ECCP urges PH to lift bank secrecy law, concurrence to FATCA

The Philippine government is strongly urged to fast track the Senate concurrence of the Foreign Account Tax Compliance Act (FATCA) and lift or amend the Bank Secrecy Law to leverage the country’s position in combating financial crime, and promote transparent, effective reporting system, and stability in the country’s banking sector.

These are the two foremost recommendations in the Tax and Financial Services Advocacy Paper the  European Chamber of Commerce of the Philippines handed over to the Marcos administration during the EU-Philippines Business Dialogue on Thursday, May 25.

On FATCA, ECCP explained that the US government imposed this international tax policy in March 2010 with the goal of improving compliance with US tax regulations. FATCA requires all non-US financial institutions, also known as Foreign Financial Institutions (FFIs), to report any relevant information on financial accounts held by US citizens to the US Internal Revenue Service.

Following this development, on July 13, 2015, the Philippines and the US signed an Inter-Governmental Agreement (IGA) Model 1A, which requires Philippine financial institutions (PFIs) to submit relevant information on US citizens’ accounts to the Bureau of Internal Revenue (BIR) .

In 2016, FATCA was submitted to the Philippine Senate for concurrence but remained pending. The BIR cannot fully implement the FATCA until it has been concurred in by the Philippine Senate and has entered into force.

“We strongly believe that this will help the country strengthen its compliance with international tax policies, as well as leverage its position in combating financial crime and promoting a transparent and effective reporting system,” the ECCP advocacy paper stated.

On the bank secrecy law, the ECCP said that lifting or amending the law will promote security and transparency in the country’s banking sector.

“We strongly believe that this policy shift will enable the BSP to a stronger prudential supervisory role, as well as create a policy environment in which the agency can effectively fulfil its mandate of maintaining a stable banking system,” it added.

The advocacy paper cited a 2020 survey, which showed that one out of every two businesses experienced fraud and economic crimes in 2019, resulting in losses of up to $50 million. The same report stated that businesses have begun and will continue to implement measures such as improved security controls, policy and procedure review and enhancement, and the use of a whistleblowing network.

Furthermore, the survey found that the existence of laws and regulations such as the Bank Secrecy Act is one of the reasons why financial crimes persist.

“The Philippine banking system remains one of the most restrictive in the world due to its strict policy on bank secrecy,” the paper added.

It also quoted a statement from the BSP that the International Monetary Fund has identified the Philippines’ and Lebanon’s strict bank secrecy rules as barrier to anti-money laundering efforts.

International bodies have also urged the Philippines to step up its efforts to combat financial crime, particularly with the Financial Action Task Force including the Philippines on its grey list in 2021.57,58. The FATF decided that the Philippines, along with 22 other jurisdictions, are to be kept on the list in 2022.

Recently, however, the Philippines was granted a one year extension – from January 2023 to January 2024 – to further its anti-money laundering efforts and be removed from the grey list.

According to the BSP, the advocacy paper noted that FATF also stated that improvements must still be done in the areas of Bank Secrecy, as well as reporting of cases filed against anti-money laundering and terrorist financing.

In addition, House Bill No. 7446, which proposes amendments to the Bank Secrecy Law or Republic Act No. 1405, hurdled second reading at the Lower Chamber in March 2023. The said bill seeks to combat tax evasion and other financial crimes, promotes compliance with international standards, and effectively lifts barriers in investigations and prosecutions of illegal financial actions of entities supervised by the BSP.

The ECCP said it anticipates and will continue to monitor the progress of the 19th Congress in accordance with this proposal.