Banking Laws

Atty. Coco Chanel G. Garcia

Coverage
• R.A. No. 1405 or The Secrecy of Bank Deposits (including R.A. No.
6426)
• Act No. 3936 or The Unclaimed Balances Act (as amended by P.D. No.
679)
• R.A. No. 3591 or The Philippine Deposit Insurance Corporation Act
• Anti-Money Laundering Act (as amended by R.A. No. 10365)
The Secrecy of Bank Deposits
Purpose
1. To discourage private hoarding; and
2. Encourage the people to deposit their money in banking
institutions, so that it may be utilized by way of authorized loans
and thereby assist in economic development
Prohibited Acts
It shall be prohibited for:
1. Any official or employee of a bank, or for an independent auditor
hired by a bank to disclose to any person other than a bank
director, official or employee authorized by the bank, any
information concerning deposits; and
2. Any person, government official, bureau or office to examine,
inquire or look into bank deposits.
Deposits Covered
1. All deposits of whatever nature with banks or banking institutions
in the Philippines, including Trust Accounts.
2. Investments in bonds issued by the Government of the
Philippines, its political subdivisions and instrumentalities.
Exceptions to the Secrecy of Peso Deposits
1. When there is a written permission of the depositor or investor.
2. Impeachment cases
3. Upon the order of a competent court in cases
a. of bribery or dereliction of duty of public officials, including
plunder
b. in cases where the money deposited or invested is the
subject of litigation
c. involving unexplained wealth under R.A. 3019, or the Anti-
Graft and Corrupt Practices Act
Exceptions to the Secrecy of Peso Deposits
Mr. X , located in the USA, asked First National Bank to facilitate the
transfer of $1,000 to Ms. A located in the Philippines. First National
Bank instructed Mellon Bank to facilitate such transfer. Mellon Bank,
however, inadvertently transferred $1,000,000 to the peso account of
Ms. A in Prudential Bank. Mellon Bank sought the return of the excess
P999,000 through a case they filed in the Philippines. Ms. A objected to
the inquiry into her bank deposits invoking the confidentiality thereof.
Is Ms. A correct?
Exceptions to the Secrecy of Peso Deposits
4. Upon inquiry by the Commissioner of BIR for the purpose of
determining the net estate of a deceased depositor
5. Upon the order of a competent court by the AMLC where there is
probable cause of money laundering and in some instances even
without court order
6. Reports required by law:
a. Disclosure to the Treasurer of the Philippines for dormant
deposits for at least 10 years under the Unclaimed Balances Act.
b. Report of banks to AMLC of covered and/or suspicious
transactions
Exceptions to the Secrecy of Peso Deposits
7. Upon order of the Court of Appeals, examination by law enforcement
officers in terrorism cases under the Human Security Act of 2007 (R.A. 9372)
8. Examination is made in the course of a special or general examination of
bank and is specifically authorized by the Monetary Board after being
satisfied that there is reasonable ground to believe that a bank fraud or
serious irregularity has been or is being committed and that is necessary to
look into the deposit to establish such fraud or irregularity.
9. Examination is made by an independent auditor hired by the bank to
conduct its regular audit provided that the examination is for audit purposes
only and the results thereof shall be for the exclusive use of the bank.
Exceptions to the Secrecy of Peso Deposits
Which of the following constitute an exception to the secrecy of Bank
deposits?
A. Upon order of the Commissioner of Internal Revenue in cases of tax
evasion
B. Upon inquiry by the Ombudsman for malversation of public funds
committed by a public official
C. Upon inquiry of AMLC, even without court order, in cases of money
laundering where the predicate crime is kidnapping for ransom
D. Oral permission of the depositor
Exceptions to the Secrecy of Peso Deposits
Under the Foreign Currency Deposit Act, foreign currency deposits are
absolutely confidential, except in the following cases:
1. When there is written consent of depositor under Section 8 of the
Foreign Currency Deposits Act (R.A. 6426)
2. Under Section 11 of the Anti-Money Laundering Act (probable cause
established that it is related to an unlawful activity as defined or money
laundering)
3. Under Section 27 and 28 of the Human Security Act (existence of
probable cause in anti-terrorism cases and those involving persons
charged with or suspected of the crime of terrorism or conspiracy to
commit terrorism, judicially declared and outlawed terrorist
organization, association, or group of persons, or member of such
organization, association, or group of persons)
Garnishment of Deposits
Bank accounts may be garnished by the creditors of the depositor. In
garnishment, there is no violation of the bank secrecy law since the
amount of the deposit is not actually disclosed.

