalist sentiments, protected vested interest, or a compromise with the opposition. As the insertions were deemed incompatible with FATF standards, they were rejected outright. Evidently, in determining the form of the AMLA, the resolve of the external entity was more binding than that of the lawmakers. At the end of the day, FATF called the shots, so to speak.
Conclusion
The policymaking process is often viewed as the engagement of institutional policy actors within a polity. Seen from a game theory model, the engagement between the executive and the two chambers of the legislature generates “bargaining exchanges” that determine the process as well as the shape of the policy. In the enactment and amendment of the AMLA, however, the policy-making process took an unconventional pattern--as a non-veto player, an international organization was added to the equation. Consequently, the bargaining dynamics was profoundly altered, creating an asymmetrical relationship between FATF and institutional policy actors. The non-veto player, through incentives and constraints, intensely influenced the veto players, determined the tempo of the lawmaking process, and defined the substance of the legislative output. FATF was able to accomplish the following: first, to set the legislative agenda and overcome political inertia among executive officials and lawmakers that worked against legislation of the AMLA; second, to ensure the enactment as well as the amendment of the AMLA; and third, to make certain that the AMLA does not cater to vested interests but conforms with the international standard. In other words, the external demand was so overwhelming that the international organization was able to guarantee the unity of purpose (i.e. the threat of sanction compelled the veto players to collaborate and work together), that in turn led to policy decisiveness of the lawmaking process (i.e. the unyielding deadline defined the pace and direction of the proceeding), and to the public regardedness of the policy (i.e. the global standard shaped the content of AMLA).
On the theoretical aspect, the interface between the international financial organization, and institutional policy actors in the policy-making process illustrated a new dimension in the veto players framework and introduced a variation in its fundamental proposition— that the more the number of veto players, the harder it is to generate or change policy (policy stability), and the more diluted the output policy (private regardedness) will be. The involvement of the international organization “refashioned” the legislative process. The FATF ensured the enactment as well as amendment of the AMLA (policy decisiveness) regardless of the number of veto players participating in the process, and guaranteed that the AMLA responded more to global interest (public regardedness) despite the presence of an array of interests among veto players. In effect, the presence and participation of the international organization made the number of veto points inconsequential, as the organization’s involvement in the policy-making process made the enactment of the policy easier and the resulting policy more inclined toward general rather than private interest.
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11, no. 1, pp. 79-102.
Abstract
The story of the Anti-Money Laundering Law (AMLA) is about the contemporary impact that an international organization has on the policymaking process. The dynamics of the crafting of this law illustrated the asymmetrical relationship between the international organization and the central policy actors. The Financial Action Task Force (FATF), a nonveto player, through incentives and constraints, profoundly influenced the behavior of the veto players, determined the tempo of the process, and delineated the legislative outcome. First, the FATF, was able to set the agenda and subdue the political inertia that worked against the law in the executive and legislative branches. Second, the FATF ensured the enactment and amendment of the law. Third, it made certain that the law did not cater to vested interests and complied with international standards. The external demand was so overwhelming that the FATF was able to guarantee the unity of purpose (the threat of sanction compelled the veto players to collaborate) that in turn resulted in the policy decisiveness of the process (the unyielding deadline defined the pace and direction of the proceeding), and in the public regardedness of the policy (the global standard shaped the content of the AMLA). In the theoretical sphere, the engagement between the FATF and institutional policy actors demonstrated a new dimension in the veto players framework, and modified the conventional proposition— that the more veto players, the harder it is to generate or change policy (policy stability), and the more watered down the output policy (private regardedness) will be. Instead, the presence of an international organization “refashioned” the lawmaking process, making policy enactment easier (policy decisiveness) regardless of the number of veto players, and ensuring that the policy responds more to global interest (public regardedness,) notwithstanding the presence of a multiplicity of interests among the veto players.
Key words: Policy Decisiveness, Public Regardedness, Unity of Purpose, Anti-Money Laundering, Policymaking, Veto Players, and International Organization
Introduction
Economic globalization is usually seen in terms of the intensification of the movement of trade, finance, labor, and information across state borders (Reich, 1991; O’Brien, 1992; Ohmae, 1996). In the financial realm, this phenomenon has led to greater interconnectedness and integration of financial markets, where money is extremely mobile and financial transactions, instantaneous. The unprecedented global financial mobility has brought forth issues that demand coordination among states to manage the volatility resulting in the exponential growth in financial transactions, particularly in the banking sector, e.g., transborder deposits, loans, branch networks, and fund transfers (Scholte, 2001). One of the issues pertinent to this development is the problem of money laundering perpetuated by organized crime and terrorist groups. Money laundering, as defined by the International Monetary Fund (2008), is “a process in which the illicit source of assets obtained or generated by criminal activity is concealed to obscure the link between the funds and the original criminal activity.” Nowadays this practice is prevalent, as funding and fund transfers for organized criminal syndicates and international terrorist groups have become readily obtainable and accessible. As a result, financial regulations are called for to manage and preclude the global transmission and utilization of illegitimate money.
The foremost global financial regulation against the proliferation of illicit money is the Anti-Money Laundering Law (AMLA). So as to ensure its effectiveness, there is a need for all states not only to have an AMLA, but also to make sure that this law conforms to the global standard. The responsibility to persuade states to adopt financial regulation and comply with the global standard has been assumed by an international financial organization— the Financial Action Task Force (FATF). In carrying out its mandate, the FATF has intensified its influence on the policymaking process of each state; with FATF necessarily having to encroach on the domain usually reserved to domestic actors. To clearly see the effect of the FATF, however, there is a need to particularize, that is to conduct a study detailing the specific and distinct impact of this international organization on three fundamental aspects of the policymaking process— the behavior of institutional actors; the process of enactment; and the content of the policy.
With the engagement among policy actors deemed as a bargaining game, this study looks into the nitty-gritty of the policymaking process that led to the enactment and amendment of the AMLA. This paper analyzes the interface between an international organization and institutional policy actors. It argues that the international organization promotes unity of purpose among actors, policy decisiveness in the process, and public regardedness of the policy. The paper also contends that the interface between the FATF and the executive and legislative branches illustrates a new dimension in the veto players’ framework, as the involvement of an international organization refashions a fundamental proposition of the framework. This study proceeds as follows: first, the framework of analysis is discussed; second, the FATF demand— particularly the establishment of the global financial standard, and the utilization of the NCCT List— is presented and explained; third, the process of enacting and amending the AMLA is traced; and lastly, the effect of the international organization on institutional policy actors, the lawmaking process, and the shape of the policy are illustrated and examined in detail.
Framework of Analysis
Policymaking is a process whereby public policies are formulated and produced. The policymaking process is generally defined as the collective process of discussing, negotiating, approving, and implementing public policy (Stein et al., 2005; Stewart et al., 2008). As a collective process, policymaking necessitates engagement and interaction among policy actors in order to generate policies. In sovereign states, policymaking is conventionally deemed an endogenous process where only the government exercises the prerogative of crafting policies within its territory. As a rule, no entity whether in the domestic or international domain can legitimately enact policies without going through the governmental policymaking process. In democracies, the central institutional actors in the policymaking process are the executive and legislative branches of government. The branches are indispensable to policymaking, as both take part and manage the process.
In analyzing the policymaking process, one needs to focus on the interaction of institutional actors, as institutional engagements as well as arrangements can generate incentives or constraints that have a profound impact on the policy outcome (see Shepsle, 1979; Lancaster, 1986; North, 1990; Weaver and Rockman, 1993; Tsebelis, 1995; Cox and McCubbins, 2001; MacIntyre, 2003). In line with this, the policymaking process can be understood as a process of bargains and exchanges among policy actors (Cox and McCubbins, 2001; Stein et al., 2005; Caoili, 2006). The exchanges here can either be spot transactions or inter-temporal transactions; in the former, the exchanges are instantly consummated (e.g. release of pork barrel funds for a legislative vote), and in the latter, the exchanges take a long-term arrangement (e.g. legislative vote for electoral support in the future). The behavior of policy actors in these exchanges will depend on their preferences, incentives, or constraints, and the expectations they have on the behavior of other actors (Stein et al., 2005; see also Hall, 1986; Keohane, 1989; March and Olsen, 1996; Weingast, 1996).
