3.

Secrecy in Bank Deposits

Law on secrecy of bank deposits (RA 1405 as amended)

REPUBLIC ACT No. 1405

AN ACT PROHIBITING DISCLOSURE OF OR INQUIRY INTO, DEPOSITS WITH ANY BANKING

INSTITUTION AND PROVIDING PENALTY THEREFOR.

Section 1. It is hereby declared to be the policy of the Government to give encouragement to the
people to deposit their money in banking institutions and to discourage private hoarding so that the
same may be properly utilized by banks in authorized loans to assist in the economic development
of the country.

Section 2. 1 All deposits of whatever nature with banks or banking institutions in the Philippines
including investments in bonds issued by the Government of the Philippines, its political subdivisions
and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not
be examined, inquired or looked into by any person, government official, bureau or office, except
upon written permission of the depositor, or in cases of impeachment, or upon order of a competent
court in cases of bribery or dereliction of duty of public officials, or in cases where the money
deposited or invested is the subject matter of the litigation.

Section 3. It shall be unlawful for any official or employee of a banking institution to disclose to any
person other than those mentioned in Section two hereof any information concerning said deposits.

Section 4. All Acts or parts of Acts, Special Charters, Executive Orders, Rules and Regulations
which are inconsistent with the provisions of this Act are hereby repealed.

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

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

Approved: September 9, 1955

On 09 September 1955, Republic Act No. 1405, otherwise known as An Act Prohibiting Disclosure of or
Inquiry into, Deposits with any Banking Institution (“Bank Secrecy Law”), was approved. This law was
enacted to encourage individuals to deposit their money in banks instead of hoarding them.

You may ask, why is there a need to protect the secrecy of bank deposits? Technically speaking, the law
prefers that money be deposited in banks so they may be properly utilized to assist in the economic
development of the country. However, it is more relevant on a practical matter. Let’s use you dear reader as
an example. Suppose that you only have P1,000 in your bank account. Surely, you do not want any person
(such as your friend, employer or any stranger) to find that out. Either you do not want others to know that
you do not have sufficient money or you simply do not feel comfortable in people prying in your financial
affairs. On the other hand, if you have P100,000,000.00 in your bank account, you also do not want others to
find that out for fear that you might be kidnapped, or relatives might borrow from you, or simply, it’s your
personal affair. In all these cases, one’s financial status is a private matter. Transactions happening in your
bank account are not just empty figures. There are stories affixed to such transactions. Thus, these financial
transactions are akin to your personal activities which should not be easily accessible to anyone.

The Bank Secrecy Law protects all deposits of whatever nature in banks or banking institutions in the
Philippines as well as investments in government bond. This law prohibits any person, subject to the
exceptions below, from disclosing to any person any information, relative to the funds or properties
belonging to the depositors in the custody of the bank. Simply put, no one can just go to your bank and ask for
your bank balance.

However, the rule is not absolute. The following are the exceptions to the bank secrecy law:

1. Written permission or consent in writing by the depositor;

2. In cases of impeachment;
3. Upon order of the court in cases of bribery or dereliction of duty of public officials;
4. Upon order of the court in cases where the money deposited or invested is the subject matter of the
litigation;
5. Upon a subpoena issued by the Ombudsman concerning an investigation it is conducting, provided that
there must already be a case pending in court, the account be clearly identified, the inspection be limited to
the subject matter of the pending case; and the bank personnel and the depositor must be notified to be
present during the inspection;
6. The BIR can inquire into bank deposits in an application for compromise of tax liability or determination of
a decedent’s gross estate;
7. The Anti-Money Laundering Council (“AMLC”) can examine bank accounts pursuant to a court order,
where there is probable cause that the deposits are related to an unlawful activity or money laundering
offense;
8. The AMLC can examine bank accounts, WITHOUT a court order, where there is probable cause that the
deposits are related to certain crimes such as kidnapping for ransom, violation of the Dangerous Drugs Act,
hijacking, destructive arson, murder and violations of RA 6235 (acts inimical to civil aviation);
9. The Bangko Sentral can examine bank accounts in the course of its periodic or special examination
regarding compliance with Anti-Money Laundering Law.