Deposits exempt from garnishment:

1. Foreign currency deposits, Section 8 of R.A. 6426 (except Transient
Foreigners)
2. Those exempt under Rules of Court
Penalties
Bank Secrecy Law Foreign Currency Deposit Act
Imprisonment Not more than 5 years 1 to 5 years
Fine Not more than P20,000 P5,000 to P25,000
Unclaimed Balances Act
Unclaimed Balances
Include credits or deposits of money, bullion, security, or other
evidence of indebtedness of any kind, and interest thereon with banks,
buildings and loan associations, and trust corporations, in favor of any
person
1. known to be dead; or
2. who has not made further deposits or withdrawals during the
preceding 10 years or more
Procedure for Escheat
1. A notice to the depositor will be given.
2. The bank will then report to the Treasurer of the Philippines the
existence of such deposits.
3. Posting of the report in a conspicuous place in the premises of the
bank, building and loan association, or trust corporation concerned
for at least 60 days from the date of filing.
4. The Solicitor General will then initiate the proper escheat
proceeding in court.
Procedure for Escheat
5. The complaint and the summon shall be served and published.
6. Such unclaimed balances, together with the increase and proceeds
thereof, shall be deposited with the Treasurer of the Philippines to the
credit of the Government of the Republic of the Philippines to be used
as Congress may direct.
Information in the Report
1. The names and last known place of residence or post office
addresses of the person in whose favor such unclaimed balances
stand;
2. The amount and the date of the outstanding unclaimed balance
and whether the same is in money or in security, and if the latter,
the nature of the same;
3. The date when the person in whose favor the unclaimed balance
stands died, if known, or the date when he made his last deposit or
withdrawal; and
4. The interest due on such unclaimed balance, if any, and the
amount thereof.
Philippine Deposit Insurance
Corporation Act
Functions of the PDIC
1. Deposit Insurer- the PDIC shall promote and safeguard the interests
of the depositing public by way of providing permanent and
continuing insurance coverage on all insured deposits.
2. Co-regulator of banks- as a bank regulator, the PDIC is empowered
to examine and investigate banks.
3. Receiver and liquidator of closed banks- the PDIC as receiver shall
control, manage and administer the affairs of the bank
Insured Deposits
Amount due to any bona fide depositor for legitimate deposits in an
insured bank net of any obligation of the depositor to the insured bank
as of the date of closure, but not to exceed P500,000.
Deposits Not Entitled to Payment
1. Deposit products that resulted from splitting of deposit.

Splitting of Deposit occurs whenever:

a. A deposit account with an outstanding balance more than P500,000 is broken down
and transferred to two or more accounts in the name of persons or entities who have
no beneficial ownership in the transferred deposits in their names
b. Within 120 days immediately preceding or during a bank-declared bank holiday or
immediately preceding a closure order issued by the Monetary Board
c. For the purpose of availing the maximum deposit insurance coverage.

This is considered a criminal act punishable by imprisonment of not less than 6 years but
not more than 12 years or a fine not less than P50,000 but not more than P10,000,000, or
both, at the discretion of the court.
Deposits Not Entitled to Payment
2. Deposit products or money placements by the head office of a foreign bank in
its branch in the Philippines because there is only one entity.
3. Deposits that are determined to be the proceeds of an unlawful activity as
defined under R.A. 9160 or the Anti-Money Laundering Act, as amended.
4. Deposits payable in a place outside the Philippines (like those in foreign
branches)
5. Deposit accounts or transactions which are unfunded and that are fictitious or
fraudulent.
6. Deposit accounts or transactions constituting and/or emanating from, unsafe
and unreasonable banking practice/s, as determined by PDIC, in consultation with
BSP, after the notice and hearing and publication of a cease and desist order issued
by PDIC against such deposit accounts or transactions.
7. Investment products such as bonds and securities, trust accounts and other
similar instruments.
Deposits Not Entitled to Payment
Mr. X maintains P250,000 in ABC Bank’s Manila Branch and P300,000 in
ABC Bank’s US Branch. In the event of a closure of ABC Bank, how much
is Mr. X’s insured deposit?
A. P250,000
B. P300,000
C. P500,000
D. P550,000
Determination of Insured Amount
Per Depositor, Per Capacity Rule: all deposits in the bank maintained in
the same right and capacity for his benefit either in his own name or in
the name of others shall be added together in determining the insured
amount.

