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Philippine Business Magazine: Volume 8
No.1 - Visions
Reforming Ourselves First
Strengthening the banking sector to serve
us better calls for the giving up
of some conveniences, too
By Ricardo J. Romulo
During his brief stint as chairman
of the board of the Equitable PCI Bank (19 December 2000-31 January
2001), Ricardo J. Romulo gained meaningful insights about the local
banking sector. He had some realizations on what ails the industry
and offered suggestions on how to improve the system. Full text
of a speech he recently delivered on the topic:
My proposition can be summed up in three sentences.
First, our banking system can stand a lot of improvement in the
areas of governance, transparency, and discipline; second, the things
we are complaining about in our banking system are the things which
we, as users of bank services, demand for ourselves; and third,
for that reason, to effect true banking reform, we must be prepared
to give up some of the "creature comforts" customarily
extended to us by our banks.
The Equitable-PCI Bank Experience
Although it is now clear to everyone that the former president's
funds had been deposited in and withdrawn from a number of other
banks, Equitable PCI Bank alone had the misfortune of having been
initially branded by the anti-Estrada activists (quite unfairly
I must say) as a crony bank. When the Bank demonstrated, on the
other hand, that it was prepared to reveal, under compulsion of
an impeachment court order, how Mr. Estrada misused the facilities
of the Bank, it had the difficult task of reassuring a nervous depositor
base, some of whom were undoubtedly pro-Estrada.
The Bank occupied center stage by reason of the multiple
Ricaforte accounts, the Erap Muslim Youth Foundation, Inc, and the
Jose Velarde funds. In making reference to these revelations, I
will have to limit myself to what is already in the public domain
so as not to violate the Bank Secrecy Law otherwise known as R.A.
1405.
The Yolanda Ricaforte accounts highlight our inability
under present banking laws and practices to recognize from the start
or outright any nefarious purpose to seemingly legitimate individual
transactions. Yolanda Ricaforte opened a number of savings, current
and trust accounts in five branches of the Bank and one branch of
its savings subsidiary. From the period of about one and a half
years, substantial deposits were made either in cash or in checks
payable to cash drawn against various banks. The funds were then
chopped in various chunks and moved from one account to another
within the same branch, among the branches, and, placed also with
other banks. This practice in money laundering parlance is called
"cross-firing." After a relatively short period, most
of the funds that remained with the Bank were withdrawn mostly in
cash or through cashier's checks payable to cash.
There is not much to the Muslim Youth Foundation account.
It is of interest only because the former President admitted on
10 November 2000 during a press conference sponsored by the Foreign
Correspondents Association of the Philippines (FOCAP) that his lawyer,
Edward Serapio, accepted the jueteng bribe of P200 million offered
by Governor Singson, and that the money is intact with Equitable
Bank. It is worth noting that while all its deposits, after the
initial balance were made in cash, there was no cross-firing. The
balance rose to P200 million and remained that way until the FOCAP
news conference.
The Jose Velarde accounts, of course, are known to
everybody. It is marked by the unshaken testimony of our Clarissa
Ocampo that the former President signed his name as "Jose Velarde"
in the signature card for his investment management account and
admitted in a separate letter that the savings and current accounts
in the name of Jose Velarde were his. Ms. Ocampo dramatically revealed
towards the end of her testimony about an unsuccessful attempt to
transfer the ownership of the accounts to Jaime Dichaves.
An unbiased appraisal of these accounts establishes
that no law or regulation at the time was violated by the Bank or
its officers in the opening and servicing of these accounts. Not
a single account opened by Yolanda Ricaforte is legally defective.
No wrongdoing on the part of the Bank is even being alleged in the
case of the Muslim Youth Foundation account. And even in the Jose
Velarde accounts, the Bank could not be faulted for permitting the
use of a fictitious name. BSP Circular No. 251 which is the only
regulation that prohibited banks from permitting the use of aliases
and numbered accounts had not yet been issued. Civil and criminal
laws against aliases, then in effect, consider only the person using
the alias as the wrongdoer and not the bank.
Nevertheless, despite the regularity of the transactions
when considered singly, a dubious pattern emerges when the individually
correct acts are collated and viewed together. Only then can one
discern what Mr. Estrada was really up to.