One prominent way of examining the intricacies of the workings of institutions in the policymaking process is through the use of the “veto player” theory (see Immergut, 1992; Tsebelis, 1995, 2002; Haggard and McCubbins, 2001; MacIntyre, 2003). The theory contends that to generate or change policy, a certain number of institutional actors have to concur on the proposed policy. These actors are called veto players, as their agreement is necessary in producing or changing policy. Veto players are individual or collective actors whose approval is crucial, as their control of an office or branch of government empowers them to reject any policy proposal (Haggard and McCubbins, 2001; Tsebelis, 2002).
A fundamental proposition espoused in the theory is policy stability or the predisposition for maintaining the legislative status quo and the difficulty of producing or changing policy in a political system. As the number of veto players in a political system varies, the proposition asserts that policy stability increases when the number of veto players increases, and when there is significant ideological distance among them. When there is only a single veto player, such as in an absolute monarchy, his resolve alone is enough to produce or change policy. On the other hand, when there are multiple veto players, such as in a typical presidential government, the consent of each veto actor is imperative to guarantee or change a policy. Since there are more veto players in a presidential setup than in an absolute monarchy, the implication is that it is harder to pass policy in the former and easier in the latter.
As to ideological distances, if all the veto players in the presidential system espouse a similar ideology (e.g. free market liberal), then, passing a policy consistent with the ideology is faster and less complicated. On the other hand, if the veto players adhere to different and discordant ideologies (e.g. free market liberal versus socialist democrat), the clash of political ideas among the partisan veto players makes policymaking difficult and complicated. Thus, the closer the political ideologies among veto actors, the easier it generally is to pass policy.
The veto players approach was discussed further by Cox and McCubbins (2001). The authors assert that institutional arrangement ramifies into different configurations among veto players and impacts on the policymaking process. Utilizing the concept of effective veto players to determine the actual number of veto actors, both the separation of powers and the separation of purpose must be considered. The former refers to the number of policy actors possessing veto powers, and the latter refers to the differences in interest among veto players. For instance, the number of effective veto players in an institutional arrangement with three veto actors will depend on whether they have unity or separation of purpose. If there is separation of purpose (i.e. diverse interests among policy actors), three veto players is considered the effective number; while if there is unity of purpose (i.e. similarity of interest among policy actors), then one veto player is considered the effective number. In effect, an institutional arrangement with multiple veto players but with unity of purpose reduces the actual number of veto points, thus making it easier to pass or change policy.
In particular, Cox and McCubbins noted that the interplay between separation of power and separation of purpose ramifies into two key trade-offs. The first trade-off is between policy decisiveness, which is the ability to change policy, and policy stability, the ability to stick to the prevailing policy. The authors contend that the greater the number of effective veto players, the more stable and less decisive the policymaking process tends to be. Here, changing a policy is difficult but once that is accomplished, then the veto players tend to adhere to the maintenance of the policy. Inversely, when the number of effective veto players is small, the policymaking process tends to be more decisive and less stable. Here, changing the policy is relatively easy; however, the policy is unstable as it is susceptible to change from time to time.
The second trade-off pertains to the degree the policy output serves public or private interest— i.e. the public regardedness or private regardedness of the policy. The policy produced for the former resembles public goods, improves efficiency of allocations, and promotes the general welfare. The policy produced for the latter funnels private benefits such as projects, subsidies, or loopholes to individuals, groups, or regions (Cox and McCubbins, 2001). Cox and McCubbins argue that when the number of effective veto players is large, the policy tends to be more private regarding and less public regarding. This outcome is the consequence of the bargaining game played by policy actors, where each veto player can demand and receive “side payments” in exchange for their agreement to the proposed policy (Cox and McCubbins, 2001). These side payments tend to increase the “transaction cost” of the process and to dilute the policy, as more concessions are made to fit private demands.
Veto players are typically specified by the constitution. These players are considered institutional actors, whose agreement is indispensable to the enactment of policies. In a presidential setup, the principal institutional actors in the policymaking process are the President, the Senate, and the House of Representatives. The unanimous decision of all three is necessary to pass policies; while the dissent of one of them is enough to halt the process and prevent the enactment of a policy. A proposed policy will not materialize into law if the President and the members of the House of Representatives agreed to it but the Senators did not; or if legislators in both Chambers agreed to pass a policy and the President vetoed the bill (as experience shows that the executive veto is hardly ever overcome by the legislators) . Hence, in this institutional arrangement the policymaking process is basically defined by consensus among veto players.
Other actors that have the potential to affect the policymaking process are considered as non-veto players. Unlike institutional veto players, the consent or dissent of these non-veto players, as well as their participation, is not considered crucial to the policymaking process. The non-veto players are considered exogenous to the process and their influence is always channeled through the veto players. Moreover, non-veto players could be either internal or external actors. The former operate within and are subjected to the authority of the state (e.g. domestic business groups, labor unions, and the media), while the latter operate from the outside and are independent of the authority of the state (e.g. multinational corporations, international organizations, and foreign governments). But whether internal or external actors, their inputs eventually appear directly or indirectly in the executive-legislative interface.
At present, international organizations have evolved as one of the more active non-veto players in the policymaking process. Despite their being external entities, international organizations have emerged as influential and dominant actors, as they increasingly shape the policy process and outcome (e.g. see Woods, 2000; Nye, 2001; Ougaard and Higgott, 2002; Sorensen, 2006). Howlett and Ramesh (1995) suggest that their influence is strongest in policy areas with international character and implications. One of these areas is global finance whereby in the quest to manage the global financial mobility and the integration of financial markets, international financial organizations have put up global standards. Governments are “required” to conform to such standards by enacting specific policies, regulations, or measures. To ensure this, sustained pressure is applied to institutional actors as well as on the policymaking process. In effect, noncompliance is made politically and economically costly. As a result of this practice, international organizations acquire enormous leverage to set legislative agenda and shape policy outcome.
This development has changed the dynamics of the policymaking process as well as the configurations of policy actors, as a non-veto player dominates institutional veto players and determines policy outcome. The engagement results in an asymmetrical relationship, where the international organization, using the threat of sanctions, is able to promote unity of purpose among veto players, to ensure policy decisiveness of the process, and to shape the outcome by ensuring public regardedness of the policy. This engagement— between institutional veto actors and a non-veto actor, although efficient in producing policies, gives rise to the issue of international override on the policymaking process. Consequently, overall the policymaking process becomes externally driven, as the behavior of the policy actors, the process, and the policy are extensively determined by an international organization and less by institutional actors.
This study follows the traditional perception that institutional arrangements matter. This paper looks into the impact of an international organization on institutional veto actors in the policymaking process as well as on the policy outcome. In particular, the emphasis is on the engagement of the FATF, and the executive and legislature branches (the Senate and the House of Representatives) in the enactment of the AMLA (Republic Act 9160) and its amendment (Republic Act 9194). Here, the interface of policy actors in the policymaking process is analyzed in order to determine why a non-veto player dominated the veto players in performing their institutional role, and how the international organization redefined the bargaining exchanges among the actors as well as the equation of the process.
