PALAWAN STATE UNIVERSITY

College of Business and Accountancy

Puerto Princesa City

OTHER SUBTOPICS:
Anti-Money Laundering Act (AMLA)
and Know Your Customer (KYC)

COURSE CODE: P2308

1st Semester | SY: 2022-2023
BSBA FM 4-1

Submitted to:

DONNA MAY A. ROXAS

Course Instructor

Submitted by:

Alacio, Jonah B. Maru, Ma. Eleonor B.

Barbeyto, Mylene M.
Madlangsakay, Jade R.
Magbanua, Sheen Hezzel V.
Maningas, Sergs Ryan G.
Maranan, Kathlyn Joy A.
Moncatar, Ellen Grace G.
Pascubillo, Izra Mae C.
Rodriguez, Liam L.
Sualog, Criza Riene V.
Usman, Mohammad Jarih M.
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ANTI-MONEY LAUNDERING ACT (AMLA)
AND KNOW YOUR CUSTOMER (KYC)

Overview

Greetings to everybody! I hope that everyone is well despite the pandemic. Let us
remain optimistic in all circumstances, for they, too, will pass. Let us all be optimistic
about the new normal.

This lesson will give you a thorough understanding of the Anti-Money Laundering Act
(AMLA) and Know Your Customer (KYC), allowing you to answer the following
questions confidently:

 What are the 5 ways a business can do to comply with Anti-Money Laundering
Act (AMLA)?
 What are the two new covered persons and covered transactions under Anti-
Money Laundering Act (AMLA)?
 What makes a loophole in anti-money laundering? What should Anti-Money
Laundering Council (AMLC) do to resolve this issue?
 What is the importance of Know Your Customer (KYC)? How to understand
your customers better?
 What are the documents required and processing of Know Your Customer
(KYC)?
 What are the benefits of Know Your Customer (KYC)?

Financial institutions are subject to various screening and monitoring requirements

under anti-money laundering (AML) legislation imposed by national and international
authorities worldwide. The Know Your Customer (KYC) procedure, which enables
businesses to recognize their clients and comprehend their financial activity, is one of
those AML requirements. However, because KYC and AML are closely related and
sometimes used interchangeably, it can be challenging to comprehend how they vary
in a regulatory setting.

Anti-Money Laundering (AML) prevents and detects money laundering or terrorist

financing activities. Hence, there is an act called the Anti-Money Laundering Act
(AMLA) of 2001 or RA 9160, which criminalizes unlawful activities such as graft and
corrupt practices, fraudulent practices, robbery and extortion, swindling, and plunder,
amongst other activities. On the other hand, Know Your Customer (KYC) is how firms
establish and verify their customers’ identities and monitor their financial behavior. It
is an ethical requirement for those in the securities industry who deal with customers
during account opening and ongoing maintenance.

Course Outcome

Obtaining a deeper knowledge of the Anti-Money Laundering Act (AMLA) and Know
Your Customer (KYC).
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ANTI-MONEY LAUNDERING ACT (AMLA)
AND KNOW YOUR CUSTOMER (KYC)

Intended Learning Outcomes

 To know the 5 ways a business can do to comply with Anti-Money Laundering

Act (AMLA).
 To familiarize the two new covered persons and covered transactions under
Anti-Money Laundering Act (AMLA).
 To be able to understand the loophole in anti-money laundering and how Anti-
Money Laundering Council (AMLC) should resolve this issue.
 To know the importance of Know Your Customer (KYC) and learn how to
understand your customers better.
 To be familiarize with the documents required and processing of Know Your
Customer (KYC).
 To be knowledgeable about the benefits of Know Your Customer (KYC).

Topics:

Topic 1: 5 Ways Your Business Can Comply with the Anti-Money Laundering Act
Topic 2: Two New Covered Persons and Covered Transactions
Topic 3: Plugged Money Laundering Loophole
Topic 4: The Importance of Knowing Your Customer
Topic 5: Know Your Customer (KYC) Documents Required and Processing
Topic 6: Benefits of Know Your Customer (KYC)
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ANTI-MONEY LAUNDERING ACT (AMLA)
AND KNOW YOUR CUSTOMER (KYC)

Topic 1: 5 Ways Your Business Can Comply with the Anti-Money Laundering Act

Under AMLA, there are select organizations that are required to comply with the anti-
money laundering regulations in the Philippines, including:

 Banks, trust entities, and other institutions regulated by the Bangko Sentral ng
Pilipinas (BSP)
 Insurance companies
 Brokers, salespeople and investment agents
 Closed-end investment and pre-need companies (e.g., memorial chapels,
schools)
 Money changers, payment, remittance and transfer companies
 Financing and lending companies

If your company falls under one of the above-mentioned organizations and fails to
report such money laundering activities, you could face up to four years in prison
and/or a P100,000 fine. Even if your company is well outside the scope of AML
regulations, it would be beneficial to be able to identify any potentially fraudulent or
illegal activities that may occur with your customers.

