Philippine Bank Secrecy Law Simplified already be a case pending in court, the account be clearly
The current banter between President Duterte and Senator
Trillianes about bank secrecy waivers has piqued the
interest of the public on the matter of bank secrecy. So,
what is bank secrecy? Is it absolute? Are there any
exceptions?
On 09 September 1955, Republic Act No. 1405, otherwise
known as An Act Prohibiting Disclosure of or Inquiry into,
Deposits with any Banking Institution (“Bank Secrecy Law”),
was approved. This law was enacted to encourage
individuals to deposit their money in banks instead of
hoarding them.
You may ask, why is there a need to protect the secrecy of
bank deposits? Technically speaking, the law prefers that
money be deposited in banks so they may be properly
utilized to assist in the economic development of the
country. However, it is more relevant on a practical matter.
Let’s use you dear reader as an example. Suppose that you
only have P1,000 in your bank account. Surely, you do not
want any person (such as your friend, employer or any
stranger) to find that out. Either you do not want others to
know that you do not have sufficient money or you simply
do not feel comfortable in people prying in your financial
affairs. On the other hand, if you have P100,000,000.00 in
your bank account, you also do not want others to find that
out for fear that you might be kidnapped, or relatives might
borrow from you, or simply, it’s your personal affair. In all
these cases, one’s financial status is a private matter.
Transactions happening in your bank account are not just
empty figures. There are stories affixed to such
transactions. Thus, these financial transactions are akin to
your personal activities which should not be easily
accessible to anyone.
The Bank Secrecy Law protects all deposits of whatever
nature in banks or banking institutions in the Philippines as
well as investments in government bond. This law prohibits
any person, subject to the exceptions below, from
disclosing to any person any information, relative to the
funds or properties belonging to the depositors in the
custody of the bank (Absolute Confidentiality). Simply put,
no one can just go to your bank and ask for your bank
balance.
However, the rule is not absolute. The following are the
exceptions to the bank secrecy law:
1. Written permission or consent in writing by the
depositor;
2. In cases of impeachment;
3. Upon order of the court in cases of bribery or dereliction
of duty of public officials;
4. Upon order of the court in cases where the money
deposited or invested is the subject matter of the litigation;
5. Upon a subpoena issued by the Ombudsman concerning
an investigation it is conducting, provided that there must
identified, the inspection be limited to the subject matter
of the pending case; and the bank personnel and the
depositor must be notified to be present during the
inspection;
6. The BIR can inquire into bank deposits in an application
for compromise of tax liability or determination of a
decedent’s gross estate;
7. The Anti-Money Laundering Council (“AMLC”) can
examine bank accounts pursuant to a court order, where
there is probable cause that the deposits are related to an
unlawful activity or money laundering offense;
8. The AMLC can examine bank accounts, WITHOUT a court
order, where there is probable cause that the deposits are
related to certain crimes such as kidnapping for ransom,
violation of the Dangerous Drugs Act, hijacking, destructive
arson, murder and violations of RA 6235 (acts inimical to
civil aviation);
9. The BangkoSentral can examine bank accounts in the
course of its periodic or special examination regarding
compliance with Anti-Money Laundering Law.
Examination of all deposits and disclosure by bank
personnel to unauthorized people is prohibited.
Government people, including the BIR people, cannot look
at your bank records except in any of the instances
mentioned. So if the tax man picks up your bank passbook
from your desk, you can bring him up on charges. All banks,
as well as their personnel are also prohibited from
disclosing their records except if any of the eight (8)
instances are mentioned. Violations of this law are
punished by a prison sentence of up to five (5) years, a fine
of P20,000, or both.
As you can see, although there are many exceptions,
securing such exceptions is not an easy task. The easiest
way to waive the secrecy of bank deposits is through a
written waiver. Although there is no prescribed form for a
waiver, it is necessary that the waiver be made voluntarily,
knowingly and with sufficient awareness of relevant
circumstances and consequences. Thus, as a matter of
practice, banks will require the depositor to state in his
waiver the specific bank account, bank branch, name of
depositor, period covered by the transactions and the
name of the person authorized to access the bank account.
How about dollar deposits? Now, foreign currency deposits
are governed by a different law, namely Republic Act No.
