FOREIGN CURRENCY DEPOSITS ACT

Atty. Rickson M. Buenviaje

INTRODUCTION / HISTORY

The relevant historical origins of the law on secrecy of foreign currency bank
deposits can be traced back to 1955. At that time, Congress enacted Republic Act
No. 1405, also referred to as the Law on Secrecy of Bank Deposits, which provided
for a confidentiality rule for all types of bank deposits, regardless of currency. Section
2 of Republic Act No. 1405, also known as the law on secrecy of bank deposits,
states:

“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” xxx

This rule set out in Section 2 of RA 1405, however, was made subject to certain
exceptions, to wit:

“SECTION 2. xxx 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.” [emphasis supplied]

Congress believed then that shrouding bank deposits with confidentiality would
encourage the public “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.

However, when Bank Secrecy Law was enacted in 1955, Congress did not intend
the law to cover foreign currency deposits, for the simple reason that, at that time,
banking institutions in the Philippines were not allowed to receive deposits in foreign
exchange.

Nevertheless, the Monetary Board of the Central Bank (now Bangko Sentral ng
Pilipinas) subsequently decided to allow domestic commercial bank to accept foreign
currency deposits, so that foreign currencies which could form part of the
international reserve, could be channeled into the banking system. This was
accomplished by issuing Central Bank Circular No. 304 on July 21, 1970, which, for
the first time, allowed domestic commercial bank to accept dollar or foreign currency
deposits. This excluded foreign currencies, which, under existing regulation, are
required to be “surrendered”1.

Certain sectors questioned the legality of the circular. To remove any doubt, on
April 4, 1972, Congress enacted Republic Act No. 6426, otherwise known as Foreign
Currency Deposit Act. The law, which practically a restatement of Central Bank
Circular No. 304, authorized any person to deposit with banks designated by the
Central Bank to be in good standing, foreign currencies which are acceptable as part
of the international reserve, except those required by the Central Bank to be
surrendered. The provisions regarding the secrecy of peso deposits, with all the

1
“Surrender” here does not mean that the foreign exchange will be confiscated, but that foreign exchange
receipts should be sold to the banks at the officially recognize rate.
exceptions provided in Bank Secrecy Law, were made to apply to foreign currency
deposits as well.

Pursuant to the provision of the Foreign Currency Deposit Act, the Monetary
Board promulgated Central Bank Circular No. 343 to implement the provisions
thereof, thereby revoking Circular No. 304.

In November 1977, with the use by then President Ferdinand E. Marcos of his
legislative powers, Presidential Decree No. 1035 was issued. This deliberately
tightened further the confidentiality of foreign currency deposits to what it is today, so
that only a written consent from the depositor can authorize an examination into a
foreign currency deposit.

The reasons for doing so, as enunciated in the whereas clause of PD 1246,
were stated as follows:

“WHEREAS, making absolute the protective cloak of confidentiality over

such foreign currency deposits, exempting such deposits from tax, and
guaranteeing the vested rights of depositors would better encourage the inflow of
foreign currency deposits into the banking institutions authorized to accept such
deposits in the Philippines thereby placing such institutions more in a position to
properly channel the same to loans and investments in the Philippines, thus
directly contributing to the economic development of the country."

The Foreign Currency Deposit Act was later further amended by Presidential
Decree Nos. 1246, and 1453.

The most important amendments are embodied in Presidential Decree No. 1246,
which granted absolute confidentiality to foreign currency deposits authorized under
the Foreign Currency Deposit Act, as amended, as well as foreign currency deposits
under Presidential Decree No. 1034.

Presidential Decree No. 1246 provides that these foreign currency deposits
cannot be looked into by any person, government official, or office, whether judicial,
legislative, or any other entity, whether public or private, except with the written
permission of the depositor. Moreover, foreign currency deposits were immune from
attachment, garnishment, or any other order or process of court, legislative body,
government agency, or any other administrative body whatsoever.

Therefore, by virtue of the amendments contained in Presidential Decree No.

1246, the only exception to the secrecy and confidentiality of foreign deposits is in
the case where there is written consent by the depositor allowing his account to be
examined or disclosed. The other exceptions, applicable to peso deposits under the
Bank Secrecy Law, do not apply to foreign currency deposits.

