IN JUST a week last February, $81 million was: transmitted to four accounts in RCBC Jupiter in Makati City from the dollar account of the Bangladesh central bank at the US Federal Reserve Bank; withdrawn and consolidated into another account in the same local bank; exchanged into pesos through a local remittance company; and delivered to junket operators at Solaire and other local casinos. In the subsequent investigation by the Senate blue ribbon committee, the senators were stumped by bank officials consistently invoking bank secrecy laws.
It was one of the most embarrassing times for the Philippines, and triggered calls for the easing or even lifting of the bank secrecy laws, which are considered among the strictest in the world. In fact, the Philippines is one of only three remaining countries worldwide with such regulations; the other two are Lebanon and Switzerland (which is scheduled to relax its own in 2017).
The case involving Bangladesh proves the need to amend not only the antimoney laundering law, but also Republic Act No. 1405 (An Act Prohibiting Disclosure of or Inquiry into Deposits with any Banking Institution), which took effect on Sept. 9, 1955, and ensures absolute confidentiality of all bank deposits, and RA 6426 (An Act Instituting a Foreign Currency Deposit System in the Philippines), which took effect on April 4, 1974, and provides absolute confidentiality of all foreign currency deposits.
These laws have made it difficult for authorities to immediately inquire into questionable transactions, hampered the prevention of illegal activities like money laundering, and complicated the work of the Anti-Money Laundering Council. As Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr., who chairs the AMLC, lamented: “When the case reaches the AMLC, that’s already the investigation stage so the incident already happened. I think we need to have some kind of preventive measures. For us to be able to track the flow of funds, we need that extra authority because once the funds go into a bank deposit, that’s it, the trail turns cold and we cannot look into that.”
In the case of the Bangladeshi funds, it took the AMLC almost a month from the transfer of the money to secure a court order to freeze six bank accounts. By the time the court order was secured, most of the funds had been withdrawn and were traced to local casinos.
The Bureau of Internal Revenue is also for the lifting of bank secrecy laws, “for tax purposes.” The BIR can broaden the tax base if it can look into the accounts of subjects of tax cases. Another area where it can be helped is in its garnishment orders; there were cases in the past when it confiscated bank accounts due to tax evasion, only to be told by the banks that the accounts had been emptied.
The International Monetary Fund agrees that easing bank secrecy is one of the tax measures to be implemented by the Duterte administration if it wants to improve tax collections and shore up revenues. The IMF noted in its tax reform recommendations to the Department of Finance that the elimination of bank secrecy is of “utmost importance” as the strict laws have barred the BIR from obtaining data from Philippine banks regarding a taxpayer’s income or wealth .
But sadly, lawmakers are not too keen on the idea. House Speaker Pantaleon Alvarez, during his visit to the Inquirer, was quick to say that Congress would act on several measures such as the shift to a federal form of government and tax reform. On easing bank secrecy, however, he raised the need to study the matter carefully because: “[It] is not easy. We need to hear the side of everyone involved—bankers, depositors, everybody.”
Lawmakers have also been blamed for the exclusion of casinos from the coverage of the antimoney laundering law. This has raised questions on why they are reluctant to approve, and are even opposed to, easing bank secrecy. If they are not hiding anything, why be afraid of such a possibility?
It’s time to relax bank secrecy laws because the $81-million money-laundering scandal has made it clear that they are an obstacle to preventing similar embarrassing incidents in the future. Bank secrecy must be eased to enable the government to examine deposits and act on suspicious transfers before the funds get withdrawn or moved abroad or beyond the reach of Philippine regulators. Again, prevention is key.