Archaic laws on bank deposit secrecy

With two years left in BBM’s administration and the 20th Congress, the amendment to the country’s bank secrecy laws will most definitely soar to the top of the list of priority legislation for enactment into law.

Just recently, the Senate, sitting as an impeachment court, granted the House prosecution’s request to subpoena the bank records of Vice President Sara Duterte, including those of her husband Manases Carpio, their joint accounts, as well as other corporate entities with established prima facie links to them.

But the court limited the subpoenas to peso-denominated bank accounts, denying the request insofar as their foreign currency-denominated (in US dollars and other foreign currencies) deposits are concerned.

But why the distinction?

Republic Act 1405 or the Secrecy of Bank Deposits Law, enacted in 1955 and which applies only to peso-denominated bank accounts and investments in government bonds, provides that all deposits of whatever nature with banks or banking institutions in the Philippines are of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation.

Meanwhile, RA 6426 or the Foreign Currency Deposit Act (FCDA) of the Philippines which took effect upon its approval in 1974, provides that all foreign currency deposits are of an absolutely confidential nature and, except upon the written permission of the depositors, may not be examined, inquired or looked into by any person, government official, bureau or office whether judicial, administrative or legislative or any other entity whether public or private.

Said foreign currency deposits are also exempt from attachment, garnishment or any other order or process of any court, legislative body, government agency or any administrative body whatsoever.

The law is very clear. In cases of impeachment, only records of peso-denominated bank accounts but not foreign currency deposits can be subpoenaed by the impeachment court.

Presidential Decree 1246 which took effect in 1977 and amended RA 6426 further strengthened the secrecy of foreign currency deposits when it provided that in the event of a new enactment or regulation is issued decreasing the rights granted under the FCDA, such new enactment or regulation shall not apply to foreign currency deposits already made or existing at the time of issuance of such new enactment or regulation but only to those made after its issuance.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Elmore Capule, reacting to the Senate impeachment court’s decision excluding the Dutertes’ foreign currency-denominated bank accounts, sharply criticized bank secrecy laws which he said have frustrated investigators for decades.

In the case of Republic vs Rabusa, the Supreme Court ruled that Security Bank in that case cannot be legally compelled to disclose the foreign currency bank accounts of Lt. Col. George Rabusa involving proceedings for the forfeiture of unlawfully acquired properties, otherwise it may unwittingly expose itself to criminal liability under the FCDA which is designed to encourage foreign lenders and investors.

This does not mean, however, that foreign currency-denominated bank deposits are absolutely immune from inquiry and examination.

The Anti-Financial Account Scamming Act

Under RA 12010, for instance, gives the BSP authority to examine both peso and foreign currency accounts in investigations involving financial scams.

Other laws as well as jurisprudence have provided for additional exceptions to the secrecy of foreign currency deposits.

• Borrowings of directors, officers, stockholders and related interests who are required to execute a written waiver of secrecy of deposits in accordance with the New Central Bank Act;

• In cases of application for compromise of tax liability, determination by the commissioner of the Bureau of Internal Revenue of a decedent’s gross estate and exchange of tax information;

• A covered institution that reports foreign currency deposits in covered or suspicious transactions reports to the Anti-Money Laundering Council;

• Inquiry by the AMLC into deposits or investments related to unlawful activities or money laundering offenses under the Anti-Money Laundering Act (AMLA);

• Investigation by the AMLC of deposits and investments related to financing of or acts of terrorism;

• Conduct of annual testing by the BSP solely limited to the determination of the existence and true identity of the owners of foreign currency non-checking numbered accounts to prevent money laundering;

• Inquiry or examination of deposits or investments by the BSP in the course of a period or special examination to ensure compliance with the AMLA;

• Inquiry by the BSP or the Philippine Deposit Insurance Corp.(PDIC) in cases of unsafe or unsound banking and failure of prompt corrective action;

• Audit of government deposits by the Commission on Audit;

• As declared by jurisprudence, garnishment of a foreign currency deposit account of a non-resident alien found guilty of raping a minor was allowed on the basis of equity as well as a co-payee of a check who filed a suit for recovery of money was considered in a pro hac vice ruling by the Supreme Court as a depositor in view of the distinctive circumtances of the case.

Most of these additional exceptions, culled from a BSP legal primer on the laws on secrecy of bank deposits, are also applicable to peso-denominated bank accounts.

In the said primer, the BSP explained that prior to the FCDA, one of the main challenges of the country was its unstable financial condition which was greatly caused by, among other factors, heavy dollar spending. This in turn caused a dollar deficit in the country, which dollars were necessary to finance foreign currency liabilities and dollar-denominated transactions.

To address this deficit, Filipinos working overseas were targeted as potential of foreign currencies.

“The repatriation of dollars by Filipinos abroad was envisioned to boost the economy. Foreign currencies were also considered to be part of the country’s international reserves.

“Thus, it is imperative to attract and invite deposits of foreign currencies in duly authorized banks in order that they may be put into the stream of the banking system. This law put in place the primary incentives of protection and stability of the foreign currency deposit system.

“This law and its subsequent amendments introduced more incentives by guaranteeing confidentiality of deposits, granting tax exemptions, allowing withdrawability and transferability of deposits and affirming the vested rights of depositors.

“These incentives were intended to encourage residents and non-residents to deposit their foreign currencies in the Philippines banking system,” it pointed out.

The BSP further noted that although there are pending legislative proposals aimed at amending the existing bank deposit secrecy laws in the Philippines, no such amendments have been enacted.

The country’s central monetary authority likewise stressed that the language of existing laws on bank secrecy makes the Philippines the only country to still have a restrictive bank secrecy policy, making it hard for the government to go after tax evaders and money launderers.

This is despite the global trend to shift from secrecy toward transparency.

It’s about time that the FCDA be amended to include exceptions similar to those provided for under the Secrecy of Bank Deposits Law.

Otherwise, corrupt public officials, especially the impeachable ones, can just resort to foreign currency-denominated deposits to escape investigation and prosecution.

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