Do we still need a bank secrecy law?

Various business groups and foreign chambers of commerce have requested President Bongbong Marcos to prioritize certain legislative proposals, among which is an amendment to the country’s bank secrecy law.

Republic Act 1405, enacted in 1955, makes absolutely confidential in nature all deposits of whatever nature with banks or banking institutions in the Philippines, including bonds issued by government. These cannot be examined, inquired or looked into by any person, government official, bureau or office.

The law was enacted to encourage people to deposit their money in banks. However, the Philippines is the only remaining country in the world with a bank secrecy law after Lebanon lifted the secrecy on bank deposits in 2020.

In People vs Estrada, the Supreme Court held that RA 1405 applies to trust accounts, explaining that the law applies not only to money which is deposited but also to those which are invested.

The archaic law however specifically provides for exceptions to this rule. These can be examined only if there is written permission of the depositor, or in cases of impeachment, or upon court order 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.

According to RA 1405, it shall also be unlawful for any official or employee of a banking institution to disclose to any person any information concerning said deposits, unless the disclosure falls under any of the exceptions.

Any violation of the law will subject the offender to imprisonment or fine or both at the court’s discretion.

Over time, other exceptions to the bank secrecy law have been carved out either by law or by jurisprudence.

These are:

Upon subpoena issued by the Ombudsman concerning investigation it is conducting provided there is a case pending in court

By the BIR in an application for compromise of tax liability or determination of decedent’s gross estate

By the Anti Money Laundering Council pursuant to a court order where there is probable cause that the deposits are related to an unlawful activity or money laundering offense

By the AMLC, without court order, when deposits are related to kidnapping for ransom, violation of dangerous drugs law, hijacking, destructive arson, murder

By the Bangko Sentral ng Pilipinas in the course of its periodic or special examination regarding compliance with AMLA

In case of DOSRI loans under the General Banking Act where the borrower is required to waive the secrecy of his bank deposits

Under the Human Security Act, upon court order, by law enforcement officials in cases of financing of acts of terrorism

Under RA 3591 or the PDIC Charter where the BSP and the Philippine Deposit Insurance Corp. are authorized to look into deposits in cases involving unsound or unsafe banking

Disclosure by banks to the Treasurer of the Philippines for dormant deposits for at least 10 years under the Unclaimed Balances Act; and

Report of banks to the AMLC for covered and/or suspicious transactions under AMLA

The Supreme Court, in the cases of PNB vs Gancayco and Ejercito vs Sandiganbayan, has created another exception, that is in case of unexplained wealth under the Anti-Graft Law and in plunder under RA 7080 since these offenses, it said, are similar to bribery and dereliction of duty.

In the case of foreign currency deposits in banks operating in the Philippines, the Foreign Currency Deposit Act provides for only one exception, and that is when there is written consent of the depositor. Other laws that provided for exceptions are AMLA and the Human Security Act.

The SC, in the case of Salvacion vs Central Bank, provided for another exception, on grounds of equity, when deposits of a foreign transient can be proceeded against to prevent injustice.

As early as last year, Malacanang has already certified as urgent proposed amendments to the bank secrecy law.

According to the Bangko Sentral ng Pilipinas, the amendments would equip the BSP with tools necessary to prove the commission of fraud, serious irregularity, or unlawful activity and would allow it to have a holistic examination of a banking institution so that certain risk areas will be considered in assessing a bank’s financial condition, risk management, and corporate governance.

The Securities and Exchange Commission also wants the law amended in order to further strengthen its efforts against dirty money, tax evasion, and other financial crimes. It said that the law has limited the effectiveness of the agency to establish the owners of bank accounts used in cases of violations of the Securities Regulation Code, the Corporation Code, and other laws implemented by the commission.

The SEC added that the law prevents it from validating declared financial positions of companies where there are grounds to believe that there is an effort to conceal misconduct, corporate fraud, or non-compliance with certain requirements.

A previous proposed amendment would empower the SEC, the BSP, the PDIC, the AMLC, the Department of Justice and other courts to look into deposits of supervised institutions or persons should there be reasonable grounds to do so.

This time around, business groups such as the Financial Executives Institute of the Philippines, Makati Business Club, IT and Business Process Association of the Philippines, Management Association of the Philippines, Philippine Association of Multinational Companies Regional Headquarters, and Semiconductor and Electronic Industries in the Philippines Foundation as well as various foreign chambers in the Philippines including those of the US, Europe, Australia-New Zealand, Canada, Japan and Korea want the new President to call on Congress to prioritize these amendments to help jumpstart the country’s recovery efforts.

At the moment, there are no indications that the Philippines will remove its bank secrecy law. Instead, the proposals in Congress focus more on promoting transparency and soundness in the operation of banks, removing investments in bonds issued by government from its coverage, providing for more exceptions in the case of foreign currency deposits, and giving government regulators more power to ensure compliance by businesses under their watch.

There had also been calls to exclude from the law’s coverage bank accounts of elected and appointed public officials. I doubt it though if our legislators and executive officials would allow this to happen.

All these proposals provide for safeguards to ensure that the disclosures or inquiries into bank deposits are not conducted for fishing expedition purposes.

There are better ways to promote deposits in banks. Has the bank secrecy law done in its part to achieve this?

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