As you can see, although there are many exceptions, securing such exceptions is not an easy task. The easiest
way to waive the secrecy of bank deposits is through a written waiver. Although there is no prescribed form
for a waiver, it is necessary that the waiver be made voluntarily, knowingly and with sufficient awareness of
relevant circumstances and consequences. Thus, as a matter of practice, banks will require the depositor to
state in his waiver the specific bank account, bank branch, name of depositor, period covered by the
transactions and the name of the person authorized to access the bank account.

How about dollar deposits? Now, foreign currency deposits are governed by a different law, namely Republic
Act No. 6426 and has fewer exceptions. This will be discussed in a separate article.
You may be curious if there is any criminal liability for violating the bank secrecy law. Yes, there is criminal
liability. Any person violating this law may be imprisoned for not more than five (5) years, or meted a fine
not exceeding P20,000.00 or both.
A primer on the secrecy of bank deposits
35SHARES000
() - January 4, 2001 - 12:00am
With recent events putting in issue the confidentiality of bank deposits and the identification process
by the banks for their depositors, the Bangko Sentral ng Pilipinas, in coordination with the Bankers
Association of the Philippines, deemed it advisable to come out with the following primer on
frequently asked questions.

This primer seeks to clarify any misunderstanding or misapprehension that may have arisen on the
subject and, more importantly, emphasizes that the secrecy of bank deposits remains sacrosanct
and that their disclosure remains subject to strict safeguards and compliance with legal
requirements. Trust accounts and other investments are partly included in the discussion.

A. Secrecy of bank deposits

Q. What guarantees on confidentiality do depositors enjoy under the law?

A. For peso deposits, Republic Act No. 1405 (Bank Deposits’ Secrecy Law) declares all
deposits of whatever nature with banks in the Philippines, including investments in government
bonds, as of an absolutely confidential nature and prohibits the examination or inquiry into such
deposits or investments by any person, government official, bureau or office, as well as the
disclosure by any official or employee of a bank of any information concerning said deposits.

There are only four (4) instances under the law where bank deposits or investment in government
bonds may be disclosed or looked into, namely: (1) upon written permission of the depositor; or (2)
in cases of impeachment; or (3) upon order of a competent court in cases of bribery or dereliction of
duty; or (4) in cases where the money deposited or invested is the subject matter of the litigation.

It may be noted that RA 1405 covers not only bank deposits but also investments in government
bonds.

For foreign currency deposits, Republic Act No. 6426 (The Foreign Currency Deposit Act) similarly
declares that these deposits are of an absolutely confidential nature and cannot 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. There is only one instance
for disclosure under said law and, that is, upon the written permission of the depositor. RA 6426 also
exempts foreign currency deposits from attachment, garnishment, or any other order or process of
any court, legislative body, government agency or any administrative body whatsoever.

For investments in trust accounts or in deposit substitutes, if these are in the form of investments in
government bonds or deposits, the protection under RA 1405 and RA 6426 extends thereto
accordingly. If these are in other forms of investments, the disclosure of information related thereto is
covered by Section 55 of the General Banking Law of 2000 (Republic Act No. 8791) which prohibits,
unless there is an order of a court of competent jurisdiction, the disclosure by any director, official,
employee or agent of any bank any information relative to the funds or properties in the custody of
the bank belonging to private individuals, corporations or any other entity.

Q. How do banks respond to an order of a competent court?

A. For peso deposits, banks comply with orders for disclosure in court cases subject to these
requirements: (a) there must be a court order; (b) the order must be issued by a competent court
specifically directing the bank concerned to disclose the required information; and (c) the bank
should check and satisfy itself that the deposits or investment in government bonds being inquired
into are either the subject of a case of bribery or dereliction of duty of public officials, or of a case
where the deposit or investment itself is the subject matter of the litigation. If these requirements are
not met, there would be basis for the bank to request the court to excuse compliance with the court
order.