Accounts “By”, “In Trust For (ITF)” or “For the Account of (FAO)’’ another
person:
1. In a “By” account (Juan by Pedro)- Juan is the depositor
2. In an “ITF” account (Juan ITF Pedro)- Pedro is the depositor
3. In a “FAO” account (Juan FAO Pedro)- Pedro is the depositor
Determination of Insured Amount
Joint accounts regardless of whether the conjunction “and”, “or”,
“and/or” is used shall be insured separately from any individually-
owned deposit account, provided that:
1. If the account is held by two or more natural persons, or by two or
more juridical persons or entities, the maximum insured deposit
shall be divided into as many equal shares as there are individuals,
juridical persons or entities, unless a different sharing is stipulated
in the document of deposit, and
2. If the account is held by a juridical person or entity jointly with one
or more natural persons, the maximum insured deposit shall be
presumed to belong entirely to such juridical person or entity.
Determination of Insured Amount
Juan Dela Cruz maintains the following accounts with ABC Bank:
Account Name Type of Deposit Balance
Juan Dela Cruz Savings P600,000.00
Juan Dela Cruz AND Maria Demand P500,000.00
Dela Cruz
Juan Dela Cruz OR Pedro Time P800,000.00
Dela Cruz

How much is the total insured and uninsured deposit of Juan Dela
Cruz?
 Account Name Type of Deposit Balance Insured Uninsured
Juan Dela Cruz Savings P600,000.00 P500,000.00 P100,000.00
Juan Dela Cruz AND Demand P500,000.00 P250,000.00 P0
Maria Dela Cruz
Juan Dela Cruz OR Time P800,000.00 P250,000.00 P150,000.00
Pedro Dela Cruz
P1,000,000.00 P250,000.00
Certificate of Deposit
No owner/holder of any negotiable certificate of deposit shall be
recognized as a depositor entitled to the rights in PDIC Act unless his
name is registered as owner/holder thereof in the books of the issuing
bank.
Procedure for the PDIC
1. PDIC shall commence the determination of insured deposits due
the depositors of a closed bank upon its actual takeover of the closed
bank.
2. PDIC shall give notice to the depositors of the closed bank of the
insured deposits due them by whatever means deemed appropriate by
the Board of Directors.
3. PDIC shall publish the notice once a week for at least 3 consecutive
weeks in a newspaper of general circulation or, when appropriate, in a
newspaper circulated in the community or communities where the
closed bank or its branches are located.
Period to File Claim and Enforce Claim
Period to file- within 2 years from actual takeover of the closed bank by
the receiver.

Period to enforce- within 2 years after the 2-year period to file claim
Period to File Claim and Enforce Claim
Effects of non-filing or non-enforcement of claim within the period
specified:
1. All rights of the depositor against the PDIC with respect to the
insured deposit shall be barred;
2. All rights of the depositor against the closed bank and its
shareholders or the receivership estate to which PDIC may have
become subrogated, shall thereupon revert to the depositor.
3. PDIC shall be discharged from any liability on the insured deposit.
Payment by PDIC of Insured Deposits
Modes:
1. By cash
2. By making available to each depositor a transferred deposit in another insured
bank in an amount equal to insured deposit of such depositor

Effect: PDIC shall be subrogated to all rights of the depositor against the closed
bank to the extent of such payment. Payment of an insured deposit to any person
by PDIC shall discharge the PDIC.

