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Novie Marie B.




Written Report #1


A Win-Win Situation: Transparency or Secrecy? Or both?

The Philippines values different international agreements focussing on the idea
that these agreements will pave the way to have global security economically,
financially, politically and territorially speaking. The opening of the ASEAN Integration,
in itself, is a current highlight of the states international negotiations covering matters
affecting almost all facets of how the modern society works, from educational systems
to export operations. And so, various institutions work their way to answer the present
global pressures, revealing issues of bureaucracy, uneven application of accepted
principles, even the rigid practiced set of rules. Issues relating to transparency and
accountability are continuously creating debates as to how effective is our present
system as a whole.
The current trend of transparency is a tilted idea when looking at the banking
industrys perspective of the Law on the Secrecy of Bank Deposits (Rep. Act No. 1405)
and Foreign Currency Deposit Act (Rep. Act No. 6426). These are strict banking rules
requiring the financial market to an absolute confidentiality of bank deposits and
investments in government bonds including all foreign deposits. From the approval of
these legislations came questions as to its true benefit, leading all throughout to
different interpretations which often times conflicting from the law itself. Amendments
were made, exceptions then existed. But still, these were seen by international
organizations as great barriers in implementing change to meet international standards.
Bureau of Internal Revenue commissioner, Kim S. Jacinto-Henares, saw gain with
regards to better tax administration in the idea of applying OECDs new global standard
for automatic exchange of information which suggests lifting of the bank secrecy law of
the Philippines for which she saw fit to increase transparency globally.
Though there were a lot of queries about the bank secrecy law, all the same it
became one of the foundations of banking operations. The Bank Secrecy Law was
passed on September 9, 1955 during which the Philippine banking industry was in its
beginnings. The House and the Senate passed House Bill No. 397718 and Senate Bill
No. 351 to expand the capital market through intercepting hoarding and capital flight
with the ultimate goal of generating economic growth by protecting the depositors
privacy and hence, encourage savings (Lim, 2010). The bills were the forerunners of the
Bank Secrecy Law also known as the Law on the Secrecy of Bank Deposits (Rep. Act
No. 1405). As amended through the years, the confidentiality was not therefore absolute
and was given exceptions from the stated provisions and in other laws giving instances
where bank deposits and investments in government bonds may be examined, inquired
or looked into (BSP, 2012). These exceptions include a) to investigate bank fraud or a
serious irregularity during a special or general examination of a bank, as authorized by
the Monetary Board; b) during a regular audit of a bank by an independent auditor; c)
upon the written permission of the depositor; d) in cases of impeachment; e) upon the
order of a competent court in cases of bribery or dereliction of duty of public officials; f)
in cases where the money deposited is the subject of the litigation; g) upon inquiry by
the internal-revenue commissioner in the determination of the net estate of a deceased

depositor; h) under Section 11 of the Anti-Money Laundering Act of 2011; i) under

Section 2 of the Unclaimed Balances Act; j) under Section 8 of RA 3019, pertaining to
unexplained wealth; k) under Section 27 to 43 of the Human Security Act of 2007, also
known as the antiterrorism law; and l) upon order of a competent court in cases similar
to that of bribery or dereliction of duty of public officials (Funa, 2010). However, these
limited exceptions were not enough to bring forth free flow of information in compliance
with internationally agreed tax standard (IATS) issued by the Organization for Economic
Co-operation and Development (OECD)a grouping of industrialized countries dubbed
as the rich countries' club (Sawali, 2009).
Even before the issuance of the said law, there were loopholes with shallow
defences that didnt impede the approval of the Law on the Secrecy of Bank Deposits
since the government was more focus on encouraging savings for economic purpose,
unmindful of the effects of information asymmetry. Economists saw information
asymmetry as a situation which paralyzes the function of an otherwise perfect credit
market, creating problems of moral hazard and adverse selection and later results to
failure of the law to stimulate savings (Lim, 2010). Though criminal investigations are
still possible, exorbitant social costs of both time and money are required to gather
strong corroborating evidence which is financially time-consuming and impractical.
Crimes, then, can hide its dirty laundries safely beneath the law. The term tax haven
now enters the complicated scenario. The Bank Secrecy Law has accordingly given rise
to the situation where the Philippines was tagged in June 2000 as a tax haven for the
laundering of proceeds from drug trafficking, kidnapping and gambling by the Financial
Action Task Force (FATF) on Money Laundering, which is a group gathered by the major
industrialized nations (Natafan, 2010).
The bank secrecy law and two other secrecy laws pose threat to the
implementation of the IATS in the country imposed by the OECD Global Forum Working
Group on Effective Exchange of Information, the organization presenting either
imperatives or sanctions to the Philippines non-compliance. Internal Revenue Service
has a choice of being penalized according to international agreements or be sued by its
depositors for the violation of the secrecy law. Weighting the cost-benefit effect of lifting
the bank secrecy law points out to either advantages of better tax administration by
eliminating fraud, misdeclaration and concealment of income or to disadvantages of
capital flight and loss of confidence in the banking system (Angara, 2009).
Change is inevitable in gaining progress and reaching globalization. Even
lawmakers, themselves, see the present system as dysfunctional and ambiguous, that it
has a necessity to undergo amendments and modifications. But though such laws may
clearly demonstrate weaknesses, it is not realistic for the country to lift one authoritative
law affecting the whole economy. Changes may be done through amendments of the
certain provisions that would gradually make the Philippines comply with certain
international agreements without sacrificing domestic stability. Making a domestic stand
to answer international pressures should not be done drastically. It should be of a winwin situation where no one compromises for negative fruits of changes.