The Deposit Secrecy Act is again at the center of the latest incidence of misuse of the facilities of the Philippine banking system. The management of the principally involved commercial bank, Rizal Commercial Banking Corp., is invoking the Act in the ongoing Senate and Anti-Money Laundering Council investigations into the heist of $81 million belonging to Bank of Bangladesh. From the Federal Reserve Bank of New York, the funds were remitted to four RCBC accounts.
In testimony before the Senate, RCBC management has stated that RCBC could not act speedily on the Bangladesh central bank’s stop-payment request because of the Deposit Secrecy Act’s provisions against disclosure of bank-client information. RCBC acted positively on the request in due course but not before the stolen funds had been remitted out of the Philippines. Where the funds are now has not been determined, and there is a growing belief that they may be unrecoverable.
Once again, the Deposit Secrecy Act has thwarted efforts to prevent the effectuation of a financial heist, and all because of the Act’s emphasis on secrecy. In the Philippines, legislation governing bank deposits has been, and continues to be, associated with the concept of secrecy.
Must this be so? Must the integrity of the Philippine banking system be kept hostage to the belief that all bank deposits must enjoy the benefit of secrecy? To both questions my answer is an emphatic No.
That the Philippines was the preferred destination for the stolen Bank of Bangladesh funds is not difficult to understand when it is stated that the Philippines is one of the three countries—the others are Switzerland and Lebanon—with the most depositor-protective banking systems in the world. This status is unjustifiable from either a legal or an economic or an administrative standpoint.
It is obvious that the target of any Deposit Secrecy Act–type prohibition is the State. The record of the Congressional discussions on the Act shows that the legislators sought to stop the government from unjustifiably gaining access to, and examining, the records of bank clients. They recognized that private parties might wish to gain access—for whatever reason—to the banking records of other individuals, but the government clearly was the object of the secrecy-ensuring exercise.
The result, as everyone well knows, is that the fiscal and investigative agencies of the government—especially the Office of the Ombudsman and the Bureau of Internal Revenue—are denied access to private banking records when such access is necessary for the prosecution of crimes like corruption and tax evasion. Does that make for good governance? Is it conducive to economic progress? Definitely not.
The fear of an abusive government looking at depositors’ transactions at every turn begs the question, how many of the millions of private deposit accounts, or what percentage of the total, are subjects of government requests for authority-granting court orders? An insignificant percentage, the record shows. So, why should the overwhelming majority of uncontroversial, illegality-free deposit accounts be included in the coverage of the Deposit Secrecy Act?
The economic rationale for the Deposit Secrecy Act was the need to encourage private saving in banking institutions (as opposed to placing funds in the mattresses, piggy banks or other storage places) and, generally, to promote the habit of saving. Security from abusive government behavior was necessary, it was thought to convince savers to deposit their funds in banks.
That was several decades ago. Times and mindsets have changed. Placing funds in banks has become part of the Filipino’s way of life. Filipinos with savings no longer feel that their bank deposits need special protective legislation. Those who have deposit accounts are not likely to close them if the Deposit Secrecy Act were to be repealed or severely watered down.
Private deposit accounts are personal properties, and, like all personal properties, they cannot be looked into or otherwise be disturbed without negative repercussions for the banks violating the terms of the deposit contract. It is not correct to say that private persons with bank deposits have no protection against an abusive State. They are amply protected by other laws. They can do without the Deposit Secrecy Act.
In effect, the Deposit Secrecy Act covers two groups of bank depositors. One group is made up of the overwhelming majority of bank-deposit owners who keep their noses clean, give rise to no red flags and are generally law-abiding. The other group, the small minority, is made up of bank-deposit owners who receive funds of probably questionable origin, engage in red-flag-type banking transactions and generally abuse the banking system. The first group does not need a Deposit Secrecy Act to protect their deposits; the second group definitely does.
Seen in this context, the Deposit Secrecy Act is a demonstration of a form of “burning the house to roast a pig.” With the Act in place, the authorities of this country are burning the national house—protecting perpetrators of financial heists, making possible illegal behavior and giving the Philippines a bad name in the world—in order to roast a pig, namely, prevent the government and other parties from having access to suspicious private deposit accounts. There has to be something terribly wrong in the fact that the Deposit Secrecy Act, approved by a well-intentioned legislature, made possible the theft, with the use of a commercial bank’s facilities, of the $81 million from another country’s central bank.
The time has surely come to take a hard look at the Deposit Secrecy Act because it is an instrument of bank abuse and it has made the Philippines a virtual financial pariah. The nation’s financial reputation and the security of the Philippine banking system can no longer be kept hostage to a well-meaning but misplaced desire to safeguard private bank depositors’ rights.