REPUBLIC ACT NO.

1405

AN ACT PROHIBITING DISCLOSURE OF OR INQUIRY INTO,

DEPOSITS WITH ANY BANKING INSTITUTION 
AND PROVIDING PENALTY THEREFOR

SECTION 1. It is hereby declared to be the policy of the Government to

give encouragement to the people to deposit their money in banking
institutions and to discourage private hoarding so that the same may be
properly utilized by banks in authorized loans to assist in the economic
development of the country.

SECTION 2. All deposits of whatever nature with banks or banking

institutions in the Philippines including investments in bonds issued by the
Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential
nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission of the
depositor, or in cases of impeachment, or 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.

SECTION 3. It shall be unlawful for any official or employee of a banking

institution to disclose to any person other than those mentioned in Section
two hereof any information concerning said deposits.

SECTION 4. All Acts or parts of Acts, Special Charters, Executive Orders,

Rules and Regulations which are inconsistent with the provisions of this Act
are hereby repealed.

SECTION 5. Any violation of this law will subject offender upon conviction,
to an imprisonment of not more than five years or a fine of not more than
twenty thousand pesos or both, in the discretion of the court.

SECTION 6. This Act shall take effect upon its approval.

Approved, September 9, 1955

In the know: The bank secrecy law

Republic Act No. 1405, or the bank secrecy law, prohibits the disclosure of,
or inquiry into, all deposits in banks and banking institutions in the
Philippines.
Section 2 of the bank secrecy law provides that all deposits in whatever
nature with banks or banking institutions are of an “absolutely confidential
nature and may not be examined, inquired or looked into by any person,
government official, bureau or office.”
The only exceptions are either written consent of the depositor, in cases of
impeachment, upon order of a competent court in cases of bribery or
dereliction of duty or public officials, or in cases where the money
deposited or invested is the subject matter of litigation.
The law was approved on Sept. 9, 1955.
Bangko Sentral ng Pilipinas (BSP) Gov. Amado Tetangco Jr., who also
chairs the Anti-Money Laundering Council (AMLC), said the country’s “very
strict” bank secrecy law hampered the fight against money laundering.
He restated his call to amend the law and allow prying into a wider array of
bank deposits “under certain conditions.”
“When a case reaches the AMLC, that is when an investigation begins. So
the incident has already happened. We need some kind of preventive
measures. The prevention of this particular activity is being hampered by
the very strict bank secrecy law,” Tetangco said.

He said he was amenable to easing or lifting the bank secrecy law under
certain conditions, but he did not elaborate.
During the Senate blue ribbon committee hearing on the $81 million stolen
from the Bangladesh central bank and laundered in the Philippines, AMLC
executive director Julia C. Bacay-Abad reiterated that the council favored
lifting the secrecy law.
She said the AMLC would propose to Congress to include casinos and the
real estate sector in the coverage of Republic Act No. 9160 or the Anti-
Money Laundering Act (Amla) of 2001.
Abad also mentioned a proposal to give the AMLC power to issue a cease-
and-desist order to immediately freeze a suspicious account before going
to the courts would be “helpful,” although it would be up to legislators who
had proposed to amend the Amla.
RA No. 9160, as amended by RA No. 9194, established the AMLC which is
tasked with investigating and causing the prosecution of money-laundering
offenses.
Amla lists banks, offshore banking units, quasi-banks, trust entities,
nonstock savings and loan associations, pawnshops, and all other
institutions and their subsidiaries and affiliates supervised or regulated by
the BSP as “covered institutions” they are allowed “to require and receive
covered transaction reports.”
Other “covered institutions” include insurance companies and all other
institutions supervised or regulated by the Insurance Commission,
securities dealers, brokers, preneed companies, foreign exchange
corporations, investment houses, trading advisers, as well as other entities
supervised or regulated by the Securities and Exchange Commission.
Section 11 of the Amla states that the AMLC “may inquire into or examine
any particular deposit or investment with any banking institution or nonbank
financial institution upon order of any competent court in cases of violation
of the Amla when it has been established that there is probable cause that
the deposits or investments involved are in any way related to a money-
laundering offense.”

Sen. Bam seeks repeal of bank secrecy law

Repealing the bank secrecy law ensures an efficient and a reliable tax
collection procedure in the country, Sen. Bam Aquino stressed noting that
the Philippines is one of the few countries still left with a bank secrecy law.

Aquino has filed Senate Bill No. 1495 in hope of repealing RA 1405,
otherwise known as the "Secrecy of Bank Deposits Law."

"This law was enacted for the purpose of encouraging individuals to

deposit funds in banking institutions in order to encourage economic
growth. But it also protects dubious individuals, allowing them to evade
taxes and conceal monetary transactions that may be unconstitutional,"
Aquino said.

Records from the Department of Finance (DOF), the senator said,

showed that as much as P669.34 billion in taxes and duties are lost
annually due to the restrictive banking laws in the country or around 33.7
percent of the yearly tax revenues.

