IT WAS reported last week that the International Monetary Fund (IMF) has urged the Philippines to amend its bank secrecy law to give teeth to the Bangko Sentral ng Pilipinas (BSP) in fighting financial fraud.
When a possible financial fraud has taken place in a bank, there are often aspects to the incident which need to be addressed but which may not have ramifications encompassed by the bank secrecy law(RA 1405 passed in 1955).
These aspects are often examined internally by the affected bank, but which are not known at the time by BSP.
The Bangladesh Bank cyberheist in 2016 is an example. The Bangladesh Bank branch based in the Federal Reserve Bank of New York was hacked and $81 million was illicitly sent via the SWIFT network to RCBC’s remittance center in the Philippines. The funds were then sent by RCBC to the intended destination, namely four accounts in RCBC’s Jupiter Street branch in Makati.
It later transpired that the money had been stolen. Bangladesh Bank made urgent representations to BSP but by this time the money had gone.
BSP should have the authority to find out, in detail, precisely what happened from the moment the money reached the Philippines.
RCBC was quick to blame its Jupiter Street Branch Manager, Maia Deguito for alleged misconduct.
But, and this is important, BSP should have been able to investigate exactly who knew what and when they knew it. It is not clear whether BSP has the authority to carry out the intensive and detailed audit necessary for clarification.
We believe that BSP should have the authority and should use it. This is a management issue, not a legal one. RCBC’s assertion that Deguito’s nefariousness caused the money to be lost should have had thorough scrutiny from BSP.
Fact-finding is the issue here, not bank secrecy.
It should be recalled that at the same time that funds were illicitly transferred to RCBC, Bangladesh Bank found that the hackers also transmitted funds to Sri Lanka. The Sri Lankan authorities were suspicious and queried the matter with Bangladesh Bank which immediately said that the transfer of funds was illicit.
It is not reassuring to find that the ability of the Philippines to detect and counteract fraud is demonstrably weaker than that of Sri Lanka.
BSP needs to be able to promptly use investigative resources. The cyberheist was not about inadequacy of the bank secrecy laws.
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BSP is currently urging wider use of the extensive variety of financial products available in the Philippines.
We hope it fully understands the risks involved, including the risk of misconduct by representatives of the financial institutions. Probity is not undoubted, particularly by those companies subject to oversight by the Insurance Commission.
It is sometimes said that the low interest in financial products is due to Filipinos’ financial illiteracy. I disagree. Potential investors have to trust the institution marketing financial products. This trust is somewhat lacking.
Quite right.
There have been too many examples of financial misconduct which have not been fully addressed by either BSP or the Insurance Commission./PN
