Request for Comments

July 4, 2019 SEC NOTICE REQUEST FOR COMMENTS The Commission hereby requests all interested parties to comment on the following: AMENDMENTS TO SEC MEMORANDUM CIRCULAR NO. 15, SERIES OF 2018 ON THE GUIDELINES FOR THE PROTECTION OF SEC REGISTERED NON-PROFIT ORGANIZATIONS FROM MONEY LAUNDERING AND TERRORIST FINANCING ABUSE ("NPO GUIDELINES") You may submit your comments on the exposure draft of the Amendments to the Enforcement and Investor Protection Department (EIPD) of the Commission on or before 19 JULY 2019 , addressed to EIPD Director Jose P. Aquino at the following email address: Email [emailprotected] [emailprotected] Issued on July 4, 2019, Pasay City. CAIHTE ATTACHMENT SEC MEMORANDUM CIRCULAR NO. _____ Series of 2019 TO : NON-STOCK CORPORATIONS, FOUNDATIONS AND OTHER NON-PROFIT ORGANIZATIONS SUBJECT : AMENDED GUIDELINES FOR THE PROTECTION OF SEC REGISTERED NON-PROFIT ORGANIZATIONS FROM MONEY LAUNDERING AND TERRORIST FINANCING ABUSE ("2019 NPO Guidelines") By the authority vested in the Securities and Exchange Commission (SEC) under Republic Act No. 11232 otherwise known as the Revised Corporation Code of the Philippines (RCC) and pursuant to its mandate to assist in the implementation of the Anti-Money Laundering Act (AMLA), as amended, and the Terrorist Financing Prevention and Suppression Act (TFPSA) and their respective Implementing Rules and Regulations, the Commission En Banc in its Resolution No. ____ dated ________ approved the herein amended Guidelines for the Protection of SEC Registered Non-Profit Organizations from Money Laundering and Terrorist Financing Abuse ("2019 NPO Guidelines"). CHAPTER I Scope and Definitions Section 1.1. Scope. These Guidelines apply to all Non-Stock Corporations registered with the Commission. Section 1.2. Definition of Terms. Except as otherwise defined herein, all terms used shall have the same meaning as those terms that are defined in the RCC and other related laws as well as issuances by the Commission. 1.2.1. "COEP" refers to the "Certificate of Existence of Program/Activity," in accordance with the relevant guidelines prescribed by the Commission. 1.2.2. "Commission" refers to the Securities and Exchange Commission. 1.2.3. "Foundation" refers to a non-stock, non-profit corporation established for the purpose of extending grants or endowments to support its goals and/or raising funds to accomplish charitable, religious, educational, athletic, cultural, literary, scientific, social welfare or other similar objectives and registered as a Foundation with the Commission. 1.2.4. "Non-Stock Corporation" refers to a corporation with no authorized capital stock and no part of its income is distributable as dividends to its members, trustees, or officers. 1.2.5. "Non-Profit Organization" ("NPO") refers to an SEC registered Non-Stock 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. For purposes of these Guidelines, NPOs shall include Foundations as well as other SEC registered Non-Stock Corporations engaged in the abovementioned activities. 1.2.6. "NPOs at Risk" refers to NPOs at risk of money laundering (ML) and terrorist financing (TF) abuse based on the National Risk Assessment of the NPO Sector conducted by the Anti-Money Laundering Council (AMLC). 1.2.7. "Politically Exposed Person" ("PEP") 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 DETACa c) an international organization. It shall be presumed that a person who has been entrusted with a prominent public position/function as referenced above shall continue to be considered a PEP, even if he or she no longer holds such a position, unless it is clearly shown otherwise. The term "PEP" shall include immediate family members, and close relationships and associates that are reputedly known to have: (1) joint beneficial ownership of a legal entity or legal arrangement with the main/principal PEP; or (2) sole beneficial ownership of a legal entity or legal arrangement that is known to exist for the benefit of the main/principal PEP. Immediate family members of PEPs refer to spouse or partner, children and their spouses, parents and parents-in-law, and siblings; Close Associates of PEPs refers to persons who maintain a particularly close relationship with the PEP, and include persons who are in a position to conduct substantial domestic and international financial transactions on behalf of the PEP. Close Associates may include: (1) beneficial owners of a legal entity or legal arrangement that is known to exist for the benefit of the main/principal PEP; (2) business partners or associates, especially those that share beneficial ownership of legal entities or legal arrangements with the PEP; (3) persons who are otherwise connected to the PEP ( e.g. , through joint membership of a company board); (4) prominent members of the same political party, civil organization, labor or employee union as the PEP; (5) persons (sexual and/or romantic) partners outside the family unit ( e.g ., girlfriends, boyfriends, mistresses, etc.). 