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Government investigators have uncovered a sophisticated money laundering operation linked to the flood control scam, where suspects allegedly utilized the “dark web” and a network of “representatives” to convert illicit funds into cryptocurrency.
In a follow-up interview on Tuesday, Undersecretary Renato Paraiso of the Independent Commission for Infrastructure’s Technical Working Group (ICI-TWG) revealed that contractors involved in the scandal were moving “exorbitant” amounts, ranging from ₱50 million to ₱100 million per transaction, into digital assets to hide the money trail.
The Mechanism: Middlemen and Cold Wallets
According to intelligence reports cited by Paraiso, the suspects avoided direct transactions by deploying “representatives” to facilitate the conversion of Philippine pesos into Tether (USDT).
“Marami silang representatives that they are asking to convert peso to USDT and other crypto,” Paraiso noted. (They have many representatives that they are asking to convert peso to USDT and other crypto.)
This use of middlemen effectively functions as a “money mule” system, layering the funds to obscure the identity of the original beneficial owners.
Paraiso explained that USDT was the asset of choice because it requires only a “cold wallet” for storage, allowing funds to be held offline and transferred via peer-to-peer (P2P) transactions, bypassing the immediate oversight of the traditional banking system.
Recovery Based on ‘Goodwill,’ Not Jurisdiction
While the government successfully recovered some of these assets, Paraiso admitted that the freeze was not the result of a Philippine court order but rather the voluntary cooperation of a specific exchange.
“Hinold nila yung transaction tapos binalik po nila sa atin. That is based on cooperation, and that is based on agreement na goodwill,” Paraiso said. (They held the transaction and returned it to us. That is based on cooperation and agreement of goodwill.)
He admitted that because many of these exchanges are located abroad, the Philippines “does not exercise jurisdiction or regulation over them.” The recovery relied entirely on the platform’s “goodwill” to hold and return the transaction after being flagged by the Anti-Money Laundering Council (AMLC).
Bypassing the Ban via VPNs
The investigation also highlighted the limitations of local regulatory bans. Paraiso explicitly noted that suspects utilized Virtual Private Networks (VPNs) to bypass restrictions and access banned platforms like Binance to facilitate these transfers.
“Binance is banned but VPN[s] can bypass [it],” Paraiso noted.
Using a VPN on Binance is not allowed, according to the exchange’s terms of service.
To address these gaps, Paraiso said they are rushing to review Mutual Legal Assistance Treaties (MLATs) with the help of the Department of Justice (DOJ) and the Department of Foreign Affairs (DFA). The goal is to establish a clear legal pathway to recover “tokenized cryptocurrencies” held in offshore jurisdictions.
Context: Tracking the Untraceable
Despite the challenges, recent events show that crypto forensics can lead to asset recovery when the private sector cooperates.
- The Philippine National Police (PNP) Anti-Cybercrime Group recently collaborated with blockchain analytics firm Chainalysis and stablecoin issuer Tether to track and freeze USDT in the Anson Que case.
- Global exchange Binance, despite its regulatory issues in the Philippines, has a documented history of assisting local law enforcement in cybercrime investigations.
- To close the transparency gap at the source, Senator Bam Aquino has filed Senate Bill 1330, or the CADENA Act. The bill aims to put the national budget on a public blockchain, which would theoretically make the diversion of such massive funds visible in real-time.
This article is published on BitPinas: Flood Control Scam: Suspects Moved ₱100M per Crypto Transaction via P2P and Exchanges, Gov’t Says
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