Secrecy of Bank Deposits

A Requirement in Business Law

BACKGROUND
On September 9, 1955 Republic Act No. 1405, an act prohibiting disclosure of or inquiry into, deposits with any banking institution, was approved. The said act was promulgated to encourage the public to deposit their money in the bank and to discourage private hoarding so that the funds may be utilized by the banks to authorize loans to assist in the economic development. The said act declares bank deposits and government issued investment in bonds as confidential in nature and may not be examined, inquired or looked into by any person, government official, bureau or office. The act also specifies the exceptions as to how the confidentiality of the said documents is lifted: 1. 2. Through written confirmation from the depositor in cases of impeachment Upon order of a competent court in cases of: a. b. bribery or dereliction of duty of public officials where the money deposited or invested is the subject matter of the litigation

Likewise, bank officials and employees are prohibited from disclosing any information concerning the said deposit except for the instances cited above. An imprisonment of no more than 5 years and/or a fine of not more than 20,000 pesos will be the penalty for those who will violate this act. In January 16, 1981, former President Ferdinand Marcos issued an amendment to R.A. 1405 through Presidential Decree (P.D.) No. 1792. The said P.D. inserted another exception to the absolute confidentiality of bank deposits, when the examination is made in the course of a special or general examination of a bank and is specifically authorized by the Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has been or is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity, or when the examination is made by an independent auditor hired by the bank to conduct its regular audit provided that the examination is for audit purposes only and the results

Secrecy of Bank Deposits

A Requirement in Business Law

thereof shall be for the exclusive use of the bank. The said provision empowers the Central Bank to effectively supervise the bank and promote the safety of deposits. On March 11, 2011, Sen. Panfilo Lacson, through Senate Bill 2767 proposed an amendment to R.A. 1405. In the explanatory note of the said amendment, he noted that the R.A. 1405 have been used to hamper stall investigation of government officials and employees suspected of enriching himself while in office. He explained that since public office connotes public trust, its officials and employees should be transparent in disclosing their wealth so as to prove that those are not ill-gotten. The proposed amendment included government officials and employees among the exceptional cases wherein the bank deposits and government issued bonds may be examined even without written confirmation or order of a competent court. Currently, Senate Bill 2767 is still pending in the committee. The last committee meeting was held last March 22, 2011.

THE HISTORY BEHIND THE LAW

R.A. 1405 was passed in September 1955, exactly 10 years after the end of the Second World War. During this time, the banking industry is still at its infancy and massive poverty is rampant. Many people preferred to smuggle their money out of the country or keep it at home than to deposit it in banks. Needless to say, with this trend, the banks did not have sufficient funds to expand the capital market and help the economy recover. The legislative body, in seeking to induce the people to invest, passed the Bank Secrecy Act. In 1981, Marcos foresaw the delimiting provisions in the Act which prevents the Central Bank in performing its duties of effectively supervising the banks. He then inserted another exception to authorize the Central Bank to examine all records of banks in the discharge of its responsibilities under the Central Bank Charter. More than half a century after the initial implementation of the Secrecy Act, when the economy is more stable and people are investing left and right, certain government

Secrecy of Bank Deposits

A Requirement in Business Law

officials were able to use this act to their advantage. The most controversial of these was the case of former Chief Justice Renato Corona who was impeached in 2012 due to his hidden wealth. On this note, Sen. Lacson, even before the impeachment of Corona, proposed an amendment to include government officials and employees among the exceptions in the confidentiality of bank deposit accounts.

RELATED LAW
The issue on secrecy of bank deposits became a hot topic during the impeachment case against Corona. As a matter of fact, some analysts agreed that his interpretation on the absolute confidentiality of foreign deposits has eventually put a nail on his coffin. R.A. 6426 is an act instituting a foreign currency deposit system in the Philippines. Section 8 states that, foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. R.A. 6465, unlike R.A. 1405, provides for absolute confidentiality of foreign bank deposits. Some members of the legislature clamored for the amendment of R.A. 6465 to include exceptions as included in R.A. 1405. The said exceptions may inhibit certain government officials to use the absolute confidentiality clause as their defense against transparency.

CASES RELATED TO THE BANK DEPOSIT SECRECY ACT

A. G.R. No. 189206 GSIS v. CA June 8, 2011 The controversy originated from a surety agreement by which Domsat obtained a surety bond from GSIS to secure the payment of the loan from the Banks. In the surety bond, it was stated that LBP, Westmont Bank, among others guarantee the repayment of the principal and interest of the loan granted to Domsat for the financing of the lease of a Russian satellite. When Domsat failed to pay the loan, GSIS, the administrator of the general insurance fund, refused to comply with its obligation reasoning that Domsat

Secrecy of Bank Deposits

A Requirement in Business Law

did not use the loan proceeds for the payment of rental for the satellite. GSIS alleged that Domsat, with Westmont Bank as the conduit, transferred the U.S. $11 Million loan proceeds from the Industrial Bank of Korea to Citibank New York account of Westmont Bank and from there to the Binondo Branch of Westmont Bank.1[5] The Banks filed a complaint before the RTC of Makati against Domsat and GSIS. In the course of the hearing, GSIS requested for the issuance of a subpoena duces tecum to the custodian of records of Westmont Bank to produce the following documents: 1. Ledger covering the account of DOMSAT Holdings, Inc. with Westmont Bank (now United Overseas Bank 2. All applications for cashiers/ managers checks and bank transfers funded by the account of DOMSAT Holdings, Inc. with or through the Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002 3. Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont Bank (now United Overseas Bank 4. All applications for cashiers/managers checks funded by the account of Philippine Agila Satellite, Inc. with or through the Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002.

http://sc.judiciary.gov.ph/jurisprudence/2011/june2011/189206.htm