The Securities and Exchange Commission issued SEC Memorandum Circular 15 (Series of 2018) or the “Guidelines for the Protection of SEC Registered Non-Profit Organizations from Money Laundering and Terrorist Financing Abuse.” The guidelines (MC 15) were published on November 8, 2018, and will take effect six months after or on May 7, 2019.
“Non-Profit Organization” refers to a SEC-registered nonstock corporation that primarily engages in raising or disbursing funds for purposes such as charitable, religious, cultural, educational, social or fraternal purposes, or for the carrying out of other types of good works. NPOs shall include foundations, as well as other SEC-registered nonstock corporations engaged in the abovementioned activities (Section 1.3.6, MC 15).
MC 15 also covers “Politically Exposed Person,” which refers to an individual who is or has been entrusted with a prominent public position/function in: a) the Philippines with substantial authority over policy, operations or the use or allocation of government-owned resources; b) A foreign state; or c) An international organization, even if he or she no longer holds such a position. MC 15 also includes the PEP’s immediate family members, close relationship and associates (Section 1.3.8).
In order to ensure that NPOs are not misused by terrorist organizations: (i) to pose as legitimate entities; (ii) to exploit legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset freezing measures; or (iii) to conceal or obscure the clandestine diversion of funds intended for legitimate purposes, but diverted for terrorist purposes, the SEC adopts a risk-based approach in applying focused measures in dealing with identified threats of terrorist financing abuse to NPOs (Section 2.1).
The risk-based approach for the protection of NPOs shall include the following:
1. Identifying threats of terrorist financing abuse based on the results of the national risk assessment of the Anti-Money Laundering Council;
2. Identifying vulnerabilities among NPOs based on the types and characteristic features of such NPOs; and
3. Identifying the consequences of such threats and vulnerabilities on NPOs (Section 2.2).
All SEC-registered nonstock corporations shall, within six months from the effective date of MC 15, submit the required information to the SEC through the respective Operating Department having supervision over such nonstock corporations copy furnished the Anti-Money Laundering Division of the Enforcement and Investor Protection Department. Failure to comply with the requirements is a cause for revocation of the registration of the noncomplying nonstock corporation (Section 4.1).
Under Section 4.2, NPOs are required to furnish the SEC with the following basic information:
a) Objectives and purpose of their stated activities;
b) Identity of the person(s) who own, control or direct their activities, including senior officers, board members and trustees;
c) Nature of operations or projects;
d) Actual raising or disbursing of funds for charitable, religious, cultural, educational, social or fraternal purposes, or for the carrying out of other types of “good works”;
e) Contribution;
f) Fund balance;
g) Location of operations, which shall include the (i) head office or branches, if any, (ii) location of beneficiaries/projects and (iii) other areas of operation/activity, if any;
h) Source of funds (as to person);
i) Source of funds (as to geography);
j) Intended beneficiaries (as to person);
k) Intended beneficiaries (as to geography); and
l) Existing license/accreditation from another government.
On the basis of the information provided, the SEC will then assess each of the NPOs whether they are low, medium or high risk, or backlisted. MC 15 lists more requirements for medium and high-risk groups.
For noncompliance with the guidelines, or making any untrue statement of a material fact or omitting to state any material fact, the SEC is authorized to impose a fine of from P10,000 to P1 million, plus P2,000 for each day of continuing violation. If there is a high risk of money laundering or terrorist financing abuse within the NPO, the SEC may, after due hearing, revoke the registration of the NPO.
Human-rights advocates, civil society organizations and lawyers groups have underscored the “chilling effect” of these new guidelines, calling it “a government tool to persecute its political enemies” and “to curb all platforms for dissent.”
“Through MC 15, the SEC and government authorities are given unbridled powers to compel disclosure of numerous information on nongovernment organizations, without a court order. Such information will be shared and made accessible to government agencies such as the PNP [Philippine National Police] and the National Bureau of Investigation. With the express provision in the said memorandum on the SEC’s powers to enlist the aid, support and/or deputize any and all enforcement agencies of the government, civil or military, for the purpose of conducting investigations and information gathering, there is great danger that the SEC will be used for profiling, intelligence-gathering, surveillance, harassment and other possible grave violations against NGOs. Through the said memorandum, the SEC is given control of all nonprofit organizations in the country, as it is weaponized to infringe on the freedom and capacity of these organizations to freely conduct or perform their advocacies.” (Karapatan Statement, Samar News.com)
My experience (in a previous life) with the Napoles cases has opened my eyes to the reality that NPOs, foundations and NGOs are being used by unscrupulous politicians and businessmen as vehicles for plunder of government funds and money laundering. But they are just a few, and most have already been exposed.
I belong to a handful of NPOs and foundations, and I view these guidelines as deterrent to “doing good,” “spreading the blessings” and “being of service.” Fewer people now will want to get involved with charitable, humanitarian, nonprofit, peoples organizations lest they become victims of “witch hunting,” intelligence gathering, surveillance, investigation, scrutiny and harassment.
The NPOs (existing or fictitious) who have a track record of allowing themselves to be used for transfer of discretionary funds of some of the legislators or those engaged in terrorist’s activities should certainly be penalized and their registrations revoked. But this is more the exception than the rule. Not all NPOs deserve this treatment!
Otherwise, it would be “the tail wagging the dog,” which is the unintended result of MC 15.