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Fraud in The Philippines

Investment fraud continues to be a major problem in the Philippines, with many people falling victim to schemes that promise high returns. One of the largest scams was Kapa Community Ministry International, a religious group that recruited millions of investors by promising a 30% monthly return on donations but was actually operating as a Ponzi scheme. The COVID-19 pandemic has enabled more online investment scams as people seek ways to earn money during the economic downturn. Regulators warn that many Filipinos remain vulnerable to fraud due to low financial literacy and a lack of understanding of illegal schemes.

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Levi Emmanuel Veloso Bravo
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343 views4 pages

Fraud in The Philippines

Investment fraud continues to be a major problem in the Philippines, with many people falling victim to schemes that promise high returns. One of the largest scams was Kapa Community Ministry International, a religious group that recruited millions of investors by promising a 30% monthly return on donations but was actually operating as a Ponzi scheme. The COVID-19 pandemic has enabled more online investment scams as people seek ways to earn money during the economic downturn. Regulators warn that many Filipinos remain vulnerable to fraud due to low financial literacy and a lack of understanding of illegal schemes.

Uploaded by

Levi Emmanuel Veloso Bravo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Bravo, Levi Emmanuel V.

Group 5

Fraud in the Philippines


Growing your money through investments is one of the most effective ways to
achieve financial freedom – but it is also among the most exploited, at present.
Financial scams, especially in the Philippines, are built on this sound notion, but fail to
deliver on their promises.
All over the country, Filipinos have fallen prey to them, which has resulted in
losses of as much as Php80B in the last two decades, as well as other dire
consequences (Adrian, 2019).
The KAPA Fraud Scheme Summary (News article: How Kapa Ministry took advantage
of investors; https://www.rappler.com/newsbreak/iq/explanation-how-kapa-community-
ministry-took-advantage-investors)
Kapa Community Ministry International, better known as Kapa, is a religious
group which has been recruiting members and asking them to donate funds dubbed as
“love gifts” to the organization in exchange for a promised 30% monthly return for life.
To be a member of Kapa, investors fill out a small form and donate at least P10,000 up
to at most P2 million.
Pastor Joel Apolinario, the organization’s leader, claims they have as many as 5
million investors, making it one of the largest scams in Philippine history. He further
claimed that Kapa has been operating for 6 years now and boasts of a diverse portfolio
of businesses to sustain its promises to investors.
The investment scheme is simply unsustainable. Kapa will need P15 billion a
month to pay 5 million members, who have contributed at least P10,000 each.
The Securities and Exchange Commission (SEC) said that majority of the
businesses are newly registered sole proprietorships and there’s no way it could have
generated billions. Moreover, some corporations which are allegedly acquired by Kapa
do not have financial capabilities to generate the necessary funds to sustain the high
returns.
As of 2017, Kapa’s assets totaled P465,000 with liabilities of P170,000. It has a
total revenue of P425,000 and had spent P419,000, a meager P6,000 profit during that
year. Kapa did not file its financial statement in 2018, according to the SEC.
Without recruiting new members or soliciting more investments from the public,
the pooled funds will not last long, hence, a Ponzi scheme.
KAPA has “willfully, unlawfully and criminally” engaged in the selling or
distribution of securities to the public without securing a registration statement from the
SEC.
In June 2019, the Court of Appeals issued a freeze order on Kapa's assets.
Funds were still not returned to investors.
Bravo, Levi Emmanuel V. Group 5

Fraud Prevention
A. How to prevent individuals from being a victim of fraud (specifically investment fraud):
Investor Education Program (Financial Literacy)
In my opinion, fraudulent schemes can be countered through providing education
programs to existing and potential investors as it will shed light on the proper, legal, and
safe way to invest as well as the basics of financial literacy by leveraging all forms of
media to connect with the masses, giving out public information, and improving their
presence and regulation online.
If people know how to check the financial statements or financial background of a
company if they can really make good with their promise and notice the red flags of an
investment (no product, high return and low risk, investor does nothing), then they
would know that there is high probability that the investment is fraudulent.
B. Prevention of Fraud Perpetration by Companies
Increasing the enforcement capacity of regulating bodies
The lack of enforcement capacity on the part of the Philippines' Securities and
Exchange Commission (SEC); the Bangko Sentral ng Pilipinas (BSP), and the Anti-
Money Laundering Council or AMLC is one of the reasons of the existence and
persistence of fraud.
While these agencies have many good and diligent employees, what appear to
be lacking are the ability and willingness of these bodies to conduct meaningful routine
monitoring and verification of financial institutions and corporations. This should be
aimed at ensuring real compliance with best practices and the legal requirements of due
diligence and knowing customer policies, beyond going through the motions for audits.
C. Prevention of Fraud within an Organization
Implementation of Effective and Efficient Internal Controls
Internal controls are the plans and/or programs implemented to safeguard a
company’s assets, ensure the integrity of its accounting records, and deter and detect
fraud and theft. Segregation of duties is an important component of internal control that
can reduce the risk of fraud from occurring. Documentation is another internal control
that can help reduce fraud. In addition, internal control programs should be monitored
and revised on a consistent basis to ensure they are effective and current with
technological and other advances. Internal control ensures that a system of checks and
balances is in place in order to prevent a single person to have control over all parts of a
financial transaction.
Bravo, Levi Emmanuel V. Group 5

