2019 BANKING TSN Third Exam

BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
FEB 19: ALABAN AN ACT PROVIDING FOR THE REGULATION OF
THE ORGANIZATION AND OPERATIONS OF
Some of the laws that we will discuss are actually THRIFT BANKS, AND FOR OTHER PURPOSES.
important to the bar exam. Most of the questions in
banking come from AMLA, Bank Secrecy Deposit CHAPTER I
Law. Although it is not a banking law, I will also DECLARATION OF POLICY AND DEFINITIONS
discuss the data privacy law; in fact, in the previous
bar exam, there was a question asked and it was Section 1. Title. — This Act shall be known and cited
“what are the rights of a data subject?” Moreover, as the "Thrift Banks Act of 1995."
because of the Facebook scandal in 2015/2016
and social media, it becomes important for a Sec. 2. Declaration of Policy. —
certain country to have a data privacy law. The It is hereby declared the policy of the State to:
European countries developed the GDPR law; (a) Recognize the indispensable role of the private
before kasi kanya kanyaa ang laws nila. sector, to encourage private enterprise, and to
provide incentives to needed investments;
By the way, what is the different between an EU (b)Promote economic development pursuant to
directive or EU regulation? A directive or a the socioeconomic program of the government,
regulation? to expand industrial and agricultural growth, to
encourage the establishment of more private
A regulation is a binding legislative act. It must be thrift banks in order to meet the needs for
applied in its entirety across the EU. capital, personal and investment credit or
medium- and long-term loans for Filipino
A directive is a legislative act that sets out a goal entrepreneurs;
that all EU countries must achieve. However, it is up (c) Encourage and assist the establishment of thrift
to the individual countries to devise their own laws bank system which will promote agriculture and
on how to reach these goals. (source: europa.eu) industry and at the same time place within easy
reach of the people the medium-and long-term
They have the GPDR Law and we have the Data credit facilities at reasonable cost;
Privacy Act. Our own law established a mechanism (d)Encourage industry, frugality and the
for you to complain… for example, pag feeling mo accumulation of savings among the public, and
ginamit yung credit card information, you can the members and stockholders of thrift banks;
actually file a complaint with the Commission in and
charge of that and they can investigate that. If there (e) Regulate and supervise the activities of thrift
is a merchant, for example bumili ka sa kanila, then banks in order to place their operations on a
they share your information, you can actually file a sound, stable and efficient basis and to curtail or
complaint against the merchant, but I have yet to prevent acts or practices which are prejudicial to
see a case wherein the Commission really enforced the public interest.
or penalized those merchants. Still, it’s a good law.
The policy of the state in enacting this law is “to
The House already approved of allowing foreign encourage private enterprise, and to provide
equity ownership for public service. We incentives to needed investments”. For example
distinguish public utility form public service. So, you want to get a loan for whatever reason, medyo
remember Rappler? Per se hindi naman sya illegal; madali makakuha ng loan if it’s a thrift bank.
what makes it illegal is that there’s that condition
in the PDRs (Philippine Depositary Receipts). Now, Sec. 3. Definition of Terms. — For purposes of
the quo warranto case opens the field of whether implementing this Act, the following definitions
or not PDR is illegal per se. Because of that house shall apply:
approval, I don’t think there is a need for PDRs
because kung pwede nang maka own ang foreign (a) "Thrift banks" shall include savings and
entities and di na kailangan ng PDR. mortgage banks, private development banks, and
stock savings and loans associations organized
under existing laws, and any banking corporation
REPUBLIC ACT NO. 7906 that may be organized for the following purposes:
(1) Accumulating the savings of depositors and

investing them, together with capital loans
TRANSCRIBED BY 3-MANRESA [2019-2020]

Mana-ay, Tan, B., Paulma, Estremos, Talon, Dela Cerna, Bajao, Manligoy, Alaban, Pizarro, Villavicencio, Banosan,
Aberilla, Reyes (Special Thanks to Lara De los Santos)
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secured by bonds, mortgages in real estate
and insured improvements thereon, chattel Sec. 4.Organization. — A thrift bank shall be
mortgage, bonds and other forms of security organized in the form of stock corporation. The
or in loans for personal or household finance, Monetary Board shall fix the minimum paid-up
whether secured or unsecured, or in financing capital of thrift banks in such amount as the Board
for homebuilding and home development; in may consider necessary for the safe and sound
readily marketable and debt securities; in operation of thrift banks taking into account the
commercial papers and accounts receivables, development thrusts of this Act and due protection
drafts, bills of exchange, acceptances or notes of the general public. No thrift bank shall be
arising out of commercial transactions; and in organized without a certificate of authority from the
such other investments and loans which the Monetary Board.
Monetary Board may determine as necessary
in the furtherance of national economic How do you organize a thrift bank? Like any other
objectives; bank, it must be stock corporation. Walang non
(2) Providing short-term working capital, stock na thrift bank. There’s minimum paid-up
medium- and long-term financing, to capital; this is actually given by the MB to the BSP.
businesses engaged in agriculture, services, So, if you are a thrift bank you need 500 million
industry and housing; and capital. Up to 10 branches, 750 million. More than
(3) Providing diversified financial and allied 10 branhces, 1 billion capital. More than 50
services for its chosen market and branches, 2 billion capital.
constituencies specially for small and medium
enterprises and individuals. Even if it’s a thrift bank, it’s not easy to organize a
bank. Still, you need capital. The purpose of the
(b) "Monetary Board" shall mean the Monetary capital in your Corporation Law is that… the capital
Board of the Bangko Sentral ng Pilipinas. is held in trust for the creditors. Dapat mas malaki
(c)"Bangko Sentral" shall refer to the Bangko yung capital because you are asking for money
Sentral ng Pilipinas created under Republic Act No. from the people for the depositors.
7653.
Head Office in NCR
By definition, "Thrift banks" shall include savings • Head Office Only • Php 500 million
and mortgage banks, private development banks • Up to 10 branches • 750 million
[example: BDP], and stock savings and loans • 11 to 50 branches • 1.00 billion
associations organized under existing laws, and • More than 50 • 2.00 billion
any banking corporation that may be organized for branches
the following purposes x x x
The type and classification of a bank will depend

Sec. 5. Establishment of Thrift Banks. — The articles
on its purpose. No matter how you call it if the
of incorporation of any bank, or any amendment
purpose is among these purposes, it may be called
thereto, shall not be registered by the Securities
a thrift bank.
and Exchange Commission unless accompanied
by a certificate of authority issued by the Monetary
By the way, there is a new law for chattels. Pinaka
Board under its official seal .Such certificate shall
glaring difference, is may pactum commissorium
not be issued unless the Monetary Board is
na daw for personal properties.
satisfied from the evidence submitted to it:
(a) that all the requirements of the existing laws and
“(2) Providing short-term working capital, medium-
regulations to engage in business for which the
and long-term financing, to businesses engaged in
applicant is proposed to be incorporated have
agriculture, services, industry and housing;”
been complied with;
(b)that public interest and the economic
Why? If your purpose is agriculture, services or
conditions, both general and local, justify the
industry or housing, for small time business lang,
authorization; and
you cannot get a loan from a commercial or
(c) that the amount of capital, the financing
universal bank because strict ang requirements so
organization, direction and administration, as
you go to thrift banks. That’s why ang locations nila
well as the integrity and the responsibility of the
usually ay nasa rural areas; they provide financing
organizers and administrators reasonably
for these purposes.

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assure the safety of the interest which the public a new bank may be established as a result of a
may entrust to them. merger or consolidation of existing thrift banks
with foreign holdings in which case, the resulting
The by-laws of any thrift bank, or any amendment foreign holdings shall not be increased but may be
thereto, shall not be registered by the Securities reduced and, once reduced, shall not be increased
and Exchange Commission unless accompanied thereafter beyond sixty percent (60%) of the voting
by a certificate of the Monetary Board to the effect stock of thrift banks. The percentage of the foreign-
that such by-laws or amendments thereto are in owned voting stocks shall be determined by the
accordance with law. citizenship of individual stockholders and in case of
corporations owning shares, by the citizenship of
Sec. 6. Bank Management. — In order to maintain each stockholder in the said corporations.
the quality of bank management and afford better
protection to depositors and the public in general, Any provision of existing laws to the contrary
the Monetary Board may pass upon and review the notwithstanding, stockholdings in a thrift bank
qualifications of persons who are elected or shall be exempt from any ownership ceiling for a
appointed bank directors and officers and period of ten (10) years from the effectivity of this
disqualify those unfit. The Monetary Board shall Act.
prescribe the qualifications of bank directors and
officers for purposes of this Section. Sec. 9. Combined Capital Accounts of Thrift Banks.
— The combined capital accounts of each thrift
So, meron pa ring Fit and proper rule. It is bank shall not be less than an amount equal to ten
applicable even in thrift banks. percent (10%) of its risk assets which is defined as
its total assets minus the following assets:
Sec. 7. Directors and Officers. — At least a majority (a) Cash on hand;
of the members of the board of directors of any (b)Amounts from the Bangko Sentral;
thrift bank which may be established after the (c) Evidences of indebtedness of the Republic of
effectivity of this Act shall be citizens of the the Philippines and of the Bangko Sentral, and
Philippines: Provided, however, That no appointive any other evidences of indebtedness or
or elective official, whether full-time or part-time, obligations the servicing and repayment of
shall at the same time serve as officer of any thrift which are fully guaranteed by the Republic of
bank, except in cases where such service is incident the Philippines;
to financial assistance provided by the government (d)Loans to the extent covered by hold-out on, or
or a government-owned or -controlled corporation assignment of deposits maintained in the
to the bank: Provided, further, That in the case of lending bank and held in the Philippines; and
merger or consolidation duly approved by the (e) Other non-risk items as the Monetary Board
Monetary Board, the limitation on the number of may, from time to time, authorize to be
directors in a corporation, as provided in Section deducted from total assets.
14 of the Corporation Code of the Philippines, shall
not be applied so that membership in the new The Monetary Board shall prescribe the manner of
board may include up to the total number of determining the total assets of banking institutions
directors provided for in the respective articles of for purposes of this Section.
incorporation of the merging or consolidating
banks. Whenever the capital accounts of a bank are
deficient with respect to the requirements of the
As a general rule, what is the limitation on the preceding paragraph, the Monetary Board, after
number of directors in case of merger or considering the report of the appropriate
consolidation? 21. So, it does not apply to thrift supervising department on the state of solvency of
banks. the institution, shall limit or prohibit the distribution
of net profits and shall require that part or all of net
CHAPTER III profits be used to increase the capital accounts of
OWNERSHIP AND CAPITAL REQUIREMENTS the institution until the minimum requirement has
been met. The Monetary Board may, after
Sec. 8. Ownership. — At least forty percent (40%) of considering the aforesaid report of the appropriate
the voting stock of a thrift bank which may be supervising department and if the amount of the
established after the approval of this Act shall be deficiency justifies it, restrict or prohibit the making
owned by citizens of the Philippines, except where of new investments of any sort by the bank, with the

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exception of purchases of evidences of and receive them in payment or as amortization
indebtedness included under subsection (c) of this of its loan.
Section, until the minimum required capital ratio
has been restored. Such mortgage and chattel mortgage
certificates shall be issued exclusively in national
Where in the process of a bank merger or currency and exclusively for the financing of
consolidation, the merged or constituent bank may equipment loans, mortgage loans for the
not be able to comply fully with the net worth to risk acquisition of machinery and other fixed
asset ratio herein prescribed, the Monetary Board installations, conservation, enlargement or
may, at its discretion, temporarily relieve the bank improvement of productive properties and real
from full compliance with this requirement under estate mortgage loans for: (1) the construction,
such conditions it may prescribe. acquisition, expansion or improvement of rural
and urban properties; (2) the refinancing of
What can thrift banks do? For purpose of your similar loans and mortgages; and (3) such other
study, you image a table in your mind showing the purposes as may be authorized by the Monetary
powers of a universal, commercial, thrift or rural Board.
bank, so that you can distinguish kung anong
klaseng bank ang merong ganung power. A thrift bank shall coordinate the amounts and
maturities of its certificates with those of its
CHAPTER IV POWERS loans, so as to ensure adequate cash receipts for
the payment of principal and interest at the time
Sec. 10. Powers of Thrift Banks. — In addition to they become due. The bank shall accept its own
powers granted it by this Act and existing laws, any certificates at least at the actual price of issue, in
thrift bank may: any prepayment of loans which mortgage or
chattel mortgage debtors may wish to make:
(a) Accept savings and time deposits; Provided, That the date of maturity of the
(b)Open current or checking accounts: Provided, certificates is not later than the date on which
That the thrift bank has net assets of at least the payment would otherwise become due, in
Twenty million pesos (P20,000,000) subject to the absence of the aforesaid prepayment;
such guidelines as may be established by the
Monetary Board; and shall be allowed to (h) Purchase, hold and convey real estate under the
directly clear its demand deposit operations same conditions as those governing
with the Bangko Sentral and the Philippine commercial banks as specified under Section 25
Clearing House Corporation; of Republic Act No. 337;
(c) Act as correspondent for other financial (i) Engage in quasi-banking and money market
institutions; operations;
(d)Act as collection agent for government entities, (j) Open domestic letters of credit;
including but not limited to, the Bureau of (k) Extend credit facilities to private and
Internal Revenue, Social Security System, and government employees: Provided, That in the
the Bureau of Customs; case of a borrower who is a permanent
(e) Act as official depository of national agencies employee or wage earner, the treasurer, cashier
and of municipal, city or provincial funds in the or paymaster of the office employing him is
municipality, city or province where the thrift authorized, notwithstanding the provisions of
bank is located, subject to such guidelines as any existing law, rules and regulations to the
may be established by the Monetary Board; contrary, to make deductions from his salary,
(f) Rediscount paper with the Philippine National wage or income pursuant to the terms of his
Bank, the Land Bank of the Philippines, the loan, to remit deductions to the thrift bank
Development Bank of the Philippines, and other concerned, and collect such reasonable fee for
government-owned or -controlled his services;
corporations. Said institutions shall specify the (l) Extend credit against the security of jewelry,
nature of paper deemed acceptable for precious stones and articles of similar nature,
rediscount, as well as rediscounting rate to be subject to such rules and regulations as the
charged by any of these institutions; and Monetary Board may prescribe; and
(g)Issue mortgage and chattel mortgage (m) Offer other banking services as provided in
certificates, buy and sell them for its own Section 72 of Republic Act No. 337 and Republic
account or for the account of others, or accept Act No. 6426, as amended.

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liability of the indorser, drawer or guarantor who
Thrift banks may perform the services under obtains a loan from or discounts paper with or sells
subsections (b), (d), (e), (g) and (i) only upon prior paper under his guaranty to such bank; and shall
approval of the Monetary Board. include in the case of liabilities of a partnership or
association the liabilities of the several members
Nothing in this Section shall be construed as thereof; and shall include in the case of liabilities of
precluding a thrift bank from performing, with prior a corporation, all liabilities of all the subsidiaries
approval of the Monetary Board, commercial thereof in which such corporation owns or controls
banking services, or from operating under an a majority interest: Provided, That even if the
expanded banking authority, nor from exercising, parent corporation, partnership or association has
whenever applicable and not inconsistent with the no liability to the bank, the Monetary Board may
provisions of this Act and Bangko Sentral prescribe the combination of liabilities of
regulations, and such other powers incident to a subsidiary corporations or members of the
corporation. partnership or association under certain
circumstances, including but need not be limited
(d): so kapag nasa bukid ka, pwede ka dun to any of the following situations:
magbayad. It can act as collecting agent for BIR, (a) the parent corporation, partnership or
SSS, etc. association guarantees the repayment of
liabilities;
Q: Can it do other functions other than those (b)the liabilities were incurred for the
mentioned? accommodation of the parent corporation or
A: Yes (see last paragraph of Section 10) another subsidiary or of the partnership or
association; or
Sec. 11. Limitations on Lending Authority. — Except (c) the subsidiaries through separate entities
as the Monetary Board may otherwise prescribe, operate merely as departments or divisions of a
the direct indebtedness to thrift banks of any single entity: Provided, further, That the
person, company, corporation, or firm, including discount of bills of exchange drawn in good
the indebtedness of members of a partnership and faith against actually existing values, and the
association, for money borrowed, excluding: discount of commercial and business paper
(a) loans secured by obligations of the Bangko actually owned by the person negotiating the
Sentral; same, shall not be considered as money
(b)loans fully guaranteed by the government as to borrowed for the purpose of this Section:
the payment of principal and interest; Provided, finally, That certain types of
(c) loans to the extent covered by the hold-out on, contingent liabilities of borrowers may be
or assignment of, deposits maintained in the included among the total liabilities as may be
lending bank and held in the Philippines; and determined by the Monetary Board.
(d)other loans or credits as the Monetary Board
may, from time to time, specify as non-risk Loan accommodations granted by thrift banks to
assets, which shall in no time exceed fifteen any other bank, as well as deposits maintained by
percent (15%) of unimpaired capital and surplus them in any bank licensed to do business in the
of the bank. Philippines, shall be subject to the loan limit of any
single borrower as herein prescribed.
Notwithstanding the provisions of the preceding
paragraph and subject to such regulations as the Sec. 12. Investment in Allied Undertakings. —
Monetary Board may prescribe, the total Subject to such guidelines as may be established
indebtedness of any borrower to the bank may by the Monetary Board, thrift banks may invest in
amount to a further fifteen percent (15%) of the equities of allied undertakings as hereinafter
unimpaired capital and surplus of such bank enumerated: Provided, That: (a) the total
provided the additional indebtedness is for the investments in equities shall not exceed twenty-five
purpose of financing subdivision or housing percent (25%) of the net worth of the thrift bank; (b)
development, medium- and low-income the equity investment in any single enterprise shall
borrowers and agriculture on a fully secured basis. be limited to fifteen percent (15%) of the net worth
of the thrift bank; (c) the equity investment in any
The term "indebtedness" as used herein, shall single enterprise shall remain a minority holding in
mean the direct liability of the maker or acceptor of that enterprise; and (d) the equity investment in
paper discounted with or sold to such bank and other banks shall be subject to the same provisions

