BANK SECRECY LAW

RA 1405 [1955], RA 6426

Republic Act 1405

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

BANKING INSTITUTION AND PROVIDING PENALTY THEREFOR.
.
Purpose of the Law:
The law was enacted to encourage 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.

Deposits Covered:
1. All deposits of whatever nature with banks or banking institutions in the Philippines,
including trust accounts.
Deposits refer to money or funds placed with a bank that can be withdrawn on the
depositor's order or demand, such as deposit accounts in the form of savings, current and
time deposits. Deposits are characterized as being in the nature of a simple loan. The
placing of deposits in a bank creates a creditor-debtor relationship between the depositor
and the bank. As such, the bank being the debtor has the obligation to pay a certain sum
of money to the depositor, being the creditor.
2. Investments in bonds issued by the Government of the Philippines, its subdivisions,
and its instrumentalities.
Investments in Government Bonds are debt securities which are unconditional
obligations of the State and backed by its full taxing power. Government bonds include
treasury bills, treasury notes, retail treasury bonds, dollar linked peso notes, and other
risk-free bonds

Prohibited Act:
It shall be unlawful:
1. Bank (any official or employee or independent auditor of a bank) - to disclose to
any person other than a bank director, officials, or employee authorized by the
bank, any information concerning deposits.
2. Any person, including the government – to inquire, examine, or look into bank
deposits or bonds issued by the government.
The prohibition is not absolute. The rule allows several exceptions, carved out
by special laws and jurisprudence
Exceptions:
Peso Deposits:
1. When there is written permission from the depositor or investor

DOSRI accounts: Directors, officers, stockholders, and related interests who contract
a loan or any form of financial accommodation with their bank or a related bank are
required to execute a written waiver of secrecy of deposits pursuant to The New
Central Bank Act (Sec. 26, Rep. Act No. 7653).

Taxpayer's application for compromise: a taxpayer who is applying for a compromise

on the ground of clear inability to pay or financial incapacity, is likewise required to
execute a waiver prior to the processing of his request.

2. Impeachment cases of the President, Vice President, members of the Supreme Court,
members of the Constitutional Commission (Commission on Elections, Civil Service
Commission and Commission on Audit) and the Ombudsman for culpable violation
of the Constitution treason, bribery, graft and corruption, other high crimes, or
betrayal of public trust. (Art. XL, Sec. 2, 1987 Philippine Constitution)

3. Upon Order of a competent court

a. In cases of bribery or dereliction of duty of public officials (including plunder)
b. The money deposited or invested is the subject matter of litigation

Example 1: Mr. X, asked PNB to facilitate the transfer of P1,000 to Ms. A

PNB savings account. However, PNB inadvertently transferred P1,000,000 to
the savings account of Ms. A. PNB sought the return of the excess P999,000
through a case they filed. Ms. A objected to the inquiry into her bank deposits
invoking the confidentiality thereof. Is Ms. A correct?

Answer: No. Since the very subject of the case is the money deposited in her
account by virtue of the case for recovery filed by Mellon Bank. Therefore, it
constitutes an exception to the Secrecy of Bank Deposits.

Example 2: A buys 100 flowerpots from B and deposits P100,000 to B’s bank
account as payment for the pots. However, B did not deliver the pots so A then
filed for litigation. To prove that A paid P100,000, A wants to check B’s bank
account. The court could NOT order the disclosure of information as the
subject matter of the litigation is B’s performance, not the deposited money.

4. Incidental disclosure in Garnishment or execution of bank deposits.

Garnishment is when a third party sues you for payment on an obligation and
the court orders to charge it against your bank account. It is incidental as the purpose
 is not to know your account balance but to know if your balance is enough to cover
the damages of the one suing you.

5. Incidental disclosure under Unclaimed Balances Law.

If one’s bank account has no movement for 10 years, it could be claimed by
the government.

6. Prosecution for unexplained wealth under the Anti-Graft and Corrupt Practices Act.

7. PDIC/BSP may inquire into bank deposits if there is a finding of unsound or unsafe
banking practice (Sec. 8 [8], PDIC Charter)

8. The Ombudsman has the power to issue subpoena and subpoena duces tecum,
take testimony in any investigation or inquiry, as well as examine and access bank
accounts and records. The power of the Ombudsman to subpoena deposit information
of a government official may be exercised when the following conditions concur:

a. There must be a case pending before a court of competent jurisdiction;

b. The account must be clearly identified;
c. The inspection must be limited to the subject matter of the pending case; and
d. The bank personnel and the account holder must be notified to be present
during the inspection.

9. Authority of the Commissioner of Internal Revenue to inquire into the bank

deposits of a decedent for estate tax purposes or in case of a tax compromise under
Sec.6(f) of the NIRC or upon request for tax information by a foreign tax authority
under an international convention or agreement (RA 10021 [2009])

10. Authority of the AMLC to inquire into any particular deposit or investment with any
banking institution upon order of CA based on an ex parte application upon probable
cause that such deposit/investment is related to an unlawful activity or to money
laundering pursuant to Sec 11 of the Anti-Money Laundering Act of 2001 (RA 9160,
as amended by RA 9194 and RA 10167).
a. Reporting of covered or suspicious transactions pursuant to 59(c) of the
AMLA.
b. The BSP may, in the course of a periodic or special examination, check the
compliance of a covered institution with the requirements of the AMLA and
its implementing rules and regulations (S11 AMLA)

11. Authority of AMLC, either upon its own initiative or at the request of ATC, to inquire
into bank deposits upon the issuance by the court of a preliminary order of
proscription or in the case of designation:

a. Any property or funds that are in any way related to the financing of
terrorism as defined and penalized under RA 10168
b. Violation of Sec 4, 6, 7, 10, 11, or 12 of the Anti-Terrorism Law
 c. Property or funds of any person or persons in relation to whom there is
probable cause to believe that such person or persons are committing or
attempting or conspiring to commit, or participating in or facilitating the
financing or terrorism

12. Examination is 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.

CONFIDENTIALITY OF FOREIGN CURRENCY DEPOSITS (RA 6426)

All foreign currency deposits are 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 juridical or administrative or legislative or any other entity whether public or private.

