Need to Craft new Bank Secrecy Law

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.

Green Plants and Philippine Education

A teacher I once had said that you can conclude a lot about the education system of a country by asking an 8-year-old child: “Why are plants green?”. Ask a Filipino 8-year-old (according to my teacher), and the answer will be something like: “God made it so.”, or “the angels work to make it green”. Ask a Japanese 8-year-old, and you will get a story that involves photosynthesis and chlorophyll.

It has been some time since I have been in school, but I think the Philippine education system is very much in the same place as it was in my time. Filipinos are generally taught creationism (in effect) first, and then science later.

A niece of mine was enrolled in an ‘exclusive’ Catholic school. When she was about Grade 5, she recited to me how photosynthesis works. It was straight out of the book, word for word. I wonder how much she really understood of the concept then.

How Photosynthesis Works
I don’t think many students in the Philippines go further than: “plants are green because they contain chlorophyll, and chlorophyll is green. ” If you really think about it, this is only a marginally better answer than “God made them green”. The “plants have chlorophyll” story sounds scientific, but it isn’t, really. A real scientific explanation should go into WHY chlorophyll is green.

The explanation of why chlorophyll is green could be done in various scientific levels. Let’s start with the first one: chlorophyll is actually a family of compounds which absorb light to produce energy. Chlorophyll A & B, the most common forms, absorb red and blue light, and not green. Thus, light reflected from leaves look green. In the Philippines, I think only BS Biology students could tell you that.

Of course, the story goes deeper. [second level] When sunlight hits chlorophyll, it emits an electron, which goes to make Adenosine Diphosphate (ADP) into Adenosine Triphosphate (ATP). ATP is the body’s ‘small change’ for energy. Elsewhere in the plant, ATP is used to make carbohydrates from water and carbon dioxide.  I suspect that BS Biology students don’t even get this far.

[There would even be another level of explanations which explain why the specific structure of the various chlorophyll variants absorb light at certain frequencies and not others, and the mechanism of how ADP becomes ATP, and how ATP is used to make carbohydrates. But this is too deep for our current purpose.]

Back to the first scientific level. Chlorophyll is actually a very inefficient way of turning light into energy. [and that is why plants only transform 1% of sunlight into plant material, thus ‘wasting’ 99%] Chlorophyll reflects green which is potentially a very good wavelength to get sunlight, which has a lot of waves (or photons) around the green part of the spectrum. Chlorophyll is actually one proof that life did not come about as the result of a ‘creator’ or ‘intelligent design’. An intelligent designer would have made plants absorb more light (instead of wasting 99% of it), making them black so that it would absorb all light. If green chlorophyll just so happened to have arisen by mutation, further mutations would just improve on it, instead of making a whole new and more efficient molecule. So, the imperfect (you may say defective) nature of chlorophyll shows that it is not the product of an ‘intelligent designer’.

Leaves become brown when the plant withdraws Magnesium from chlorophyll, turning it into a transparent substance. As a result, the leaf then would reflect red and blue, resulting in brown.

How Students Are Taught
The fact that Filipino students learn that” plants are green, because they have chlorophyll” (which is good for 8 year-olds, but not for university students) shows us how science is taught in the Philippines. Science is taught by getting students to memorize things, instead of getting them to understand processes.

Biology is a tedious subject, where students have to memorize a lot of things. They have to remember how plants and animals are classified, that sort of thing. This makes the whole subject quite boring and daunting. Instead, biology could go into the WHY and HOW species actually develop. And look at things like: polar bears adapting to climate change by mating with brown bears; primitive whales  surviving by swimming in the cold water near the north and south poles and out of reach of huge sharks (in the past, sharks were much bigger than they are today). Biology could be such an interesting subject. And this is the case for more subjects.

History could become interesting, if only it is taught like a series of adventure stories. Imagine the story of Magellan: the various intrigues in the Spanish Court and during their journey; the politics of Humabon and how Lapulapu outsmarted Magellan, and why Humabon was forced to massacre the Spanish; how Magellan’s slave Trapobana (Enrique) was the first man to circumnavigate the world, etc. It could be interesting; but instead, teachers have reduced it to a series of dates and names, in other words – to a boring lesson. Even Yoyoy Villame did it better than the schools, with his song ‘Magellan’ that we can easily remember.

Everybody who says that history is a boring subject, is just saying that they had unimaginative history teachers. When I was in the 3rd year high school, I had a teacher who made history into a set of stories; and I have been interested in history ever since.

K12?
Philippine education could be improved a lot by changing the way subjects are taught. While memorization cannot be totally avoided; they will then be in addition to the interesting stories behind them. And researches show that if a concept is made interesting, it is more easily remembered.

But instead of improving the quality of education, the government is now busy with the K12 program, which aims to increase the quantity of education. The plan is to add two more years of monotonous, boring lessons for the poor students, without offering a way to raise their intellectual level. I think that unless education is made more interesting, analytic, up-to-date, adding two years to it may do more harm than good.