Preference: All payments by PDIC of insured deposits in closed banks partake of the
nature of public funds, and as such, must be considered a preferred credit similar
to taxes due to the National Government in the order of preference.
Period to Settle Claims of Depositors
Period to settle a claim: 6 months from the date of filing of claim

Failure to settle a claim within the period: if due to grave abuse of

discretion, gross negligence, bad faith or malice, shall upon conviction,
subject the directors, officers or employees of PDIC responsible for the
delay, to imprisonment from 6 months to one year.

Except: The period shall not apply if the validity of the claim requires
the resolution of issues of facts and/or law by another office, body or
agency.
Anti-Money Laundering Act
Money Laundering
A crime committed by any person knowing that any monetary
instrument or property represents, involves or related to, the proceeds
of any unlawful activity:
1. Transacts or attempts to transact said monetary instrument or
property;
2. Converts, transfers, disposes of, moves, acquires, possesses or
uses said monetary instrument or property;
3. Conceals or disguises the true nature, source, location,
disposition, movement or ownership of rights with respect to said
monetary instrument or property;
Money Laundering
4. Attempts or conspires to commit money laundering offenses
referred to above (1 to 3);
5. Aids, abets, assists in or counsels the commission of the money
laundering offenses referred to above (1 to 3);
6. Performs or fails to perform any act as a result of which he
facilitates the offense of money laundering referred to above (1 to 3);
7. Those committed by failure to report to the Anti-Money Laundering
Council (AMLC) by any covered person knowing that a covered or
suspicious transaction is required under the Anti-Money Laundering
Law to be reported thereto.
Stages of Money Laundering
• Placement- The launderer inserts dirty money into a legitimate
financial institution
• Layering- Involves sending money through various financial
transactions to change its form and make it more difficult to follow.
• Integration- The money re-enters mainstream economy in legitimate-
looking form, appearing to have come from legitimate transaction
Unlawful Activities
• Kidnapping for Ransom
• Drug-related cases
• Violation of the Anti-Graft and Corrupt Practices Act
• Plunder
• Robbery and Extortion
Unlawful Activities
• Jueteng and Masiao
• Piracy on the high seas
• Qualified Theft
• Swindling or Estafa
• Smuggling
Unlawful Activities
• Violations of the E-Commerce Act
• Hijacking and Other Violations under R.A. 6235
• Destructive Arson and Murder
• Terrorism and Conspiracy to Commit Terrorism
• Financing of Terrorism
Unlawful Activities
• Bribery and Corruption of Public Officers
• Fraud and Illegal Exactions and Transactions
• Malversation of Public Funds and Property
• Forgeries and Counterfeiting
• Trafficking in Persons
Unlawful Activities
• Violations of Sec. 78-79 of the Revised Forestry Code
• Violations of Sec. 86-106 of the Revised Fisheries Code
• Violations of Sec. 101-107 of the Philippine Mining Act
• Violations of Sec. 27 of the Wildlife Resources Conservation and
Protection Act
• Violation of Sec. 7(b) of the National Caves and Cave Resource
Management Protection Act
Unlawful Activities
• Carnapping
• Illegal Possession, Manufacture, Dealing in, Acquisition or Disposition
of Firearms, Ammunitions or Explosives
• Violation of the Anti-Fencing Law
• Illegal Recruitment
• Violation of the Intellectual Property Code
Unlawful Activities
• Violation of the Anti-Photo and Video-Voyeurism Act
• Violation of Sec. 4 of the Anti-Child Pornography Act
• Violation of the Special Protection of Children Against Abuse,
Exploitation and Discrimination
• Fraudulent Practices under the SRC
• Felonies or Offenses of a similar nature punishable in other countries
Covered Entities/Institutions
H and W, married with two children below 7 years of age, had a falling out.
W took the children with her. H then paid X P50,000 to take the children and
