What Is RA 1405 Known As The Bank Secrecy Law? | Confidential

Introduction

As society becomes more advanced and complex, our personal privacy has also become more important. People have develop into more conscious individuals relative to their personal activities and what they would want and not want to be known to, and by, others. One of these pertains to a person’s financial activities. Thus, we shall tackle the question: What is RA 1405 known as the Bank Secrecy Law?

Generally, the financial activities and status of a person are shown through the numbers that he or she puts in a bank. These numbers do not just show how wealthy, or financially troubled, a person is, they tell so much more about a person’s overall status. Since these numbers tell so much about a person, it would be understandable to protect such information from others.

It does not matter if the money that was put in was small or big, it does not also matter if a person has a single or multiple accounts, we all have an interest to keep this information a secret. To expound, a person with low bank deposits would not want everyone to know that he is barely able to keep himself afloat.

This may be a source of embarrassment for others. On the other hand, the wealthier individuals also want to keep their status a secret for their own protection. Whatever the motivation is, the law makes sure that our financial status, particularly our bank deposits, remains protected through bank secrecy.

Moreover, bank secrecy encourages people to invest their money in the banks instead of merely hoarding their cash at their homes. With this set-up, the banks can loan and use the money to help increase economic activity which ultimately helps national development.

Are bankers bound by confidentiality?

Bankers are not just custodians of our money in the banks, they are guardians of our privacy. As already elucidated earlier, our money, or lack thereof, tells a story about us. Sometimes, this story is a source of pride but sometimes, it is also a source of embarrassment.

The bank secrecy law, foremost of which is Republic Act [RA] No. 1405,¹ allows us to sleep soundly at night, knowing that our money is protected, and no one arbitrarily takes a peek at them. To get this job done, bank depositors need to know that bankers could be trusted.

Under bank secrecy law, bankers are mandated to protect any information about the deposits in their respective banks, save for certain exceptions.

Under Section 3 of Republic Act No. 1405,² or the An Act Prohibiting Disclosure of or Inquiry into, Deposits with any Banking Institution and Providing Penalty Therefor, it shall be unlawful for any banker to disclose to any person information concerning bank deposits except under certain exceptions, to wit:

Section 3. It shall be unlawful for any official or employee of a banking institution to disclose to any person other than those mentioned in Section two hereof any information concerning said deposits.³

What bank fees [or client’s money] are not required to be disclosed?

Republic Act No. 1405 is a very short and concise law. It does not admit many exemptions and inclusions. It is written mostly in a general way, and there is no specific list on which bank fees or client money are not required to be disclosed. 

However, a reading of the bank secrecy law clearly suggests that no information regarding the bank deposits may be shared without any of the attending circumstances: 

(1) written consent by the depositor; ⁴

(2) in case of an impeachment;³ 

(3) upon court order in cases of bribery or dereliction of duty for public officials;³ 

(4) upon court order in cases where the money deposited is the subject matter of an action;³ 

(5) upon a subpoena issued by the Ombudsman concerning an investigation it is conducting, provided that there must already be a case pending in court, the account be clearly identified, the inspection be limited to the subject matter of the pending case; and the bank personnel and the depositor must be notified to be present during the inspection; 

(6) BIR can inquire into bank deposits in an application for compromise of tax liability or determination of a decedent’s gross estate; 

(7) the Anti-Money Laundering Council can examine bank accounts pursuant to a court order, where there is probable cause that the deposits are related to an unlawful activity or money laundering offense; 

(8) the AMLC can examine bank accounts, WITHOUT a court order, where there is probable cause that the deposits are related to certain crimes such as kidnapping for ransom, violation of the Dangerous Drugs Act, hijacking, destructive arson, murder and violations of RA 6235 (acts inimical to civil aviation); and 

(9) the Bangko Sentral ng Pilipinas can examine bank accounts in the course of its periodic or special examination regarding compliance with Anti-Money Laundering Law. If none of these instances apply, then no bank fees may be disclosed.

Are bank account details confidential?

The Republic Act No. 1405 makes the Philippines one of the countries with the strictest bank secrecy laws. 

The law seems absolute, and it does not come with a lot of exceptions. On the question of which bank details are considered confidential, and which ones are not, the law is general in its terms. 

