FINEX Folio

Banks are in the business of attracting deposits to lend these out at reasonable spreads to corporate clients looking to finance their business and to individuals wanting to achieve their aspirations of a nice car or a new home. Banks are able to generate these deposits through their good service and locations, among others, but most of all, because of trust that these deposits are safe in the banks. Safe, in that the money will be returned whole with some interest and that unauthorized people won’t know how much or even how little is in the bank account.

Republic Act (RA) 1405 or the Bank Secrecy Law was passed in 1955 to encourage people to deposit their money in banking institutions and to discourage private hoarding so that banks can give out in loans to assist in the economic development of the country.

The Foreign Currency Deposit Act (RA 6426) and the General Banking Act (RA 8791) also prohibit bank directors, officers, employees and agents to disclose any information on funds in the custody of bank to any unauthorized person. These are meant to protect legitimate deposits of bank clients.

All deposits with banks including investments in bonds issued by the government are considered absolutely confidential and may not be looked into, except:

• upon written consent of the depositor;

• in cases of impeachment;

• upon order of a competent court in case of bribery or dereliction of duty of public officials;

• where money deposited or invested is the subject matter of the litigation; and

• examination of a bank specifically authorized by the Monetary Board after being satisfied that there is a reasonable cause to believe that a bank fraud or irregularity is being committed and it is necessary to look into the deposit to establish such fraud.

In addition, there are many exceptions and other laws that effectively waives bank secrecy:

• The Ombudsman: for government officials under investigation;

• The Anti-Money Laundering Council (AMLC): With court order — probable cause related to money laundering offenses; without court order — involving crime of kidnapping, drug trafficking, hijacking, and terrorism.

• Presidential Commission on Good Government: for ill-gotten wealth

• Court of Appeals: for anti-terrorism cases

• Commission on Audit: authorized to examine deposits and investments in government banks

• Bureau of Internal Revenue: request for tax information of specific taxpayers made by foreign tax authority pursuant to tax treaty.

• Bank deposits of a public official, his spouse and unmarried children may be taken in consideration in the enforcement of the Anti-Graft and Corrupt Practices Act;

• Bangko Sentral ng Pilipinas (BSP): inquire and examine deposits during examinations to ensure bank compliance of AML laws.

• Philippine Deposit Insurance Corp. and BSP: inquire and examine bank deposits and investments when there is finding of unsound and unsafe banking practices.

It is very important for banks to have a strong know your customer and enhanced due diligence processes to attract and onboard only the right set of customers with acceptable profiles.

Banks must continuously enhance monitoring tools to detect unusual transactions and have an effective compliance system. Banks should also work closely with regulators on the effective implementation of new and existing regulatory guidelines to minimize exposure to anti-money laundering and counter financing of terrorism risks.

It is truly a balancing act for Philippine banks to ensure bank secrecy is fully complied with and, at the same time, commit to full adherence to other laws and regulations. Philippine banks cooperate fully with government enforcement agencies, provided these investigations are deemed legal and in accordance with laws.

The Philippines is a member but not yet a signatory to the International Organization of Securities Commission (IOSCO) Multilateral Memorandum of Understanding (MMOU) because of the Bank Secrecy Law. Securities & Exchange Commission Chair Tess Herbosa said SEC can actually look into deposits now but only by coursing it thru AMLC. SEC needs to have the power to look into bank deposits directly to have “teeth” to go after trading manipulators and insider traders.

There is a pending bill in Congress to relax the Bank Secrecy Law. According to Isabel Pastor, head of enforcement and cooperation and senior advisor for special projects at IOSCO, transparency will attract investors to the Philippines and protect securities and derivatives products from cross-border fraud risks.

The Philippines is one of the three countries that still have a bank secrecy law, with Lebanon and Switzerland being the other two. We want to be fully compliant with all laws and also be consistent with international best practice.

The Philippines is now investment-grade and we need to continue to have investment inflows. Where do we go from here? Being a signatory to the IOSCO MMOU is a step in the right direction.

Merry Christmas and a prosperous 2018!

Flor G. Tarriela is chairman of PNB and a director of FINEX. She was formerly undersecretary of Finance, the first Filipina vice president of Citibank N.A. and past president of BAIPHIL.