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RA 6426: FOREIGN CURRENCY DEPOSIT ACT

BACKGROUND: This law established the foreign currency deposit account system in 1972. It allowed any person to deposit, and banks to accept for deposit, any foreign currency acceptable as part of our international reserve. Rumors say that this was specially designed by Marcos in order to conceal and protect his alleged ill-gotten wealth. PESO DEPOSIT LAW EXCEPTIONS RA 1405 4 Exceptions (+ those found in special laws) May be garnished or attached. FOREIGN CURRENCY DEPOSIT RA 6426 1 Exception (+ 1 under AMLA) GR: Exempt from garnishment, and other court order and processes. EXCEPT: Salvacion v Central Bank

3. Upon order of the court, if the AMLC determines that a particular deposit or investment with any banking institution is related to any one of the unlawful activities as enumerated under SEC 3, RA 9160 or a money laundering offense under SEC 11, RA 9160. 4. Inquiry into or examination of any deposit or investment with any banking institution when the examination is made by the BSP in the course of a periodic or special examination in accordance with the rules of examination of BSP. B.NUMBERED ACCOUNTS authorized banks may adopt a numbered account system for recording and servicing deposits in non-checking accounts. C. TAXES The foreign currency deposits (including interest and all other income or earnings of such deposits) are EXEMPT FROM ANY AND ALL TAXES whatsoever, irrespective of: 1. whether or not these deposits are made by residents or non-residents, and 2. whether or not the non-residents are engaged in trade or business in the Philippines. NOTE: Under NIRC, the interest received by an individual (except non-resident), domestic corporation and resident foreign corporation from such deposits shall, effect January 1, 1998, be subject to FINAL INCOME TAX OF 7.5%. D. COURT ORDER OR PROCESS GENERAL RULE: they are exempt from attachment, garnishment or any other court order or process, legislative or administrative body, government agency whatsoever. EXCEPT: That the Court of Appeals, upon application ex parte by the AMLC and after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity (as defined by AMLA), may freeze the account into which the monetary instrument or property is deposited. E. NEW ENACTMENT OR REGULATION In the event a new enactment or regulation is issued decreasing the rights granted under the law, such new enactment or regulation shall not apply to foreign currency deposits already made or existing at the time of issuance of such new enactment or regulation.

GARNISMENT

UNIQUE FEATURES: A. ABSOLUTE CONFIDENTIALITY GENERAL RULE: a foreign currency deposit cannot be examined, inquired or looked into by any person or office, whether public or private, or judicial, administrative or legislative. EXCEPTION: 1. Upon the written permission of the depositor 2. Without the need of a court order, if the ANTI-MONEY LAUNDERING COUNCIL determines that a particular deposit or investment with any banking institution is related to any one of the following unlawful activities a. Kidnapping for ransom (RPC) b. Violation of Comprehensive Dangerous Drugs Act of 2002 c. Hijacking and other violations under RA 6235 d. Destructive arson and murder (RPC) e. Those perpetrated by terrorists against non-combatant persons and similar targets

SALVACION v CENTRAL BANK: In a sui generis case, the SC allowed garnishment of such deposits of a transient American tourist arising out of a heinous crime committed against a Filipino minor since to hold otherwise would result to injustice to a citizen perpetrated by a foreigner. IMPORTANT: this case does not constitute another exception. The SC only ruled as such due to the special circumstances of the said case. REPEALING LAW TO UNIFORM CURRENCY ACT RA 8183: All monetary obligations shall be settled in the Philippine currency which is legal tender in the Philippines. However, the parties may agree that the obligation of transaction shall be settled in any other currency at the time of payment. JURISPRUDENCE: A. CHINA BANKING CORP v CA FACTS: Jose Gotianuy filed a complaint against his son-in-law, George, and his daughter, Mary. He accused his daughter of stealing, among his other properties, US dollar deposits with Citibank. Mary received the amounts from the bank through checks, which she allegedly deposited at China Bank. Jose likewise accused his son-in-law of transferring his real properties and shares of stock in Georges name without any consideration. Jose died during the pendency of the case and was substituted by his daughter, Elizabeth. Upon her motion, the RTC issued a subpoena to two employees of China Bank, to testify on the case. This was contested by the bank, but the motion for reconsideration was denied on the ground that the disclosure was only to the name or in whose name the said fund is deposited, and therefore not violative of the law. China Bank contended that the prescription on absolute confidentiality covers even the name of the depositor and is beyond the compulsive process of the courts. Under the law, the only exception to the rule is the permission of the depositor. Elizabeth answered that Jose may be considered a depositor who is entitled to seek an inquiry over the deposits. ISSUE: Whether or not Jose may be considered a depositor. HELD: YES. There is no issue as to the source of the funds. Mary declared the source to be Jose. There is likewise no dispute that these funds in the form of Citibank US dollar checks are now deposited with China Bank. As the owner of the funds unlawfully taken and which are undisputably now deposited with China Bank, Jose has the right to inquire into the deposits. A depositor, in cases of bank deposits, is one who