1.2.8. "SS" refers to the "Sworn Statement by the President and Treasurer of the Sources, Amount, and Application of Funds and Program/Activity Planned, Ongoing, and Accomplished," in accordance with the relevant guidelines and format prescribed by the Commission. 1.2.9. "UN Sanctions List" refers to the Consolidated United Nations Security Council Sanctions List of countries, persons and/or entities, including all subsequent updates and/or amendments thereto by the United Nations Security Council. CHAPTER II Risk Assessment Section 2.1. 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 Commission shall apply focused measures in dealing with identified threats of ML and TF abuse to NPOs. Section 2.2. The Commission shall ensure that the focused measures to be applied in protecting NPOs from ML/TF abuse do not unduly disrupt or discourage legitimate NPO activities. Such measures should promote accountability and engender greater confidence among NPOs across the donor communities and with the general public that charitable funds and services reach intended legitimate beneficiaries. Section 2.3. In the event that certain NPOs are identified as being at risk, the Commission shall notify such NPOs of such fact and the reasons therefor. The Commission shall then adopt enhanced monitoring and supervision measures for such NPOs and require them the enhanced compliance requirements under Section 3.1. of these Guidelines. aDSIHc CHAPTER III Compliance Requirements Section 3.1. The following compliance requirements shall be required for NPOs at Risk: 3.1.1 Existing minimum requirements based on laws, SEC rules and other requirements as may be prescribed by the Commission. 3.1.2 Annual Financial Statements which are required to be audited by an independent certified public accountant accredited by the Board of Accountancy. 3.1.3 Mandatory background checks of the officers and trustees. 3.1.4 Mandatory audit by the Commission of the NPO concerned. 3.1.5 Establishment of an internal audit system. 3.1.6 Attendance in sustained outreach program of the Commission. Section 3.2. If the Non-Stock Corporation or NPO is blacklisted based on the UN Sanctions List subsequent to its registration, the process of revocation of registration will be initiated and publicized. Section 3.3. The Commission may require the submission of such other document/s as it may determine, in its discretion, to be necessary to properly identify the composition of the NPO Sector which is subject to its supervision and to assist the AMLC in the risk assessment process. ATICcS CHAPTER IV Mandatory Disclosures for All SEC Registered Non-Stock Corporations Section 4.1. All SEC registered Non-Stock Corporations shall accomplish the Mandatory Disclosure Form (MDF) attached hereto as Annex "A" and shall submit the same to the Commission through the Anti-Money Laundering Division (AMLD) of the Enforcement and Investor Protection Department (EIPD) or the nearest SEC Extension Office within thirty (30) days from the effective date of this Circular. Section 4.2. Corporations which have already submitted their MDF before 31 July 2019 shall be deemed to have complied with the requirement to submit the MDF. However, said corporations may be required by the Commission to submit the additional information included in the amended MDF. Section 4.3. All corporations registered after the effectivity of this Circular are required to submit the MDF within six (6) months from date of registration. Section 4.4. Failure to comply with the requirements of this Chapter is a cause for revocation of the Certificate of Incorporation of the non-complying Non-Stock Corporation. Said revocation may be lifted upon compliance with all requirements for the lifting of the revocation including the payment of applicable fines and penalties and the submission of the MDF that is sufficient in form and substance. Section 4.5. The following basic information, if applicable, shall be required from all SEC registered Non-Stock Corporations, to wit: 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) Amount of donations, contributions and grants received; f) Amount of funds used by the Corporation for its projects and programs; 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 agency or self-regulating organization. Section 4.6. The Information and Communications Technology Department (ICTD) of the Commission shall maintain an updated database of Non-Stock Corporations with the information required to be submitted under these Guidelines. Such database shall be made accessible to the EIPD-AMLD and the respective Operating Departments having supervision over such Non-Stock Corporations. CHAPTER V Good Governance System Section 5.1. To promote accountability, integrity, and public confidence in the administration and management of NPOs, the Commission hereby adopts policies on good governance which shall apply to all NPOs as defined herein. Section 5.2. The following are characteristics of a good governance system in an NPO: 5.2.1. Organizational integrity The board of trustees maintains oversight over the organization by establishing strong financial and human resource policies, meeting on a regular basis, and actively monitoring activities. 