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Submitted by: Daniel L. Laynes

IN THE PHILIPPINES REPUBLIC ACT No. 6426 AN ACT INSTITUTING A FOREIGN CURRENCY DEPOSIT SYSTEM IN THE PHILIPPINES, AND FOR OTHER PURPOSES. Section 1.Title. This act shall be known as the Foreign Currency Deposit Act of the Philippines. Section 2.Authority to deposit foreign currencies. Any person, natural or juridical, may, in accordance with the provisions of this Act, deposit with such Philippine banks in good standing, as may, upon application, be designated by the Central Bank for the purpose, foreign currencies which are acceptable as part of the international reserve, except those which are required by the Central Bank to be surrendered in accordance with the provisions of Republic Act Numbered two hundred sixty-five (Now Rep. Act No. 7653). Section 3.Authority of banks to accept foreign currency deposits. The banks designated by the Central Bank under Section two hereof shall have the authority: (1) To accept deposits and to accept foreign currencies in trust Provided, That numbered accounts for recording and servicing of said deposits shall be allowed; (2) To issue certificates to evidence such deposits; (3) To discount said certificates; (4) To accept said deposits as collateral for loans subject to such rules and regulations as may be promulgated by the Central Bank from time to time; and (5) To pay interest in foreign currency on such deposits. Section 4.Foreign currency cover requirements. Except as the Monetary Board may otherwise prescribe or allow, the depository banks shall maintain at all times a one hundred percent foreign currency cover for their liabilities, of which cover at least fifteen percent shall be in the form of foreign currency deposit with the Central Bank, and the balance in the form of foreign currency loans or securities, which loans or securities shall be of short term maturities and readily marketable. Such foreign currency loans may include loans to domestic enterprises which are export-oriented or registered with the Board of Investments, subject to the limitations to be prescribed by the Monetary Board on such loans. Except as the Monetary Board may otherwise prescribe or allow, the foreign currency cover shall be in the same currency as that of the corresponding foreign currency deposit liability. The Central Bank may pay interest on the foreign currency deposit, and if requested shall exchange the foreign currency notes and coins into foreign currency instruments drawn on its depository banks. (As amended by PD No. 1453, June 11, 1978.) Depository banks which, on account of networth, resources, past performance, or other pertinent criteria, have been qualified by the Monetary Board to function under an expanded foreign currency deposit system, shall be exempt from the requirements in the preceding paragraph of maintaining fifteen percent (15%) of the cover in the form of foreign currency deposit with the Central Bank. Subject to prior Central Bank approval when required by Central Bank regulations, said depository banks may extend foreign currency loans to any domestic enterprise, without the limitations prescribed in the preceding paragraph regarding maturity and marketability, and such loans shall be eligible for purposes of the 100% foreign currency cover prescribed in the preceding paragraph. (As added by PD No. 1035.)

Section 5.Withdrawability and transferability of deposits. There shall be no restriction on the withdrawal by the depositor of his deposit or on the transferability of the same abroad except those arising from the contract between the depositor and the bank. Section 6.Tax exemption. All foreign currency deposits made under this Act, as amended by PD No. 1035, as well as foreign currency deposits authorized under PD No. 1034, including interest and all other income or earnings of such deposits, are hereby exempted from any and all taxes whatsoever irrespective of whether or not these deposits are made by residents or nonresidents so long as the deposits are eligible or allowed under aforementioned laws and, in the case of nonresidents, irrespective of whether or not they are engaged in trade or business in the Philippines. (As amended by PD No. 1246, from. Nov. 21, 1977.) Section 7. Rules and regulations. The Monetary Board of the Central Bank shall promulgate such rules and regulations as may be necessary to carry out the provisions of this Act which shall take effect after the publications in the Official Gazette and in a newspaper of national circulation for at least once a week for three consecutive weeks. In case the Central Bank promulgates new rules and regulations decreasing the rights of depositors, rules and regulations at the time the deposit was made shall govern. Section 8. Secrecy of foreign currency deposits. All foreign currency deposits authorized under this Act, as amended by PD No. 1035, as well as foreign currency deposits authorized under PD No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or legislative, or any other entity whether public or private; Provided, however, That said 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. (As amended by PD No. 1035, and further amended by PD No. 1246, prom. Nov. 21, 1977.) Section 9. Deposit insurance coverage. The deposits under this Act shall be insured under the provisions of Republic Act No. 3591, as amended (Philippine Deposit Insurance Corporation), as well as its implementing rules and regulations: Provided, That insurance payment shall be in the same currency in which the insured deposits are denominated. Section 10. Penal provisions. Any willful violation of this Act or any regulation duly promulgated by the Monetary Board pursuant hereto shall subject the offender upon conviction to an imprisonment of not less than one year nor more than five years or a fine of not less than five thousand pesos nor more than twenty-five thousand pesos, or both such fine and imprisonment at the discretion of the court. Section 11. Separability clause. The provisions of this Act are hereby declared to be separable and in the event one or more of such provisions are held unconstitutional, the validity of other provisions shall not be affected thereby. Section 12. Repealing clause. All acts, executive orders, rules and regulations, or parts thereof, which are inconsistent with any provisions of this Act are hereby repealed, amended or modified accordingly, without prejudice, however, to deposits made thereunder. Section 12-A. Amendatory enactments and regulations. In the event a new enactment or regulation is issued decreasing the rights hereunder granted, such new enactment or regulation shall not apply to

foreign currency deposits already made or existing at the time of issuance of such new enactment or regulation, but such new enactment or regulation shall apply only to foreign currency deposits made after its issuance. (As added by PD No. 1246, prom. Nov. 21, 1977.) Section 13. Effectivity. This Act shall take effect upon its approval. Approved, April 4, 1974

BANK SECRECY LAW - G.R. NO. 189206 G.R. NO. 189206 "x x x. GSIS invokes Republic Act No. 1405 to justify the issuance of the subpoena while the banks cite Republic Act No. 6426 to oppose it. The core issue is which of the two laws should apply in the instant case. Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by Presidential Decree No. 1792 in 1981 and further amended by Republic Act No. 7653 in 1993. It now reads: 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 8 of Republic Act No. 6426, which was enacted in 1974, and amended by Presidential Decree No. 1035 and later by Presidential Decree No. 1246, provides: Section 8. Secrecy of Foreign Currency Deposits. All foreign currency deposits authorized under this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or legislative or any other entity whether public or private; Provided, however, That said 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. (As amended by PD No. 1035, and further amended by PD No. 1246, prom. Nov. 21, 1977.) On the one hand, Republic Act No. 1405 provides for four (4) exceptions when records of deposits may be disclosed. These are under any of the following instances: a) upon written permission of the depositor, (b) in cases of impeachment, (c) upon order of a competent court in the case of bribery or dereliction of duty of public officials or, (d) when the money deposited or invested is the subject matter of

the litigation, and e) in cases of violation of the Anti-Money Laundering Act (AMLA), the Anti-Money Laundering Council (AMLC) may inquire into a bank account upon order of any competent court.1[22] On the other hand, the lone exception to the non-disclosure of foreign currency deposits, under Republic Act No. 6426, is disclosure upon the written permission of the depositor. These two laws both support the confidentiality of bank deposits. There is no conflict between them. Republic Act No. 1405 was enacted for the purpose of giving 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.2[23] It covers all bank deposits in the Philippines and no distinction was made between domestic and foreign deposits. Thus, Republic Act No. 1405 is considered a law of general application. On the other hand, Republic Act No. 6426 was intended to encourage deposits from foreign lenders and investors.3[24] It is a special law designed especially for foreign currency deposits in the Philippines. A general law does not nullify a specific or special law. Generalia specialibus non derogant.4[25] Therefore, it is beyond cavil that Republic Act No. 6426 applies in this case. Intengan v. Court of Appeals affirmed the above-cited principle and categorically declared that for foreign currency deposits, such as U.S. dollar deposits, the applicable law is Republic Act No. 6426. In said case, Citibank filed an action against its officers for persuading their clients to transfer their dollar deposits to competitor banks. Bank records, including dollar deposits of petitioners, purporting to establish the deception practiced by the officers, were annexed to the complaint. Petitioners now complained that Citibank violated Republic Act No. 1405. This Court ruled that since the accounts in question are U.S. dollar deposits, the applicable law therefore is not Republic Act No. 1405 but Republic Act No. 6426. The above pronouncement was reiterated in China Banking Corporation v. Court of Appeals ,5[26] where respondent accused his daughter of stealing his dollar deposits with Citibank. The latter allegedly

received the checks from Citibank and deposited them to her account in China Bank. The subject checks were presented in evidence. A subpoena was issued to employees of China Bank to testify on these checks. China Bank argued that the Citibank dollar checks with both respondent and/or her daughter as payees, deposited with China Bank, may not be looked into under the law on secrecy of foreign currency deposits. This Court highlighted the exception to the non-disclosure of foreign currency deposits, i.e., in the case of a written permission of the depositor, and ruled that respondent, as owner of the funds unlawfully taken and which are undisputably now deposited with China Bank, he has the right to inquire into the said deposits. Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat, Westmont Bank cannot be legally compelled to disclose the bank deposits of Domsat, otherwise, it might expose itself to criminal liability under the same act.6[27] The basis for the application of subpoena is to prove that the loan intended for Domsat by the Banks and guaranteed by GSIS, was diverted to a purpose other than that stated in the surety bond. The Banks, however, argue that GSIS is in fact liable to them for the proper applications of the loan proceeds and not vice-versa. We are however not prepared to rule on the merits of this case lest we pre-empt the findings of the lower courts on the matter. The third issue raised by GSIS was properly addressed by the appellate court. The appellate court maintained that the judge may, in the exercise of his sound discretion, grant the second motion for reconsideration despite its being pro forma. The appellate court correctly relied on precedents where this Court set aside technicality in favor of substantive justice. Furthermore, the appellate court accurately pointed out that petitioner did not assail the defect of lack of notice in its opposition to the second motion of reconsideration, thus it can be considered a waiver of the defect. x x x." DOES THE BANK SECRECY LAW REALLY PROTECT ALL OF CORONAS DOLLARS? Everyone assumes that all the US dollars that Chief Justice Renato Corona stashed in banks are covered by the bank secrecy law. Let me offer the theory that they might not be ALL covered and the Senate impeachment court can legally look into them. Yes, I know I am a mere reporter with no formal training in law. But Ive had the exp erience of watching senators up close while they crafted our nations laws. And as a business reporter, Ive covered retail banking. Anyway, this week I ran these ideas past two high-level bank officials. None of them wanted to be identified (I wonder why?), so lets just call them Banker A and Banker B. However, what they told me are all verifiable.

Now to go back to the Bank Secrecy Law The mother law is Republic Act No. 6426 or An Act instituting a foreign currency deposit system in the Philippines, and for other purposes. RA 6426 has no section defining what constitutes foreign currency. However, it has three sections that suggest the definition by stating how banks are supposed to treat foreign currency. First, Section 4 states that banks taking in such deposits shall maintain at all times a one hundred percent foreign currency cover for their liabilities Section 4 recognizes that the act of depositing by a client establishes a kind of relationship and obligation between the bank and the customer. As Banker B explained to me Once you give money to the bank, the bank is indebted to you as a depositor. This is the relationship the bank is borrowing from you in the form of a deposit. For that debt they will now pay you a certain amount of interest. The next section in RA 6426 that further suggests a definition of foreign currency is Section 6: Section 6. Tax exemption. All foreign currency deposits made under this Act, as amended by PD No. 1035, as well as foreign currency deposits authorized under PD No. 1034, including interest and all other income or earnings of such deposits, are hereby exempted from any and all taxes whatsoever irrespective of whether or not these deposits are made by residents or nonresidents so long as the deposits are eligible or allowed under aforementioned laws In other words, Section 6 gives all foreign currency deposits a 100 percent tax break. The third section that suggests a definition of foreign currency is Section 9 which states: Section 9. Deposit insurance coverage. The deposits under this Act shall be insured under the provisions of Republic Act No. 3591, as amended (Philippine Deposit Insurance Corporation), as well as its implementing rules and regulations: Provided, That insurance payment shall be in the same currency in which the insured deposits are denominated. In other words, foreign currency deposits are insured by PDIC. Now let me go to my theory that not all foreign currency deposits are guaranteed confidentiality by RA 6246 or the bank secrecy law. Section 8 of this law states in particular: Section 8. Secrecy of foreign currency deposits. All foreign currency deposits authorized under this Act, as amended by PD No. 1035, as well as foreign currency deposits authorized under PD No. 1034, are hereby declared as and considered of an absolutely confidential nature Please note the phrase here all foreign currency deposits authorized under this Act.

It is part of my theory that bank secrecy only covers those foreign currency deposits defined by RA 6426. In other words, only those foreign currency deposits that contain the following elements enumerated by RA 6426: Those for which banks have to maintain a 100% foreign currency cover Those with interest earnings that are not taxed by the government And those that are insured by PDIC.