pays money into the bank in the usual course of business. The Citibank checks readily demonstrate that the late Jose is one of the payees of said checks. Being a co-payee thereof, then he or his estate can be considered as a codepositor of the said checks. Ergo, since he is a co-depositor of the CBC account, then his request for the assailed subpoena is tantamount to an express permission of a depositor for the disclosure of the name of the account holder. Further, Jose as the owner of these funds is entitled to a hearing on the whereabouts of these funds. NOTE: SC added that his is a limited pro hac vice ruling. The allowance of the inquiry is in accord with the rudiments of fair play. B. GSIS v CA Domsat entered into a surety agreement with GSIS in which he obtained a surety bond to secure the payment of his loan with a number of banks. When failed to pay the loan, GSIS refused to comply with its obligation reasoning that Domsat did not use the proceeds for the payment of rental for a Russian satellite, as per the surety bond. Instead, he transferred the US$ 11million loan proceeds from the Industrial Bank of Korea to Citibank New York account of Westmont Bank and from there to the Binondo branch of Westmont. The Banks filed a complaint against Domsat and GSIS. In the course of the hearing, GSIS requested for the issuance of subpoena duces tecum to the custodian of records of Westmont Bank to produce documents, including a bank ledger. Westmont contested and claimed that this would violate the law. GSIS insisted that the said Bank Secrecy Law allows the disclosure of bank deposits in cases where the money deposited is the subject matter of a litigation. Further, the refusal to divulge the whereabouts of the money will greatly prejudice and burden the GSIS pension fund. The Banks maintain that FCDA is the applicable law. ISSUE: Which of the two laws should apply? HELD: FCDA. BSL covers all banks deposits in the Philippines and no distinction was made between domestic and foreign deposits. It is therefore a law of general application. On the other hand, the FCDA was intended to encourage deposits from foreign lenders and investors. It is a special law designed especially for foreign currency deposits in the country. A general law does not nullify a specific or special law. Therefore, under statutory construction, FCDA must apply. Applying this, absent the written permission of Domsat, WB cannot be legally compelled to disclose the bank deposits, otherwise, the bank

might expose itself to criminal liability under the same act. BAR PROBLEM: Michael withdrew without authority funds of the partnership in the amounts of P500,000 and US$50,000 for services he claims he rendered for the benefit of the partnership. He deposited the P500,000 in his personal peso current account with Prosperity Bank and the US$50,000 in his personal foreign currency savings account with Eastern Bank. The partnership instituted an action in court against Michael, Prosperity Bank and Eastern Bank to compel Michael to return the subject funds to the partnership and, pending litigation, to order both banks to disallow any withdrawal from his accounts. At the initial hearing of the case, the court ordered Prosperity Bank to produce records of Michaels peso current account, and Eastern Bank to produce the records of his foreign currency savings account. Can the court compel Prosperity Bank and Eastern Bank to disclose the bank deposits of Michael? YES, the court can compel Prosperity Bank to disclose the personal peso current account of Michael. SEC 2 of RA 1405 allows the disclosure of bank deposits in cases where the money deposited is the subject matter of the litigation. Since the case filed against Michael is aimed at recovering the amount he withdrew from the funds of the partnership, which amount he allegedly deposited in his account, a disclosure of his bank deposit would be proper. However, the court cannot compel Eastern Bank to disclose the personal foreign currency savings account of Michael. Under the FCDA (prior to enactment of AMLA which created additional exceptions), the only exemption to the prohibition against disclosure of information concerning foreign currency deposits is the written permission of the depositor. In this case, Michael has not given his written permission to such disclosure.

AYN RUTH NOTES