NTRC backs lifting of bank secrecy law

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Government think tank National Tax Research Center (NTRC) said it is time to end the Law on Secrecy of Bank Deposits to give mandated agencies a fighting chance in going after persons involved in tax evasion, money laundering and other financial crimes.

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In this day and age, only the Philippines, Lebanon and Switzerland still have restrictive banking laws that make it difficult for the government to go after tax evaders and money launderers, the NTRC said in a report.

However, it noted the Swiss government is trying to open up and join the rest of the world by relaxing its bank secrecy laws, while the Philippines and Lebanon are the only countries in the world where tax evasion is not a predicate crime to money laundering.

“The Philippines is the only country in the Asia-Pacific region with highly restrictive law that explicitly prohibits the Anti-Money Laundering Council (AMLC) from sharing data with the BIR [Bureau of Internal Revenue],” it said.

The bank secrecy law in the Philippines was put in place in 1955 pursuant to Republic Act 14052. It provides for a confidentiality rule for all types of bank deposits except upon written permission of the depositor, in case of impeachment, upon order of the court in cases of bribery or dereliction of duty of public official or where the deposit is the subject of litigation.

The law aims to encourage people to deposit their money in banking institutions and discourage private hoarding so that money may be properly used by the banks in lending to help the country’s economy to grow.

In 1981, the law was amended by Presidential Decree 17923 to allow examination of bank records when authorized by the Monetary Board or when the examination is made by an independent auditor hired by the bank itself for audit purposes only.

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The NTRC said the lack of access to information of bank accounts for tax purposes has led to inaccurate tax assessments, weak evidence in tax evasion prosecution, and inability of the tax authority to determine the true liability of taxpayers.

“Bank secrecy is always considered one of the main aspects of private banking. It has also been pinpointed to be responsible for one of the main instruments of underground economy, tax evasion and money laundering,” it said.

It noted that existing bank secrecy law makes it tough for the BIR to go after tax evaders and money launderers, a process that would often involve court intervention – an additional process prompting the government to spend more without a clear return of investment.

Easing of bank secrecy rules for tax purposes would allow the BIR to assess tax liabilities and properly enforce administrative and judicial remedies and ensure the satisfaction of judgment.

“It would also increase taxpayer compliance as it would be a global defense against tax evasion. If implemented, the Philippines can have access to financial information of Filipino citizens and entities abroad for tax purposes,” the think tank said.

The NTRC report noted that funds stolen from the Bank of Bangladesh in February this year expose the gaps in the Philippines framework to combat money laundering.

The money was transferred to fictitious accounts at the Jupiter Street branch of Rizal Commercial Banking Corp.

The case may prompt the Financial Action Task Force on Money Laundering to reinstate the Philippines on its blacklist, according to the think tank, noting what happened exposed a weakness in the Philippine’s money laundering law since lawmakers decided in 2012 to exclude casinos from the roster of organizations required to report to the Anti-Money Laundering Council regarding suspicious transactions.

“This incident also underscores how simple and potentially beneficial it would be for the nation’s casinos to get in line with international anti-money laundering standards,” it said.

Ruling out the presence of fraud by simply accessing bank records will benefit taxpayers if proven that fraud is non-existent as the situation will not lead to litigation. In the same way, it will not only expedite the investigation but also the collection of back taxes that have been determined through an audit investigation, it explained.

“With the global call to end excessive protection benefiting dubious parties, it is inevitable that banking secrecy is set to end,” it said.

NTRC said amendments to the bank secrecy law should be viewed as an opportunity for the Philippines to effectively combat domestic and global tax evasion, money-laundering, and other financial crimes, as well as foster harmonious and supportive international relations, and to comply with world standards on transparency.

“However, Filipinos should be assured that with the strict standards for confidentiality, the information gathered are secure and will only be used for the intended purpose,” it said.

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