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Address of Atty. Ricardo J. Romulo

Before the Rotary Club of Manila

February 22, 2001



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President Arrastia, Members of the
Manila Rotary Club, Ladies & Gentlemen:

This afternoon I would like to share with you some of my thoughts on banking reform based on my brief but stressful experience as Chairman of the Board of Equitable PCI Bank from December 19, 2000 to January 31, 2001 as well as my reflections on the difficulties that have recently been challenging our financial system. My proposition can be summed up in three sentences:

First, our banking system can stand a lot of improvement in the areas of governance, transparency, and discipline;

Second: the things we are complaining about in our banking system are the things which we, as users of bank services, demand for ourselves; and

Third, for that reason, to effect true banking reform, we must be prepared to give up some of the "creature comforts" customarily extended to us by our banks.

The Equitable PCI Bank experience

Although it is now clear to everyone that the former president’s funds had been deposited in and withdrawn from a number of other banks, Equitable PCI Bank alone had the misfortune of having been initially branded by the anti-Estrada activists (quite unfairly I must say) as a crony bank. When the Bank demonstrated, on the other hand, that it was prepared to reveal, under compulsion of an impeachment court order, how Mr. Estrada misused the facilities of the Bank, it had the difficult task of reassuring a nervous depositor base, some of whom were undoubtedly pro-Estrada.

The Bank occupied center stage by reason of the multiple Ricaforte accounts, the Erap Muslim Youth Foundation, Inc, and the Jose Velarde funds. In making reference to these revelations, I will have to limit myself to what is already in the public domain so as not to violate the Bank Secrecy Law otherwise known as R.A. 1405.

The Yolanda Ricaforte accounts highlight our inability under present banking laws and practices to recognize from the start or outright any nefarious purpose to seemingly legitimate individual transactions. Yolanda Ricaforte opened a number of savings, current and trust accounts in five branches of the Bank and one branch of its savings subsidiary. From the period of about one and a half years, substantial deposits were made either in cash or in checks payable to cash drawn against various banks. The funds were then chopped in various chunks and moved from one account to another within the same branch, among the branches, and, placed also with other banks. This practice in money laundering parlance is called "cross-firing". After a relatively short period, most of the funds that remained with the Bank were withdrawn mostly in cash or through cashier’s checks payable to cash.

There is not much to the Muslim Youth Foundation account. It is of interest only because the former President admitted on 10 November 2000 during a press conference sponsored by the foreign correspondents association of the Philippines that his lawyer, Edward S. Serapio, accepted the jueteng bribe of Php 200 million offered by Governor Singson, and that the money is intact with Equitable bank. It is worth noting that while all its deposits, after the initial balance were made in cash, there was no cross-firing. The balance rose to Php 200 million and remained that way until the Focap news conference.

The Jose Velarde accounts, of course, are known to everybody. It is marked by the unshaken testimony of our Clarissa Ocampo that the former President signed his name as "Jose Velarde" in the signature card for his investment management account and admitted in a separate letter that the savings and current accounts in the name of Jose Velarde were his. Ms. Ocampo dramatically revealed towards the end of her testimony about an unsuccessful attempt to transfer the ownership of the accounts to Jaime Dechavez.

An unbiased appraisal of these accounts establishes that no law or regulation at the time was violated by the Bank or its officers in the opening and servicing of these accounts. Not a single account opened by Yolanda Ricaforte is legally defective. No wrongdoing on the part of the Bank is even being alleged in the case of the Muslim Youth Foundation account. And even in the Jose Velarde accounts, the Bank could not be faulted for permitting the use of a fictitious name. BSP Circular No. 251 which is the only regulation that prohibited banks from permitting the use of aliases and numbered accounts had not yet been issued. Civil and criminal laws against aliases, then in effect, consider only the person using the alias as the wrongdoer and not the bank.

Nevertheless, despite the regularity of the transactions when considered singly, a dubious pattern emerges when the individually correct acts are collated and viewed together. Only then can one discern what Mr. Estrada was really up to.