bring them to him. The P50,000 was then deposited by X to his bank
account. In this case,
A. X is guilty of money laundering since the money was from an unlawful
activity as provided under the AMLA
B. H is guilty of money laundering for giving money to X to engage in
unlawful activity as provided under AMLA
C. There is no money laundering since Kidnapping is not an unlawful
activity as provided under the AMLA
D. There is no money laundering since there is no kidnapping. H being
entitled to the custody of his children
Covered Entities/ Institutions
X took money from the open purse of Ms. Y without any intimidation or
force. X then deposited the money in his bank account. In this case,
A. X is guilty of money laundering since the money came from an
unlawful activity
B. There is no money laundering since theft is not an unlawful activity
under the AMLA
C. Ms. Y is guilty of money laundering since her negligence facilitated
the money laundering
D. X is guilty of money laundering since the money came from a
robbery
Covered Entities/ Institutions
1. Banks, offshore banking units, quasi-banks, trust entities, non-stock
savings and loan associations, pawnshops, and all other institutions and
their subsidiaries and affiliates supervised and/or regulated by the BSP
2. Other entities administering or otherwise dealing in currency,
commodities, or financial derivatives based thereon, valuable objects,
cash substitutes, and other similar monetary instruments or property
supervised and/or regulated by the SEC.
3. Insurance companies, insurance agents, insurance brokers, professional
reinsurers, reinsurance brokers, holding companies, holding company
systems, and all other persons and entities supervised and/or regulated
by the Insurance Commission
Covered Entities/ Institutions
4. Securities dealers, brokers, salesman, associated persons of brokers or
dealers, investment houses, investment agents and consultants, trading
advisors, and other entities managing securities or rendering similar services
5. Mutual funds or open-end investment companies or issuers and other
similar entities
6. Jewelry dealers or dealers in precious metals/stones, who as, a business,
trade in precious metals/stones, for transactions in excess of P1M
7. Foreign exchange corporations, money changers, money payment,
remittance, and transfer companies and other similar entities
8. Casinos including internet and ship-based casinos with respect to their
casino cash transactions related to their gaming operations
Covered Entities/ Institutions
Lawyers and Accountants acting as independent legal professionals are
NOT covered with respect to privileged information covered by
confidentiality and attorney-client relationship.
Obligations of Covered Institutions
1. Customer identification- Covered institutions shall establish and
record the true identity of its clients based on official documents.
2. Record keeping- All records of all transactions of covered
institutions shall be maintained and safely stored for 5 years from
the date of transactions.
Obligations of Covered Institutions
1. Reporting of covered and suspicious transactions. Subject to the
following rules:
a. Should a transaction be determined to be both a covered and a
suspicious transaction, it shall be reported as a suspicious transaction.
b. When reporting, it shall not be considered a violation of bank secrecy
laws and similar laws. It shall be prohibited from communicating,
directly or indirectly, in any manner or by any means, to any person the
fact that a covered or suspicious transaction report was made, the
content thereof, or any other information in relation thereto.
c. Safe Harbor: No administrative, criminal or civil proceedings shall lie
against any person for having made a transaction report in the regular
performance of his duties and in good faith, whether or not such results
in any criminal prosecution under Philippine laws.
Obligations of Covered Institutions
d. Reporting Period shall be within 5 working days from “occurrence”
of the transaction.