It provides that any information regarding bank deposits are strictly confidential, subject to certain exceptions. Since the terms are general in nature, it could be interpreted that any exceptions that are not explicitly provided cannot be considered within the purview of the said law.

In this case, since R.A. 1405 does not define which particular details on the bank deposits are confidential, and which ones are not, then all bank deposit details should be treated as confidential. Therefore, mere bank account details should be protected with the same confidentiality. The reason for this is practical. If the amount of deposit can tell a story which

is considered private, these bank account details can likewise tell a story. Bank account details are specific to an individual, which means that these could be traceable to them. Divulging these details will not only violate the privacy of the bank depositors, but they may also prejudice their safety. Bank fraud is widespread nowadays, and fraud may be committed by using someone else’s personal details. Since bank account details are personal, these should be protected as well.

What if a bank violates your privacy?

Bank secrecy is one of the main features of banking hence ensuring the privacy and confidentiality of bank deposits is of their highest priority.

The provisions of Bank Secrecy Law provides that bank deposits of whatever nature including investments in government bonds are considered absolutely confidential. Thus, this law prohibits even the government and its agencies, including the DOJ and BIR, to look into bank accounts.

However, the law admits certain exemptions where inquiry into bank deposits is allowed, e.g., where there is written permission from the depositor provided that the bank account details are given in detail.

Any violations of the said act entails a penalty that is an imprisonment for not more than five (5) years, or meted a fine not exceeding P20,000.00 or both.

 Will the bank ask where you got money?

As a general rule, the bank will not inquire about the source of the money being deposited. Asking about the source of money will only create uneasiness and mistrust on the part of the depositor which runs counter to the objectives of the banking industry which is to encourage the public to deposits their funds with the banks so the latter may be properly utilized the said funds to assist in the economic development of the country.

This rule however is not without exemption. Banks may inquire into the source of the funds when it involves a suspicious transaction.⁵

• The law⁶ defines suspicious transaction as any transactions with covered institutions, regardless of the amounts involved,⁷
• where there is no underlying legal or trade obligation, purpose or economic justification;⁷
• that the client is not properly identified; that the amount involved is not commensurate with the business or financial capacity of the client;⁷
• that taking into account all known circumstances, it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the Act;⁷
• that the transactions is in a way related to an unlawful activity or offense that is about to be, is being or has been committed; and finally, any transactions that is similar or analogous to any of the foregoing.⁷

Moreover, as provided by RA 9194,⁸ a transaction in cash or other equivalent monetary instrument involving a total amount in excess of Five hundred thousand pesos PhP 500,000.00 within one (1) banking day will be considered a covered transaction thus, the banking institution may inquire as to its source.

Can you sue a bank for disclosing personal information?

Due to the importance of maintaining secrecy in banking transactions the law on Bank Secrecy provided that it shall be unlawful for any official or employee of a banking institution to disclose to any person other than those mentioned in Section two hereof any information concerning said deposits. Hence, a bank may be sued for disclosing any information relative to the personal information of the account 

Thus, all deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, shall be considered as of an absolutely confidential nature and may not be examined and inquired or looked into by any person, government official, bureau or office, without written permission of the depositor or upon order of a competent court.

Can you sue a bank for breach of confidentiality?

Traditionally, bankers are obliged and owed a duty of confidence and secrecy to their customers. Relative thereto, a customer could expect that any dealings with a bank, and information provided before a bank, would be treated with utmost confidentiality.

The bank’s duty of confidentiality includes all customers’ information about their accounts irrespective of the information source and for as long as the banker-customer relationship exists.

The Black’s Law Dictionary defines confidentiality as secrecy or the state of having the dissemination of certain information restricted. In banking institutions, as it is imbued with public interest and due to the highly sensitive nature of information that they get from their customers, breach of confidentiality will result in liability on the part of the bank. Hence, any violations of the said act entails a penalty of imprisonment and fine.

Can you take legal action against a bank?

Bank is an institution empowered to receive deposits, make loans and provide checking and savings account services. Basically, a bank is a corporation and has juridical personality. Being such, it has a capacity to file suit and be sued. Thus, it can clearly be said that a legal action can be taken against any bank institution if there is a legal basis for such action.

