SIXTEENTH CONGRESS OF THE REPUBLIC 
OF THE PHILIPPINES 
Second Regular Session 
SENATE 
S.No. 
2438 
) 
) 
) 
Introduced by Senator Miriam Defensor Santiago 
EXPLANATORY NOTE 
AN ACT 
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OCT 23 P 3 :39 
REQUIRING BANKS AND OTHER FINANCIAL INSTITUTIONS TO UNDERTAKE 
MEASURES TO PREVENT MONEY LAUNDERING OF ILL-GOTTEN WEALTH 
BY POLITICALL Y EXPOSED PERSONS 
Over the past decades, the Philippines h~s had its share of notorious cases of 
public officials involved in corruption on a massive scale. 
Corruption is not monopolized by our local politicians; there have been many 
cases in other countries of government officers who have amassed wealth by taking. 
undue advantage of their public office. The World Bank estimates that the proceeds of 
corruption stolen from developing countries ranges from $20 billion to $40 billion per 
Hence, international organizations, including the United Nations and Financial 
Action Task Force on Money Laundering (FATF), have advocated that banks engage in 
due diligence measures focusing on "politically exposed persons (PEPs)", to combat 
money laundering. PEPs have been recognized as high risks for money laundering. 
Studies on corruption cases around the world have shown that PEPs have been able to 
hide ill-gotten wealth in various ways. Ultimately however, most of the methods involve 
the use of financial institutions, particularly banks. 
I UNODC and World Bank, "Stolen Asset Recovery Initiative: Challenges, Opportunities and Action 
Pl'an,"(World Bank, Washington, DC, 2007). 
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To conceal and prevent recovery of assets illegally obtained, PEPs have used 
relatives and close associates to act as nominees, dummies or fronts who form corporate 
entities and open bank accounts in the nominee's name but are actually beneficially held 
or controlled by the PEPs. The cases filed by the PCGG in efforts to recover the 
republic's money, illustrate these schemes. 
The relationship between a beneficial owner and a nominee is defined2 as follows: 
A beneficial owner is the real person who ultimately owns, controls or benefits 
from a company or trust fund and the income it generates. The term is used to contrast 
with the legal or nominee company and trustees, all of whom might be registered the 
legal owners of an asset without actually possessing the right to enjoy its benefits. 
Nominees act as the legal manager, owner or shareholder of limited companies or 
assets. They act on behalf of the real manager, owner or shareholder of these entities. 
These nominees obscure the reality of the company and are often used when the 
beneficial owners do not wish to disclose their identity or role in the company. 
P~ofessional nominees are paid a fee for their services but otherwise have no interest in 
the transactions. Nominees could also be family members or friends. Often, nominees 
pre-sign documentation, such as letters of resignation, which the beneficial owner can 
choose to affect at any time. 
This bill is based on the F ATF' s recommendations that specifically target the 
laundering of the proceeds of corruption. These recommendations include: (1) requiring 
bank customers to complete a written declaration of beneficial ownership and imposing 
criminal liability for submitting a false statement; (2) requiring public officials to submit 
2 From the website of Transparency International http://www.transparency.org/ 
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a statement of asset, liabilities and net worth; (3) monitoring accounts of PEPs for 
suspicious transactions and reporting them to Anti-Money laundering authorities. 
These recommendations should not be difficult to implement since customer 
identification should already be part of the responsibility of bank officers, and reporting 
of suspicious transactions are required by the law on Anti-Money Laundering. While 
some criminals are unlikely to be deterred by the written declaration on beneficial 
ownership, their family members and close associates will be less inclined to lie to banks 
if they face individual criminal liability for issuing false statements. 
This bill is a defense measure against the far-reaching effects of corruption. Such 
effects include a devastating impact on development and destabilization of financial 
systems; damage to the country's investment climate and prospects for macroeconomic 
stability; and impeded poverty-reduction efforts and heightened inequalities.3 
3 Politically Exposed Persons, Preventive Measures for the Banking Sector. Greenberg et al. World Bank, 
(World Bank, Washington, DC). 
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" 
SIXTEENTH CONGRESS OF THE REPUBLIC 
OF THE PHILIPPINES 
Second Reg\,llar Session 
) 
) 
) 
~rnn!r 
('}Ift;r vf tile j."Hffat;~ 
"14 
OCT 23 P 3 :39 
SEN";lE 
S, No, 
• 438 
RfX'EIVED BY:_:t--
Introduced by Senator Miriam Defensor Santiago 
Be it enacted by the Senate and House of Representatives of the Philippines in 
Congress assembled: 
1 
AN ACT 
2 
REQUIRING BANKS AND OTHER FINANCIAL INSTITUTIONS TO UNDERTAKE 
3 
MEASURES TO PREVENT MONEY LAUNDERING OF ILL-GOTTEN WEALTH 
4 
BY POLITICALL Y EXPOSED PERSONS 
5 
6 
SECTION L Short Title, - This Act shall be known as the "PEP Watch Act" 
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SECTION 2. Declaration of Policy. - It is hereby declared the policy of the State 
8 
to combat cOIT\,Iption and prevent the la\,llldering of ill-gotten wealth or misappropriated 
9 
public funds through the financial system. In light of this, the state shall require banks to 
1 () 
practice enhanced due diligence and stricter monitoring of accounts beneficially owned 
11 
by pOlitically exposed persons. 