6426 and has fewer exceptions. This will be discussed in a
separate article.
You may be curious if there is any criminal liability for
violating the bank secrecy law. Yes, there is criminal
liability. Any person violating this law may be imprisoned
for not more than five (5) years, or meted a fine not
exceeding P20,000.00 or both.
SALN and Unexplained Wealth
Under the anti-graft law, every public officer is required to
submit a true detailed and sworn statement of assets and
liabilities (SALN) within 30 days from assuming office. This
SALN should also include a statement of the amounts and
sources of his income, personal and family expenses as well
as the amount of income taxes he paid in the previous year.
He must also submit a SALN:
1.) Every year on or before April 15
2.) On the expiration of his term of office
3.) On his resignation, retirement or separation (read:
removal) from office
If he assumes office less than 2 months before the end of
the calendar year, he can file his SALN on or before April 15
of the next year.
Violations with regard to the SALN are punished with a fine
of Php 1,000-5,000 and/or imprisonment of up to 1year
and 6 months. There is no minimum prison term. If the
violation is proven in an administrative proceeding,
perpetual dismissal is proper even if there are no criminal
charges filed. An elected official who has been dismissed
under RA 3019 can't be reelected.
If (in accordance with RA 1379) an official during his
incumbency acquires in his name or for other people
money or property that is clearly out of proportion to his
salary and other lawful income, that's a ground for
dismissal or removal. Properties in the name of his spouse
and unmarried children will be considered in the
investigation if their acquisition through lawful means can't
be proven. This includes bank deposits; ergo, this is an
exception to the bank secrecy law.
RA 6426: Foreign Currency Deposit Act
Here's the piece of legislation that's been one of the
significant issues of the Corona impeachment case: RA
6426, the Foreign Currency Deposit Act. The purpose of this
law, when it was enacted, was to protect foreign currency
deposits in order to encourage an inflow of foreign capital
necessary for our country's industries. The law allows
foreign currencies to be incorporated into the national
reserve.
Any person, natural or juridical is allowed to maintain
foreign currency accounts (not just dollars) in banks with
good standing in the Philippines. These banks will be
designated by the Central Bank. The authorities granted to
these banks are as follows:
1. Accept deposits and foreign currencies in trust
(numbered accounts fore servicing and recording
of these deposits is allowed)
2. Issue certificates as evidence of these deposits
3. To discount these certificates
4. Accept the deposits in question as collateral for
loans under the rules and regulations promulgated
from time to time by the Central Bank
5. Pay interest in foreign currency on these deposits
The banks in question are required to maintain a 100%
cover for their deposit liabilities.
Foreign currency deposits are also exempt from attachment
and garnishment. The law covers the following:
1. Examination and inquiry into all deposits of
whatever nature
2. Disclosure by any official or employee of any
banking institution to any unauthorized person of
any information concerning the deposit in
question
The exceptions are the following:
1. Under written permission of the depositor
2. Cases under the Anti-Money Laundering Act
3. If the money was unlawfully taken and deposited
in a bank, the rightful owner can inquire into the
deposit in question (GSIS vs. CA, GR 189206, June
8, 2011 and China Bank vs. CA, GR 140687,
December 18, 2006 -pro hac vice ruling)
4. Under PD 1035, which created the Foreign
Currency Deposit System and PD 1246, both of
which amended RA 6426, the protection of RA
6426 is intended to cover foreign lenders and
investors, not tourists (Salvacion vs. Central Bank,
GR 94723, August 21, 1997)
The recent case of PSBank vs. Senate Impeachment Court,
GR 200238, February 9, 2012, where PSBank requested a
TRO with regard to Chief Justice Corona's bank account
highlights a need to further improve this law.
Violations of this law are penalized 1 to 5 years'
imprisonment and/or a fine of Php5,000 to 25,000.