Don’t Imprison Ex-Presidents

Many people advocate putting former president Gloria Macapagal Arroyo on trial, in the hope of imprisoning her for misdeeds. They say that a president, who holds ultimate power, also has ultimate responsibility and needs to be punished the most if they abuse this power.

They have a point. But, I disagree with their course of action. Imprisoning an ex-president is not a good idea. Imprisoning Erap was a big mistake, and it’s too bad that we haven’t learned our lesson.

Political Reckoning
The biggest reason for not imprisoning ex-presidents is that it gives the impression of it being a political reckoning by the current president. The recent trial and jail sentence of Julia Timoshenko of Ukraine illustrates the point. She was convicted on a flimsy charge of signing an oil deal disadvantageous to the country, and now has to stay 7 years in jail for it. This verdict has damaged Ukraine’s relations both with the West and Russia.

Coup leaders in all kinds of third world countries routinely throw their predecessors in jail. While these civilian ex-presidents may have been quite guilty of corruption; they nevertheless had been singled out for prison, while other corrupt officials remain in office.

In the case of Thailand, Prime Minister Thaksin Shinuatra was deposed by a military coup. And then he was charged with corruption to effectively keep him from returning to the country. As a result, Thailand had troubles with Thaksin supporters (the ‘red shirts’) who alternatively held massive demonstrations and defeated military-backed parties during elections. Now, we have Thaksin’s sister (Yingluck Shinuatra) as the new Prime Minister.

The imprisonment of Joseph Estrada was also, in a way, a political reckoning. The ‘revolutionaries’ (led by Makati Business Club types) of EDSA 2 had to convict him of corruption in order to justify having overthrown him. While  Estrada was certainly quite guilty of corruption;  he had been singled out for conviction, and that was still a political reckoning. Estrada was eventually pardoned by Arroyo, but only after Arroyo had been elected for another presidential term. Whatever we may think of Erap Estrada, enough people felt that he was deposed and imprisoned unjustly, and that he deserved to continue his term as president. In protest, these people voted for Fernando Poe Jr (a close friend of Estrada) for president in 2004, and gave Estrada get the second highest number of votes in the 2010 elections.

Base of Support
Every former president has a base of electoral support. These people will react (sometimes, quite violently) to the imprisonment of ‘their’ president. In the case of Estrada, we saw this in the large mobilizations for ‘EDSA III’ and the electoral support during 2009 elections.

The peaceful transfer of power from one president to the next is not helped by the prospect of the new president imprisoning the old one. Not only may it lead them to stay in power longer (perhaps by extra-constitutional means), the president could also appoint people to key positions (e.g. Ombudsman Guttierez) to prevent this from happening. A president appoints a lot of officials during his/her term, and some have terms that last way into the term of his/her successor. These people could cause trouble for the new president if the previous one is imprisoned.

Dictators
Dictators are an exception to the principle of not imprisoning presidents. By definition, dictators don’t hold fair elections anyway. They usually appoint close family members to head the security services (General Ver was a relative of Marcos). Dictators are notorious for imprisoning or killing a lot of their opponents.

When dictators are overthrown in a revolution, the change is so abrupt, so radical. All the appointees are thrown out together with the dictator. There is no constitutional continuity to preserve, since the dictator had so mangled the constitution that the new government has to draft a new one.

Corrupt presidents are one thing, while cruel dictators – with a lot of blood on their hands – are another. While I advocate NOT imprisoning corrupt ex-presidents; dictators need to be tried in court if possible, in order to fully expose their acts, and so steps could be taken to prevent them happening again. Then they should be thrown in jail, if found guilty.

What to do now?
But if we don’t imprison an ex-president, or his/her family, when they are corrupt, does this mean they have special treatment? Will they go unpunished? Isn’t this impunity?

Not really. In a case of a corrupt ex-president, the best option may still be to subject him/her to a fair trial. If found guilty, he/she should be sentenced to both a prison term and a fine (equivalent to the money stolen). And then, the prison term should be suspended.

This way, the ex-president’s loot is returned to the country, and he/she is barred from returning to office indefinitely. The electoral base will be bothered, even unhappy; but they will accept the court verdict. As for the corrupt relatives, they should be given the maximum prison sentence if found guilty. This is also, indirectly, a punishment for the ex-president.

Why Progressive Taxation and Cash Transfers make sense

If Tea Party activists are to be believed, the US government is busy taking away money from hardworking citizens, and spending it on bureaucratic government or on the parasitic poor.  In response, they call for lower taxes, smaller government and less social spending. While there may be some things valid in the criticism of how the government works and its social spending priorities are, there is a case to be made to keep such things in place, in principle.

If we were truly to minimize government, keep taxes as low as possible and have no social spending, we will get something like Somalia – a failed state in chaos, with terrorists and criminals running loose, and not much of an economy. There is a need for the state and its bureaucracy, in order to keep an economy running well.

