‘PH bank secrecy laws strictest in the world’

The United States has questioned the antiquated bank secrecy laws of the Philippines, describing them as “among the strictest in the world,” in the face of the global trend toward transparency.

The criticisms made by two US envoys are contained in a series of cables from 2005 and 2008, and have been made public by the whistle-blower website, Wikileaks.

Former US ambassadors to Manila Francis Ricciardone and Kristie Kenney, in separate cable dispatches sent to Washington, said the banking secrecy laws in the country were “hampering” transparent governance and anticorruption mechanisms, and went against the global trend relaxing bank secrecy laws.

Foreshadowing events in the Philippines as early as 2007, Kenney talked of “institutional challenges”—which included bank secrecy laws and poor protection for whistle-blowers—as serious barriers to corruption convictions in the Philippines.

“The bank secrecy laws in the Philippines are among the strictest in the world,” said Ricciardone in a January 2005 cable (code: 05MANILA84, https://cables.mrkva.eu/cable.php?id=25003), in which he related the transparency problems besetting the country.

The United States is apparently particularly concerned about the Foreign Currency Deposit Act of the Philippines (FCDA), otherwise known as Republic Act No. 6426. The FCDA is a legacy of the martial-law era, having been signed into law by the late dictator Ferdinand Marcos in 1974.

The FCDA makes the revelation of foreign currency details unlawful, except upon a written permission of the depositor.

The other law is the Bank Secrecy Law (Republic Act No. 1405) enacted on Sept. 9, 1955.

RA 1405 declares all deposits absolutely confidential, with the exceptions of: written consent of the depositor; 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.

Kenney and Ricciardone’s remarks came on the heels of a global rethink of bank secrecy laws.

“The era of banking secrecy is over,” declared members of the Group of 20 leading economies (G20) at the 2009 summit in London in a joint communiqué.

The global financial crisis was the catalyst for the G20 crackdown on bank secrecy that began in 2009.

In order to manage the global financial crisis and prevent future crises from reoccurring, financial institutions need to pursue accountability reforms, said the G20 communiqué.

The FCDA was invoked last week by the Philippine Savings Bank (PSBank) in refusing to divulge the alleged foreign currency deposits of Chief Justice Renato Corona, which the Supreme Court acceded to by issuing a temporary restraining order (TRO).

The Senate impeachment court voted on Monday to respect the TRO, effectively barring the prosecution from opening the alleged foreign currency deposits with PSBank of the Chief Justice.

AFP corruption scandal

In the January 2005 cable, Ricciardone reported to Washington that the Sandiganbayan antigraft court had resumed efforts to prosecute the former Armed Forces comptroller, Maj. Gen. Carlos Garcia, for plunder and corruption in 2005.

However, Ricciardone noted that the strict bank secrecy laws prevented the Land Bank of the Philippines (LandBank) involved in the litigation from fulfilling the court order to freeze Garcia’s dollar accounts.

“The LandBank froze Garcia’s two peso-denominated accounts, worth nearly $120,000. However, the LandBank, a Filipino financial institution, refused an order of garnishment issued by the Sandiganbayan on five US dollar-denominated accounts,” he said.

Kenney, who is now the US ambassador to Thailand, sent two separate cable dispatches in which she lamented the barriers to effective prosecution of money launderers in the Philippines.

These are Wikileaks cables for November 2007 (cable code: 07MANILA3669, https://cables.mrkva.eu/cable.php?id=130120) and March of 2008 (cable code: 08MANILA622, https://cables.mrkva.eu/cable.php?id=145394).

“Investigations are hampered by Philippine banking secrecy laws that limit access to certain crucial financial information, and by poor protection for would-be whistle-blowers,” said Kenney.

In one dispatch, Kenney highlighted the “severe negative implications” of a ruling handed down by the Supreme Court in the case of “People of the Philippines v. Eugenio.”

The dispatch (08MANILA626, https://cables.mrkva.eu/cable.php?id=145542) is titled, “RP Supreme Court supports bank secrecy,” which contains this summary:

“The Philippine Supreme Court has ruled that a bank account holder must be given prior notification before an inquiry can be made into their bank records during investigation of money laundering or corruption cases. Both Philippine and US criminal law enforcement efforts may be negatively affected by this decision. The Philippine Office of the Solicitor General is likely to file a motion by March 14 asking that the entire Supreme Court rehear the case.”

Ownership dispute

Kenney recounted that upon hearing the news of the high court’s decision in the Eugenio case, she requested the Philippine Anti-Money Laundering Council to explain this debacle.

The Eugenio case concerns a February 2008 high court ruling in a case involving the ownership dispute between the Philippine government and the Piatco consortium that built the Ninoy Aquino International Airport Terminal 3 (Naia 3). The government had nullified the contract on the ground that it was attended by corruption.

The high court ruled against the Anti-Money Laundering Council probing into the bank deals surrounding the Naia project. The high court ruled that except in cases of terrorism, kidnapping and drug violations, bank account holders must be given prior notification before inquiry can be made into their bank records.

In her report, Kenney said the high court decision jeopardized both Philippine and US investigations in anticorruption cases.

“Giving subjects of investigations notice of the investigations at an early stage allows opportunity for the destruction of evidence, the concealment of other assets and the obstruction of justice,” Kenney stated.

“It will also allow the account holder to prevent effective investigation by tying the proceedings up with litigation,” it said.

Pending bills

The role of bank secrecy laws in the Corona trial has spurred some members of Congress to call for a change to the banking laws.

Sen. Ralph Recto filed Senate Resolution 711 last week seeking a review of the FDCA and RA 1405.

Recto acknowledged the concern in the financial sector that bank practices were being dragged into the politics of the impeachment trial.

“The review is not meant to de-fang [these] laws but to make certain that no one gets hurt or gets special treatment when the claws of these laws start to pounce on its object of prey,” he said.

Back in 2010, Sen. Francis Escudero filed Senate Bill 107 bill that would require government employees to provide the Office of the Ombudsman with written permission to look into their bank accounts if they are accused of crimes.

“We want to put in place a mechanism that promotes openness and transparency in the public sector” said Escudero, adding that those who did not provide permission were “free to go to the private sector because working in the government is a privilege and not a right.”

These two Senate bills are pending at the Senate committee on banks.

In the House of Representatives, partylist member Antonio Tinio (Alliance of Concerned Teachers, or ACT) has filed a counterpart bill that seeks to amend the FDCA by revoking the absolute confidentiality conferred upon foreign currency deposits, but only in cases involving bribery and dereliction of duty.

“These privileges granted by law to foreign currency deposits effectively place them beyond the reach of government,” Tinio said.

First posted 11:39 pm | Friday, February 17th, 2012