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The widened rupture of the
veil of bank secrecy

(Article published in the July 18,2012 issue of Manila Standard Today)   

The seeming simplicity of R.A. No. 10167, containing as it does only five sections inclusive of the standard separability, repealing and effectivity clauses, belies the complexity of the problems arising from the amendments by its first two sections of Sections 10 and 11 of R.A. No. 9160, known as the Anti-Money Laundering Act of 2001, as amended.

Essentially, Sections 1 and 2 of R.A. No. 10167 permits the process of securing of court authority by the Anti-Money Laundering Council to freeze deposits (Section 1) and to inquire into bank deposits (Section 2) to be conducted ex parte, i.e. without prior notice to the depositor.  Previous to that ex parte applied only to the freezing.

The first major concern of the bank affected by any such change is whether it may, without exposing itself to legal liability, nevertheless inform the owner of funds that his account is under official scrutiny. 

On the one hand, the bank has at the very least an implied contract obligation to the depositor to provide the latter information that may have a significant impact on his or her financials.  The bigger the deposit and/or the more extensive the relationship of the depositor with the bank or its major stockholders the greater is the “compulsion,” at least business-wise, to signal the depositor at the earliest possible time.  But, on the other hand, permitting the bank to alert the depositor of an impending AMLC action that may be inconvenient, if not outright prejudicial, to him destroys the very reason why the proceedings are permitted to ex parte.  Alerting a money-launderer of the out-of-the-ordinary interest of the AMLC will certainly trigger moving the account away, leaving the AMLC with just the sight, and nothing more, of an empty bag. 
 










     

True, the paper trail will remain to be there as part of the records of the bank, showing both the sources and the withertos of the funds.  But that only makes the chase more difficult, and in some cases, impossible, as when the funds are moved to jurisdictions where the Philippines does not have mutual assistance treaties or reciprocal arrangements for cooperation.

Another problematic area in R.A. No. 10167 is the impact of its Section 2, amending Section 11 of  the original Anti-Money Laundering Law, on the power of Bangko Sentral to look into a bank deposit.  Prior to its amendment, the law gave the Bangko Sentral the authority “to ensure compliance with this Act,...to inquire into or examine any deposit or investment with any banking institution or non-bank financial institution when the examination is made in the course of a periodic or special examination, in accordance with the rules of examination of the BSP.”  As the law was amended by R.A. No. 10167, the same power of the BSP was reformulated as the power to “check the compliance of a covered institution with the requirements of the AMLA and its implementing rules and regulations.”

The nasty question is whether the authority to “check compliance...with the requirements of the AMLA and its implementing rules and regulations” is the same as, or greater than, or lesser than the power “to inquire into or examine any deposit...”  The only thing we can be sure of, based on the mere change in phraseology, is that there must have been a deliberate change in the intent.  Which direction the intent was headed is interesting to determine from the records of the deliberations at the Senate and the House of Representatives.

Some argue that the BSP power was actually enlarged, because to “check compliance” necessarily entails examining an account, and more.  For example, how can a covered institution’s compliance be considered as in accordance with the law and its regulations, if the movements in that account are not also examined?  And if movements of funds in that account can be examined, then necessarily the BSP must look into a deposit to determine whether or not, in the first place, such movements occurred. 

The opposing view, mine included, is that compliance can be viewed at various levels, depending on the level of certainty the BSP is required to arrive at.  For instance, is a sworn statement, in general terms by a covered institution that no suspicious transaction has occured to the best of the affiant’s “knowledge, belief and information”, sufficient basis for the BSP to arrive at a conclusion that indeed the AMLC and its implementing regulations have been complied with?  If that is so, what will prevent connivance between the bank and its money laundering depositor?  Or not even connivance, but just turning a blind eye by the covered institution motivated by a desire to keep the accounts and loyalty of the client.

At the very least, the BSP, in my view, ought to have the authority, on a random basis, to look into any deposit or investment account, in order to determine whether with respect to those randomly selected accounts the bank was compliant.  The premise is that the requirement of randomness in the selection will safeguard any witch hunt or targeted examination that may be conducted; and, assuming that the random sampling is done scientifically, on a per branch basis, the assurance is that the findings on compliance borne out of such random look into will be reasonably reflective of the compliance with respect to the other accounts not examined.

          To shed light on the foregoing and other issues raised by the new laws on anti-money laundering I have organized a round-table discussion, to be led by AMLC Executive Director Vicente Aquino and to be participated in by representatives of the various sectors affected as reactors, for next Wednesday, July 25, at the 34th Floor of the Citibank Tower, on Paseo de Roxas, Makati.  Details, including the small fee to be paid by the attendees, needed to cover the expenses of venue and other incidentals, may be asked of Ms. Mel Maranan, at tel no. 5559555.

     

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