Security vs. Liquidity: Will BSP Circular No. 1218 Cleanse the System or Choke the Cash Economy?

By: Atty. Carlos Gabriele M. Punzal and Antonio Sebastian O. Rosales

Another day, another scandal. It seems to be a recurring theme in the Filipino news cycle these days. Whether it involves duffel bags of cash linked to offshore gaming operations, or more recently, boxed millions withdrawn to allegedly fund kickbacks for public works projects, one character remains stubbornly constant: cold, hard cash. For decades, the untraceable nature of physical money has made it the lifeblood of corruption and illicit activities, flowing silently through the veins of the financial system. This long and sordid history has seen the Philippines play a cat-and-mouse game with international watchdogs, constantly trying to shed its reputation as a haven for money laundering.

In response to this seemingly intractable problem, the Bangko Sentral ng Pilipinas (BSP) has unveiled its latest weapon: Circular No. 1218, Series of 2025 - Regulation on Large Value Cash Transactions (BSP Circular No. 1218). The BSP in its latest sectoral risk assessment and surveillance monitoring, has noted money laundering (ML), terrorism financing (TF), and proliferation financing (PF) risks arising from cash transactions of banks and other BSP-supervised financial institutions (BSFIs).

This regulation creates an additional layer of security by imposing an extra step on withdrawals exceeding P500,000 per day, a move heralded by some as a masterstroke for financial integrity and decried by others as a crippling blow to legitimate commerce. Will this drastic measure finally stem the tide of illicit funds, or will it merely choke the everyday Filipino entrepreneur?

A History of Plugging Holes

To understand the gravity of BSP Circular No. 1218, one must appreciate the context of the Philippines' continuous battle against financial crime. The nation has spent years on and off the "grey list" of the Financial Action Task Force (FATF), the global standard-setter for anti-money laundering (AML) and countering the financing of terrorism (CFT) efforts. Being on this list signifies that a country has strategic deficiencies in its AML/CFT regimes, inviting heightened scrutiny from the international financial community and potentially impacting foreign investment and banking relationships.

The government's response has often been reactive, enacting new laws and regulations in the wake of major scandals that expose glaring loopholes. We saw this with the proliferation of illicit funds through Philippine Offshore Gaming Operators (POGOs) and the infamous recycling of laundered money in casinos. Each scandal revealed how easily staggering sums of cash could be withdrawn, moved, and washed with minimal friction, often aided by the very institutions meant to guard the system. The previous framework, heavily reliant on the "Know Your Customer" (KYC) principle, placed the onus of diligence on the banks themselves. While sound in theory, this discretionary power often became a point of failure, where the desire to maintain patronage with high-value clients could blur the lines of regulatory vigilance. It is this historical backdrop of reactive, often piecemeal, policymaking that sets the stage for the BSP's new and more forceful approach.

Deconstructing the Mandate

Unlike previous regulations that offered more leeway, BSP Circular No. 1218 is built on a foundation of explicit restriction. It seeks to fundamentally alter the behavior of both financial institutions and their clients by building a wall around large cash transactions. The core of the new rule is unambiguous.

The circular amends the Manual of Regulations for Banks (MORB) and the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) by stipulating that large value payouts of more than Five Hundred Thousand Pesos (₱500,000.00), or its foreign currency equivalent, must be funneled through traceable channels. The text is definitive: such transactions "shall only be made, facilitated, or transacted through check payment, fund transfer, direct credit to deposit accounts, and/or other form using the digital payment platform of the BSFI."[1] The use of the word "shall," is not a suggestion but mandatory, a stark contrast to more permissive language found in prior regulations.

Furthermore, the BSP preempted a common circumvention tactic by clarifying that the ₱500,000.00 limit is not on a per-transaction basis, but a daily aggregate. The limit applies whether it is carried out "in a single transaction or in series of transactions within one (1) banking day."[2] This effectively closes the loophole of "structuring," where launderers break down large sums into smaller, less conspicuous transactions to fly under the radar. As a matter of fact, BSPFIs may adopt a lower cash transaction limits based on its institutional ML/TF/PF risk assessment and/or customer financial profile. The message is clear: the era of withdrawing millions in cash with relative ease is over. The goal is to force a digital paper trail, making the movement of funds transparent and, crucially, auditable.