5 Ways Your Business Can Comply with the Anti-Money Laundering Act

Money laundering is always a challenge or risk to a country’s financial system. Where

there is money, there will always be businesses or individuals looking for ways to take
advantage of the system and benefit themselves, such as through illegal or unethical
financial practices. For that reason, the government has created an AML regulatory
framework to address this threat in the Philippines, and these are the:

a) monitor and ensure the integrity of the country’s financial system and
b) seek the support of companies and individuals in order to achieve the
government’s goal of achieving a robust and fraud-free financial framework.

In addition to the requirements of AMLA, you can manage your business’s compliance
obligations, whether it is an AMLA-controlled business or not, by reading through the
following top tips:

1) Review policies set by financial regulations

The main financial regulators in the Philippines are the BSP and the Securities
and Exchange Commission (SEC). These agencies oversee all bank and non-
bank financial institutions by implementing and enforcing various policies
derived from the Philippines’ various finance-related laws and regulations,
including the AMLA.
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ANTI-MONEY LAUNDERING ACT (AMLA)
AND KNOW YOUR CUSTOMER (KYC)

Make sure your company is always reviewing and adhering to the BSP and
SEC’s guidelines and requirements. Maintaining awareness of any updates and
revisions will help you avoid any legal issues that may arise from the
perspective of the AMLA.

2) Monitor customer transactions regularly

Apart from adhering to regulatory policies, your company needs to have its
procedures in place and follow them regularly to ensure its financial future. A
Know Your Customer (KYC) policy can significantly aid in the detection and
prevention of money laundering activities by providing the monitoring of all
customer activities and the identification of financial transactions that may raise
red flags.

3) Keep detailed records of transactions

In the financial industry, record management is essential. Detailed transaction
records to aid in monitoring financial activities, making it easier to review the
customer’s history and determine if anything unusual has occurred.

Implementing filter software or a transaction monitoring system can make

record management even more accessible by automating the detection of
suspicious activities. In fact, with an automated system that can detect
suspicious transactions and financial activities, it will be possible for a fintech
company that processes hundreds or thousands of transactions per month to
keep a close eye on potentially fraudulent activities.

4) Screen customers and transactions

When accepting new customers, check them and their previous transaction
records against international and/or local watch lists. This will allow you to
determine whether a potential customer is associated with fraudulent
organizations, such as those involved in funding terrorism or other undesirable
activities.

5) Require a holding period

Some financial institutions keep account deposits for a certain number of days
before clearing them as a safety and monitoring mechanism. This extra step in
the process, which typically takes about five days, allows AMLA-covered
institutions to monitor the transaction for any fraudulent intent.

You can manage any risks associated with laundered money moving through
banks if you incorporate this into your company policy.
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ANTI-MONEY LAUNDERING ACT (AMLA)
AND KNOW YOUR CUSTOMER (KYC)

Topic 2: Two New Covered Persons and Covered Transactions

Under the AMLA, covered persons are required to report covered or suspicious
transactions to AMLC. Covered persons who fail to report these transactions are guilty
of money laundering.

The AMLA defines and lists down these covered persons, and under Sections 3(a) (9)
and (10) of R.A. 11521, “real estate developers and brokers”; and “offshore gaming
operators, as well as their service providers,” are new covered persons and are now
required to report covered and suspicious transactions to the AMLC.

R.A. 11521 likewise defines these new covered persons, as seen in the table below:

Provision Term Definition

“Any natural or juridical person engaged in the
Real estate business of developing real estate development
Section 3(m)
developer project for the account of the developer and offering
them for sale or lease.”
“A duly registered and licensed natural person who,
for a professional fee, commission or other valuable
consideration, acts as an agent of a party in a real
Real estate estate transaction to offer, advertise, solicit, list,
Section 3(n)
broker promote, mediate, negotiate or effect the meeting of
the minds on the sale, purchase, exchange,
mortgage, lease or joint venture, or other similar
transactions on real estate or any interest therein.”
“An entity engaged in offering online games of
Offshore
chance or sporting events via the internet using a
Section 3(l)(4) gaming
network and software program, by themselves or
operator
through local service providers.”

Topic 3: Plugged Money Laundering Loophole

With the addition of new covered persons and covered transactions, such as offshore
gaming operators and real estate developers and brokers, there is a State
Transactions that has been taken a long time to be covered by anti-money laundering
regulations, making a loophole that has been exploited by small-scale gambling
operators (in particular, of the numbers game jueteng) and government officials who
think “kickbacks” from government transactions come with their territory.
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ANTI-MONEY LAUNDERING ACT (AMLA)
AND KNOW YOUR CUSTOMER (KYC)

Jueteng Illegal Real Estate Developers and

Brokers

Basically, the strategy involves the purchase, in cash, of real estate properties located
in lower or lower middle income residential areas whose owners are in dire need of
money, or are migrating elsewhere in the world and are rushing to monetize their
properties, or are heirs who are feuding over the disposition of inherited property.