Another important amendment introduced by Presidential Decree No. 1246 was

the immunity of foreign deposits from attachment or garnishment. In the case of
Salvacion v. Central Bank of the Philippines, the Supreme Court had the occasion to
discuss the nature of the said privilege.

Verily, the statute that created or introduced the foreign currency deposit system
in the Philippines was Republic Act No. 6426, entitled, “An Act Instituting a Foreign
Currency Deposit System in the Philippines, and for Other Purposes. Section 8 of
Republic Act No. 6426, provides:

“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.)

Under the above-cited law, it was reiterated, perhaps in order to avoid any doubt,
that foreign currency deposits would be entitled to the same secrecy benefits
provided for under the then existing Law on Secrecy of Bank Deposits.

CONFIDENTIALITY

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. Because of the aforementioned, one significant
question arises: to what extent then can Philippine authorities have access to
deposits? 

Perforce, 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 otherwise known as 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 RA No. 9372 also known as the Human Security Act, 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.2

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

2
Phil. National Bank vs. Gancayco, 122 Phil. 503; Ejercito vs. Sandiganbayan and People of the Philippines, 509
SCRA 190.
disclosure is purely incidental to the execution process 3;  and that on grounds of
equity, the deposit of a foreign transient can be proceeded against to prevent an
injustice to an aggrieved citizen. 4 Also on grounds of equity, the Supreme Court
allowed the owner of funds unlawfully taken to inquire on the deposit of said funds. 5
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.6

PRIVILEGES

Among the privileges which RA 6426 or an Act Instituting a Foreign Currency

Deposit System in the Philippines, and for Other Purposes cover are the following, to
wit:

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, 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

CASES FOR DISCUSSION

CASE NO. 1

One of the most significant cases in relation to Secrecy of Bank Deposit is the
case of Philippine Savings Bank and Pascual M. Garcia III, as representative of the
Philippine Savings Bank v. Senate Impeachment Court and the Honorable Members
of the Prosecution Panel of the House of Representative.

Philippine Savings Bank and Pascual M. Garcia III, as representative of the

Philippine Savings Bank v. Senate Impeachment Court and the Honorable
Members of the Prosecution Panel of the House of Representative.
GR No. 200238, November 20, 2012.

FACTS

3
China Banking Corp. vs. Ortega, 49 SCRA 355.
4
Salvacion vs. Central Bank, 278 SCRA 27.
5
China Banking Corp. vs. Court of Appeals, 511 SCRA 110.
6
De Zuñiga, Jun, September 27, 2017. Article on Secrecy of Bank Deposits. Retrieved on May 4, 2019.
 In this case, the former Chief Justice has a US$700,000 deposit held by the
Philippine Savings Bank (PSBank). The prosecutor wants to issue a subpoena on
such account which the Senate agreed. As such, senator-judge Miriam Defensor-
Santiago submitted a Motion for Reconsideration to the impeachment court asking it
to reconsider its decision on the issuance of that subpoena. With respect to the
alleged foreign currency deposit account of Former Chief Justice Corona, Senator-
judge Santiago pointed out that Section 8 of RA 6426 is explicit that foreign currency
deposits maintained in the foreign currency deposit units of Philippine banks may
only be inquired into with the written permission of the depositor.

Petitioner Philippine Savings Bank (PS Bank) and Pascual M. Garcia III, as
President of PS Bank, filed a Petition for Certiorari and Prohibition seeking to nullify
and set aside the Resolution of respondent Senate of the Republic of the Philippines,
sitting as an Impeachment Court, which granted the prosecution’s requests for
subpoena duces tecum and testificandum to PS Bank and/or its representatives
requiring them to testify and produce before the Impeachment Court documents
relative to the foreign currency accounts that were alleged to belong to former
Supreme Court Chief Justice Renato C. Corona.

During the pendency of the petition, or on November 5, 2012, petitioners filed a

Motion with Leave of Court to Withdraw the Petition averring that subsequent events
have overtaken the petition and that, with the termination of the impeachment
proceedings against former Chief Justice Corona, they are no longer faced with the
dilemma of either violating Republic Act No. 6426 (RA 6426) or being held in
contempt of court for refusing to disclose the details of the subject foreign currency
deposits.

