Casinos, money laundering and a scheme to steal $1 billion from the Bangladeshi central bank.
These are just some of the intriguing elements in a murky story shaping up to be one of the biggest documented cases of potential money laundering in the Philippines. It risks setting back the Southeast Asian nation’s efforts to stamp out the use of the country to clean cash, and tarnishing the legacy of President Benigno Aquino as elections loom in May.
The case highlights the threat to any institution — government or private — from criminals mounting cyber attacks using real bank codes so orders seem genuine. Bangladesh is the 20th most-cyber attacked country, according to a real time cyber threat map developed by Kaspersky Lab, an international software security company.
“Even as banks continue to harden their defenses against such sabotage, hackers too have upped their game to breach servers by utilizing both technical skills and rogue elements within the financial institutions,” said Sameer Patil, an associate fellow at Gateway House in Mumbai who specializes in terrorism and national security.
The story begins in Bangladesh, a country of about 170 million people that’s recently found itself with record foreign reserves thanks to a low wage-fueled export boom and inward remittances. Some of those reserves were held in an account at the Federal Reserve Bank of New York.
Finance Minister Abul Maal Abdul Muhith this week accused the Fed of “irregularities” that led to the unauthorized transfer of $100 million from the account. The Bangladesh central bank said the funds had been stolen by hackers and that some had been traced to the Philippines.
A Bangladesh central bank official who is part of a panel investigating the disappearance of the funds said Wednesday that a separate transfer of $870 million had been blocked by the Fed. The official requested anonymity because the investigation is private. A Fed spokeswoman said she had no comment when asked about the attempted $870 million transfer.
Essentially the dispute is about whether the Fed went through the right procedure when it received transfer orders.
A Fed spokeswoman said instructions to make the payments from the central bank’s account followed protocol and were authenticated by the SWIFT codes system. There were no signs the Fed’s systems were hacked, she said.
A Bangladesh official said the Fed should’ve checked the payment orders with the central bank to ensure they were authentic, even if they used the correct SWIFT codes. The official also said there are plans to take legal action against the Fed to retrieve missing funds.
In the Philippines, the gaming regulator said it is investigating reports that as much as $100 million in suspicious funds were remitted to the bank accounts of three casinos it didn’t identify.
The probe highlights a potential weakness in Filipino attempts to stamp out money laundering that arose after lawmakers in 2012 succeeded in excluding casinos from the institutions required to report suspicious transactions to the Anti-Money Laundering Council. The country is at risk of rejoining a “gray list” of countries that aren’t doing enough to fight laundering, Teresita Herbosa, chairman of the Philippine Securities & Exchange Commission, told reporters earlier this month.
“This is a black eye on the entire Philippine financial sector,” said Senator Serge Osmena, chairman of the Senate committee on banks and financial institutions. There are loopholes in the anti-money laundering law, he said. While lawmakers will investigate the case at a hearing March 15, they won’t be able to amend the law before the end of Aquino’s term, Osmena told Bloomberg.
Aquino spokesman Sonny Coloma said he had no information on reports that funds from the Bangladesh central bank reached the Philippines. The case is being handled by the AMLC, an independent body, Coloma said. Bangko Sentral ng Pilipinas Governor Amando Tetangco, who heads the AMLC, did not reply to mobile-phone messages seeking comment.
Aquino can only serve a single six-year term and has backed the candidacy of Mar Roxas, his former interior secretary. The outgoing president touts his record of curbing corruption and erasing the “Asia’s sick man” tag that had been used to describe the Philippines for decades. His efforts have had some success. The Philippines ranked 95th out of 168 nations and territories in Transparency International’s 2015 corruption perceptions index, up from 134th in 2010.
The Philippine Daily Inquirer has led reporting on the theft. It wrote last month that cash may have entered the Philippines via the Jupiter Street, Makati City, branch of Rizal Commercial Banking Corp. The money was converted into pesos and deposited in the account of an unidentified Chinese-Filipino businessman who runs a business flying high net worth gamblers to the Philippines.
The funds were used to buy casino chips or pay for losses at venues including Bloomberry Resorts Corp.’s Solaire Resort & Casino and Melco Crown Philippines Resort Corp.’s City of Dreams Manila, according to the paper. There was no suggestion in the report the banks or casinos named were complicit with any improper movement of funds.
Bloomberry Resorts investor relations director Leo Venezuela and City of Dreams Manila Vice President Charisse Chuidian didn’t reply to calls and phone messages.
Funds were later dispatched into accounts outside the Philippines, the paper said, including to Hong Kong. The Hong Kong Monetary Authority declined to comment, as did the Hong Kong police.
The Inquirer separately reportedthe head of the Rizal branch where the transactions occurred had made a statement that top bank officials were aware of the transactions “at every stage.”
Rizal’s shareholders “are fully committed to comply with all banking laws and regulations, in particular those on money laundering,” Vice Chairman Cesar E.A. Virata said in a statement Wednesday. In a separate statement, the bank’s Chief Executive Officer Lorenzo Tan condemned “any insinuations that the top management of the bank knew of and tolerated alleged money laundering activities in one branch.”
The exact amount stolen from Bangladesh is a moving target, as is what happens next in the dispute with the Fed.
While Muhith said the Fed was responsible for at least $100 million, another Bangladeshi central bank official who asked not to be identified said $20 million of a $101 million total had been recovered from an account held in Sri Lanka, leaving $81 million unaccounted for. That figure matches the amount Rizal’s Virata said the bank was investigating.
“The Philippines still struggles to establish a robust bureaucracy that can properly supervise and regulate the financial system,” said Richard Javad Heydarian, an assistant professor of political science at De La Salle University. There are still a “myriad of loopholes in the Philippines’ legal and law enforcement system.”
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