RA 9160: Money Laundering
Offenses punishable under RA9160 are the following:
1. The crime of money laundering itself
2. Failure to keep records
3. Failure to report covered transactions
4. Malicious reporting
5. Breach of confidentiality
Money Laundering
It is a crime where the proceeds of an illegal activity are
transacted; consequently making they appear to have come
from legitimate sources. It takes the form of the following:
1.) Any person who knows that any monetary instrument or
property represents, involves or is related to the proceeds
of any illegal activity but transact/tries to transact the
instrument/property anyway
2.) A person who, knowing that any monetary instrument
or property involves the proceeds from any illegal activity,
performs or fails to perform an act a result of which he
facilitates the offense of money laundering in the previous
paragraph
3.) If a person knows that any monetary instrument or
property that is required under the money laundering law
(RA 9160, as amended by RA 9194) to be disclosed and filed
with the Anti-Money Laundering Council and fails to do so
A person can be convicted of both the illegal activity and
money laundering. Any case related to the illegal activity,
however, is given precedence over the prosecution of any
offense or violation of the money laundering law without
prejudice to freezing and other remedies.
The RTC has jurisdiction over money laundering cases
except if the money laundering is committed by public
officers or private persons conspiring with them. In this
instance, the case will be tried by the Sandiganbayan.
Covered Institutions
These are the institutions covered under the money
laundering law. They refer to:
1.) Banks, non-banks, quasi-banks, trust entities and all
other institutions and their subsidiaries and affiliates under
the regulation ans supervision of the Central Bank
2.) Insurance companies and all other institutions
supervised and regulated by the Insurance Commissioner
3.) Securities, dealers, brokers, salesmen, investment
houses an other similar entities managing securities or
rendering services as investment agents, advisers,
consultants; mutual funds, close-end investment
companies and other similar entities; forex corporations,
money changers, money payment, remittance and transfer
companies and other similar entities; and entities
administering or otherwise dealing in currency,
commodities or financial derivatives based thereon,
valuable objects, cash substitutes and other similar
monetary instruments or property supervised by the SEC
Transactions Covered by RA 9160
These transactions are reported to the Anti-Money
Laundering Council within 5 working days from their
occurrence unless the supervising authority prescribes a
longer period of up to 10 days. This is an exception to the
Bank Secrecy Law, RA 6426, RA 8971 and other similar laws;
provided the reporter doesn't communicate any
information related to the report to any person.
1.) Covered Transaction
A transaction in cash or equivalent monetary instrument
where the amount exceeds Php500,000.00 in a single
banking day,
2.) Suspicious Transaction
A transaction with covered institutions, regardless of the
amount involved, if any of the following circumstances are
present:
a. No underlying legal trade/obligation, purpose or
economic justification
b. Client isn't properly identified
c. Amount involved isn't commensurate with the
client's business or financial capacity
d. Client's transaction is structured in order to avoid
being subject to the reporting requirements of the
money laundering act(!)
e. Any circumstance related to the transaction is
observed to deviate from the client's profits or his
past transactions with the covered institution
f. The transaction is related to any illegal activity or
offense under the money laundering law and is
about to be, is being or has been committed
g. Any transaction similar or analogous to any of the
above
Unlawful Activities Under RA 9160
1.) Kidnapping for ransom
2.) Drug trafficking
3.) Violations of the Anti-Graft and Corrupt Practices Act
4.) Plunder
5.) Robbery and extortion
6.) Jueteng and masiao
7.) Piracy on the high seas
8.) Qualified theft
9.) Swindling/estafa
10.) Violations of the E-Commerce Act
11.) Hijacking and other violations of RA 6235
12.) Destructive arson and murder, including those
committed by terrorists against non-combatants and
similar targets
13.) Fraudulent practices and other violations under the
Securities Regulations Code
14.) Acts of terrorism
15.) Felonies/offenses of a similar nature punishable under
the criminal laws of other countries
These crimes can be prosecuted together with the violation
of RA 9160
Penalties:
1.) Imprisonment from 7 to 14 years and a fine of at least
Php3M, but not to exceed double the value of the
monetary instrument or property involved in the offense
for the first form of money laundering (see above.)
2.) Imprisonment from 4 to 7 years and a fine of between
Php1.5M to Php3M for the second form of money
laundering (same.)
3.) Imprisonment from 6 months to 4 years and/or a fine of
Php100,000.00 to Php500,000.00 for the third form of
money laundering (same.)
4.) Imprisonment of 6 months to 1 year and/or a fine of
Php100,000.00 to Php500,000.00 for failure to keep
records.
5.) Imprisonment of 6 months to 4 years and a fine of
Php100,000.00 to Php500,000.00 for malicious reporting.
