Financial crimes top concern for Filipinos

A leading global analytics software firm recently unveiled its latest global consumer fraud research, shedding light on Filipinos' ongoing apprehension regarding real-time payment scams amid the growing adoption of new, convenient, fast payment channels.

According to the study, the primary worry for Filipinos remains the risk of being tricked into sending money to criminals (35 percent), which exposes individuals to instant, irrevocable losses rarely eligible for reimbursement.

Additionally, concerns about identity theft persist, with over 23 percent of Filipinos citing it as their top financial crime concern. This type of fraud carries additional risks beyond financial loss, such as compromised credit scores and the challenging process of restoring financial integrity.

"The Philippines' adoption of real-time payments continues to accelerate, with 98 percent of adults having sent a real-time payment and 65 percent expecting to increase their use over the next year," said C K Leo, lead for fraud, security and financial crime in Asia-Pacific at analytics software firm FICO.

"As the adoption of real-time payments surges, driven by platforms like Maya, GCash and GrabPay, we're witnessing a transformative shift in financial behavior. Yet, amid this rapid digitization comes an urgent need for heightened vigilance against fraudsters lurking in the digital realm."

Real-time payment scams

As the incidence of scams continues to rise, FICO's commissioned research from last year uncovered a troubling trend concerning authorized push payment (APP) fraud and real-time payments in the Philippines. A concerning 82 percent of Filipinos have received unsolicited text messages, emails, phone calls or other outreach that they believed to be part of a scam, while 61 percent of respondents stated that their friends or family members had been victims of a scam.

Shockingly, 25 percent of respondents admitted to sending real-time payments for investments, goods or services they never received. Additionally, 74 percent of those who made scam payments through real-time payments lost up to P25,000, while 1 percent experienced losses of up to P300,000. Despite these alarming figures, only 26 percent reported actual or suspected losses to their banks.

"Banks now face a crucial moment to invest in cutting-edge solutions to tackle the surge in scams, particularly with the swift uptake of real-time payments in the Asia-Pacific financial landscape," said Leo. "The irrevocable nature of these transactions has led to new criminal threats. By integrating scam-specific analysis and scoring into transactions, along with robust decision-making capabilities across the customer journey, banks can pre-emptively detect and thwart scam payments, sparing customers from financial harm. Furthermore, while some consumers may ignore warnings, the majority will heed alerts and refrain from making real-time payments if alerted to potential scams."

Perception vs reality

Despite widespread concern about identity theft, there is a noticeable dissonance between perception and reality among Filipinos. About 33 percent believe it's unlikely they've been a victim, while 19 percent see it as possible, and 27 percent are confident their identity remains untouched.

Moreover, only 5 percent of Filipino respondents reported their stolen identity being used to open a financial account, a slight increase from 4.5 percent in 2022. However, given the adult population in the Philippines, this 5 percent translates to over 3 million individuals. Interestingly, this rate was much higher in other countries surveyed, with 13 percent of Indians and 12 percent of Thais saying their identity had been stolen and used to open an account by a fraudster.

"While some may downplay the risk of identity theft in the Philippines, millions remain vulnerable," added Leo. "This underscores the need for heightened awareness and proactive measures. By breaking down silos and integrating identity verification and fraud detection processes, we can streamline applications and bolster trust in legitimate customers."

Good fraud protection

When asked about the most important considerations respondents have when they select a new provider for a financial account, good fraud protection and ease of use were the two most important. These were both considered significantly more important than good customer service, strong anti-money laundering policies, sound green/environmental policies, ethical use of customer data, behaving fairly, and good value for money.

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Source: Manila Times

What is it about the Philippines that seems to attract financial fraud?

Funds stolen from Bangladesh's central bank were routed to a Philippine bank in 2016, from where they were laundered into the gambling industry.

Westpac Banking was accused last December by Australia's financial crime watchdog of money-laundering breaches, which included payments to suspected child exploiters in the Philippines.

And in late June, it was confirmed that Wirecard, the German payments technology company, had been involved in a fraud where apparent business partners in the Philippines did not exist, along with 1.9 billion euros ($2.1 billion) supposedly held in two Philippine banks.

Allegations of spurious documents, fraudulent transactions and the involvement of junior employees of major Philippine banks call into question not just how these banks supervise internal matters but larger issues of weaknesses in the country's oversight of its financial system.

What these cases point to is a lack of enforcement capacity on the part of the Philippines' Securities and Exchange Commission; the Bangko Sentral ng Pilipinas, its central bank; and the Anti-Money Laundering Council, or AMLC.

While these agencies have many good and diligent employees, what appear to be lacking are the ability and willingness of these three bodies to conduct meaningful routine monitoring and verification of financial institutions. This should be aimed at ensuring real compliance with best practices and the legal requirements of due diligence and know your customer policies, beyond going through the motions for audits.

Senior managers at banks have admitted that accounts with them are often opened with "show money," allowing businesses to obtain SEC documentation, after which the accounts are closed. The accounts are intended to assure investors that money is available to protect them, but closing the accounts, giving no notice to the SEC, leads to shell companies. The SEC has limited staff and cannot conduct reviews of documentation to ensure all remains in order.

The BSP and AMLC both also lack the staffing that would allow meaningful investigations and follow-ups of suspicious activity and even of legally required suspicious transaction reports. The sieve intended to catch bad actors and protect the nation has too many holes. That needs to change.

Reporting on Wirecard shows that a whistleblower raised serious issues on the handling of transactions and accounting issues to senior management. But in the Philippines, there is little to no encouragement for any whistleblower to come forward with serious allegations.

There is, in theory, a witness protection program from the Philippine Department of Justice. But it has a poor reputation for actually protecting anyone. Part of the problem is that it can only move people within the Philippines, not to a faraway place where they can rebuild their lives.

Recently, the government advised the public that it could report misbehaving or corrupt public officials through the 8888 citizens' complaint hotline -- but this does not apply to criminal behavior in private corporations.

The Philippines must take steps to upgrade its ability and, even more so, the perceptions of its willingness to protect witnesses.

The Philippines needs to develop a strong whistleblower system, allowing employees to safely and securely report errant behavior by senior management.

The BSP, SEC and AMLC should establish protected mechanisms for such reports, with meaningful follow-up investigation on allegations.

Incidents involving the Philippines may well be greeted with "here we go again" and a sigh of disappointment bordering on disbelief. The Philippine financial system must take greater action as an industry to reduce reputational risk and strengthen its standing in international circles.

This will start with boards and senior management making public and credible statements in support of transparency and global state of the art banking practices.

The Wirecard allegations should spur serious work by Philippine banks and their regulator to bolster the nation's reputation in financial services.

Source: NikkeiAsia