5.2.2. Partner relationships The board of trustees ensures that proper due diligence is carried out on individuals and organizations that (a) donate money or funds ( i.e. , donors), (b) receive money ( i.e ., beneficiaries) or (c) work closely with the NPO, through the use of selection criteria and searches of publicly available information, including domestic blacklists and UN sanctions lists. The board of trustees may execute agreements to outline the expectations and responsibilities with partners, including detailed information as to the application of funds and compliance with requirements for regular reporting, audits and on-site visits. TIADCc 5.2.3. Financial accountability and transparency The board of trustees approves an annual budget and follows a process to monitor the use of funds. The board of trustees also mandates that its NPO keep adequate and complete financial records of income, expenses, and financial transactions throughout its operations, including with respect to the use of its funds. NPOs clearly state program goals when collecting funds, and ensure that funds are applied as intended and consistent with the purpose of the organization. Information about the activities of the NPOs shall be made publicly available. NPOs are informed as to the sources of their donations and establish criteria to determine whether donations should be accepted or refused. 5.2.4. Record keeping The board of trustees mandates its NPOs to maintain, for a period of at least five years, records of domestic and international transactions that are sufficiently detailed to verify that funds have been received and spent in a manner consistent with the purpose and objectives of the organization, and to make these available to the Commission. 5.2.5. Program planning and monitoring The board of trustees requires its NPO to establish appropriate internal controls and monitoring systems to ensure that funds and services are being used as intended. CHAPTER VI Internal Audit System Section 6.1. To strengthen adherence to good governance principles and to ensure a high standard of best practice for the NPOs at risk and its members, the board of trustees must conduct itself with honesty, integrity and competence in the performance of its duties and functions. Such good governance principles and best practices shall include the establishment of an audit committee, or the appointment of a responsible officer or employee, whose responsibility is to perform the audit functions as described below. If an audit committee is established, it shall consist of at least three (3) trustees who shall preferably have accounting and/or finance backgrounds and/or with audit experience. Similarly, the appointed officer or employee to perform such audit function shall preferably have the same qualifications. Section 6.2. The functions of the audit committee or the officer or employee appointed to perform the audit functions include the following: a) Assist the board of trustees in the performance of its oversight responsibility for the financial reporting process, system of internal control, audit process, and monitoring of compliance with applicable laws, rules and regulations, including but not limited to registration requirements, compliance requirements, record-keeping requirements, monitoring system controls, procedures for investigating infractions, and sanctions for violations; b) Provide oversight over management's activities in managing credit, liquidity, operational, legal and other risks of the NPO, whereby it shall regularly endeavor to receive information on risk exposures and risk management activities; c) Perform oversight functions over the NPO's internal auditors and effectively coordinate with its external auditors and ensure that the internal and external auditors act independently from each other, whereby both auditors are given unrestricted access to all records, properties and personnel to enable them to perform their respective audit functions; d) Review the annual internal audit plan to ensure its conformity with the purpose of the NPO, whereby such plan shall include the budget necessary to implement it; e) Discuss with the external auditor the nature, scope and expenses of the audit, prior to commencement of the audit; f) Monitor and evaluate the adequacy and effectiveness of the NPO's internal control system, including financial reporting control and information technology security; g) Review the reports submitted by the internal auditors, including the audited financial statements of the NPO that should have been written and reviewed by an external auditor accredited by the Board of Accountancy; AIDSTE