ISSUE

Whether or not the impeachment Court acted arbitrarily when it issued the
assailed subpoena to obtain information concerning the subject foreign currency
deposits notwithstanding the confidentiality of such deposits under RA 6426 has
been overtaken by events. Otherwise stated, whether or not a Philippine bank can be
compelled via a subpoena to disclose information relating to a foreign currency bank
deposit of its depositor, former Supreme Court Justice Renato Corona.  

RULING

A clear right to maintain the confidentiality of the foreign currency deposit of the
Chief Justice is provided under Section 8 of Republic Act No. 6426, otherwise known
as the Foreign Currency Deposit Act of the Philippines. This law establishes the
absolute confidentiality of foreign currency deposits.

However, under R.A. No. 6426, there is only a single exception to the secrecy of
foreign currency deposits, that is, disclosure is allowed only upon the written
permission of the depositor.

As to the applicability of the aforesaid law, the Supreme Court, in Intengan v.

Court of Appeals, ruled that where the accounts in question are U.S. dollar deposits,
the applicable law is not Republic Act No. 1405 but RA 6426.  Similarly, in the recent
case of Government Service Insurance System v. 15 th Division of the Court of
Appeals, the Court also held that RA 6426 is the applicable law for foreign currency
deposits and not Republic Act No. 1405.
 Verily, the written consent under RA 6426 constitutes a waiver of the depositor’s
right to privacy in relation to such deposit.

In the present case, neither the prosecution nor the Impeachment Court has
presented any such written waiver by the alleged depositor, Chief Justice Renato C.
Corona. Also, while impeachment may be an exception to the secrecy of bank
deposits under RA 1405, it is not an exemption to the absolute confidentiality of
foreign currency deposits under RA 6426.

DISSENTING OPINION

With the above-cited decision which was backed by the majority of the members
of the Supreme Court, Associate Justice Carpio made a dissenting opinion because
he said that the majority ruling makes a mockery of all existing laws designed to
insure transparency and good governance in public service.

He emphasized in his dissenting opinion that, the majority ruling in effect

advises all government officials and employees that they can legally evade
reporting their actual assets in their Statement of Assets, Liabilities and Net Worth,
which is required by the Constitution and RA No. 3019 and RA No. 6713, by simply
opening foreign currency deposit accounts with local banks.

The majority holds that under Section 8 of RA No. 6426, foreign currency
deposits of government officials and employees are absolutely confidential, even in
impeachment or bribery cases filed against them. The majority declares that
foreign currency deposit accounts can be opened in any judicial, administrative,
legislative, or impeachment inquiry only if the account owner himself consents in
writing to open his account to his prosecutors or investigators. The world will now
know that Philippine foreign currency deposit accounts provide a much better safe
haven for ill-gotten wealth than Swiss bank accounts. Former President Ferdinand
Marcos was wrong in depositing hundreds of millions of U.S. dollars in Swiss bank
accounts. Had he deposited, even in his own name, the money in foreign currency
accounts with local banks under RA No. 6426, as amended by his three
Presidential Decrees, he would have gotten away with his loot under this ruling of
the majority.

CASE NO. 2

Another most significant cases in relation to Secrecy of Foreign Currency Bank

Deposit is the case Salvacion v. Central Bank. To emphasize and without being
repetitive, this is a case where the Supreme Court had the occasion to discuss the
nature of the important amendment introduced by Presidential Decree No. 1246
which was the immunity of foreign deposits from attachment or garnishment.

SALVACION V. CENTRAL BANK

GR NO. 94723, August 21, 1997

FACTS

In the afternoon of February 4, 1989, while petitioner Karen E. Salvacion (then 12

years old) was at the Plaza Fair Market Cinema Square and whiling away her free
time, Greg Bartelli y Northcott, an American tourist, approached her. He introduced
himself as a Math teacher and told her he has a sister who is a nurse in New York.
That her sister allegedly has a daughter who is about Karen’s age and who was with
him in the house along Kalayaan Avenue.

