In the last few years, the number of financial frauds has been rising rapidly in the Philippines. The local authorities have looked into hundreds of serious cases and scams that involved a vast number of victims. Our investigation team has conducted comprehensive research on this story by interviewing financial consultants, and security analysts who are specialized in anti-money laundering and financial crimes.
Financial Frauds in Manila
In recent years, there have been several cases under investigation. Some of these cases involve major banks and payment solutions. In 2016, funds stolen from Bangladesh’s central bank were transferred to a Philippine bank and laundered into the gaming sector. Australia’s financial crime authority accused Westpac Banking of money-laundering violations in December, including payments to alleged child exploiters in the Philippines.
Wirecard and fraud involving putative business partners in the Philippines
In late June 2020, it was revealed that Wirecard, a German payments technology company, had been involved in a fraud involving putative business partners in the Philippines, as well as 1.9 billion euros ($2.1 billion) allegedly stored in two Philippine banks.
Allegations of forged documents, fraudulent transactions, and the involvement of junior staff at major Philippine banks call into question not only how these banks oversee internal concerns but also bigger questions of inadequacies in the country’s regulation of its financial system.
According to Wirecard reporting, a whistleblower presented major concerns to upper management about the processing of transactions and accounting irregularities. However, there is little to no motivation in the Philippines for any whistleblower to come out with significant claims.
According to Financial Times news, A German businessman responsible for one of Wirecard’s biggest sources of stated profits has been reported dead a month after Philippine authorities announced he was under investigation over the payments company’s collapse.
The Bauers were the owners of PayEasy Solutions, a Manila-based payments processor that was a key business partner for Wirecard, accounting for €291.4m of the German payment group’s reported revenue of €2bn in 2018 and more than a fifth of its operating profit.
The Wirecard charges should motivate Philippine banks and regulators to work hard to improve the country’s reputation in financial services. However, the situation remains the same today.
Japanese deported from Manila for financial fraud
In March 2023, the Bureau of Immigration (BI) deported a Japanese man sought in Tokyo for financial fraud yesterday morning. BI Commissioner Norman Tansingco stated in a statement that Risa Yamada, age 26, was apprehended on Roxas Boulevard in Pasay on January 9 after the Japanese government identified her as a fugitive.
Tansingco reports that on September 15, 2022, the Tokyo Summary Court issued a warrant for Yamada’s arrest for larceny.
By posing as bank employees and police officers, the fugitive allegedly conspired with others to obtain ATM card data from their victims. Yamada has been placed on the BI’s no-entry list and is prohibited from returning to the Philippines.
Weak enforcement of financial regulations
The regulatory authorities in the Philippines, such as the Securities and Exchange Commission (SEC), the Bangko Sentral ng Pilipinas (BSP), and the Anti-Money Laundering Council (AMLC), suffer from a lack of personnel and financial resources. Because of this, it is far more challenging for them to adequately monitor and implement financial regulations.
These examples indicate a lack of enforcement capabilities on the side of the Philippines’ Securities and Exchange Commission, its central bank, the Bangko Sentral ng Pilipinas, and the Anti-Money Laundering Council, or AMLC.
While these authorities have many good and attentive staff, it appears that these three bodies lack the ability and motivation to conduct substantial routine monitoring and verification of financial institutions. Beyond going through the motions for audits, this should be focused on ensuring true compliance with best practices and the legal requirements of due diligence and knowing your customer’s rules.
Senior bank executives have stated that accounts are frequently opened with “show money,” allowing businesses to get SEC documentation before closing the accounts. The accounts are meant to reassure investors that money is accessible to safeguard them, but closing the accounts without informing the SEC results in shell businesses. The SEC has limited staff and cannot perform documentation assessments to guarantee that everything is in order.
Both the BSP and the AMLC lack the personnel to conduct effective investigations and follow-ups on suspicious behavior, as well as to file legally mandated suspicious transaction notifications. The sieve designed to identify rogue actors and defend the country has too many gaps. That must change.
In March 2016, AMLC investigators opened a bag containing dollar bills brought to Bangladesh by a Chinese casino junket operator in Manila: the sieve had too many holes.
In principle, the Philippine Department of Justice has a witness protection program. However, it has a terrible track record of really defending people. Part of the issue is that it can only transport people within the Philippines, not to distant locations where they can reconstruct their lives.
The government recently informed the public that they could report misbehaving or corrupt public officials via the 8888 citizens’ complaint hotline – but this does not extend to criminal behavior in private enterprises.
The Philippines must improve its capabilities and, more importantly, the public’s perception of its readiness to safeguard witnesses. The Philippines must establish a strong whistleblower system that allows employees to report inappropriate behavior by high management in a safe and secure manner. The BSP, SEC, and AMLC should develop safeguards for such reports, as well as significant follow-up investigations into claims.
Incidents affecting the Philippines may be met with a sigh of disappointment bordering on astonishment and a “here we go again” response. To decrease reputational risk and boost its image in foreign circles, the Philippine banking system must take stronger action as an industry. This will begin with boards and top management issuing public and credible comments in support of transparency and global best practices in banking.