WHY DO I BRING UP THESE FINE DISTINCTIONS? Because since RA 6426 came into law in 1974, banks have dramatically expanded the array of foreign currency products they offer their clients. These are aside from the traditional savings, current and time deposits that were envisioned to be covered by RA 6426. Today, clients can park their dollars in sovereign bonds, in commercial papers, unit investment trust funds (UITFs), mutual funds all denominated in dollars and which are not tax-free and are not insured by the PDIC. Why would a depositor want to move away from plain vanilla dollar accounts? One reason would be: Because the interest rate on dollar savings and time deposits are terrible. According to Banker A, a US dollar time deposit now earns 0.25% per year. A US Treasury Bond earns 2% per annum. While a US dollar-denominated ROP (Republic of the Philippines) five-year bond can earn from 2% to 2.5%. In such transactions, we merely act as a broker, Banker B told me. From this, we can see that if the client wanted to put his or her dollars to work earning something more than the miserable interest on time and savings deposit accounts, then investing in these products would make sense. In fact, as Banker B explained to me, with a UITF or mutual fund, there is no such promise by the bank that it will pay a certain amount. It is not a bank obligation. This is a separate vehicle from the bank. In that sense, UITFs are not considered as bank deposits. Banker B also explained that while even mutual funds can now be bought through banks, these money market instruments are actually regulated by the Securities and Exchange Commission. In this case, the banks merely serve as brokers for these products. In the case of such products, the bank has no customer liability, Banker B said. The bank doesnt pay interest to the customer. Rather, it is the customer that pays the bank a transaction fee for arranging the buy and doing the paperwork.

In such arrangements, the bank usually asks the customer to designate a particular bank account (either savings or current) as the settlement account. When the customer wants to liquidate the UITF or when a commercial paper or bond reaches maturity, proceeds including the interest earned from such products are deposited in this settlement account. In addition, Banker A also explained to me further why a dollar bond or a UITF denominated in dollars, for instance, is not considered a foreign currency deposit as defined by RA 6426: Iba nga talaga. Kasi hindi siya deposit. Hindi siya covered ng PDIC. Pag bumili ka ng bond, wala naman sa amin ang bond. You house it at a third party. We only facilitated. We act as a broker. Halimbawa kung ikaw kliente, magpabili ka ng stocks, I give you confirmation of sale that you bought 10,000 shares. I deliver the receipt. Babayaran mo ko. Kukunin ko commission ko. That money goes to the central depository (PCD). Pag nagpabenta ka. Ibibigay mo ang instruction, pupunta (yung instruction) sa broker. Kukuhanin namin shares sa PCD, ito ang pang-settle. Parang nagkaliwaan lang kayo. From covering retail banking, Ive also noted that while banks like PSB do not offer certain investment products, as its president Pascual Garcia III testified today, they do routinely refer their customers to the head office of the mother bank, in this case Metrobank. Such referrals are coursed through the retail bank like PSB which then transacts with the head office or mother bank and charges a transaction fee for this service. Because of this, it may be necessary for the Senate impeachment court to ask Metrobank and Bank of the Philippine Islands head offices whether CJ Corona has foreign currency investments with them. And not just dollars because some banks now have expanded their foreign currency-related transactions to euros and even yen. Senator-judge Serge Osmea seems to be on the same line of thinking An hour ago, Osmea asked PSB president and CEO Garcia whether dollar bonds could be classified as deposits under RA 6426. And so I would like to ask the following questions of the Supreme Court and the senator-judges: Is my theory valid or plain hogwash? If valid, can the Senate impeachment court now ask the banks to disclose any and all dollar transactions of CJ Corona revolving around such products? I believe that the moment an amount of foreign currency deposit from CJ Corona left the safe haven of savings and/or time deposit it loses the umbrella of confidentiality during that period. And these become legitimate subjects of inquiry by the Senate impeachment court. For this piece, I had tried to interview a well-known lawyer who teaches banking law. But he declined to speak to me. Likewise, I tried to obtain an interview with officials of the Bangko Sentral ng Pilipinas but no one would talk to me.

Because of this, I have decided to throw my questions to the public and see that maybe, just maybe, some lawyers and banking experts will respond and share what they know.

PHILIPPINE BANK SECRECY AND THE FRUIT OF THE POISONOUS TREE The ongoing impeachment trial of Chief Justice Renato Corona brought back into the limelight issues of bank secrecy and confidentiality, which had not been so publicly heard of since the impeachment trial of President Joseph Ejercito Estrada in 2000. Accessory to the issue of bank secrecy is the doctrine of the fruit of the poisonous tree, which has likewise gained a foothold in the Philippine media and popular pulse of late. The rule of thumb has always been that when evidence has been acquired unlawfully, contrary to a number of constitutional protections under the Bill of Rights, such evidence is deemed inadmissible in court or any proceeding. This rule has traditionally been known as the doctrine of the "fruit of the poisonous tree." The doctrine states that if the tree (the source of the evidence) is tainted, then the fruit (any evidence gained from the tree) is tainted as well and thus inadmissible in any court or other proceeding. Patterned after the US Constitution, the 1987 Philippine Constitution provides a fundamental right of the people against unlawful searches and seizures in Article III, Section 2 of the Bill of Rights, as follows: The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures of whatever nature and for any purpose shall be inviolable, and no search warrant or warrant of arrest shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or things to be seized. Throughout the years, the Philippine Supreme Court has had the occasion to rule on issues relating to the doctrine of the fruit of the poisonous tree. From as early as US v. Hachaw in 1912 and US v. Santos holdings of the courts at a time when the Philippines was still a non-state US territory pursuant to the Treaty of Paris of 1898 to People v. Aminnudin in 1988 among many other cases, the Supreme Court has remained steadfast on the ruling that If a person is searched without a warrant, or under circumstances other than those justifying an arrest without warrant in accordance with law, merely on suspicion that he is engaged in some felonious enterprise, and in order to discover if he has indeed committed a crime, it is not only the arrest which is illegal but also, the search on the occasion thereof as being "the fruit of the poisonous tree." To reinforce inadmissibility, the Court ruled in 1987 in Nolasco v. Pao and People v. Burgos in 1986, again turning to US precedent, that any evidence taken, even if it confirms the suspicion of commission of a crime, is inadmissible "for any purpose in any proceeding." Now on the topic of secrecy of bank accounts, the Philippine bank secrecy law has been considered as among the strictest in the world on the issue of confidentiality and non-disclosure. The primary law is the 1955 Republic Act No. 1405, also known as the Bank Secrecy Law, which provided as a general rule, strict confidentiality on deposits with banks or banking institutions, as follows 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. While Section 2 provided for the confidentiality of bank accounts, it also provided for exceptions, thereby allowing lawful access to bank information. These exceptions can be summed up into four instances: first, upon written permission of the depositor; second, in cases of impeachment; third, upon order of a competent court in bribery or dereliction of duty cases of public officials; and fourth, in cases where the money is the subject matter of litigation. Arguably, the second, third and fourth exceptions may be applicable to Corona's impeachment trial, thus, banks which are subject to a subpoena by the Senate sitting as the Impeachment Court, would have to disclose Corona's accounts. It has to be noted too that subsequent laws provided for other exceptions to the guarantee of privacy under Republic Act No. 1405. Curiously, the Bank Secrecy Law did not provide for a clause aimed to render inadmissible unlawfully accessed bank information. The only plausibly relevant provisions, read together, which may lend support to an application of the fruit of the poisonous tree doctrine state that the unlawful act of any official or employee of a banking institution to disclose any information on bank deposits (Section 3) is deemed a violation of the law subjecting the offender to imprisonment and fine (Section 5). In the landmark 2006 case of Ejercito v. Sandiganbayan, the Philippine Supreme Court ruled on the issue of unlawful access of bank accounts of former President Joseph Estrada on the charge of plunder. In justifying the access of bank information for plunder, the Court likened cases of plunder and unexplained wealth to bribery or dereliction of duty, in order to fit the case squarely into the exceptions under Section 2 of the Bank Secrecy Law, as follows Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no reason is seen why these two classes of cases cannot be excepted from the rule making bank deposits confidential. The policy as to one cannot be different from the policy as to the other ... Thus, cases for plunder involve unexplained wealth. On the issue of the doctrine of the fruit of the poisonous tree, the Supreme Court also held in Estrada However, R.A. 1405, it bears noting, nowhere provides that an unlawful examination of bank accounts shall render the evidence obtained therefrom inadmissible in evidence. Section 5 of R.A. 1405 only states that "any violation of this law will subject the 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. The fruit of the poisonous tree doctrine presupposes a violation of law. If there was no violation of RA 1405 in the instant case, then there would be no "poisonous tree" to begin with, and, thus, no reason to apply the doctrine. As such, it has become clear that, as it currently stands, the Bank Secrecy Law provides for confidentiality of bank accounts and information, the exceptions thereto, and the penalties for violations of its provisions. However, the Estrada ruling brings to light a ratio that may provide for instances where bank information may be accessed unlawfully yet may be admissible against the account holder in any court or proceeding. This, in our opinion, can be a silent constitutional space which the prosecution and defense alike may capitalize upon. BANK SECRECY, AND WHY IT MAY NOT MATTER AFTER ALL Thursday, 09 February 2012 07:51 Written by Jego Ragragio


As of this writing, PSBank's petition for the issuance of a TRO against the Impeachment Court subpoena of Chief Justice Renato Corona's dollar account has yet to be taken up by the Supreme Court en banc. Both sides argue their position from the laws. Those who see the subpoenas as proper, and even the Senate itself, rely on Republic Act 1405, or the Bank Secrecy Law. Those who oppose it, on the other hand, cite a special law, RA 6426, known as the Foreign Currency Deposit Act of the Philippines. In a nutshell, Act 1405 allows bank records to be revealed in cases of impeachment, while R.A. 6426 does not provide for such an exception. This issue is not without precedent. In the case of Intengan v. Court of Appeals, Citibank N.A. officers suspected of illegal activities were investigated. In the course of the investigation, the dollar bank records involved with the activities were obtained by law enforcement and used as basis to file criminal charges against the officers. The owners of the accounts, who were not accused of any crimes but where indirectly involved with the scheme, invoked Act 1405 (mistakenly, as the Court would later point out), claiming that the disclosure of their accounts did not fall under any of the exceptions listed. The Supreme Court through Justice De Leon, Jr. ruled that foreign accounts are covered exclusively by R.A. 6426, while peso accounts are covered by Act 1405. And since R.A. 6426 provides for only one exception to bank records disclosures (namely, written permission from the account holder), no other grounds can be invoked. And in this case involving dollar accounts, the Court ruled in favor of the account-holders. Tracing the history of R.A. 6426 reveals that foreign currency accounts were, at one point, subject to the exact same secrecy provisions of Act 1405, but such exceptions were later removed by amendment via two presidential decrees. The unmistakable intent of the amendments was to remove foreign currency accounts from the expanded list of exceptions to the bank secrecy laws and subject it to a much more restricted list of exceptions, to encourage foreign depositors to utilize our banking system for their purposes. In hindsight and in light of the current situation, this may seem like a harsh restriction against government agents pursuing justice, but as the maxim goes: Dura lex, sed lex. The law is harsh, but it is law.. The inescapable conclusion, therefore, is that impeachment cannot be a ground to force PSBank to divulge the contents of CJ Corona's dollar accounts. Whether we like it or not, the defense is clearly correct in its objection. But at this point, is it even necessary to discuss the issues of bank secrecy? In the defense's petition to the Supreme Court, the petition makes an argument out of a lack of a waiver from CJ Corona granting the prosecution authority to examine the account. Yet this argument can only be held valid if CJ Corona had a dollar account to begin with. Without this account, the subpoena is void from the beginning, and there would be no need to argue its illegality. In fact, PSBank President Pascual Garcia III practically confirmed that CJ Corona indeed has dollar accounts with their bank, by stating in the Impeachment Court that he refused to bring the pertinent records for fear of exposure to criminal liability. Again, such a defense could only make sense if CJ Corona indeed had such accounts; otherwise, why risk the ire of the Senate over accounts that don't exist?


As it stands, a year-on-year comparison of CJ Corona's SALN and available bank records show large discrepancies between the numbers, and the SALN values are the ones that are lower. What's more, from the SALN records, no items indicate any cash in foreign currency bank accounts, as required by the SALN form itself. For all intents and purposes, the mere establishment of the continued existence of these dollar accounts, from the testimony of the PSBank chief and even from the defense' own petition to the Supreme Court, is itself another piece of evidence against Corona as far as Art. II goes. For all the hue and cry on bank secrecy laws and its supposed violation, it may not even matter after all.

THE RULE OF LAW AND BANK SECRECY FROM A DISTANCE By Carmen N. Pedrosa | Updated February 12, 2012 - 12:00am I dont know if many read the article purportedly from Wikileaks that the US government had criticized Philippine laws and local court rulings that block investigation and prosecution of suspected corrupt government officials. It was said to be an unclassified cable 08MANILA622, dated March 12, 2008 and sent by then Ambassador Kristie Kenney to the US Secretary of State who said anti-corruption efforts in the Philippines were being hampered by local institutions themselves. Isnt it an artful coincidence that this leak should be published at the same time that the SC stops the subpoena on dollar accounts of CJ Renato Corona at PS Bank? * * *

But how is bank secrecy dealt with in America? Let us hear from Robert Goulders article :US B ank Secrecy is Alive & Kickin American taxpayers are basically on the honor system when it comes to declaring income from hidden Swiss bank accounts. US politicians pitch a fit when Americans take advantage of foreign bank secrecy rules to conceal income from the IRS and rightfully so yet we do the same thing to other countries? Opinion ( Article MRec ), pagematch: 1, sectionmatch: 1 Apparently the US governments indignation over bank secrecy is, shall we say, selective. We object to bank secrecy when another country (i.e., Switzerland) erodes our tax base and prevents us from taxing our own citizens, yet we do precisely the same thing to every other country (other than Canada). Why does Congress tolerate US bank secrecy?