Schematic Diagram of the Framework of Analysis
The FATF Demand: Global Standard and the NCCT List
At present, the principal international organization that promotes the adoption of the anti-money laundering law as a financial regulation policy is the FATF. This international organization was established by leading industrial states to specifically combat the global problem of money laundering. The FATF was formally convened during the 1989 G-7 Summit in Paris, but it does not have a tightly defined constitution or an unlimited life span. The organization reviews its mission every five years and requires a specific decision among its members to continue its operation. In 2004 the Ministry representatives of FATF agreed to extend the term of the organization to 2012.
Initially, the FATF was mandated to deal mainly with global proliferation of illicit drug money in banks and other financial institutions. However, after the September 11 terrorist attack in the United States, the mandate was expanded in October 2001 to include terrorist financing. The change is reflected in the formal description of the organization— “ FATF is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing” (FATF 2008a, p. 1). Here, the FATF operates as a quasi policymaking body, persuading states to legislate anti-money laundering laws. The international organization has three fundamental activities: first, it sets international standards to combat money laundering and terrorist financing; second, it ensures effective compliance with the FATF standards; and third, it reviews money laundering and terrorist financing techniques and countermeasures (FATF 2008b).
In executing its functions, the FATF has instituted a global standard to ensure that anti-money laundering laws legislated by states are harmonized. The standard is laid out in the Forty Recommendations and the Nine Special Recommendations on Terrorist Financing or the so-called 40 + 9 Recommendations. The former calls for the criminalization of money laundering (FATF 2004b), and the latter calls for the criminalization of terrorist financing (FATF 2004a). The 40 + 9 Recommendations serve as the basic framework or the comprehensive plan of action for each state in enacting its anti-money laundering law. The Recommendations are designed for universal application, as the law is mandatory to all countries, members or nonmembers, and territories. Thus, complying with FATF standards means that not only must a state enact a law, that law must also conform to FATF Recommendations.
To guarantee worldwide adherence and reach, the FATF monitors the progress of legislation in each state and collaborates with other international organizations, such as FATF— style regional bodies (FSRBs), the International Monetary Fund (IMF), the World Bank (WB), the Financial Stability Forum, and the Egmont Group of Financial Intelligence Units. Furthermore, FATF employs the Non-Cooperative Countries and Territories (NCCT) initiative, where states and territories identified as lacking compliance or as noncompliant are blacklisted. In assessing the conformity of states, the FATF makes use of the so-called List of Criteria for Defining Non-Cooperative Countries or Territories. The List comprises 25 criteria that enumerate the detrimental rules and practices in each state which hinder international cooperation in combating money laundering. The criteria fall under four categories: (1) loopholes in financial regulations; (2) obstacles raised by other regulatory requirements; (3) obstacles to international cooperation; and (4) inadequate resources for preventing and detecting money laundering activities (FATF 2007).
States classified as NCCT are required to take the necessary action to address their deficiencies identified in the List of Criteria. Failure to do so would keep the state blacklisted, and at risk of “bearing the brunt “of the imposition of countermeasures by FATF. The countermeasures are sanctions that FATF can impose on rogue states. The countermeasures are based on Recommendation 21 and 22:
21. Financial institutions should give special attention to business relationships and transactions with persons, including companies and financial institutions, from countries which do not or insufficiently apply the FATF Recommendations. Whenever these transactions have no apparent economic or visible lawful purpose, their background and purpose should, as far as possible, be examined, the findings established in writing, and be available to help competent authorities. Where such a country continues not to apply or insufficiently applies the FATF Recommendations, countries should be able to apply appropriate countermeasures.
22. Financial institutions should ensure that the principles applicable to financial institutions, which are mentioned above are also applied to branches and majority owned subsidiaries located abroad, especially in countries which do not or insufficiently apply the FATF Recommendations, to the extent that local applicable laws and regulations permit. When local applicable laws and regulations prohibit this implementation, competent authorities in the country of the parent institution should be informed by the financial institutions that they cannot apply the FATF Recommendations (FATF 2004b, p. 7).
The sanctions directed to states can take the following forms:
(1) Stringent requirements for identifying clients and enhancing advisories (including jurisdiction specific financial advisories) to financial institutions for identification of the beneficial owners before business relationships are established with individuals or companies from these countries;
(2) Enhanced relevant reporting mechanisms or systematic reporting of financial transactions on the basis that financial transactions with such countries are more likely to be suspicious;
(3) Taking into account the fact that the relevant bank is from an NCCT, when considering requests for approving the establishment in FATF member countries of subsidiaries or branches or representative offices of banks;
(4) Warning non-financial sector businesses that conducting transactions with entities within the NCCTs might run the risk of money laundering (FATF 2007, p. 4).
These sanctions imply enormous consequences for uncooperative states.
Out of the 47 countries assessed based on the List of 25 criteria, a total of 23 countries and territories, 15 in 2000 and 8 in 2001, were identified as NCCTs (FATF 2007). The Philippines was one of the states identified as not complying with the FATF standard. As stated in the FATF’s June 2000 Report:
1. The Philippines meets criteria 1, 2, 3, 4, 5, 6, 7, 8, 10, 11, 12, 14, 19, 23, 24 and 25.The country lacks a basic set of anti-money laundering regulations such as customer identification and record keeping. Bank records have been under excessive secrecy provisions. It does not have any specific legislation to criminalize money laundering per se. Furthermore, a suspicious transaction reporting system does not exist in the country.
2. During the past few years, the government has been seeking unsuccessfully for the Congress to pass several anti-money laundering Bills. The Government of the Philippines urgently needs to enact an anti-money laundering Bill during the current session of the Congress (June 2000 to May 2001), to criminalize money laundering, require customer identification as well as record keeping, introduce suspicious transaction reporting system and relax the bank secrecy provisions (FATF 2000, p. 9).
As a blacklisted state in 2000 the Philippines, following FATF Recommendations 21 and 22, was subjected to routine countermeasures. As a consequence, the financial transactions involving the country were stringently scrutinized and examined to ensure the lawfulness of the transactions. FATF gave the Philippines up to 30 September 2001 to comply and pass the anti-money laundering law. Failure to pass the said law before the deadline meant that the country would face severe countermeasures.
A Look into the Enactment and Amendment of the AMLA
The initiative to enact an anti-money laundering law began when President Arroyo made a commitment to FATF in May 2001 that she would certify to the newly elected Twelfth Congress the urgency of passing said law (FATF 2001). The formal government action commenced in the executive department when the Inter-agency Committee composed of the Department of Justice (DOJ), Department of Finance (DOF), Securities and Exchange Commission (SEC), and Bangko Sentral ng Pilipinas (BSP) was formed. The Inter-agency Committee conducted preliminary hearings where key stakeholders such as the Banking Association of the Philippines (BAP), enforcers such as the National Bureau of Investigation (NBI) and the Philippine National Police (PNP), and legal experts from the University of the Philippines Law Center were invited. The hearings resulted in the executive version of the anti-money laundering law.
Preliminary action in the legislature commenced when the Senate and the House of Representatives conducted parallel committee hearings. In the House, the hearings were handled jointly by the Committee on Banks and Financial Intermediaries as the lead committee headed by Congressman Jaime Lopez, and the Committee on Justice and the Committee on Economic Affairs. In the Senate, the hearings were conducted jointly by the Committee on Banks, Financial Institutions and Currencies, chaired by Senator Ramon Magsaysay, and the Committee on Justice and Human Rights, chaired by Senator Francis Pangilinan. The hearings commenced on August 22nd in the House and on August 29th in the Senate, for 39 and 32 days, respectively, before the September 30, 2001 deadline of FATF.
After the committee hearings, on the 24th of September both chambers immediately sponsored in plenary and approved for Second Reading Committee Report no. 7 on House Bill 3083 for the House of Representatives, and Committee Report no. 1 on Senate Bill 1745 for the Senate. For its immediate enactment on the same day, the President certified the committee report on both chambers in line with Constitutional provision Article VI, Section 26, paragraph 2, which states that:
No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency.