Occurrence:
1. Covered Transactions- on the day the transaction happened.
2. Suspicious Transactions- the time the covered entity has
determined that the transaction is suspicious which should not
exceed 10 days from the date of transaction.
Covered Transactions
A transaction in cash or other equivalent monetary instrument
involving a total amount in excess of P500,000 within one banking day.

For casinos, a single casino cash transaction in excess of five million

pesos (P5,000,000) or its equivalent in any other currency (as amended
by R.A. No. 10927)
Suspicious Transactions
A transaction with covered institutions, regardless of the amount
involved, where any of the following circumstances exist:
1. There is no underlying legal or trade obligation, purpose or
economic justification
2. The client is not properly identified
3. The amount involved is not commensurate with the business or
financial capacity of the client
4. 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
Suspicious Transactions
5. Any circumstances relating to the transaction which is observed to
deviate from the profile of the client and/or the client’s past
transactions with the covered institution
6. The transaction is in any way related to an unlawful activity or
offense under this Act that is about to be, is being or has been
committed
7. Any transaction that is similar or analogous to any of the foregoing
Anti-Money Laundering Council
Composition:
1. BSP Governor- Chairman
2. Commissioner of Insurance Commission- Member
3. Chairman of the Securities and Exchange Commission- Member
Anti-Money Laundering Council
Functions and Powers:
1. To require and receive covered transaction reports from covered
institution
2. To issue orders addressed to the appropriate Supervising Authority or
the covered institution to determine the true identity of any monetary
instrument or property subject of a covered transaction report or
request for assistance from a foreign State, or believed by the Council,
on the basis of substantial evidence to be in whole or in part, whenever
located, representing, involving or related to, directly or indirectly, in any
manner or by any means, the proceeds of an unlawful activity
3. To institute civil forfeiture proceedings and all other remedial
proceedings through the OSG
Anti-Money Laundering Council
4. To cause the filing of complaints with the DOJ or Ombudsman for the
prosecution of money laundering offenses
5. To initiate investigations of covered transactions, money laundering
activities and other violations of R.A. 9160
6. To freeze any monetary instrument or property alleged to be proceeds of
any unlawful activity
7. To implement such measures as may be necessary and justified under R.A.
9160 to counteract money laundering
8. To receive and take action in respect of, any request from foreign states
for assistance in their own anti-money laundering operations provided in
R.A. 9160
Anti-Money Laundering Council
9. To develop educational programs on the pernicious effects of money
laundering, the methods and techniques used in money laundering, the
viable means of preventing money laundering and the effective ways of
prosecuting and punishing offenders
10. To enlist the assistance of any branch, department, bureau, office,
agency or instrumentality of the government, including GOCCs, in
undertaking any and all anti-money laundering operations, which may
include the use of its personnel, facilities and resources for the more
resolute prevention, detection and investigation of money laundering
offenses and prosecution of offenders.
11. To impose administrative sanctions for the violation of laws, rules,
regulations, orders, and resolutions issued pursuant to law
Freezing of Monetary Instrument/Property
The Court of Appeals, upon application ex parte by AMLC and after
determination that probable cause exists that any monetary instrument
or property is in any way related to an unlawful activity, may issue a
freeze order which shall be effective immediately (for a period of 20
days unless extended by the court upon application by the AMLC)
Freezing of Monetary Instrument/Property
COVERAGE OF FREEZE ORDER: Considering the intricate and diverse
web of related and interlocking accounts pertaining to the monetary
instruments or properties that any person may create in the different
covered institutions, their branches and/or other units, AMLC may
apply to freeze monetary instruments or properties in the names of
the reported owners/holders, and monetary instruments or properties
named in the application of the AMLC, including all other related web
of accounts pertaining to other monetary instruments and properties,
the funds and sources of which originated from or are related to the
monetary instruments or properties subject of the freeze orders.
Freezing of Monetary Instrument/Property
Related Web of Accounts are those accounts, the funds and sources of
which originated from and/or are materially linked to the monetary
instruments or properties subject of the freeze orders.
Authority to Inquire into Bank Deposits
The AMLC may inquire into deposits upon order of the court when
there is probable cause that the deposits are related to the crime or
unlawful activities.

Inquiry into deposits may be availed of even in the absence of a pre-

existing criminal case under the same law. However, the order
authorizing bank inquiry cannot be issued ex parte.
Authority to Inquire into Bank Deposits
However, a court order is not necessary when the offense or unlawful
activity involved is any of the following:
1. Kidnapping for ransom
2. Sections 4, 5, 7, 8, 9, 10, 12, 13, 14, 15 and 16 of the
Comprehensive and Dangerous Drugs Act (R.A. 9165)
3. Hijacking and other violations under R.A. 6235, destructive arson
and murder, including those perpetrated by terrorists against non-
combatant persons and similar targets
4. Terrorism and conspiracy to commit terrorism as defined under the
Human Security Act
Authority to Inquire into Bank Deposits
___________ are those accounts, the funds and sources of which
originated from and/or are materially linked to the monetary
instruments or properties subject of the freeze orders.
A. Related accounts
B. “for” accounts
C. Materially-linked accounts
D. “by” accounts