Simple: our banks need the money. My purpose here is not to defend Switzerland or UBS account holders who knowingly violate US law. Its merely to point out a glaring double standard when I see it. Hmm. This is food for thought. There were other aspects that the framers of the bank secrecy law must have considered. Like the US bank secrecy whether rightly or wrongly is practiced in the US as well because the banks need the money. If US banks need the money it would be hypocritical to say that the Philippine banks do not need the money. But there you are, the ugly head of double standard again rearing its head. It is a matter of concern that an impeachment hearing that was called for by 188 congressmen without reading the reasons for impeachment for dubious reasons like huge pork barrels and other bribes should now take the moral high ground and earn their pay at the expense of the countrys banking system. I think the business community should take heed on what is happening. The Philippine banking system is being made a casualty in burning the Philippine house to impeach CJ Renato Corona.

We are all praises for Philippine Savings Bank president Pascual Garcia III who unlike the prosecution congressmen knows and understands what his duty is under the law. The rule of law is paramount. Garcia referred time and again to the Foreign Currency Deposit Act (Republic Act No. 6426). Section 8 states: All foreign currency deposits authorized under this Act are hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the depositors, in no instance shall be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or private. If the prosecutor congressmen or the senator-judges want Garcia to accede to their demands, then they will have to change the law first. * * *

The issue yet again as it has been from the very beginning of the impeachment trial is whether we should protect the rule of law. It supersedes any other consideration if we are to preserve democracy in the Philippines. Therefore we should vigorously oppose and denounce the prosecution for acting as a quasi judicial body to compel banks to reveal deposit documents, both peso and foreign currency, without the express and written consent of the depositor. Thankfully the Supreme Court issued an indefinite temporary restraining order on the subpoena issued by the impeachment court on the alleged dollar accounts of Chief Justice Renato Corona in Philippine Savings Bank. The TRO that SC issued was on PSBanks separate petition that sought to prevent violation of the law and protect its 600,000 depositors, sources said. By doing so the Supreme Court exercised its mandate in the Constitution to interpret the law and protect it from the vagaries of politics.


At press time I was told that the chief prosecutor, Congressman Niel Tupas also banks with the same branch. It may be that there was no need for the little woman to come along to bring the envelope. * * *

The Supreme Courts TRO against the Senate tribunal was defended by Fr. Joaquin Bernas. It has less to do with whether or not CJ Corona has deposits in a bank or any bank for that matter. The issue is about the mandate of the Supreme Court under the Constitution. He said that the SC has the power to enjoin actions and rulings of the Senate sitting as impeachment court if found to be against the Constitution. It may review interlocutory orders of the impeachment trial and enjoin those it found to be issued with grave abuse of discretion. The SC can come in when needed to determine the meaning of the law. This does not mean superior ity of the SC over the other departments. All it means is that the Constitution has placed in the SC the power to determine with finality the meaning of the law, Bernas told the Philip pine Constitutional Assembly. * * *

While politicians burn the Philippine house, ordinary Filipinos are moving heaven and earth to help the victims of the earthquake in Negros Oriental. Louie Sarmiento, head of the Philippine Mine Safety and Environment Association (PMSEA) texted this column: Ten minutes ago, PMSEAs Pusong Minero team from Apex Mines recovered one body in Barangay Solongon, La Libertad. PMSEA Director Roger Casido, PR Officer Bojo Sta. Maria and I were accompanied by La Libertad Mayor Lawrence Limkaichong to Solongon. Our geologists from the Mines and Geosciences Bureau (MGB) Region 7 and University of the Philippines National Institute of Geological Sciences (UPNIGS) are doing geohazard assessment. PHILIPPINE BANK SECRECY, MONEY LAUNDERING, AND SOLUTIONS Summary The Philippines have very specific legal provisions on both Philippine Bank Secrecy and Money Laundering. For the most part, there should be no contradictions between the two as per the provisions of both laws. However, when it comes to the provisions regarding the privacy of foreign currency accounts, it becomes complicated. This became a major issue in the ongoing impeachment trial of Chief Justice Renato Corona, wherein tension among all the three branches was heightened. To avoid repeating the same compromising situation, some members of the Senate are proposing amending the bank secrecy laws in a ways that would make litigation of government individuals easier. Provisions of the Law In summary, the Bank Secrecy Law assures that the bank records of individua ls are absolutely confidential nature and and may not be examined, inquired or looked into by any person, government official, bureau or office. However, there is a limitation to this rule as per the peso accounts particularly: 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. On the other hand, the Foreign Currency Deposits Act (Republic Act No. 6426, as amended) is stricter with regards to the confidentiality of the accounts. The only exception is when the owner of the said account gives written consent to open the bank accounts in question. This provision, according some government officials, is a loophole that can be used by money launderers and corrupt officials. Simply put, they can just save ill-gotten funds into Foreign Currency Accounts and be immune from having the said accounts be used as evidence against them. The Anti Money Laundering Act of 2001 (AMLA), which is to be implemented by the Anti Money Laundering Council (AMLC), defines money laundering as a crime whereby the proceeds of an unlawful activity as [defined in the law] are transacted, thereby making them appear to have originated from legitimate sources. The AMLC is tasked to investigate cases of money laundering order Bank Inquiry Order and Freeze Order if there are apparent violations. However, the law cannot do anything to foreign currency deposits as per the provisions of Foreign Currency Deposits Act. On the Corona Trial The three laws factored heavily in the ongoing Corona Trial earlier. The alleged Peso bank accounts of CJ Corona were exposed as per the provisions of the Bank Secrecy Law and the Anti Money Laundering Act of 2001. However, the dollar accounts of the Chief Justice are yet to be opened as per the Foreign Currency Deposits Act. The Supreme Court ordered a TRO regarding the opening of the said accounts as per the mandate of the law even if the Impeachment Court pushed for it earlier. Proposed Legislation Several proposals to amend the current AMLA by the BSP and other politicians have been made in light of the predicament that they have faced in the Corona Impeachment Trial. Among the proposals was one that aims to exempt all functioning government officials from the coverage of the Bank Secrecy Act and the Foreign Currency Deposits Act. Other strengthening measures proposed in turn by the BSP include stricter monitoring and having a reward system for would-be whistle blowers. These provisions are targeted to strengthen the push of the AMCLC to apprehend more money launderers and for the government to tighten its anti-corruption campaign. Assessment The proposals to amend the standing AMLA is a reactionary measure to the several money laundering problems the government has faced before, and also the current impeachment trial. Some would view the measures as a late response to an un-anticipated problem raised by the Corona dollar accounts. However, the proposals have positive repercussions if and when passed. It strengthens the Anti Money Laundering campaign by the government to near global standards. More importantly, it limits the options of corrupt officials in terms of where they would hide ill-gotten wealth undetected. Furthermore it prevents the same clash between the branches of government who are looking into Foreign Currency and even Peso accounts as part of litigation.


PH BANK SECRECY LAWS STRICTEST IN THE WORLD By Lucy Swinnen, Michael Lim Ubac Philippine Daily Inquirer 12:51 am | Saturday, February 18th, 2012 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 transp arency. 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-blowersas 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,, 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 Ricciardones 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 communiqu. 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 communiqu.


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 Garcias dollar accounts. The LandBank froze Garcias 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. 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, 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 courts 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.



Ever since the former dictator Ferdinand Marcos signed into law the Foreign Currency Deposit Act (FCDA), also known as Republic Act No. 6426 on April 4, 1974, Philippine banks have been forbidden from disclosing any information about a customers bank account if that account is denominated in a foreign currency. Only with the written consent of the account holder will banks release any information about the account. And since 1974, Philippine banks have become a haven for plundered and ill-gotten wealth. No less than two US Ambassadors to the Philippines Francis Ricciardone and Kristie Kenneyin separate cable dispatches published by Wikileaks had voiced concern about the FCDA. Ricciardones 2005 dispatch characterized PHL banking laws as among the strictest in the world. Kenny likewise laments in a 2007 cable about corruption that Investigations are hampered by Philippine banking secrecy laws that limit access to certain crucial financial information. As the Group of 20 leading economies (G20) categor ically stated in their 2009 London communiqu The era of banking secrecy is over. It is thus high time that Congress repeal or revise this anachronistic Marcos-era piece of bad legislation. The ongoing Corona impeachment trial has placed the spotlight on the FCDA and its detrimental effect on transparency and accountability in government. Philippine legislators from both Houses of Congress are now working on various bills to either repeal or revise the FCDA. This is therefore the perfect time for PHILNEWS.COM readers to step in and lend them a helping hand. Heres what we need to do: Sign the Petition to US President Obama Click the button on the left to directly petition the Obama Administration to make the transfer of Coast Guard Cutter Dallas contingent on the repeal or revision of the FCDA. Our goal is to get at least 25,000 signatures within 30 days. So please be sure to get all your friends and relatives to sign the petition as well. Remember, the more signatures we can gather, the better our chances of making a significant impact on this issue. If enough of us do it, Washington will surely be forced to take notice and lean on the Philippine Government to finally put an end to this odious law that Marcos foisted on the Filipino people nearly four decades ago. Filipinos living abroad often feel frustrated and disenfranchised with regards to Philippine politics. They see things that need changing but feel helpless to doing anything about them. Well, heres one opportunity for Filipino-Americans to get rid of a Marcos-era law that should never have been promulgated to begin with. With a much needed naval vessel hanging in the balance, the executive and legislative branches of the Philippine government would be more inclined to repeal Republic Act No. 6426a law that even the United States would want to see repealed. More importantly, you would have made a big difference in helping bring more transparency and accountability to Philippine governance. Fatca: The end of banking secrecy? Published on Wednesday, 10 April 2013 20:49 Written by Edzyl Josef G. Magante / Contributor Conclusion


GOVERNMENT POWER TO CONCLUDE BILATERAL AGREEMENTS SINCE the US pursues the implementation of the Foreign Account Tax Compliance Act (Fatca) by concluding bilateral agreements with national governments, another question that ensues is whether the Philippine government may legally contract away individual rights that may be prejudiced by Fatca, such as the right to privacy. Again, in Republic v. Eugenio, the Supreme Court ruled that there is a right to privacy governing bank accounts in the Philippines. By this pronouncement, the Court may be implying that the rule on secrecy of bank deposits has constitutional underpinnings. The Cour t even went as far as to say that the framers of the 1987 Constitution, likewise, recognized that bank accounts are not covered by either the right to information under Section 7, Article III or under the requirement of full public disclosure under Section 28, Article II. As reflected earlier, the Supreme Court has, likewise, consistently held that bank deposits are statutorily protected and fall within recognized zones of privacy. In BSB Group Inc. v. Go, the Court further stated that in any given jurisdiction where the right to privacy extends its scope to include an individuals financial privacy rights and personal financial matters, there is an intermediate or heightened scrutiny given by courts and legislators to laws infringing such rights. If the right to privacy that inheres in the secrecy of bank deposits is indeed constitutionally founded, then the intergovernmental approach of the US may not be enough to sidestep Fatcas possible infringement of banking secrecy in the Philippines. Again, does the Philippine government have the power to conclude a bilateral agreement that implements a foreign law that may violate a possibly constitutionally protected right to privacy? Now more than ever, when even first-world economies are falling like dominoes, tax collection becomes a priority of national governments the world over. But to what extent may cash-strapped states resort to radical legal measures to increase tax collection? Fatca certainly tests the limits of a nations power to tax. Still a work in progress, Fatca has a long way to go in terms of making its design and strategy legally viable in foreign jurisdictions. On this score, the intergovernmental approach of the US falls short: a quid pro quo does not cut it. Bilateral agreements, where national governments commit to implement Fatca on the basis of mutual concessions, do not automatically make Fatca implementation entirely legal, even in those acceding jurisdictions. Legal shortcuts at best, these agreements, in large part, only serve to shift the blame to the consenting national governments for any illegality resulting from Fatca enforcement. It is doubtful whether a bilateral agreement to implement Fatca will survive a constitutional challenge in the Philippine Supreme Court. It is far too established to require citation of authority that an international agreement cannot override the Philippine Constitution.

NEED TO CRAFT NEW BANK SECRECY LAW Posted by butalidnl on 21 February 2012


There is a lot of interest these days on the issue of Bank Secrecy specifically about looking at officials bank accounts to determine if they have some undeclared wealth. Some people have proposed that the Bank Secrecy Law be changed. I agree. But it is important to note that any new law will only apply to subsequent cases, and not to the current impeachment trial. There are actually two Bank Secrecy Laws: the Foreign Currency Deposit Act (FCDA), otherwise known as Republic Act No. 6426, enacted in 1974; and the Bank Secrecy Law (Republic Act No. 1405) enacted in 1955. Both need to be amended, or rather replaced by a new law. The new law is needed in order to fight corruption, tax evasion, money laundering etc, while protecting the privacy of bank accounts.


