The Philippines' central bank has directed major financial institutions to craft measures that will boost the country's capability to monitor, avert and lessen the risks emanating from transactions tied to illicit investment schemes.
BSP Deputy Governor Chuchi Fonacier said the BSP-Supervised Financial Institutions (BSFIs) could be tapped to provide funding generated from "Ponzi" activities through deposit accounts of perpetuators, their cohorts and related entities.
"It is crucial that BSFIs follow a comprehensive strategy for identifying, tracking, and avoiding threats arising from such illegal activities," said Fonacier.
The BSP issued Memorandum 2019-028 mandating BSFIs to take preventive actions connected to illegal investment practices or schemes.
According to Fonacier, the topic aims to provide BSFIs with "insights into applicable procedures and specific red-flag indicators" that they should find to improve their capability to detect and deter risks arising from transactions that involve illicit investment activities."
Together with other supervisory bodies, the Securities and Exchange Commission (SEC) has identified many Ponzi schemes.
The BSP said banks should undertake basic preventive measures and carry out the necessary due diligence including controls to establish and verify the identity and background of an entity, its financial profile, source of funds and wealth. Additional information should also be obtained and validate procedures under such enhanced due diligence measures, the BSP added.
Fonacier said that banks should include a monitoring mechanism in each transaction to gather important information, advisories, or news reports that will point to individuals or entities involved in illegal investment schemes in a timely manner.
Fonacier also said that a careful look at the background and purpose of all complex, unusually large transactions and unusual transaction patterns that have no apparent economic or legal purpose, as well as other transactions that may be considered unusual or suspicious, must be implemented.
"In cases where a BSFI suspects money laundering and related unlawful activities and reasonably believes that carrying out the customer due diligence process will tip the customer, the BSFI does not need to pursue the customer due diligence process, but should file a suspicious transaction report, monitor the account closely, and review the business relationship," Fonacier emphasized.
As defined by Investopedia, A Ponzi scheme is a dishonest investment ploy that guarantees high returns to creditors and investors with little risk. By acquiring new investors, the Ponzi scheme generates returns for early investors. This is close to a pyramid scheme because both are focused on the use of funds by new investors to compensate for earlier supporters.