Also, the offender can't avail of the Probation Law. If the
offender is a corporation or any juridical person, the
officers responsible will get this penalty and the juridical
entity's license will be revoked. If the offender is an alien,
he will be deported after serving sentence. If the offender
is a public official or employee, perpetual or temporary
absolute disqualification; he will also suffer the same if he
refuses or purposely fails to testify.
6.) Imprisonment of 3 to 8 years and a fine of Php
500,000.00 to Php1M for breach of confidentiality. If
committed by a media company, the reporter responsible,
writer, editor-in-chief, president, publisher and manager
will be held liable.
Act 1508: Chattel Mortgage
This is an old law (it dates to pre-commonwealth times) but
is still relevant today. Chattel mortgage is the rule and the
Recto law is the exception. Like the Recto law, it covers
movables.
A chattel mortgage is not a conditional sale (Serra vs.
Rodriguez, 56 SCRA 538.) It’s a security; an accessory
contract where personal property is mortgaged as security
for the performance of an obligation (Art. 2140, Civil Code.)
After-acquired Property
It can only cover property that has been expressly
described; substitutes and similar property (after-acquired
property) won’t do (Tsai vs. CA, 366 SCRA 324) unless the
after-acquired property in question pertains to stores open
to the public. Obviously, it would be ridiculous if you
wouldn’t allow the storeowner to replace goods that were
bought by his customers. Instead, the storeowner must be
allowed to substitute the goods that were sold (Northern
Motors vs. Coquia, 66 SCRA 415.)
After-incurred Obligations
The chattel mortgage covers only those obligations that
existed when the mortgage was constituted. The only time
after-incurred obligations can be included in the agreement
is if the old contract is amended or a new one is drawn up.
The amendment or new contract must be made observing
the formalities of a chattel mortgage.
Can a chattel mortgage be constituted on a building?
Ordinarily, the answer would be no. However, if both
parties entered into a chattel mortgage contract over a
piece of real estate, they are now in estoppel and the
contract becomes effective (Tumulad vs. Vicencio, 41 SCRA
143.) A chattel mortgage on a building may be valid
between the parties, but not against third persons
(Evangelista vs. Alto Surety, 103 Phil. 401.) Also, a piece of
equipment attached to the building –such as when bolted
to the floor- ordinarily forms part of the building. But if the
contracting parties treat it as chattel, then once again
chattel mortgage takes effect (Tsai vs. CA, see above &
Davao Sawmill vs. Castillo 61 Phil. 709.)
Additional Stuff on Registration
If the mortgage is constituted over a vehicle, it must also be
made with the LTO (if a private vehicle) or LTFRB (if it’s a
public vehicle.) If it’s a ship, it’s made with the MARINA.
If a chattel mortgage is constituted over shares of stock, it
doesn’t need to be registered in the stock and transfer
book.
Formalities
1.) Registration
Registration should be with the Register of Deeds in the
place where the owner of the property lives or where the
property in question is located. If the owner’s address is
different from that of the property in question, registration
will have to be done in both RDs.
Registration is in rem and therefore binding against third
persons. If the property isn’t registered, only the
contracting parties will be bound but third persons won’t
(Filipinas Marble vs. IAC, 142 SCRA 180.)
2.) Affidavit of Good Faith
The parties must swear that the mortgage is solely for the
purpose of securing the obligation in the principal contract,
that it is a just and valid, for no other purpose whatsoever,
and not entered into in order to commit fraud.
The affidavit gives the mortgage a preferred status. If there
is no affidavit, the contract is still binding between the
parties but not on third persons (Phil. Refining vs. Jarque,
61 Phil. 229.)
Right of Equity of Redemption
If the condition of the mortgage is broken, the following
may redeem:
1.) The mortgagor
2.) A person holding a subsequent mortgage
3.) A subsequent attaching creditor
Redemption can’t be exercised, however, after the
foreclosure sale. And since a chattel mortgage is just a
security, a foreclosure won’t prevent the mortgagee from
recovering any deficiency from the foreclosure sale (there’s
a prescriptive period of 10 years from accrual of a cause of
action.) The exception is a sale of personal property. In that
case, the Recto law will apply.