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governing similar investments of commercial or the general public, to appoint a conservator
banks and shall be deducted from the investing pursuant to Section 29 of Republic Act No. 7653
bank's net worth for the purpose of computing of without prejudice to the prosecution of persons
the prescribed ratio as provided in Section 9 responsible for such violations under the
hereof: Provided, further, That equity investments provisions of Sections 36 and 37 of Republic Act
shall not be permitted in non-related No. 7653.
activities.Where the allied activity is a wholly- or
majority-owned subsidiary of the thrift bank, the The director and examiners of the department of
Bangko Sentral may subject it to examination. Bangko Sentral charged with the supervision of
Investment in allied undertaking shall include thrift banks are hereby authorized to administer
institutions engaged in the following activities: oaths to any director, officer or employee of any
thrift bank or to any voluntary witness and to
(a) Banking and financing; compel the presentation of all books, documents,
(b)Warehousing and other post-harvesting papers or records necessary in his or their
activities; judgment to ascertain the facts relative to the true
(c) Fertilizer and agricultural chemical and conditions of any thrift bank or to any loan.
pesticides distribution;
(d)Farm equipment distribution; To encourage investors to organize or establish
(e) Trucking and transportation of agricultural thrift banks in the rural areas, there are incentives.
products;
(f) Marketing of agricultural products; CHAPTER VI INCENTIVES
(g)Leasing; and
(h) Other undertakings as may be determined by Sec. 14. Reserve Requirement Differential. —
the Monetary Board. Reserve requirement imposed on thrift banks by
the Monetary Board shall enjoy equitable
CHAPTER V SUPERVISION preferential terms over those imposed on
commercial banks: Provided, That the Monetary
Sec. 13. Supervisory Powers of the Monetary Board may change reserve differentials for the
Board. — The power to supervise the operation of purpose of stimulating economic growth in the
any thrift bank by the Monetary Board shall consist countryside, thereby promoting national economic
in placing limits to the maximum credit allowed to development.
any individual borrower; in indicating the manner
in which technical assistance shall be extended to Sec. 15. Liberalized Branching Rules. — Thrift banks
thrift banks; in imposing a uniform accounting shall have unrestricted branching right within the
system and manner of keeping the accounts and region, free from any assessment or surcharges
records of thrift banks; in instituting periodic required in setting up a branch, but under
surveys of loans and lending procedures, audits, coordination with the Bangko Sentral which will
test-check of cash and other transactions of the have to assess that there are qualified personnel,
thrift banks; in conducting training courses for control and procedures to operate the branch.
personnel of thrift banks; and, in general, in
supervising the business operations of the thrift Sec. 16. Notices of Statement of Condition. —
banks. Subject to Monetary Board approval, a thrift bank
may publish its statement of condition in a
The Bangko Sentral shall have the power to newspaper of general circulation, or post it in the
enforce the laws, orders, instructions, rules and most conspicuous area of its premises, municipal
regulations promulgated by the Monetary Board building, municipal public market, barangay hall
applicable to thrift banks; to require thrift banks, and barangay public market if there be any, where
their directors, officers and agents to conduct and the thrift bank concerned is located.
manage the affairs of the thrift bank in a lawful and
orderly manner; and upon proof that the thrift bank Are there exemptions? Yes.
or its board of directors or officers are conducting
and managing the affairs of the bank in a manner
CHAPTER VII EXEMPTIONS
contrary to laws, orders, instructions, rules and
regulations promulgated by the Monetary Board
Sec. 17. Tax Exemptions. — All thrift banks, whether
or in a manner substantially prejudicial to the
created or organized under this Act or in operation
interest of the government, depositors, creditors,
as of the date of effectivity of this Act, shall be
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exempt from payment of all taxes, fees and charges Sec. 20. Exemption from Registration Fees. — Any
of whatever nature and description, except the register of deeds shall accept from any thrift bank
corporate income taxes and local taxes, fees and and its borrowers and mortgagors for registration,
charges for a period of five (5) years, counted from free from all charges, fees and documentary stamp
the date of commencement of operations for thrift tax, collectible under existing laws, any instrument,
banks created under this Act and from the date of whether voluntary or involuntary, relating to loans
the effectivity of this Act for existing thrift banks. or transactions extended by any thrift bank in an
amount not exceeding Fifty thousand pesos
It’s similar to an income tax holiday if you are a BOI (P50,000): Provided, however, That charges, if any,
or PEZA registered entity depending on your shall be collectible on the amount in excess of Fifty
status. thousand pesos (P50,000); and that an instrument
related to assignments of several mortgages
Sec. 18. Exemption from Publication Requirement. consolidated in a single deed, if any, shall be levied
— The foreclosure of mortgage covering loans only on the amount in excess of Fifty thousand
granted by thrift banks and executions of pesos (P50,000) of the consideration in the
judgments thereon involving real properties and assignment of each mortgage, or such amount as
levied upon by a sheriff shall be exempt from the Secretary of Finance, upon recommendation of
publication requirements where the total amount the Monetary Board, may prescribe as may be
of the loan, excluding interest due and unpaid, necessary to promote and expand the economy.
does not exceed One hundred thousand pesos
(P100,000) or such amount as the Monetary Board Q: Are there prohibitions?
may prescribe, as may be warranted by the A: Yes. Similar to your prohibitions in the General
prevailing economic conditions and by the nature Banking Law, an officer employee or agent of
of service of customers served by each category of employee cannot do these things, similar lang sya
the thrift bank. It shall be sufficient publication in doon.
such cases if the notice of foreclosure and
execution of judgment are posted in the CHAPTER VIII PROHIBITIONS
conspicuous area of a thrift bank's premises,
municipal building, the municipal public market, Sec. 21. Prohibited Acts. — Without prejudice to
the barangay hall, and the barangay public market, any prosecution under any law which may have
if there be any, where the land mortgaged is been violated, a fine of not more than Ten
situated within a period of sixty (60) days thousand pesos (P10,000) or imprisonment for not
immediately preceding the public auction of the less than six (6) months but not more than ten (10)
execution of judgment. Proof of publication as years, or both, at the discretion of the court, shall
required herein shall be accomplished by an be imposed upon:
affidavit of the sheriff or officer conducting the
foreclosure sale or execution of judgment and shall (a) Any officer, employee, or agent of a thrift
be attached with the records of the case. bank who shall:
(1) Make false entries in any bank report or
A thrift bank shall be allowed to foreclose lands statement thereby affecting the financial interest
mortgaged to it; Provided, That said lands shall be of, or causing damage to, the bank or any
covered under Republic Act No. 6657. person; or
(2) Without order of a court of competent
Sec. 19. Exemption from Notarial Charges. — Any jurisdiction, disclose any information relative to
metropolitan, municipal, or municipal circuit trial the funds or properties in the custody of the
court judge in his capacity as notary public ex bank belonging to private individuals,
officio shall administer the oath to or acknowledge corporations, or any other entity; or
the instrument of any thrift bank and its borrowers (3) Accept gifts, fees or commissions or any other
or mortgagor free from all charges, fees and form of remuneration in connection with the
documentary stamp tax, collectible under existing approval of a loan from said bank; or
laws, relative to any loan or transaction not (4) Overvalue or aid in the overvaluing any security
exceeding Fifty pesos (P50.00) or such amount as for the purpose of influencing in any way the
the Secretary of Finance, upon recommendation of action of the bank on any loan; or
the Monetary Board, may prescribe as may be (5) Appear and sign as guarantor, indorser, or
necessary to promote and expand the economy. surety for loans granted; or
(6) Violate any provision of this Act.

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Please take note of (a)(5) because sa lahat ng yan
(b) Any applicant for a loan from, or borrower of lang yung medyo iba. For example, yung Mama mo
a thrift bank who shall: ang borrower and then ikaw yung loan officer, you
(1) Misuse, misapply or divert the proceeds of the cannot sign as guarantor.
loan obtained by him from its declared purpose;
or Please take note [under (b)(5)] that mere offering is
(2) Fraudulently overvalue property offered as prohibited. No need for the bank officials to
security for a loan from said bank; or accept.
(3) Give out or furnish false or willful
misinterpretation of material facts for the (e): This is under your Registration of Names in
purpose of obtaining, renewing, or increasing a SEC. You cannot use these names unless you are a
loan extending the period thereof; or thift bank. For example, “Calinan Mortgage Bank"
(4) Attempt to defraud the said bank in the event of Alam mo na thrift bank yun. “Calinan Development
court action to recover the loan; or Bank” “Calinan Savings Bank” or “Calinan Savings
(5) Offer any officer, employee or agent of a thrift or Mortgage Bank.” *Mentions also “Cantilan
bank a gift, fee, commission or other forms of Bank.”*
compensation in order to influence such bank
personnel into approving a loan application; or CHAPTER IX GENERAL PROVISIONS
(6) Dispose or encumber the property offered as
security for the loan. Sec. 22. Minors as Depositors. — Minors in their
own rights and in their own names may make
(c) Any examiner, or officer or employee of the deposits and withdraw the same, and may receive
Bangko Sentral or of any department, bureau, dividends and interest: Provided, however, That, if
office, branch, or agency of the government who is any guardian shall give notice in writing to any thrift
assigned to examine, supervise, assist or render bank not to make payments of deposits, dividends,
technical service to thrift banks and who shall or interest to the minor of whom he is the guardian,
connive or aid in the commission of the same. then such payment shall be made only to the
guardian.
(d) Any metropolitan, municipal, or municipal
circuit trial court judge or register of deeds who Sec. 23. Return of Deposits. — Deposits shall be
shall demand or accept, directly or indirectly, any returned to the depositors or to their legal
gift, fee, commission, or any other form of representatives in the manner and at the time and
compensation in connection with the service, or under the conditions which shall be determined by
shall arbitrarily and without reasonable cause delay the board of directors and stipulated in regulations
the acknowledgment or administration of oath or which shall be in conformity with laws and with
the registration of documents required to be such regulations as the Monetary Board may
performed by said judge or by said register of prescribe.
deeds shall be punished with a fine of not more
than One (1) thousand pesos (P1,000) or by Sec. 24. Deposit Insurance. — Deposit in thrift banks
imprisonment of not more than one (1) year, or shall be eligible for insurance coverage under
both, at the discretion of the court. Republic Act No. 3591, as amended.
(e) Any bank not organized under this Act and any Sec. 25. Annual Fees. — Consistent with the
person, association, or corporation doing the provisions of Section 28 of Republic Act No. 7653,
business of banking, not authorized under this Act any thrift bank organized under this Act may,
or existing laws which shall use the words pursuant to regulations promulgated for the
"Development Bank," "Savings Bank," "Mortgage purpose by the Monetary Board, be required to
Bank," "Savings and Mortgage Bank," or "Savings contribute to the Bangko Sentral an annual fee in
and Loan Association," as part of the name or title an amount to be determined by the Monetary
of such bank or of such person, association, or Board.
corporation, shall be punished by a fine of not less
than One hundred pesos (P100), but in no case to Sec. 26. Implementation. — For the purpose of
exceed Thirty thousand pesos (P30,000), for each carrying the objectives of this Act, the Bangko
day during which the said words are so used. Sentral is authorized to require the services and
facilities of any department or instrumentality of

8
the government or any officer or employee of any
such department or government instrumentality. Section 1. This Act shall be known and cited as the
"Rural Act of 1992.”
Sec. 27. Annual Report. — The Monetary Board shall
submit a report to the Congress of the Philippines Q: Why is there a rural bank?
at the end of each calendar year of all the rules and A:
regulations promulgated by it in accordance with
the provisions of this Act, as well as its other Sec. 2. The State hereby recognizes the need to
actuations in connection with thrift banks together promote comprehensive rural development with
with an explanation of its reasons therefor and the end in view of attaining
recommendations on legislative actions. • acquitable distribution of opportunities,
income and wealth;
Sec. 28. Parity Clause Under Same Circumstances. • a sustained increase in the amount of goods
— The incentives granted shall be enjoyed by and services produced by the nation of the
financial institutions giving the same services for benefit of the people;
countryside lending and development under such • and in expanding productivity as a key raising
terms as may be equitable and as may be defined the quality of life for all, especially the
by the Monetary Board. underprivileged.
Sec. 29. Separability Clause. — If any provision of

Towards these ends, the State hereby encourages
this Act or the application thereof to any person or
and assists in the establishment of rural banking
circumstances is held invalid, the other provisions
system designed to make needed credit available
of this Act and the application of such provisions to
and readily accessible in the rural areas on
other persons and circumstances, shall not be
reasonable terms.
affected thereby.
When you compare it to a thrift bank, mas
Sec. 30. Repealing Clause. — Republic Act No.
comprehensive ang purpose ng rural bank. It is
4093, Republic Act No. 3779 to the extent that it
actually for rural development. It’s not only for the
applies to thrift banks, and Chapter 5 of Republic
purpose of giving financing to small and medium
Act No. 337 are hereby repealed. Any law or parts
enterprise but it’s also for the development of the
of any law inconsistent with the provisions of this
rural community.
Act are hereby repealed. In all matters affecting the
price stability of the peso, the provisions of
Republic Act No. 7653 shall prevail. Sec. 3. In furtherance of this policy, the Monetary
Board of the Central Bank of the Philippines shall
Sec. 31. Applicability of Other Laws. — The formulate the necessary rules and regulations
provisions of Republic Act No. 7653 and Republic governing the establishment and operation of rural
Act No. 337, as amended, insofar as they are banks for the purpose of providing adequate
applicable and not in conflict with any provision of credit facilities to farmers and merchants, or to
this Act, shall apply to thrift banks organized cooperatives of such farmers and merchants and in
hereunder. general, the people of the rural communities, and
to supervise the operation of such banks.
Sec. 32.Effectivity. — This Act shall take effect fifteen
(15) days following the completion of its Sec. 4. No rural bank shall be operated without a
publication in the Official Gazette or in two (2) Certificate of Authority from the Monetary Board of
national newspapers of general circulation. the Central Bank. Rural banks shall be organized in
the form of stock corporations. Upon consultation
REPUBLIC ACT NO. 7353 with the rural banks in the area, duly established
cooperatives and corporations primarily organize
AN ACT PROVIDING FOR THE CREATION, to hold equities in rural banks may organize a rural
ORGANIZATION AND OPERATION OF RURAL bank and/or subscribe to the shares of stock of any
BANKS, AND FOR OTHER PURPOSES rural bank: Provided, That a cooperative or
corporation owning or controlling the whole or
Be it enacted by the Senate and House of majority of the voting stock of the rural bank shall
Representatives of the Philippines in Congress be subject to special examination and to such rules
assembled: and regulations as the Monetary Board may
prescribe. With exception of shareholdings of
9
corporations organized primarily to hold equities
in rural banks as provided for under Section 12-C Sec. 5. All members of the Board of Directors of the
of Republic Act 337, as amended, and of Filipino- rural bank shall be citizens of the Philippines at the
controlled domestic banks, the capital stock of any time of their assumption to office: Provided,
rural bank shall be fully owned and held directly or however, That nothing in this Act shall be
indirectly by citizens of the Philippines or construed as prohibiting any appointive or
corporations, associations or cooperatives elective public official from serving as director,
qualified under Philippine laws to own and hold officer, consultant or in any capacity in the
such capital stock: Provided, That any provisions of bank.
existing laws to own and hold such capital stock:
Provided, That any provision of existing laws to the No Director or officer of any rural bank shall, either
contrary notwithstanding, stockholdings in a rural directly or indirectly, for himself or as the
bank shall be exempt from any ownership ceiling representative or agent of another borrow any of
for a period of ten (10) years from the approval of the deposits or funds of such banks, nor shall he
this Act: Provided, further, That any such become a guarantor, indorser, or surety for loans
exemption shall require the approval of the from such bank to others, or in any manner be an
Monetary Board. If subscription of private obligor for money borrowed from the bank or
shareholders to the capital stock of rural cannot be loaned by it except with the written approval of the
secured or is not available, or insufficient to meet majority of the directors of the bank, excluding the
the normal credit needs of the locality, the Land director concerned. Any such approval shall be
Bank of the Philippines, the Development Bank of entered upon the records of the corporation and a
the Philippines, or any government-owned or copy of such entry shall be transmitted forthwith to
controlled bank or financial institution, on the appropriate supervising department. The
representation of the said private shareholders but director/officer of the bank who violates the
subject to the investment guidelines, policies and provisions of this section shall be immediately
procedures of the bank or financial institution and dismissed from his office and shall be penalized in
upon approval of the Monetary Board of the accordance with Section 26 of this Act.
Central Bank, shall subscribe to the capital stock of
such rural bank, which shall be paid in full at the The Monetary Board may regulate the amount of
time of subscription, in an amount equal to the fully credit accommodations that may be extended
paid subscribe and unimpaired capital of the directly to the directors, officers or stockholders of
private stockholders or such amount as the rural banks of banking institutions. However, the
Monetary Board may prescribed as may be outstanding credit accommodations which a rural
necessary to promote and expand rural economic bank may extend to each of its stockholders
development: Provided, however, That such owning two percent (2%) or more of the
shares of stock subscribe by the Land Bank of the subscribed capital stock, its directors, or officers
Philippines, the Development Bank of the shall be limited to an amount equivalent to the
Philippines or any government-owned or respective outstanding deposits and book value of
controlled bank or financial institution may be sold the paid-in capital contributions in the bank.
at any time at market value to private individuals
who are citizens of the Philippines: Provided, Discussion:
finally, That in the sale of shares of stock subscribed
by the Land Bank of the Philippines, the 1st paragraph:
Development bank of the Philippines or any • Pwede po hindi citizen but at the time na
government-owned or controlled bank or financial inassume mo na ang office, Filipino citizen ka na.
institution, the registered stockholders shall have • It is only in the case of a rural bank where a public
the right of preemption within one (1) year from the official, appointive or elective, can actually sit as a
date of offer in proportion to their respective director or officer.
holdings, but in the absence of such buyer, • Q: What are the 2 exceptions wherein a public
preference, however, shall be given to residents of officer, appointive or elective, can sit as a director
the locality or province where the rural bank is or officer of a bank?
located. 1) In line with the condition for financial
assistance of the government
Again, there is no bank that is non stock 2) If the bank is a rural bank
corporation but there is a bank that is a
cooperative.

10
3rd and last paragraph: Sounds familiar? That is be within the forest zone shall be for the sole
under the General Banking Law. account of the rural bank.
Sec. 6. Loans or advances extended by rural banks The foreclosure of mortgage covering loans
organized and operated under this Act shall be granted by rural banks and executions of judgment
primarily for the purpose of meeting the normal thereon involving real properties levied upon by a
credit needs of farmers, fishermen or farm families sheriff shall be exempt from the publications in
owning or cultivating land dedicated to newspaper now required by law where the total
agricultural production as well as the normal credit amount of loan, excluding interest due and unpaid,
needs of cooperatives and merchants. In granting does not exceed One hundred thousand pesos
of loans, the rural bank shall give preference to the (P100,000) or such amount as the Monetary Board
application of farmers and merchant whose cash may prescribe as may be warranted by prevailing
requirements are small. economic conditions. It shall be sufficient
publication in such cases if the notices of
Loans may be granted by rural banks on the foreclosure and execution of judgment are posted
security of lands without Torrens Title where the in the most conspicuous area of the municipal
owner of private property can show five (5) years building, the municipal public market, the rural
on more peaceful, continuous and uninterrupted bank, the barangay hall, the barangay public
possession in concept of owner; or of portions of market, if any, where the land mortgaged is
friar land estates or other lands administered by situated during the period of sixty (60) days
the Bureau of Lands that are covered by sales immediately preceding the public auction or
contracts and the purchase have paid at least five execution of judgment. Proof of publication as
(5) years installment thereon, without the necessity required herein shall be accomplished by an
of prior approval and consent by the Director of affidavit of the sheriff or officer conducting the
lands; or of portions of other estates under the foreclosure sale or execution of judgment and shall
administration of the Department of Agrarian be attached with the records of the case: Provided,
Reform or other government agency which are That when a homestead or free patent is
likewise covered by sales contracts and the foreclosed, the homesteader or free patent holder,
purchasers have paid at least five (5) years as well as his heirs shall have the right to redeem
installment thereon, without the necessity of prior the same within one (1) year from the date of the
approval and consent of the Department of registration of the foreclosure in the case of land
Agrarian Reform or corresponding government covered by a Torrens Title: Provided, finally, That in
agency; or of homesteads or free patent lands any case, borrowers, especially those who are
pending the issuance of titles but already mere tenants, need only to secure their loans with
approved, are issued, the provisions of any law or the procedure corresponding to their share.
regulations to the contrary notwithstanding:
Provided, That when the corresponding titles are A rural bank shall be allowed to foreclose lands
issued, the same shall be delivered to the Register mortgaged to it: Provided, That said lands shall be
of Deeds of the province where such lands are covered under Republic Act No. 6657.
situated to the annotation of the encumbrance:
Provided, further, That in the case of lands pending Discussion:
homestead of free patent titles, copies of notices
for the presentation of the final proof shall also be 1st paragraph: Kaya nga mas comprehensive
furnished the creditor rural bank and, if the yung purpose ng rural bank because it if for the
borrower applicants fail to present the final proof rural development. So kung ikaw, nagborrow ka ng
within thirty (30) days from date of notice, the money kasi gusto mo magdevelop ng building or
creditor rural bank may do so for them at their subdivision, you might not be granted because
expense: Provided, furthermore, That the your purpose must be for agriculture, production,
applicant for homestead or free patent has already farmers, fishermen or farm families and the normal
made improvements on the land and the loan credit needs of cooperatives and merchants.
applied for is to be used for further development Pwede naman magborrow yung negosyante but it
of the same or for other productive economic must be for the normal credit needs, hindi yung
activities: Provided, finally, That the appraisal and capital purposes.
verification of the status of a land is a full
responsibility of the rural bank and any loan
granted on any land which shall be found later to

11
FEB 19: VILLAVICENCIO Sec. 26. Without prejudice to any prosecution
under any law which may have been violated a fine
of not more than ten thousand pesos (P10,000) or
What can a Rural Bank do? imprisonment of not less than six (6) months but
not more than ten (10) years, or both, at the
Sec. 12. In addition to the operations especially
discretion of the court, shall imposed upon:
authorized in this Act, any rural bank may:
a. Any officer, employee, or agent of a rural bank
a. Accept saving and time deposit;
who shall:
b. Open current or checking accounts, provided
1. Make fake entries in any bank report or
the rural bank has net assets of at least Five million
statement thereby affecting the financial interest of
(P5,000,000) subject to such guidelines as may be
or causing damage to, the bank or any person;
established by the Monetary Board:
2. Without order of a court of competent
c. Act as correspondent for other financial
jurisdiction, disclose any information relative to the
institutions;
funds or properties in the custody of the bank
d. Act as a collection agent; belonging to private individuals, corporations, or
any other entity;
e. Act as official depositary of municipal, city or
provincial funds in the municipality, city or province 3. Accept gifts, fees or commission or any other
where it is located, subject to such guidelines as form of remuneration in connection with the
may be established by the Monetary Board; approval of a loan from said bank; or
f. Rediscount paper with the Philippine National 4. Overvalue or aid in overvaluing any security for
Bank, the Land Bank of the Philippines, the the purpose of influencing in any way the action of
Development Bank of the Philippines, or any other the bank on any loan; or
banking institution, including its branches and
5. Appear and sign as guarantor, indorser, or
agencies. Said institution shall specify the nature of
surety for loans granted; or
paper deemed acceptable for rediscount, as well
as the rediscount rate to be charged by any of 6. Violate any of the provisions of this Act.
these institutions;
b. Any applicant for a loan from, or borrower of a
g. Offer other banking service as provided in rural bank who shall:
Section 72 of Republic Act No. 337, as amended,
1. Misuse, misapply, or divert the proceeds of the
and
loan obtained by him from its declared purpose; or
h. Extend financial assistance to public and private
2. Fraudulently overvalue property offered as
employees in accordance with the provisions of
security for loan from said bank; or
Section 5 of Republic Act No. 3779, as amended.
3. Give out or furnish false misrepresentation of
With written permission of the Monetary Board of
material facts for the purpose of obtaining,
the Central bank, any rural bank may act as trustee
renewing, or increasing a loan or extending the
over estates or properties of farmer and
period thereof; or
merchants.
4. Attempt to defraud the said bank in the event of
Nothing in this section shall be construed as
court action to recover a loan; or
precluding a rural bank from performing, with prior
approval of the Monetary Board, all the services 5. Offer any officer, employee, or agent of a rural
authorized and mortgage banks, of for commercial bank as a gift, fee, commission, or other form of
banks, under an expanded banking authority as compensation in order to influence such bank
provided in Section 21-B of the same Act. personality in approving an application; or
6. Dispose or encumber the property or the crops

offered as security for the loan.
Prohibitions- same. Wala naming difference with
thrift bank.

