Gaping Holes in Global Money-Laundering Protection

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Wednesday, April 6th, 2016 | Written by Adam Brown

You don’t have to watch the television for long before an identity theft protection commercial is shown promising to safeguard people from cyber crime, but consumers aren’t the only ones who have to worry about the threat of electronic thievery. Recently, a news story involving a huge cyber heist has sent shock waves through the financial and IT security industries, and has led to Filipino casino and gambling legislation being placed under intense scrutiny.

About the Heist

In March, news broke that cyber criminals had managed to steal $81 million from a very surprising place–the central bank of Bangladesh. This is tantamount to thieves managing to rob the U.S. Federal Reserve of millions of dollars. No one knows who is responsible for the crime, but experts believe their motivations were financial as well as sociopolitical as a heist of this size targeting a government nation can cause major disruptions to the national and even global economy. The theft has government central banks and private financial institutions worried that they could be targeted next, making cracking this case of the utmost importance to law enforcement.

The Philippines Connection

What makes this cyber heist so baffling is that it’s not clear exactly how the thieves managed to get the money. The $81 million was stolen through a series of transfers from the Bangladesh central bank’s accounts at the Federal Reserve Bank of New York to privately held accounts in the Philippines. Many of these accounts were associated with gambling and casino operations.

Law enforcement and cyber crime analysts are finding it very difficult to track the trail of money any further. Why? Well, in the Philippines the gambling industry is not forced to comply with anti money laundering regulations. As a result, there is very little oversight of their financial accounts, which is proving to stymie the efforts of those trying to follow the trail of the money.

Commenting on the matter, Cristino Naguiat Jr, who chairs the Philippine Amusement & Gaming Corp which regulates casinos in the country, said that the huge cyber heist represented a “systemic failure at the bank level because banks are the primary gatekeepers against illegal transactions.”

Mysterious Origins

Also adding to the mystery surrounding this case is the fact that it’s not clear how the transfers were originated. Experts have been unable to find any evidence that the Federal Reserve Bank’s security systems were breached or even that anyone tried to access them. Some people are speculating that there were insiders working for the Bangladesh central bank and that one or more banks in the Philippines were involved, or that bank employees may have been bribed to let the transfers go through. Adding to this speculation is a report that a bank manager at one Filipino bank had $400,000 in cash in her car.

While it’s possible that the persons responsible for the cyber crime on the central bank of Bangladesh may have found another channel for the stolen funds, the fact that the Philippines has not taken steps to prevent money laundering through casinos and gambling operators definitely played a major role in helping the criminals pull off the crime. As the dust settles, authorities around the world are now calling on the Philippines to make changes to their laws, and are drawing attention to a need for worldwide cooperation regarding money laundering prevention.

Philippines Needs to Address Casino Loophole

The Philippines is currently facing the prospects of a downgrade by the Financial Action Task Force (FATF), an intergovernmental organization set up to tackle money laundering across the globe. Such a downgrade would subsequently result in an increased cost of sending money to the Philippines, which would be of chief concern for the 10 million or more overseas Filipino workers who send around $24 billion back home on an annual basis.

Even before this latest heist, the FATF had been concerned about Muslim terrorist groups based mainly in the southern part of the Philippines moving money in and out of the country. As a result, the FATF has now warned the country that unless it quickly deals with the situation then Filipinos working abroad would have to start disadvantaging themselves by relying on foreign banks which tend to “charge more and generally offer inferior foreign exchange rates.”

Bringing the Philippines’ casino industry under anti-money-laundering legislation will therefore soon become the chief challenge of the next president after the national elections are held on May 9th. One of the candidate, Sen. Miriam Defensor Santiago, has already warned that failing to reign in the casino sector risks making the Philippines “the world’s money-laundering capital.”