The law should be changed, and it should properly be renamed as a Bank Privacy Law. The basic principle of this law would be that a persons bank account is private i.e. known only by him and his bank. But that the government should have the capacity to access what it needs from such accounts to determine if any laws have been violated. Privacy should not provide a safe haven for those doing illegal acts. At the same time, privacy should be respected even when a pers ons bank account records are accessed. People want to have privacy in their bank accounts for all kinds of reasons. Bank accounts reflect what one does in life, and these things do not need to be known by the public. They may have special reasons why they do not want to divulge their bank account data. Things like: donations to ones church and other charitable causes, tuition fee payments, even the cost of a house may not be good to divulge. And there are things that are legal, but may be awkward: payment for a drug rehab treatment, a VD clinic, or even informal support payments for an undeclared child. Public officials should be subject to more monitoring than the rest of the public. This is to check against cases of corruption. They are required to file SALNs (Statement of Assets, Liabilities and Net worth), which naturally include their bank account balance. In order to ensure that SALNs are accurate, anticorruption bodies should be able to verify that their declared bank account balances are accurate. The question that policymakers should consider is: how to craft a law that protects peoples bank privacy, while ensuring that tax evaders, criminals and corrupt officials dont use the banking system to hide their deeds? PROVISIONS.Some provisions of the proposed law would be: Protection of Account Privacy. Bank accounts, whether they are in peso or in foreign currency are private. Anybody violating this without legal justification will be severely punished. When an investigation makes it necessary for a Court to access some account data, the data should be limited to what is strictly needed, and the full account record should never come out in a court record. End of Year Balance. At the end of every year, banks will provide depositors a statement of their balance as of 31 December, as well as the amount of tax withheld. This will be used as a basis for SALNs etc.


Withheld Tax. All Earnings through the banks will have tax withheld automatically. This tax will be turned over to the tax authorities. Tax on interest for foreign currency accounts will also be collected; the rate of tax will depend on the declared citizenship of the depositor. If an account holders country does not collect tax on interest earned, tax will be withheld based on Philippine law and collected by Philippine tax authorities. Tax authorities can request from banks an end of year statement for persons they are investigating, which specify: total deposits, total withdrawals, total tax withheld. Ombudsman and Sandiganbayan (anti-corruption court) have the right to request End of the Year balance, total deposits, total withdrawal and tax withheld for any official that they are investigating. If, upon investigation of these documents, the Sandiganbayan deems it necessary, it can also ask to look at that officials monthly bank statements. Anti-money laundering. The NBI should be able to get access to an account in terms of the money transfers into or going outside the country, as well as large deposits and withdrawals (perhaps amounts of P1 million or more). The bank will provide these to them in a special form, without revealing the account holders other bank transactions. Prosecution of Criminals. Courts should be able to access bank records of people being tried for financial crimes (including tax evasion and money laundering). But these records remain private meaning that only the judge (and some select court officials) would have (temporary) access to the full records. On the basis of their examination of the actual records, they wou ld sign an extract from the records which would omit all transactions not relevant to the case as correctly reflecting the actual record. It will only be these extracts which will appear in the court record. The original records will be returned to the bank. Bank Officials. Since bank officials have a key role in keeping bank accounts private, they have a big responsibility in their hands. Any violation of the rules by bank officials (e.g. leaking the contents of an account) should be severely punished. Before they are entrusted with these responsibilities, bank officials should be cleared by both the NBI and the BSP. The BSP will hold a regular audit of cases where bank balance data are shared with courts, to ensure that bank officials and courts correctly follow the procedures. Exodus? Some people are concerned that there would be an exodus of funds from Foreign Currency Deposits if the Bank Secrecy Laws are amended. I think that the economic effect of such new laws will be limited. It may even be beneficial, since it may result in a devaluation of the peso, which would benefit exporters and OFW families. The main effect of new Bank Secrecy Laws will be that it would be increasingly difficult to hide ill-gotten wealth in the banking system. And this may, or it may not, lessen corruption of officials. If, in the process of doing so, we also rid the country of its reputation as a haven for tax cheats and money-launderers, then that should be all right.


IN ABROAD BANK SECRECY ACT The Bank Secrecy Act of 1970 (or BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. Many


banks will no longer sell negotiable instruments when they are purchased with cash, requiring the purchase to be withdrawn from an account at that institution. The BSA was originally passed by the Congress of the United States in 1970, and amended several times since then, including provisions in title III of the USA PATRIOT Act. (See 31 USC 53115330 and 31 CFR Chapter X.) The BSA is sometimes referred to as an "anti-money laundering" law ("AML") or [1] jointly as "BSA/AML".

TYPES OF REPORTS The BSA regulations require all financial institutions to submit five types of reports to the government. The following is not an exhaustive list of reports to be filed. The FBAR has an individual filing requirement, as detailed below. 1. FinCEN Form 112 (formerly Form 104) Currency Transaction Report (CTR): A CTR must be filed for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through or to a financial institution, which involves a transaction in currency of more than $10,000. Multiple currency transactions must be treated as a single transaction if the financial institution has knowledge that: (a) they are conducted by or on behalf of the same person; and, (b) they [2] result in cash received or disbursed by the financial institution of more than $10,000. 2. FinCEN Form 105 Report of International Transportation of Currency or Monetary Instruments (CMIR): Each person (including a bank) who physically transports, mails or ships, or causes to be physically transported, mailed, shipped or received, currency, traveler's checks, and certain other monetary instruments in an aggregate amount exceeding $10,000 into or out of the [3] United States must file a CMIR. 3. Department of the Treasury Form 90-22.1 Report of Foreign Bank and Financial Accounts (FBAR): Each person (including a bank) subject to the jurisdiction of the United States having an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in a foreign country must file an FBAR if the aggregate value of such accounts at any [4] point in a calendar year exceeds $10,000. A recent District Court case in the 10th Circuit has [5] significantly expanded the definition of "interest in" and "other Authority". 4. Treasury Department Form 90-22.47 and OCC Form 8010-9, 8010-1 Suspicious Activity Report (SAR): Banks must file a SAR for any suspicious transaction relevant to a possible [6] violation of law or regulation. 5. FinCEN Form 110 Designation of Exempt Person : Banks must file this form to designate an [7] exempt customer for the purpose of CTR reporting under the BSA. In addition, banks use this form biennially (every two years) to renew exemptions for eligible non-listed business and payroll [8] customers. It also requires any business receiving one or more related cash payments totalling $10,000 or more to [9] file IRS/FinCEN Form 8300. AFFECTED TRANSACTIONS CURRENCY TRANSACTION REPORT (CTR)


The CTR must report cash transactions in excess of $10,000 during the same business day. The amount over $10,000 can be either in one transaction or a combination of cash transactions. It is filed with the Internal Revenue Service. MONETARY INSTRUMENT LOG (MIL) The MIL must indicate cash purchases of monetary instruments, such as money orders, cashier's checks and traveler's checks, in value totaling $3,000 to $10,000, inclusive. This form is required to be kept on record at the financial institution, and produced at the request of examiners or audit to verify compliance. A financial institution must maintain a Monetary Instrument Log for five years. SUSPICIOUS ACTIVITY REPORT (SAR) The SAR must report any cash transaction where the customer seems to be trying to avoid BSA reporting requirements by not filing CTR or MIL, for example. A SAR must also be filed if the customer's actions suggest that he is laundering money or otherwise violating federal criminal laws and committing wire transfer fraud, check fraud or mysterious disappearances. The bank should not let the customer know that a SAR is being filed. These reports are filed with the Financial Crimes Enforcement Network ("FinCEN"). SANCTIONS There are heavy penalties for individuals and institutions that fail to file CTRs, MILs, or SARs. There are also penalties for a bank which discloses to its client that it has filed a SAR about the client. Penalties include heavy fines and prison sentences. HOW IT AFFECTS AMERICAN CITIZENS CTRs include the individual's bank account number, name, address, and social security number. SAR reports, required when transactions indicate behavior designed to elude CTRs (or many other types of suspicious activities), include somewhat more detailed information and usually include investigation efforts on the part of the financial institution to assess the validity or nature of the transactions. A single CTR filed for a client's account is usually of no concern to the authorities, while multiple CTRs from varying institutions or a SAR suggest that activity may be suspicious. A financial institution is not allowed to inform a business or consumer that a SAR is being filed, and all the reports mandated by the BSA are exempt from disclosure under the Freedom of Information Act. Businesses that deal primarily in cash, such as bars and restaurants, can be exempted from having their deposits and withdrawals reported on CTRs, although this exemption is rarely granted. Instead, most banks have computer systems which retain information on CTRs and allow duplicate CTRs to be created seamlessly. INDIVIDUAL FILING REQUIREMENT U.S. citizens must file the FBAR if they have a financial interest in, or authority over, foreign bank [10][11] accounts that have an aggregate value of $10,000 at any point in a year. Additionally, they must report the accounts on Schedule B of the Form 1040 tax form. The FBAR should be filed separately with the U.S. Treasury by June 30 of each year.


ADDITIONAL INFORMATION An entire industry has developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions called structuring, which requires SAR filing. Financial institutions are subject to penalties for failing to properly file CTRs and SARs, such as heavy fines and regulatory restrictions, including charter revocation. These software applications effectively monitor customer transactions on a daily basis, and using a customer's past transactions and account profile, provide a "whole picture" of the customer to the bank management. Transaction monitoring can include cash deposits and withdrawals, wire transfers and ACH activity. In the banking industry, these applications are known as "BSA software" or "anti-money laundering software"

NOTABLE CASES In 1998, the Supreme Court ruled in United States v. Bajakajian that the government may not confiscate any money from an individual for failure to report it on a CMIR, as such punishment would be "grossly disproportional to the gravity of [the] offense" and thus unconstitutional under the Excessive Fines clause of the Eighth Amendment. In 2011 the Observer reported that Wachovia, at one time a major US bank, was implicated in laundering money for Mexican drug lords, through its lax laundering controls, a violation of the Bank Secrecy Act. It [12] moved money in and out of casas de cambio without proper due diligence. BANK SECRECY Bank secrecy (or bank privacy) is a legal principle in some jurisdictions under which banks are not allowed to provide to authorities personal and account information about their customers unless certain [1] conditions apply (for example, a criminal complaint has been filed ). In some cases, additional privacy is provided to beneficial owners through the use of numbered bank accounts or otherwise. Bank secrecy is prevalent in certain countries such as Switzerland, Lebanon, Singapore and Luxembourg, as well as offshore banks and other tax havens under voluntary or statutory privacy provisions.

Lebanon has retained its banking secrecy laws whilst adopting new measures to fight money laundering. Created by the Swiss Banking Act of 1934, which led to the famous Swiss bank, the principle of bank secrecy is always considered one of the main aspects of private banking. It has also been accused by NGOs and governments of being one of the main instruments of underground economy and organized crime, in particular following the class action suit against the Vatican Bank in the 1990s, the Clearstream scandal and the terrorist attacks of September 11, 2001. Former bank employees from banks in Switzerland (UBS, Julius Baer) and Liechtenstein (LGT Group) have testified that their former institutions helped clients evade billions of dollars in taxes by routing money through offshore havens in the Caribbean and Switzerland. One of these, Rudolf M. Elmer, wrote, "It is a global problem...Offshore tax [2] evasion is the biggest theft among societies and neighbor states in this world." The Swiss Parliament ratified on June 17, 2010 an agreement between the Swiss and the United States governments allowing


UBS to transmit to the US authorities information concerning 4,450 American clients of UBS suspected of [3][4] tax evasion. Advances in financial cryptography (e.g. public-key cryptography) could make it possible to use anonymous electronic money and anonymous digital bearer certificates for financial privacy and anonymous Internet banking, given enabling institutions (e.g. issuers of such certificates and digital cash) and secure computer systems. SWISS BANKING ACT OF 1934 Bank secrecy was codified by the 1934 Swiss Banking Act following a public scandal in France, when MP Fabien Alberty denounced tax evasion by eminent French personalities, including politicians, judges, industrialists, church dignitaries and directors of newspapers, who were hiding their money in Switzerland. He called these men of "a particularly ticklish patriotism", who "probably are unaware that the money they deposit abroad is lent by Switzerland to Germany". The Peugeot brothers and Franois Coty, of the famous perfume family, were on his list. Since then, Swiss banks have acquired worldwide celebrity due to their numbered bank accounts, which critics such as ATTAC NGO alleged only help [5] legalized tax evasion, money laundering and more generally the underground economy. Alternatively, secrecy laws allowed at the same period Jews and others to escape from Nazi Germany without losing everything. Having moved assets to Switzerland, Swiss authorities were not allowed to answer German questions about who had what where. Even employees of German banks in Switzerland were not allowed to answer questions from their employer in Germany. The value of this discretion became even greater as the whole of continental Europe was occupied. Bank secrecy therefore was, and remains a protection of the individual against the power of the state. Under the Swiss principle of bank secrecy, privacy is statutorily enforced, with Swiss law strictly limiting any information shared with third parties, including tax authorities, foreign governments or even Swiss [citation needed] authorities, except when requested by a Swiss judge's subpoena . However banking is not strictly anonymous since under its banking law all Swiss bank accounts, including numbered bank accounts, are linked to an identified individual. This law only permits a bank to share information with others in cases of severe criminal acts, such as identifying a terrorist's bank account or tax fraud, but not simple non-reporting of taxable income (called tax evasion in Switzerland). In April 2013, French Minister Jrme Cahuzac was forced to resign when the Geneva public prosecutor, acting quickly on a French [6] request related to tax fraud, found evidence of undeclared Swiss accounts. Under pressure from the G20 and the OECD, the Swiss government announced in March 2009 that it will [7] abolish the distinction between tax fraud and tax evasion in dealings with foreign clients. The distinction remains valid for domestic clients. Any bank employee violating a client's privacy could be punished quite severely by law. After signing 12 new double taxation treaties in accordance with the international standard set by the OECD, Switzerland was removed from the grey list of non-compliant tax [8] jurisdictions. UBS was caught red-handed by the United States government offering tax evasion strategies, sending undercover bankers with encrypted computers to the United States. After it was caught, UBS paid a $780 [9][10] million penalty and handed over hundreds of client files to American authorities. In 2010, the Swiss and the United States governments negotiated an agreement allowing Swiss bank UBS to transmit to the [3][11] US authorities information concerning 4,450 American clients of UBS suspected of tax evasion.