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SECTION 3. Definition of Terms. - As used in this Act, the following terms shall 
13 
be defined as follows: 
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a. Politically Exposed Persons shall refer to any ofthe following: 
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(1) current or former senior official in the executive, legislative, 
16 
administrative, military, or judicial branch 
17 
(2) a senior official of a major political part 
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(3) a senior executive of a corporation, foundation or other entity formed 
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by or for the benefit of any such individual 
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(4) an immediate family member of such individual; meaning spouse, 
21 
parents, siblings, children, and spouse's parents or siblings 
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(5) any individual publicly known (or actually known by the relevant 
2 
financial institution) to be a close personal or professional associate. 
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b. A beneficial owner is any individual who owns 25% or more of the equity 
4 
interest in the legal entity, or an individual with "significant responsibility" to 
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control the entity. 
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c. Nominees act as the legal manager, owner or shareholder of limited companies 
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or assets. They act on behalf of the real manager, owner or shareholder of these 
8 
entities. 
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d. Banks shall refer to entities engaged in the lending of funds obtained in the 
10 
form of deposits. 
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SECTION 4. Due diligence measures with special focus on politically exposed 
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persons. - All banks shall undertake the following: 
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a. Require a declaration of beneficial ownership 
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(1) At account opening, banks should require customers to complete a 
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written and signed declaration identifYing themselves, the legal entity for 
16 
which the person is opening the account and any beneficial owners 
17 
associated with the legal entity. 
18 
(2) Banks shall maintain a system of verifYing the true identity of the 
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clients and in case of corporate clients, require a system of verifYing their 
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legal existence and organizational structure, as well as the authority and 
21 
identification of all persons purporting to act on their behalf. 
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b. Require public officials to provide a copy of their SALN, as well as 
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subsequent updates. 
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c. Conduct enhanced monitoring of transactions with PEP clients; 
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1. Once the beneficial owners of the account are identified as politically 
26 
exposed persons, the bank must continually monitor transactions of the 
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1 
client, combining knowledge of the customer profile, source of wealth and 
2 
source of funds, and all applicable risk factors and evaluate whether the 
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account activity is consistent with these factors. 
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2. The records of all transactions of the PEP with the bank shall be 
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maintained and stored for five (5) years from the dates of transactions. 
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With respect to closed accounts, the records on customer identification, 
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account files and business correspondence, shall be preserved and safely 
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stored for at least (5) years from the dates when they were closed. 
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d. Report all suspicious transactions as defined by R.A. 9160 also known as 
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the "Anti-Money Laundering Act of2001" to the Anti-Money Laundering 
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Council within five (5) working days. 
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SECTION 5. Implementing Agency. - The Anti-Money Laundering Council shall 
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enforce the provisions of this Act. 
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SECTION 6. Implementing Rules and Regulations. -
Fifteen (15) days after this 
15 
Act takes effect, a committee shall promulgate such rules and regulations necessary for 
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the effective implementation of this Act. The committee shall be composed of the 
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following: 
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A. the Chairperson of the Anti-Money Laundering Council, who shall chair 
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the committee; 
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B. a representative of the Department of Justice (DOJ) 
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C. a representative of the Department of Finance (DOF); 
22 
SECTION 7. Penal Clause. -
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A. Penalty for intentionally making a material false statement in the declaration of 
24 
beneficial ownership. - Any false or untruthful statement or misrepresentation of material 
25 
fact in the written declaration required in Section 4, paragraph A, of this Act, shall 
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" 
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1 
constitute a criminal offense and the declarant shall suffer the penalty of ten (10) years 
2 
and one (1) day to twelve (12) years and one (1) day of imprisonment. 
3 
B. Failure to carry out due diligence measures. Any bank officer who fails to 
4 
carry out the measures as provided for in Section 4 of this Act shall suffer the penalty of 
5 
imprisonment from six (6) months to four (4) years or a fine of not less than One hundred 
6 
thousand pesos (PhplOO,OOO.OO) but not more than Five hundred pesos (Php 500,000.00). 
7 
The bank's license shall be suspended. 
8 
SECTION 8. Separability Clause. - If any provision or part hereof, is held invalid 
9 
or unconstitutional, the reminder of the law of the provision not otherwise affected shall 
10 
remain valid and subsisting. 
11 
SECTION 9. Repealing Clause. - Any law, presidential decree or issuance, 
12 
executive order, letter of instruction, administrative order, rule or regulation contrary to, 
13 
or inconsistent with, the provisions of this Act is hereby repealed, modified or amended 
14 
accordingly. 
15 
SECTION 10. Effectivity Clause. - This Act shall take effect fifteen (15) days after 
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its publication in at least two (2) newspapers of general circulation. 
Approved. 
lacs 
4