PDIC to tighten rules on splitting of deposits

MANILA, Philippines - Holders of dummy accounts will be held criminally liable if caught participating in illegal splitting of bank deposit accounts, the Philippine Deposit Insurance Corp. (PDIC) said yesterday.

The PDIC is drafting the rules that will tighten the restrictions on deposit splitting which officials said pose undue risk to the Deposit Insurance Fund (DIF).

PDIC president Jose Nograles said splitting of deposit occurs when a deposit account is broken down into smaller accounts as it reaches the maximum deposit insurance coverage.

The accounts are usually transferred into two or more accounts in the names of persons or entities with no beneficial ownership.

“This means that the transferee does not really own the deposit account, even if it is in his name and is only acting as a dummy,” Nograles explained.

According to Nograles, people resort to this practice when they put their money in risky instruments masquerading as deposits.

“Instead of bearing the higher risk associated with higher interest, they shift the risk to PDIC, by resorting to splitting so that each split account will be within the maximum deposit insurance coverage,” Nograles said.

Nograles said among the measures being studied by the PDIC is the inclusion of a sworn statement in the claim form for deposit insurance. This would make the false “transferees” or dummies criminally liable for any misrepresentation concerning the claim for deposit insurance, particularly with regards to ownership of the deposit.

Nograles said introducing the risk of criminal liability would hopefully discourage persons willing to act as dummies.

“PDIC will also adopt payment of valid deposit insurance claims through registered mail as a standard payment system not only for faster service to depositors, but to ascertain that only valid deposit insurance claims are paid,” he said.

According to Nograles, mailing the checks to claimants on record would also make it difficult for a depositor of split accounts to control receipt of the payments by their dummies.

Under the new PDIC Charter (as revised by RA 9576) which increased deposit insurance coverage from P250,000 to P500,000 effective June 1, 2009, the corporation was granted institutional strengthening powers to deal with the risks associated with higher deposit insurance coverage.

Nograles said this includes more stringent rules on splitting of accounts.

Under the new law, splitting of deposits is not allowed within 120 days from bank closure or declaration of bank holiday. Presumably, this will prevent favoured clients from being able to exploit the PDIC insurance.

Under the old law, deposit splitting was not allowed within 30 days from bank closure.

“The longer window set by law along with the new rules will help ensure that benefits of deposit insurance are not abused,” Nograles said.