12
c. Any examiner, or officer or employee of the ARTICLE 97. Organization, Membership and
Central Bank of the Philippines or other Establishment of a Cooperative Bank. –
department, bureau, office, branch or agency of
the Government who is assigned to examine,
supervise, assist or render technical services to Cooperative organizations duly established and
rural banks and who shall connive or aid in the registered under this Code may organize a
commission of the same. cooperative bank, which shall likewise be
considered a cooperative registrable under
provisions of this Code subject to the requirements
Note: cooperative bank is still under the and requisite authorization from the BSP.
supervision of the Monetary Board- the BSP
Only one cooperative bank may be established
through the Monetary Board (2019 tsn)
in each province: Provided, That an additional
Republic Act 9520 (in relation to Republic Act cooperative bank may be established in the
6938) same province to cater to the needs in the same
province to cater to the needs of the locality
ARTICLE 95. Governing Law. – The provisions of
depending on the economic conditions of the
this Chapter shall primarily govern cooperative
province as may be determined by the
banks registered under this Code and the other
BSP: Provided, further, That the additional
provisions of this Code shall apply to them only
cooperative bank shall be located in the City or
insofar as they are not inconsistent with the
municipality other that the city or municipality
provisions contained in this Chapter.
where the first cooperative bank is located.
The purpose its creation (cooperatives) is to help
(2) Membership in a cooperative bank shall
those members placed under the same
either be regular or associate.
circumstances.
Regular membership shall be limited to
So, what is a definition of a Cooperative Bank?
cooperative organizations which are holders of
-organized for the primary purpose providing a common shares of the bank.
wide range of services to cooperatives and their
Associate members are those subscribing and
members.
holding preferred shares of the bank, which may
So, you have to be member of a cooperative. include but are not limited to the following:
Now, who supervises the cooperative banks? "(a) Individual members of the bank’s member-
primary cooperatives; and
Still the BSP.
"(b) Samahang Nayon and Municipal Katipunan ng
ARTICLE. 96. Supervision. – The cooperative banks mga Samahang Nayon (MKSN) which held
registered under this Code shall be under the common shares of cooperative banks prior to the
supervision of the BSP. effectivity of this Act shall apply for conversion to
The BSP, upon consultation with the Authority and full-pledged cooperatives in order to maintain
the concerned cooperative sector, shall formulate their status as regular members of cooperative
guidelines regarding the operations and the banks: Provided, That they shall notify the
governance of cooperative banks. These cooperative bank concerned their intention to
guidelines shall give due recognition to the unique convert within a period of ninety (90) days from the
nature and character of cooperative banks. To this effectivity of this Act.
end, cooperative banks shall provide financial and Samahang Nayon and MKSN are hereby given a
banking services to its members. period of one (1) year from the effectivity of this Act
to complete their conversion as cooperatives.
Cooperative bank shall exert reasonable efforts to
How do you organize a cooperative bank? inform their member Samahang Nayon and MKSN
to finally convert or to give the notice of conversion
within the prescribed period. Upon the failure of

13
the Samahang Nayon and MKSN to finally convert Rural bank The farmers, fisherman
to a full-pledged cooperative within the maximum and their family
period of one (1) year, the cooperative bank Cooperative bank Their cooperative
concerned may convert the common shares held organizations and their
by such associations to preferred shares. members
"(3) The articles of cooperative and bylaws of a

cooperative bank, or any amendment thereto, shall AN ACT PROVIDING FOR THE REGULATION OF
be registered with the Authority only when THE ORGANIZATION AND OPERATION OF
accompanied by a certificate of authority issued by NON-STOCK SAVINGS AND LOAN
the BSP, under its official seal. ASSOCIATIONS
What are the powers and functions of a RA 8367

cooperative bank?
ARTICLE. 100. Powers, Functions and Allied What is the policy of the State for the establishment
Undertakings of Cooperative Banks. – of non-stock savings and loan associations?
SECTION 2. Declaration of policy. — It is hereby

A cooperative bank shall primarily provide declared the policy of the State to:
financial, banking and credit services to a) encourage industry, frugality and the
cooperative organizations and their members. accumulation of savings, and judicious
However, the BSP may prescribe appropriate utilization of credit among the members of non-
guidelines, ceilings and conditions on borrowing stock savings and loan associations;
of a cooperative organization from a cooperative b) regulate and supervise the activities of non-
bank. stock savings and loan associations in order to
The powers and functions of a cooperative bank place their operations on a sound, stable, and
shall be subject to such rules and regulations as efficient basis to the end that they may be able to
may be promulgated by the BSP. better provide for the establishment of additional
savings and credit facilities in a fair manner to their
In addition to the powers granted by this Code and members and to curtail or prevent acts or practices
other existing laws, any cooperative bank may of these Associations which are prejudicial to their
perform any or all of the banking services members' interest;
offered by other types of banks subject to the
prior approval of the BSP. c) lay down the minimum requirements and the
standards under which non-stock savings and
loan Associations may organize and operate;
ARTICLE 102. Privileges and Incentives of and d) maximize the protection of members of
Cooperative Banks. – non-stock savings and loan associations against
misfeasance and malfeasance of the trustees
The cooperative banks registered under this Code and officers thereof.
shall be given the same privileges and incentives
granted to the rural banks, private development DEFINITION
bank, commercial banks, and all other banks to NON-STOCK SAVINGS AND LOAN
rediscount notes with the BSP, the Land Bank of the ASSOCIATION shall mean a non-stock, non-profit
Philippines, and other government banks without corporation engaged in the business of
affecting in any way the provisions of this Code. accumulating the savings of its members and using
such accumulations for loans to members to
If you’re going to put it in a table—
service the needs of the households by providing
Thrift bank towards small & long term financing for home building and
medium businesses, development and for personal finance.
individuals

14
So, what is a non-stock savings and loan 2) government employees belonging to the
association? Is it technically a bank? same department/branch/office, including
member-retirees; and
So, diba sabi dapat stock corporation lang ang
bank? 3) immediate members of the families (up
to second degree of consanguinity or
Are you familiar of provident fund? Kinakaltas sa
affinity) of those falling under paragraphs 1
sweldo nyo. Pag nag resign ka, may savings ka
and 2 above.”
pala.
Non-stock savings and loan associations are similar

to that. They handle the savings. They are an So remember what is a well-defined group when
association pero the means of obtaining (funds?) we talk about non-stock savings and loan
are not through deposits butt through the savings. association.
The purpose is for members to borrow money Are there incentives? Yes, of course!
(referring to provident funds).
SECTION 5. Tax exemption. —
These nonstock saving and loan association, these
An Association shall be exempt from payment of
are actually catered to an association. Mostly these
tax in respect to income it receives, including
are employees of the same company. It’s like a
interest on its deposits with any bank:
provident fund. For those who have worked, it’s
like a provident fund wherein when one employee Provided, however, That income derived from any
dies the money goes to him. It’s similar to that. of its properties, real or personal, or any activity
(2019 tsn) conducted for profit, regardless of the disposition
thereof, is subject to the corresponding internal
So, how do you organize that?
revenue taxes imposed under the National Internal
At least (5) but not more than (15) members of a Revenue Code.
well-defined group as provided herein may form
Interest earnings on deposits of members with
an Association under this Act. An Association, prior
Associations as well as the shares of its members
to transacting any business, shall secure a license
from the net income of the Associations shall be
from the Monetary Board and register with the
exempt from income tax.
Securities and Exchange Commission (SEC).
Ang gagawin ng associations, kukunin ang savings
nyo. Ide-deposit nila, so that is tax free.
The Association shall confine its membership to a
well-defined group of persons and shall not SECTION 7. Powers of Associations. —
transact business with the general public. The Association shall accept deposits from and
So, why do we have to discuss this even if it is not a grant loans only to its members, subject to such
bank? Because it functions similar to a bank. The rules and regulations as the Monetary Board may
difference is it does not obtain deposits. You have promulgate to ensure sound, stable and efficient
to be in a well-defined group. operation: Provided, That no deposits shall be
sourced or deducted from the loans granted to a
It is an association. So, under the supervision of the member without his or her written consent. The
SEC. loans shall not exceed the members' deposits and
contributions in the Association, plus twelve (12)
For example, employee ka ni Coca-cola. Well-
months of his regular salary as the Association may
defined group:
allow or seventy percent (70%) of the fair market
“A "well-defined group" shall be defined by value of any property acceptable as collateral on
the Monetary Board, and shall consist of, first mortgage that he may offer as security:
but not be limited to, any of the following— Provided, That no loan shall have the maturity date
of more than five (5) years, except loans on the
1) employees, officers, and directors of one
security of unencumbered real estate for the
company, including member-retirees;
purpose of home building and home

15
development, which may be granted with f) require the employer-entity or corporation to
maturities not exceeding twenty-five (25) years, provide it with adequate office space within which
and medium and long-term loans to finance it can conduct its business; and
agricultural projects, subject to regulations
g) engage in death benefit program meant
prescribed by the Monetary Board: Provided,
exclusively for the mutual benefit of its members.
further, That the treasurer, cashier, or paymaster of
the office employing a member is required,
notwithstanding the provision of any existing law,
rule and regulation to the contrary, to make They are not a labor union. Ang purpose lang ng
deductions from his salary, wage, income or association is don lang sa savings.
retirement pension pursuant to the terms of his
SECTION 14. Compensation of trustees, officers
loan, and all other deductions authorized by the
and employees. —
member, to remit such deductions to the
Association concerned, and to collect such No trustee, officer, or employee of an Association
reasonable fee for his services as may be shall receive from such Association, and no
authorized by rules promulgated by the Monetary Association shall pay to any trustee, officer, or
Board. employee of such Association, any commission,
emolument, gratuity or reward based on the
In addition to the powers granted it by this Act and
volume or number of loans made, or based on the
existing laws, any Association may:
interest or fees collected thereon. Nothing in this
a) charge reasonable interest and collect such section prohibits or limits any of the following:
necessary fees and charges incidental to the grant
a) receipt or payment of salaries of trustees, officers
of loans;
and employees;
b) invest its funds in any sound non-speculative
b) receipt of payment of commissions to agents
enterprises as well as in bonds, security, and
whether or not based on the volume or number of
other obligations issued by the Government of
loans or on the interest or fees collected thereon;
the Philippines, or any of its political
and
subdivisions, instrumentalities, or corporations
including government-owned or -controlled c) receipt or payment of bonuses to trustees,
corporations, subject to the rules and officers or employees if such bonuses are based on
regulations of the Monetary Board; the performance and not on the volume or number
of loans made or on the interest or fees collected
c) allow members to participate in the profits of the
thereon.
Association;
All increase in the compensation, in any form, of all
d) borrow money or incur such obligations not
trustees and trustee-officers in excess of ten
exceeding twenty percent (20%) of the total assets
percent (10%) thereof per annum shall require the
of the Association, from any lending institution. The
approval of the Bangko Sentral.
Monetary Board, may, in meritorious cases, raise
the ceiling on the borrowing capacity of an
Association to an amount not exceeding thirty
percent (30%) of its total assets: Provided, That any REPUBLIC ACT 3591
such Association organized by employees of an AN ACT ESTABLISHING THE PHILIPPINE
entity or corporation may borrow funds from said DEPOSIT INSURANCE CORPORATION,
entity or corporation but not viceversa: Provided, DEFINING ITS POWERS AND DUTIES AND FOR
further, That the number of the Association's OTHER PURPOSES
creditors shall not exceed nineteen (19) at any one
time;
e) maintain deposits with banks: Provided, That What is the PDIC? Is governmanet instrumentality
the amount of such deposits shall be subject to the to insure the deposits of all banks which are
loan limit to a single borrower as prescribed herein entitled to the benefits of insurance.
or by other special laws or regulations;

16
It insures deposits. So example, ang isang bangko, Let’s say I have 3M, maximum 500, 000 so I’ll make
na-bankcrupt, nalugi. 6 bank accounts. No, because it’s per depositor. So
if you have 3M, you make 6 accounts and it gets
The PDIC now has the authority to help depositors
closed, you can only go after the PDIC for a
have quicker access to their insured deposits
maximum of 500, 000 pesos. Please take note that.
should their bank close; resolve problem banks
while still open; hasten the liquidation process for All deposit accounts by a depositor in a close bank
closed banks; and mete out stiffer sanctions and maintained in the same right and capacity shall be
penalties against those who engaged in unsafe added together.
and unsound banking practices.
Those accounts must be in the same right and
That is why it is not only the BSP who regulates the capacity to be consolidated. If you have one bank
bank but also the PDIC. Hindi exclusive ang joint with the husband/wife, it will not be
authority ni BSP. consolidated because you do not put those
deposits in the same right and capacity. It will only
The PDIC is an attached agency of the Department
be in the same right and capacity that it will be
of Finance.
consolidated as one.
Please take note! All banks must a member to the
(2019 tsn)
PDIC. Hindi pwedeng di kasali sa PDIC, hence all
operating banks are members. Under RA 9576, the PDIC may propose to adjust
the Maximum Deposit Insurance Coverage (MDIC),
What is the policy of PDIC?
subject to the approval of the President of the
• To provide insurance coverage for the Philippines, in case of a condition that threatens
depositing public to promote public the monetary and financial stability of the banking
confidence and stability to the economy system that may have systematic consequences.
It adds value to the public.. kasi alam nil ana
So, that is the ground for the increase of the MDIC.
ano mang mangyari sa bangko insured yon.
What is the definition of the insured deposit?
• It ensures prompt payment of insured
deposits, exercises complementary It means the amount due to the bona fide
supervision of banks, adopts responsive depositor for legitimate deposits in an insured
resolution methods and applies efficient bank as of the date of closure but not to exceed
management of receivership and 500,000 pesos.
liquidation functions
So for example, meron kang outstanding loan;
PDIC is the receiver of all banks.
meron kang deposit pero meron kang outstanding
Functions of the PDIC: loan sa bank sa nagsara that is offset but not to
exceed 500,000 pesos.
1. DEPOSIT INSURER
And please take not: A joint account shall be
2. CO-REGULATOR OF BANKS insured separately from any individually-owned
3. RECIEVER AND LIQUIDATOR OF CLOSED deposit account.
BANKS Because you cannot own it with the same right
So, what is the maximum deposit insurance capcity.
coverage? Pag hindi same right capacity magkaiba ang
Effective June 1, 2009 the maximum deposit maximum deposit insurance coverage.
insurance coverage is 500,000 per depositor RA 9576 stipulates that that PDIC will not pay
So, kung ang dami mong bank account in one deposit insurance for the ff. accounts or
bank, “maintained in the same right and transactions—
capacity” similar lang yon. Pero kung ang right mo
• Investment products such as bonds, securities,
sa isang account hindi similar sa is among account,
and trust accounts
magkaiba ang insurance coverage.

17
• Deposit accounts which are unfunded, fictitious and Central Bank (CB) Circular No. 1389.
or fraudulent Depositors may receive payment in the
same currency in which the insured deposit
• Deposit products constituting or emanating is denominated.
from insurance and unsound banking practices
What is the purpose of encouraging foreign
• Deposits that are determine to be proceeds of currency deposits? Bakit napakaraming incentives
an unlawful activity as defined under the Anti- kapag foreign currency deposit?
Money Laundering Act.
The purpose is to aid the BSP in the maintenance
of international reserves adequate to meet any
FEB 19: PIZARRO
foreseeable net demands on the BSP for foreign
currencies.
What types of deposits are insured by the PDIC?

Again, just remember the *exclusions under RA
Except for the exclusions* stipulated in RA 9576:
9576, deposits of all the following are insured The following are the Exclusions
with PDIC: from the deposit insurance coverage as
a. commercial banks; stipulated in R.A. No. 9576:
b. savings and mortgage banks;
c. rural banks; 1. Investment products such as bonds,
d. private development banks; securities and trust accounts;
e. cooperative banks;
f. savings and loan associations; as well as 2. Deposit accounts which are unfunded,
g. branches and agencies in the fictitious or fraudulent;
Philippines of foreign banks, and all
other corporations authorized to 3. Deposit products constituting or
perform banking functions in the emanating from unsafe and unsound
Philippines. banking practices; and
So, we have discussed already the different types 4. Deposits that are determined to be
of banks. All deposits nun – deposits of their proceeds of an unlawful activity as
depositors are covered by PDIC. defined under the Anti-Money
Laundering Law.
Now, this is very important: What if the bank
has deposits outside the country – mayroon Now, equally important (as this has been asked in
siyang “branch”? the recent Bar exam in Commercial Law) is this
question: What is “splitting of deposits”?
As for Philippine banks with
branches outside the country, RA 9576 Splitting of deposits is actually under the topic of
stipulates that subject to the approval of Insured deposits. The tendency in practice is this:
the Board of Directors, any insured bank Alam mong may 500,000PhP coverage ka. So,
with a branch outside the Philippines ginawa mo, hinati mo yung deposits – nag-“splitting
MAY elect to include for insurance its of deposits” ka, because you thought that you can
deposit obligations payable at such get 500,000 PhP per deposit. So, yung isang hati ng
branch. deposit nakapangalan sa kapitbahay; ang isa pang
hati, nakapangalan sa kapitbahay mo. Ginawa mo
So, the insurance coverage of the deposits yan para lang (in the event) na magsarado ang
pertaining to such branches outside the bangko, you’ll get PhP500,000 for each deposit.
Philippines, is OPTIONAL.
Section 26(f)(1)(e) of RA 3591, as amended,
Foreign currency deposits are provides:
also insured by PDIC pursuant to RA Splitting of deposits occurs whenever a
6426 (“An Act Instituting A Foreign deposit account with an outstanding balance of
Currency Deposit System In The more than the statutory maximum amount of
Philippines, And For Other Purposes”)
18
insured deposit maintained under the name of Pesos) with the different Legacy Banks; and 142 of
natural or juridical persons is broken down and these accounts (amounting to over 20 million
transferred into two (2) or more accounts in the Pesos) were in the names of helpers and rank-and-
name/s of natural or juridical persons or entities file employees of the Gidwani spouses. Thus,
who have no beneficial ownership on transferred according to PDIC, most of them if not all, did not
deposits in their names within one hundred twenty have the financial capacity to deposit the amounts
(120) days immediately preceding or during a recorded under their names, let alone make the
bank-declared bank holiday, or immediately deposits in various Legacy Banks located
preceding a closure order issued by the Monetary nationwide. PDIC also noted that advance interests
Board of the Bangko Sentral ng Pilipinas for the on several of the deposits were paid to the Gidwani
purpose of availing of the maximum deposit spouses even though they are not the named
insurance coverage. owners of the accounts.
So, what you have to remember here is the
beneficial ownership. Kapag walang beneficial Pursuant to its mandate to safeguard the
ownership – hindi entitled sa insurance over the deposit insurance fund against illegal schemes and
deposit. machinations, PDIC lodged a criminal complaint
against the Gidwani spouses and the 86 other
individuals, before the Department of Justice
PDIC v. Manu GIDWANI (DOJ) Task Force on Financial Fraud (DOJ Task
GR No. 234616 Force) for:
June 20, 2018 1. Estafa through falsification under Art.
THIRD DIVISION (Velasco, Jr., J.) 315(2)(a) in relation to Art. 172(1) and
Facts: 171(4) of the Revised Penal Code; and
Pursuant to several resolutions of the 2. Money laundering as defined in Section
Monetary Board (MB) of the BSP, a number of the 4(a) of AMLA.
rural banks owned and controlled by the Legacy
Group of Companies (Legacy Banks, for brevity) On January 14, 2014, the DOJ Task Force
were ordered closed and thereafter placed under promulgated a Resolution dismissing the
the receivership of Philippine Deposit Insurance Complaint. PDIC's motion for reconsideration from
Corporation (PDIC). the said Resolution was likewise denied.
The spouses Gidwani, and eighty-six (86) Unperturbed, PDIC interposed a petition for
other individuals, represented themselves to be review with the Office of the Secretary of Justice
owners of four hundred seventy-one (471) deposit (SOJ).
accounts with the Legacy Banks, and filed claims
with PDIC. The claims were processed and On September 11, 2015, then Undersecretary
granted, resulting in the issuance of six hundred of Justice Jose F. Justiniano issued a Resolution
eighty-three (683) Landbank checks in favor of the (Justiniano Resolution) denying PDIC's appeal.
86 individuals, excluding the spouses Gidwani, in
the aggregate amount of over 98 million Pesos. On June 3, 2016, then SOJ Emmanuel Caparas,
however, overturned the Justianio Resolution
The individuals did not deposit the crossed through his own ruling granting PDIC's motion for
checks in their respective bank accounts. Rather, reconsideration (Caparas Resolution). In his
the face value of all the checks were credited to a Resolution, then SOJ Caparas directed the
single bank account with Rizal Commercial Prosecutor General to file the relevant Informations
Banking Corporation (RCBC) owned by Manu against the spouses Gidwani and the 86 other
Gidwani. individuals.
According to PDIC, it only discovered the Manu Gidwani immediately elevated the
foregoing circumstance when the checks were matter to the Court of Appeals, ascribing grave
cleared and returned to it. This prompted PDIC to abuse of discretion on the part of SOJ Caparas in
conduct an investigation on the true nature of the finding probable cause to charge him with estafa
deposit placements of the 86 individuals. Based on and for violation of the AMLA.
available bank documents, the spouses Gidwani
and the 86 individuals maintained a total of 471 The Court of Appeals reversed the decision of
deposit accounts (aggregating to over 118 million SOJ Caparas. Te CA ruled that SOJ Caparas