Is Fraud Rampant in the Philippines?


Investment fraud, thriving in the Philippines
Even with the past scandals involving investment fraud, this “industry” seems to
be thriving today. Hiding behind the masks of get-rich-quick schemes, perpetrators of
investment scams are still capable of luring unknowing people into fully entrusting their
hard-earned money in exchange of “higher return.”
One of the first big investment scams that blew up in the Philippines can be
traced back to 2007 – the FrancSwiss Investment Scam – which conned high-profile
individuals including celebrities.
It started with the promotion of a high-yield investment program offering investors
daily returns of 4.5% on a minimum 1000-dollar investment. So, for every investment of
$1,000, investors would gain $45 a day (Adrian, 2019).
The scheme lasted from March to July, and many investors re-invested after
earning back their initial deposits. In fact, the company raised over $20 million in only a
few months. But after a media report that encouraged investors to withdraw their
money, the scheme collapsed.
Despite the similar persuasive offerings and structure of these frauds, Filipinos
seemed not to learn. Ponzi and pyramid schemes have endured until today – the latest
to blow up being Kapa Community Ministry International, a religious group which has
been recruiting members and asking them to donate funds dubbed as “love gifts” to the
organization in exchange for a promised 30% monthly return in perpetuity, which SEC
chairman, Emilio Aquino, described as mathematically impossible (Rivas, 2019).
Investment Fraud and the Pandemic
As digitalization becomes the means of basic transactions nowadays in
adherence to health safety protocols to avoid personal contact and large crowds, this,
too, has become the platform for online investment schemes.
The global health crisis has become the perfect tool to fool people. Since the
pandemic has hampered economic activity and thus, income-generation, the false-
pretense of easily tripling one’s money have enticed people into joining shoddy
investments.
Tech-savvy scammers increasingly using the Internet and social media to lure
yield-seeking investors who were sometimes “too trusting” that they would give their
money even without face-to-face interaction .
The Securities and Exchange Commission (SEC) has aired a warning to the
public not to fall prey to an investment scam. In May 2020, SEC has even exposed a
Bravo, Levi Emmanuel V. Group 5

new set of entities enticing people to put hard-earned money into illegal investment
schemes with the promise of high returns over a short period of time.
According to the Philippine Information Agency (PIA), people who are financially
illiterate are easily lured to pour their hard-earned money into fraudulent investment
schemes. This is primarily because people do not have the basic understanding of what
is a Ponzi scheme and how it can affect a certain business industry and the economy,
at large.
People lacking in education and knowledge on these investment schemes are
still willing to go into it and take the risk (Alama, 2019).

Sources:
Abadilla, D.D. (2020). SEC tracks 5 new investment scammers. Retrieved October 5,
2020 from https://business.inquirer.net/296590/sec-tracks-5-new-investment-scammers
Adrian, Marc (2019). Top 5 Biggest Financial Scams In The Philippines. Retrieved
October 5, 2020 from https://www.imoney.ph/articles/top-biggest-financial-scams-
philippines/
Alama, R.I. (2019). Financially illiterate susceptible to investment frauds. Retrieved
October 5, 2020 from https://pia.gov.ph/features/articles/1023724
Bautista, V.P. (2020). Online investment scams still rampant amid COVID-19 pandemic
- SEC 10. Retrieved October 5, 2020 from https://pia.gov.ph/news/articles/1047993
Rivas, R. (2019). How Kapa Ministry took advantage of investors. Retrieved October 5,
2020 from https://www.rappler.com/newsbreak/iq/explanation-how-kapa-community-
ministry-took-advantage-investors

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