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The bank client’s right to know

(Article published in the August 22, 2007 issue of Manila Standard Today)  

The round-table discussion on the implications of the Human Security Act on banks and banking that the Romulo Law Office conducted in the afternoon of last Tuesday (14 Aug 2007) at the Top of the Citi adjourned exactly as I had expected it to.  The three discussants were all recognized authorities on banks and banking, but they were also lawyers, albeit respected ones.  Towards the end of the open forum, on the question raised by someone in the perceptive audience, the three lawyers each expressed three differing answers. 

 Thus was illustrated what lawyer-bashers love to say, namely, that “for every legal question, the number of answers is always equal to at least the number of lawyers giving answers, plus one.”  And the really mean ones say that the extra answer is, just as always, the correct one.

The question that was posed to Attys. Juan de Zuńiga, Jr., Vicente S. Aquino, and Antonio V. Viray appeared easy:  “When, if at all, may a bank, who has received an order from the Court of Appeals, inform its client that his or her bank account is being made subject of an examination by a law enforcement officer pursuant to the Human Security Act?”

 Underneath the simple surface, however, were cross-currents flowing from provisions of the Human Security Act (HSA) as well as from banking law principles and prevalent business practices. The first sentence of Section 29  of the HSA declares  as “classified information” (not just confidential), among other items, the order from the Court of Appeals authorizing the inquiry into a suspected terrorist’s bank account and the gathering of information related to it.  That means only those people, who may be authorized by law, are to have access to it.

At the same time, in fact in the same sentence, there is a proviso “that the person whose bank deposits, placements, trust accounts, assets and records have been examined, frozen, sequestered and seized by law enforcement authorities has the right to be informed of the acts done by the law enforcement authorities in the premises or to challenge, if he or she intends to do so, the legality of the interference.”










     

 The HSA is thus clear in recognizing the client’s right to know.  What is left unclear is when.

 That clients have the right to be informed about their accounts is one of the most settled banking principles and accepted practices.  Banks are by law considered to have a fiduciary relationship, in the broad sense, with their clients (Sec. 2, General Banking Law). As articulated by the Supreme Court in the case of Simex International (Manila), Inc. v. Court of Appeals, (183 SCRA 360), “the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.”

 Part and parcel of that duty is the need to inform the client of significant developments affecting his account, and certainly, that the account is being examined in connection of the anti-terrorism law is one such significant development.

 So, when may the bank lawfully inform its client? The guest discussants’ respective answers clearly reflect whence they are from.  Jun Zuńiga, General Counsel and Assistant Governor of the Bangko Sentral ng Pilipinas (BSP), opines that the moment when the bank may inform its client is only be after the account is frozen.  The purpose of the law, he maintains, is to deprive a suspected terrorist of the use of his funds and informing him prior to its freeze would not serve the law’s purpose since the bank account holder is certain to move out his funds immediately upon receipt of the information.

 Vic Aquino, Executive Director of the Anti-Money Laundering Council and Assistant Governor of the BSP, respectful of the principle under the anti-money laundering law, R.A. No. 9160 as amended by R.A. No. 9194, that the process of examination of bank accounts is separate from the process of freezing of the moneys therein, maintained that the information may be given after the completion of the examination and inquiry which are done ex parte. Obviously, since the funds have been tagged, he is confident that the AMLC can chase it so that the terrorist is not able to spirit them away.

 Tony Viray, Special Counsel of Metropolitan Bank and Trust Company, formerly its Senior Vice President, said that the bank may inform its client only at the time when the police officers must do so, because Section 29 talks of  “acts are done”.  However, on his face, he wore the smile, formed over so many decades of lawyering for the regulated, that seemed to say, “Of course, the bank should find legal ways of informing its client earlier of what is going on.”

I was facilitator of the round-table discussion and thus could not weigh in.  But this is my fourth lawyerly view:  the bank should, without fear of violating the HSA, immediately inform its client immediately upon receipt of the Court of Appeals order.  My reading of the HSA suggests that the proviso in Section 29 was not intended for banks.  As for banks, the duty of being fiduciaries for their account holders, who after all are presumed innocent until proven guilty, prevails over the police power of the state.  A contrary view would in the long run weaken the people’s faith in the banking system as a whole.

 The Senate record of proceedings and journals show that, up until Senate Bill No. 2137 reached the period of amendments, the proviso in question was not in what is now Section 29 of the HSA.  It was Senator Miriam Defensor Santiago who, during the session on 14 November 2006, suggested that the proviso read as follows: “provided, that the right to information of any person charged under this act in order to challenge the legality of interference shall always be respected.” That was the original formulation of the proviso. It was readily accepted by the sponsor, Sen. Juan Ponce Enrile, and, there being no any objections from the floor, ruled as accepted by the body.

 On 05 December 2006, Senator Frank Drilon and Senator Juan Ponce Enrile clarified what was to be done as a result of what is mandated by what is now the third paragraph of Section 30: after the expiry of the period of examination, i.e. a case must be filed or the bank account holder be notified.  Senator Drilon said  that  if no case is filed after the 30 days, “the police officer is now under obligation to notify the person whose bank account he examined.”  Senator Enrile added, “and to answer for his act of applying for authority to conduct surveillance and/or bank examination without any probable cause.”

 Clearly then, the proviso in Section 29, as illumined by Section 30, is a strong reminder to the police officer.  And not a prohibition on the bank.  The bank, accordingly, is penalized under Section 37 for defying a court authorization to have an account examined, but notably, it is not specifically permitted for informing the person,  for whom it is a fiduciary, that an examination is being conducted.

 True, Section 46 penalizes “any person…who not being authorized by the Court of Appeals to do so, reveals in any manner or form any classified information under this Act.”  But then, after the phrase “any person” is an enumeration consisting of “police or law enforcement agent, judicial officer or civil servant.”  The rule of ejusdem generis compels restricting the generality of “any person” to the same class to which those individually mentioned belong.

 Informing the client, I must add, does not mean letting his account to flee.  The bank as we know has an arsenal of excuses not to pay money out. 

 My fourth view thus brings to 5 the number of  answers to the question posed at the beginning of this piece.  No wonder, Bankers Association of the Philippines’ Executive Director, Topper Coronel, suggested, thereby closing the discussion, that some sort of memorandum of agreement need to be crafted at the soonest possible time by the BSP, which is not an implementing agency, and the Anti-Terrorism Council.  That MOA should spell out clearly for banks and police officers and all else involved, the rules of engagement before, during, and after bank examinations.  I would be most happy to personally assist in that endeavor.

 

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