Dominguez rues ‘poor record’ of SEC in fighting financial fraud

FINANCE Secretary Carlos G. Dominguez III has called the attention of the Securities and Exchange Commission (SEC) for its “poor record” of law enforcement against financial fraud perpetrators.

Dominguez told finance reporters that financial fraud could be prevented if the government focuses on law enforcement, including detection, prosecution and conviction.

“[I] have discussed with SEC their poor record of law enforcement of financial fraud perpetrators—for example, no convictions of pyramid scheme operators,” he said.

SEC is an attached agency of the DOF.

Bank secrecy

ASIDE from the need to strengthen

enforcement, Dominguez renewed his call to amend laws on bank secrecy to address financial fraud and put the Philippine laws on a par with international practices.

He made the remarks in reacting to an opinion piece titled, “Why Does the Philippines Attract Financial Fraud?” written by Stephen Cutler for Nikkei Asian Review. The opinion piece noted the most recent financial scandals, such as the still-raging Wirecard controversy and the Bangladesh Bank Heist in 2016, dragged in Philippine banks and financial entities.

Cutler, who was a security analyst and anti-money laundering consultant in the Philippines who previously served in the Federal Bureau of Investigation, pointed out in the article the larger issues of “weaknesses in the country’s oversight of its financial system,” particularly the lack of enforcement capacity on the part of the SEC, Bangko Sentral ng Pilipinas (BSP), and the Anti-money Laundering Council (AMLC), and the absence of a strong whistle-blower system in the country.

“While these agencies have many good and diligent employees, what appear to be lacking are the ability and willingness of these three bodies to conduct meaningful routing monitoring and verification of financial institutions. This should be aimed at ensuring real compliance with best practices and legal requirements of due diligence and know your customer policies, beyond going through the motions for audits,” he said.

Cutler said SEC has limited staff and cannot conduct reviews of documentation to ensure that everything is in order; while BSP and AMLC also lack staffing that would allow meaningful investigations and follow-ups of suspicious activity and even of legally required suspicious transaction reports.

“The sieve intended to catch bad actors and protect the nation has too many holes. That needs to change,” he said.

On top of this, Cutler also said the Philippines has “little to no encouragement for any whistleblower to come forward with serious allegations.”

Thus, he urged the BSP, SEC and AMLC to establish protected mechanisms for such reports, with meaningful follow-up investigation on allegations.

Diokno: Cooperation on Wirecard

LAST week, BSP Governor Benjamin Diokno said they are willing to collaborate with international agencies and German regulators in handling the Wirecard financial scandal.

The German payments firm, Wirecard, has been facing public scrutiny after $2.1 billion of its funds went missing.

Two of the country’s biggest banks—bdo Unibank (BDO) and Bank of the Philippine Islands (BPI) were initially tagged in the scandal.

However, Diokno claimed that those behind the anomaly are only using the names of the two banks to cover their tracks as initial reports showed none of the missing money entered the Philippine financial system.

Both banks have also denied Wirecard was their client.

Lawyer Mark Tolentino, former assistant secretary for the Department of Transportation who was sacked by President Duterte in 2018, is also being linked to the scandal.

His law firm, M.K. Tolentino Law & Business Consultancy Office, admitted opening and maintaining foreign currency deposit accounts with BDO and BPI, but did not name their clients, citing absolute confidentiality required by the Foreign Currency Deposit Act.

Tolentino’s camp denied knowing or participating “in any alleged irregularity” involving Wirecard’s money.