19
gravely abused his discretion when he reversed Manu was the sole beneficial owner of the
and set aside the earlier resolutions of the DOJ bank accounts.
Task Force and of Undersecretary Justiniano.
Accordingly, due to lack of probable cause, the The [Court] disagrees with the CA’s ruling that
appellate court ordered the dismissal of the "PDIC failed to prove that Gidwani is the owner of
criminal complaint against Gidwani, and the all subject bank accounts or financed the same"
cancellation of the corresponding Information/s. and, as such, Manu could not be considered to
have committed false pretenses or
PDIC’s motion for reconsideration of the CA’s misrepresentations against PDIC.
decision having been denied, it elevated the case
to the Supreme Court. It must be recalled that the criminal case is still
in the stage of preliminary investigation. Under
Issue: Did the then SOJ Caparas gravely abuse his Rule 112, Section 1 of the Rules of Court, a
discretion in finding probable cause against Manu preliminary investigation is "an inquiry or
Gidwani, in connection with the allegations in proceeding to determine whether there is
PDIC’s criminal complaint? NO. sufficient ground to engender a well-founded
belief that a crime has been committed and the
HELD: respondent is probably guilty thereof, and should
Jurisprudence elucidates that the elements of be held for trial." The investigation is advisedly
estafa or swindling under paragraph 2(a) of Article called preliminary, because it is yet to be followed
315 of the RPC are the following: by the trial proper in a court of law. The occasion is
1. That there must be a false pretense, not for the full and exhaustive display of the parties
fraudulent act or fraudulent means; since the function of the investigating prosecutor is
2. That such false pretense, fraudulent act or not to determine the guilt or innocence of an
fraudulent means must be made or accused.
executed prior to or simultaneously with the
commission of the fraud; In this case, the PDIC reportedly discovered
3. That the offended party must have relied on that there was only one beneficial owner of the 471
the false pretense, fraudulent act, or bank accounts with the Legacy Banks (purportedly
fraudulent means, that is, he was induced to owned by 86 other individuals) – respondent
part with his money or property because of Manu.
the false pretense, fraudulent act, or
fraudulent means; and PDIC reportedly discovered that 142 of these
4. That as a result thereof, the offended party 471 accounts, with the total amount of over 20
suffered damage. million Pesos, were in the names of helpers and
rank-and-file employees of the Gidwani spouses
According to PDIC: who do not have the financial capacity to deposit
1. the crime charged (estafa or swindling the amounts recorded under their names.
under paragraph 2(a) of Article 315 of the Moreover, the helpers and rank-and-file
RPC) was committed when the 86 other employees who reside and are employed in
individuals fraudulently declared that they Bacolod City maintained bank accounts in Legacy
are the bona fide owners of 471 deposits Banks located in different parts of the country
with the legacy banks; (outside of Bacolod City).
2. the purported depositors, in conspiracy
with Manu, falsified official documents by The fact these individuals stated/reported
making the untruthful statement of Manu Gidwani's office or business address as their
ownership in their deposit insurance claims; own further arouses serious suspicion on the true
3. it (PDIC) relied on the representations of the ownership of the funds deposited. It gives the
claimants when it released to them the impression that they had been used by Gidwani as
deposit insurance proceeds amounting to dummies, and that their purported ownership was
over 98 million Pesos, of which over 97 a mere subterfuge in order to increase the amount
million Pesos was deposited to the RCBC of Gidwani’s protected deposit.
account of Manu Gidwani; and
4. the government suffered damage when Under Republic Act No. 3591 (PDIC Charter), as
PDIC discovered upon investigation that amended:

20
all deposits in a bank maintained in
the same right and capacity for a depositor's Imagine kapag walang bank secrecy;
benefit, either in his name or in the name of imagine if you can just request for information
others, shall be added together for the regarding the balances of the bank account/s of
purpose of determining the insured deposit anyone. What would that do to the society? So,
amount due to a bona fide depositor, which siyempre, kung ikaw yung tipong ayaw ipagkalat
amount should not exceed the maximum ang kayamanan mo, gusto mong secured yung
deposit insurance coverage (MDIC) of information sa nilalaman ng account mo. That is
P250,000.00. why bank employees are under strict
confidentiality – hindi nila pwedeng sabihin ang
Thus, the entitlement to a deposit insurance is nilalaman ng account mo kahit kanin. That is also
based not on the number of bank accounts held, why under the General Banking Law, hindi
but on the number of beneficial owners. It is this pwedeng idisclose ang kahit anong particular
government policy and P250,000.00 threshold that information regarding a particular deposit of a
Gidwani purportedly circumvented by conspiring person. It is in accordance with the bank secrecy
with the 86 individuals. If not for the fact that the laws. Again, it is to encourage the resort to, and to
683 Landbank crossed checks amounting to over give public confidence in our banking system.
97 million Pesos were deposited in the RCBC
account of Gidwani, PDIC would not have gotten
wind of this probable concealment of true
ownership over the subject bank accounts. Before the TRAIN Law was enacted, in fact,
both the Senate and House versions included the
The Law on Secrecy of Bank Deposits authority of the Commissioner, without the
(RA 1405) necessity of a court order, to inquire into the bank
accounts of taxpayers. BUT in the final version, the
Even though the trend of bar exam bicameral version, (parang) NAWALA, because of
questions in the past five (5) years is leaning the arguments raised there that we have this
towards matters concerning the AMLA, please take existing law on secrecy of bank deposits. So, we
note that this is still a good depositary of bar cannot just impliedly repeal an existing Republic
questions. Act by the mere amendment of the Tax Laws. So,
sabi nila, in the Tax Reform Package 2 (which is very
So, we have, basically, two (2) laws on very late na) it would contain such provision. Pero I
secrecy of bank deposits. We will first discuss RA doubt na matutuloy yan kasi ang mga mambabatas
1405 or The Law on Secrecy of Bank Deposits. natin, sila yung ano eh…yung may malalaking
tinatago.
Why was this enacted? The State policy behind RA
1405 can be found under its Section 1: What is the coverage of the Law on Secrecy
of Bank Deposits?
Section 1. It is hereby declared to be
the policy of the Government to give Section 2. All deposits of whatever
encouragement to the people to deposit nature with banks or banking institutions in
their money in banking institutions and the Philippines including investments in
to discourage private hoarding so that bonds issued by the Government of the
the same may be properly utilized by Philippines, its political subdivisions and its
banks in authorized loans to assist in the instrumentalities, are hereby considered as
economic development of the country. of an absolutely confidential nature and
may not be examined, inquired or looked
So when reading this law, we have to read into by any person, government official,
the State Policy behind the enactment of this law – bureau or office. . .
because of the saying that “it must be the spirit of
the law.” So, class, you always go back to the Here are the exceptions under the law.
reason why a particular law was enacted. Kasi nga, Please take note: under the law. This is because
if you apply the letter of the law and it kills the policy there is/are jurisprudential exception/s.
or the reason why it was enacted, you are not
applying the law in accordance with the minds and . . .except:
intentions of the members of the Legislature.

21
1. upon written permission of the We have one case which expounds on what is
depositor, or under the ambit of bribery or dereliction of duty of
2. in cases of impeachment, or public officials.
3. upon order of a competent court in
cases of bribery or dereliction of duty of
PP v SB
public officials, or
4. in cases where the money deposited or
invested is the subject matter of the Short Facts: In relation to the plunder cases filed
litigation. against Estrada, the prosecution filed before the
SB a request of subpoena duces tecum directing
So, the last one (number 4) is actually that’s the president of Export and Industry Bank to
medyo vague. When do you consider the money as produce certain documents regarding trust and
a subject matter of the litigation? savings account of Estrada.
Let’s go to the prohibitions: Issue: WON trust account is covered by the

secrecy law.
Section 3. It shall be unlawful for any
official or employee of a banking institution Ruling: YES, but examination will still be
to disclose to any person other than those
conducted as it falls under one of the exceptions.
mentioned in Section two hereof any
information concerning said deposits.
An examination of the law shows that the term
Please take note – hindi lang yung balanse "deposits" used therein is to be understood
yung bawal i-divulge but also ANY INFORMATION. broadly and not limited only to accounts which
So, example, if may magtanong “MAY bank account give rise to a creditor-debtor relationship between
ba si ganito?” Tapos, you disclose it, you can be the depositor and the bank.
subject to the penalties for violation of the bank
secrecy law: SECTION 1. It is hereby declared to be the policy
of the Government to give encouragement to the
Section 5. Any violation of this law people to deposit their money in banking
will subject offender upon conviction, to an institutions and to discourage private hoarding so
imprisonment of not more than five years or that the same may be properly utilized by banks in
a fine of not more than twenty thousand
authorized loans to assist in the economic
pesos or both, in the discretion of the court.
development of the country.
But the fine in the foregoing section has already
been increased ‘no. If the money deposited under an account may be
used by banks for authorized loans to third
persons, then such account, regardless of whether
FEB 26: BANOSAN it creates a creditor-debtor relationship between
the depositor and the bank, falls under the
category of accounts which the law precisely seeks
What you have to determine regarding the law on to protect for the purpose of boosting the
secrecy of bank deposits are the exceptions. So economic development of the country.
under the law these are the following exceptions:
a. Written permission of the depositor; The Trust Agreement between Estrada and the
b. In cases of impeachment; Bank provides that the trust account covers
c. Upon order of a competent court in cases "deposit, placement or investment of funds" by the
of bribery or dereliction of duty of public Bank for and in behalf of Estrada. The money
officials; and deposited under Trust Account was, therefore,
d. In case where the money deposited is the intended not merely to remain with the bank but to
subject matter of the litigation. be invested by it elsewhere. To hold that this type
of account is not protected by R.A. 1405 would
encourage private hoarding of funds that could

22
otherwise be invested by banks in other ventures, be different from the policy as to the other. This
contrary to the policy behind the law. policy expresses the notion that a public office is a
public trust and any person who enters upon its
Section 2 of the same law in fact even more clearly discharge does so with the full knowledge that his
shows “deposits” was intended to be understood life, so far as relevant to his duty, is open to public
broadly: scrutiny.”
SECTION 2. All deposits of whatever nature with In addition, RA 7080 itself states that plunder is a
banks or banking institutions in the Philippines case that involves unexplained wealth since
including investments in bonds issued by the plunder is a crime where any public officer xxx
Government of the Philippines, its political amasses, accumulates or acquires ill-gotten wealth
subdivisions and its instrumentalities, are hereby xxx (Section 2). In addition, Section 1(d) even
considered as of an absolutely confidential nature provides that one of the overt or criminal acts is
and may not be examined, inquired or looked into bribery, which means bribery is essentially among
by any person, government official, bureau or the criminal acts of plunder. Plunder being thus
office, except upon written permission of the analogous to bribery, the exception to R.A. 1405
depositor, or in cases of impeachment, or upon applicable in cases of bribery must also apply to
order of a competent court in cases of bribery or cases of plunder
dereliction of duty of public officials, or in cases
where the money deposited or invested is the
subject matter of the litigation. Another issue: WON the evidence obtained in
violation of this rule is inadmissible.
The phrase "of whatever nature" proscribes any
restrictive interpretation of "deposits." Moreover, it Held: Still admissible
is clear from the immediately quoted provision
that, generally, the law applies not only to money Petitioner's attempt to make the exclusionary rule
which is deposited but also to those which are applicable to the instant case fails. R.A. 1405, it
invested. This further shows that the law was not bears noting, nowhere provides that an unlawful
intended to apply only to "deposits" in the strict examination of bank accounts shall render the
sense of the word. Otherwise, there would have evidence obtained therefrom inadmissible in
been no need to add the phrase "or invested." evidence.
Clearly, therefore, R.A. 1405 is broad enough to
cover Trust Accounts. Section 5 of R.A. 1405 only states that "[a]ny
violation of this law will subject the offender upon
In the case at bar, two exceptions apply: conviction, to an imprisonment of not more than
1. The examination of bank accounts is upon order five years or a fine of not more than twenty
of a competent course in cases of bribery and thousand pesos or both, in the discretion of the
dereliction of duty of public officials; and court."
2. The money deposited or invested is the subject
matter of litigation. Even assuming arguendo, however, that the
exclusionary rule applies in principle to cases
FOLLOW-UP QUESTION: involving R.A. 1405, the Court finds no reason to
apply the same in this particular case. Clearly, the
Q: How about the contention that plunder is not "fruit of the poisonous tree" doctrine presupposes
among the exceptions under Section 2? a violation of law. If there was no violation of R.A.
1405 in the instant case, then there would be no
A: In Philippine National Bank v. Gancayco, the "poisonous tree" to begin with, and, thus, no
court ruled that “cases of unexplained wealth are reason to apply the doctrine.
similar to cases of bribery or dereliction of duty and
no reason is seen why these two classes of cases DISCUSSION:
cannot be excepted from the rule making bank
deposits confidential. The policy as to one cannot

23
So, in other words, it (plunder) is within the phrase Republic Act No. 1405 (which took effect on Sept.
“in cases of bribery and dereliction of duty”. Even 9, 1955), because of the rule that repeals by
those cases of unexplained wealth are under that implication are not favored.
particular phrase.
2. To construe section 8 of the Anti-Graft
Law; as allowing inquiry into bank deposits would
PNB v GANCAYCO be to negate the policy expressed in section 1 of
Republic Act No. 1405 which is "to give
Short Facts: In relation to the investigation encouragement to the people to deposit their
conducted against Ernesto Jimenez (former money in banking institutions and to discourage
administrator of the Agricultural Credit and private hoarding so that the same may be utilized
Cooperative Administration) for unexplained by banks in authorized loans to assist in the
wealth, the prosecutors required the PNB to economic development of the country."
produce his bank records.
PNB declined to reveal the records invoking Issue: WON the bank may be compelled to reveal
Section 2 in relation to Section 5 of RA 1405. the records.
SEC. 5. Any violation of this law will subject the Ruling: YES
offender upon conviction, to an imprisonment of
not more than five years or a fine of not more than Section 8 of the Anti-Graft Law amended Section 2
twenty thousand pesos or both, in the discretion of of RA 1405. The truth is that these laws are so
the court. repugnant to each other that no reconciliation is
possible. Thus, while Republic Act No. 1405
On the other hand, the prosecutors invoked provides that bank deposits are "absolutely
Section 8 of RA 3019 (Anti-Graft and Corrupt confidential x x x and [therefore] may not be
Practices Act). examined, inquired or looked into," except in
those cases enumerated therein, the Anti-Graft
SEC. 8. Dismissal due to unexplained wealth. If in Law directs in mandatory terms that bank deposits
accordance with the provisions of Republic Act shall be taken into consideration in the
Numbered One thousand three hundred seventy- enforcement of this section, notwithstanding any
nine, a public official has been found to have provision of law to the contrary. The only
acquired during his incumbency, whether in his conclusion possible is that section 8 of the Anti-
name or in the name of other persons, an amount Graft Law is intended to amend section 2 of
of property and/or money manifestly, out of Republic Act No. 1405 by providing an additional
proportion to his salary and to his other lawful exception to the rule against the disclosure of bank
income, that fact shall be a ground for dismissal or deposits.
removal. Properties in the name of the spouse and Indeed, it is said that if the new law is inconsistent
unmarried children of such public official, may be with or repugnant to the old law, the presumption
taken into consideration, when their acquisition against the intent to repeal by implication is
through legitimate means cannot be satisfactorily overthrown because the inconsistency or
shown. Bank deposits shall be taken into repugnancy reveals an intent to repeal the existing
consideration in the enforcement of this section, law. And whether a statute, either in its entirety or
notwithstanding any provision of law to the in part, has been repealed by implication is
contrary. ultimately a matter of legislative intent.
Under threats of prosecution, PNB filed an action With regard to the claim that disclosure would be
for declaratory judgment. PNB contends: contrary to the policy making bank deposits
confidential, it is enough to point out that while
1. The Anti-Graft Law (which took effect on section 2 of Republic Act No. 1405 declares bank
August 17, 1960) is a general law which cannot be deposits to be "absolutely confidential" it
deemed to have impliedly repealed section 2 of

24
nevertheless allows such disclosure in the was paid in cash by Javier who did not even ask for
following instances: a receipt.
(1) Upon written permission of the depositor;
(2) In cases of impeachment; The two checks totalling P1,000,000 was delivered
(3) Upon order of a competent court in cases of by Poblador to F.C. Hagedorn with specific
bribery or dereliction of duty of public officials; and instructions to purchase Atlas, SMC and Philex
(4) In cases where the money deposited is the shares. The four checks for P2,000,000 with Elnor
subject matter of the litigation. Investment and Paramount Finance as payees were
delivered to the latter to purchase "bearer" notes.
Cases of unexplained wealth are similar to
cases of bribery or dereliction of duty and no Meanwhile, in July, 1977, Mellon Bank filed a
reason is seen why these, two classes of cases complaint docketed as No. 148056 in the Superior
cannot be excepted from the rule making bank Court of California, County of Kern, against
deposits confidential. Melchor Javier, Jane Doe Javier, Honorio
Poblador, Jrn, and Does I through V. Mellon Bank
alleged that it had mistakenly and inadvertently
MELLON BANK v MAGSINO cause the transfer of the sum of $999,000.00 to
By: Bethany Aberilla Jane Doe Javier; that it believes that the
defendants had withdrawn said funds; that "the
Facts: On May 27, 1977, Dolores Ventosa defendants and each of them have used a portion
requested the transfer of $1,000 from the First of said funds to purchase real property located in
National Bank of Moundsville, West Virginia, U.S.A. Kern County, California"; and that because of
to Victoria Javier in Manila through the Prudential defendants' knowledge of Mellon Bank's mistake
Bank. Accordingly, the First National Bank and inadvertence and their use of the funds to
requested the petitioner, Mellon Bank, to effect the purchase the property, they and "each of them are
transfer. Unfortunately the wire sent by Mellon involuntary or constructive trustees of the real
Bank to Manufacturers Hanover Bank, a property and of any profits therefrom, with a duty
correspondent of Prudential Bank, indicated the to convey the same to plaintiff forthwith."
amount transferred as "US$1,000,000.00" instead
of US$1,000.00. Hence Manufacturers Hanover On July 29, 1977, Mellon Bank also filed in the
Bank transferred one million dollars less bank Court of First Instance of Rizal, Branch X, a
charges of $6.30 to the Prudential Bank for the complaint against the Javier spouses, Honorio
account of Victoria Javier. Poblador, Jr., Domingo L. Jhocson, Jr., Jose
Marquez, Roberto Gariño, Elnor Investment Co.,
Javier then appropriated the amount with the help Inc., F.C. Hagedorn & Co., Inc. and Paramount
of the other respondents. (Opened a dollar Finance Corporation. After its amendment, Rafael
account with Prudential Bank and other banks, Caballero and Tri-Arc Investment & Management
deposited the money and made several Company, Inc. were also named defendants.
withdrawals to purchase real estate from Poblador
Javier through Marquez as broker.) In due course, the defendants filed their answers
and hearing of the case ensued. In his testimony,
Note: Inasmuch as Poblador had requested that Jose Marquez stated that Prudential Bank and
the purchase price should not be paid directly to Trust Company checks Nos. 2530 and 2531 in the
him, the payment of P3,000,000 was coursed respective amounts of P100,000 and P900,000
through Elnor Investment Co., Inc., allegedly payable to F. C. Hagedorn were delivered to him
Poblador's personal holding company; Paramount by Melchor Javier, Jr. as partial consideration for
Finance, allegedly headed by Poblador's brother, the sale of Poblador's property in California. After
and F.C. Hagedorn, allegedly a stock brokerage receiving the checks, Hagedorn purchased shares
with extensive dealings with Poblador. The of Atlas Mining, Philex, Marcopper and San Miguel
payment was made through the aforementioned Corporation for Account No. 3000, which,
six cashier's checks while the balance of P236,000 according to Fred Hagedorn belonged to the law
office of Poblador.