Common Financial Frauds
Based on official resources, the list of the most common financial frauds expands into several types including:
- Money laundering
- Forex trading scams
- Phishing SMS and Emails
- Cyber-attacks
- Ponzi scheme
- Online gambling
- Payment solution fraud
One of the biggest cases in recent years was the RCBC. The former branch manager of RCBC, Maia Deguito, was also ordered to pay a total sanction of approximately $109 million. In August 2016, the Philippine central bank fined RCBC a record Php1 billion ($19.17 million) for failing to prevent the passage of stolen funds through the bank. A former RCBC treasurer and five other employees at the branch where the cash was withdrawn were charged with money laundering.
What about the Philippines tends to attract financial fraud?
A number of factors, including the following, contribute to the Philippines’ status as a victim of financial fraud:
Poor compliance with established financial regulations
Poor compliance with established financial regulations in the Philippines is a major problem that contributes to the high incidence of financial fraud in the country. The regulatory agencies in the Philippines are understaffed and underfunded. This makes it difficult for them to effectively enforce financial regulations.
The consequences of poor compliance with financial regulations can be serious. Businesses and individuals that violate the law can be fined, penalized, or even shut down. In addition, financial fraudsters can exploit poor compliance to carry out their schemes.
Corruption in The government
There is a perception in the Philippines that corruption is widespread in the financial sector. This can make businesses and individuals less likely to comply with regulations, as they believe that they will not be penalized for doing so. The financial and shell companies are owned by some of the well-connected people who manage to buy corrupt officials.
In the Philippines, many businessmen have the impression that they can avoid charges and investigations if they have the right connections. Financial service providers are more willing to perpetrate financial fraud since they are aware of the low probability that they will be detected as a result of this.
Lack of financial literacy
Because so many Filipinos lack basic financial literacy, they are more susceptible to being taken advantage of by con artists. It is possible that they are unable to recognize warning signs or comprehend the dangers associated with particular investments. People in the Philippines are at a greater risk of falling into poverty, which makes them more frantic to find ways to make money. Because of this, they are at a significantly increased risk of falling for fraudulent schemes that promise fast and easy returns.
Impunity as a cultural norm.
Make use of modern technology
Con artists who commit fraud in the financial sector are increasingly turning to technology to prey on their victims. This involves the use of social media, email, and text communications to solicit investments and propagate false information.
The Kapa-Community Ministry International scam is the most significant instance of financial impropriety to have occurred in the Philippines. It is estimated that over five million individuals had their retirement funds stolen in connection with this scheme.
A monthly return on investments of thirty percent for the rest of one’s life was said to be offered by the fraudulent scam. Joel Apolinario, the man who initially devised the plot, is currently serving time in prison. The Philippines is hardly the only nation in the world to fall prey to fraudulent financial schemes.
The Government Efforts: Fraud monitoring systems for financial institutions are now required
In May 2022, the government issued new rules to prevent financial fraud in the Philippines. According to a government release, Financial institutions (FIs) regulated by the Bangko Sentral ng Pilipinas (BSP) are now required to have an automated and real-time fraud surveillance and detection system in order to combat the rise in cyber fraud.
During a virtual briefing, BSP Governor Benjamin Diokno stated that they recently issued Circular No. 1140 as an amendment to the Information Technology Risk Management Framework after surveillance revealed that cyberattacks and unlawful schemes simultaneously affect two or more FIs.
The automated fraud monitoring systems and anti-money laundering systems of financial institutions, according to Diokno, “should be linked or integrated in order to have a cohesive and comprehensive financial crime prevention system.”
According to him, FIs are also encouraged to use interactive platforms in their consumer education programs.
The Circular is anticipated to reduce fraud and cybercrime-related losses and support the central bank’s efforts to expand digital financial transactions in the country.
“According to the BSP, a comprehensive and coordinated approach among industry participants is necessary to prevent fraudsters and cybercriminals from simply siphoning off funds. In accordance with this, the BSP will continue to engage with relevant stakeholders to ensure that policy frameworks and supervisory actions are effective and adaptive in a cybersecurity environment that is rapidly evolving, Diokno said.
The use of interoperable facilities, such as electronic funds transfer facilities PESONet and InstaPay, the national QR Code standard called QR PH, and e.Gov pay, a web-based facility that the public can use to file and pay contributions and payments of government contributions and loans, among others, continues to expand, according to him.
To date, the volume and value of PESONet transactions have increased from 21.8 million transactions totaling PHP1.3 trillion in 2021 to 26.4 million and PHP1.9 trillion, respectively.
As of the end of April this year, the volume of InstaPay transactions had increased by 32.7% to 166 million from 125 million in the first four months of 2017.
“The increasing use of digital payments brings us closer to our goal of a cashless society,” he continued.
Diokno stated that the central bank “continues to ensure that systematically important payment systems or SIPs, which ultimately facilitate the settlement of digital payments among banks, adhere to safety and reliability standards consistent with global practices.” (PNA).
How to Protect Yourself from Financial Frauds
However, due to the causes that were discussed above, the country is particularly susceptible to this form of criminal activity. It is critical for people in the Philippines to be aware of the dangers posed by financial fraud and to take measures to keep themselves safe from it.
The following are some suggestions that can help you avoid being a victim of financial fraud:
- Before you put any money into anything, you should first do some research.
- Be aware of investment opportunities that promise great returns with low or even no risk.
- Do not reveal any of your private information to individuals whom you are not familiar with.
- Be wary of emails and SMS messages that ask for your personal information or financial details and consider treating them as suspicious.
- Notify the appropriate authorities of any behavior that seems suspicious.
You can help to protect yourself from being a victim of financial fraud by following these suggestions.