Upon the conclusion of the sale, the new owner engages the services of mom-and-
pop building contractors who prefer their services and those of their workers to be paid
in cash and not be bothered by premium contributions to the Social Security System
and other government offices. And most importantly, no income tax payment for their
earnings to be bothered with.

With regard to the construction materials, they can be bought from neighborhood
hardware stores that accept cash payments only and issue receipts, if at all, that often
do not comply with the Bureau of Internal Revenue’s registration requirements. Except
for the deed of sale over the lot, which is placed under the name of another person,
there is no paper trail in the transaction that may give rise to the application of anti-
money laundering regulations.

So, after several months, the proceeds from an otherwise predicate crime under the
anti-money laundering law are laundered and converted to either a new or renovated
house that can be offered for sale or lease to interested parties.

As stated in the new law, the threshold for transactions by real estate developers and
brokers is P7.5 million. However, with the strategy of small-scale gambling operators,
how could the Anti-Money Laundering Council (AMLC) identify if the money is purely
clean. That is why, it is important that when the AMLC drafts the implementing
regulations for the new law, it must ensure that all possible nuances in “legally” evading
compliance with it are addressed.
 OTHER SUBTOPICS |
ANTI-MONEY LAUNDERING ACT (AMLA)
AND KNOW YOUR CUSTOMER (KYC)

Topic 4: The Importance of Knowing Your Customer

KYC means “Know Your Customer.” Financial companies use a due diligence process
to verify customer identity and assess and monitor customer risk. KYC ensures a
customer is who they say they are. Compliance with KYC regulations helps prevent
money laundering, terrorism financing, and run-of-the-mill fraud schemes. Financial
institutions can more accurately pinpoint suspicious activities by verifying a customer’s
identity and intentions when the account is opened and then monitoring transaction
patterns.

“Knowing who your customers are” is very important to know who your clients are. You
should know what the motive for their transaction is. If something weird might occur
while completing a certain transaction, ask them and be able to assist with the query.
Be wary that electronic identification verification is a must to identify if the customer is
legit or involved in financial crime. For various businesses that include large
purchases, it is important to know who your investors are and their income source. It
is good to have a background of their business nature, the too-good-to-be-true
attitude, and overly exciting offers, and make sure not to miss any strange settings as
this might be a trap.

List of Six Easy Ways to Understand Your Customers Better

1) Track Customers’ Real-Time Behavior

Today’s customers demand a seamless experience across both traditional and
digital touchpoints. To do this, a business needs to be prompt and proactive. It
needs to anticipate the customers’ needs to serve them on all platforms before
the requirement is placed. And all this can only happen when you have a tool
that gives you a peep into the real-time behavior of the customers. Experts
suggest investing in a customer relationship management tool (CRM) that
provides in-depth analytics of the customers’ activities.

2) Identify the Different Categories of Your Customers

It’s important to understand the different parameters to segregate your
customers. Once the categories are formed, and customers are segregated, it
becomes easier to frame precise marketing and cross-selling campaigns with
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ANTI-MONEY LAUNDERING ACT (AMLA)
AND KNOW YOUR CUSTOMER (KYC)

targeted messaging. These campaigns drive more value for both your business
and your customers.

3) Invest on Social Media Customer Engagement

This clearly explains the indispensable role that social media plays in shaping
and influencing the opinions of consumers. In such a scenario, it becomes
essential for every business to invest exhaustively in social media engagement.
So frame strategies to engage with your target audience and customers on all
social media channels as they are the best place to reach them.

4) Leverage Customer Service Interactions

On every occasion, when your customers contact your service representatives,
they can ask queries about the customers’ likes/dislikes about the product or
service usage. Practicing this experience regularly will help you accumulate a
database of valuable customer insights that can be used to frame targeted
messaging.

Example:
How are they using the product or service?
Are they satisfied using the product/service?
What changes would they like to see in the product/service?

5) Focus on Customers’ Personal Tastes and Preferences

Nurturing your customers with informative content about your product/service
is good but do not limit yourself to only that. Sometimes facilitating the generic
interests of the customers serves a great purpose too. It gives the impression
of how attentive you are toward your customers and brings your buyers closest
to you.

6) Build Comprehensive Contact Information

Make sure you have one centralized database with an accurate and detailed
contact list. Millions of businesses per annum implement a cloud-based CRM
solution to store every piece of customer data neatly. This helps build a rich
customer profile and handle the ongoing interactions between customers and
the company.