25
benefit, necessarily, an inquiry into the
F.C. Hagedorn & Co., Inc. then sold the shares for whereabouts of the illegally acquired amount
P874,490.75 as evidenced by HSBC check No. extends to whatever is concealed by being held or
339736 for P400,000 and HSBC check No. 339737 recorded in the name of persons other than the
for P474,490.75 payable to "cash". Mellon Bank one responsible for the illegal acquisition.
traced these checks to Account 2825-1 of the
Philippine Veterans Bank in the name of Cipriano DISCUSSION:
Azada, Poblador's law partner and counsel to the
Javiers. Q: What was the case filed by Mellon Bank? Was it
the subject matter of the litigation?
An employee of the Philippine Veterans Bank
thereafter introduced the specimen signature A: It was for the recovery of sum of money and it
cards for Account No. 2825-1 thereby confirming was the subject matter of the sum of money.
Azada's ownership of the account. Defendants
objected to this testimony on the grounds of
Azada's absence, the confidentiality of the bank UNION BANK v CA
account, and the best evidence rule. The court
overruled the objection. Another employee of the Facts: A check in the amount of 1 million was
Philippine Veterans Bank then presented the drawn against an account with Allied Bank (AB)
ledger card for Account No. 2825-1, a check payable to the order of one Alvarez. The payee
deposit slip and a daily report of returned items. deposited the check with Union Bank (UB) who
The defendants objected but they were again credited the P1,000,000.00 to the account of Mr.
overruled by the court. Alvarez.
Mellon Bank then subpoenaed Erlinda Baylosis of UB sent the check for clearing. When the check was
the Philippine Veterans Bank to show that Azada presented for payment, a UB’s staff committed a
deposited HSBC checks No. 339736 and 339737 discrepancy when he under-encoded 1 million to 1
amounting to P874,490.75 in his personal current thousand. UB only discovered this 1 year later. UB
account with said bank. It also subpoenaed notified AB of the discrepancy by way of a charge
Pilologo Red, Jr. of Hongkong & Shanghai Banking slip amounting to 999,999 for automatic debiting
Corporation to prove that said amount was against AB. AB refused to accept the charge slip
returned by Azada to Hagedorn. "since [the] transaction was completed per your
[Union Bank's] original instruction and client's
The testimonies of these witnesses were objected account is now insufficiently funded."
to by the defense on the grounds of res inter alios
acta, immateriality, irrelevancy and confidentiality. In a case filed against AB by UB for the payment of
999,999 before the PCHC Arbitration Committee,
Issue: W/N the admission of the testimonies UB filed a petition for the examination of the said
objected to would violate RA 1405 on the secrecy account. Denied by the RTC stating that case of
of bank deposits. Union Bank does not fall under any of the
foregoing exceptions to warrant a disclosure of or
Ruling: NO Private respondents' protestations that inquiry into the ledgers/books of account of Allied
to allow the questioned testimonies to remain on Checking Account; that the complaint filed before
record would be in violation of the provisions of the PCHC Arbitration Committee is not one for
Republic Act No. 1405 on the secrecy of bank bribery or dereliction of duty of public officials
deposits, is unfounded. much less is there any showing that the subject
matter thereof is the money deposited in the
Section 2 of said law allows the disclosure of bank account in question; that the complaint primarily
deposits in cases where the money deposited is hinges on the alleged deliberate violation by Allied
the subject matter of the litigation. Inasmuch as Bank Corporation of the provisions of the PCHC
Civil Case No. 26899 is aimed at recovering the Rule Book, Sec. 25.3, and as principal reliefs, it
amount converted by the Javiers for their own seeks for the recovery of amounts of money as a

26
consequence of an alleged under-coding of check Union Bank seeks from Allied Banks as a result of
amount to P1,000,000.00 and damage[s] by way of the latter's alleged failure to inform the former of
loss of interest income. the discrepancy; but it is not the P999,000.00
deposited in the drawer's account. By the terms of
Union Banks's theory is that Allied Bank should R.A. No. 1405, the "money deposited" itself should
have informed Union Bank of the under-encoding be the subject matter of the litigation.
pursuant to the provisions of Section 25.3.1 of the
PCHC Handbook. Failing in that duty, Union Bank Union Bank feels a need for such information in
holds Allied Bank directly liable for the order to establish its case against Allied Bank does
P999,000.00 and other damages. not, by itself, warrant the examination of the bank
deposits. The necessity of the inquiry, or the lack
thereof, is immaterial since the case does not come
Issue: WON the account to be examined is the under any of the exceptions allowed by the Bank
subject matter of the litigation Deposits Secrecy Act.
Ruling: NO DISCUSSION:
How is this case different from the case of Mellon
The petition before this Court reveals that the true Bank?
purpose for the examination is to aid petitioner in
proving the extent of Allied Bank's liability. It states: In Mellon Bank, N.A. vs. Magsino, where the
petitioner bank inadvertently caused the transfer of
Indeed, to prove the allegations in its Complaint the amount of US$1,000,000.00 instead of only
before the PCHC Arbitration Committee, and to US$1,000.00, the Court sanctioned the
rebut private respondent's defense on the matter, examination of the bank accounts where part of the
petitioner needs to determine: money was subsequently caused to be deposited:
1. how long respondent Allied Bank had wilfully or “Inasmuch as the case was aimed at recovering the
negligently allowed the difference of P999,000.00 amount converted by the Javiers for their own
to be maintained in the subject account without benefit, necessarily, an inquiry into the
remitting the same to petitioner; whereabouts of the illegally acquired amount
extends to whatever is concealed by being held or
2. whether indeed the subject account was no recorded in the name of persons other than the
longer sufficiently funded when petitioner sent its one responsible for the illegal acquisition.”
charge slip for reimbursement to respondent bank
on May 7, 1991; and Clearly, Mellon Bank involved a case where the
money deposited was the subject matter of the
3. whether or not respondent Allied Bank's litigation since the money so deposited was the
actuations in refusing to immediately reimburse very thing in dispute.
the discrepancy was attended by good or bad
faith.
BSB GROUP v GO
In other words, only a disclosure of the pertinent
details and information relating to the transactions Facts: Petitioner, the BSB Group, is a duly
involving subject account will enable petitioner to organized domestic corporation presided by
prove its allegations in the pending Arbicom case. Bangayan. Respondent Sally Go is Bangayan’s wife,
who was employed in the company as a cashier.
In short, Union is fishing for information so it can
determine the culpability of Allied Bank and the Bangayan filed a complaint for qualified theft
amount of damages it can recover from the latter. against respondent alleging that several checks
It does not seek recovery of the very money (Php1.5M) were instead of depositing to the
contained in the deposit. The subject matter of the company’s coffers, she deposited to her personal
dispute may be the amount of P999,000.00 that account maintained at Security Bank and Trust

27
Company in Divisoria, Manila Branch. The have stolen from petitioner and deposited in her
information reads personal banking account. More in point,
respondent opined that admitting the testimony of
“…take, steal and carry away CASH MONEY in the Marasigan, as well as the evidence pertaining to
total amount of 1,534,135.50…” the Security Bank account, would violate the
secrecy rule under RA No 1405.
On the premise that respondent had allegedly
encashed the subject checks and deposited the Petitioner asserted the sufficiency of the
corresponding amounts thereof to her personal allegations in the criminal information for qualified
banking account, the prosecution moved for the theft as the same has sufficiently alleged the
issuance of subpoena duces tecum/ad elements of the offense charged. It posits that
testificandum against the respective managers or through the testimony, the Court would be able to
records custodians of Security Bank’s Divisoria establish that the checks involved had been
Branch. received by respondent as a cashier, but were,
deposited to her personal banking account.
Respondent filed a motion to quash the subpoena
noting that there was no mention made of the said Issue: WON the Secrecy Rule applies in this case
bank account in the Information.
Ruling: YES
Meanwhile, the prosecution was able to present in
court the testimony of Elena Marasigan, the RA No. 1405 has two allied purposes. It hopes to
representative of Security Bank. In the course of the discourage private hoarding and at the same time
testimony, the subject checks were presented to encourage the people to deposit their money in
Marasigan for identification and marking as the banking institutions, so that it may be utilized by
same checks received by respondent, endorsed, way of authorized loans and thereby assist in
and then deposited in her personal account with economic development. The confidentiality of
Security Bank. bank deposits remains to be a basic statutory
policy in the Philippines.
Respondent then filed a Motion to Suppress
seeking the exclusion of Marasigan’s testimony The SC said, for inquiry to be allowed, the money
and accompanying documents invoking the deposited in the account must itself be the subject
privilege of confidentiality under R.A. No. 1405. matter of the action. The subject matter of the
The trial court denied the motion. The CA reversed action is determined from the indictment that
the trial court and granted the Motion to Suppress. charges the offense, and not from the evidence
sought to be admitted by the prosecution.
Petitioner asserted that apart from the fact that the
said evidence had a direct relation to the subject In this case, in the information filed with the Court,
matter of the case for qualified theft and, hence, Go was charged with qualified theft. There was no
brings the case under one of the exceptions to the material factual allegation in the information
coverage of confidentiality under RA 1405. involving the subject checks. Moreover, there was
Petitioner believed that what constituted the no mention in the information of the supposed
subject matter in litigation was to be determined bank account. Thus, the testimony of the bank
by the allegations in the information. representative on the account cannot be allowed
because it is not the subject matter of the case.
Respondent claimed that the money represented
by the Security Bank account was neither relevant In the criminal Information filed with the trial court,
nor material to the case, because nothing in the respondent, unqualifiedly and in plain language, is
criminal information suggested that the money charged with qualified theft. The said Information
therein deposited was the subject matter of the makes no factual allegation that in some material
case. She advanced the notion that the term “cash way involves the checks subject of the testimonial
money” stated in the Information was not and documentary evidence sought to be
synonymous with the checks she was purported to suppressed. Neither do the allegations in said

28
Information make mention of the supposed bank heightened scrutiny given by courts and legislators
account in which the funds represented by the to laws infringing such rights.
checks have allegedly been kept.
Should there be doubts in upholding the
It comes clear that the admission of testimonial and absolutely confidential nature of bank deposits
documentary evidence relative to respondent’s against affirming the authority to inquire into such
Security Bank account serves no other purpose that accounts, then such doubts must be resolved in
to establish the existence of such account, its favor of the former. This attitude persists unless
nature and the amount kept in it. It constitutes an congress lifts its finger to reverse the general state
attempt by the prosecution at an impermissible policy respecting the absolutely confidential
inquiry into a bank deposit account the privacy and nature of bank deposits.
confidentiality of which is protected by law. On this
score alone, the objection posed by respondent in xxx xxx xxx
her motion should have indeed put an end to the
controversy at the very first instance it was raised In other words, in pursuing a case for this offense,
before the trial court. the prosecution may establish its cause by the
presentation of the checks involved. These checks
would then constitute the best evidence to
(texts from the case as included in Sir Ong’s establish their contents and to prove the elemental
pptx.) act of conversion in support of the proposition that
the offender has indeed indorsed the same in his
What indeed constitutes the subject matter in own name.
litigation in relation to Section 2 of R.A. No. 1405
has been pointedly and amply addressed in Union DISCUSSION:
Bank of the Philippines v. Court of Appeals, in
which the Court noted that the inquiry into bank Please take note: The law on bank secrecy is based
deposits allowable under R.A. No. 1405 must be on the right to privacy because the right to privacy
premised on the fact that the money deposited in also extends to our financial information.
the account is itself the subject of the action. Given
this perspective, we deduce that the subject matter Being exemptions (sabi ni sir), these are to be
of the action in the case at bar is to be determined construed strictly in favor of the bank account
from the indictment that charges respondent with owner.
the offense, and not from the evidence sought by
the prosecution to be admitted into the records. In Quite essentially the argument against the
the criminal Information filed with the trial court, cancellation of the provision under the TRAIN law
respondent, unqualifiedly and in plain language, is which allows the Commissioner of the BIR to motu
charged with qualified theft by abusing petitioner’s propio inquire the balances of the accounts of the
trust and confidence and stealing cash in the tax payer because we have the general rule on
amount of ₱1,534,135.50. The said Information privacy law of financial information. The Congress
makes no factual allegation that in some material must repeal that first before the Commissioner may
way involves the checks subject of the testimonial motu propio inquire the bank accounts.
and documentary evidence sought to be
suppressed. Neither do the allegations in said
Information make mention of the supposed bank Let’s go the FOREIGN CURRENCY DEPOSIT ACT,
account in which the funds represented by the RA 6426
checks have allegedly been kept.
xxx xxx xxx We have two bank secrecy laws:
1. Republic Act No. 1405 or the Law on
A final note. In any given jurisdiction where the Secrecy of Bank Deposits; and
right of privacy extends its scope to include an 2. Republic Act No. 6426 or An Act
individual’s financial privacy rights and personal Instituting a Foreign Currency Deposit
financial matters, there is an intermediate or

29
System in The Philippines, and for Other (5) To pay interest in foreign currency on
Purposes such deposits.
Section 2. Authority to deposit foreign currencies.

SECTION 5. Withdrawability and
– Any person, natural or juridical, may, in Transferability of Deposits. — There shall
accordance with the provisions of this Act, deposit be no restriction on the withdrawal by the
with such Philippine banks in good standing, as depositor of his deposit or on the
may, upon application, be designated by the transferability of the same abroad except
Central Bank for the purpose, foreign currencies those arising from the contract between
which are acceptable as part of the international the depositor and the bank.
reserve, except those which are required by the
Central Bank to be surrendered.
Let’s go to the cases first.
CANCIO vs CTA
FEB 26: ABERILLA G.R. No. 73882 October 22, 1987
FACTS:
REPUBLIC ACT NO. 6426 The records show that claimant Mrs. Rosa
Cancio while clearing through the Pre-
AN ACT INSTITUTING A FOREIGN CURRENCY Boarding Area of MIA with her husband
DEPOSIT SYSTEM IN THE PHILIPPINES, AND and three (3) children to board PR 306 for
FOR OTHER PURPOSES Hongkong, was apprehended with One
Hundred Two Thousand Nine Hundred
SECTION 2. Authority to Deposit
Dollars (US$102,900.00) in cash, six
Foreign Currencies. — Any person,
hundred dollars (US$600.00) in two
natural or juridical, may, in accordance
travelers checks, and one thousand five
with the provisions of this Act, deposit
hundred (Pl,500.00) Pesos. In view of
with such Philippine banks in good
claimant's failure, upon being required,
standing, as may, upon application, be
to present the Central Bank Authority, the
designated by the Central Bank for the
said currencies were accordingly
purpose, foreign currencies which are
confiscated.
acceptable as part of the international
reserve, except those which are required
Petitioner's unimpugned evidence shows
by the Central Bank to be surrendered in
that she was a foreign currency depositor
accordance with the provisions of
at the Philippine Commercial and
Republic Act Numbered Two hundred
Industrial Bank at Makati, Metro Manila,
sixty-five.
and that the subject foreign currency was
part of the total amount of
SECTION 3. Authority of Banks to US$116,000.00 she had withdrawn from
Accept Foreign Currency Deposits. — said bank from May 14 to 27, 1981 for her
The banks designated by the Central travel and medical expenses in the
Bank under Section two hereof shall have United States via Hongkong.
the authority:
(1) To accept deposits and to accept ISSUE: Whether or not the forfeiture is
foreign currencies in trust: Provided, That proper?
numbered accounts for recording and
servicing of said deposits shall be RULING: NO.
allowed;
(2) To issue certificates to evidence such It is true that in so far as the exportation
deposits; or taking out of foreign currency from the
(3) To discount said certificates; country is concerned, Central Bank
(4) To accept said deposits as collateral Circular No. 265, issued on November
for loans subject to such rules and 20, 1968, particularly paragraph 3
regulations as may be promulgated by thereof, mandates:
the Central Bank from time to time; and
30
3. No person shall take out or export from Manila International Airport when she
the Philippines foreign currency or any was about to depart. As she had
other foreign exchange except as explained, however, she was unaware of
otherwise authorized by the Central this requirement. And if she had wrapped
Bank. her dollar currency inside a chocolate
box it was for "security reasons." Besides,
Similarly, Central bank Circular No. 534, as instructed in the Circular-Letter
issued on July 19, 1976, reiterates and abovequoted, it is the authorized
provides in Sec. 3 thereof as follows: depository bank which should advise its
depositors to carry with them the
Sec. 3. Unless specifically authorized certificate of withdrawal. At any rate,
by the Central Bank or allowed under respondent Court has found that
existing international agreements or petitioner has presented in evidence her
Central Bank regulations, no person shall foreign currency bank book3 and her
take or transmit or attempt to take or withdrawal cards.4 These may be
transmit foreign exchange, in any form considered as substantial compliance for
out of the Philippines only, through other purposes of this case.
persons, through the mails, or through
international carriers. The provisions of Indeed, given the underlying objective of
this Section shall not apply to tourists and the Foreign Currency Deposit Act, as
non-resident temporary visitors who are amended, which is to attract and invite
taking or sending out of the Philippines the deposit of foreign currencies which
their own foreign exchange brought in by are acceptable as part of the international
them. reserve in duly authorized banks in order
that they may be put into the stream of
However, peculiar to the present the banking system, it would be to defeat
controversy is the fact that, as stated the very purpose of the law to place
previously, petitioner is a foreign undue restrictions on the transferability
currency depositor. Relevant and of such funds. The countervailing effect
applicable to her is the following would be to discourage prospective
provision of the "Foreign Currency foreign currency depositors to the
Deposit Act of the Philippines" (Republic detriment of the banking system.
Act No. 6426, as amended), which took
effect upon its approval on April 4,1972: In fine, Central Bank Circulars Nos. 265
and 534 requiring prior Central Bank
SEC. 5. Withdrawability and authority for the taking out of the country
transferability of deposits. — There shall of foreign currency should not be made
be no restriction on the withdrawal by to encompass foreign currency
the depositor of his deposit or on the depositors whose rights are expressly
transferability of the same abroad except defined and guaranteed in a special law,
those arising from the contract between the Foreign Currency Deposit Act (RA
the depositor and the bank.11 (Emphasis 6426, as amended). As a foreign currency
Ours). depositor, therefore, petitioner cannot
be adjudged to have violated the
Under the foregoing provision, the aforestated Central Bank Circulars. It
transferability abroad of foreign currency follows that neither is there room for the
deposits is unrestricted. Only one application of Section 2530(f) of the Tariff
exception is provided for therein, which and Customs Code, as amended, which
is, any restriction " from the contract provides for the forfeiture of any article
between the depositor and the bank." and other objects, the exportation of
Neither is a Central Bank authority which is effected or attempted contrary
required for the transferability abroad of to law.
foreign currency deposits.
This is not to condone petitioner's failure
It is a fact that petitioner could not to declare the foreign currency she was
present a certificate of withdrawal at the carrying out of the country but just to

31
stress that the Foreign Currency Deposit WHEREAS, in order to assure the
Act grants petitioner the right of development and speedy growth of the
transferability of her funds abroad except Foreign Currency Deposit System and
that she was not advised by her bank to the Offshore Banking System in the
secure, and consequently was unable to Philippines, certain incentives were
present, the necessary certificate of provided for under the two Systems such
withdrawal from said bank. as confidentiality of deposits subject to
certain exceptions and tax exemptions
on the interest income of depositors who
In this particular case, the Court held that the are nonresidents and are not engaged in
Central Bank Circulars should not encompass trade or business in the Philippines;
foreign currency depositors because their rights
fall under Section 5 of R.A. 6426. WHEREAS, making absolute the
protective cloak of confidentiality over
SECTION 8. Secrecy of Deposits. — The such foreign currency deposits,
secrecy of deposits under this Act shall exempting such deposits from tax, and
be governed in accordance with the guaranteeing the vested rights of
provisions of Republic Act Numbered depositors would better encourage the
One thousand four hundred five. inflow of foreign currency deposits
into the banking institutions authorized
So as you can see, R.A. 6426 refers to the rule on to accept such deposits in the Philippines
thereby placing such institutions more in
bank secrecy of deposits under R.A. 1405. So
a position to properly channel the same
dapat magka pareho lang sila ng exceptions under
to loans and investments in the
R.A. 1405. But lo and behold, nag issue ng PD
Philippines, thus directly contributing to
1246. It’s a PD so who issued this one? — President the economic development of the
Marcos. PD 1246 amended R.A. 6426. country;
Section 2. Section 8 of Republic Act No.
6426, as amended, is hereby amended to Allegedly, that’s the purpose daw. Is it time to
read as follows: amend this? Let’s discuss the cases.
"Sec. 8. Secrecy of Foreign Currency
Deposits All foreign currency deposits PHILIPPINE SAVINGS BANK v.
authorized under this Act, as amended SENATE IMPEACHMENT COURT
by Presidential Decree No. 1035, as well
as foreign currency deposits authorized FACTS: The Senate of the Republic of the
under Presidential Decree No. 1034, are Philippines, issued a Resolution requiring
hereby declared as and considered of an representatives of the PSBank to appear
absolutely confidential nature and, and to produce documents related to the
except upon the written permission of foreign currency accounts of CJ
the depositors, in no instance shall CORONA. PSBank assails the Resolution,
such foreign currency deposits be contending that the deposits are
examined, inquired or looked into by confidential in nature.
any person, government official, bureau
or office whether judicial or ISSUE: Are the foreign currency deposits
administrative or private: Provided, confidential, even against the Senate
however, that said foreign currency Impeachment Court.
deposits shall be exempt from
attachment, garnishment, or any other RULING: The court refrained from
order or process of any court, legislative answering the legal issue, as it had
body, government agency or any become moot and academic, given that
administrative body whatsoever.” the supervening events removed CJ
Corona, thereby removing the need for
the appearance of the bank
Because of PD 1246, foreign currency deposits are representatives and the fact that CJ
placed on a higher level over your local deposits. Corona executed a waiver against the
What is the purpose of PD 1246?