h) Review the quarterly, half-year and annual financial statements before their submission to the board of trustees, with particular focus on compliance with accepted accounting standards, tax, legal and regulatory requirements; and i) Coordinate, monitor and facilitate compliance with applicable laws, rules and regulations. CHAPTER VII Sustained Outreach Programs and Seminars Section 7.1. Pursuant to its regulatory and supervisory powers, the Commission will conduct, at least once a year, regular sustained outreach/consultation programs, awareness training and workshops on money laundering and/or terrorist financing issues, vulnerabilities, and risks as well as practical and effective mitigation measures. Such programs and seminars will include discussions regarding regulatory compliance, good governance principles, internal control system development, accountability procedures and financial controls, as well as risk management for NPOs. In connection with this, the Commission may undertake to do any or all of the following: a) Coordinate and partner with other networks of Non-Stock Corporations, NPOs or similar umbrella organizations ( e.g ., Caucus of Development NGO Networks, Philippine Council for NGO Certification, donor organizations, Association of Foundations, League of Corporation Foundations, etc.) and other government agencies ( e.g ., Local Government Units, Department of Social Welfare and Development, National Bureau of Investigation, Philippine National Police, universities, colleges, etc.) to implement such outreach programs and seminars; b) Provide, through its website, public access to the materials used in these outreach programs and seminars; c) Consider, as part of its awareness program, to regularly upload to its website the latest information on the foregoing subject matters of such outreach programs and seminars, including information campaigns, brochures, manuals, pamphlets, articles and frequently asked questions. Section 7.2. The trustees, officers, and/or responsible representatives of NPOs assessed as High Risk are required to attend and/or participate in such outreach programs and seminars. Proof of attendance therein shall be in the form of a certificate duly issued by the Commission. Such proof of attendance shall be kept by the NPO at their principal office and must be presented to representatives of the Commission during the course of their audit/inspection. CHAPTER VIII Preventive Measures Section 8.1. NPOs at risk shall establish and record the true and full identity of their donors/sources of funds identified as PEPs under Section 1.3.8. In case of domestic PEPs or persons who have been entrusted with a prominent function by an international organization, NPOs shall: a. Take reasonable measures to determine whether the donor is a PEP; and b. In cases when there is a higher risk relationship, adopt measures (b) to (e) below. In relation to foreign PEPs, NPOs shall: a. Put in place risk management systems to determine whether the donor is a PEP; b. Obtain senior management approval before establishing (or continuing, for existing donors) such relationship; c. Take reasonable measures to establish the source of wealth and the source of funds of donors identified as PEPs; d. Conduct enhanced ongoing monitoring on that relationship; and e. Institute reasonable measures to ensure that the NPO's funds are disbursed to the declared beneficiaries and/or used for the project/s stated in the SS and COEP. AaCTcI Section 8.2. Donors from a foreign jurisdiction that is recognized as having inadequate internationally accepted Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) standards, or presents greater risk for money laundering/terrorist financing, shall be subject to enhanced monitoring by the NPOs. Section 8.3. For the purpose of protecting themselves from money laundering and terrorist financing abuse, all NPOs at risk shall adopt the following preventive measures: 1. Establish a mechanism that will enable them to know who their donors are and where the funds are coming from; 2. Ensure that they know who their beneficiaries are and where they are located; 3. Ensure that the funds actually reach their target beneficiaries or that they are used for the purpose intended; and 4. Report to the Commission any fact within its knowledge that gives rise to a suspicion that such NPO is being exploited for money laundering and/or terrorist financing purposes. CHAPTER IX Coordination and Information Sharing Section 9.1. In connection with the NPOs at Risk, the Commission will pursue and implement effective cooperation and coordination through, among others, information and resource sharing, with law enforcement agencies and other government agencies, such as the Philippine National Police, National Bureau of Investigation, Department of Social Welfare and Development, AMLC, Insurance Commission, Department of Justice, and Office of the Ombudsman. Section 9.2. The Commission may enter