In the aftermath of the UBS and Julius Baer banking cases, some wealthy clients who continue to use offshore accounts are turning to private banks in Singapore and Hong Kong. In addition to the local Singapore or Hong Kong banks, offices have been opened in those localities by a number of Swiss [12] private banks. The move to Singapore and Hong Kong is an alternative to the banking secrecy that Swiss banks have come under attack for. Singapore has bank secrecy provisions comparable to those in Switzerland. Although Hong Kong does not have the same bank privacy laws, it offers flexibility in the [13] creation of opaque companies that can serve as tax conduits. Many offshore banks, located in tax havens such as in the Cayman Islands and Panama, also have strict privacy laws. United States Legislation in Response to Bank Secrecy U.S. Bank Secrecy Act of 1970 The United States' Bank Secrecy Act (or BSA) requires financial institutions to assist government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. USA PATRIOT Act Main article: USA PATRIOT Act, Title III The 2001 USA PATRIOT Act created many new rules for American banks in an attempt to defeat bank secrecy. A list of such banks or shell banks are given to the U.S. banks who are not allowed to wire money to them. All new customers to American banks must now be asked if they are U.S. citizens. If not, [citation needed] they must state their occupation and whether they expect to be wired foreign money. The purpose of the USA PATRIOT Act is to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools, and other purposes, some of which include: --To strengthen U.S. measures to prevent, detect and prosecute international money laundering and financing of terrorism; --To subject to special scrutiny foreign jurisdictions, foreign financial institutions, and classes of international transactions or types of accounts that are susceptible to criminal abuse; --To require all appropriate elements of the financial services industry to report potential money laundering; --To strengthen measures to prevent use of the U.S. financial system for personal gain by corrupt foreign officials and facilitate repatriation of stolen assets to the citizens of countries to whom such assets belong. Actions by European countries European countries had long complained that banking secrecy provisions in countries such as Austria, Liechtenstein, Luxembourg, and Switzerland favored tax evasion by their citizens, particularly the citizens of countries such as Belgium, France, Germany and Italy which border one or more of those countries. In 2009 tensions reached a height and concerned countries (supported to some extent by other countries) raised the issue at the OECD and the G20. As a result, essentially all countries agreed to implement tax [14][15] treaties that would facilitate the exchange of banking information in case of suspected tax evasion.


In 2013, Swiss President Ueli Maurer defended banking secrecy, and declared it is "comparable" to medical confidentiality, and that "the state must absolutely respect the private sphere" and should not [16] know "what there is in your bank account". Criticisms Tax evasion and money laundering Jurisdiction with what other countries view are excessive protections benefitting dubious parties are sometimes known as secrecy havens, by analogy with tax havens. Numbered bank accounts, used by Swiss banks and other offshore banks located in tax havens, have been accused by NGOs such as ATTAC of being a major instrument of the underground economy, facilitating tax evasion and money laundering. After Al Capone's 1931 condemnation for tax evasion, according to journalist Lucy Komisar mobster Meyer Lansky took money from New Orleans slot machines and shifted it to accounts overseas. The Swiss secrecy law two years later assured him of G-man-proof-banking. Later, he bought a Swiss bank and for years deposited his Havana casino take in Miami accounts, then wired the funds to Switzerland via a network of shell and holding companies and offshore accounts Joseph Stiglitz, 2001 Nobel laureate for economics, told Komisar: You ask why, if there's an important role for a regulated banking system, do you allow a non-regulated banking system to continue? It's in the interest of some of the moneyed interests to allow this to occur. It's not an accident; it could have been shut down at any time. If you said the US, the UK, the major G7 banks will not deal with offshore bank centers that don't comply with G7 banks regulations, these banks [5] could not exist. They only exist because they engage in transactions with standard banks. In 1999, a class action suit against the Vatican Bank criticized the role of Switzerland during World War [citation needed] II. Also in 1999, according to Lucy Komisar, banks "orchestrated a successful e-mail campaign to Congress" [5] to "sink a 'know your customer' regulation proposed by the Federal Deposit Insurance Corporation". In 2001, the United States learned that the Swiss had protected the bank that handled finances for Osama Bin Laden. One of them, the Bahrain International Bank, had funds transiting through nonpublished accounts of Clearstream, which has been qualified as a "bank of banks" and was involved in one of Luxembourg's major financial scandals. U.S. Terrorist Finance Tracking Program Main article: Terrorist Finance Tracking Program A series of articles published on June 23, 2006, by The New York Times, The Wall Street Journal and the Los Angeles Times revealed that the United States government, specifically the US Treasury Department and the Central Intelligence Agency, had a program to access the SWIFT transaction database after the September 11th attacks rendering bank privacy severely compromised.


Trusts as vehicles for tax evasion and money laundering According to a book published in 2010 by an investigative journalist, the successful campaign to limit [17] bank secrecy will likely lead to an increase use of trusts, mostly based in the UK or the USA. Such [18] trusts can be used for tax evasion and money laundering.

BANK SECRECY ACT/ANTI-MONEY LAUNDERING/OFAC USA PATRIOT ACT COMPLIANCE POLICY Introduction As part of the effort to combat drug trafficking, money laundering and other financial crimes, federal law requires businesses to report and maintain certain records regarding various monetary transactions. Because of the nature of banking, much of the law addresses the requirements of recordkeeping and reporting by financial institutions. The purpose of these laws is to curtail illegal businesses and impede their ability to launder money by monitoring and reporting cash transactions. The original federal law, entitled the Currency and Foreign Transactions Reporting Act of 1970 and all subsequent related regulation, are commonly referred to as the Bank Secrecy Act (BSA) (31 USC 5311). This common name is a misnomer that originated from a concern by Congress that US citizens may have been using the bank secrecy laws of other countries to conceal illegal activities. The actual purpose of the Bank Secrecy Act is to impose recordkeeping and reporting requirements for monetary transactions. The law is implemented by regulation promulgated by the Department of the Treasury in 31 CFR 103. In addition, regulatory agencies require financial institutions to adopt procedures for monitoring Bank Secrecy Act compliance. The Federal Reserve Board (Fed) regulations are addressed in 12 CFR 208.14 of Regulation H. These regulations require financial institutions to have a Bank Secrecy Act compliance program in place which, at a minimum will: Designate an individual responsible for coordinating and monitoring day-to-day compliance Provide a system of internal controls to ensure ongoing compliance Provide a customer identification program Provide training for appropriate personnel Provide for independent testing of compliance conducted by an independent party



The key to a sound Bank Secrecy Act program is a comprehensive BSA policy. Midwest Independent Bancshares, Inc. and its wholly owned subsidiaries (MIB) adopt this policy in recognition of our banks obligations under the Bank Secrecy Act and its accompanying regulation (31 CFR 103) and the requirements of the Federal Reserve Bank as established in 12 CFR 208.14. Violations of the Bank Secrecy Act carry the highest criminal and civil penalties of any other banking law or regulation. Civil penalties for BSA non-compliance range from fines of $500, $1,000, and $10,000 per occurrence. Criminal penalties for BSA non-compliance range from $10,000 and 5 years to $500,000 and 10 years imprisonment per occurrence. Employees must be aware that penalties may be assessed based upon actions described by two important terms, as further described:

Knowledge - An employee who knows or should have known that conducting a transaction will or might promote an unlawful activity.

Willful Blindness - An employee intentionally fails to inquire about a transaction they consider suspicious, or an employee chooses to ignore the circumstances surrounding a suspicious transaction. The Bank Secrecy Act imposes a number of requirements on financial institutions. The following items are identified and addressed within this comprehensive policy: -Money Laundering Policy

er Identification Program

The Enterprise Risk Manager is appointed as the BSA/AML Officer. The BSA/AML Officer is responsible for coordinating and monitoring day-to-day compliance with BSA including the training of employees on BSA requirements. ANTI-MONEY LAUNDERING POLICY


This policy is adopted by MIB in recognition of our banks obligations under the Bank Secrecy Act (BSA) and other related money laundering regulations, and the requirements of the Federal Reserve Bank of St. Louis. The BSA/AML Officer is also hereby appointed as the anti-money laundering program coordinator and is responsible for coordinating and monitoring day-to-day compliance with all federal and state laws relating to money laundering. It is the responsibility of the BSA/AML Officer to coordinate and monitor day-to-day compliance with the detection and prevention of money laundering, including the training of employees, management, and the Board of Directors. MIB is committed to implementing policies and procedures that assist in detecting and preventing money laundering or other illegal activities conducted through transactions at MIB. Money laundering is the criminal practice of filtering ill-gotten gains or "dirty" money through a maze or series of transactions, so the funds are "cleaned" to look like proceeds from legal activities. Money laundering does not have to involve cash at every stage of the laundering process. Any transaction conducted with a bank might constitute money laundering. Although money laundering is a diverse and often complex process, it involves three independent steps that can occur simultaneously: - The process of placing, through deposits or other means, unlawful cash proceeds into traditional financial institutions. - The process of separating the proceeds of criminal activity from their origin through the use of layers of complex financial transactions, such as converting cash into traveler's checks, money orders, wire transfers, letters of credit, stocks, bonds, or purchasing valuable assets, such as art or jewelry. - The process of using an apparently legitimate transaction to disguise the illicit proceeds, allowing the laundered funds to be disbursed back to the criminal. Different types of financial transactions, such as fraudulent loans or false import/export invoices, can be used. It is illegal for any person to structure transactions with a bank to evade cash reporting requirements. Even if cash has been acquired legitimately, the act of structuring alone, to avoid reporting requirements, is against the law. It is also illegal for anyone to assist another person in structuring transactions to evade the reporting requirements. Therefore, employees will not assist any person in structuring transactions to avoid a CTR or any of the other recordkeeping/reporting requirements of the act, including fund transfers. If an employee suspects that a person is purposely structuring transactions with MIB to evade the reporting requirements of the BSA, these suspicions must be reported to the BSA/AML Officer. The Board of Directors instructs management to establish procedures in each department that are designed to detect and prevent money laundering. Management is specifically directed to identify highrisk customers using the additional guidance which may be found in the appendix. In particular, management is directed to perform due diligence on our banks customers. Although our customers are federal and state regulated institutions of whom are subject to BSA and AML, MIB performs a risk assessment on all direct customers to determine the appropriate level of account monitoring and to specify actions required for each risk rating. Indirect customers may also be risk rated in the event that information becomes available to MIB that warrants additional monitoring.


In addition, the Board requires that management and the BSA/AML Officer ensure that certain reports are monitored for suspicious activity and that employees receive adequate internal and external training on detecting money laundering and other illegal activities. Incoming and outgoing wire logs are reviewed daily by the Operations Manager. In addition, the BSA/AML Officer reviews these logs monthly to identify international transfers of funds. Additional monitoring is performed with those customers that have irregular international wire activity. Customers with an increase in international wires of 10% or more in dollar and volume in excess of $5,000 over the course of a rolling twelve month period are monitored on a monthly basis. In the event a customers international wire activity becomes suspicious, the customer relationship is reviewed and the customer is BSA risk rated accordingly. Suspicious Activity Reports are filed when deemed necessary by the BSA/AML Officer. Domestic wire data is captured and reviewed monthly for respondent customers rated as High BSA risk. Additional reports may be created and reviewed at any time at the discretion of the BSA/AML Officer, Compliance Committee and/or management. Additional guidance regarding Enhanced Due Diligence may be found in the appendix. OFAC The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces economic sanctions against targeted foreign countries, sponsoring organizations and international narcotics traffickers. In its basic form, OFAC serves foreign policy and national security interests. There is no specific regulation that banks may refer to for specific OFAC rules. Instead, the general rule prohibits any US individual or entity (including banks) from doing business with any individual or entity identified on the OFAC list. The Office of Foreign Assets Control (OFAC) administers a series of laws that impose economic sanctions against targeted hostile foreign countries, groups, and individuals to further US foreign policy and national security objectives. The current list of sanctions can be found on the US Treasurys website: MIB recognizes that every transaction is potentially subject to blocking under OFAC regulations. US law requires that assets and accounts be blocked when such property is located in the United States, is held by US individuals or entities, or comes into the possession or control of US individuals or entities. As part of its enforcement efforts, OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country specific. Collectively, such individuals and companies are called Specially Designated Nationals. SDNs can be further detailed as:

Terrorist (SDT)


