The Philippines said Friday it will do whatever necessary to get removed from the Organization for Economic Co-operation and Development's (OECD) tax havens blacklist, but it would take time.

The OECD on Thursday said Costa Rica, Malaysia, the Philippines and Uruguay had not committed to the internationally agreed standard on exchanging tax information.

It listed another 38 territories as those that "have committed to the internationally agreed tax standard, but have not yet substantially implemented" the measures.

President Gloria Arroyo's spokesman Cerge Remonde said it was "unfortunate" that Manila, which describes itself as having one of the world's strictest banking secrecy laws, had not met the OECD criteria.

"We are committed to compliance with those standards and we are confident that we will meet the requirements for removal from this list," Remonde told reporters.

Finance Secretary Margarito Teves said the Philippines "is and has always been ready to comply with conditions that have been set by international organizations, such as the G20 group of countries."

However, "a review of existing local legislation relative to banking secrecy as well as tax information secrecy" would have to be done through the Philippines legislature, he said in a statement.

"I'm sure the Philippine government would take the necessary steps to ensure that we meet their expectations," trade secretary Peter Favila, a member of the Bangko Sentral ng Pilipinas' (BSP) policy-setting monetary board, told reporters.

Tax haven

Basically, the blacklist refers to the countries that currently do not provide banking information if and when foreign tax authorities inquire about it.

The OECD has produced the report as its contribution to the efforts of the G20 countries, which recently wrapped up their London meeting that was focused on addressing the current global economic crisis.

Central to the solutions to the global crisis is greater transparency to international financial dealings, the leaders said. Through its report, OECD was stressing that member and non-member countries' openness to provide banking information is fundamental for fair, open and transparent financial dealings, notably in relation to efforts to combat tax evasion.

In the last few weeks, OECD--which works with its 30 member countries for policies on tax, competition, cross-border investment, corporate governance, and anti-corruption--said a large number of countries and territories have announced their intention to comply with its standards for exchange of information.

The Philippines was not one of them.

Political economy

The Philippines has been operating under a Bank Secrecy Law, which guarantees that peso and dollar deposits, including investments in government-issued bonds, are considered absolutely confidential and may not be inquired or looked into unless investigators obtained a court order as part of a pending legal case, or impeachment.

The law was approved way back in 1955, a decade after the Philippines emerged from 400 years of colonial rule. As the country struggled to attract foreign capital, the law's guarantee of confidentiality reassured potential investors that they could trust local banking institutions with their money.

It was kept to continue encouraging Filipinos, especially the filthy rich, to deposit their money in local banks. However, the rich, who account for less than 5 percent of the population but control over 70 percent of the country's wealth, already stash a major chunk of their wealth abroad through private banking groups and investment arms of multinational banks in an effort to protect it from the country's volatile political environment. In Asia, the Philippines is already the second biggest market for private bankers, next to Indonesia, another country where political economy is rife.

The flaws of the Banking Secrecy Law have been exposed several times. In the early part of the decade, the Philippines was tagged by the Financial Action Task Force on money laundering, a group convened by the major industrialized nations in 1989, as a haven for the laundering of proceeds from drug trafficking, kidnapping and gambling.

Congress eventually enacted a law against money laundering, intended to address the deficiencies of the banking law. It requires banks to disclose suspicious deposits of more than P4 million to the authorities.

Corruption

The anti-money laundering law also preceeded the impeachment trial of former President Joseph Estrada, whom prosecutors accused of laundering his share of the illegal gambling activities through various bank accounts. At one point, the case against President Estrada was considered weak since the banks, then complying with the bank secrecy law, did not release his records of deposits and investments.

Anti-corruption advocates and the BSP have been advocating for amendments to the secrecy law. The banking regulators' recent experience of trying to nail the owners and officers of the embattled Legacy Group of financial services before more people were lured into the group's scheme, is their latest cause.

The regulators were building their case and following Legacy's money trail but were impeded by the secrecy law whenever the public money entered the banking system. After its collapse, Legacy Group's 12 rural banks and 3 pre-need firms turned out to have defrauded almost P30 billion worth of public money and has already cost taxpayers some P14 billion in deposit insurance.

Amending the law is a tricky one. The owner of the Legacy Group turned out to be a businessman-turned-politician who have well-established connections in congress. Also, a number of legislators received campaign funds from the country's richest, who in turn would like to keep their finances under wraps, in part to reduce their tax bills.-- with AFP