In effect, the certification dispensed with the three readings on separate days, so that the Second and Third Readings could be done on the same day.
Immediately after the approval of the committee report, the Bicameral Conference Committee (BCC) convened and started its deliberations on the following day, September 28th. The BCC took only a day— the deliberation started at 8:30 in the morning and finished at 10:00 at night. On the next day, September 29th, the BCC Report was ratified in both chambers, and the resulting law, Republic Act 9160 or the Anti-Money Laundering Act was signed by the President in Malacañang Palace, all on the same day. Thus, in record time of a little over a month, the AMLA was enacted a day before the September 30th FATF deadline.
After complying with the deadline, however, there was indication that R. A. 9160 did not fully satisfy FATF standards. FATF indicated that some stipulations inserted in the law were inconsistent with the 49 + 9 Recommendations. With these deficiencies, the FATF again called for the Philippine Government to take the necessary steps to amend the AMLA so as to comply with FATF standards. The move to amend the AMLA began in the House of Representatives on September 4, 2002, when the Committee on Banks and Financial Intermediaries, Committee on Economic Affairs, and Committee on Justice conducted a joint committee hearing for House Bill no.5168. In the Senate, the move commenced on August 29, 2002, when the Committee on Banks, Financial Institutions and Currencies and the Committee on Constitutional Amendments, Revision of Codes and Laws conducted a joint committee hearing for Senate Bills no. 2040, 2198, and 2262.
After the committee hearings in both chambers, the respective committee reports were sponsored in the plenary session on November 25, 2002 in the Senate and on January 29, 2003 in the House of Representatives. Because the bill was certified as urgent by President Arroyo on November 21, 2002, it was approved after the Second and Third Readings on February 10, 2003 in both chambers as Senate Bill no. 2419 (Committee Report no. 110) and as House Bill no. 5655 (Committee Report no. 1181). To consolidate the Senate Bill and the House Bill, the BCC was convened on February 11th. The BCC was able to come up with a Conference Committee Report close to midnight of February 12th. Subsequently, both chambers approved the Conference Committee Report on the following day, February 13, 2003.
After the approval, however, there were immediate indications to the Government that the BCC report would not be acceptable to FATF. With this apprehension, the ratification in plenary in both chambers of the approved BCC report was put on hold; so was the signing of the law by the President. Through the efforts of the Arroyo government, a dialogue between FATF delegates and the lawmakers was held on February 18th to address the concerns of FATF. After conferring their “approval” on the proposals of the lawmakers, FATF delegates reminded the latter that in order to avoid countermeasures, the amendment to the AMLA had to be done on or before the March 15th FATF deadline.
On February 19th in the Senate and February 27th in the House, on the basis of the “informal” agreement between the lawmakers and FATF delegates, there was a move in both chambers for the reconsideration of the approved BCC Report. As a consequence, the BCC was reconstituted on March 4th to modify and incorporate the agreed-upon amendments into the AMLA. On the next day, March 5th, the reconstituted BCC Report was ratified in both chambers, and the resulting law, Republic Act 9194, was signed by the President on March 7, 2003.Thus, Congress formally amended RA 9160. As FATF (2003a, pp. 9-10) reported:
[RA 9194] amends the AMLA and addresses the legal deficiencies. It requires the reporting of all suspicious transactions, grants the BSP (the banking supervisor) full access to account information to examine for anti-money laundering compliance, and allows the AMLC [Anti-Money Laundering Council] to inquire into deposits and investments made prior to the AMLA coming into effect.
As the compliance was made ahead of the deadline, FATF decided not to impose countermeasures on the Philippines (FATF 2003b), but was quick to remind the Philippine Government that as there was already the appropriate law; the government must now adequately implement the anti-money laundering measures. Enforcement of the AMLA would be monitored by FATF, while its members evaluated the removal of the Philippines from the blacklist.
Afterwards, after almost two years of monitoring, FATF removed the Philippines from the NCCT list in February 2005. However, it continued to monitor the country for a period of time as part of its standard monitoring process for delisted countries so as to ensure continuous adequate implementation (FATF 2005). After a year, in February 2006, FATF eventually decided to end its formal monitoring of the Philippines (FATF 2006).
Influence of an International Organization on Veto Players, Process, and Outcome
Impact of FATF on Institutional Policy Actors
The Philippine commitment to enact the AMLA started way back when the government became a signatory to three international accords— the 1988 Vienna Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substance; the 1998 United Nations Political Declaration and Action Plan Against Money Laundering; and the 2000 United Nations Convention Against Transnational Organized Crime. As a signatory to these multilateral agreements, the Government was mandated to enact an anti-money laundering law. Congress over the years had been trying to enact the law. For instance, in the Tenth and Eleventh Congresses, Congressman Raul Gonzales filed the so-called Rico bill, which was approved in the House but which did not prosper in the Senate. The anti-money laundering bill filed by the late Senator Robert Barbers likewise did not prosper beyond the Senate committee level. The failure of the legislature to take decisive action, despite the existence of a political obligation, seems to suggest the strong political inertia among legislators, as they did not see the urgency of the anti-money laundering law as mandated by such international agreements.
The political inertia among legislators was shared by the executive branch. The Aquino, Ramos, Estrada, and Arroyo administrations were apparently halfhearted in their attempts to push the law. No definite advisory declaring the urgency of such a measure came from the Office of the President. The Department of Foreign Affairs (DFA), which handled the correspondence of the government with international organizations, appeared not to see the necessity, as it did not bother to inform Congress of the discussions with FATF. Furthermore, the Eleventh Congress, before it adjourned sine die, held a special session, yet the anti-money laundering bill was not included in the agenda. Two bank-related laws— the revision of the General Banking Act and the amendments to the Bangko Sentral Act— were acted upon, yet no government agency brought up the concern of the FATF.
The apathy of the executive and legislative branches toward the enactment of the AMLA, however, suddenly changed when FATF placed the Philippines in the NCCT list. A repercussion was the imposition on the Philippines of routine countermeasures following Recommendations 21 and 22, as well as the need to undergo the process of delisting or removal from the blacklist. To be delisted, the country needed to take necessary steps to remedy deficiencies identified by FATF; otherwise additional countermeasures would be imposed in the event of nonaction. The essential initial steps in delisting are the following:
1. An NCCT must enact laws and promulgate regulations that comply with international standards to address the deficiencies identified by the NCCT report that formed the basis of the FATF’s decision to place the jurisdiction on the NCCT list in the first instance.
2. The NCCTs that have made substantial reform in their legislation should be requested to submit to the FATF, through the applicable regional review group, an implementation plan with targets, milestones, and time frames that will ensure effective implementation of the legislative and regulatory reforms. The NCCT should be asked particularly to address the following important determinants in the FATF’s judgment as to whether it can be delisted: filing of suspicious activity reports, analysis and follow-up of reports, the conduct of money laundering investigations, examination of financial institutions (particularly with respect to customer identification), international exchange of information, and the provision of budgetary and human resources (FATF 2007, p. 11).
The principal prerequisite for delisting was for the Philippines to legislate an anti-money laundering law that conformed to the 40 + 9 Recommendations of the FATF. With this in mind, the executive and legislative branches manifested a more determined attitude toward enacting the AMLA. This concern had moved the institutional policy actors— the President, by calling the attention of lawmakers and instructing appropriate agencies to make a draft of the law, as well as coordinate with legislature; and Congress, by concentrating their efforts as well as by giving precedence to AMLA over other bills. Evidently, the desire to be removed from the FATF blacklist was the impetus that drove the Government to action. Thus, the circumstance showed that the legislative agenda was set by FATF, as the initiative for the policy came from the international financial organization.