Banking culture

What in general are the underlying factors which give rise to a Jose Velarde phenomenon? I shall enumerate them separately although they are interrelated:

First, there is our much loved principle of secrecy of bank transactions. We do not want our neighbors, or perhaps our wives and certainly not the BIR to know what our means are beyond what we would like them to know.

Second, there is our desire to be given special treatment and to regard regulations as mere inconveniences. Thus, signature cards, promissory notes, trust documents are frequently signed without the presence of a bank official. And,

Third, there is our insistence on our own interest often to the exclusion of the common good. What is very important to us is that our own personal benefit is preserved (if not enhanced) and, as for the interest of others, they should be able to take care of themselves.

Who in this room are in favor of repealing the law on the secrecy of bank deposits? Who among us opened our personal checking accounts by going down to bank to personally fill up forms and submit ourselves to the scrutiny of our bank’s new accounts clerk? Just to stress the point I am making: banks keep our deposits and banking transactions secret because we want them to; bank officers go to our place of business instead of us going to them because we demand that they do; banks do not dare inquire about the money we deposit because we would consider it a personal affront for them to do so.





Some banking reforms

To effect true banking reform, therefore, we have to cede back a number of prerogatives we have learned to enjoy. For instance, we need to rethink just how much confidentiality our banking transactions should have. Our fetish for secrecy has numbered our nation among those classified internationally by a reputable international task force on money laundering as a country of "serious concern". That is a diplomatic term for "haven for money laundering". This makes other countries extremely suspicious of remittances to and from our country, to the detriment of legitimate business. Worse, it attracts the underworld which is finding less and less places in the world to ply their trade. In the light of our recent experience, requiring public servants, particularly those occupying high positions in government, and private persons, who have more than, say, Php 50 million in a consolidated basis with one bank, to waive the benefits of R.A. No. 1405. The strict "know your client" rule practiced by American banks, which requires the bank to investigate the person and business of the depositor, is another one worth adopting.

We likewise have to be open to more transparency in banking transactions, particularly of those individuals who own or control banks. BSP Circular No. 259 prohibiting the issuance of cashier’s checks, or similar instruments payable to cash, bearer, fictitious payees or numbered accounts is a good start. Nominee shareholders must declare under oath who the real beneficiaries are. Dosri violations and regulatory infractions which imperil the liquidity and solvency of banks and financial institutions should be severely penalized. Excoriating BSP officials for not preventing the misuse of the banking system is pointless, unless Congress passes the necessary legislation empowering BSP to enact and enforce the relevant regulations.

Finally, it is important that each bank embrace the value of self-discipline. Banks should immediately comply with Sec. 15 of the new General Banking Law which requires the election of two independent outside directors. Adherence to the spirit of prudential standards should be the board’s avowed policy, not the minimalist attitude of simply following the letter of the regulations.

We should make use of modern techology which can cope with voluminous and rapid flow of data to require more frequent reportings to the BSP on such critical information as capital adequacy, non-performing loans and the imminence of prudential limits being exceeded. In this manner, both the stakeholders as well as the regulator will be alerted on a timely basis, and not when it is too late.


I submit that what we saw in EDSA II is more than just a cry to clean up the government. The young men and women who provided the energy in EDSA II were asking for more than a change in Malacanang. They were demanding a reform of all our institutions - to make them transparent, to make leaders more accountable to their constituents, to make persons holding high positions, both in the public and private sectors, liable for any misuse of power.

Their medium was their message: direct action. Sovereignty no longer passively resides in the people; sovereignty now is asserted and exercised by the people with directness and immediacy almost as in the days of the Greek City States. The spirit of EDSA II, I believe, will not stop at Malacanang. It is bound to reach our board rooms. In fact, it is already knocking at the door. It is imperative for us to heed its call for reforms; otherwise, we court the danger of joining those, who chose to ignore it, in the kangkungan of history.

Thank you for your attention and have a pleasant day.