If a bank committed any violation or infractions of law or committed an act violating any right of an individual, the said bank can be sued. One example of this is where the bank discloses information about its clients. Such an act would constitute a violation of the Bank Secrecy Act and because of that a legal action can be taken against it. The Bank Secrecy Act prohibits any act of disclosing the information of its clients unless any of the exceptions provided by law is present.

What laws protect financial information?

There are laws which protect financial information in the Philippines. One common example of these laws in the Philippines is Republic Act No. 1405 or An Act Prohibiting Disclosure of or inquiry into deposits or with any banking institution and providing penalty there for, otherwise known as the Bank Secrecy Act of the Philippines.

This law protects the financial information of a person who deposited any amount of money with any banking institution. The law recognizes the right of an individual to keep his or her financial information private.

It is really obvious since not all would consent to letting the public know his or her financial status either be it insufficient or having a huge amount.

Section 2 of Bank Secrecy Act states:

“All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation.”⁹

It is clear from the wording of the law that any bank is prohibited from disclosing the financial information of any of its clients.

What are the acts prohibited by Act No. 1405 (Bank Secrecy Act)?

Republic Act No. 1405 otherwise known as the Bank Secrecy Act prohibits the disclosure by any bank institution of any information of its clients in connection with his or her deposits therein, including investment bonds.

As stated back, these are deemed absolutely confidential, except under the following situations:

• upon written permission of the depositor, or³
• in cases of impeachment, or³
• upon order of a competent court in cases of bribery or dereliction of duty of public officials, or³
• in cases where the money deposited or invested is the subject matter of the litigation.³

Section 3 of the said law also provides:

“It shall be unlawful for any official or employee of a banking institution to disclose to any person other than those mentioned in Section two hereof any information concerning said deposits.” Hence the law prohibits the bank from letting any other people know the financial status of its clients at the same time it prohibits other persons from acquiring financial information of some other person.

The exceptions

The law protecting the financial information of an individual is not an absolute rule. The law itself provides for its exceptions. As mentioned above, Section 2 thereof stated certain exemptions. Meaning, deposits can be inquired into if there is a written permission from the depositor himself. 

Likewise, they can be inquired into in relation to pending cases, such as:

• in cases of impeachment, or
• upon order of a competent court in cases of bribery or dereliction of duty of public officials, or
• in cases where the money deposited or invested is the subject matter of the litigation.

Therefore, the law allows the acquiring of financial information upon written information of the depositor or this can be called a waiver. The law does not specify a form of waiver. Hence, so long as it is written it would be enough.

During impeachment or upon order of a competent court in cases of bribery or dereliction of duty of public officers. Thus, the court may issue an order to acquire financial information of an individual if there is an ongoing impeachment or if such public official is accused of bribery or dereliction of duty of public official.

Another instance is where the money deposited is the center of any litigation. Other exceptions may be upon a subpoena issued by the Ombudsman regarding an investigation it is conducting.

So long as there is a case pending in court, the account be clearly identified, the inspection be limited to the subject matter of the pending case and the bank personnel and the depositor must be notified to be present during the inspection.

The BIR can also inquire into bank deposits in an application for compromise of tax liability or determination of a decedent’s gross estate.

The Anti-Money Laundering Council can examine bank accounts pursuant to a court order, if a probable cause is present that the deposits are related to an unlawful activity or money laundering offense.

Bangko Sentral ng Pilipinas has the power to examine bank accounts for compliance with Anti-Money Laundering Law.

Are trust accounts covered by Act No. 1405?

Trust account is a legal arrangement through which funds or assets are held by a third party which is the trustee for the benefit of another party which is the beneficiary.

RA 1405 covers bank deposits and investments in government bonds. In terms of foreign currency deposits. Republic Act No. 6426¹⁰ (The Foreign Currency Deposit Act) similarly asserts that mentioned deposits are of an absolutely confidential nature.

It enjoys the protection that such information cannot be looked at, inquired about, or examined by any person, government entity or official, office or bureau whether judicial or administrative or legislative or any other entity whether public or private.