Moreover, the commitment of executive officials and lawmakers to action intensified when they became cognizant of the implications of the NCCT list, as well as the possible additional countermeasures. Being on the blacklist meant that financial transactions involving the Philippines would be examined more closely by the international financial community. The lack of an anti-money laundering law would mean that financial transactions relating to the country would be deemed suspicious. Other countries, particularly FATF members, in turn, would inquire, investigate, and verify transactions emanating from the Philippines. As a consequence, these actions might result in delays and additional costs.
The influence exerted by FATF over institutional policy actors was amplified considerably by the alliance with other international organizations, in particular the IFIs. FATF had underscored the fact that in the performance of its activities, it would collaborate with other international bodies involved in combating money laundering and the financing of acts of terrorism. For instance, it acknowledged the important contribution made by the IMF and the WB in their efforts to implement the AML/CFT Regime in non-FATF member countries (FATF 2008b). The global cooperation implied that those international institutions would provide the necessary support to ensure compliance with the global standard; and that FATF could count not only on its member countries but also on influential international institutions to recognize and support its actions against a noncomplying state. For executive officials and lawmakers, this translated into enormous pressure when they recognized the backlash that could ensue, inasmuch as the Philippines had robust political and economic ties with most FATF member countries as well as with the IFIs.
Cause for apprehension over countermeasures as well as additional countermeasures was unambiguously stressed to the lawmakers by way of the seemingly conspiring “chorus” of threats consistently underscored by executive officials. For instance, DOF Secretary Isidro Camacho said that “the sanctions that we can expect are things that could impede our transactions, private sector transactions between our country and other countries which, over time if it were to be maintained, could make us uncompetitive either as an exporter or importer of trade and services.” DOJ Undersecretary Jose Calida also cautioned the lawmakers that “if we don’t want to listen to FATF, fine, but let’s be prepared for the additional countermeasures.” According to him, the additional countermeasures could be any or all of the following: first, enhanced surveillance of all transactions; second, more stringent requirements for identifying clients; third, intensified advisories to financial institutions to make strict identification of beneficial owners; fourth, an enhanced mechanism for the systematic reporting of all financial transactions; and fifth, a warning to the international business community who might want to set up business in the Philippines. He estimated that the transaction cost due to delays per day could reach P116 million in imports, P169 million in exports, P65 million in tourism, and around $4 billion in OFW remittances (Congress of the Philippines-Senate and House of Representatives Committee Hearings on Money Laundering 2001).
BSP Governor Rafael Buenaventura reported that a “particular correspondent bank has already requested that their banking correspondence here request for waiver of secrecy of deposits on any transactions they have before they handle the transactions. . . . In effect, normal transactions that normally will just go through the normal business of remitting in and out are now being required to give more information on who is the remitter, the source of the remittance.” The governor further warned that noncompliance would be very inconvenient and costly for everyone; as legitimate business transactions would be subjected to more scrutiny, where ordinary transactions that normally flow in and flow out would be subjected to flagging; such that more verification would be required on deposit accounts, remittances, import and export trade, and issuance of visas. These actions would consequently result in significant delays as well as a substantial increase in the cost of financial transactions. International financial transactions of local banks and other financial institutions, which run into hundreds of million pesos a day, would no longer be done automatically. Instead, requirements for flagging would force the banks to handle the transactions manually. Over time, this condition would make the Philippines uncompetitive and unattractive to investors (Congress of the Philippines-Senate and House of Representatives Committee Hearings on Money Laundering 2001).
In addition, BSP Deputy Governor Alberto Reyes cited that “on foreign remittances wherein checks are being cleared through U.S. banks, some of the checks are being returned and inquiries are being made as to the details of the addresses of the payees.” For example, the First Union Bank of Delaware in the U.S. informed its correspondent banks, 12 local banks, including the Bank of the Philippine Islands (BPI), that it would impose more stringent requirements in processing transactions while the country remained in the NCCT list. And DFA Assistant Secretary Rosalinda Tirona commented that since FATF members were major trading and investment partners of the country, there was the possibility that they might issue business advisories “warning their businessmen to deal very carefully with the banks and other financial institutions in the Philippines. . . . So it is not facilitating foreign direct investment and it is really impeding increasing the volume of trade.” (Congress of the Philippines-Senate and House of Representatives Committee Hearings on Money Laundering 2001).
This “chorus” of threats that executive officials repeatedly aired in Congress profoundly shaped the mindset of lawmakers and prompted them to work together in the deliberations. The predisposition to cooperate was evident in the remarks and comments they made during the deliberations. In the House of Representatives, Congressman Jaime Lopez, stressing the aim of Congress, cautioned that “It will be useless for us to pass a law that will not be acceptable to the FATF. . . . Our main objective here, I would like to emphasize, is for us to be delisted from the blacklist of the FATF so that we can have a reputation for integrity, that we are complying with the international standards.” Congressman Felix Alfelor reminded the body: “we should take heed of the fact that if we are not able to pass this law before September 30, there is a lot of sanction, economic sanctions which will be imposed on us, and a lot of these sanctions will be befalling our banks because a lot of the transactions that will be transacted by our banks with foreign clienteles will be prejudiced.” Congressman Oscar Moreno, in the committee hearings, candidly stated: “the issue here is whether we are willing to cooperate and align ourselves with international standards.”And Congressman Raul Gonzales, highlighting the importance of the deadline during the House Plenary debates, remarked: “there was a consultation with the Majority and the Minority and also with Office of the Speaker precisely because of the importance of this bill and considering further that we have to work [within a] certain time frame, those were the reasons why we had to hold sessions until Thursday and Friday.” (Congress of the Philippines-House of Representatives Session Proceedings on Money Laundering 2001).
In the Senate, Senator Ramon Magsaysay, as a foreword to the Senate committee hearing, stated that “the significance of the anti-money laundering legislation lies in the fact that the Philippines will remain in the blacklist of the FATF— Financial Action Task Force— and all our financial transactions will be closely scrutinized, making it difficult for the country to attract investments business and trade.” Senator Edgardo Angara, commenting on the clearance sought by AMLC on proposed amendments with the FATF, pointed out: “it is quite strange—and this is the first time I encountered this kind of procedure—that the proposed content of a law is first cleared with a body external to Congress rather than discussing these very substantive provisions first among us in Congress, among us in the Senate. I thought that was really a gross invasion and encroachment of the legislative prerogative of this Body.” (Congress of the Philippines-Senate Session Proceedings on Money Laundering 2001).
Adding pressure on the lawmakers to work together, the BAP, deemed the foremost industry that would be affected, fully supported the enactment of the anti-money laundering law. The bankers strongly lobbied the lawmakers, citing that the banking system faces not only increased transaction costs but a serious reputational risk if the law would not be passed. For instance, Mr. Leonilo Coronel, the Executive Director of BAP, informed the lawmakers that if the AMLA was not passed, this might give rise to a particular demand, such as the foreign financial community requiring customers from the Philippines to waive the bank secrecy law; or an even more extensive outcome, such as limiting foreign investments and downgrading credit ratings. He also warned of the possibility that the Philippine banking system might be isolated, thereby making it very difficult to transact business with the international community.
Other powerful interest groups, such as the Overseas Filipino Workers (OFW) groups, the Trade Union Congress of the Philippines, and the Makati Business Club, also intensified pressure on the lawmakers by consistently feeding media throughout the entire process with press releases and newspaper advertisements in support of the immediate enactment of the anti-money laundering law. The news articles, columns, and advertisements served as a propaganda tool that painted the lawmakers as sluggish in performing their function, and that their supposed dillydallying put the entire country at risk of sanctions. Moreover, amid fears that FATF sanctions would hit the OFWs the hardest, unconventional tactics were also employed. According to Executive Director Noel Josue, the members of Kaibigan ng OFWs (Kaibigan), and other OFW groups here and overseas daily bombarded mobile phones and websites of each opposing senator and his staff with hate messages. These included warnings that the OFW groups would remember the names of the senators and that OFWs and their families would not vote for them in the elections (Nocum and Contreras, 2003). Obviously, the conduct of these interest groups was influenced by their apprehension over the possible effects of the actions of FATF.