In impeachment cases, it is necessary that there be an order issued by the impeachment court or by
its authorized officer. For foreign currency deposits, the law does not provide an instance for
disclosure upon a court order. As mentioned above, there is only a single instance for disclosure
under RA 6426 and, that is, upon written permission of the depositor. Thus, for foreign currency
deposit accounts subject of a court order, the bank can invoke RA 6426 to excuse compliance.

Q. What is the liability of the banks and/or its officers and employees for violating the laws
against disclosure?

A. Violations of the prohibitions against disclosures under RA 1405, RA 6426 and under the General
Banking Law of 2000 are subject to stiff criminal penalties.

Under RA 1405, the offender is subject to imprisonment of not more than five years or a fine of not
more than P20,000, or both, in the discretion of the court. Under RA 6426, the penalty is
imprisonment of not less than one year not more than five years or a fine of not less than P5,000 nor
more than P25,000, or both, in the discretion of the court. The violation of Sec. 55 of the General
Banking Law of 2000, the penalty is imprisonment of not less than two years nor more than 10 years
or a fine of not less than P50,000 nor more than P200,000, or both, in the discretion of the court; and
in addition, if the offender is a director or officer of a bank, he is subject to suspension or removal by
the Monetary Board.

B. Use of alias or number in opening deposit accounts

Q. Are banks allowed to open accounts using an alias or a number?

A. There is no specific banking law up to the present prohibiting banks from opening deposit
accounts using an alias or a number. Prior to July 7, 2000, there is also no banking regulation
providing for such prohibition. On July 7, 2000 and in seeking the adoption of anti-money laundering
measures, the Bangko Sentral ng Pilipinas (BSP) issued a regulation, Circular No. 251, providing
that, unless otherwise prescribed under existing laws, anonymous accounts or accounts under
fictitious names are prohibited.

The exception referred to under Circular No. 251 was RA 6426 (The Foreign Currency Deposit Act)
which explicitly allows the keeping of numbered accounts for the recording and servicing of
deposits.

For peso accounts, when banks allow the opening of deposit accounts under pseudonyms, it is
assumed that: (1) they have exercised due diligence to ascertain the identity of their clients; and (2)
they are aware of the legal provisions and requirements on the use of pseudonyms.

The above notwithstanding, it may be pointed out that in the Manual of Regulations issued by BSP,
or even before the issuance of Circular 251, there were already regulations requiring the banks to:
(a) adopt systems to establish the identity of their depositors; and (b) require to set a minimum of
three (3) specimen signatures from each of their depositors subject to regular updating. Even for
numbered accounts as authorized under RA 6426, BSP has required banks, under Circular 258, to
take necessary measures to establish and record the true identity of their clients, which identification
may be based on official or other reliable documents and records.

Q. Are there other laws governing the use of pseudonyms or aliases?

A. Art. 178 of the Revised Penal Code penalizes the: (a) publicly using of a fictitious name for the
purpose of concealing a crime, evading the execution of a judgment, or causing damage; and (b)
concealment by any person of his true name and other personal circumstances.

On the other hand, there is also Commonwealth Act No. 142, as amended by Republic Act No. 6085
(Regulating the Use of Aliases) which provides that, except only as a pseudonym for literary
purposes and athletic events, it is unlawful for any person to use an alias, unless the same is duly
recorded in the proper local civil registry. Related thereto, Articles 379 and 380 of the Civil Code
provide that no person shall use different names and surnames except the employment of pen and
stage names provided it is done in good faith and there is no injury to third persons.

What can be noted is that the above provisions allow the use of aliases under certain circumstances.
Conversely stated, the use of aliases is not absolutely disallowed. Moreover, the sanctions for any
violation of the above provisions on aliases are mainly directed to the one using the unauthorized
alias.

Q. How does Circular No. 251 apply to existing numbered accounts?

A. For peso accounts, the banks should have their respective programs of compliance with the
Circular. For foreign currency deposit accounts, they are allowed to continue maintaining numbered
accounts opened in accordance with RA 6426 subject to the requirement that the banks shall take
necessary measures to establish and record the true identity of their clients.

