This document discusses the debate around transparency and secrecy regarding bank deposits and financial information in the Philippines. It outlines the country's bank secrecy law from 1955 and exceptions that were added over time. However, these exceptions were still insufficient to meet global standards from the OECD for automatic exchange of financial information. Lifting the bank secrecy law could enable better tax administration but risks capital flight. The document argues for gradually amending the law through a balanced approach that considers both international obligations and domestic stability.
This document discusses the debate around transparency and secrecy regarding bank deposits and financial information in the Philippines. It outlines the country's bank secrecy law from 1955 and exceptions that were added over time. However, these exceptions were still insufficient to meet global standards from the OECD for automatic exchange of financial information. Lifting the bank secrecy law could enable better tax administration but risks capital flight. The document argues for gradually amending the law through a balanced approach that considers both international obligations and domestic stability.
This document discusses the debate around transparency and secrecy regarding bank deposits and financial information in the Philippines. It outlines the country's bank secrecy law from 1955 and exceptions that were added over time. However, these exceptions were still insufficient to meet global standards from the OECD for automatic exchange of financial information. Lifting the bank secrecy law could enable better tax administration but risks capital flight. The document argues for gradually amending the law through a balanced approach that considers both international obligations and domestic stability.
A Win-Win Situation: Transparency or Secrecy? Or both?
The Philippines values different international agreements focussing on the idea that these agreements will pave the way to have global security economically, financially, politically and territorially speaking. The opening of the ASEAN Integration, in itself, is a current highlight of the states international negotiations covering matters affecting almost all facets of how the modern society works, from educational systems to export operations. And so, various institutions work their way to answer the present global pressures, revealing issues of bureaucracy, uneven application of accepted principles, even the rigid practiced set of rules. Issues relating to transparency and accountability are continuously creating debates as to how effective is our present system as a whole. The current trend of transparency is a tilted idea when looking at the banking industrys perspective of the Law on the Secrecy of Bank Deposits (Rep. Act No. 1405) and Foreign Currency Deposit Act (Rep. Act No. 6426). These are strict banking rules requiring the financial market to an absolute confidentiality of bank deposits and investments in government bonds including all foreign deposits. From the approval of these legislations came questions as to its true benefit, leading all throughout to different interpretations which often times conflicting from the law itself. Amendments were made, exceptions then existed. But still, these were seen by international organizations as great barriers in implementing change to meet international standards. Bureau of Internal Revenue commissioner, Kim S. Jacinto-Henares, saw gain with regards to better tax administration in the idea of applying OECDs new global standard for automatic exchange of information which suggests lifting of the bank secrecy law of the Philippines for which she saw fit to increase transparency globally. Though there were a lot of queries about the bank secrecy law, all the same it became one of the foundations of banking operations. The Bank Secrecy Law was passed on September 9, 1955 during which the Philippine banking industry was in its beginnings. The House and the Senate passed House Bill No. 397718 and Senate Bill No. 351 to expand the capital market through intercepting hoarding and capital flight with the ultimate goal of generating economic growth by protecting the depositors privacy and hence, encourage savings (Lim, 2010). The bills were the forerunners of the Bank Secrecy Law also known as the Law on the Secrecy of Bank Deposits (Rep. Act No. 1405). As amended through the years, the confidentiality was not therefore absolute and was given exceptions from the stated provisions and in other laws giving instances where bank deposits and investments in government bonds may be examined, inquired or looked into (BSP, 2012). These exceptions include a) to investigate bank fraud or a serious irregularity during a special or general examination of a bank, as authorized by the Monetary Board; b) during a regular audit of a bank by an independent auditor; c) upon the written permission of the depositor; d) in cases of impeachment; e) upon the order of a competent court in cases of bribery or dereliction of duty of public officials; f) in cases where the money deposited is the subject of the litigation; g) upon inquiry by the internal-revenue commissioner in the determination of the net estate of a deceased
depositor; h) under Section 11 of the Anti-Money Laundering Act of 2011; i) under
Section 2 of the Unclaimed Balances Act; j) under Section 8 of RA 3019, pertaining to unexplained wealth; k) under Section 27 to 43 of the Human Security Act of 2007, also known as the antiterrorism law; and l) upon order of a competent court in cases similar to that of bribery or dereliction of duty of public officials (Funa, 2010). However, these limited exceptions were not enough to bring forth free flow of information in compliance with internationally agreed tax standard (IATS) issued by the Organization for Economic Co-operation and Development (OECD)a grouping of industrialized countries dubbed as the rich countries' club (Sawali, 2009). Even before the issuance of the said law, there were loopholes with shallow defences that didnt impede the approval of the Law on the Secrecy of Bank Deposits since the government was more focus on encouraging savings for economic purpose, unmindful of the effects of information asymmetry. Economists saw information asymmetry as a situation which paralyzes the function of an otherwise perfect credit market, creating problems of moral hazard and adverse selection and later results to failure of the law to stimulate savings (Lim, 2010). Though criminal investigations are still possible, exorbitant social costs of both time and money are required to gather strong corroborating evidence which is financially time-consuming and impractical. Crimes, then, can hide its dirty laundries safely beneath the law. The term tax haven now enters the complicated scenario. The Bank Secrecy Law has accordingly given rise to the situation where the Philippines was tagged in June 2000 as a tax haven for the laundering of proceeds from drug trafficking, kidnapping and gambling by the Financial Action Task Force (FATF) on Money Laundering, which is a group gathered by the major industrialized nations (Natafan, 2010). The bank secrecy law and two other secrecy laws pose threat to the implementation of the IATS in the country imposed by the OECD Global Forum Working Group on Effective Exchange of Information, the organization presenting either imperatives or sanctions to the Philippines non-compliance. Internal Revenue Service has a choice of being penalized according to international agreements or be sued by its depositors for the violation of the secrecy law. Weighting the cost-benefit effect of lifting the bank secrecy law points out to either advantages of better tax administration by eliminating fraud, misdeclaration and concealment of income or to disadvantages of capital flight and loss of confidence in the banking system (Angara, 2009). Change is inevitable in gaining progress and reaching globalization. Even lawmakers, themselves, see the present system as dysfunctional and ambiguous, that it has a necessity to undergo amendments and modifications. But though such laws may clearly demonstrate weaknesses, it is not realistic for the country to lift one authoritative law affecting the whole economy. Changes may be done through amendments of the certain provisions that would gradually make the Philippines comply with certain international agreements without sacrificing domestic stability. Making a domestic stand to answer international pressures should not be done drastically. It should be of a winwin situation where no one compromises for negative fruits of changes.