The American asked Karen what was her favorite subject and she told him it is
Filipino. He then invited her to go with him to his house where she could teach
Filipino to his niece. He even gave her a stuffed toy to persuade her to teach his
niece.

When they reached the apartment house, Karen noticed that defendant’s alleged
niece was not outside the house but the defendant told her maybe his niece was
inside. When Karen did not see the alleged niece inside the house, the defendant
told her maybe his niece was upstairs, and invited Karen to go upstairs.

Upon entering the bedroom, defendant suddenly locked the door. Defendant got a
piece of cotton cord and tied Karen’s hand with it, and then he undressed her. Karen
cried for help but defendant strangled her. He took a packing tape and he covered
her mouth with it and he circled it around her head. Then, defendant suddenly
pushed Karen towards the bed which was just near the door. He tied her feet and
hands spread apart to the bed posts. He knelt in front of her and inserted his finger in
her sex organ. She felt severe pain. She tried to shout but no sound could come out
because there were tapes on her mouth. When defendant withdrew his finger, it was
full of blood and Karen felt more pain after the withdrawal of the finger.

He then got a Johnson’s Baby Oil and he applied it to his sex organ as well as to
her sex organ. After that he forced his sex organ into her but he was not able to do
so. While he was doing it, Karen found it difficult to breathe and she perspired a lot
while feeling severe pain. She merely presumed that he was able to insert his sex
organ a little, because she could not see.

To sum up, Karen was raped ten times; once on February 4, 1989 and three
times each day on February 5, 6, and 7, 1989, and was kidnapped for four (4) days
(from February 4, 1989 – February 7, 1989) by the defendant before she was
rescued by the police officers.

The defendant was arrested and detained at the Makati Municipal Jail. The
policemen then recovered from Defendant Bartelli the following items, to wit:

1. Dollar Check No. 368, Control No. 021000678-1166111303, US 3,

903.20;
2. COCOBANK Bank Book No. 104-108758-8 (Peso Account);
3. Dollar Account – China Banking Corp., US$/A#54105028-2;
4. ID-122-30-8877;
5. Philippine Money (P234.00) cash;
6. Door Keys 6 pieces;
7. Stuffed Doll (Teddy Bear) used in seducing the complainant;

On February 16, 1989, Makati Investigating Fiscal Edwin G. Condaya filed against
Greg Bartelli, Criminal Case No. 801 for Serious Illegal Detention and Criminal Cases
Nos. 802, 803, 804 and 805 for four (4) counts of rape. On the same day,
petitioners filed with the Regional Trial Court of Makati Civil Case No. 89-3214
for damages with preliminary attachment against Greg Bartelli. On February 24,
1989, the day there was a schedule hearing for Bartelli’s petition for bail the latter
escaped from jail.
 Meanwhile, on Civil Case No. 89-3214, the Judge issued and Order dated
February 22, 1989, granting the application of herein petitioner for the issuance of the
writ of preliminary attachment.

On March 1, 1989, the Deputy Sheriff of Makati, Armando de Guzaman, served a

Notice of Garnishment on China Banking Corporation. In a letter dated March 3, 1989
to the Deputy Sheriff of Makati, China Banking Corporation invoked Republic Act
No. 1405 as its answer to the notice of garnishment served on it. On March 15,
1989, Deputy Sheriff of Makati sent his reply to China Banking Corporation saying
that garnishment did not violate the secrecy of band deposits since the disclosure is
merely incidental to a garnishment properly and legally made by virtue of a court
order which has placed the subject deposits to custodial egis. In answer to this letter
of the Deputy Sheriff of Makati, China Banking Corporation, in a letter dated
March 20, 1989, invoked Section 113 of the Central Bank Circular No. 960 to the
effect that the dollar deposits of defendant Greg Bartelli are exempt from
attachment, garnishment, or any other order or process of any court, legislative
body, government agency or any administrative body, whatsoever.

This prompted the counsel for petitioners to make an inquiry with the Central Bank
in a letter dated April 25, 1989 on whether Section 113 of Central Bank Circular No.
960 has any exception or whether said section has been repealed or amended since
said section has rendered nugatory the substantive right of the plaintiff to have the
claim sought to be enforced by the civil action secured by way of a writ of preliminary
attachment as granted to the plaintiff under Rule 57 of the Revised Rules of Court.

