Whenever one hears about bank secrecy law these days, there’s always a controversy attached to it. Recently, it was mentioned in the Senate hearings on the proliferation of drugs and illegal activities in our country. Before that, it crept up in impeachment proceedings on graft and corruption, investigations on tax evasion cases and international discussions on financial reforms.
So what is it about the Philippine version of the bank secrecy law that generates such controversy?
Under Republic Act 1405, or The Law on Secrecy of Bank Deposits, all deposits with banks or banking institutions in the country are confidential, and may not be examined or looked into by any person, government official, bureau, or office. The Act, however, does provide for the following exemptions:
The depositor gives written permission in cases of impeachment
Upon order of a competent court 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
The current bank secrecy law is viewed by many as very strict and hampers transparency of reporting in the government and anti-corruption mechanisms. The bank secrecy law is being used as a reason to thwart significant challenges to courts and prosecutors from obtaining information from banks. This tactic has become evident during the impeachment trial of a former Chief Justice and the Senate inquiry on the money laundering issue involving a local bank and the Bangladesh Bank, among others. Even external auditors who provide opinion on the fairness of the financial statements are being restrained from accessing bank information by the provisions of the bank secrecy law.
A number of lawmakers, both from the House of Representatives and the Senate, support the need to lift or ease the current bank secrecy law. The proposed amendments include the exclusion of all elective or appointive officials or employees of the government, from the President down to the lowest-ranking employee, from the protection of the bank secrecy law. Other proposed amendments include the exemption of the implementation of tax treaties or other international agreements for tax purposes, authorizing the Bangko Sentral ng Pilipinas (BSP) to look into deposits and investment accounts to ensure compliance with existing banking laws and regulations and giving consent to the Bureau of Internal Revenue to examine bank accounts related to tax investigation without going to the courts for permission.
While the amendments to the bank secrecy law have a strong case to ensure transparency, the opposition remained firm that the disadvantages of relaxing the law still outweigh the benefits. Let’s analyze those points against the amendments to the bank secrecy law:
Use for political harassment
Bank secrecy law oppositors fear that the government may use this to harass their political opponents. However, this fear is unfounded as there are a number of mechanisms where government officials and employees can be made to account (i.e., they can be subjected to mandatory lifestyle checks, which require them to sign a waiver for the transparency of their bank accounts). Besides, if their wealth can be clarified and they, indeed, come from legitimate sources, what is there to fear?
Initiate capital flight
The opposition also argues that both local and foreign investors might divest their funds to much safer havens. This argument is false since the Philippines, Lebanon and probably North Korea are the only countries that still have bank secrecy laws.
Loss of confidence in the banking system
There is a concern that banks or other authorities may divulge bank information to unintended parties. The bank secrecy law covers only savings, checking and other types of deposits, but not investments in money markets, trust and mutual funds and the like. If the depositors worry that their banks may disclose details of their bank accounts with no sufficient valid reasons, then how come these depositors place significant amount of money in investments in money markets, trust and mutual funds even if these are not covered by the bank secrecy law? Besides, I believe that it is in the banks’ interest to maintain a right level of confidentiality to protect their depositors.
The bank secrecy law, unfortunately, has contributed to some serious financial and political controversies. I believe it is high time that the lifting of or changes to the bank secrecy law be adopted to show to the world that we are capable of adapting to changes to promote transparency and be at par with international standards, while ensuring the safety and general confidentiality of depositors. After all, we need to ask ourselves, “How much of our secrets do we really need to keep?”
Sheng Llovido is a Partner, Audit & Assurance of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory and outsourcing firms in the Philippines, with 21 Partners and over 700 staff members.