Furthermore, executive officials also conspired to quell any possible resistance from “uncooperative” legislators to ensure the enactment of the AMLA. They exerted subtle efforts to hasten and facilitate the deliberations. There was apparently a deliberate attempt on their part to withhold or selectively provide information and data requested by legislators opposed to the bill. For instance, to check the truthfulness of the “common theme” of executive officials that the country would face “difficulties” in case the bill was not passed, Senator John Osmeña requested a catalog or detailed listing of all transactions in the banking sector that would experience difficulties or problems. To verify whether most countries have an anti-money laundering law, Senator Aquilino Pimentel requested the list of all countries in the world that passed or had an anti-money laundering law. He contended that “the Senate is being asked to enact a very important piece of legislation, and yet the executive department, particularly through the Finance Department and the Bangko Sentral ng Pilipinas, does not even furnish us with the required data upon which to base our actuations.” On both occasions, executive officials promised to send the requested information to the legislators but did not do so. As observed by Senator Joker Arroyo, “I think that the government agenc[ies] concerned with this—[BSP, DOF, DOJ, DFA and AMLC]—ha[ve] not been candid and frank with Senator Magsaysay and his committee. . . . In short, certain information has either been withheld from him or not necessarily misinterpreted but misstated.” The action taken by executive officials made it very difficult for dissenting legislators to thoroughly scrutinize and oppose the bill. As the deliberations accelerated, it became futile and pointless for opposing lawmakers to hinder the enactment of the anti-money laundering law (Congress of the Philippines-Senate Session Proceedings on Money Laundering 2001).
The abovementioned comments illustrated the profound influence on policy actors of FATF, an external entity whose consent and participation, by convention, were not needed in the policymaking process. FATF was able to set the legislative agenda, overwhelm the political inertia among the actors by compelling them to work together by setting party affiliations aside, and “required” other policy actors to conspire to exert more pressure on the lawmakers. FATF used the threat of sanctions to transform officials of the executive and legislative branches from disinterested to committed policy actors. The avoidance of sanctions, in particular apprehension over possible economic repercussions and ramifications of countermeasures, was the primary motive among policy actors. The absence of action among institutional policy actors was overwhelmed by the external demand, thus ensuring that deliberations on the anti-money laundering law would move forward.
Impact of the FATF on the Lawmaking Process
At the onset of the committee hearings, both chambers faced the difficult task of consolidating the multitude of bills filed before the approaching FATF September 30 deadline— 11 Senate Bills (SB 179, 279, 684, 879, 1338, 111, 1504, 1506, 1599, 1607, and 1662), and 9 House Bills (HB 39, 282, 817, 1319, 1425, 1543, 1832, 1903, and 2147). The task was made harder by the fact that enacting the law was deemed to touch on delicate matters, such as the Bank Secrecy Law, considered sacrosanct in the Philippine financial system. To further complicate matters, Congress was scheduled to adjourn on September 5th and resume only on September 23rd, which meant that it had barely two weeks left to pass the law. With those concerns, the preliminary consensus among members of the Senate and House committees was that to do so within the given time frame was highly doubtful. Experience told them that enacting a highly complex and controversial law like AMLA would take a longer time, since this type of law is usually subjected to a lot of scrutiny and objections in Congress.
Further intensifying the problem was the resentment expressed by some lawmakers over FATF’s imposition of the September 30 deadline. Although the legislators recognized the importance of having a policy for addressing the problem of money laundering, most of them believed that crafting the law must not be imposed upon them and that the process must proceed at its own pace, and not be based on an externally prescribed deadline. This sentiment was obvious from the comments of lawmakers in the deliberations. For instance, Congressman Lopez, stated: “we don’t feel that we are bound by whatever the FATF decides. . . . we are not even a part of it, and so we don’t feel that we should be forced to rush the approval of this bill.” Congressman Marcelino Libanan, chairman of the House Committee on Justice, warned that as a lot of provisions might conflict with basic rights such as the constitutional rule on double jeopardy and the right to privacy, there was a need to take time in passing the law. And Senator Angara manifested that he would not “draw up and craft a bill that will make them [FATF] happy,” instead, he would “try to draw up or draft a bill that will suit our unique culture and customs.” (Congress of the Philippines-Senate and House of Representatives Committee Hearings on Money Laundering 2001).
Adding confusion to committee hearings of both chambers was the view espoused by the DFA vis-à-vis the deadline, which opposed the position of the DOJ, DOF, and BSP. The DFA, represented by Assistant Secretary Tirona, was the lead agency that handled the correspondence of FATF with the country prior to March 2001. The DFA argued that there was no legal basis for the FATF September 30 deadline. Therefore, she urged Congress to follow instead the 2003 deadline set by the 1998 United Nations Political Declaration Against Money Laundering. The DOJ, DOF, and BSP, on the other hand, maintained that Congress should follow the FATF deadline. The split in the position of the executive agencies was resolved when President Arroyo replaced Assistant Secretary Tirona with DOF Secretary Camacho as the lead official of the Executive Department in dealing with the FATF, thus signifying the bona fide position of the Executive Department to the FATF deadline. Moreover, the seeming lack of coordination among government agencies was also manifested when the BSP complained at the committee hearings that the DFA did not inform the BSP representatives of DFA’s correspondence with FATF. BSP Governor Buenaventura pointed out that there had been no advance warning at all and that it was only in June 2000 when the NCCT list came out that the BSP became aware of the situation. The Governor also said that he took over in July 1999, and his predecessor, Governor Gabriel Singson, confirmed that the BSP was not aware of the FATF demand.
However, the rejection of the plea of the Philippine Government for the extension of the FATF deadline had a profound effect on the pace of the legislative undertaking. For instance, DOJ Undersecretary Calida informed the lawmakers that in the 4th Asia Pacific Group on Money Laundering (APG) meeting held on May 22-24, 2001, the Philippine delegates hand-carried a letter from President Arroyo to FATF President Jose Roldan. Citing the efforts taken by the government, such as administrative measures against money laundering put in place by the BSP, the letter specifically asked for leniency on the deadline. Another was the plea for the extension made by Governor Buenaventura and Secretary Camacho in their Tokyo meeting with FATF. On both occasions, FATF responded that, although they sympathized with the Philippines, the demand for criminalizing money laundering was nonnegotiable. As aptly stated by DOJ Undersecretary Calida, “unless we have that law [AMLA] no amount of pleading, or appeal for sympathy or leniency will get us out from the [NCCT] list.” Thus, the unambiguous message was— the Philippines either has the law on time or else face the countermeasures (Congress of the Philippines-Bicameral Conference Committee 2001).
Furthermore, stressing the urgency of enacting the anti-money laundering law before the FATF deadline, DOF Secretary Camacho warned of a world of difference between passing the law on September 30th and doing so on October 1st. Passing the law a day after the deadline could mean that countermeasures would already have been set in motion. For the countermeasures to be lifted, the Philippines would have to undergo a review process that could take several months as all major FATF decisions that affect countries were taken up in the plenary. Thus, missing the deadline by just a single day meant that the country would be burdened by the sanctions until the members would finish the delisting procedure (which might take months or years), and the countermeasures, lifted.
To ensure the passage of the anti-money laundering law before the deadline, some preliminary steps were taken. For instance, members of the committees in both chambers were advised that, if need be, they would have to work every day to meet the deadline. The advisory included the forming of a technical group that would work on the draft bill during the scheduled congressional recess. Another time-saving move was the motion in both the Senate and House committees to adopt the Executive interagency draft of the anti-money laundering law as the main template in consolidating the bills. The motion was made to expedite the lawmaking process, as that would ensure that the versions of both chambers would be as close to each other as possible.
