Bank secrecy law needs amendments

Just to be clear, our lawmakers themselves are the ones who have made it difficult (and continue to make it difficult) for the Bangko Sentral ng Pilipinas (BSP) and the Anti-Money Laundering Council (AMLC) to quickly act and look into accounts of individuals who are under suspicion of money laundering, terrorist financing, corruption or illegal financial transactions.

Thus, if our legislators truly want to heed the call for transparency, address corruption and prove that they are not using the bank secrecy law to hide their own unexplained wealth, they should now act promptly to pass the necessary amendments to lift the restrictions on the bank secrecy law.

As currently crafted, the Philippines’ bank secrecy law imposes restrictive conditions for the BSP and/or the AMLC to look into individual accounts and put a freeze order on such accounts. The existing bank secrecy law requires the BSP and/or AMLC to first secure a court order to look into suspicious accounts.

Problem is, in securing the court order, information leakage often happens, so by the time the BSP and/or the AMLC secures the court order to look into private individual accounts, the suspected account holders may already have been able to move or empty the bank account.

According to the BSP, as early as 2011, the Group of Twenty or G20 had already declared that the “era of bank secrecy is over” after it endorsed the standards on transparency and exchange of information.

In 2014, the Organization for Economic Co-operation and Development released the standard for automatic exchange of information as the new global standard of obtaining detailed account information from financial institutions, and exchanging that information automatically with other jurisdictions for the purpose of combatting tax evasion, money laundering and commission of other crimes. This global regulatory watch lifted the cloak of bank secrecy.

The last three to hold out from the transparency move were Lebanon, the Philippines and Switzerland. Switzerland and Lebanon eventually lifted their bank secrecy laws. The Philippines is now 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.

According to the International Monetary Fund, the Philippines’ bank secrecy law restricts the ability of the BSP to undertake effective supervision. The IMF noted that our secrecy laws undermine financial stability, financial integrity and development of the banking sector, and expose the banking system to reputational risk.

The IMF recommended that legislative amendments be promptly approved to give the BSP direct and full access to individual depositor information covered by bank secrecy laws.

The BSP, Bankers Association of the Philippines, Management Association of the Philippines, Chamber of Thrift Banks and the Makati Business Club have proposed the repeal of bank secrecy laws. While there are pending legislative proposals to amend the existing bank deposit secrecy law in the Philippines, Congress has not exerted effort to enact the proposed amendments.

Fortunately, the Anti-Financial Account Scamming Act was passed and signed into law last year to combat financial cybercrimes, safeguard the interests of financial consumers and uphold the integrity of the financial system. Under the AFASA, the BSP has the authority to investigate and inquire into financial accounts, and to share the said information with law enforcement and other competent authorities subject to the limitations imposed under the said law.

For such purpose, the relevant provisions of laws containing prohibitions against inquiry into or disclosure of deposits under the Law on Secrecy of Bank Deposits, Foreign Currency Deposits Act of the Philippines and the Revised Non-Stock Savings and Loan Association Act of 1997, shall not apply to financial accounts that are the subject of the BSP’s investigation.

Removing the restriction on our bank secrecy law is a crucial move as the world faces an even far greater threat from evolving digital technology and cryptocurrencies.

In a recent article of the IMF Finance & Development Magazine, Chady El Khoury, deputy division chief in the IMF’s legal department, wrote about fighting tech-fueled crime that now uses advanced technology and Artificial Intelligence.

In his article, he wrote that organized criminals are operating across international borders using advanced technology and social engineering, such as romance or investment scheme to manipulate victims using AI-generated profiles, encrypted messaging and obscured blockchain transaction to hide and move stolen funds.

Criminals, El Khoury wrote, are outpacing enforcement by adapting ever faster, using the best tools for their schemes, from laundering money through crypto and AI-enabled impersonation to producing deepfake content, encrypted apps and decentralized exchanges.

Authorities, he said, now face anonymous, borderless threats, but are unfortunately held back by jurisdiction, process and legacy systems.

Annual illicit crypto activity growth, he wrote, has averaged about 25 percent in recent years and may have surpassed $51 billion last year, according to Chainalysis, a New York–based blockchain analysis firm specializing in helping criminal investigators trace transactions.

Bad actors, he said, still depend on cash and traditional finance, and money laundering specifically relies on banks, informal money changers and cash couriers. But the old ways are being reinforced or supercharged by technologies to thwart detection and disruption.

Encrypted messaging apps, he said, help criminal cartels coordinate cross-border transactions. Stablecoins and lightly regulated virtual asset platforms can hide bribes and embezzled funds.

Cybercriminals use AI-generated identities and bots to deceive banks and evade outdated controls. Tracking proceeds generated by organized crime is nearly impossible for agencies with insufficient resources.

AI lowers barriers to entry, he added. Fraudsters with voice-cloning and fake-document generators bypass the verification protocols many banks and regulators still use. Their innovation is growing as compliance systems lag.

Governments recognize the threats, but responses are fragmented and uneven – including in the regulation of crypto exchanges.

And there are delays implementing the Financial Action Task Force’s travel rule to better identify those sending and receiving money across borders, which most digital proceeds cross.