All transactions involving these individuals must be rejected. If MIB receives instructions to make a payment that falls into one of these categories, MIB executes the payment order and places the funds into a blocked account. A payment order cannot be canceled or amended after MIB has received it. Once assets are blocked, MIB releases them only by specific authorization from the US Treasury. MIB reports all blocks to OFAC within 10 days of occurrence. To ensure MIBs compliance with the OFAC rules, the Board of Directors appoints the responsibilities of the OFAC compliance administrator to MIBs BSA/AML Officer. The Board of Directors is responsible for overall compliance with OFAC regulations. However, the BSA/AML Officer is responsible for the day-to-day management of this function. The BSA/AML Officer reports directly to the Board of Directors concerning compliance reviews of MIBs functional areas, regulatory examination reports and answers to those reports, impact of new regulations or changes to existing regulations, and general compliance issues and concerns. Specifically, the BSA/AML Officer is responsible for:

the Specially Designated National (SDN) list. statutes, regulations, and interpretations

compliance statutes, regulations, and interpretations rocedures

The wire department performs an OFAC scrub on all incoming and outgoing wire batches using Accuity Compliance Link software against the most current OFAC list. The fields searched include the originator, beneficiary bank, and the beneficiary. A list of possible hits is generated by the software and the wire department clerk then identifies which matches are positives and which are false positives. Paper reports are generated and are stored for six months. Electronic copies are retained for 5 years. The loan department performs a scrub against the OFAC list on the name of the individual(s) and/or company and guarantors requesting credit. This is completed by initiating an OFAC search within our CONTROL product. Employees save the scrub information, documenting any false positives, and the information is retained electronically within CONTROL for two years. The loan department documents this scrub on a checklist in the front of each loan file. New accounts staff performs a scrub against the OFAC list on the name of the individual(s), company name and signers of those requesting to open a deposit account. This is facilitated by initiating an OFAC search within our CONTROL product. Names scrubbed are compared to the following OFAC fields:


name, alternate name, title, program, and country. Employees save the scrub information, documenting any false positives, and the information is retained electronically within CONTROL for two years. On a monthly basis, or upon notification from the Office of Foreign Assets Control that a change has been made to the OFAC list, the operations department perf orms an OFAC scrub on MIBs CIF database to verify that none of MIB's existing customers have been added to the OFAC list. MIB utilizes Accuity Compliance Link software to compare any additions to the list against MIB's CIF database when OFAC list updates are published. A log of OFAC scr ubs performed on the banks CIF database is retained by the operations department. In the event of a partial match on the OFAC list, and the employee performing the search determines that it is a false positive, they may allow the transaction and documen t the hit as a false positive within the necessary report. In the event of an exact match or if the employee performing the scrub cannot determine whether or not a possible match is a false positive to the OFAC list derived from anyone of the above mentioned inquiries, the employee notifies the BSA/AML Officer immediately and does not proceed with the transaction. The BSA/AML Officer then determines whether or not the possible match is a false positive. If the BSA/AML Officer cannot determine whether the match is a false positive or not, the BSA/AML Officer contacts the Office of Foreign Assets Control at 1-800- 540-6322 for clarification and confirmation of the match. If the inquiry is a positive match, the BSA/AML Officer follows the instructions given by the Office of Foreign Assets Control and places a freeze on the assets, until further notified. If the inquiry is not a positive match, the BSA/AML Officer then instructs the employee to proceed in processing the request. If the BSA/AML Officer is not available at the time a possible match is obtained, the employee contacts the Office of Foreign Assets Control directly for clarification and confirmation of the match and proceeds as instructed. The employee notifies the BSA/AML Officer of the results of the match as soon as deemed possible. Records regarding OFAC contacts are maintained in a file by the BSA/AML Officer. All areas of MI designated as responsible for implementation of compliance requirements, policies, and procedures for OFAC regulations have incorporated them into operational procedures. Additional guidance regarding OFAC may be found in the appendix.

GROCERY STORES - BEWARE OF BANK SECRECY ACT REQUIREMENTS OR FACE STIFF PENALTIES By: Joshua A. Nesser December 5, 2012 Outside of the banking world, business owners may hear of the Bank Secrecy Act, or BSA, and assume it is a law that only applies to banks, so they do not need to concern themselves with it. Many business owners especially owners of grocery stores, convenience stores, and check-cashing businesses would be surprised to learn that the BSA does apply to their business and that, by not complying with the Act, they are putting not only their business, but also their personal assets and livelihood at serious risk.


The BSA is a federal law enforced by the IRS and an organization called the Financial Crimes Enforcement Network (FINCEN) to prevent the concealment of the sources of illegal proceeds so that criminals can use funds without detection of their illegal activities also known as money laundering. Contrary to what its name may imply, the BSA does not only apply to banks. In fact, if your business sells travelers checks, money orders, or stored value cards, provides money wire transfer or check cashi ng services, or acts as a currency exchange, your business very well may be deemed a Money Service Business, meaning it is required to comply with the BSA. What does it mean if your business is a Money Service Business? First, your business generally must register with FINCEN. Failure to take this step alone could subject you and your business to a fine of $5,000 per day. Also, you must implement an Anti-Money Laundering Compliance Program that governs how your business and its employees comply with the BSA and respond to suspicious activities. As part of this program, your employees must be trained in the BSAs requirements, you must designate a compliance officer in charge of overseeing the implementation of the program, and your business must undergo a periodic third-party audit to ensure its compliance with the BSA. In addition to taking these steps, there are reports that must be filed with FINCEN to report certain types of transactions. For instance, many businesses must file Suspicious Activity Reports within 30 days of any transaction in excess of $2,000 that is deemed suspicious. Furthermore, Currency Transaction Reports must be filed to report cash transactions in excess of $10,000. There are several more record-keeping and reporting requirements that Money Service Businesses must strictly adhere to. The IRS conducts random examinations of Money Service Businesses to ensure their compliance with the Bank Secrecy Act. If any willful violations are found, the IRS is authorized to assess penalties of up to $100,000 per day, while negligent violations are subject to penalties of up to $500 per day. Violations that are deemed to be criminal can result in penalties of up to $500,000 and/or up to 10 years imprisonment.


A. Social Motivations for Swiss Banking Secrecy Switzerland has historically emphasized the values of freedom and independence in all areas, and banking secrecy is no exception. Traditionally, Switzerland only aided other governments in pursuing those committing tax fraud (defined as tax evasion combined with other criminal activities) and not mere tax evasion (defined as the failure to report or the underreporting of income and assets).20 In contrast, many other countries without strict banking secrecy lawsthe United States, for exampledo not draw a distinction between tax fraud and tax evasion. Instead, they have adopted a definition of tax evasion that encompasses all efforts to avoid paying taxes.21 The protections of Swiss banking law do not apply in prosecutions for criminal offenses related to banking, including (but not limited to) terrorism, organized crime, money laundering, or tax fraud.22 Switzerland therefore adopted comprehensive legislation to combat these potential problems.23 Contrary to popular belief, Swiss bank accounts are not anonymous. Account holders must provide all of their personal information to the bank before Swiss banking laws can protect depositors through numbered accounts.24 Numbered accounts improve security because only a limited number of bank officials know the account holders identity.25 Banking secrecy laws have not unreservedly protected any Swiss bank accounts or their owners, however.


B. ECONOMIC MOTIVATIONS FOR SWISS BANKING SECRECY Although the rationales for Switzerlands system have historically been grounded in the ideas of independence and freedom, the positive economic effects Switzerland accrued as a result of their strict banking secrecy laws have also been an instrumental reason for the countrys ma intenance of the current system.27 The Swiss banks secrecy protections have long conferred significant benefits to the Swiss economy. The secrecy and tax advantages that Swiss banks provide, like banks in other countries with strict secrecy laws, make investment attractive to much of the industrial, tax-paying world.28 In many instances, banks have secured large fees for setting up accounts, which generates increased revenue for the Swiss economy.29 The United States Internal Revenue Service (IRS) estim ates that Swiss bank accounts hold between $15 and $20 billion in American assets alone,30 and the Organization for Economic Cooperation and Development (OECD) estimates tax havens around the world hold between $1.7 and $11.5 trillion.31 A 2008 U.S. Sena te report states that the United States loses an estimated $100 billion in tax revenues due to offshore tax abuses annually.32 The Swiss government has long maintained that Switzerland is not, and has not, been a tax haven.33 However, prior to its recent offer of assistance to foreign nations in pursuit of tax evaders, Switzerland almost certainly met the OECDs criteria for determining whether a nation is a tax haven.34 According to the OECD, the four characteristics of a tax haven are: first, the jurisdiction imposes no or only nominal taxes on assets held there; second, the banking system exhibits a lack of transparency; third, the nation has laws or administrative practices that prevent the effective exchange of information with other governments for tax purposes; and fourth, the absence of any significant financial activity in the accounts, which suggests that the accounts exist solely for tax purposes.35 Although Switzerland could arguably qualify under any of the four delineated criteria, the OECD sp ecifically contends that Switzerlands banking laws violate the third criterion because the countrys laws and administrative practices are deliberately designed to prevent any exchange of tax-related information with other governments.36 In 2009, the OECD and the rest of the international community began to vigorously enforce this OECD policy and, consequently, escalated pressure on Switzerland and other tax havens around the world to abandon their policies of banking secrecy. BANK SECRECY ACT VIOLATIONS AND THE MID-LEVEL BANKER BY THOMAS W. MARTIN

Not too long ago two private bankers were sentenced to prison for involvement in a money laundering scheme. Moreover, their bank suffered a multi-million dollar fine. An assistant branch manager at another bank has been implicated in an international money laundering operation estimated over $100 million. These examples point to a potentially costly and damaging oversight in bankingan ineffective effort to build awareness of the Bank Secrecy Act and money laundering among the mid-level tier of bankers. Commercial lenders, private bankers, community bankers and others at this level may have neither the time nor the inclination to obtain the knowledge and understanding needed to comply with this regulation. Good Sales Techniques Paced by the intensely competitive nature of today's banking environment, the emergence of a sales culture and the increasing demands on a banker's time, what is the essential information needed to help


this group? While they are trained in the latest sales techniques for relationship building, these bankers are most vulnerable to unwittingly assisting money laundering among what could appear to be the bank's most coveted and respected customers. Perhaps the traditional focus of Bank Secrecy Act training should be modified. "Cut to the chase" Instead of beginning with the usual history of the Act, then weaving in the necessary requisites of dissecting the Currency Transaction Form and the litany of administrative rulings, perhaps an approach focusing on the "do not's" rather than the "do's" would be more effective. This should be the heart of the training session for the middle-tier of bankers. They may not be interested in attentively listening to the theory or substance of the Bank Secrecy Act. Recognizing this, why not train them on what they need to avoid so they and the bank are in compliance? Cut to the chase! Five key pitfalls To this end, here are 5 key pitfalls around which to build Bank Secrecy Act awareness training for middle and upper management:

1. Avoid assisting in the structuring of a currency transaction. A customer who has a reportable transaction, but decides to change the amount in order to fall below the reporting threshold has structured the transaction. This is a violation of Federal law.

A banker who advises or assists a customer in structuring very well could face civil and criminal penalties, especially if it so happens this customer is implicated in a money laundering ring. 2. Avoid inappropriate exemptions. Many banks exempt certain organizations from filing currency transactions. The exemptions follow guidelines outlined in the IRS publication,"Currency and Foreign Transactions Exemption Handbook." However, no individual can be exempted from the filing of a currency transaction report. For example, a branch manager may cave in to the demands of a high-balance customer who threatens to close accounts if a report is filed. "On-the-fly" exemptions given to exempted customers who exceed their reportable threshold are also inappropriate and a violation of the Act. Driven by balance quotas, bankers seem to be most vulnerable to this pitfall. 3. Avoid ignoring patterns of suspicious activity. A customer who cashes several checks totaling over $10,000 at various branches in the same vicinity within a certain time frame on the same day warrants suspicion. However, the fear of having to close the account and lose the balance is no


excuse for ignoring the behavior. Under the Annunzio-Wylie Act, once a banker has knowledge of a potential illegal activity, a suspicious report must be filed. As an aside, bankers should know there are no financial privacy liability issues here. 4. Avoid assisting a customer in avoiding the filing of required currency transaction reports. The customer who asks how to avoid having currency transaction reports filed should be considered suspicious. For example, a private banker, unwittingly assisting the customer by discussing reporting thresholds or instructing a teller not to file a currency transaction report, could be implicated for involvement in money laundering. 5. Avoid inattentiveness to customer activity. The commercial lender who neglects to look for patterns of unusual transaction behavior or ignores inconsistencies in customer activity could unknowingly facilitate a major laundering scheme. All middle-tier bankers must be aware of their bank's "Know Your Customer" policy and be vigilant in their monitoring of customer transactions. There are many sources of Bank Secrecy Act training ranging from video presentations to retaining BSA consultants. However, a bank can craft its own simple, effective and to-the-point awareness training program for the mid-level banker by focusing on these pitfalls. Sprinkling examples into the presentation can add relevance and interest. This format can answer the "why should I care?" attitude that can typify midlevel bankers who may be more inclined to build customer balances than to build compliance to the law. Thomas W. Martin is a Vice President for SunTrust Bank in Atlanta where he is the Bank Secrecy Act officer. He also conducts seminars on the Bank Secrecy Act for the Georgia American Institute of Banking. Electronic Cash It seems one of the first steps towards that "cashless society" we've been hearing about for years is finally here. Slowly, but surely, the concept of electronic cash is taking hold. Using a card with a tiny "smart" chip, a customer can go to an ATM, or even a specially equipped telephone, and "load" the card with "cash" right from his account. Then he can use the card in the subway, for telephone calls, in stores and supermarkets that are equipped to handle them, even (already!) at some McDonald's restaurants for lunch. The balance still on the card is reduced by the amount of the sale with each use. When it gets to zero, he simply loads it up again. We hope parking meters will be equipped to handle them!


Just like in any other good regulatory enforcement program, at the end of the day the regulators depend on the laws and the punishments applicable under those laws to keep the banks in compliance. In the case of the banking and financial industry, the Bank Secrecy Act (BSA), Anti-Money Laundering Laws (AML), and the USA PATRIOT Act are the laws relied on by regulators to keep the nations banks and financial institutions safe, secure, and free from money laundering and other financial crimes.