32
confidentiality of all his bank accounts 4. in cases where
whether in peso or in foreign currency. the money
deposited or
(Lifted from 2018 TSN) invested is the
subject matter
of the
Q: What if it’s not foreign currency, can it be litigation.
inquired into?
A: YES. It falls under the exception: in CHINA BANKING CORPORATION VS

cases of impeachment. COURT OF APPEALS
G.R. No. 140687
Section 2. R.A. 1405: All deposits of
whatever nature with banks or banking DOCTRINE: A co-payee in a check need
institutions in the Philippines including not obtain written permission from the
investments in bonds issued by the depositor to inquire on the account to
Government of the Philippines, its which the funds have been deposited,
political subdivisions and its as he is a co-depositor thereof.
instrumentalities, are hereby considered
as of an absolutely confidential nature FACTS: Joseph Uy filed a case against his
and may not be examined, inquired or daughter Mary Marget and her husband
looked into by any person, government George Dee, accusing them of stealing
official, bureau or office, except upon his dollar deposits Joseph Uy alleged
written permission of the depositor, or in that he and Mary were co-payees of
cases of impeachment, or upon order of several checks which Mary then
a competent court in cases of bribery or depositing to China Banking Corporation
dereliction of duty of public officials, or in (CBC). The trial court ordered CBC to
cases where the money deposited or testify on the matters related to the case.
invested is the subject matter of the CBC appealed the order, but the trial
litigation. court persisted, saying that with the
foreign currency fund, there is no
prohibition as to name or whose name
It’s an impeachment case so generally, they can
the fund is deposited.
actually inquire. The only problem here is that it
isn’t a local deposit that is being inquired into. It’s ISSUE: Can the bank account be the
a foreign currency deposit. Under PD 1246, said subject of the inquiry?
deposits are of an absolutely confidential nature.
The only exception is UPON THE WRITTEN RULING: YES, it can be the subject of the
PERMISSION of the depositor. inquiry.
R.A. 1405 PD 1246 The relevant provision provides:
Local deposits Foreign currency Section 8. Secrecy of foreign currency

deposits deposits. – All foreign currency deposits
Exceptions: Exception: authorized under this Act, as amended
1. written 1. written by PD No. 1035, as well as foreign
permission of permission currency deposits authorized under PD
the depositor; of the No. 1034, are hereby declared as and
2. in cases of depositor. considered of an absolutely confidential
impeachment; nature and, except upon the written
3. upon order of permission of the depositor, in no
a competent instance shall foreign currency deposits
court in cases be examined, inquired or looked into by
of bribery or any person, government official, bureau
dereliction of or office whether judicial or
duty of public administrative or legislative, or any other
officials; entity whether public or private;
33
Provided, however, That said foreign
currency deposits shall be exempt from ISSUE: Can the foreign bank deposits be
attachment, garnishment, or any other garnished, given the facts of the case?
order or process of any court, legislative
body, government agency or any RULING: Yes, they can be garnished.
administrative body whatsoever.
Reviewing the legislative intent, RA 6426
Under the said law, the only time that a was intended to provide secrecy to
foreign account may be the subject of foreign bank deposits of investors, in
inquiry is when the written consent of the order to attract business in the
depositor is obtained. The purpose of RA country. This was at the time when the
6426 is to invite investment from country was at a financial low, and thus
foreigners, and making sure that their needed a stimulus from the outside to
bank accounts are protected. boost the economy. The secrecy does
not apply when the effect is protection
In the case at bar, Jose Uy seeks inquiry against a foreign offender who
into the bank accounts because he and committed a heinous crime against a
Mary are the owners thereof, the both Filipino.
of them being co-payees. Being a co-
depositor, he has a right to inquire on Therefore, the bank deposits may be the
the accounts, because he too is the subject of garnishment, levy, or
rightful owner of the said deposits. No execution.
written permission has to be obtained.
Here the court allowed the bank to (Lifted from 2018 TSN)
disclose the details of the bank account.
(Lifted from 2018 TSN) Let’s go to another special law—The Unclaimed

Balances Law.
Take note that the ruling here is pro hac vice. What PRESIDENTIAL DECREE No. 679
does that mean? “For or on this occasion only.” AMENDING ACT NUMBERED THIRTY NINE
There is still no jurisprudence that clearly gives out HUNDRED AND THIRTY SIX, AN ACT
an exception to the confidentiality of foreign REQUIRING BANKS, TRUST CORPORATIONS,
currency deposits so be careful in citing this case. AND BUILDING AND LOAN ASSOCIATIONS,
SALVACION VS CENTRAL BANK TO TRANSFER UNCLAIMED BALANCES HELD
BY THEM TO THE TREASURER OF THE
DOCTRINE: RA 6426 was intended to PHILIPPINES AND FOR OTHER PURPOSES.
invite foreign investors, not to give
What if you have a deposit, tapos 10 years na
protection to accounts of foreign
criminals. nabakante, what happens to the deposit? Is it
forever there? After 10 years of it being dormant,
FACTS: Karen Salvacion was raped by a can you withdraw said deposits? —The answer is no
foreigner, Greg Northcott. The trial court because we have the Unclaimed Balances Law. So,
convicted Northcott, and awarded if there is no movement of your balances or your
damages to Karen. Properties of account balances in the bank for a certain time or
Northcott were to be levied to pay for the period, it will be forfeited in favor of the State.
damages, but the bank resisted, claiming
that under RA 6426, foreign bank So, what are unclaimed balances?
deposits are exempt from garnishment,
“Sec. 1. “Unclaimed balances”, within
attachment, and levy.
the meaning of this Act, shall include
credits or deposits of money, bullion,
Petitioner then assails the
security or other evidence of
constitutionality of RA 6426, claiming that
indebtedness of any kind, and interest
it gives a substantial distinction to
thereon with banks, buildings and loan
foreigners, and provides a hiding place
associations, and trust corporations, as
for foreign offenders.
34
hereinafter defined, in favor of any date of filing thereof: Provided, That
person known to be dead or who has immediately before filing the above
not made further deposits or sworn statement, the bank, building and
withdrawals during the preceding ten loan association, and trust corporation
years or more. Such unclaimed shall communicate with the person in
balances, together with the increase and whose favor the unclaimed balance
proceeds thereof, shall be deposited stands at his last known place of
with the Treasurer of the Philippines to residence or post office address.
the credit of the Government of the
Republic of the Philippines to be used as “It shall be the duty of the Treasurer of the
the National Assembly may direct. Philippines to inform the Solicitor
General from time to time the existence
of unclaimed balances held by banks,
But of course, the banks must follow procedures. building and loan associations, and trust
Di naman basta basta they will forfeit it in favor of corporations.
the government. May mga publication
requirement that they have to follow.
“Sec. 3. Whenever the Solicitor General
SWORN STATEMENT shall be informed of such unclaimed
balances, he shall commence an action
“Sec. 2. Immediately after the taking or actions in the name of the People of
effect of this Act and within the month of the Republic of the Philippines in the
January of every odd year, all banks, Court of First Instance of the province
building and loan associations, and trust or city where the bank, building and
corporations shall forward to the loan association or trust corporation is
Treasurer of the Philippines a statement, located, in which shall be joined as
under oath, of their respective managing parties the bank, building and loan
officers, of all credits and deposits held association or trust corporation and all
by them in favor of persons known to be such creditors or depositors. All or any of
dead, or who have not made further such creditors or depositors or banks,
deposits or withdrawals during the building and loan association or trust
preceding ten years or more, arranged in corporations may be included in one
alphabetical order according to the action. Service of process in such action
names of creditors and depositors, and or actions shall be made by delivery of a
showing: copy of the complaint and summons to
the president, cashier, or managing
“(a) The names and last known place of officer of each defendant bank, building
residence or post office addresses of the and loan association or trust corporation
persons in whose favor such unclaimed and by publication of a copy of such
balances stand; summons in a newspaper of general
“(b) The amount and the date of the circulation, either in English, in Filipino,
outstanding unclaimed balance and or in a local dialect, published in the
whether the same is in money or in locality where the bank, building and
security, and if the latter, the nature of the loan association or trust corporation is
same; situated, if there be any, and in case there
“(c) The date when the person in whose is none, in the City of Manila, at such time
favor the unclaimed balance stands died, as the court may order. Upon the trial, the
if known, or the date when he made his court must hear all parties who have
last deposit or withdrawal; and appeared therein, and if it be
“(d) The interest due on such unclaimed determined that such unclaimed
balance, if any, and the amount thereof. balances in any defendant bank,
building and loan association or trust
“A copy of the above sworn statement corporation are unclaimed as
shall be posted in a conspicuous place in hereinbefore stated, then the court
the premises of the bank, building and shall render judgment in favor of the
loan association, or trust corporation Government of the Republic of the
concerned for at least sixty days from the Philippines, declaring that said
35
unclaimed balances have escheated to and render the appropriate judgment
the Government of the Republic of the thereon.
Philippines and commanding said bank,
building and loan association or trust
corporation to forthwith deposit the Take note of the procedure because you can
same with the Treasurer of the question the forfeiture proceedings if there is an
Philippines to credit of the Government irregularity in the procedure.
of the Republic of the Philippines to be
Let’s go to the cases.
used as the National Assembly may
direct. RCBC vs. Hi-Tri Dev.
Corp. , et. al,
“At the time of issuing summons in the G.R. No. 192413, June
action above provided for, the clerk of 13, 2012
court shall also issue a notice signed by
him, giving the title and number of said FACTS:
action, and referring to the complaint Consequently, the Spouses Bakunawa,
therein, and directed to all persons, other through their company, the Hi-Tri
than those named as defendants therein, Development Corporation (Hi-Tri) took
claiming any interest in any unclaimed out on October 28, 1991, a Managers
balance mentioned in said complaint, Check from RCBC-Ermita payable to
and requiring them to appear within sixty Millan’s company Rosmil Realty and
days after the publication or first Development Corporation (Rosmil) c/o
publication, if there are several, of such Teresita Millan and used this as one of
summons, and show cause, if they have their basis for a complaint which they
any, why the unclaimed balances filed with the Regional Trial Court of
involved in said action should not be Quezon City, Branch 99.
deposited with the Treasurer of the
Philippines as in this Act provided and On January 31, 2003, during the
notifying them that if they do not appear pendency of the above mentioned case
and show cause, the Government of the and without the knowledge of [Hi-Tri and
Republic of the Philippines will apply to Spouses Bakunawa], RCBC reported the
the court for the relief demanded in the ₱1,019,514.29-credit existing in favor of
complaint. A copy of said notice shall be Rosmil to the Bureau of Treasury as
attached to, and published with the copy among its unclaimed balances as of
of, said summons required to be January 31, 2003.
published as above, and at the end of the
copy of such notice so published, there Allegedly, a copy of the Sworn
shall be a statement of the date of Statement was posted within the
publication, or first publication, if there premises of RCBC-Ermita.
are several, of said summons and notice. On December 14, 2006, x x x Republic,
Any person interested may appear in said through the [Office of the Solicitor
action and become a party thereto. Upon General (OSG)], filed with the RTC the
the publication or the completion of the action below for Escheat.
publication, if there are several, of the
summons and notice, and the service of [Manuel Bakunawa, through Hi-Tri]
the summons on the defendant banks, inquired from RCBC-Ermita the
building and loan associations or trust availability of the RCBC Managers
corporations, the court shall have full and Check, [Hi-Tri and Spouses Bakunawa]
complete jurisdiction in the Republic of were however dismayed when they were
the Philippines over the said unclaimed informed that the amount was already
balances and over the persons having or subject of the escheat proceedings
claiming any interest in the said before the RTC, which declared the
unclaimed balances, or any of them, and deposits, credits, and unclaimed
shall have full and complete jurisdiction balances escheated to the Republic.
to hear and determine the issues herein,

36
ISSUE: Whether or not the escheat (the thereafter be liable to any person for the
reversion of property to the state on the same and any action which may be
owner’s dying without legal heirs) of the brought by any person against in any
account in RCBC is proper. bank xxx for unclaimed balances so
deposited xxx shall be defended by the
RULING: NO. Solicitor General without cost to such
bank.” Otherwise, should it fail to
Insofar as banks are concerned, service comply with the legally outlined
of processes is made by delivery of a procedure to the prejudice of the
copy of the complaint and summons depositor, the bank may not raise the
upon the president, cashier, or defense provided under Section 5 of Act
managing officer of the defendant No. 3936, as amended.
bank. On the other hand, as
to depositors or other claimants of the Hence, respondents should have been
unclaimed balances, service is made by informed that the deposit had been left
publication of a copy of the summons in inactive for more than 10 years, and that
a newspaper of general circulation in the it may be subjected to escheat
locality where the institution is situated. proceedings if left unclaimed. Here,
respondents retained ownership of the
A notice about the forthcoming escheat funds. As it is obvious from their
proceedings must also be issued and foregoing actions that they have not
published, directing and requiring all abandoned their claim over the fund.
persons who may claim any interest in
the unclaimed balances to appear (Lifted from 2018 TSN)
before the court and show cause why the
dormant accounts should not be
deposited with the Treasurer. Q: Did RCBC follow the procedure required by
law?
Act No. 3936, as amended, outlines the
A: No sir.
proper procedure to be followed by
banks and other similar institutions in Q: What was the irregularity?
filing a sworn statement with the
Treasurer concerning dormant A: There was no notice.
accounts.
Q: So what are the implications if hindi nag follow
This notification is meant to inform them
that their deposit could be escheated if ng procedure?
left unclaimed. Accordingly, before A: Since the bank did not follow the procedure, it
filing a sworn statement, banks and cannot invoke Section 5 of Act 3936. In the event
other similar institutions are under
that the person who did not claim the deposit
obligation to communicate with owners
reappears, the depositor can still go after the Bank.
of dormant accounts. The purpose of
But if it follows the procedure, you follow Section
this initial notice is for a bank to
determine whether an inactive account 5.
has indeed been unclaimed, “Sec. 5. Any bank, building and loan
abandoned, forgotten, or left without an association or trust corporation which
owner. If the depositor simply does not shall make any deposit with the Treasurer
wish to touch the funds in the meantime, of the Philippines in conformity with the
but still asserts ownership and dominion provisions of this Act shall not thereafter
over the dormant account, then the bank be liable to any person for the same and
is no longer obligated to include the any action which may be brought by any
account in its sworn statement. person against in any bank, building and
loan association, or trust corporation for
In case the bank complies with the unclaimed balances so deposited with
provisions of the law and the unclaimed the Treasurer of the Philippines shall be
balances are eventually escheated to defended by the Solicitor General
the Republic, the bank “shall not

37
without cost to such bank, building and xxx the term "credit" in its usual meaning
loan association or trust corporation.” is a sum credited on the books of a
company to a person who appears to be
entitled to it. It presupposes a creditor-
REPUBLIC OF THE PHILIPPINES vs. debtor relationship, and may be said to
PHILIPPINE NATIONAL BANK, ET AL., imply ability, by reason of property or
G.R. No. L-16106, December 30, 1961 estates, to make a promised payment. It
is the correlative to debt or indebtedness,
and that which is due to any person, a
FACTS: distinguished from that which he owes.
Republic of the Philippines filed an The same is true with the term "deposits"
escheat proceeding pursuant to RA 3936 in banks where the relationship created
over dormant deposits or unclaimed between the depositor and the bank is
balances in various banks including First that of creditor and debtor.
National City Bank of New York.
In its answer the First National City Bank Demand Draft: NOT INCLUDED
of New York claims that, while it admits
that various savings deposits, pre-war xxx a demand draft is a bill of exchange
inactive accounts, and sundry accounts payable on demand. Considered as a bill
contained in its report submitted to the of exchange, a draft is said to be, like the
Treasurer of the Philippines pursuant to former, an open letter of request from,
Act No. 3936, totalling more than and an order by, one person on another
P100,000.00, which remained dormant to pay a sum of money therein
for 10 years or more, are subject to mentioned to a third person, on demand
escheat however, it has inadvertently or at a future time therein specified. As a
included in said report certain items matter of fact, the term "draft" is often
amounting to P18,589.89 which, used, and is the common term, for all bills
properly speaking, are not credits or of exchange. And the words "draft" and
deposits within the contemplation of Act "bill of exchange" are used
No. 3936. Hence, it prayed that said items indiscriminately.
be not included in the claim of plaintiff.
On the other hand, a bill of exchange
ISSUE: Whether manager’s or cashier’s within the meaning of our Negotiable
check, telegraphic transfers and demand Instruments Law does not operate as an
drafts be excluded as part of unclaimed assignment of funds in the hands of the
balance or deposits to be escheated. drawee who is not liable on the
instrument until he accepts it. "A bill of
RULING: Only the telegraphic transfer is exchange of itself does not operate as an
included. The demand drafts are NOT assignment of the funds in the hands of
included. the drawee available for the payment
thereon and the drawee is not liable on
Section 1, Act No. 3936, provides: the bill unless and until he accepts the
same." Xxx
Section 1. "Unclaimed balances" within
the meaning of this Act shall include Since it is admitted that the demand
credits or deposits of money, bullion, drafts herein involved have not been
security or other evidence of presented either for acceptance or for
indebtedness of any kind, and interest payment, the inevitable consequence is
thereon with banks, as hereinafter that the appellee bank never had any
defined, in favor of any person unheard chance of accepting or rejecting them.
from for a period of ten years or more. Verily, appellee bank never became a
Such unclaimed balances, together with debtor of the payee concerned and as
the increase and proceeds thereof, shall such the aforesaid drafts cannot be
be deposited with the Insular Treasure to considered as credits subject to escheat
the credit of the Government of the within the meaning of the law.
Philippine Islands to be as the Philippine
Legislature may direct.
38
MANAGER’S or CASHIER’S CHECK: General: "This is so because the drawer
bank was already paid the value of the
YES, Included. telegraphic transfer payment order. In
the particular cases under consideration
XXX a cashier's or manager's check is a it appears in the books of the defendant
primary obligation of the bank which bank that the amounts represented by
issues it and constitutes its written the telegraphic payment orders appear
promise to pay upon demand. in the names of the respective payees. If
A cashier's check issued by a bank is not the latter choose to demand payment of
an ordinary draft. Xxx A cashier's check is their telegraphic transfers at the time the
of a very different character. It is the same was (were) received by the
primary obligation of the bank which defendant bank, there could be no
issues it and constitutes its written question that this bank would have to pay
promise to pay upon demand. them. Now, the question is, if the payees
The following definitions cited by decide to have their money remain for
appellant also confirm this view: sometime in the defendant bank, can the
A cashier's check is a check of the bank's latter maintain that the ownership of said
cashier on his or another bank. It is in telegraphic payment orders is now with
effect a bill of exchange drawn by a bank the drawer bank? [NO] The latter was
on itself and accepted in advance by the already paid the value of the telegraphic
act of issuance. payment orders otherwise it would not
A cashier's check issued on request of a have transmitted the same to the
depositor is the substantial equivalent of defendant bank. Hence, it is absurd to
a certified check and the deposit say that the drawer banks are still the
represented by the check passes to the owners of said telegraphic payment
credit of the checkholder, who is orders."
thereafter a depositor to that amount.
A cashier's check, being merely a bill of
exchange drawn by a bank on itself, and AS TO DEMAND DRAFT: Not included (bill of
accepted in advance by the act of exchange)
issuance, is not subject to countermand
Q: If it’s a bill of exchange, hindi pa utang ng bank
by the payee after indorsement, and has
yun. Nagiging utang na ng bank yun if?
the same legal effects as a certificate
deposit or a certified check. A: There is acceptance.
A demand draft is not therefore of the Diba kapag may check ka, it has to be accepted.
same category as a cashier's check which That’s the time that the bank acknowledges that
should come within the purview of the BSP may utang ako sa’yo, babayaran ko to. Until
law. then, there is yet no debtor-creditor relationship
between the depositor and the bank.
TELEGRAPHIC TRANSFER: INCLUDED
AS TO TELEGRAPHIC TRANSFER: Included
The case, however, is different with
The agreement to remit creates a contractual
regard to telegraphic payment order. It is
said that as the transaction is for the obligation has been termed a purchase and sale
establishment of a telegraphic or cable transaction. The purchaser of a telegraphic transfer
transfer the agreement to remit creates a upon making payment completes the transaction
contractual obligation has been termed a insofar as he is concerned, though insofar as the
purchase and sale transaction. The remitting bank is concerned the contract is
purchaser of a telegraphic transfer upon executory until the credit is established.
making payment completes the
transaction insofar as he is concerned, Pag telegraphic transfer, tinanggap na ng banko
though insofar as the remitting bank is yun. Yes mag tratransfer ako ng ganitong amount.
concerned the contract is executory until There is already a debtor-creditor relationship.
the credit is established. We agree with
the following comment the Solicitor