Banking Culture
What in general are the underlying factors which give rise to a
Jose Velarde phenomenon? I shall enumerate them separately although
they are interrelated. First, there is our much loved principle
of secrecy of bank transactions. We do not want our neighbors, or
perhaps our wives, and certainly not the BIR to know what our means
are beyond what we would like them to know. Second, there is our
desire to be given special treatment and to regard regulations as
mere inconveniences. Thus, signature cards, promissory notes, trust
documents are frequently signed without the presence of a bank official.
And, third, there is our insistence on our own interest often to
the exclusion of the common good. What is very important to us is
that our own personal benefit is preserved (if not enhanced) and,
as for the interest of others, they should be able to take care
of themselves.
Who in this room are in favor of repealing the law
on the secrecy of bank deposits? Who among us opened our personal
checking accounts by going down to the bank to personally fill up
forms and submit ourselves to the scrutiny of our bank's new accounts
clerk? Just to stress the point I am making: banks keep our deposits
and banking transactions secret because we want them to; bank officers
go to our place of business instead of us going to them because
we demand that they do; banks do not dare inquire about the money
we deposit because we would consider it a personal affront for them
to do so.
Banking Reforms
To effect true banking reform, therefore, we have to cede back a
number of prerogatives we have learned to enjoy. For instance, we
need to rethink just how much confidentiality our banking transactions
should have. Our fetish for secrecy has numbered our nation among
those classified internationally by a reputable international task
force on money laundering as a country of "serious concern."
That is a diplomatic term for "haven for money laundering."
This makes other countries extremely suspicious of remittances to
and from our country, to the detriment of legitimate business. Worse,
it attracts the underworld which is finding less and less places
in the world to ply their trade. In the light of our recent experience,
requiring public servants, particularly those occupying high positions
in government, and private persons, who have more than, say, P50
million in a consolidated basis with one bank, to waive the benefits
of R.A. No. 1405. The strict "know your client" rule practiced
by American banks, which requires the bank to investigate the person
and business of the depositor, is another one worth adopting.
We likewise have to be open to more transparency in
banking transactions, particularly of those individuals who own
or control banks. BSP Circular No. 259 prohibiting the issuance
of cashier's checks, or similar instruments payable to cash, bearer,
fictitious payees, or numbered accounts is a good start. Nominee
shareholders must declare under oath who the real beneficiaries
are. DOSRI violations and regulatory infractions which imperil the
liquidity and solvency of banks and financial institutions should
be severely penalized. Excoriating BSP officials for not preventing
the misuse of the banking system is pointless, unless Congress passes
the necessary legislation empowering BSP to enact and enforce the
relevant regulations.
Finally, it is important that each bank embrace the
value of self-discipline. Banks should immediately comply with Section
15 of the new General Banking Law which requires the election of
two independent outside directors. Adherence to the spirit of prudential
standards should be the board's avowed policy, not the minimalist
attitude of simply following the letter of the regulations.
We should make use of modern technology which can
cope with voluminous and rapid flow of data to require more frequent
reportings to the BSP on such critical information as capital adequacy,
non-performing loans, and the imminence of prudential limits being
exceeded. In this manner, both the stakeholders as well as the regulator
will be alerted on a timely basis, and not when it is too late.
Conclusion
I submit that what we saw in EDSA II is more than just a cry to
clean up the government. The young men and women who provided the
energy in EDSA II were asking for more than a change in Malacañang.
They were demanding a reform of all our institutions - to make them
transparent, to make leaders more accountable to their constituents,
to make persons holding high positions, both in the public and private
sectors, liable for any misuse of power.
Their medium was their message: direct action. Sovereignty
no longer passively resides in the people; sovereignty now is asserted
and exercised by the people with directness and immediacy almost
as in the days of the Greek City States. The spirit of EDSA II,
I believe, will not stop at Malacañang. It is bound to reach
our board rooms. In fact, it is already knocking at the door. It
is imperative for us to heed its call for reforms; otherwise, we
court the danger of joining those, who chose to ignore it, in the
kangkungan of history.
Ricardo J. Romulo is Chairman
of the Makati Business Club
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