Banks and other Financial Institutions are required to report transfers of funds in compliance with the Currency and Foreign Transactions Reporting Act. Congress passed the Currency and Foreign Transactions Reporting Act in 1970, otherwise known as the Bank Secrecy Act. It outlined requirements for record keeping and reporting by private individuals, banks, and other financial institutions. The law was designed to help identify the source, volume, and movement of currency and other monetary instruments transported or transmitted into or out of the United States or deposited in financial institutions. It seeks to achieve that objective by requiring individuals, banks, and other financial institutions to file currency reports with the U.S. Department of the Treasury, to properly identify persons conducting transactions, and to maintain appropriate records of such financial transactions. These records enable law enforcement and regulatory agencies to pursue investigations of criminal, tax, and regulatory violations, if warranted, and provide evidence useful in prosecuting money laundering and other financial crimes. In 1986, the Money Laundering Control Act was passed and effectively precluded circumvention of the BSA requirements by assigning and placing criminal liability to an individual, bank, or institution that knowingly assists in the laundering of money or intentionally structures transactions in such a way so as to avoid the reporting requirements. Further, the law required banks to establish and maintain procedures to assure and monitor compliance with the reporting and record keeping requirement of the BSA. Thus, on January 27, 1987, all federal bank regulatory agencies issued essentially similar regulations requiring banks to develop procedures for BSA compliance. On October 26, 2001, President George W. Bush signed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 into law in response to the September 11, 2001, terrorist attacks on the World Trade Centers in New York. The Patriot Act dramatically expanded the authority of law enforcement in fighting terrorism in the United States and abroad, particularly with respect to the financing of terrorist and other criminal activities by imposing strict requirements on financial institutions. At Thorn Law Group, we are well-versed in the Bank Secrecy Act and related banking and financial services regulatory laws. If you are accused of violating the Bank Secrecy Act or any related laws, contact Thorn Law Group so we can begin discussing your rights and options. PANAMA BANK SECRECY LAWS BY: RONALD EDWARDS Today Panama has become the Switzerland of Latin America. There are 150 banks in Panama many of which have their name on a 40 story modern skyscraper. Panama is often touted as having the best banking secrecy laws in the world. This author believes this to be true and we will address the bank secrecy laws of Panama in depth. The first important point to look at is the existence of any tax treaties that Panama may be in with any other countries. This is an easy topic since Panama has no tax treaties with any other countries. Tax treaties can be privacy invasive for a banking client. Under some treaties the bank must collect a certain percentage of taxes from interest income paid to the clients and this mo ney is turned over to the clients home country. Other treaties call for an exchange of information so if a requesting country wanted to gather certain facts about a bank account or if a certain constituent of theirs had a bank account the bank would be obligated to provide the information. The European Union Withholding Tax Treaty is a very relevant treaty.


The next type of treaty one must look at is called the Mutual Legal Assistance Treaty, or MLAT. This treaty allows countries to request information from other countries in the treaty. The general way this type of treaty operates is through diplomatic channels. Panama is in such treaties. The requesting country must have a criminal case on file in the national courts of their country. They would then cite this case already in their criminal courts when the request for information is made. The requesting country would a need to show that the requested information about the Panama bank account is absolutely required to successfully prosecute the case and that the requesting country has no other way to obtain such evidence. Then the request is considered by Panama. Panama may ask for more information. Panama could deny the request on whatever grounds they wish to use. Panama could also decide to conduct their own investigation because they feel that some Panama laws may have been broken and delay the MLAT request until after they have concluded their investigation which may be some years. The statue of limitations could expire before Panama completed their investigation. This is not to say that Panama is in the habit of thwarting requests for information but Panama does have a right to investigate crimes that took place in their jurisdiction. As a result of these investigations they could confiscate assets and prosecute individuals under their own laws. For the MLAT to take effect the violation in question must be a crime in both the requesting country and the country the information is requested from. Various MLAT treaties have all sorts of details and exceptions and should be read individually if you are seriously interested in a particular treaty. Panama not only has no tax treaties with any other nation but all income tax related offenses in Panama are civil offenses only, not criminal offenses. So tax matters are not a crime in Panama. Thus Panama does not participate in requests for information in tax offenses. Panama does cooperate in certain areas freely. If one acts fraudulently while in the capacity of a fiduciary in a financial relationship Panama will cooperate. Panama also cooperates in cases of narcotics trafficking, money laundering, terrorism and child pornography. The Panama Bank Secrecy laws are contained in a number of different legal statues. We will go through some of the relevant ones: The Panama National Banking Commission was formed by Cabinet Decree 238 of July 2, 1970. Article 74 of Decree 238 deals with protecting the privacy of Panama bank clients. It states that the Commission is prevented from conducting or requesting investigations concerning the banking affairs of any bank clients. Any data obtained by the Commission in the course of its normal regulatory functions may not be revealed to any person or authority, except if subpoenaed in accordance with the legal provisions in force (Panama Court Order required). If a violation of this occurred Article 101 of this Cabinet Decree contains provisions for the dealing of such a violation. Article 101 of Cabinet Decree 238 states that:

"Any person who furnishes information in violation of this Cabinet Decree, or who violates any of the prohibitions established in it, for which no specific punishment is provided for, shall be subject to a monetary fine as determined by the Banking Commission, without prejudice to applicable criminal and civil liabilities." This is fairly strong language. Article 65 of Cabinet Decree 238 deals with how the National Banking Commission may gain access to documents relating to the bank's operation, not individual records of banking clients. The Banking Commission needs to regulate the banks financially and thus inspect their books but this is mandated to


be done on a collective basis, thus the books for the bank as a whole are inspected not the records for an individual account holder at the bank. The Banking Commission may not examine or inspect any type of individual deposit accounts, nor the securities held in custody by the bank for clients, nor the safe deposit boxes belonging to clients and their contents, nor the documents associated with receiving credit from the bank, unless there is a Panama Court Order in place that specifically authorizes such inspection or examination according to Article 89 of the Panama Commercial Code. Panama statues specify that bank secrecy may be lifted by a Panamanian court through Article 89 of the Commercial Code. This is not a commonly invoked procedure but is possible concerning serious criminal activities. Articles 168 and 170 of the Panamanian Criminal Code contain two sections which enables criminal prosecution for violation the privacy of Panama banking clients: Article 168. Any person that is in legitimate possession of correspondence, records or documents which are not intended for public knowledge and notwithstanding discloses said correspondence, records or document without proper authorization, even in the event that they were addressed to him, shall be subject to prosecution, whenever such disclosure might inflict damage. Article 170. Any person that in the course of his occupation, employment, profession or activity obtains knowledge of confidential information that in the event of being made public could inflict damages, and such person discloses that information without the consent of the concerned party; or in the case that disclosure of such information were not necessary to safeguard a higher interest, shall be punishable by imprisonment of 10 months to 2 years or a comparable fine, and the inability to practice his occupation, employment, profession or activity for not more than 2 years. One can readily discern that this would cover Panama Stock Brokers, and Panama Banks including all the employees and officers. This could also be construed to cover Directors of Panama Anonymous Bearer Share Corporations and Council Members of Anonymous Panama Private Interest Foundations. Panama has done away with numbered bank accounts as have the rest of the offshore tax haven jurisdictions. This is due to pressure from FATF, the Financial Action Task Force. FATF is a private entity that unofficially dictates anti-money laundering statues to the banks worldwide. Numbered accounts are no longer allowed. Panama through the use of anonymous Bearer Share Corporations accomplishes practically the same privacy as the old numbered bank account. The banks around the world including those in Panama must know who their customers are. This usually means getting identity documents such as passports, drivers licenses, national identity cards, and letters of reference from banks and businesses. The Panama Bearer Share Corporation is anonymous in that there is no reporting or recording of any stock ownership records in any registry or database thus it is impossible to determine who the natural persons are behind the corporate veil. This means when international wire transfers are sent only the name of the anonymous corporation appears in the wire, the true owner of the account is not revealed for the world to see same as it was when numbered bank accounts were allowed. With regards to writing checks the same applies assuming the signatory signs the check in a hard to read manner. To provide for more privacy Panama only allows an attorney to form a corporation or foundation. This cloaks the formation of the corporation with Panama attorney client privilege further protecting the owners of the corporation or foundation with an additional layer of privacy. In most tax haven jurisdictions the formation of a corporation handled by a corporate agent which does not provide privileged communication to protect the identity of the person owning the corporation.


One can readily see why Panama has become the new Switzerland of Latin America.

NEW POWERS SEVERE VIOLATION OF BANK LAW Erum Zaidi Thursday, June 27, 2013 KARACHI: Top economists and bankers have termed the governments controversial proposal allowing the Federal Board of Revenue (FBR) access to transactions of bank account holders a severe violation of the banking secrecy law. The government says its aimed at curbing tax evasion but experts fear the move will discourage savings and pave the way for further dollarisation of the economy. Banking depends on confidentiality and trust between banks and clients across the world, said a head of a leading commercial bank. Instead of overcoming its loopholes, the FBR is trying to damage one o f the most regulated sectors of the country by giving such ridiculous suggestions. The failure of all previous governments to establish a modern tax system that relies on all round documentation and a broad tax base has led to tax evasion and falling tax-to-GDP ratio, said Dr Muhammad Yaqub, former governor, State Bank of Pakistan, told the News. Instead of moving to broaden the tax base, reform the revenue collection system on modern lines, and curb administrative corruption of the tax officials, all governments - including the current one - have looked for convenient points of tax collection and tax information even when they collide with prudent economic management. Such proposals come from FBR which is dominated by administrators rather than fiscal policy experts, he explained. The governments focus on bank transactions as [an easy route] for detection of tax evasion and collection of revenue will discourage the use of banking facilities and encourage cash transitions. It may even promote the primitive parchi culture as a medium of exchange, Dr. Yaqub said, adding this approach will not improve revenue collection or reduce corruption and tax evasion. The former governor also took issue with the OECD model argument being trotted out by government circles. Western countries have established modern systems of taxation that rely on cross checking of economic information from various sources and have provided all economic agents with the mandate to send


relevant information to the taxation authorities, he said. Unlike Pakistan, they do not single out banks thus neglecting other sources of information and thereby hurt the progress towards financial intermediation between savers and borrowers through the banking system. Dr Ishrat Husain, former governor State Bank of Pakistan said that this proposal contradicts banking secrecy regulations which protect the confidentiality of the data of the bank depo sitors. Under the bank secrecy laws, the tax authority ask banks for having access to the data to the accountholder if he/she is involved in criminal, illegal, or suspicious banking transactions, Dr Husain said. In the developed world, there are certain well-defined parameters for the tax authorities and the financial regulators. Even in Western countries, unnecessary interference by the tax authorities are made subject of heated debate, as there are the individuals privacy and protection of civil and human rights are on the top of governments agenda, he said. It is important to mention here that countrys common law principles of confidentiality; statutory provisions of the Banking Companies Ordinance of 1962 as well as statutory provisions in the Protection of Economic Reforms Act of 1992 safeguard the privacy of the data of the bank accountholders. There is a high risk of corruption and misuse of the bank account holders by the FBR officials associated with this suggestion, said Dr Ashfaque H Khan, Dean of NUST Business School. Whatever banking transaction is taking place is already under the knowledge of the tax authority as it gets withholding tax deduction of clients from the banks, he said. FBR deducts 10 percent withholding tax on cash withdrawal and 10 percent on profit paid on the savings from the bank clients. History has proved that the FBR is one of the corrupt organizations and its members do not have good reputations as far as the transparency of its performance is concerned, he said. TAX HAVENS SHIFT AS LUXEMBOURG, SWITZERLAND LOOSEN BANK SECRECY BY ARDEN DALE It is still possible to hide a fortune in Europe, even as Switzerland, Luxembourg and some other countries known for bank privacy give up their secrets under pressure. Britain and its Channel Islands, for example, are favorite destinations for some who want to keep money below the radar of tax authorities and out of sight of the world in general.

"The city of London is its own secret jurisdiction," said Nicole Tichon, executive director of the Tax Justice Network USA, a not-for-profit organization in Washington, D.C., that tracks tax evasion around the globe. Guernsey and Jersey, two of the British crown dependencies that make up the Channel Islands, are home to secret money.


Overall, Europe is becoming a less favored destination for secret wealth, losing ground to havens elsewhere, such as Singapore and Hong Kong. Switzerland has been loosening its once-tight secrecy laws. On Wednesday, Luxembourg announced plans to begin sharing information on its bank-account holders with other European countries. Tax havens everywhere are under pressure from the U.S. and some other countries, such as Germany, which seek greater banking transparency. The U.S. Foreign Account Tax Compliance Act, passed in 2010, aims to prevent tax evasion by U.S. citizens and includes penalties for foreign financial institutions that don't disclose American account holders. Some tax experts argue that as the effects of FATCA spread, there will be few safe hiding places left. Tax whistleblowers, better coordination between countries, and aggressive enforcement are making a dent. Asia is next for enforcement efforts. Latin America may be lagging behind Europe but the tax police will catch up there, according to Scott D. Michel, a tax-compliance expert and a partner in the Washington, D.C., office law firm Caplin & Drysdale. "There may be some rogue countries in Latin America that will ignore it, but would you want to give your money to a bank in a country run by Hugo Chavez's successor?" said Mr. Michel. There are believed to be trillions of dollars now in offshore hiding places. A report on tax havens last week by the International Consortium of Investigative Journalists looked at a number of jurisdictions, including Singapore and the Cook Islands, and detailed the offshore holdings of people and companies in more than 170 countries and territories. For some who track global tax evasion, the U.S. tops the list of places to hide money. Delaware is a leader in trusts that are constructed to minimize or, often enough, eliminate any taxes on the wealth they contain. Some critics say they amount to a legal form of tax evasion. "Those who are well connected and wealthy are still able to make their way through the system," said Ms. Tichon. WHATS NEXT FOR SWISS BANK SECRECY? Switzerlands long tradition of bank secrecy has been under assault as a number of countries try to thwart tax evasion by citizens who keep money hidden in secret accounts. While the edifice of secrecy has shown some cracks lately, it is still an open question whether there will be a serious breach in the wall of silence that the Swiss have built around their banking institutions. The criminal and Internal Revenue Service investigations of the Swiss bank UBS for assisting Americans evade taxes resulted in a historic agreement between the United States and Switzerland under which the identity of nearly 5,000 account holders would be disclosed to the I.R.S. and Justice Department. For the first time, the Swiss government became committed to helping reveal individuals who used secret accounts to avoid taxes, something it had long resisted. As a result of a voluntary disclosure program, the I.R.S. has learned of a number of individuals who used offshore accounts to hide assets.