Q. What penalties/sanctions are applicable for violating the laws/regulations?

A. Article 178 of the Revised Penal Code is directed to the person concealing his identity publicly or
using a fictitious name and the penalty would range from one day up to six months imprisonment
and/or a fine up to P500,000. For violation of Commonwealth Act 142, which is likewise directed to
the person using an unauthorized alias, the penalty is imprisonment from one year to five years and
a fine of P5,000 to P10,000. For the violation of Circular 251, it is subject to the administrative
sanction on the bank and/or responsible directors/officers of fine up to P30,000 per transaction.

C. Continued confidentiality/secrecy of deposit transactions

Q. Is confidentiality/secrecy of deposit accounts compromised with the issuance of Circular

251?

A. No. Circular 251 merely disallowed the opening of fictitious and anonymous accounts and has not
in any way modified nor lessened the safeguards and protection to depositors under RA 1405. This
means that, notwithstanding Circular 251, deposit accounts cannot be examined or looked into
except under the limited circumstances provided for in RA 1405.

Q. Why are the BSP and the BAP advocating the amendment to bank secrecy laws?

A. The proposal of BSP and BAP is for access to deposit accounts only under exceptional
circumstances, such as deposits only above the P50-million level and in relation to the commission
of serious offenses like racketeering and illicit drug trade. Except for these instances, depositors and
those with legitimate transactions remain protected under RA 1405. The objective of the proposal is
to institute this measure as an anti-money laundering campaign so as to delete the Philippines as a
non-cooperative country in the list of the Financial Action Task Force against money laundering.

Exceptions to deposit secrecy

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Published September 27, 2017, 10:01 PM

By Atty. Jun de Zuñiga

Today, deposit secrecy is still a highly sensitive issue. It is asserted as a “zone of privacy” entitled to
protection from harassment, fishing expeditions and criminal risks. On the other hand, it is claimed to
have been an instrument to evade and obstruct justice, particularly in relation to tax evasion, money
laundering, corruption, terrorism and financial frauds.To what extent then can Philippine authorities
have access to deposits? The Philippines has a strict deposit secrecy law in Republic Act No. 1405 and it
allows only four (4) exceptions to confidentiality, namely: (1) upon written permission of the
depositor; (2) in cases of impeachment; (3) upon order of the court in cases of bribery or dereliction of
duty; and (4) where the deposit is the subject matter of litigation.

The above exceptions have been expanded by other legislation and rulings made by the Supreme
Court. The Anti-Money Laundering Act (RA No. 9160, as amended) now allows deposit disclosure in
covered transactions reports and in suspicious transactions reports.

This law also allows inquiry in cases of violation thereof, with a court order or even without a court
order in certain cases such as kidnapping for ransom or violations of the Comprehensive Dangerous
Drugs Act.

Another law, the National Internal Revenue Code, authorizes the inquiry into bank deposits in
determining a decedent’s gross estate, or in connection with the request by a foreign tax authority under
the Exchange of Information on Tax Matters Act. Under the Human Security Act (RA No. 9372),
examination is also allowed upon a court order in cases related to the financing of acts of terrorism.

The last of such laws as of now would be the amendment to the PDIC Charter (RA No. 3591) which
authorizes the Bangko Sentral and the PDIC to look into deposits in cases involving unsafe or unsound
banking.

On the matter of jurisprudence, the Supreme Court has ruled in favor of inquiry in cases of unexplained
wealth under the Anti-Graft and Corrupt Practices Act and in plunder under RA No. 7080, stating that
these offenses are similar to bribery or dereliction of duty (Phil. National Bank vs. Gancayco, 122 Phil.
503; Ejercito vs. Sandiganbayan and People of the Philippines, 509 SCRA 190).

The Supreme Court also held that the disclosure of deposits to satisfy the writ of garnishment issued by
the court is not a violation of deposit secrecy since the disclosure is purely incidental to the execution
process (China Banking Corp. vs. Ortega, 49 SCRA 355); and that on grounds of equity, the deposit of a
foreign transient can be proceeded against to prevent an injustice to an aggrieved citizen (Salvacion vs.
Central Bank, 278 SCRA 27). Also on grounds of equity, the Supreme Court allowed the owner of funds
unlawfully taken to inquire on the deposit of said funds (China Banking Corp. vs. Court of Appeals, 511
SCRA 110).

