Review Notes ON BANK Secrecy - PDIC - AMLA PDF

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*Law on Secrecy of Bank Deposits (R.A. No. 1405, as amended)

creditor-debtor relationship between the depositor and the bank, falls under the category of accounts which the law precisely seeks to protect for the purpose of boosting the economic development of the country. Considering the use of the phrase “of whatever nature” RA 1405 applies not only to money which is deposited but also to those which are invested. Thus, the protection afforded by RA 1405 extends to trust accounts. (Ejercito v. Sandiganbayan (Special Division), 2006)

PURPOSE To give encouragement to the people to deposit their money in banking institutions and to discourage private hoarding; and (2) So that the people’s money may be properly utilized by banks in authorized loans to assist in the economic development of the country. (Sec. 1) (1)

The absolute confidentiality rule in R.A. No. 1405 actually aims at protection from unwarranted inquiry or investigation if the purpose of such inquiry or investigation is merely to determine the existence and nature, as well as the amount of the deposit in any given bank account. (China Banking Corp. v. Ortega, 1973) PROHIBITED ACTS No person, government official, bureau or office may examine, inquire into or look into such deposits; and (2) No official or employee of any banking institution may disclose to any unauthorized person any information concerning said deposits. (Sec. 3)

(1)

EXCEPTIONS Upon written permission of the depositor; In cases of impeachment; (3) Upon order of a competent court in cases of: (a) Bribery; (b) Dereliction of duty of public officials; or (4) Where the money deposited or invested is the subject matter of the litigation. (Sec. 2) (1) (2)

DEPOSITS COVERED Banks or banking institutions in the Philippines are hereby considered as of an absolutely confidential nature and may not be examined. [N.B. The confidentiality of foreign currency deposits is governed by the Foreign Currency Deposit Act.] Includes investments in bonds issued by the Philippine Government, its political subdivisions and its instrumentalities, regardless of the currency of denomination. (Sec. 2) Under the RA 1405, bank deposits are statutorily protected or recognized zones of privacy. (People v. Estrada, G.R. No. 164368, April 2, 2009; Marquez v. Desierto, G.R. No. 135882, June 27, 2001, 359 SCRA 772; Ople v. Torres, G.R. No. 107737. October 1, 1999, 316 SCRA 43) The term deposits as used in RA 1405 is to be understood broadly and not limited only to accounts which give rise to a creditor-debtor relationship between the depositor and the bank. If the money deposited under an account may be used by banks for authorized loans to third persons, then such account, regardless of whether it creates a

By the phrase "subject matter of the action" is meant "the physical facts, the things real or personal, the money, lands, chattels, and the like, in relation to which the suit is prosecuted, and not the delict or wrong committed by the defendant. (Mathay v. Consolidated Bank and Trust Company, 1974). We note with approval the difference between the "subject of the action" from the "cause of action." We also find petitioner's definition of the phrase "subject matter of the action" is consistent with the term "subject matter of the litigation," as the latter is used in the Bank Deposits Secrecy Act. Where the plaintiff is fishing for information so it can determine the culpability of private respondent and the amount of damages it can recover from the latter. It does not seek recovery of the very money contained in the deposit. The subject matter of the dispute may be the amount of P999,000.00 that petitioner seeks from private respondent as a result of the latter's alleged failure to inform the former of the discrepancy; but it is not the P999,000.00 deposited in the drawer's account. By the terms of R.A. No. 1405, the "money deposited" itself should be the subject matter of the litigation. (Union Bank v. Court of Appeals, 1999) The exception applies to cases of concealment of illegally acquired property in anti-graft cases. The inquiry into illegally acquired property – or property NOT