As Lynnley Browning reported in The New York Times, however, Swiss courts have thrown up a roadblock by finding that the agreement with the United States violates bank secrecy laws, and therefore the identity of UBS clients cannot be revealed. As part of the deal between the I.R.S. and UBS, the process by which about 4,450 names would be turned over by the bank to American authorities was the key provision that ended the quest to compel the bank to disclose records on more than 50,000 accounts. If that process cannot be completed, then the I.R.S. can revive its case seeking to enforce what is known as a John Doe Summons that would require UBS to turn over the records of its customers. If the bank could not comply with a court order to supply the records because of its obligations under Swiss law, then one potential remedy would be to bar UBS from doing business in the United States. While the bank disposed of its United States cross-border business as part of a deferred prosecution agreement with the Justice Department, it still has a significant presence in this country. Whether the Swiss government is willing to change its underlying bank secrecy laws remains to be seen, and I find it hard to believe that its longstanding policy of protecting the identity of bank customers will change significantly. A second, and potentially more serious, development involves an offer to the German government to sell digital bank records containing the identity of approximately 1,500 Germans with accounts in Switzerland. The German finance minister, Wolfgang Schube, stated that the government would be willing to purchase the information, which had been offered to it for 2.5 million euros. It is not clear what bank is involved, although there were news reports in December that records had been stolen from a branch of HSBC. The Swiss have protested the potential purchase, pointing out that data theft is a crime and that Switzerland would not provide any legal assistance to the Germans for an investigation involving stolen bank information. While it is a crime to steal from a thief, it is hard to feel much sympathy for the victim, and in this case Switzerlands policy makes protests about how bank secrecy has been unfairly compromised sound a bit hollow. If Germany does purchase the information and uses it to pursue tax evasion cases against its citizens, it raises an interesting question of whether others will be encouraged to engage in similar conduct, and if the United States would be willing to buy such information. Congress adopted a whistleblower reward program in 2006 that allows those who report tax evasion to recover 15 percent to 30 percent of what the I.R.S. collects if the total amount meets a minimum threshold. The tax whistleblower program does not limit any award based on how the information was obtained, so stealing it from a company or individual evading taxes does not seem to preclude a reward. Bradley Birkenfeld, a former UBS banker whose disclosures of tax evasion were critical in bringing the case against the bank, is seeking a whistleblower payment even though he pleaded guilty to conspiracy involving tax evasion by clients and is serving a 40-month prison term. Government bounty programs have become a favorite tool in the past few years for ferreting out wrongdoing. In 2009, Congress adopted legislation expanding the False Claims Act, making it easier for whistleblowers to pursue claims under the act for false or fraudulent conduct that costs the federal government money. The Securities and Exchange Commission may implement a similar program if Congress enacts the Investor Protection Act that has already been passed by the House.


The offer to the German government involves an upfront payment rather than receiving a portion of the taxes recovered, which is more like a contingency fee than a ransom for the information. But it is not clear whether there is any real difference between that payment and a bounty paid to an informant for information used to recover unpaid taxes and assess penalties. The government regularly uses undercover informants who skirt the edge of legality to gather evidence, and it is hard to distinguish between different types of payments based on one being made upfront to a person who steals information and the other as a reward after a successful tax evasion proceeding. There is no constitutional prohibition on the American government that prevents it from using information of the type that has been offered to Germany. A well-known and much criticized Supreme Court case, United States v. Alvarez-Machain, held that a federal court had jurisdiction over a defendant who was kidnapped in his home country and delivered to American authorities. Similarly, an illegal seizure of evidence abroad from a foreign national does not preclude it from being used in an American courtroom, particularly when no government agent was involved in the conduct. Stealing information from a Swiss bank in order to sell it to another government is quite clearly unseemly, and a risky proposition for the thief who can be prosecuted in Switzerland if caught. Nor is it the way countries normally deal with one another. But the decision of the Swiss court that effectively rejected the agreement with the United States creates a real risk that less-conventional means will be used to get around bank secrecy that is costing governments billions of dollars and euros of tax revenue. Peter J. Henning

BANKING SECRECY AND THE RECONCILIATION OF SWISS VALUES The recent pressure on Switzerland to cooperate with the United States and eventually other countries to transmit banking information has sent shock waves from Zurich to Geneva and afar. The lower house of Parliament has voted not to consider the Federal Councils proposal to cooperate with the American authorities. The general opinion throughout Switzerland has been of unfair intervention in internal affairs by the U.S., if not a downright violation of sovereignty. In addition, the vocabulary used bemoans capitulation before the forcing exercised by the superpower. In sum, a grave injustice is being done by the United States to Switzerland. A brief comment by Patrick Odier in a televised interview opens another perspective. While announcing a more conciliatory attitude by the banking community to an eventual settlement about sharing information, Odier admitted that there had been errors by Swiss banks in violation of American law. In other words, and reading between the lines, Odier suggested that the end of Swiss banking secrecy was not the result of unfair intervention or a naked use of power. Rather, I surmise, Odier was saying that the settlement was the price the bankers had to pay for their illegal activities. Courageously, Odier recognized that the blame was not in Washington, but in Geneva and Zurich. If one follows Odiers reasoning, which I am sure very few will, one might question how the Swiss reconcile banking secrecy with their reputation for democracy, transparency, human rights and humanitarianism. How does one reconcile many of the secret accounts with official calls for the rule of law and transparency throughout the world? While banks have been more vigilant in their due diligence concerning clients, there is no question that illegal accounts have fallen between the cracks. How can the


Swiss government continue to fight against corruption when many of its leading private institutions have been in flagrant violation of the laws in other countries? Very few people have sighed relief at the current situation. There is a panic about the loss of jobs and tax income with potential bank failures. But few are celebrating the potential reconciliation of Swiss values with the banking industry which seems to have operated in its own world by its own standards. How to explain that very few of the leaders of the major banks have been indicted or put in jail for their activities? Huge fines have been paid, much to the detriment of the shareholders. But the irreconcilable image of Switzerland as the place James Bond hid money and the global center for human rights and humanitarianism and the promotion of the rule of law has not changed. I sense that behind Patrick Odiers very brief sentence was a sigh of relief that those irreconcilable differences will finally end. And I do hope that he is not the only banker with that feeling, a feeling that should be shared by a larger part of the population as well. Daniel Warner June 20, 2013

PUSH TO CLOSE SWISS BANKING SECRECY LOOPHOLES David Crossland Feb 12, 2013 When Wegelin & Co, the oldest Swiss bank, pleaded guilty in a US court to helping rich Americans evade tax and said it would shut down after more than 270 years, a tremor rippled through the Alpine nation's rock-solid banking system. The admission last month by Otto Bruderer, Wegelin's managing partner, served as a reminder that Switzerland will have no choice in the end but to bow to international pressure to scrap its banking secrecy an institution as traditionally Swiss as chocolate and holed cheese but considerably less palatable to cash-strapped governments around the world. That secrecy, which dates back to a 1934 law that made it a crime to reveal a client's identity, has helped to turn Switzerland into the world's biggest tax haven and asset management centre, accounting for US$2 trillion (Dh7.34tn) of funds managed out of a worldwide total $7tn. But it has also left the country looking increasingly isolated and vulnerable as a global campaign to combat tax evasion gains momentum. Western governments are desperate for revenue after five years of financial crises that have depleted their coffers, and the Wegelin case is the latest sign they are getting serious in their hunt for errant tax income. Tax evasion costs the world's governments $3.1tn per year, according to the Tax Justice Network, a campaign group in the United Kingdom that estimates at least $21tn of unreported private financial wealth was held in tax havens at the end of 2010 - the size of the US and Japanese economies combined.


For international authorities, Switzerland is one of the main targets. In its surprise plea, Wegelin admitted charges of conspiracy in helping Americans to evade tax on at least $1.2 billion of wealth from 2002 to 2010, and agreed to pay $57.8 million in restitution and fines. "Wegelin was aware that this conduct was wrong," Mr Bruderer told a federal court in Manhattan. "However, Wegelin believed that, as a practical matter, it would not be prosecuted in the United States for this conduct because it had no branches or offices in the United States and because of its understanding that it acted in accordance with, and not in violation of, Swiss law and that such conduct was common in the Swiss banking industry." Wegelin was accused of poaching clients from UBS, the largest Swiss bank, which had agreed in 2009 to pay US authorities a $780m fine for offering tax-evasion services, and to hand over the names of 4,450 clients, in a major blow to Switzerland's tradition of strict discretion. Wegelin, prosecutors said, had allowed some of its customers to deposit funds through shell companies and to open accounts using code names or numbers, devices that helped to shield them from US tax inspectors. The case is a milestone in a US campaign to track down Americans who slipped under the cloak of Switzerland's banking secrecy. More importantly, Wegelin's admission that its conduct was "common in the Swiss banking industry" does not bode well for the 10 other Swiss banks under investigation by US authorities, including Credit Suisse and Julius Br. "Wegelin has put a burden on the entire Swiss banking industry because it's saying: 'Our behaviour was absolutely common for all Swiss banks,'" says Peter Kunz, a professor of business law at the University of Berne. "One can assume that they were trying to buy themselves a smaller fine with this ominous statement targeting the Swiss banking industry." Switzerland relaxed its bank secrecy law in 2009, along with other tax havens such as the European principalities of Andorra and Liechtenstein, in response to an initiative by the Group of 20 leading and emerging economies to crack down on tax havens. The Organisation for Economic Cooperation and Development (OECD), which compiles progress reports on moves by tax havens to comply with international standards, says the international campaign is working. It is getting harder to evade tax and there has been a general change in attitude, says the OECD. "Until 2009, countries said being more secretive is justified and fair. The change in the world is nobody says that any more, so that is a big change," Pascal Saint-Amans, director of the OECD's Centre for Tax Policy and Administration, told Reuters. But critics say the changes in many tax havens including Switzerland have not gone far enough. In 2009, Switzerland said it would make information on bank clients available - but only if it received detailed


requests on individual cases from other countries. It still does not allow the automatic sharing of account information and has been pushing for a tax amnesty for its existing clients. Switzerland's "widespread involvement in the administration and use of trusts, foundations and offshore companies remain a major barrier to tackling tax evasion and illicit financial flows", the Tax Justice Network said in a report that ranked it the world leader in financial opacity in 2011. Swiss banks emerged in the 18th century when banks such as Wegelin were set up to store the wealth of the country's merchants. Secrecy was enshrined in law in 1934 to prevent Jewish assets deposited in Switzerland from being investigated by Nazi Germany. But the rules on secrecy and the restrictions on access to accounts were so rigorous that billions of dollars deposited by Jews who were killed in the Holocaust lay dormant in Swiss banks for decades until the late 1990s, when more than $1bn was paid out to survivors and their relatives in settlement of a US lawsuit. Pressure on Swiss banks has not just been building in the United States. The country suffered a setback last month when Germany, the biggest market for Switzerland's private banks, rejected a bilateral agreement that would have allowed German tax dodgers to pay back tax on their Swiss bank deposits without revealing their identities. The upper house of the German parliament rejected the law because they said it was too soft on tax evaders. Under the deal, Swiss banks would have levied a charge on 150 billion Swiss francs (Dh600.41bn) in undeclared German funds and passed the proceeds on to the German authorities. The row with Germany was exacerbated by German authorities purchasing CDs of Swiss banking data from whistleblowers to help pursue tax evaders, which provoked a war of words between the two countries. Peer Steinbrck, when he was the German finance minister, referred to the Swiss as Indians running from his cavalry. In return, one Swiss policymaker likened to him to a Nazi. Despite Germany's rejection, Britain and Austria have gone ahead with tax agreements with Switzerland and other nations, including Italy, may follow suit. But even such bilateral agreements will not save Switzerland's banking secrecy in the long run, say analysts. "In three to five years the automatic exchange of information is likely to be the global standard," says Prof Kunz. "Switzerland will not be able to withstand this trend." The example of Wegelin has shown US authorities are becoming increasingly aggressive. "The Americans won't stop until they've squeezed Switzerland dry like a lemon," says Prof Kunz. However, Switzerland's banking industry is expected to remain the world's biggest centre for offshore wealth - defined as wealth held by non-residents - for the foreseeable future, bolstered by some of the strictest capital rules in the world.


Chinese and Indian millionaires are taking the place of American and European savers who have been deterred from depositing their wealth in Switzerland by the increasingly aggressive stance of their countries' tax authorities. A recent survey among Swiss banks conducted by the management consultancy Ernst & Young found that 70 per cent expected a positive or fairly positive business development this year. "In uncertain times especially, the security aspects of Switzerland and of the Swiss financial system are in strong demand," says Patrick Schwaller, the manager of the Banking Barometer 2013 survey at Ernst & Young.


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