But Somalia is not the US – it was undeveloped even while it had a functioning state. True. But when it had a functioning state, it at least had a working economy, and not as much crime, terrorism etc. as it has today.

For an example of a much more developed country with low taxes , minimum state and low social spending, lets take the case of Russia during the years immediately after the fall of the Soviet Union. The lack of effective government controls on the economy resulted in a handful of people getting control of huge chunks of the country’s wealth. They didn’t pay much taxes, corruption was rampant, crime syndicates ran amok and there were shortages of coal and other resources.

A developed economy needs to have a developed system of government. And this means that people need to pay the necessary taxes to pay for that government. As an economy is more developed, it needs more government officials, not less, in order to run things correctly.

Progressive Taxation
Progressive taxation makes sense from both an economic and a moral point of view. If a country needs to raise a certain amount of money, it makes economic sense to get a bigger proportion of this from the rich, rather than from the poor. The rich have more money than the poor; and their capacity  to spend is less affected by taxes than that of the poor. Also, since the poor tend to spend most of their income (while the rich save part of it), the multiplier effect of having poor people retain their money means that the market demand for goods is higher.

Now for the moral point. It is a myth that rich people had worked harder to become rich. A lot of rich people started off as rich children – being born of rich parents. And every successful businessman became so partly because of contacts, privileged information, or just plain luck; combined, of course with some measure of hard work.  Hard work is responsible for only a part (the smaller part, actually) of the wealth of rich people. Following this logic, rich people ought to give back more to society, because they have benefited more from society than others.

Conditional Cash Transfers
Cash transfers for poor families is a way of ensuring a minimum standard of health and education for citizens. On the short term, it may look like charity or dole-outs, but it is really a smart investment into the future. An educated and healthy labor force is worth a lot more than what the Cash Transfer Program eventually costs, in the longer term. Conditional Cash Transfers (CCTs) do not make people lazy; on the contrary, people will work harder if a better future and standard of living is achievable, than when their situation is hopeless.

It would be even better if the government is able to provide Universal Health Care and quality Free Education for all. But, when this is not yet possible, a Conditional Cash Transfer program that improves the health and education prospects for the poorest families is a good thing to do. An added, though secondary, advantage of a Conditional Cash Transfer program is that it stimulates the local economy in the poorest communities. The CCT effectively raises the level of demand, leading to more business for merchants, more goods get transported, and there is more demand for services (e.g. laundry, transportation, retailing). And all this indirectly raises the welfare of all the poor families in the area (e.g. through cheaper goods, more job opportunities).

A Four Day Hike

My wife Maya participated in a national hiking event here in the Netherlands. She walked 40 kilometers for 4 days in a row (total of 160 km), in the Nijmegen 4 Day March  on 19-22 July. About 40,000 people participate in this event every year. It is organized by the Dutch National Hiking Federation. There are lots of hiking events organized throughout the year, but the Nijmegen 4 Day March is the most popular of these.

The 4-Day March is a huge event in Nijmegen. The hikers can hike 40 or 50 kilometers per day (or 30 km for those over 60 years old). It started as far back as 1909, and was originally a military event. On each of the 4 days, the hikers follow a different route, bringing them to many of the towns surrounding Nijmegen. This event brings many people together and promotes regional understanding. Those who don’t hike enjoy listening to various bands at podia set up across the city.

The Nijmegen Four Day March comes from a deep-ingrained Dutch culture of walking. There are all kinds of walking events all year round.  People walk or bike to work; I used to walk for 25 minutes (about 2 km) from the train station to my office (and back, of course). I believe that walking (and biking) are part of the reasons why the Netherlands is a country with a comparatively small number of obese people (among developed countries). Hiking is healthy.

Philippines
Hiking events in the Philippines usually involve hiking in nature areas with a guide. There are no massive hiking events that are packaged as such. However, there are various demonstrations and processions that we could actually call hikes.

Running seems to attract more and more people in Philippine cities these days. I think we should expand the ‘menu’ to also include hiking events in the cities. Hiking has a number of advantages. First, it is a good source of exercise, which is relatively cheap since all you really need is a good pair of shoes and functional legs. Second, hiking has the potential of including a lot more people than running, since many people are not able to run, but could walk.  And third, if the event is packaged well, it can lead to more social cohesion, especially if it is part of an annual event like a fiesta.

Just imagine if there is a Holy Week “Visita Iglesia Walk” that goes to seven churches. People should walk between them, riding is not allowed. Or that a 5 kilometer walk is part of the celebration of a town fiesta.  Who knows, it could help to make Filipinos healthier, while also promoting the local economy and even attract tourists.

But walking should also be integrated more into the daily life of Filipinos. We should stop the practice of taking a jeepney or tricycle for a distance of as little as 500 meters.  Schools should integrate short hikes as part of their Physical Education. And there should be more and bigger pedestrian shopping areas.  This will help to keep Filipinos healthy.