Exceptions to Confidentiality of FCD

1. Written permission of the depositor
2. Authority of the AMLC to inquire into any particular deposit or investment with any
banking institution upon order of CA based on an ex parte application upon probable
cause that such deposit/investment is related to an unlawful activity or to money
laundering pursuant to Sec 11 of the Anti-Money Laundering Act of 2001 (RA 9160,
as amended by RA 9194 and RA 10167).
a. Reporting of covered or suspicious transactions pursuant to 59(c) of the
AMLA.
b. The BSP may, in the course of a periodic or special examination, check the
compliance of a covered institution with the requirements of the AMLA and
its implementing rules and regulations (S11 AMLA)
3. PDIC/BSP may inquire into bank deposits if there is a finding of unsound or unsafe
banking practice (Sec. 8 [8], PDIC Charter)
4. Authority of AMLC to inquire into or examine bank deposits & investments pursuant
to the Anti-Terror Law.
5. Authority of the Bureau of Internal Revenue to inquire into the bank deposits of a
decedent for estate tax purposes or in case of a tax compromise.

Exemption from Process of Foreign Currency Deposits

Foreign currency deposits (FCD) 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 FCDA). The process exemption should be
distinguished from the confidentiality clause. Exemption from confidentiality does not
necessarily translate to an exemption from the process.
 In other words, FCD is exempt from a court order or administrative process. This is to
encourage foreign currency deposits to increase international reserves.
Example: You lent P500,000 to Win, a Thai national residing and working in the
Philippines. When the loan fell due, Win didn’t pay. You found out that Win has a peso
account deposit with China oil Bank and a foreign currency deposit with NorthSouth Bank.
Despite demands, Win refuses to pay because he said that the remaining money he has is
already allocated for his vacation in Bali with his boyfriend, Bright. You now went to court,
filed a case against Win for the collection of a sum of money, and won. In order to satisfy
your claim against Win, you applied for a writ of garnishment with the court for the bank
deposits of Win. Will the court issue the writ?
Answer: Yes, for the peso deposit account but no for foreign currency deposits because they
are exempt from garnishment.

Exceptions to the Exemption

 Pro hac vice (for that instance only) case.
 The Supreme Court allowed garnishment of FCD of a foreign national who raped a
minor and escaped (Salvacion vs Central Bank).
 Civil Forfeiture Suit brought by the AMLC through the OSG pursuant to Sec 7(4) &
12 of AMLA and Sec 18 of TFPSA.
 Freeze order pursuant to AMLA and Anti-Terror Law.

Penalties for Violation:

Peso Deposits Foreign Currency Deposits
Imprisonment Not to exceed 5 years 1 to 5 years
Fine Not to exceed P20,000 P5,000 to P25,000
 Obligations of Depositors
1. Obligation to pay expenses of preservation
a. deposit is gratuitous - obliged to reimburse a depositary for expenses of
preservation whether ordinary or extraordinary
b. deposit for compensation - depositary bears the expenses of preservation
because they are deemed included in the compensation

2. Obligation to pay losses suffered due to the character of the thing deposited,
UNLESS:
a. depositor was not aware or was not expected to know the dangerous
character of the thing;
b. depositor notified the depositary of the dangerous character;
c. depositary was aware of the dangerous character without advice from the
depositor;

Concept of Bank Resolution

Bank Resolution
Resolution - refers to the actions undertaken by the Philippine Deposit Insurance
Corporate (PDIC) under Section 11 of the Act to:
1. Protect depositors, creditors and the Deposit Insurance Fund (DIF);
2. Safeguard the continuity of essential banking services or maintain financial stability;
and
3. Prevent deterioration or dissipation of bank assets
SEC. 11.
 The Corporation, in coordination with the Bangko Sentral ng Pilipinas, may commence
the resolution of a bank under this section upon:
1. Failure of prompt corrective action as declared by the Monetary Board; or
2. Request by a bank to be placed under resolution.
 The Bangko Sentral ng Pilipinas shall inform the Corporation of the initiation of prompt
corrective action on any bank and shall be authorized to share with the Corporation all
information, agreements or documents, including any order of the Monetary Board, in
relation to the prompt corrective action. The Corporation shall have the authority to
inquire and monitor the status of banks under prompt corrective action.
 When there is a failure of prompt corrective action as declared by the Monetary Board
due to capital deficiency, the PDIC, its duly authorized officers or employees, may
 examine, inquire or look into the deposit records of a bank: Provided, That such authority
may not be exercised when the failure of prompt corrective action is due to grounds other
than capital deficiency. For this purpose, banks, their officers and employees are hereby
mandated to disclose and report to the PDIC or its duly authorized officers and
employees, deposit account information in said bank.

Note: The PDIC and its duly authorized officers or employees are prohibited from disclosing
information obtained under this section to any person, government official, bureau or office.
Any act done pursuant to this section shall not be deemed as a violation of Republic Act No.
1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other
similar laws protecting or safeguarding the secrecy or confidentiality of bank deposits:
Provided, That any unauthorized disclosure of the information under this section shall be
subject to the same penalty under the foregoing laws protecting the secrecy or confidentiality
of bank deposits.

Role of PDIC in Relation to Banks in Distress.

 Extend financial assistance to eligible distressed banks.