The ‘Enhanced Due Diligence’ Escape Hatch

However, the circular is not an absolute ban. It provides a conditional, and potentially contentious exception to the hard limit. A BSFI may, after the exercise of EDD, allow large value payouts in cash of more than ₱500,000.00, or its equivalent in foreign currency, provided that the customer can submit additional identification information and/or proof of legitimate business purpose or transaction[KGM1] [KGM2] .[3] Herein lies the critical juncture where the policy's effectiveness will be tested. Have we truly eliminated the problem, or have we simply shifted the discretionary loophole from the general KYC principle to the more specific EDD process?

This provision raises a cascade of rhetorical questions. What constitutes sufficient "proof of legitimate business purpose"? Is a simple invoice or a signed contract enough to justify the withdrawal of millions in cash in an increasingly digital world? Who within the bank holds the authority to deem this proof adequate, and what are the standards for that judgment? The risk is that this exception can becomes a routine check-the-box exercise, allowing well-connected individuals or entities to bypass the limit while still creating a facade of compliance.

To its credit, the BSP attempts to add teeth to this process. The circular mandates that if a bank fails to satisfactorily complete the EDD procedures or reasonable believes that performing the EDD process will tip off the customer, it shall file a suspicious transaction report (STR) and closely monitor the account and review the business relationship.[4] This requirement to file an STR is a significant enhancement, transforming the EDD process from a simple internal diligence matter into a direct line of reporting to the Anti-Money Laundering Council (AMLC). In theory, this should act as a powerful deterrent against laxity, as banks would be hesitant to risk regulatory penalties for failing to report questionable transactions.

A Chilling Effect on Commerce?

While the circular's intent to promote financial integrity is laudable, its real-world impact on the Philippine economy, much of which still operates on cash, cannot be ignored. Is this a precision tool designed to excise the cancer of illicit finance, or is it a blunt instrument that will cause significant collateral damage to legitimate commerce? For countless small and medium-sized enterprises (SMEs), particularly in sectors like agriculture, construction, and retail, cash remains king. Farmers need to pay their laborers in cash. Contractors need to purchase materials on-site. Wholesalers conduct daily business in cash. For these entrepreneurs, the ₱500,000 limit may not be a minor inconvenience but a major operational bottleneck.

The alternative—checks, bank transfers, digital payments—assumes a level of financial and digital infrastructure that is not yet universal in the Philippines. Check clearing takes time. Bank transfers can incur fees and require access to reliable internet and banking platforms. While the country has made strides in digital finance, a significant portion of the population remains unbanked or underbanked. Does this policy, in its noble pursuit of laundered money, inadvertently punish the very engines of the grassroots economy? Could it push legitimate business activities into the shadows, forcing them to rely on informal lenders or other unregulated channels to meet their liquidity needs? The cure, some might argue, could prove worse than the disease if it stifles the economic dynamism it is meant to protect.

A Step Forward on a Tightrope

Ultimately, BSP Circular No. 1218 represents a bold, if fraught, step in the right direction. It signals a shift from a passive, discretionary regime to an active, rules-based framework that prioritizes traceability. By forcing large transactions into the digital light, it undeniably makes the movement of illicit funds more difficult and risky. The strengthening of the STR filing requirement linked to the EDD process provides a crucial enforcement mechanism that was previously lacking.

However, the policy's success will be a delicate balancing act. Its rigid limit poses a real threat to the fluidity of legitimate, cash-heavy industries. The effectiveness of the EDD exception hinges entirely on the diligence and integrity of the banks and the stringency of BSP oversight. If the exception becomes a loophole, the entire structure is compromised. The government must therefore walk a tightrope, enforcing financial integrity without strangling economic vitality. Perhaps the initial ₱500,000 limit is just a starting point, to be adjusted as the market adapts and digital payment infrastructure becomes more pervasive. For now, the nation watches and waits, hoping this new rule will finally cleanse the financial system, without washing away the livelihoods of ordinary Filipinos along with it.

[1] Bangko Sentral ng Pilipinas Circular No. 1218, Series of 2025, Sec. 1.

[2] Ibid.

[3] Ibid.

[4] Ibid.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views and opinions of the Firm or any of its partners. This article shall not be construed as official legal advice from the Firm. 

Atty. Carlos Gabriele M. Punzal is a lawyer who earned both his Bachelor of Science in Legal Management and Juris Doctor degrees from De La Salle University. He previously worked as a tax supervisor at a leading tax and accounting firm, focusing on transfer pricing and taxation law. He also gained considerable legal experience as a previous associate at a private law firm.

Antonio Sebastian O. Rosales is a paralegal who earned his Bachelor of Science in Legal Management from De La Salle University. He is currently pursuing his Juris Doctor degree at the University of Santo Tomas.

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