"It is thus necessary to strengthen measures to ensure that Filipino

rightfully declare their taxes. In line with the government's Comprehensive
Tax Reform, the lifting of this law secures efficiency in terms of revenue
collection by both the Bureau of Internal Revenue and Bureau of Customs.
The lifting of this law also ensures that our country avoids tax evasion and
tax fraud cases," Aquino said.

The senator underscored the State policy combatting both domestic and
global tax evasion, money laundering and other financial crimes.

It is also the policy of the State to promote harmonious and supportive

international relations and to comply with international standards on
transparency, he said. It is likewise the policy of the State to protect all
persons, natural and juridical, from any unauthorized or unlawful inquiry or
access into data or information deemed confidential by specific law or
covered by the Data Privacy Act, Aquino said.

Philippine Bank Secrecy Law Simplified

The current banter between President Duterte and Senator Trillianes about
bank secrecy waivers has piqued the interest of the public on the matter of
bank secrecy.  So, what is bank secrecy? Is it absolute? Are there any
exceptions?
 
On 09 September 1955, Republic Act No. 1405, otherwise known as An
Act Prohibiting Disclosure of or Inquiry into, Deposits with any Banking
Institution (“Bank Secrecy Law”), was approved. This law was enacted to
encourage individuals to deposit their money in banks instead of hoarding
them.
 
You may ask, why is there a need to protect the secrecy of bank deposits?
Technically speaking, the law prefers that money be deposited in banks so
they may be properly utilized to assist in the economic development of the
country.  However, it is more relevant on a practical matter.  Let’s use you
dear reader as an example.  Suppose that you only have P1,000 in your
bank account. Surely, you do not want any person (such as your friend,
employer or any stranger) to find that out.  Either you do not want others to
know that you do not have sufficient money or you simply do not feel
comfortable in people prying in your financial affairs.  On the other hand, if
you have P100,000,000.00 in your bank account, you also do not want
others to find that out for fear that you might be kidnapped, or relatives
might borrow from you, or simply, it’s your personal affair. In all these
cases, one’s financial status is a private matter. Transactions happening in
your bank account are not just empty figures. There are stories affixed to
such transactions.  Thus, these financial transactions are akin to your
personal activities which should not be easily accessible to anyone.
 
The Bank Secrecy Law protects all deposits of whatever nature in banks or
banking institutions in the Philippines as well as investments in government
bond.  This law prohibits any person, subject to the exceptions below, from
disclosing to any person any information, relative to the funds or properties
belonging to the depositors in the custody of the bank. Simply put, no one
can just go to your bank and ask for your bank balance.
 
However, the rule is not absolute.  The following are the exceptions to the
bank secrecy law:
 
1.  Written permission or consent in writing by the depositor;
2.  In cases of impeachment;
3.  Upon order of the court in cases of bribery or dereliction of duty of public
officials;
4.  Upon order of the court in cases where the money deposited or invested
is the subject matter of the litigation;
5.  Upon a subpoena issued by the Ombudsman concerning an
investigation it is conducting, provided that there must already be a case
pending in court, the account be clearly identified, the inspection be limited
to the subject matter of the pending case; and the bank personnel and the
depositor must be notified to be present during the inspection;
6.  The BIR can inquire into bank deposits in an application for compromise
of tax liability or determination of a decedent’s gross estate;
7.  The Anti-Money Laundering Council (“AMLC”) can examine bank
accounts pursuant to a court order, where there is probable cause that the
deposits are related to an unlawful activity or money laundering offense;
8.  The AMLC can examine bank accounts, WITHOUT a court order, where
there is probable cause that the deposits are related to certain crimes such
as kidnapping for ransom, violation of the Dangerous Drugs Act, hijacking,
destructive arson, murder and violations of RA 6235 (acts inimical to civil
aviation);
9.  The Bangko Sentral can examine bank accounts in the course of its
periodic or special examination regarding compliance with Anti-Money
Laundering Law.
 
As you can see, although there are many exceptions, securing such
exceptions is not an easy task.  The easiest way to waive the secrecy of
bank deposits is through a written waiver.  Although there is no prescribed
form for a waiver, it is necessary that the waiver be made voluntarily,
knowingly and with sufficient awareness of relevant circumstances and
consequences. Thus, as a matter of practice, banks will require the
depositor to state in his waiver the specific bank account, bank branch,
name of depositor, period covered by the transactions and the name of the
person authorized to access the bank account.
 
How about dollar deposits? Now, foreign currency deposits are governed
by a different law, namely Republic Act No. 6426 and has fewer
exceptions.  This will be discussed in a separate article.
 
You may be curious if there is any criminal liability for violating the bank
secrecy law. Yes, there is criminal liability.  Any person violating this law
may be imprisoned for not more than five (5) years, or meted a fine not
exceeding P20,000.00 or both.
 