Topic 5: Know Your Customer (KYC) Documents Required and Processing

To meet KYC requirements, clients must provide proof of their identity and address,
such as ID card verification, face verification, biometric verification, or document
verification. Financial institutions must ensure clients are not engaging in criminal
activities while using their services.
 OTHER SUBTOPICS |
ANTI-MONEY LAUNDERING ACT (AMLA)
AND KNOW YOUR CUSTOMER (KYC)

The KYC process is carried out for both individuals and organizations. KYC
authentication is based on the verification of identity and place of residence.

5.1. The documents required for the KYC process for individuals include the
usual documents that individuals generally use, such as:

 Driver’s license
 Social security card/number
 Passport
 Documents issued by the state or the federal government

For proof of residence, the following documents can be furnished:

 Utility bills, such as telephone, electricity, gas, etc.

 Bank statements
 Employment documents
 Housing contracts and rent agreements

5.2 Know Your Customer (KYC) Process

The KYC process is simple and differs only slightly from country to country. A simple
KYC process flow is depicted below:

Source: Thales Group

Step 1: Submission of Documents

An applicant or potential user of financial services is required to submit
documents for the verification of their identity and residence status. The
submission can be either in electronic form or physical form.

Step 2: Identity Verification

The authorized agency/organization carries out the identity verification based
on the document submitted. For example, if the applicant submits a driver’s
license, the verification will be done by the Department of Motor Vehicles
(DMV).
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ANTI-MONEY LAUNDERING ACT (AMLA)
AND KNOW YOUR CUSTOMER (KYC)

Step 3: Residency Verification

The residency verification requires ascertaining the resident status (domestic
or foreign), current residential address, alternative residential address,
citizenship status, etc.

Step 4: Verification of the Financial Condition

The assets and liabilities claimed are verified using documents, contacting the
issuer, and physical checks. This reduces the risk of misrepresentation.

Step 5: Transactions Monitoring

The financial institution checks the transactions conducted by the
customer/client, and any transaction that is different/high-valued, frequent, etc.,
is flagged automatically and then undergoes stringent manual checks.

Topic 6: Benefits of Know Your Customer (KYC)

To be mandated by the law, the Know Your Client (KYC) process also helps financial
institutions in several ways:

 Helps lenders perform risk assessment by identifying the previous financial

history and assets owned.
 Limits fraud that result mainly due to hiding of identity.
 Prevents money laundering and other anti-social activities.
 It brings stability and investment to the country, as it makes the financial
framework more trustworthy and less risky.
 Decreased uncertainty allows institutions to lend more to customers and
increase their profits.

A number of countries and economic regions oversee financial anti-money laundering

agencies or regulators that overview financial transactions to prevent tax evasion,
terrorism financing, and other anti-social activities.
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ANTI-MONEY LAUNDERING ACT (AMLA)
AND KNOW YOUR CUSTOMER (KYC)

References:

AML vs. KYC (2022) Comply Advantage. Available at:

https://complyadvantage.com/insights/kyc-aml-know-your-customer-vs-anti-money-
laundering/

Chen, J. (2022) Know your client (KYC): What it means, compliance requirements,
Investopedia. Investopedia. Available at:
https://www.investopedia.com/terms/k/knowyourclient.asp

cloudcfo_admin (2022) Anti-money laundering act in the ph: 5 ways to comply,

CloudCfo. Available at: https://cloudcfo.ph/blog/corporate/anti-money-laundering-act-
philippine

Know your client (KYC) (2022) Corporate Finance Institute. Available at:
https://corporatefinanceinstitute.com/resources/wealth-management/know-your-
client-kyc/

Lowe, J. (2022) what is KYC? Financial regulations to reduce fraud, Plaid. Plaid.
Available at: https://plaid.com/resources/banking/what-is-kyc/

Palabrica, R.J. (2021) Plugged money laundering loophole, Inquirer Business.

INQUIRER.net. Available at: https://business.inquirer.net/317296/plugged-money-
laundering-
loophole/amp?fbclid=IwAR1wvqLSSNEoY_6fX22D554pqNibn6CfPVeEcvCbmaokye
DBYNGuUAw3hec

S, L. et al. (2020) 6 preventive measures businesses can do to prevent money

laundering, Blogja.net | Blogja.net. Available at: https://www.blogja.net/2019/6-
preventive-measures-businesses-can-do-to-prevent-money-laundering/

SyCip Salazar Hernandez & Gatmaitan (2021) Amendments to the anti-money

laundering act - money laundering - Philippines, Amendments To The Anti-Money
Laundering Act - Money Laundering - Philippines. SyCip Salazar Hernandez &
Gatmaitan. Available at: https://www.mondaq.com/money-
laundering/1060380/amendments-to-the-anti-money-laundering-act-?fbclid=IwAR2-
WcqkxnOzS72EelgGRQ_YS6EQ2W0PsTuPqX6JCeCIxNfeB8u-AU5OE18