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Financial regulators press anew for further easing of bank secrecy

Posted on March 09, 2017

FINANCIAL REGULATORS are batting again for the repeal of the bank secrecy law to deter investment scams and corruption, among others, and to make the country more attractive to foreign investors besides.

A money exchange store employee counts US dollar notes in Manila on November 24, 2016. -- AFP
In a roundtable discussion in Pasay City on Wednesday, the Securities and Exchange Commission (SEC), the Bangko Sentral ng Pilipinas (BSP) and the Anti-Money Laundering Council (AMLC) supported bills seeking to scrap Republic Act No. 1405.

“It means more enforcement and less financial crimes; more prudential measures from BSP and, therefore, confidence in the banking system; more investor protection from SEC and confidence in the capital markets and more foreign direct investments,” SEC Chairperson Teresita J. Herbosa said.

Senators Juan Miguel F. Zubiri, Leila M. De Lima, Aquilino L. Pimentel III and Panfilo M. Lacson have filed separate bills to exclude government officials and employees from the prohibition against disclosure of or inquiry into bank deposits.

The proposed measures have been referred to the Senate committee on banks, financial institutions and currencies, which has since formed a technical working group and conducted hearings to iron out the details.

The SEC, however, proposes to scrap RA 1405 altogether.

The corporate regulator, which hosted the roundtable discussion for a position paper it will submit to the Congress, noted such move will align the country’s regulations with global standards for transparency and information sharing.

“I just talk to the fund managers -- big ones in the United States -- and they always say they want transparency. How can you afford them the relief they have in other countries if they cannot look into the bank accounts of the person who scammed them or a person who is appropriated?” Ms. Herbosa noted.

“It happens -- they could have an employee here, they invested here, they put up a low-cost subsidiary. Then, there’s some misappropriation going on by the company and they’re prevented by the bank secrecy law to look for the money trail of their lost money. It’s really absurd already.”

At the same time, repealing RA 1405 will enable regulators like AMLC to block attempts of money laundering and other anomalous transactions.

“I think it is high time that we consider, not just amending, but explore the possibility that we can totally repeal the bank secrecy at least for the regulators. There should be no problem for regulators and financial investigators and even the government to access bank records,” AMLC Bank Officer Robert F. Bernardo said.

While it enjoys exemption from the prohibition under the law, AMLC still needs to secure court approval before it can look into bank deposits, except in cases of terrorism financing and kidnapping, among others.

In many cases, such a requirement has allowed suspects behind illegal activities to clear their bank accounts and prevent authorities from building cases against them as well as from recovering the money.

“The other thing is it took us years to get especially the big fish. Ordinarily, we get to immediately run after those arrested. But to trace and be able identify the master mind, we are having difficulty,” SEC Commissioner Emilio B. Aquino said.

The Department of Finance (DoF), the Insurance Commission, the Philippine Deposit Insurance Corporation and the Office of the Ombudsman also noted how such a move could strengthen their respective mandates.

For the Finance department, for instance, Undersecretary and Chief Economist Gil S. Beltran noted that lifting the bank secrecy law will allow tax collectors to pursue tax evaders and build a solid case against them.

“Actually we are losing about 30% of the total potential tax collections because of leakages from the system and tax collectors cannot go after them because they don’t have evidence and can’t even get court order to access bank records because they need to present evidence,” Mr. Beltran explained.

Scrapping RA 1405 will equally benefit the Ombudsman in enforcing its mandate of investigating and addressing corrupt practices in the government, Deputy Ombudsman for Luzon Gerard A. Mosquera said.

“The Ombudsman is actually enjoying exemption -- it can subpoena and gain access to bank records -- so that should be okay. However, there was a Supreme Court decision in the case of Marquez, which tells us you have the authority but you can only do it on two conditions: notify the bank depositor and there should be a case already pending before the court.”

Mr. Mosquerra said the ruling was “absurd” for undermining the rationale of exempting the Ombudsman from the bank secrecy law.

“The law gave the Ombudsman that power to gain access to record as an investigative tool precisely to build up a case... If you file a case without evidence or the bank records, the judge will scold you and just throw out your case,” Mr. Mosquera said.

Also, the waiver executed by government officials in their statements of assets, liabilities and net worth allows the Ombudsman to request only government financial institutions to verify the declarations made.

Alvin C. Go, head of legal services at BDO Unibank, Inc., cited the willingness of the country’s biggest lender to help regulators in deterring money laundering, investment scams, corruption and other illegal activities.

“What we’re concerned is we need standards if ever we will relax RA 1405 because we will be guided by those standards and the balancing act that we have to make in compliance with the requirements of the regulators vis a vis the private rights of our clients,” Mr. Go said.

But specifying conditions and situations warranting access to bank records may leave room for banks to refuse compliance, Mr. Bernardo said, suggesting the law should rather afford banks protection from clients suing them for heeding requests from authorities.

“We may have to go back to the rationale of the bank secrecy law. It was to prevent hoarding right after the war because people wanted maybe to keep their money, so in 1955 they wanted people to go to the banks to deposit their money and they offered that absolute protection,” Ms. Herbosa said.

“If you are having this law now just to protect less than one percent, who are the criminals, what’s the use? I think the good results that will come out far outweighs the evils we’re experiencing now because of its continued existence.”

Besides, the country supposedly has other existing laws -- RA No. 10173 or the Data Privacy Act of 2012 and RA No. 8791 or The General Banking Law -- that provide “sufficient protection” to holders of bank accounts.

“If we take away RA 1405, you cannot just get any information because the General Banking Law says funds in the bank are still confidential; meaning, if we take away bank secrecy law, still you cannot get information about bank deposits without a court order,” BSP General Counsel Elmore O. Capule said. -- Keith Richard D. Mariano