More importantly, the legislators fasttracked the proceedings by putting the AMLA bill ahead of all other pending legislative proposals. For instance, the deliberations on the Second and Third Readings as well as the bill’s approval were held simultaneously in the Senate and the House from September 24th to 27th. The proceedings in the House were nonstop from 10:00 a.m. of September 26th to 4:15 a.m. of the following day. For the Senate, Senator Magsaysay remarked:
The Senate passed on third reading the Bill on Anti-Money laundering this morning at 12:10 a.m. This is after almost 15 hours, non-stop. From Monday, the Senate spent 26 hours and 52 minutes to deliberate on one of the hardest legislations ever discussed by the Senate.
Another instance that patently showed the intent to enact the bill before the deadline was the shortcut taken on September 25 before the start of the second day of interpellations. The senators followed an unusual practice when Senator Magsaysay announced that 22 senators had agreed to simplify the proceedings by adopting a new report by substitution, which in effect replaced the committee report with the new working draft. This move, according to Senator J. Osmeña, “is premature because we are still in the period of sponsorship and we cannot entertain amendments, even an amendment by substitution, until we close the period of sponsorship and we go to the period of amendments.” Moreover, he informed the body that “in parliamentary practice, if we were really to be strict, we would have to return that committee report to the committee and the committee would have to refer it back to the Chamber.”
This distinctly manifested how the resoluteness of FATF to enforce an unyielding deadline “controlled” the pace of the lawmaking process. The initial apprehension and complications among policy actors, such as the multiplicity of bills filed in both chambers, the resentment of some legislators on the imposition of the deadline, and the confusion among executive officials over the interpretation of the deadline—all these were overwhelmed by the fact that the FATF deadline was non-negotiable. The “complications” among lawmakers became a nonissue, as they were hard pressed to seek out ways to comply within the stipulated time frame. Thus, combined with fear of sanctions, the imposition of the FATF deadline accelerated the legislative proceedings of the AMLA, as the policy actors took extraordinary steps to meet it.
Impact of FATF on Policy Output
The FATF demand, sustained by the threat of sanctions and the firmness of the deadline, left the Philippine Government little choice but to legislate the AMLA. Not only was it imperative to pass the anti-money laundering law before the FATF deadline, the law also had to conform to the global standard; in other words, the legislature had to pass a law that complied with the 40 + 9 Recommendations of FATF. Accordingly, BSP Governor Buenaventura explained that the anti-money laundering law must address five principal criteria in order to comply with FATF standards. The first was to make any money laundering activity a criminal offence that would make it a crime per se. The second was to put a reporting system in place under which individuals or institutions covered by it were required to make reports on unusual transactions. The third was to create an implementing agency. The fourth was to “modify” the strict Bank Deposit Secrecy Law (Republic Act 1405) that made it difficult to look into suspicious accounts, since the 1993 Banko Sentral Act had removed from the Monetary Board the authority to look into suspicious accounts without a court order or a waiver from the depositor. The fifth was to make a commitment that guaranteed international cooperation, particularly the reciprocal exchange of information with foreign countries and institutions.
Despite the explicit message coming from FATF regarding the essential content of the AMLA, however, some lawmakers decided to disregard FATF “guidelines” and incorporated into the bill their own position, which contravened the global standard. As justification, the intractable lawmakers asserted that their act demonstrated the Philippine Government’s exercise of its sovereignty over the intrusion of an international organization to its policymaking process. The reality, however, was that those actions were perceived to be either a reflection of an ultranationalist sentiment or an act catering to vested interests, or as a compromise with opposing lawmakers to get them to agree to pass the bill. For instance, the most blatant deviating provision in R.A. 9160 was the threshold amount: FATF had placed the threshold amount of $10,000 (P500,000) as the global standard to trigger the mechanism for reporting suspicious transactions. Despite this “recommendation,” some lawmakers in both chambers, citing the amount as negligible, and fearing an administrative overload as well as its unacceptability to many wealthy colleagues, among others, were adamant to set a threshold amount way above the FATF ceiling. The proposals were P3 million from the Senators and P5 million from the Congressmen, eventually reaching a P4 million threshold amount as a compromise. Since the majority of legislators in both chambers agreed to the compromise threshold, it was endorsed in the final version of the AMLA. As a consequence, the resulting law, R.A. 9160, was deemed a watered down version of the AMLA, as the enacted law exhibited inconsistencies with the FATF standard.
The feat demonstrated the prevailing mind-set— a “just-to-comply attitude”-- among lawmakers. As long as Congress was be able to pass an anti-money laundering law even if it was half-baked, before the deadline, in the eyes of the lawmakers that was already fine. Because the AMLA was a regulating policy with a direct impact on financial transactions of affluent and influential individuals, there was always the strong incentive for policy actors to protect their interest by endorsing an adulterated policy. For instance, journalist Sheila Samonte-Pesayco (2001) in her observation of the deliberations on AMLA suspected that “rather than providing the impetus to enact a tough law that would curb money laundering. . . [the] events created a ‘chilling effect’ on lawmakers, who wanted to make sure that the law they draft today would not be used against them tomorrow. . . . [Moreover] it was evident that several legislators took care to protect the interests especially of wealthy Chinese-Filipino businessmen.”
FATF spotted the inconsistencies with 40 + 9 Recommendations in R.A. 9160. Therefore, it urged the Philippine Government to take the necessary steps to amend the law so as to address the deficiencies and to conform to the global standard. As FATF observed in June 2002 NCCT Report:
1. Although the Philippines’ authorities interpret the regulations as requiring the reporting of all suspicious transactions, this nevertheless conflicts with the AMLA, which only requires reporting of high threshold suspicious transactions.
2. The law allows the AMLC to access account information upon a court order, but a major loophole remains in that secrecy provisions still protect banking deposits made prior to 17 October 2001. Secrecy provisions also still restrict bank supervisor’s access to account information (FATF 2002, p. 14).
Accordingly, the need for amendment was echoed by Mr. Vicente Aquino, the Executive Director of the newly operating Anti-Money Laundering Council (AMLC). He reported that discussions with FATF revealed that the latter’s major concerns were the following: first, the threshold was too high and should be lowered to the equivalent of US $10,000.00 or roughly P 500,000.00 in Philippine currency; second, although incorporated in the implementing rules and regulations, the suspicious transaction reporting requirement was not included in the law; third, the AMLC lacked the authority to inquire into or examine bank accounts or investments without the order of a competent court; and fourth, bank deposits and transactions prior to the effectivity of the law may be examined for the purpose of investigation and not for the purpose of prosecution (Congress of the Philippines-Senate and House of Representatives Committee Hearings on the Amendments to the Anti-Money Laundering Act 2002).
The firm stance of FATF that the AMLA conform to the global standard was made plain when the call for amendments was accompanied by an advisory that the process of delisting from the NCCT could not commence and that the country might still face sanctions in case of noncompliance. FATF warned:
FATF has taken the serious step of recommending that its members impose additional countermeasures against [the] Philippines due to the failure of the Philippines to enact legislation to address previously identified deficiencies in their anti-money laundering regime. The FATF calls upon the Philippine Government to enact the appropriate legislative amendments by 15 March 2003. Failure would lead to countermeasures to the Philippines as of that date. FATF will continue to monitor ongoing legislative development within that time (FATF 2003c, p. 1).