However, the Central Bank responded that, “the purpose of the law is to
encourage dollar accounts within the country’s banking system which would help in
the development of the economy. There is no intention to render futile the basic
rights of a person as was suggested in your subject letter. This law may be harsh as
some perceived it, but it is still the law. Compliance is, therefore, enjoined.”

On March 29, 1990, for failure of the defendant to file his answer to the complaint
after service of summons, the defendant was declared in default, thereby, rendering
judgment in favor of the plaintiff.

After the lapse of fifteen (15) days from the date of the last publication of the
notice of judgment, the decision of the trial court had become final, thus, petitioner
tried to execute on Bartelli’s dollar deposit with China Banking Corporation. However,
the bank still invoked Section 113 of Central Bank Circular No. 960.

ISSUE

Whether or not Section 113 of Central Bank Circular No. 960 which provides that
“foreign currency deposits shall be exempt from attachment, garnishment or any
other order or process of any court, legislative body, government agency, or any
other administrative body whatsoever”, shall be made applicable to foreign transient.

RULING

Respondents China Banking Corporation and Central Bank of the Philippines

(now Banko Sentral ng Pilipinas) refused to honor the writ of execution issued in Civil
Case No. 89-3213 on the strength of the following provisions of Central Bank Circular
No. 960:

Section 113. Exemption from attachment. – 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 [emphasis mine].

Central Bank Circular No. 960 was issued pursuant to Section 7 of Republic Act
No. 6426:

Sec. 7. Rules and Regulations. - xxx except upon written permission of

the depositor, in no instance shall such 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 provided in the WHEREAS CLAUSES of the two laws, it is evident that the
principal purpose is to draw deposits from foreign lenders and investors. It is these
deposits that are induced by the two laws and given protection and incentives by
them. Obviously, the foreign currency deposit made by a transient or a tourist
is not the kind of deposit encouraged by Presidential Decree 1034 and 1035
and given incentives and protection by said laws because such depositor stays
only for a few days in the country and, therefore, will maintain his deposit in
the bank only for a short time.

The Supreme Court further ruled that, “in fine, the application of the law depends
on the extent of its justice. Eventually, if we rule that the questioned Section 113 of
Central Bank 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 like accused Greg Bartelli.
This would negate Article 10 of the New Civil Code which provides that, “in case of
doubt in the interpretation or application of laws, it is presumed that the lawmaking
body intended right and justice to prevail.” xxx Simply stated, when the statute is
silent or ambiguous, this is one of those fundamental solutions that would respond to
the vehement urge of conscience.” 7

More, the Supreme Court added that, “here is a child, a 12-year old girl, who in
her belief that all Americans are good and in her gesture of kindness by teaching his
alleged niece the Filipino language as requested by the American, trustingly went
with said stranger to his apartment, and there she was raped by said American tourist
Greg Bartelli. Not once, but ten times. She was detained therein for four (4) days.
This American tourist was able to escape from the jail and avoid punishment. On the
other hand, the child, having received a favorable judgment in the Civil Case for
damages in the amount of more than P1,000,000.00, which amount could alleviate
the humiliation, anxiety, and besmirched reputation she had suffered and may
continue to suffer for a long, long time; and knowing that this person who had
wronged her has the money, could not, however get the award of damages because

7
Padilla v. Padilla. 74 Phil. 377.
of this unreasonable law. This questioned law, therefore makes futile the favorable
judgment and award of damages that she and her parents fully deserve.”

CASE NO. 3

Another significant case is the case of China Banking Corporation v. Honorable

Court of Appeals and Jose Gotianuy.

CHINA BANKING CORPORATION V. THE HONORABLE COURT OF APPEALS

AND JOSE “JOSEPH” GOTIANUY as substituted by ELIZABETH GOTIANUY LO
GR NO. 140687, December 18, 2006

FACTS

Jose Gotianuy [hereinafter referred to as Gotianuy] accused his daughter Mary

Margaret Dee [herein after referred to as Mary] of stealing, among his other
properties, US dollar deposits with Citibank N. A. amounting to no less than Php
35,000,000.00 and US$ 864,000.00. Mary received these amounts from Citibank
N.A. through checks which she allegedly deposited to China Banking Corporation
(hereinafter referred to as China Bank).

