SEC supports lifting of bank secrecy to combat corruption

The Securities and Exchange Commission (SEC) is backing proposals to amend existing bank secrecy laws, as part of the government’s continuing fight against corruption.

“As a corporate and capital market regulator, the SEC welcomes the proposed easing of our bank secrecy laws as a necessary measure to uphold trust and confidence in the Philippine capital market and overall economy,” SEC Chairperson Francis Lim said.

“Corruption is a major concern for local and foreign investors alike. It does not only create crippling uncertainties; it translates to real, unnecessary, additional costs of doing business in the country,” he added.

Several bills are currently pending before the House of Representatives for the lifting of the bank secrecy law primarily to promote transparency and tackle corruption in the government.

Generally, the amendments seek to empower the Bangko Sentral ng Pilipinas to inquire into and examine deposits when there is reasonable ground to believe that fraud, serious irregularity or unlawful activity has been committed by stockholders, owners, directors, trustees, officers or employees of supervised institutions.

“The ability to access critical financial information, particularly in cases of insider trading, market manipulation, and investment fraud, will significantly enhance the enforcement capabilities of the SEC. More importantly, it sends a clear message that our capital markets are governed by transparency and accountability,” Mr. Lim noted.

The bank secrecy law has often been used as a shield for owners of bank accounts in cases of violations of the Republic Act No. 8799, or the Securities Regulation Code and Republic Act No. 11232, or the Revised Corporation Code of the Philippines, among other laws implemented by the Commission, limiting the enforcement capacities of the SEC.

It has also prevented the Commission from validating information on the declared financial position of companies where there are grounds to believe that there is an effort to conceal misconduct, corporate fraud or noncompliance with certain requirements.

Amendments to the law could potentially enhance the Commission’s investigative power, as it could easily gather evidence from bank records and trace funds flowing into or out of entities or individuals suspected of securities fraud, misrepresentation, or unregistered securities offering.

The initiative could further speed up the resolution of investigations and cases as it reduces the need for separate court proceedings just to access bank information.

“We are optimistic that further easing of bank secrecy— especially relating to securities law violations—can significantly aid enforcement efforts. A clear example is the BSP's use of the Anti-Financial Account Scamming Act to investigate financial accounts linked to the flood control corruption fiasco,” Mr. Lim said.

Additionally, the reforms serve as testament to the Philippines’ commitment to international standards and best practices against money laundering, terrorist financing and other financial crimes.

Multilateral organizations such as the International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), and Financial Action Task Force (FATF) have long recommended reforms in the Philippines’ bank secrecy laws, in line with global efforts to tackle money laundering, terrorist financing, tax evasion, corruption and other financial crimes.

In 2019, for instance, the FATF noted how “in some instances banking secrecy legislation affects the ability of other competent authorities to access information to properly perform their AML/CFT functions as it impacts the timeliness of information exchange and the overall effective use of financial intelligence by [law enforcement agencies].” The FATF would later place the Philippines on its grey list of jurisdictions under increased monitoring for money laundering activities in 2021.

When the FATF announced that the Philippines has largely addressed deficiencies in its AML/CFT framework prior to the country’s exit from the grey list, the IMF nevertheless reiterated that “reforming the bank secrecy law will strengthen AML/CFT effectiveness and enhance the [Bangko Sentral ng Pilipinas]’s supervisory powers.”

Meanwhile, the OECD has advocated for the end of bank secrecy to enhance tax transparency and exchange of information between tax administrations.

The SEC has been gaining momentum in its fight against financial crimes following its contributions to the country’s exit from the grey list of global watchdog FATF earlier this year.

In 2019, the SEC mandated the declaration of the corporation's beneficial owner through the annual submission of general information sheets. The SEC also prohibited in 2021 the issuance and sale of bearer shares and bearer share warrants to further promote transparency and curb the misuse of corporations for illicit activities.

“The lifting of the bank secrecy law will sustain our efforts toward strengthening transparency and accountability. The measure will eliminate a significant barrier that has long hindered the investigation and prosecution of financial crimes,” Mr. Lim said.