"legitimately acquired" – extends to cases where such property is concealed by being held by or recorded in the name of other persons. (Banco Filipino v. Purisima, 1988) The exception even extends to cases of concealment of illegally acquired property not involving anti-graft cases as long as money deposited was the subject matter of litigation. (Mellon Bank, N.A. v. Magsino, 1990) OTHER EXCEPTIONS Upon order of a competent court in cases of unexplained wealth under Sec. 8 of RA 3019 or the AntiGraft and Corrupt Practices Act (PNB v. Gancayco, 1965; Banco Filipino v. Purisima, 1988; Marquez v. Desierto, 2001) (2) When inquiry is conducted under the authority of the Commissioner of Internal Revenue into the bank accounts of the following: (a) A decedent in order to determine his gross estate (b) Any taxpayer who has filed an application for compromise of his tax liability, which application shall include a written waiver of his privilege under RA 1405 or under other general or special laws (1)

Note: Information obtained from banks and financial institutions may be furnished to a foreign tax authority pursuant to an existing convention or agreement. (Sec. 6(F), NIRC, as amended by RA 10021)

(i) (ii) (iii) (iv) (v)

(3) Upon order of a competent court in cases under the Anti-Money Laundering Act of 2001 (RA 9160, hereinafter “AMLA”), when there is probable cause that the deposits or investments involved are in any way related to an unlawful activity or a money laundering offense, except that no court order required if: (a) Funds or property involved consists of investments; or (b) Said investments are related to: Kidnapping for ransom Unlawful activities under Comprehensive Drugs Act of 2002 (RA 9165); Hijacking and other violations under RA 6235; and Destructive arson and murder, including those perpetrated by terrorists against non-combatants and similar targets. BSP inquiry or examination in the course of its periodic or special examination of the bank (Sec. 11, AMLA). Disclosure of certain information about bank deposits which have been dormant for at least 10 years, to the Treasurer of the Philippine in a sworn statement,

a copy of which is posted in the bank premises. (Sec. 2, Unclaimed Balances Law [Act No. 3926, as amended]) (vi) The PDIC and/or the BSP can inquire into or examine deposit accounts and all information related thereto in case there is a finding of unsafe and unsound banking practice (Sec. 8, paragraph 8, R.A. 3591, as amended by R.A. 9576). NOT CONSIDERED AS EXCEPTIONS (1) In 1981, PD 1792 added the following grounds when the bank can be compelled to reveal the amount of a depositor: “made in the course of a special or general examination of a bank and is specifically authorized by the Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has been or is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity,” or “made by an independent auditor hired by the bank to conduct its regular audit provided that the examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank.” However, Sec. 135 of RA 7653 or the New Central Bank Act expressly repealed PD 1792 thereby reverting RA 1405 to its version prior to the promulgation of the Decree. Thus, Villanueva says that these two instances are excluded from the enumeration of exceptions to the secrecy of bank deposits (VILLANUEVA, Commercial Law Review, opinion). Morales, however, notes that with the enactment of the AMLA, exception (i) has been substantially resurrected (see items 4 and 6 of “Other exceptions” above). While there is no similar development of exception (ii), the exclusion of independent auditors from the coverage of the Secrecy of Bank Deposits Law finds basis in Opinion No. 243 (s. 1975) of then Secretary of Justice Pedro Tuason. (MORALES, The Philippine General Banking Law, opinion) (2) It used to be believed that the RA 1405 did not apply to the Ombudsman, on account of his authority under Sec. 15(8) of RA 6770 or the Ombudsman Act of 1989 to “examine and have access to bank accounts and records.” However, the SC in Marquez v. Desierto (G.R. No.135882, June 27, 2001) and Ombudsman v. Ibay (G.R. No. 137538, September 3, 2001) restricted the Ombudsman’s power as follows: “[B]before an in camera inspection may be allowed, there must be a pending case before a court of competent jurisdiction. Further, the account must be clearly identified, the inspection limited to the subject matter of the pending case before the court of competent jurisdiction. The bank personnel and the account holder must be notified to be present during the inspection,

Subsequent statutory enactments have expanded the list of exceptions to this policy yet the secrecy of bank deposits still lies as the general rule, falling as it does within the legally recognized zones of privacy. There is, in fact, much disfavor to construing these primary and supplemental exceptions in a manner that would authorize unbridled discretion, whether governmental or otherwise, in utilizing these exceptions as authority for unwarranted inquiry into bank accounts. It is then perceivable that the present legal order is obliged to conserve the absolutely confidential nature of bank deposits.