39
FEB 26: REYES completes the transaction insofar as he is
concerned, though insofar as the remitting bank is
Q: Are demand drafts and telegraphic orders concerned the contract is executory until the credit
considered credits for the purposes of the law? is established. The drawer bank was already paid
the value of the telegraphic transfer payment
A: The Supreme Court held that a demand draft is order. In the particular cases under consideration it
a bill of exchange payable on demand. Considered appears in the books of the defendant bank that
as a bill of exchange, a draft is said to be, like the the amounts represented by the telegraphic
former, an open letter of request from, and an payment orders appear in the names of the
order by, one person on another to pay a sum of respective payees. If the latter choose to demand
money therein mentioned to a third person, on payment of their telegraphic transfers at the time
demand or at a future time therein specified. As a the same was (were) received by the defendant
matter of fact, the term "draft" is often used, and is bank, there could be no question that this bank
the common term, for all bills of exchange. And the would have to pay them. Now, the question is, if the
words "draft" and "bill of exchange" are used payees decide to have their money remain for
indiscriminately. sometime in the defendant bank, can the latter
maintain that the ownership of said telegraphic
On the other hand, a bill of exchange within the payment orders is now with the drawer bank? The
meaning of our Negotiable Instruments Law does latter was already paid the value of the telegraphic
not operate as an assignment of funds in the hands payment orders otherwise it would not have
of the drawee who is not liable on the instrument transmitted the same to the defendant bank.
until he accepts it. This is the clear import of Section Hence, it is absurd to say that the drawer banks are
127. It says: "A bill of exchange of itself does not still the owners of said telegraphic payment orders.
operate as an assignment of the funds in the hands
of the drawee available for the payment thereon DISCUSSION: It is a bill of exchange therefore di pa
and the drawee is not liable on the bill unless and utang ng bangko. It becomes utang ng bangko if it
until he accepts the same." In other words, in order is accepted. It has to be accepted and that’s the
that a drawee may be liable on the draft and then time the bank acknowledges na “may utang ako sa
become obligated to the payee it is necessary that iyo babayaran ko ito” but until then there’s yet no
he first accepts the same. In fact, our law requires creditor-debtor relationship. However in the case
that with regard to drafts or bills of exchange there of telegraphic transfer, it is different because sa
is need that they be presented either for telegraphic transfer inabot na ng bangko iyon. Yes
acceptance or for payment within a reasonable magtatransfer ako ng ganun na amount although it
time after their issuance or after their last is *inaudible*. There’s already a relationship
negotiation thereof as the case may be. Failure to between creditor and debtor.
make such presentment will discharge the drawer
from liability or to the extent of the loss caused by Republic vs PNB tells us that what is under the term
the delay. credit for purposes of the law only those items in
which there is a relationship of a creditor and
Since it is admitted that the demand drafts herein debtor.
involved have not been presented either for
acceptance or for payment, the inevitable Anti-Money Laundering Act (RA 9160 as
consequence is that the appellee bank never had amended by RA 9194)
any chance of accepting or rejecting them. Verily, Further Strengthening the Anit-Money
appellee bank never became a debtor of the payee Launderung Law, Amending for the Purpose
concerned and as such the aforesaid drafts cannot Section 10 and 11 of RA 9160 (RA 10167)
be considered as credits subject to escheat within
the meaning of the law. So let’e go to AMLA. The more important
provisions of our discussion that we have to learn
The case, however, is different with regard to because in the past 6 years this has been a frequent
telegraphic payment order. It is said that as the bar question.
transaction is for the establishment of a telegraphic
or cable transfer the agreement to remit creates a Take note that AMLA here is just your Data Privacy.
contractual obligation a has been termed a We have the AMLA because of the clamor of the
purchase and sale transaction. The purchaser of a bank for us to have a regulation regarding Money
telegraphic transfer upon making payment Laundering. Please take not that without this our

40
banking credit line sa Pilipinas, mabab yung rating
natin. It becomes a must na for Congress to enact
laws regarding Money Laundering kasi you know
for a reason why there is Money Laundering.
Nilalabhan yung pera. Yung pera na galling sa
masama ila-launder mo siya so labhan mo siya para
maging malinis so that’s the purpose of Money
Laundering.
Siguro you’re familiar with Money Heist. Mga

ganun. It involves the hacking of the Bangladesh
Central Bank. We know for a fact that the Central
Bank has reserves so ang nangyari dun hinack yung FROM 2018 TSN
reserves na nandun sa New York by the Central HOW TO GET AWAY WITH MONEY
Bank of Bangladesh tapos finunnel sa casinos. If LAUNDERING (3-STAGE PROCESS)
there are casinos, there are 50% chance that
there’s a money being laundered. If you’ve been to 1. Placement
Ho Chi Minh to Phnom Penh, you’ve seen that in 2. Layering
the middle of nowhere there are majestic 3. Integration
structures funded by the Chinese. Ang tinatarget
ng money laundering ay yung mga countries na DIFFERENT MONEY LAUNDERING
wala masiyadong regulation sa money laundering. METHODOLOGIES
Kaya ang mga banks sometimes pag ang pera
galling sa mga ganitong countries medyo red alert 1. STRUCTURING (common type of money
ka and they have to inquire. Even if you deposit laundering)
chunks of money, tatanongin ka ano trabahao mo,
ano source of income mo. They are doing that to When you deposit it in the bank, you break
phish information. They are obliged to justify it down to several pieces. Say 10M will be
otherwise they will also be in violation of the money broken down to thousands to be slowly
laundering law. deposited in the bank. In such a way, there
is a smaller chance of suspicion and
So let’s look at an explanation of the Money detection.
Laundering. *plays video*
2. SMURFING
So how do you successfully launder your money?
Of course you place it, layer it and then reintegrate Dirty money is deposited in another bank
it. accounts to avoid detection.
3. BULK CASH SMUGGLING
Involves physical sumggling of cash into

another jurisdiction by depositing it in a
financial institution such as offshore banks.
Example is when the dirty money is
deposited in another jurisdiction where
there is no regulation for money laundering
or the bank secrecy law is stronger. The
more secret the bank account is, the harder
it is for laundered money to be detected.
4. CASH INTENSIVE BUSINESS
Service intensive businesses are the best

examples. Again, as a particular service
cannot be easily fixed to a price or amount
unlike if goods. Example is strip clubs. You

41
cannot put a certain amount or value for the If you noticed, jurisdictions with weaker
services rendered. banking controls have more Casinos.
There are high end shops in Casinos such as 10. TRANSACTION LAUNDERING
Hermes and others. Usually, they survive
even if there are no sales. Money laundering When a merchant unknowingly processes
in this scenario may come in where a foreign illicit credit card transactions for another
national wants to gamble but they find it business. This is like assignment credit. You
hard to bring in huge amounts of dirty assigned but you don’t have anything to be
money in the Philippines without being assigned.
questioned. Hence, they course it through
these shops. It would appear that they 11. USE OF FRONT OR PASS THROUGH
purchase goods such as bags in a pricey COMPANY AND FUNNEL ACCOUNTS
amount but the shops would give the
foreign nationals the money needed for Example is you pretend to be a legitimate
gambling instead of the physical goods. In company and as if you buy goods, that there
effect, the shops would record it as sales but is shipment, and documents to prove such
there is no outflow of inventory and only an but there are really no goods. It is just a
outflow of cash. mere exchange of money coursed through
the company.
5. TRADE BASED LAUNDERING
Example is in BIDDINGS where there are TOP CASES FOR MONEY LAUNDERING
secrecy of bidders.
CASE: Bank of Credit and Commerce
6. SHELL COMPANIES AND TRUST International
Where you pretend to have a company and Banks were investigated as there was
buy goods, that there is shipment and embezzlement. It was found out that the one
documentary evidences but there is really who is engaged in money laundering is the
none. Also, in special purpose vehicles Chairman of the bank and such embezzled
where it is separate from the parent money was in shell companies and trusts.
company and is seldomly checked upon by
the parent company. The dirty money can NOTE: The stricter the bank secrecy law in a
be hidden here. jurisdiction the better the chances for money
laundering because it would be very difficult to
7. ROUND TRIPPING trace the source because the bank deposits will
not be allowed to be checked or scrutinized.
You have money in the Philippines and you
funnel it in tax havens such as Bahamas or
Birtish Virgin Islands. If it’s there and already CASE: Ferdinand Marcos (a published case
laundered, it can come back now to the for money laundering)
Philippines as part of the banking system.
Unknown amount stipulated at $10 Billion
8. BANK CAPTURE were funneled through banks and financial
institutions in USA, Liechtenstein, Bahamas,
They try to become an owner or stockholder Cayman Islands, etc. So, there are so many
of a bank. This is the reason why the law bank accounts.
providing for qualifications of who may
become an officer or stockholder of a bank CASE: HSBC
is very strict. It is to avoid the possibility of
money laundering. If you noticed, HSBC before has this campaign
for issuance of credit cards. This happened
9. CASINOS outside of the PHIL. Where such credit cards
were used to launder money.

42
I don’t know if you have experience on people who because there is art in it. There’s no market value
are trying to buy land kahit wala naming papeles o so kung nag momoney launder ka bibilhin mo yun
bibili ng lupa kahit di naman *inaudible* yung lupa para ma-layer ang pera. Who would tell you na
kasi sobrang dami ng pera nila. For example hndi siya 500 million. So most of the art traders are
KAPPA ka, ang dami mong pera kasi andaming engaged in money laundering. This is a multibillion
investors. Papano mo yan ma-fufunnel sa banking industry. It’s a cat and dog chase.
system? Kunwari bibili ka ng lupa tapos i-lalayer
mo tapos reintegrate mo after. People have What happened here was the $20 million was
become so creative. blocked because of the misspelling of the NGO.
The $81 million was to 4 Filipinos via Philrem. So
The money laundering law that are in place is the $31 million was for the recipient Weikang Xu,
premised on detecting the placement of the the $29 million was for Solaire the Casino and the
money. So anudn ang patakaran. Identification of $21 million was for Eastern Hawaii Leisure Co.
the lawful activity and to provide for a way of
detecting it at the placement stage because once The purpose of anit-money laundering law sana is
it is layered it is very difficult to trace. It is very to detect it earlier at placement. So kung meron
difficult to trace the source of the money. kang peoper anti-money regulation or
implementation of the laws, we could have
So let’s discuss briefly what happened to the detected this one. Itong mga taong ito. What’s the
Bangladesh Bank which resulted to the conviction source of the $31 million? What the source of the
of the branch manager. $29 million? What’s the source of the $21 million?
Kaya na-convict si Jupiter Branch Manager is
because this accounts was opened in 2011. It was
open 5 years ago even if wala naman siyang
verification if this persons are really real persons or
fictitious accounts lang. Yun lang yung meet ng
conviction.
Ultimately nahabol ng Bank of Bangladesh kasi na

trace yung money. Pero mind you yung $29 million
na yun, it went to several hands. Di na narecover. Si
RCBC naman talaga ang voluntary na nagsabi na
let’s give you $81 million. Hindi naman na recover
kung san napunta yung money because of
Hinack yung pera ng Central Bank of Bangladesh layering. The further the layer, the more difficult it
which was deposited in the Bank of New York. It is is to recover. That’s an example of money
around $951 million and it is divided into 35 orders laundering.
via swift local bank so essentially bank transfer. Out
of those may $850million na binlock because of So what’s the policy of law regarding Money
lack of authorization. So napigilan yung $850 laundering?
million but yung $101 million which involves 5
orders ang naka push through. What was via Declaration of Policy. — It is hereby declared
RCBC? We have the $81 million, the $20 million the policy of the State to protect and preserve
recipient was the Shalika Foundation which was the integrity and confidentiality of bank
also blocked because the hackers misspelled the accounts and to ensure that the Philippines
name of the NGO. shall not be used as a money laundering site
for the proceeds of any unlawful activity.
One way of funneling money or anti-money Consistent with its foreign policy, the State shall
laundering is usually through NGO. So kunwari extend cooperation in transnational
may charity kasi pag may charity kailangan mo ng investigations and prosecutions of persons
pera. Black market is another way. Even art trading, involved in money laundering activities
you’ve seen people nagta-trade ng art but they are wherever committed.
lavish in lifestyle. Luxurious ang kanilang lifestyle
but nagbebenta lang ng artwork. The good thing To the farthest end of the spectrum, kung gusto mo
about artwork is that there is no market value. I’ll talaga na walang money laundering eh sana
just post something and then say it’s 500 million walang Bank Secrecy because then you would

43
have authority to inquire in every deposit but again entities managing securities or rendering
we have the Right to Privacy. So it’s always a similar services;
balance of that. ➢ Mutual funds or open-end investment
companies, close-end investment
Why does people want to put money in the companies, common trust funds or issuers
banking system? Why do they want to launder the and other similar entities;
money in the banking system? It’s because alam ➢ Transfer companies and other similar
nila na may Bank Secrecy. Alam nila na hindi basta- entities;
basta makikita. Doon nila pianapadaan and ➢ Other entities administering or otherwise
because of the unlawful activity kay nagkakaroon dealing in currency, commodities or
ng inception. financial derivatives based thereon,
valuable objects, cash substitutes and other
What is money laundering? similar monetary instruments or property
supervised and/or regulated by the
Money Laundering is a crime whereby the Securities and Exchange Commission
proceeds of an unlawful activity are transacted,
thereby making them appear to have originated Who is a Customer
from legitimate sources.
➢ Refers to any person or entity that keeps an
What are the covered institutions? account, or otherwise transacts business,
with a covered institution and any person or
➢ Banks, offshore banking units, quasi-banks, entity on whose behalf an account is
trust entities, non-stock savings and loan maintained or a transaction is conducted,
associations, pawnshops, foreign exchange as well as the beneficiary of said
dealers, money changers, remittance transactions.
agents, electronic money issuers and other
financial institutions which under special ➢ A customer also includes the beneficiary of
laws are subject to Bangko Sentral ng a trust, an investment fund, a pension fund
Pilipinas (BSP) supervision and/or or a company or person whose assets are
regulation, including their subsidiaries and managed by an asset manager, or a grantor
affiliates. of a trust. It includes any insurance policy
a) A subsidiary means an entity holder, whether actual or prospective.
more than fifty percent (50%) of
the outstanding voting stock of Politically Exposed Person (PEP)
which is owned by a bank, quasi-
bank, trust entity or any other ➢ refers to a natural person who is or had
institution supervised or been entrusted with prominent public
regulated by the BSP. position in the Philippines or in a foreign
b) An affiliate means an entity at State, including heads of state or
least twenty percent (20%) but government, senior position, senior
not exceeding fifty percent national or local government, judicial or
(50%) of the voting stock of military officials, senior executives of
which is owned by a bank, quasi- government or state owned or controlled
bank, trust entity, or any other corporations and important political party
institution supervised and/or officials.
regulated by the BSP.
➢ Insurance companies, insurance agents, DISCUSSION: Ito yung mga politicians. They are
insurance brokers, professional reinsurers, politically exposed persons.
reinsurance brokers, holding company
systems, pre-need companies, mutual What is a Covered Transaction?
benefit associations and all other persons
and entities supervised and/or regulated by SECTION 1. Section 3, paragraph (b), of
the Insurance Commission (IC). Republic Act No. 9160 is hereby amended as
➢ Securities, dealers, brokers, salesman, follows:
investment houses, investment agents and
consultations, trading advisors, and other

44
“(b) ‘Covered transaction’ is a transaction in DISCUSSION: So pag 500 and more na nga, that is
cash or other equivalent monetary instrument a covered transaction so automatically it will be
involving a total amount in excess of Five reported. Pero pag hindi naman siya 500 or more
hundred thousand pesos (P500,000.00) within but if the following circumstances above exists, it is
one (1) banking day.” considered as a suspicious transaction.
DISCUSSION: A transaction is covered if it amounts 1. there is no underlying legal or trade

to Php 500,000 within one banking day. So pag obligation, purpose or economic justification;
less than that it is not a covered transaction.
DISCUSSION: Walang economic justification. For
SUSPICIOUS TRANSACTIONS example nag deposit si magtataho ng Php 400,000
sa isang banko. That has no economic justification.
SECTION 2. Section 3 of the same Act is It matters when you go to the bank. Pag naka
further amended by inserting between tsinelas ka lang, it is a red flag. Naka tsinelas ka lang
paragraphs (b) and (c) a new paragraph tapos magdedeposit ka ng cash na malaki, you are
designated as (b-1) to read as follows: a red flag. You are a suspicious transaction
regardless of the amount. It matters. Kahit wala
“(b-1) ‘Suspicious transaction’ are transactions kang pera mag dress to kill ka.
with covered institutions, regardless of the
amounts involved, where any of the following 2. the client is not properly identified;
circumstances exist:
DISCUSSION: Pag humingi sila ng ID and you are
“1. there is no underlying legal or trade not properly identified then you become a
obligation, purpose or economic justification; suspicious transaction.
“2. the client is not properly identified; 3. the amount involved is not commensurate with
the business or financial capacity of the client;
“3. the amount involved is not commensurate
with the business or financial capacity of the 4. taking into account all known circumstances, it
client; may be perceived that the client’s transaction is
structured in order to avoid being the subject of
“4. taking into account all known circumstances, reporting requirements under the Act;
it may be perceived that the client’s
transaction is structured in order to avoid DISCUSSION: So let’s say alam mo naman na Php
being the subject of reporting requirements 500,000 yung covered transactions so pinagtagpi-
under the Act; tagpi mo siya. So in three days nag deposit ka ng
Php 200,000, Php 200,000 then 100,000. If it is
“5. any circumstance relating to the transaction structured as to avoid detection, it is a suspicious
which is observed to deviate from the profile transaction.
of the client and/or the client’s past
transactions with the covered institution; 5. any circumstance relating to the transaction
which is observed to deviate from the profile of
“6. the transaction is in any way related to an the client and/or the client’s past transactions
unlawful activity or offense under this Act that with the covered institution;
is about to be, is being or has been committed;
or DISCUSSION: So lagi kang may deposit na bente
bente tapos bigla ka lang nag deposit in 1 million.
“7. any transaction that is similar or analogous It deferred from your profile.
to any of the foregoing.”
6. the transaction is in any way related to an
(b-1) ‘Suspicious transaction’ are transactions with unlawful activity or offense under this Act that is
covered institutions, regardless of the amounts about to be, is being or has been committed; or
involved, where any of the following circumstances
exist: 7. any transaction that is similar or analogous to
any of the foregoing.”