It is, however, allowed to be disclosed only upon the permission of the deponent himself through a letter. The law also exempts foreign currency deposits from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever.

Speaking of trust accounts, the protection under RA 1405 and RA 6426 extends if these are in the form of investments in government bonds or deposits.

Otherwise, the disclosure of information related thereto is covered by Section 55 of the General Banking Law of 2000¹¹ (Republic Act No. 8791) which prohibits, unless there is an order of a court of competent jurisdiction, the disclosure by any director, official, employee or agent of any bank any information relative to the funds or properties in the custody of the bank belonging to private individuals, corporations or any other entity.

Will garnishment of bank deposits violate RA 1405?

Bank deposits may be garnished by creditors of the depositor. However, in such a case, the same will not be deemed as a violation of the Bank Secrecy Law. This is because the amount of deposit is in fact not disclosed. Moreover, Writ of Garnishment proceeds from a lawful process, and thereafter, issued by by a competent court.

Related jurisprudence

Jurisprudence provides in the case of China Banking Corporation vs. Ortega,¹² that “The prohibition against examination of or inquiry into a   bank   deposit   under   R.A. No. 1405    does not preclude it being garnished to insure satisfaction of a judgment.”

In the given case, actual inquiry of the deposit did not pursue for the reason that the amount of the deposit was not requested. The purpose was only to verify the existence of the account. And it was not an amount that was disclosed.

The court interpreted it as Bank Secrecy Law which will be used as a defense by anyone invoking the mentioned law order for their deposits not to be garnished. If that is the case, it will be permitting them to evade payment of debts. The framers of the law have no intention to make it happen.

In the case of BSB Group, Inc. vs. Sally Go,¹³ respondent Sally Go was charged with Estafa and/or Qualified Theft due to her misappropriation of company funds. The Respondent allegedly deposited the checks issued by the customers to her personal bank account in Security Bank.

The court ruled that the probe into the account of the respondent with the said bank constitutes a violation of the provisions of the Bank Secrecy Law.

In the said case, it was not verified that the amount deposited in the account of the respondent is the amount which is the subject of the action. It cannot be inferred that the Security Bank account is the subject of the prosecution’s inquiry.

It was not certainly and particularly deduced that the money in the Security Bank account is actually the money which is the subject matter of litigation. Every person has the right to privacy including any Information regarding their finances. With the provisions of the Bank Secrecy Law, said right is protected and is subjected to a high level of scrutiny should there be any infringement of such right.

Conclusion

Republic Act 1405 or The Law on Secrecy of Bank Deposits, protects all deposits in the banks or banking institutions in the Philippines. It treats all deposits in the country as confidential and may not be examined or looked into by any person, government official, bureau or office.

The law is not absolute as it provides for some exemptions such as depositors give written permission in impeachment cases, in cases of bribery or dereliction of duty of public officials upon order of the court, or in cases where the money deposited or invested is the subject matter of the litigation.

Under this law, bankers are mandated to protect any information about the deposits in their respective banks. This law protects the financial information of a person who deposited any amount of money with any banking institution. The law recognizes the right of an individual to keep his or her financial information private.

To protect the savers and investors from any lurking harm, bank secrecy law. However, this same law may be used by some people to evade paying tax, committing fraud, and illegal activities.

Like other laws and the framers of the law, this Bank Secrecy Law has flaws to be tackled with and most of the time is a topic of financial and political controversy.

As the world is advancing, it is about time that there are amendments or changes in the said law to be adoptive to the world in promoting and weighing the balance of privacy, transparency, safety, and justice.

1. RA No. 1405[↩]
2. Section 3, RA No. 1405[↩]
3. Id.[↩][↩][↩][↩][↩][↩][↩][↩]
4. Section 2, RA No. 1405[↩]
5. RA No. 9194[↩]
6. Section 2, Id.[↩]
7. Id.[↩][↩][↩][↩][↩]
8. Section 1, Id.[↩]
9. Section 2, Act No. 1405, Bank Secrecy Act[↩]
10. RA No. 6426, The Foreign Currency Deposit Act[↩]
11. RA No. 8791[↩]
12. G.R. No. L-34964 dated January 31, 1973[↩]
13. G.R. No. 168644, dated February 16, 2010[↩]