Tuesday, April 5, 2016

BusinessWorld | Fictitious bank accounts; immediate measures.

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Renato C. Valencia 
MAP National Issues Committee
Independent Director of Metrobank
Philippine Military Academy 
Former Administrator of the SSS


Fictitious accounts generally refer to bank accounts with fictitious or assumed names. It could be savings, current, time deposit or other bank accounts under individual, joint, business name, partnership or corporate accounts. A simple example would be a bank account opened with a fake or stolen ID.

There are many examples of suspicious bank accounts, such as those opened by (1) clients who are not properly identified or did not undergo the usual KYC (Know Your Customers) due diligence; (2) customers whose deposits are not commensurate to their financial capability; (3) unregistered businesses, which did not undergo the usual regulatory vetting; (4) registered businesses whose principals are either fictitious or could no longer be located; (5) dormant accounts whose owners are not aware that their accounts are being used by a bank employee; (6) depositors who may deny ownership of the accounts; etc.


Fictitious and suspicious accounts are the usual conduits of funds laundered from most scams and crimes, like the stolen BCB funds, which went through fictitious accounts in the Philippines, Sri Lanka and elsewhere.

In the Napoles case, billions of pesos of Priority Development Assistance Funds (PDAF) were deposited in foundations that were inactive or allegedly incorporated by Ms. Napoles with her employees, household helps and drivers. Funds were subsequently withdrawn for allegedly fictitious beneficiaries.

Oil, rice, sugar, meat, and vegetables in the billions of pesos are regularly smuggled in the country. The few smuggled goods caught are invariably found under fictitious owners or entities whose principals can no longer be located.

Thus, scam and crime money comes and goes, and nothing really happens. To my knowledge, no one has gone to jail for money laundering. Then, when a scam happens again, one can expect another series of hearings and investigations.


Well, all one has to do is to go to Claro M. Recto Avenue where, in an hour or so, fake IDs, passports, certificates, licenses, and other documents can be produced to look genuine; and then, with these fake IDs and certificates, open a bank account.

Moreover, due diligence on clients takes months, even years, and is often done in a cavalier fashion.

Finally, no sanctions are imposed on fictitious or suspicious accounts opened unless a case blows up.


More due diligence can actually be done to check the identity of a transacting party; also, more care can be taken on accounts which have not been vetted.

For example, banks regularly send thank you letters to their depositors. Accounts with returned “thank you” letters should require a second look if transactions occur, and a third look if the amounts involved are unusually large.

Banks should undertake closer scrutiny of new and existing depositors whose identities and sources of income are doubtful or suspicious and close them, if necessary.

Unusually large deposits or withdrawals, especially in cash, should trigger alerts at varying levels depending on the amounts involved.

Branch personnel should be rotated regularly, and random annual vacation leaves should be strictly enforced.

Keeping a branch or unit team together for many years, which breeds too much familiarity, should also be avoided.


I believe a more effective solution is to require social security ID for the opening of bank accounts, as they do in the United States. The underlying assumption, I suppose, is that a person with a social security ID has work or is about to work, and can maintain a bank deposit.

It is interesting to note that the new SSS (Social Security System)/GSIS (Government Service Insurance System) ID is even better than most IDs. It is unique, and contains the member’s biometrics. Moreover, it is linked to a reliable database that tracks the members work history, residence, dependents, etc.

Biometrics technology assumes that no two persons are alike. It is the measurement of a person’s physical characteristics and evaluates unique identifiers, such as fingerprints, iris, voice, DNA, signatures, hand and face geometry, etc.

I understand SSS and GSIS use AFIS (Automated Fingerprint Identification System) for their ID systems. With AFIS, a member’s fingerprints are captured, and the minutiae or unique features of the fingerprints (such as ridge ending, ridge bifurcation, etc.) are identified. Then, each set of fingerprints is matched against the fingerprints of the entire population in the database. The ID card is issued only if a member’s fingerprints are found to be unique.


One could argue that not all depositors are SSS/GSIS members and therefore many may have difficulty securing their SSS or GSIS IDs. This should not be an excuse because our government adheres to universal social insurance coverage. As such, all members of society, including their dependents, should be covered by social insurance and should, therefore, be issued their membership IDs.

Should IDs be issued to members’ dependents as well, said IDs could serve as unique learners’ IDs in schools for free (at least for the first issuance).

Conceivably, SSS IDs could also be issued at birth to complete the coverage.


Assuming the bank regulators are willing to require the new SSS/GSIS ID for opening of bank accounts, and assuming SSS/GSIS members are willing to have their identities checked online against the system databases (for a fee, of course), this will go a long way in the proper identification of bank clients and avoiding fictitious accounts.

Moreover, if banks are willing to install the AFIS in their front line computers (for another fee), in a very short time, a member’s fingerprints can be scanned with a reader, the minutiae can be generated and matched against the minutiae embedded in the ID card, and the identity of the cardholder confirmed.

Will this need legislation? Let the authorities decide, although such a measure does not seem to violate the member’s privacy.

Given the circumstances, one wonders how fast our regulators, banks, and Congress can plug the loopholes related to money laundering, including the opening of fictitious or suspicious accounts.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines.)

Renato C. Valencia is a member and the immediate past Vice-Chair of the MAP National Issues Committee, an Independent Director of Metrobank, a graduate of the Philippine Military Academy and a former Administrator of the SSS.
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