NEW AND NEEDED AMENDMENTS TO BANK SECRECY LAW
By Euney Marie Mata-Perez on June 10, 2021
In a July 16, 2020 article, I mentioned that relaxing our bank secrecy rule was key to financial integrity. At that time, we had been touted as one of two countries (the other being Lebanon) with the strictest bank secrecy rules. (https://www.manilatimes.net/2020/07/16/business/columnists-business/amending-the-bank-secrecy-act-as-a-key-to-financial-integrity/742400)
Since then, Lebanon has adopted some measures to liberalize its rules while the Philippines has not moved at all. In December 2020, Lebanon’s parliament passed a law to lift banking secrecy for one year in a move that could clear the way for a forensic audit of the central bank, a key condition for foreign aid that has hit a roadblock. (See https://www.reuters.com/article/lebanon-crisis-parliament-int-idUSKBN28V1WE). As of today, thus, we are the only country in the world with the strictest bank secrecy rules.
We can, of course, catch up. Passed at first reading by the House of Representatives in March this year was House Bill 8991 (HB) 8991, titled “An Act Promoting Transparent Governance and Instituting Anti-Corruption Mechanisms in the Operation of Banks, Amending For The Purpose Republic Act (RA) 1405, otherwise known as the Secrecy of Bank Deposits Law.” It was sponsored by Rep. Junie Cua and endorsed by the Committee on Banks and Financial Intermediaries in a committee report dated March 14, 2021.
HB 8991 still espouses the principle that all bank deposits shall be confidential. However, it adds an exception to rules laid down by RA 1405.
Under Section 2 of RA 1405, all deposits of whatever nature with banks or banking institutions in the Philippines (including investments in bonds issued by the government of the Philippines, its political subdivisions and its instrumentalities) are considered absolutely confidential in nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except upon the following:
• Written permission of the depositor
• In cases of impeachment
• Upon order of a competent court in cases of bribery or dereliction of duty of public officials
• In cases where the money deposited or invested is the subject matter of the litigation
HB 8991 seeks to add as an exception cases where the inquiry or examination is made by the Bangko Sentral ng Pilipinas (BSP), in the exercise of its supervisory powers, on the deposit of the stockholder, owner, director, trustee, officer or employee of an entity subject to the central bank’s supervision or regulatory power, including the representative or agent, related party, or any of the conspirators of the person involved.
The inquiry can be made only if there is a determination by the Monetary Board that there is reasonable ground to believe that fraud, serious irregularity, or unlawful activity has been or is being committed by the above-mentioned persons and that it is necessary to look into the deposit to establish such fraud, irregularity, or unlawful activity.
HB 8991 proposes to provide some safeguards. The results of the inquiry or examination will be for the BSP’s exclusive use and will not be made available to any person or entity, whether public or private, except to the Securities and Exchange Commission, the Philippine Deposit Insurance Corp., the Anti-Money Laundering Council, the Department of Justice and the courts. The sharing of the results is subject to the condition that it is necessary to prevent or prosecute any offense or crime.
The proposed exemptions will apply to foreign currency deposits in banks operating in the Philippines, including offshore branches of domestic banks. It will not apply to non-stock savings and loan associations catering only to their members.
HB 8991 also seeks to exclude investments in bonds issued by the national government, its political subdivisions and its instrumentalities from coverage of RA 1405.
Several industry and business groups, led by the Financial Executives Institute of the Philippines (Finex), have expressed “full support” for the enactment of HB 8991, mainly because the easing of secrecy rules will help the BSP fulfill its mandate to keep the banking sector sound.
The groups noted that the bill “will simply restore the authority to have access to bank deposit accounts that the BSP had prior to the passage of RA 7653 in 1993” and provides enough safeguards against abuse as only the central bank can look into suspicious accounts “under strict guidelines.”
They said: “Indeed, the proposed Bank Deposits Secrecy Bill has wide-reaching implications. The bill will not only strengthen prudential supervision and allow BSP to effectively fulfill its mandate of maintaining the stability of the banking system but also ensure compliance with the international standards on transparency and good governance, which will preserve and fortify the public and the global community’s trust in the Philippine banking system.”
It is without a doubt that the purposes and amendments proposed by HB 8991 are necessary for the integrity and soundness of our banking and financial system, and will enable the BSP to exercise its surveillance functions more effectively. It will also save our country not just from embarrassment but also from the negative effects of being known as the country with the most stringent bank secrecy rules in the world. There should be no reason for legislators to not approve these.
Euney Marie J. Mata-Perez is a CPA-lawyer and the managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A, and tax lawyer, president of the Asia-Oceana Tax Consultants’ Association and executive vice president of FINEX.