Nicolas & De Vega Law Offices is a full-service law firm in the Philippines. 
You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower,
ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You
may also call us at +632 4706126, +632 4706130, +632 4016392 or e-mail
us at info@ndvlaw.com .

Bill exempting gov’t execs from Bank Secrecy Law backed

MANILA, Philippines — Human rights lawyer Chel Diokno yesterday
backed Sen. Panfilo Lacson’s proposed bill, which seeks to exclude
government officials and employees  from being covered by the Bank
Secrecy Law.

“Our bank secrecy laws are among the strictest in the world. If government
officials are exempted, it would be easier to investigate corruption in the
bureaucracy,” Diokno said in a statement.

“We should support this proposal from Senator Lacson. This is a good step
toward transparency,” he added.
The Bank Secrecy Act, which was passed in 1955, prohibits the disclosure
of bank accounts without a court order.

It covers “all deposits of whatever nature with banks or banking institutions

in the Philippines.”

Lacson said this has been used to hide ill-gotten wealth.

Bank secrecy or
transparency?
Banks are in the business of attracting deposits to lend these out at
reasonable spreads to corporate clients looking to finance their business and
to individuals wanting to achieve their aspirations of a nice car or a new home.
Banks are able to generate these deposits through their good service and
locations, among others, but most of all, because of trust that these deposits
are safe in the banks. Safe, in that the money will be returned whole with
some interest and that unauthorized people won’t know how much or even
how little is in the bank account.

Republic Act (RA) 1405 or the Bank Secrecy Law was passed in 1955 to
encourage people to deposit their money in banking institutions and to
discourage private hoarding so that banks can give out in loans to assist in the
economic development of the country.

The Foreign Currency Deposit Act (RA 6426) and the General Banking Act
(RA 8791) also prohibit bank directors, officers, employees and agents to
disclose any information on funds in the custody of bank to any unauthorized
person. These are meant to protect legitimate deposits of bank clients.
All deposits with banks including investments in bonds issued by the
government are considered absolutely confidential and may not be looked
into, except:

• upon written consent of the depositor;

• in cases of impeachment;

• upon order of a competent court in case of bribery or dereliction of duty of

public officials;

• where money deposited or invested is the subject matter of the litigation; and

• examination of a bank specifically authorized by the Monetary Board after

being satisfied that there is a reasonable cause to believe that a bank fraud or
irregularity is being committed and it is necessary to look into the deposit to
establish such fraud.

In addition, there are many exceptions and other laws that effectively waives
bank secrecy:

• The Ombudsman: for government officials under investigation;

• The Anti-Money Laundering Council (AMLC): With court order — probable

cause related to money laundering offenses; without court order — involving
crime of kidnapping, drug trafficking, hijacking, and terrorism.

• Presidential Commission on Good Government: for ill-gotten wealth

• Court of Appeals: for anti-terrorism cases

• Commission on Audit: authorized to examine deposits and investments in
government banks

• Bureau of Internal Revenue: request for tax information of specific taxpayers

made by foreign tax authority pursuant to tax treaty.

• Bank deposits of a public official, his spouse and unmarried children may be
taken in consideration in the enforcement of the Anti-Graft and Corrupt
Practices Act;

• Bangko Sentral ng Pilipinas (BSP): inquire and examine deposits during

examinations to ensure bank compliance of AML laws.

• Philippine Deposit Insurance Corp. and BSP: inquire and examine bank
deposits and investments when there is finding of unsound and unsafe
banking practices.

It is very important for banks to have a strong know your customer and
enhanced due diligence processes to attract and onboard only the right set of
customers with acceptable profiles.

Banks must continuously enhance monitoring tools to detect unusual

transactions and have an effective compliance system. Banks should also
work closely with regulators on the effective implementation of new and
existing regulatory guidelines to minimize exposure to anti-money laundering
and counter financing of terrorism risks.

It is truly a balancing act for Philippine banks to ensure bank secrecy is fully
complied with and, at the same time, commit to full adherence to other laws
and regulations. Philippine banks cooperate fully with government
enforcement agencies, provided these investigations are deemed legal and in
accordance with laws.
The Philippines is a member but not yet a signatory to the International
Organization of Securities Commission (IOSCO) Multilateral Memorandum of
Understanding (MMOU) because of the Bank Secrecy Law. Securities &
Exchange Commission Chair Tess Herbosa said SEC can actually look into
deposits now but only by coursing it thru AMLC. SEC needs to have the
power to look into bank deposits directly to have “teeth” to go after trading
manipulators and insider traders.

There is a pending bill in Congress to relax the Bank Secrecy Law. According
to Isabel Pastor, head of enforcement and cooperation and senior advisor for
special projects at IOSCO, transparency will attract investors to the
Philippines and protect securities and derivatives products from cross-border
fraud risks.

The Philippines is one of the three countries that still have a bank secrecy law,
with Lebanon and Switzerland being the other two. We want to be fully
compliant with all laws and also be consistent with international best practice.