BSP eases up on bank secrecy

By Jerry Maglunog

Financial authorities have softened their stand on the country’s strict Bank-Secrecy Law as a result of the $81-million online heist involving funds of the Bangladesh central bank routed to the country.

BSP Governor Amando M. Tetangco Jr. said he was now amenable to relaxing the law to make the financial sector more transparent. But he added that this should be made “under certain conditions.”

Tetangco said he couldn’t discuss specifics on the proposed changes in the law, but added the amendments should allow the BSP and the government to track the flow of funds. “We need that extra authority because once funds go into a deposit account, that’s it. The trail turns cold,” Tetangco said. “We cannot look into that from an examination point of view.”

The Philippines has one of the world’s strictest bank deposit confidentiality laws, which critics said have been preventing government institutions from looking into suspicious financial transactions.

Republic Act 1405, otherwise known as the Bank Secrecy Law, was enacted September 9, 1955, with the aim of encouraging people to “deposit their money in banking institutions and 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.”

The law prohibits the disclosure, inquiry into or examination of Philippines currency deposits of whatever nature and kind, as well as investments in securities issued or guaranteed by the government.

Deposits refer to money or funds placed in banks that can be withdrawn on the depositor’s order or demand, such as deposit accounts in the form of savings, and current and time deposits. Investments in government bonds refer to investments in bonds issued by the government and its instrumentalities.

Tetangco acknowledged that the prevention of money laundering “is being hampered” by the “very strict” Bank Secrecy Law and said he favored its easing to make the government more effective in its fight against entry of dirty money into the country.

Tetangco said he and other BSP officials remained keenly aware of the risks associated with this issue and were ready to address them.

“We have to show that action is being taken with respect to this particular case and with respect to further strengthening the legal framework or anti-money laundering and financial terrorism,” he said.

Tetangco said this was why the AMLC, which he heads, continues to work with Congress “to expand the coverage of the law and include other covered institutions like casinos and real-estate dealers.”

“I think this is really an opportune time to take a look at the problem and really make a decision consistent with our desire as a sovereign nation to strengthen the money laundering framework in the country so we don’t become a center for money laundering,” he said. “We will be working with the government and Congress again to further enhance and cover any possible loopholes.”

Tetangco said this latest issue was the first cross-border money laundering case in the country but declined to give updates, saying AMLC was continuing its investigation of the case.

Asked about the negative impact of the case on the country’s financial markets, credit rating and outlook in relation to the Financial Action Task Force (FATF), Tetangco expressed confidence it had not affected the domestic financial markets.

“In fact, the peso has been appreciating over the last few days, the bond market is steady, and the PSEi (Philippine Stock Exchange index) has been holding steady, at times even going up,” he said.

BSP Deputy Governor Nestor Espenilla Jr. said the scandal should be treated as an isolated case in an otherwise strong banking industry.

“This is a concern of particular institutions that may have not been able to fully implement appropriate AML-CFT (anti-money laundering-counter terrorism financing) policies,” he told reporters at the sidelines of the Chamber of Thrift Banks (CTB) convention in Makati City.

Espenilla said the central bank always evaluates BSP-regulated firms based on their compliance on the Anti-Money Laundering Act (Amla).

He said banks and other central bank-regulated entities were assessed on four areas, namely: overall governance and management, the money-laundering and terrorist-financing prevention program, controls on its policies, and effectiveness of its implementation.

Banks have their own system of governance and management, he said but that every bank adopts AML-CFT depending on its business model.

“It cannot be ‘one-size-fits-all’,” he said.

Espenilla said banks may have their governance standards but they needed to make sure they were efficiently implementing it.

“You may have policies but when you are not fulfilling them that’s a big problem to BSP,” he said.