The warning was seriously received by government officials. Apprehension was evident, for instance, on the part of the lawmakers. Senator Magsaysay, the Chairman of the Committee on Banks, Financial Institutions and Currencies, at the opening of the committee hearings to amend R.A. 9160 stated:
Our law was enacted last September 29, 2001 as the Philippines’ response to the call of the Financial Action Task Force or FATF, to address the problem of money laundering activities all over the world. However, compared with the money laundering laws in other countries, RA 9160 imposes a very high threshold level which the FATF believes is too high for reportorial and monitoring purposes. To this date, we remain in the list of non-cooperative countries and territories, NCCT, for failure of the Philippines to comply with the recommendations of the FATF, hence, the need to amend our present law so that countermeasures will not be imposed on our financial system and jurisdiction in the assessments to be conducted by FATF this October, this year, in Paris.
On the part of executive officials: AMLC Executive Director Aquino reported during the committee hearings in both chambers that until pertinent amendments in R.A. 9160 were made, FATF “would start imposing drastic sanctions and countermeasures against the Philippines.” He further cautioned legislators that the effect of FATF’s action would be more severe on the Philippines, considering that the economy was dependent on the dollar remittances of OFWs.
Another instance of the relentless pursuit of the FATF to influence the content of the law was palpable in the amendment proceedings; specifically, the rejection of the BCC report. The approved BCC report that both chambers formally deliberated and voted on, and endorsed, was not acceptable to the FATF. FATF indicated that if Congress would pass the law in its current form, the amendments to R.A. 9160 would not be enough to comply with the 40 + 9 Recommendations. This remark implied that the legislators needed to rework the already approved BCC report. The main concern of FATF was the “intractable insertions” contributed and incorporated by some legislators. The President of FATF identified essential aspects that the amendment needed to address, such as: to expand the definition of “covered transaction” to include any suspicious transaction regardless of threshold amount; to make P500,000.00 the threshold for reporting covered transactions; and to broaden the definition of suspicious transactions.
To address the concerns of FATF as well as to salvage the amendment to the AMLA, the Arroyo Government arranged a dialogue between FATF delegates and lawmakers. Led by Senator Franklin Drilon, 16 senators and a number of congressmen came to the meeting. The lawmakers addressed the concerns of FATF by presenting to the delegates their objections as well as the specific stipulations and provisions they wanted to include as well as those to exclude in the AMLA. After concretely ascertaining the “wishes” of FATF, lawmakers suggested proposals and sought the approval of the delegates. Moreover, Senate President Drilon requested that the verbal approval of FATF delegates be put in writing to make sure that there would be no “slipup” in redrafting the bill.
The gentlemen’s agreement between legislators and FATF delegates effectively discarded the ratified BCC Report and entailed the reconstitution of the BCC. The agreement made it problematic for legislators to make any changes in the reconstituted BCC outside those things approved by FATF. In effect, this placed lawmakers in “estoppel” as the dinner meeting practically bound the whole of Congress. In addition, the rejection of the BCC Report implied that the inputs made during committee hearings, debates in plenary, and the discussions in the BCC were negated and subordinated to the demand of FATF because approval of FATF became the defining factor in the shape the amended AMLA would take. For instance, both the Sotto amendment to change the threshold amount from P500,000 to P2 million, and the Arroyo amendment to require a court order to open suspicious transactions and the deletion of retroactive effect, were voted upon and approved by the senators. However, these amendments were modified in the BCC.
Moreover, during deliberations of the reconstituted BCC, executive officials and the leadership of both chambers conspired to ensure that the content of the bill was consistent with the agreement with FATF, and to thwart any last-minute attempt by opposing legislators to alter the bill beyond the agreement. For instance, the BCC meeting was held strategically at the Executive Lounge on the 5th floor of the Central Bank building, so that the committee questions could immediately be addressed by the BSP and DOF. Senator Arroyo and Senator Sergio Osmeña grumbled that “while the bicameral meeting was ongoing, our own finance executive officials were frantically consulting on the phone with the foreign entities [FATF] while attempting to influence the outcome of the Report.” Moreover, Senate President Drilon took an unofficial role (since he was not officially a member of the BCC) of presiding over the opening of the meeting to “remind” his colleagues of the necessity that the body abide by the agreement with FATF. In arguing against the changes proposed by some members of BCC, Senate President Drilon appealed to them not to make any substantial changes as there is the danger of “inadvertently” inserting provisions unacceptable to FATF.
We have crafted this provision, we have shown this to the FATF, and in writing they said. . . . It’s acceptable to them. . . . I read the sentence no less than five times; no less than five times, the FATF agreed; no less than five times, we agreed during a meeting with them. This agreement was confirmed in this written document that they sent to me, Now, if you want to alter it, you know, that’s a judgment call of the BCC (Congress of the Philippines- Bicameral Conference Committee 2003).
Clearly, the statement cautions the members of the BCC that it was risky to make changes, and a lot safer not to touch the provisions anymore. In support, Senator Panfilo Lacson stated that to avoid being accused of not honoring the agreement, they should just limit the discussions to what the senators and FATF agreed on. Senator Angara cautioned that if they added one word or another, it may require another round of negotiation or consultation. These cautionary statements made certain that the resulting amendment, R.A. 9194, met FATF standards.
The effect of the FATF demand was not only on the behavior of the policy actors (i.e. it compelled them to work together) and the pace of the lawmaking process (i.e. it accelerated the enactment proceedings), but also on the shape the policy took (i.e. it forced them to comply with the FATF standard). The ultimate shape of the AMLA was delineated by the firmness of the FATF in insisting that the law conform to the global standards. FATF’s intent was clearly shown in the rejection of R.A. 9160 on the grounds of possessing inconsistencies that led to its amendment, and the unacceptability of the approved BCC report based on some deficiencies that consequently led to the reconstitution of the BCC as well as the preparation of a new BCC report. In these instances, the lawmakers tried to “insert” some provisions that reflected nationalist sentiments, protected vested interest, or a compromise with the opposition. As the insertions were deemed incompatible with FATF standards, they were rejected outright. Evidently, in determining the form of the AMLA, the resolve of the external entity was more binding than that of the lawmakers. At the end of the day, FATF called the shots, so to speak.
Conclusion
The policymaking process is often viewed as the engagement of institutional policy actors within a polity. Seen from a game theory model, the engagement between the executive and the two chambers of the legislature generates “bargaining exchanges” that determine the process as well as the shape of the policy. In the enactment and amendment of the AMLA, however, the policy-making process took an unconventional pattern--as a non-veto player, an international organization was added to the equation. Consequently, the bargaining dynamics was profoundly altered, creating an asymmetrical relationship between FATF and institutional policy actors. The non-veto player, through incentives and constraints, intensely influenced the veto players, determined the tempo of the lawmaking process, and defined the substance of the legislative output. FATF was able to accomplish the following: first, to set the legislative agenda and overcome political inertia among executive officials and lawmakers that worked against legislation of the AMLA; second, to ensure the enactment as well as the amendment of the AMLA; and third, to make certain that the AMLA does not cater to vested interests but conforms with the international standard. In other words, the external demand was so overwhelming that the international organization was able to guarantee the unity of purpose (i.e. the threat of sanction compelled the veto players to collaborate and work together), that in turn led to policy decisiveness of the lawmaking process (i.e. the unyielding deadline defined the pace and direction of the proceeding), and to the public regardedness of the policy (i.e. the global standard shaped the content of AMLA).
On the theoretical aspect, the interface between the international financial organization, and institutional policy actors in the policy-making process illustrated a new dimension in the veto players framework and introduced a variation in its fundamental proposition— that the more the number of veto players, the harder it is to generate or change policy (policy stability), and the more diluted the output policy (private regardedness) will be. The involvement of the international organization “refashioned” the legislative process. The FATF ensured the enactment as well as amendment of the AMLA (policy decisiveness) regardless of the number of veto players participating in the process, and guaranteed that the AMLA responded more to global interest (public regardedness) despite the presence of an array of interests among veto players. In effect, the presence and participation of the international organization made the number of veto points inconsequential, as the organization’s involvement in the policy-making process made the enactment of the policy easier and the resulting policy more inclined toward general rather than private interest.
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