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Amending the Bank Secrecy Act as a key to financial integrity


Amending the Bank Secrecy Act as a key to financial integrity

The integrity of a financial system is a key factor in its financial stability.

Finance Secretary Carlos Dominguez 3rd and Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno recently reiterated the need to amend Republic Act (RA) 1405, or the “Bank Secrecy Act.” This comes in the wake of the controversy involving German company Wirecard AG and its missing $2.1-billion funds. An “elaborate” search was conduct to determine whether the missing money entered the Philippine financial system through two of our major banks, BDO Unibank Inc. and Bank of the Philippine Islands.

In my column dated April 15, 2019, I discussed how the proposed amendments to Section 6 of the National Internal Revenue Code (Tax Code) — authorizing the Bureau of Internal Revenue (BIR) commissioner to inquire into and receive information on bank deposit accounts and other related data held by financial institutions — were not approved with the promulgation of RA 10963, or the “Tax Reform for Acceleration and Inclusion Act.”

The Bank Secrecy Act treats all bank deposits as absolutely confidential. Thus, these deposits may not be inquired into except with the permission of the depositor, in cases of impeachment, upon order of a competent court in cases involving bribery or dereliction of duty, or in case the money deposited or invested is the subject of litigation.

The need to amend that law has become more real with the coronavirus disease 2019 (Covid-19) pandemic. Because of the mobility restrictions imposed by the ongoing health crisis, online or internet-based transactions, including banking transactions, have increased. Thus, everyone is being warned about fraudulent banking schemes being perpetrated online. According to Diokno, amending the Bank Secrecy Act would further protect the country’s banking system from potential fraud and align our laws with international best practices.

We have been touted as one of two countries (the other being Lebanon) with the strictest bank secrecy rules. It is not good to be known that way, since such strict rules have been seen to contribute to the difficulty in tracking criminal activities, including terrorist financing.

Besides amending the Bank Secrecy Act, there is also the need to amend RA 9160, or the “Anti-Money Laundering Act.” According to Mel Georgie Racela, executive director of the Anti-Money Laundering Council (AMLC) Secretariat, there is a need to further amend RA 9160 to include tax crimes and real estate and developers, as well as to expand the council’s investigative powers to include subpoena powers.

Also, while the new RA 11479, or the “Anti-Terrorism Act,” makes it punishable for anyone who provides “material support” to any individual or group committing terrorist acts as defined in that law, it does not allow the examination of bank accounts of such a person or group beyond the restrictions set under the Bank Secrecy Act.

Based on our review, there are six bills proposing to amend the Bank Secrecy Act:

1. Senate Bill (SB) 634, which proposes to add exceptions to the secrecy of bank deposits by adding the following exceptions:

1. – Investigations by the Senate, House of Representatives or any of their committees in the course of their constitutional and/or statutory mandate;
– Investigations by the AMLC, BIR, BSP, Securities and Exchange Commission, Philippine Deposit Insurance Corp. and the Insurance Commission;
– Inquiry by independent auditors or a qualified agent engaged by the bank to provide an independent audit or technical services subject to a strict confidentiality agreement; and
– Inquiry on the account of a deceased depositor by his or her family members or compulsory heirs.

2. SB 26, 539 and 374, and House Bills (HB) 3554 and 1498, which seek to add exceptions to Section 2 of the Bank Secrecy Act with respect to the bank accounts of government officials, whether elective or appointive; members of the military; and officers of government-owned and -controlled corporations. These propose to authorize the examination of deposits without needing a court order or information filed before authorized investigative bodies, especially where there is ground that engenders reasonable belief that the funds involved are part or proceed in the commission of a criminal offense. These measures, however, are still pending with the Senate and House committees on banks and financial intermediaries.

SB 1357 and HB 4157 — the Senate and House versions, respectively, of the Corporate Income Tax and Incentives Reform Act, now called the Corporate Recovery and Tax Incentives for Enterprises Act — which seek to further amend the Tax Code, do not include the previously proposed amendments to Section 6 of the Tax Code on the power of the BIR commissioner to inquire into taxpayers’ bank deposits.

The reality is that the key to amending the Bank Secrecy Act is the vote of our legislators. Consequently, despite the many efforts of the Executive branch, no such amendment has seen the light of day.

Thus, unless and until Congress is convinced (or pressured) to vote on passing such a measure because it is necessary to preserve the financial integrity of our country, we will not be deemed to have complied with the international best practices of financial transparency and integrity.

Euney Marie J. Mata-Perez is a CPA-lawyer and managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer, as well as president of the Asia-Oceana Tax Consultants’ Association.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, email the author at info@mtfcounsel.com or visit www.mtfcounsel.com.


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