He likewise accused his son-in-law, George Dee [hereinafter referred to as

George], husband of his daughter, Mary, of transferring his real properties and
shares of stock in George’s name without consideration. Gotianuy died during the
pendency of the case before the trial court, thus, he was substituted by his another
daughter, Elizabeth Gotianuy [hereinafter referred to as Elizabeth] who presented the
US Dollar checks withdrawn by Mary from his US dollar placement with Citibank.

Upon motion of Elizabeth, the trial court issued a subpoena to the employees of
China Bank, Cristota Labios and Isabel Yap, to appear in person and to testify in the
hearing of the case with regard to the Citibank checks (Foreign Currency Fund) and
other matters material and relevant to the issues of the case.

China Bank moved for reconsideration of the Order. Denying the motion, the trial
court ruled that, as the foreign currency fund is deposited with the movant China
Bank, Cebu Main Branch, Cebu City, “the disclosure only as to the name or in whose
name the said fund is deposited is not violative of the law. Justice will be better
served if the name or names of the depositor of said fund shall be disclosed because
such a disclosure is material and important to the issues between the parties.” 8

China bank filed a petition for certiorari with the Court of Appeals. The Court of
Appeals denied the petition of China Bank and affirmed the Order of the trial court.
The Court of Appeals ratiocinated that, “the law specifically encompasses only the
money or funds in foreign currency deposit in a bank. Thus, the coverage of the law
extends only to foreign currency deposit in the CBC account where Mary deposited
the Citibank checks in question and nothing more.”9 More, the Court of Appeals held
that, “the contention of petitioner that the [prescription] on absolute confidentiality

8
Order of the Trial Court dated 16 April 1999
9
Decision of the Court of Appeals dated 29 October 1999.
under the law in question covers even the name of the depositor and is beyond the
compulsive process of the courts is palpably untenable as the law protects only the
deposits itself but not the name of the depositor.”10

ISSUES

(1) Whether or not petitioner China Bank is correct in its submission that the
Citibank dollar checks with both Gotianuy and/or Mary as payees, deposited with
China Bank, may not be looked into under the law on secrecy of foreign currency
deposits.

(2) Whether or not Jose Gotianuy may be considered a depositor who is entitled
to seek an inquiry over the said deposits.

RULING

The law on secrecy of foreign currency deposits under Section 8 of Republic Act
(RA) No. 6426, as amended by Presidential Decree (PD) No. 1246, reads:

SEC 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
written permission of the depositor, in no instance shall such 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. Xxx [emphasis supplied].

The Supreme Court agreed in the conclusion arrived at by the Court of Appeals,
which allows the inquiry, considered Gotianuy, a co-depositor of Mary, thus, allowed
the inquiry. More, the Supreme Court agreed with the Court of Appeals when the
latter held that, since Gotianuy is the named co-payee of the latter in the subject
checks, which checks were deposited in China bank. Gotianuy is likewise a depositor
thereof. On that basis, no written consent from Mary is necessitated.

Since the following facts are established, to wit: (1) Gotianuy and Mary are co-
payees of various Citbank checks; (2) Mary withdrew those checks from Citibank; (3)
Mary admitted in her Answer to the Request for Admission by the Adverse Party sent
to her by Gotianuy that she withdrew the funds from Citibank upon the instruction of
her father Gotianuy and that the fund belonged exclusively to the latter; (4) those
checks were endorsed by Mary at the dorsal portion; and, (5) Gotianuy discovered
that those checks were deposited with China Bank as shown by the stamp of China
Bank at the dorsal side of the checks, thus, there is no issue as to the source of the
funds. Mary declared the source to be Gotianuy. There is likewise no dispute that
those funds in the form of Citibank US dollar checks were deposited with China
Bank. As the owner of the funds unlawfully taken and which are undisputably now
deposited with China Bank, Gotianuy has the right to inquire into the said deposits.
Stated otherwise, the Supreme Court ruled that, Gotianuy, as the owner of the fund,
is entitled to a hearing on the whereabouts of those funds. Borrowing the words of
the Supreme Court, it held that, “the allowance of the inquiry would be in accord with
the rudiments of fair play, the upholding of fairness in our judicial system and would

10
Id.
be an avoidance of delay and time-wasteful and circuitous way of administering
justice.”

However, the Supreme Court is constrained to render a limited pro hac vice
ruling. It was not the intent of the legislature when it enacted the law on secrecy of
foreign currency deposits to perpetuate injustice.

FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA)

The Foreign Account Tax Compliance Act (FATCA) was enacted by the United

States Congress in March 2010 to improve compliance with US tax laws.  FATCA
imposes certain due diligence and reporting obligations on foreign (non-US) financial
institutions, including Philippines institutions.  These institutions will be required to
report to the US Internal Revenue Service (IRS) information on US citizens with
financial accounts.11 Otherwise stated, The Foreign Account Tax Compliance Act
(FATCA) is a US legislation that is part of the 2010 Hiring Incentives to Restore
Employment (HIRE) Act, and forming part of four new sections incorporated into the
US Internal Revenue Code. It is a law designed to improve offshore US tax collection
by eliminating tax avoidance and evasion.

According to the Internal Revenue Service (IRS), FATCA is “an important

development in US efforts to combat tax evasion by US persons holding investments
in offshore accounts.” Specifically, it requires US citizens to report their offshore
financial accounts and to require foreign financial institutions (FFIs) and nonfinancial
foreign entities (NFFEs), in this instance, banks and insurance companies in the
Philippines, to report to the IRS accounts of their American clients. This reporting
obligation requires reports on US account holders’ names, TINs, addresses, as well
as accounts balances and withdrawals. The premise of the law is that much tax
revenue can be collected overseas particularly in tax havens. This is a major shift in
US tax policy. The US imposes taxes on the worldwide income of its citizens and
resident aliens.

FFI includes any non-US entity that: a) is engaged in banking or similar business;
b) holds financial assets for the account of others as a substantial portion of its
business; c) is in the business of investing, reinvesting or trading in securities,
partnership interests, or commodities; or d) is engaged in certain insurance related
activities.

The target of FATCA are “US persons,” meaning US citizens and US permanent
residents who are residing outside the US. Reporting of these US persons are made
through Form 8938, which is filed together with the US tax returns if they are worth
more than $50,000. As a penalty, these US persons will be subject to a 40-percent
penalty for underreporting of income. On the other hand, FFIs are required to report
to the US Treasury foreign financial accounts exceeding $10,000. Non-compliant
FFIs will be subject to a 30- percent withholding tax on certain payments to the FFI
11
https://www.bir.gov.ph/index.php/international-tax-matters/fatca.html. Retrieved May 5, 2019.
from US sources, such as interests, dividends, rents, royalties and other types of
“fixed and determinable” income, on top of the other usual taxes.

The FATCA has been the subject of numerous criticisms. One of these is that FFIs
and foreign regulators have been converted into “unpaid IRS agents” and the cost of
implementing it far outweighs the projected gains.

The reporting obligation has posed legal obstacles, the most contentious of which is
the legality of FFIs disclosing the required information in possible violation of
domestic laws, such as those on data protection rules and confidentiality issues.
Specifically, the Bank Secrecy law (RA 1405) and the Data Privacy Act of 2012 (RA
10173).

The remedy to this legal obstacle is the conclusion of an intergovernmental

agreement (IGA) with the US government. In this regard, the US Department of
Treasury has drafted model IGAs. One model proposes that FFIs will report the
required information to the local tax authority (i.e., the Bureau of Internal Revenue),
and it is the Bureau of Internal Revenue that will provide information to the US
authorities. A variation model is where the US will be bound to share information to
another jurisdiction on a reciprocal basis. The first FATCA IGA was signed by the US
with the United Kingdom on September 12, 2012. Once the IGA is in place, the FFIs
will be called “participating FFIs.” This IGA is subject to ratification by the Senate. 12

12
https://businessmirror.com.ph. Retrieved May 5, 2019.