Amidst the pros and cons, there are appeals for the reassessment of our bank secrecy laws as in fact
there are now proposals to relax further deposit secrecy for tax collection and bank examination
purposes.

These would be consonant with the position of the Group of 20 Leading Economies (G20) that the era of
banking secrecy is now over, there being a shift from secrecy to transparency, and from a domestic
approach to global cooperation.

Sec.6. f NIRC

(F) Authority of the Commissioner to Inquire into Bank Deposit Accounts and Other Related
information held by Financial Institutions. [4] - Notwithstanding any contrary provision of
Republic Act No. 1405, Republic Act No. 6426, otherwise known as the Foreign Currency Deposit
Act of the Philippines, and other general or special laws, the Commissioner is hereby authorized
to inquire into the bank deposits and other related information held by financial institutions of:

(1) A decedent to determine his gross estate; and

(2) Any taxpayer who has filed an application for compromise of his tax liability under Section
204(A)(2) of this Code by reason of financial incapacity to pay his tax liability.

In case a taxpayer files an application to compromise the payment of his tax liabilities on his
claim that his financial position demonstrates a clear inability to pay the tax assessed, his
application shall not be considered unless and until he waives in writing his privilege under
Republic Act No. 1405, Republic Act No. 6426, otherwise known as the Foreign Currency Deposit
Act of the Philippines, or under other general or special laws, and such waiver shall constitute
the authority of the Commissioner to inquire into the bank deposits of the taxpayer.

(3) A specific taxpayer or taxpayers subject of a request for the supply of tax information from a
foreign tax authority pursuant to an international convention or agreement on tax matters to
which the Philippines is a signatory or a party of: Provided, That the information obtained from
the banks and other financial institutions may be used by the Bureau of Internal Revenue for tax
assessment, verification, audit and enforcement purposes.

In case of a request from a foreign tax authority for tax information held by banks and financial
institutions, the exchange of information shall be done in a secure manner to ensure
confidentiality thereof under such rules and regulations as may be promulgated by the Secretary
of Finance, upon recommendation of the Commissioner.

The Commissioner shall provide the tax information obtained from banks and financial
institutions pursuant to a convention or agreement upon request of the foreign tax authority
when such requesting foreign tax authority has provided the following information to
demonstrate the foreseeable relevance of the information to the request:

(a) The identity of the person under examination or investigation;

(b) A statement of the information being sought, including its nature and the form in which the
said foreign tax authority prefers to receive the information from the Commissioner;

(c) The tax purpose for which the information is being sought;

(d) Grounds for believing that the information requested is held in the Philippines or is in the
possession or control of a person within the jurisdiction of the Philippines;

(e) To the extent known, the name and address of any person believed to be in possession of the
requested information;

(f) A statement that the request is in conformity with the law and administrative practices of the
said foreign tax authority, such that if the requested information was within the jurisdiction of
the said foreign tax authority then it would be able to obtain the information under its laws or in
the normal course of administrative practice and that it is in conformity with a convention or
international agreement; and

(g) A statement that the requesting foreign tax authority has exhausted all means available in
its own territory to obtain the information, except those that would give rise to disproportionate
difficulties.

The Commissioner shall forward the information as promptly as possible to the requesting
foreign tax authority. To ensure a prompt response, the Commissioner shall confirm receipt of
a request in writing to the requesting tax authority and shall notify the latter of deficiencies in
the request, if any, within sixty (60) days from receipt of the request.

If the Commissioner is unable to obtain and provide the information within ninety (90) days from
receipt of the request, due to obstacles encountered in furnishing the information or when the
bank or financial institution refuses to furnish the information, he shall immediately inform the
requesting tax authority of the same, explaining the nature of the obstacles encountered or the
reasons for refusal.

The term "foreign tax authority," as used herein, shall refer to the tax authority or tax
administration of the requesting State under the tax treaty or convention to which the
Philippines is a signatory or a party of.

unclaimed balances law ra 3936