into agreement/s with NPO self-regulatory organizations and other private organizations for the purpose of cooperation, coordination and information sharing. Section 9.3. The Commission shall establish an effective capacity to respond to international requests for information about an NPO of concern in accordance with existing laws and the rules and regulations of the Commission and the AMLC. CHAPTER X Investigation and Information Gathering Section 10.1. The Commission may, in its discretion, conduct such investigation as it may deem necessary to determine whether any person has violated or is about to violate the mandatory provisions of these Guidelines or any NPO is being abused for money laundering or terrorist financing purposes in violation of its franchise. For the purpose of such investigation, the Commission, or any officer designated by it, is empowered to administer oaths and affirmations, subpoena witnesses, compel attendance, take evidence, require the production of any book, paper, correspondence, memorandum, or other record which the Commission deems relevant or material to the inquiry, and to perform such other acts necessary in the conduct of such investigation or proceedings. Section 10.2. For the purpose of conducting such investigations and gathering of information, it may enlist the aid and support and/or deputize any and all enforcement agencies of the Government of the Republic of the Philippines, civil or military as well as any private institution, corporation, firm, association or person. CHAPTER XI Enhanced Registration and Monitoring System The Commission's registration and monitoring system, as regards Non-Stock Corporations, shall be evaluated, reviewed, modified and updated in accordance with the principles, policies and procedures provided in these Guidelines. CHAPTER XII Penalties Section 12.1. The penalties and sanctions provided for under current laws, SEC M.C. No. 8, series of 2009 entitled Scale of Fines for Non-Compliance with the Financial Reporting Requirements of the Commission , SEC M.C. No. 8, series of 2006 on the Revised Guidelines on Foundations , as amended, and other issuances of the Commission are hereby adopted and incorporated into these Guidelines, insofar as they are applicable. EcTCAD Section 12.2. If, after due notice and hearing, the Commission finds that: a) There is a willful violation of these Guidelines or related orders of the Commission; b) Any person has, in applications, accounts, records or documents required under these Guidelines to be filed with the Commission, made any untrue statement of a material fact, or omitted to state any material fact required to be stated or necessary to make the statements therein not misleading; or c) Any person has refused to permit any lawful examinations into its affairs; the Commission may, in its discretion, and subject to existing laws and regulations, impose any or all of the following sanctions as may be appropriate in light of the facts and circumstances: (i) Fine of no less than Ten Thousand Pesos (PhP10,000) nor more than One Million Pesos (PhP1,000,000) plus not more than One Thousand Pesos (PhP2,000) n for each day of continuing violation; (ii) Revocation of registration of a Non-Stock Corporation or NPO if there is a high risk of money laundering or terrorist financing abuse within such Non-Stock Corporation or NPO; and (iii) Other penalties within the power of the Commission to impose. In imposing the foregoing penalties, the Commission shall be guided by the principles of effectiveness, dissuasiveness and proportionality. Section 12.3. Without prejudice to the penalties provided above, any violation of Republic Act No. 10168, otherwise known as the Terrorism Prevention and Suppression Act of 2012, its implementing rules and regulations and related issuances shall be a ground for the revocation of the NPO's certificate of registration. Section 12.4. The NPO's certificate of registration shall also be revoked if the trustees and/or officers of said NPO had knowingly allowed it to be used or used the organization for money laundering or terrorist financing purposes. CHAPTER XIII Amendment/Repeal All rules, regulations, orders, circulars and issuances of the Commission that are inconsistent with this memorandum circular are hereby amended and/or repealed accordingly. CHAPTER XIV Separability If any portion or provision of this Circular is declared unconstitutional or invalid, the other portions or provisions hereof, which are not affected thereby shall continue in full force and effect. CHAPTER XV Effectivity This Memorandum Circular shall take effect immediately after its publication in two (2) national newspapers of general circulation and its posting in the Commission's website. HSAcaE Pasay City, Philippines, July ______, 2019. FOR THE COMMISSION: EMILIO B. AQUINO Chairperson n Note from the Publisher: Copied verbatim from the official copy. Discrepancy between amount in words and in figures.