and such inspection may cover only the account identified in the pending case.” (Morales, The Philippine General Banking Law) “Further, it is interesting to note that the Secretary of Justice in his Opinion No. 13 (s. 1987) concluded that the Presidential Commission on Good Government can compel banks to disclose or produce bank records without violating the bank secrecy laws.” (Morales, The Philippine General Banking Law) “Moreover, under Sec. 1(d) of RA 6382 (1990), which created the Davide Commission that conducted a fact finding investigation of the failed coup d’ etat of December 1989, the commission had the power to ‘ask the Monetary board to disclose information on and/or grant authority to examine bank deposits, trust finds, or banking transactions in the name of and/or utilized by a person, natural or juridical, under investigation by the Commission, in any bank or banking institution in the Philippines, when the Commission has reasonable ground to believe that said deposits, trust or investment funds, or banking transactions have been used in support of furtherance of the objectives of the coup d’ etat.’” (Morales, The Philippine General Banking Law)

GARNISHMENT OF DEPOSITS General rule: The prohibition against examination of or inquiry into a bank deposit under Republic Act 1405 does not preclude its being garnished to insure satisfaction of a judgment (China Banking Corporation v. Ortega, 1973; Philippine Commercial and Industrial Bank v. Court of Appeals, 1991) “…the prohibition against examination of or inquiry into a bank deposit under Republic Act 1405 does not preclude its being garnished to insure satisfaction of a judgment. Indeed there is no real inquiry in such a case, and if the existence of the deposit is disclosed the disclosure is purely incidental to the execution process. It is hard to conceive that it was ever within the intention of Congress to enable debtors to evade payment of their just debts, even if ordered by the Court, through the expedient of converting their assets into cash and depositing the same in a bank.” (China Banking Corporation v. Ortega, 1973)

Notwithstanding the exceptions enumerated by law, the prevailing policy on the matter is to preserve the absolute confidentiality enjoyed by bank deposits. Indeed, by force of statute, all bank deposits are absolutely confidential, and that nature is unaltered even by the legislated exceptions referred to above. There is disfavor towards construing these exceptions in such a manner that would authorize unlimited discretion on the part of the government or of any party seeking to enforce those exceptions and inquire into bank deposits. If there are doubts in upholding the absolutely confidential nature of bank deposits against affirming the authority to inquire into such accounts, then such doubts must be resolved in favor of the former. Such a stance would persist unless Congress passes a law reversing the general state policy of preserving the absolutely confidential nature of Philippine bank accounts. (Republic v. Eugenio, 2008) It is conceded that while the fundamental law has not bothered with the triviality of specifically addressing privacy rights relative to banking accounts, there, nevertheless, exists in our jurisdiction a legitimate expectation of privacy governing such accounts. The source of this right of expectation is statutory, and it is found in R.A. No. 1405, otherwise known as the Bank Secrecy Act of 1955. (BSB Group, Inc., v. Go, 2010)

Exception: Foreign Currency Deposits – The 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. (Sec. 8, Foreign Currency Deposit Act) CONFIDENTIALITY OF FOREIGN CURRENCY DEPOSITS General rule: Foreign currency deposits are confidential.

(1)

Exceptions: Upon written permission of the depositor (Sec. 8, Foreign Currency Deposit Act ; Intengan vs CA ; 2002)

Upon order of a competent court in cases of violation of the Anti-Money Laundering Act of 2001 [as in the case of peso deposits, supra] (3) During Bangko Sentral’s periodic or special examinations [as in the case of peso deposits, supra], and (4) Disclosure of the Treasurer of the Philippines when the unclaimed balances law applies (Act 3936, as amended by PD 679) (5) BSP/PDIC inquiry if there is a finding of unsafe and unsound banking practice (as in the case of peso deposits, supra) (6) In Salvacion vs. CB (1997), where a Filipino child was raped by a foreigner, the SC allowed, pro hac vice, garnishment of foreign currency deposits stating: “If we rule that the questioned Section 113 of CB Circular No. 960 which exempts from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever, is applicable to a foreign transient, injustice would result especially to a citizen aggrieved by a foreign guest.”

