Republic Act No. 9160, otherwise known as the Anti-Money Laundering Act of 2001 (AMLA), as amended, requires covered persons to report certain transactions to the Anti-Money Laundering Council (AMLC). Two important categories are covered transactions and suspicious transactions. They are distinct concepts, and understanding the difference is essential to anti-money laundering (AML) compliance.
What is a covered transaction?
Under the AMLA, a covered transaction generally refers to a transaction involving an amount exceeding ₱500,000 within one banking day. This, however, is not a universal threshold applicable to every covered person.
The law provides different thresholds for certain sectors. For example, a single casino cash transaction exceeding ₱5 million is considered a covered transaction. For real estate developers and brokers, a single cash transaction exceeding ₱7.5 million is likewise covered.
The important point is that a transaction does not become suspicious simply because it exceeds the applicable threshold. A large transaction may be perfectly legitimate and may simply be subject to the reporting requirements applicable to covered transactions.
Covered transactions are generally required to be reported to the AMLC within the period prescribed by its rules.
When does a transaction become suspicious?
A suspicious transaction is different. The amount involved is not the determining factor. Under the AMLA, a transaction may be considered suspicious regardless of its amount when any of the following circumstances is present:
(i) There is no underlying legal or trade obligation, purpose, or economic justification for the transaction;
(ii) The client is not properly identified;
(iii) The amount involved is not commensurate with the business or financial capacity of the client;
(iv) The circumstances indicate that the transaction may have been structured to avoid reporting requirements under the AMLA;
(v) The transaction deviates from the client’s profile or past transactions with the covered person;
(vi) The transaction is related to an unlawful activity or an offense under the AMLA that is about to be, is being, or has been committed; or
(vii) The transaction is similar or analogous to any of the foregoing circumstances.
These circumstances illustrate why AML compliance cannot be based on transaction size alone. A transaction involving a relatively small amount may still warrant scrutiny if, for example, it is inconsistent with the client’s known financial capacity or appears designed to evade reporting requirements.
Covered does not necessarily mean suspicious
The distinction is important in practice. A covered transaction is generally identified by the applicable reporting threshold, while a suspicious transaction is identified by the circumstances surrounding the transaction and the client regardless of the amount of transaction involved.
A transaction may be covered without being suspicious. It may also be suspicious even if it falls below the applicable threshold. In some cases, a transaction may be both covered and suspicious.
For covered persons, this makes effective customer due diligence and transaction monitoring particularly important. Compliance personnel must look beyond the amount involved and consider whether the transaction makes sense in light of the client’s business, financial capacity, transaction history, and overall risk profile.
Ultimately, transaction reporting obligation of covered persons is not simply about reporting large transactions. It is about recognizing transactions that do not fit the circumstances, identifying potential red flags, and taking the appropriate steps under the AMLA and the rules and issuances of the AMLC.
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