Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

Need to Craft new Bank Secrecy Law

Posted by butalidnl on 21 February 2012

There is a lot of interest these days on the issue of Bank Secrecy – specifically about looking at officials’ bank accounts to determine if they have some undeclared wealth. Some people have proposed that the Bank Secrecy Law be changed. I agree. But it is important to note that any new law will only apply to subsequent cases, and not to the current impeachment trial.

There are actually two Bank Secrecy Laws: the Foreign Currency Deposit Act (FCDA), otherwise known as Republic Act No. 6426, enacted in 1974; and the Bank Secrecy Law (Republic Act No. 1405) enacted in 1955. Both  need to be amended, or rather replaced by a new law. The new law is needed in order to fight corruption, tax evasion, money laundering etc, while protecting the privacy of bank accounts.

Why Secrecy/Privacy?
The law should be changed, and it should properly be renamed as a ‘Bank Privacy Law’. The basic principle of this law would be that a person’s bank account is private – i.e. known only by him and his bank. But that the government should have the capacity to access what it needs from such accounts to determine if any laws have been violated. Privacy should not provide a safe haven for those doing illegal acts. At the same time, privacy should be respected even when a person’s bank account records are accessed.

People want to have privacy in their bank accounts for all kinds of reasons. Bank accounts reflect what one does in life, and these things do not need to be known by the public. They may have special reasons why they do not want to divulge their bank account data.  Things like: donations to one’s church and other charitable causes, tuition fee payments, even the cost of a house may not be good to divulge. And there are things that are legal, but may be awkward: payment for a drug rehab treatment, a VD clinic, or even informal support payments for an ‘undeclared’ child.

Public officials should be subject to more monitoring than the rest of the public. This is to check against cases of corruption. They are required to file SALNs (Statement of Assets, Liabilities and Net worth), which naturally include their bank account balance. In order to ensure that SALNs are accurate, anti-corruption bodies should be able to verify that their declared bank account balances are accurate.

The question that policymakers should consider is: how to craft a law that protects people’s bank privacy, while ensuring that tax evaders, criminals and corrupt officials don’t use the banking system to hide their deeds?

Provisions
Some provisions of the proposed law would be:
Protection of Account Privacy. Bank accounts, whether they are in peso or in foreign currency are private. Anybody violating this without legal justification will be severely punished. When an investigation makes it necessary for a Court to access some account data, the data should be limited to what is strictly needed, and the full account record should never come out in a court record.

End of Year Balance. At the end of every year, banks will provide depositors a statement of their balance as of 31 December, as well as the amount of tax withheld. This will be used as a basis for SALNs etc.

Withheld Tax. All Earnings through the banks will have tax withheld automatically. This tax will be turned over to the tax authorities. Tax on interest for foreign currency accounts will also be collected; the rate of tax will depend on the declared citizenship of the depositor. If an account holder’s country does not collect tax on interest earned, tax will be withheld based on Philippine law and collected by Philippine tax authorities.

Tax authorities can request from banks an end of year statement for persons they are investigating, which specify: total deposits, total withdrawals, total tax withheld.

Ombudsman and Sandiganbayan (anti-corruption court) have the right to request End of the Year balance, total deposits, total withdrawal and tax withheld for any official that they are investigating.  If, upon investigation of these documents, the Sandiganbayan deems it necessary, it can also ask to look at that official’s monthly bank statements.

Anti-money laundering. The NBI should be able to get access to an account in terms of the money transfers into or going outside the country, as well as large deposits and withdrawals (perhaps  amounts of P1 million or more).  The bank will provide these to them in a special form, without revealing the account holder’s other bank transactions.

Prosecution of Criminals. Courts should be able to access bank records of people being tried for financial crimes (including tax evasion and money laundering). But these records remain private – meaning that only the judge (and some select court officials) would have (temporary) access to the full records. On the basis of their examination of the actual records, they would sign an ‘extract’ from the records – which would omit all transactions not relevant to the case – as correctly reflecting the actual record. It will only be these extracts which will appear in the court record. The original records will be returned to the bank.

Bank Officials. Since bank officials have a key role in keeping bank accounts private, they have a big responsibility in their hands. Any violation of the rules by bank officials (e.g. leaking the contents of an account) should be severely punished. Before they are entrusted with these responsibilities, bank officials should be cleared by both the NBI and the BSP. The BSP will hold a regular audit of cases where bank balance data are shared with courts, to ensure that bank officials and courts correctly follow the procedures.

Exodus?
Some people are concerned that there would be an exodus of funds from Foreign Currency Deposits if the Bank Secrecy Laws are amended. I think that the economic effect of such new laws will be limited. It may even be beneficial, since it may result in a devaluation of the peso, which would benefit exporters and OFW families.

The main effect of new Bank Secrecy Laws will be that it would be increasingly difficult to hide ill-gotten wealth in the banking system. And this may, or it may not, lessen corruption of officials. If, in the process of doing so, we also rid the country of its reputation as a haven for tax cheats and money-launderers, then that should be all right.

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