insured with the PDIC (Sec. 5)

(2)

PENALTIES FOR VIOLATION OF R.A. No. 1405 Imprisonment of not more than 5 years or a fine of not more than P20,000 or both, in the discretion of the court. (Sec. 5)

Notes: ’Bank’ and ‘Banking Institution’ shall include banks, commercial banks, savings bank, mortgage banks, rural banks, development banks, cooperative banks, stock savings and loan associations and branches and agencies in the Philippines of foreign banks and all other corporations authorized to perform banking functions in the Philippines (Sec. 4(b), as amended) (2) ‘Deposit’ means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account, or issued in accordance with Bangko Sentral rules and regulations and other applicable laws, together with such other obligations of a bank, which, consistent with banking usage and practices, the Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the bank (Sec. 4(f), as amended). (3) What is not considered a deposit? Any obligation of a bank which is payable at the office of the bank located outside of the Philippines (Sec. 4(f), as amended). (1)

*Philippine Deposit Insurance Corporation Act (R.A. No. 3591, as amended)

COMMENCEMENT OF LIABILITY Liability commences upon the approval of application.

BASIC POLICY Promote and safeguard the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits (Sec. 1, as amended)

DEPOSIT ACCOUNT NOT ENTITLED TO PAYMENT

CONCEPT OF INSURED DEPOSITS Insured deposit means the amount due to any bona fide depositor for legitimate deposits in an insured bank net of any obligation of the depositor to the insured bank as of the date of closure, but not to exceed 500,000 or its equivalent in foreign currency (Sec. 4(g), as amended)

(1) (2) (3)

LIABILITY OF DEPOSITORS DEPOSIT LIABILITIES REQUIRED TO BE INSURED WITH PDIC The deposit liabilities of any bank or banking institution, which is engaged in the business of receiving deposits on the effective date of this Act, or which thereafter may engage in the business of receiving deposits, shall be

(4)

The PDIC shall not pay deposit insurance for the following accounts or transactions, whether denominated, documented, recorded or booked as deposit by the bank: Investment products such as bonds and securities, trust accounts, and other similar instruments; Unfunded, fictitious or fraudulent deposit accounts or transactions; Deposits accounts or transactions constituting, and/or emanating from, unsafe and unsound banking practice/s, as determined by the PDIC, in consultation with the BSP, after due notice and hearing, and publication of a cease and desist order issued by the PDIC against such deposit accounts or transactions; and Deposits that are determined to be the proceeds of an unlawful activity as defined under Republic Act 9160, as amended.

(1) (2) (3) (4) (5) (6) (7)

(8) (9) (10) (11) (12)

(13) (14)

Notes: ‘Unlawful Activity’ refers to any act or omission or series or combination thereof involving or having direct relation to following: Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15, and 16 of Republic Act No. 9165, otherwise known as the Comprehensive Dangerous Act of 2002; Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act; Plunder under Republic Act No. 7080, as amended; Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal Code, as amended; Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602; Piracy on the high seas under the Revised Penal Code, as amended and Presidential under the Revised Penal Code, as amended and Presidential Decree No. 532; Qualified theft under Article 310 of the Revised penal Code, as amended; Swindling under Article 315 of the Revised Penal Code, as amended; Smuggling under Republic Act Nos. 455 and 1937; Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000; Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against non-combatant persons and similar targets; Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as the Securities Regulation Code of 2000; Felonies or offenses of a similar nature that are punishable under the penal laws of other countries (Sec. 3(i) of R.A. 9160, as amended). EXTENT OF LIABILITY The liability of the Corporation is to the extent of the insured deposit (Sec.14). Whenever an insured bank shall have been closed by the Monetary Board pursuant to Section 30 of R.A. 7653, payment of the insured deposits on such closed bank shall be made by the PDIC as soon as possible either (1) by cash or (2) by making available to each depositor a transferred deposit in another insured bank in an amount equal to insured deposit of such depositor (Sec. 14).

Note: Insured deposit shall not exceed 500,000 (Sec. 4(g), as amended). DETERMINATION OF INSURED DEPOSIT The determination of in...