45
DISCSSION: Please take note that the enumeration himself or for another, from any
is not exclusive. Essentially it provides that it person for whom the public officer,
becomes a suspicious transaction if the amount in any manner or capacity, has
you deposit is not in any way cannot be justified by secured or obtained, or will secure
the source of your income. or obtain, any Government permit
or license, in consideration for the
A lot of people natataranta baka daw ma-AMLA but help given or to be given, without
at the end of the day justification lang naman ang prejudice to Section thirteen of RA
gusto nila. Kung totoo naman talaga na may source 3019.
yan like binenta niya yung property, bakit ka c) Causing any undue injury to any
matatakot. party, including the Government, or
giving any private party any
What are considered Unlawful Activities under unwarranted benefits, advantage or
the AMLA? preference in the discharge of his
official administrative or judicial
1. Kidnapping for ransom under Article 267 of Act functions through manifest
No. 3815, otherwise known as the Revised partiality, evident bad faith or gross
Penal Code, as amended; inexcusable negligence. This
provision shall apply to officers and
2. Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15, and 16 employees of offices or government
of Republic Act No. 9165, otherwise known as corporations charged with the grant
the Comprehensive Dangerous Drugs Act of of licenses or permits or other
2002; concessions.
d) Entering, on behalf of the
a) Importation of prohibited drugs Government, into any contract or
b) Sale of prohibited drugs transaction manifestly and grossly
c) Admnistration of prohibited drugs disadvantageous to the same,
d) Delivery of prohibited drugs whether or not the public officer
e) Distribution of prohibited drugs profited or will profit thereby.
f) Transportation of prohibited drugs e) Director or indirectly having
g) Maintenance of a Den, Dive or financing or pecuniary interest in
Resort any business, contract or transaction
h) of prohibited drugs, in connection with which he
i) Manufacture of prohibited drugs intervenes or takes part in his official
j) Possession of prohibited drugs capacity, or in which he is prohibited
k) Use of prohibited drugs. by the Constitution or by any law
l) Cultivation or Culture of Plants from having any interest.
Classified as Dangerous Drugs f) Directly or indirectly becoming
interested, for personal gain, or
3. Section 3 paragraphs B, C, E, G, H and I of having a material interest in any
Republic Act No. 3019, as amended, otherwise transaction or act requiring the
known as the Anti-Graft and Corrupt Practices approval of a board, panel or group
Act; of which he is a member, and which
a) Directly or indirectly requesting or exercises discretion in such
receiving any gift, present, share, approval, even if he votes against
percentage, or benefit, for himself the same or does not participate in
or for any other person, in the action of the board, committee,
connection with any contract or panel or group.
transaction between the g) Interest for personal gain shall be
Government and any other part, presumed against those public
wherein the public officer in his officers responsible for the approval
official capacity has to intervene of manifestly unlawful, inequitable,
under the law. or irregular transaction or acts by the
b) Directly or indirectly requesting or board, panel or group to which they
receiving any gift, present or other belong.
pecuniary or material benefit, for

46
4. Plunder under Republic Act No. 7080, as ➢ Estafa by using fictitious name, or
amended; falsely pretending to possess
power, influence, qualifications,
5. Robbery and extortion under Articles 294, 295, property, credit, agency, business or
296, 299, 300, 301 and 302 of the Revised imaginary transactions, or by means
Penal Code, as amended; of other similar deceits.
➢ Estafa by altering the quality,
6. Jueteng and Masiao punished as illegal fineness or weight of anything
gambling under Presidential Decree No. 1602; pertaining to his art or business.
➢ Estafa by pretending to have bribed
7. Piracy on the high seas under the Revised Penal any Government employee, without
Code, as amended and Presidential Decree prejudice to the action for calumny
No. 532; which the offended party may deem
proper to bring against the
8. Qualified theft under Article 310 of the Revised offender. In this case, the offender
Penal Code, as amended; shall be punished by the maximum
period of the penalty.
9. Swindling under Article 315 of the Revised ➢ Estafa by post-dating a check, or
Penal Code, as amended; issuing a check in payment of an
obligation when the offender
➢ Estafa with unfaithfulness or abuse therein were not sufficient to cover
of confidence, namely: the amount of the check. The failure
i. By altering the substance, of the drawer of the check to deposit
quantity, or quality or the amount necessary to cover his
anything of value which the check within three (3) days from
offender shall deliver by receipt of notice from the bank
virtue of an obligation to do and/or the payee or holder that said
so, even though such check has been dishonored for lack
obligation be based on an of insufficiency of funds shall be
immoral or illegal prima facie evidence of deceit
consideration. constituting false pretense or
ii. By misappropriating or fraudulent act. (As amended by R.A.
converting, to the prejudice 4885, approved June 17, 1967.)
of another, money, goods, or ➢ Estafa by inducing another, by
any other personal property means of deceit, to sign any
received by the offender in document.
trust or on commission, or for ➢ Estafa by resorting to some
administration, or under any fraudulent practice to insure success
other obligation involving in a gambling game.
the duty to make delivery of ➢ Estafa by removing, concealing or
or to return the same, even destroying, in whole or in part, any
though such obligation be court record, office files, document
totally or partially or any other papers.
guaranteed by a bond; or by
denying having received 10. Smuggling under Section 2702 and 2703 of Act
such money, goods, or other No. 2711, otherwise known as the Revised
property. Administrative Code of 1917, as amended,
iii. (By taking undue advantage otherwise known as the Tariff and Customs
of the signature of the code of the Philippines
offended party in blank, and
by writing any document 11. Violations under Republic Act No. 8792,
above such signature in otherwise known as the Electronic Commerce
blank, to the prejudice of the Act of 2000;
offended party or of any third
person. ➢Hacking or cracking, which refers to:

47
➢ unauthorized access into or
interference in a computer AMLAC = Anti-Money Laundering Act Commission
system/server or information and
communication system; Please take note of how money laundering offense
➢ any access in order to corrupt, alter, is committed.
steal, or destroy using a computer or
other similar information and Money Laundering Offense
communication devices, SEC. 4. Money Laundering Offense. — Money
information and communication laundering is a crime whereby the proceeds of
system, including the knowledge an unlawful activity as herein defined are
and consent of the owner of the transacted, thereby making them appear to have
computer, or originated from legitimate sources. It is
➢ the introduction of computer viruses committed by the following:
and the like, resulting in the
corruption, destruction, alteration, a) Any person knowing that any monetary
theft or loss of electronic data instrument or property represents,
messages or electronic document involves, or relates to, the proceeds of
any unlawful activity, transacts or
12. Violation under Republic Act. No. 7394, attempts to transact said monetary
otherwise known as the Conusmer Act of the instrument or property.
Philippines and other relevant or peritnent laws
through transactions covered by or using b) Any person knowing that any monetary
electronic data messages or electroni instrument or property involves the
documents; proceeds of any unlawful activity,
performs or fails to perform any act as a
13. Hijacking and other violations under Republic result of which he facilitates the offense of
Act No. 6235; otherwise known as the Anti- money laundering referred to in
Hijacking Law; destructive arson and murder, paragraph (a) above.
as defined under the Revised Penal Code, as
amended, including those perpetrated by c) Any person knowing that any monetary
terrorists against non-combatant persons and instrument or property is required under
similar targets; Fraudulent practices and other this Act to be disclosed and filed with the
violations under Republic Act No. 8799, Anti-Money Laundering Council (AMLC),
otherwise known as the Securities Regulation fails to do so.
Code of 2000;
a.) Any person knowing that any monetary
14. Fraudulent practices and other violations under instrument or property represents, involves, or
Republic Act No. 8799, otherwise known as the relates to, the proceeds of any unlawful activity,
Securities Regulation Code of 2000. transacts or attempts to transact said monetary
instrument or property.
15. Felonies or offenses of a similar nature that are
punishable under the penal laws of other Discussion: Please take note that the gist of the
countries. crime is knowing. This was the defense of the
Jupiter Branch Manager of RCBC. Sabi niya di niya
Please take note, what if it is a crime committed alam na hinack pala yung pera na yun. That’s a
else where not in the Philippines? Felonies or good defense but the problem there, you opened
offenses of a similar nature that are punishable an account 5 years ago without identifying the
under the penal laws of other countries is also depositors so how did he know that it will not be
considered as an unlawful activity. the vessel of the money laundering kasi hindi
naman niya tinrace. Hindi siya nag due diligence of
The unlawful activity is different from money the depositor. The case is still under appeal.
laundering offense. So kung gumawa ka ng
unlawful activity you will be prosecuted by these b.) Any person knowing that any monetary
laws pero kung ang proceeds naman ng unlawful instrument or property involves the proceeds of any
activity mo i-lalaunder mo, that’s a different unlawful activity, performs or fails to perform any
offense. act as a result of which he facilitates the offense of

48
money laundering referred to in paragraph (a) relates to, the proceeds of any unlawful activity,
above. transacts or attempts to transacts said monetary
instrument or property.
Discussion: So if you are a bank personnel and you
facilitate and alam mo naman na it came from an (b) Any person knowing that any monetary
unlawful activity, dun ka sa letter (b). instrument or property involves the proceeds of
any unlawful activity, performs or fails to perform
c.) Any person knowing that any monetary any act as a result of which he facilitates the
instrument or property is required under this Act to offense of money laundering referred to in
be disclosed and filed with the Anti-Money paragraph (a) above.
Laundering Council (AMLC), fails to do so.
Included in this category are bank personnel,
Discussion: So bank personnel ka pa rin. As you financial institutions and even corporate officers
can see kung bank personnel ka, andami mong who knowingly permitted the proceeds of an
obligasyon. Meron pa sa General Banking Law, unlawful activity to be integrated in the banking
meron ka pa ditto tapos tatarayan ka pa ang system.
depositor kasi na inconvenience sya kasi
pinahintay mo siya. The work of a Branch Manager (c) Any person knowing that any monetary
is difficult. Inaadjust nila. Ayaw nila mawalan sila ng instrument or property is required under this Act
depositor pero at the same time they have to to be disclosed and filed with the Anti-Money
comply. Laundering Council (AMLC), fails to do so.
We talked last weekend, father had this idea of Please take note of the ways in which money
creating an institute- Ateneo Legal Education laundering can be committed.
Extension Institute. They will do short term courses
for example bank personnel on how to perform
due diligence for bank transaction etc. Which court has jurisdiction over money
laundering cases?
Jurisdiction of Money Laundering Cases and
Money Laundering Investigation Procedures SEC. 5. Jurisdiction of Money Laundering
Cases. – The regional trial courts shall have
➢ The Regional Trial Court shall have the jurisdiction to try all cases on money laundering.
jurisdiction to try all cases of money
laundering Those committed by public officers and private
➢ Those committed by public officers and persons who are in conspiracy with such public
private persons who are in conspiracy with officers shall be under the jurisdiction of the
such public officers shall be under the Sandiganbayan.
jurisdiction of the Sandiganbayan.
What if for example, for purposes of reference, the
branch manager of Jupiter branch of RCBC did not
MAR 4: DE LOS SANTOS commit the unlawful activity but dun lang siya sa
money laundering, so you can be convicted or
tried with either or both—the unlawful activity and
So we have discussed or started discussing the the money laundering.
Anti- money Laundering Regulations.
SEC. 6. Prosecution of Money Laundering. –
What constitutes a money laundering offense?
(a) Any person may be charged with and
It is committed by: convicted of both the offense of money
laundering and the unlawful activity as
SEC. 4. Money Laundering Offense. -- herein defined.
xxxxxxxxxxxxxx (b) Any proceeding relating to the unlawful

activity shall be given precedence over
(a) Any person knowing that any monetary the prosecution of any offense or
instrument or property represents, involves, or violation under this Act without prejudice

49
to the freezing and other remedies Commissioner of the Insurance Commission and
provided. the Chairman of the Securities and Exchange
Commission as member.
Does the rule under prejudicial question
applies? The AMLC shall shall act unanimously in the
discharge of its functions as defined hereunder:
Prejudicial question only involves civil cases.
"(1) to require and receive covered or suspicious
transaction reports from covered institutions;
From the IRR (REVISED IMPLEMENTING RULES
AND REGULATIONS R.A. NO. 9160, AS "(2) to issue orders addressed to the appropriate
AMENDED BY R.A. NO. 9194) Supervising Authority or the covered institutions
to determine the true identity of the owner of any
Rule 6.5. Knowledge of the offender that any monetary instrument or property subject of a
monetary instrument or property represents, covered transaction or suspicious transaction
involves, or relates to the proceeds of an report or request for assistance from a foreign
unlawful activity or that any monetary instrument State, or believed by the Council, on the basis for
or property is required under the AMLA to be substantial evidence, to be, in whole or in part,
disclosed and filed with the AMLC, may be wherever located, representing, involving, or
established by direct evidence or inferred from related to directly or indirectly, in any manner or
the attendant circumstances. by any means, the proceeds of an unlawful
activity.
Rule 6.6. All the elements of every money
laundering offense under Section 4 of the AMLA "(3) to institute civil forfeiture proceedings and
must be proved by evidence beyond reasonable all other remedial proceedings through the
doubt, including the element of knowledge that Office of the Solicitor General;
the monetary instrument or property represents,
involves or relates to the proceeds of any "(4) to cause the filing of complaints with the
unlawful activity. Department of Justice or the Ombudsman for
the prosecution of money laundering offenses;
Very important is the element of knowledge. It is
always a defense when you try to prosecute na "(5) to investigate suspicious transactions and
walang alam ma it came from an unlawful activity. covered transactions deemed suspicious after
If maprove mo talaga na wala kang alam, you an investigation by AMLC, money laundering
cannot be prosecuted. activities and other violations of this Act;
Rule 6.7. No element of the unlawful activity, "(6) to apply before the Court of Appeals, ex
however, including the identity of the parte, for the freezing of any monetary
perpetrators and the details of the actual instrument or property alleged to be the
commission of the unlawful activity need be proceeds of any unlawful activity as defined in
established by proof beyond reasonable doubt. Section 3(i) hereof;
The elements of the offense of money
laundering are separate and distinct from the "(7) to implement such measures as may be
elements of the felony or offense constituting the necessary and justified under this Act to
unlawful activity. counteract money laundering;
So by virtue of this law, there was a creation of the "(8) to receive and take action in respect of, any
council or the Anti- Money Laundering Council. request from foreign states for assistance in their
own anti-money laundering operations provided
How do they decide the composition of this? in this Act;
"SEC.7. Creation of Anti-Money Laundering "(9) to develop educational programs on the

Council (AMLC). -- The Anti-Money Laundering pernicious effects of money laundering, the
Council is hereby created and shall be methods and techniques used in the money
composed of the Governor of the Bangko laundering, the viable means of preventing
Sentral ng Pilipinas as chairman, the

50
money laundering and the effective ways of When a particular transaction is considered
prosecuting and punishing offenders; suspicious, when it is a red flag, they can actually
investigate.
"(10) to enlist the assistance of any branch,
department, bureau, office, agency, or And this is very important…
instrumentality of the government, including
government-owned and -controlled (6) to apply before the Court of Appeals, ex
corporations, in undertaking any and all anti- parte, for the freezing of any monetary instrument
money laundering operations, which may or property alleged to be the proceeds of any
include the use of its personnel, facilities and unlawful activity as defined in Section 3(i)
resources for the more resolute prevention, hereof..xxx
detection, and investigation of money
laundering offenses and prosecution of They can file to the CA through the Sol Gen the
offenders; and issuance of the freezing of any monetary
instrument or property alleged to be the proceeds
"(11) to impose administrative sanctions for the of any unlawful activity. Let’s say suspicious
violation of laws, rules, regulations, and orders transaction tapos walang underlying justification
and resolutions issued pursuant thereto." and it is probable that it comes from an unlawful
activity, they could file for a freeze order. So hindi
Composition of AMLC muna gagalaw yung pera.
• Governor of the Bangko Sentral ng Pilipinas RULE 11

as chairman, Authority to Inquire into Deposits or
• Commissioner of the Insurance Investments
Commission and the Chairman of the
Securities and Exchange Commission as Rule 11.a.1. Notwithstanding the provisions of
members Republic Act No. 1405, as amended; Republic
Act No. 6426, as amended; Republic Act No.
The AMLA shall act unanimously in discharging 8791, and other laws, the AMLC may inquire into
their functions as defined in the AMLA. or examine any particular deposit or investment,
including related accounts, with any banking
In case of the absence, disability, or incapacity of institution or non-bank financial institution and
any member, the officer duly designated to their subsidiaries and affiliates upon order by the
discharge the functions of governor of the BSP, the Court of Appeals based on an ex parte
chairman of the SEC or the insurance commission application in cases of violation of this Act, when
as the case may be, shall act instead in the AMLC. it has been established that there is probable
cause that the deposits or investments involved,
Functions of AMLC including related accounts, are related to an
unlawful activity as defined in Rule 3.h hereof or
(1) to require and receive covered or suspicious a money laundering offense under Rule 4
transaction reports from covered institutions; hereof; except in cases as provided under Rule
11.b.
Pag suspicious ka or covered transactions ng
financial institution, irereport ka sa council. (3) to institute civil forfeiture proceedings and all
Automatically, the council, they will receive a other remedial proceedings through the Office of
report. the Solicitor General;
(2) to issue orders addressed to the appropriate (4) to cause the filing of complaints with the
Supervising Authority or the covered Department of Justice or the Ombudsman for the
institutions…xxx prosecution of money laundering offenses
(5) to investigate suspicious transactions and This is what we call the Enhanced Due Diligence:
covered transactions deemed suspicious after an
investigation by AMLC…xxx

51
From IRR
Rule 9.a.9.a. Enhanced Due Diligence. –
Usually as part of the audit and the examining
Enhanced due diligence shall be applied to sector of the BIR, when they try to audit the banks
customers that are assessed by the covered and they see na may malalaking depositors and
institution or these Rules as high risk for money frequent yung transaction, they would really
laundering and terrorist financing, which require as to the business of the depositor. The
enhanced diligence, at a minimum, should banks should ask for documents to justify such
observe the following measures: transactions.
i. Obtain senior management approval for Contrary to the enhanced due diligence, we also
establishing or continuing. (for existing have the reduced due diligence.
customers) such business relationships;
Rule 9.a.9.a.1. Reduced Due Diligence. -
ii. Take reasonable measures to establish the Whenever reduced due diligence is applied in
source of wealth and source of funds; and accordance with the covered institution’s
customer acceptance policy, the following rules
iii. Conduct enhanced ongoing monitoring of shall apply:
the business relationship
a.) For individual customers classified as low
Very important is the identification of the risk, a covered institution may open an
depositor. If you are considered as a high-risk account under the true and full name of
person or in a high risk transaction, i-eenhance pa the account owner or owners upon
yun yung identification of the depositor. presentation of an acceptable ID only.
What are the necessary procedures for enhanced b.) For corporate, partnership, and sole
due diligence? proprietorship entities, and other entities
such as banking institutions, trust entities
i. Obtain senior management approval for and quasi-banks authorized by the
establishing or continuing. (for existing Supervising Authorities to operate as
customers) such business relationships; such, publicly listed companies subject
to regulatory disclosure requirements,
ii. Take reasonable measures to establish the government agencies including GOCCs,
source of wealth and source of funds; a covered institution may open an
account under the official name of these
So, it is not sufficient to just ask the depositor entities with only item (e) of those
“where does this money come from?” There must required under Rule 9.a.5 (Board or
be reasonable measures to determine that indeed Partners’ Resolution duly certified by the
it came from legitimate source. A common Corporate/Partners’ Secretary
problem is for example, a deed of sale, tapos authorizing the signatory to sign on
meron kayong consideration. Chances are, yung behalf of the entity) obtained at the time
isa mababa ang value, yung isa mataas. Syempe of account opening.
yung pumapasok nap era dun sa mataas. Yung
ninonotarize yung mababa to lower the applicable
taxes. So ang ginagawa nila niyan is inaaproximate Rule 9.a.16. Politically Exposed Persons. – A
lang sa zonal value even if the consideration paid covered institution shall take reasonable
is Php10 million tapos sa zonal value is just Php5 measures to determine whether a customer or
million, dun lang yan sa mababa. It becomes a beneficial owner is a PEP as defined under Rule
problem kasi pagitngin mo sa cheke Php 10 million 3.b.2 hereof. In cases of higher risk business
pero sa deed of sale mo, Php5 milion. But this is relationship with such persons including foreign
acceptable to the bank because this practice is PEPs, a covered institution shall apply the
prevalent. They would just ask for the internal deed enhanced due diligence measures under Rule
of sale na hindi naman ninonotarize. 9.a.9.a.
iii. Conduct enhanced ongoing monitoring of

the business relationship

52
The requirements for all types of PEPs should covered transactions and suspicious
also apply to family members or close associates transactions within five (5) working days from
of such PEPs. occurrence thereof, unless the supervising
authority concerned prescribes a longer period
not exceeding ten (10) working days.
Please take note, hindi lang local PEP but also
foreign PEP. For example, anak ka ng prime Should a transaction be determined to be both
minister in Malaysia pumunta ka ng Pilipinas at a covered and a suspicious transaction, the
nag-open ka ng account. You are considered as a covered institution shall report the same as a
PEP. suspicious transaction.
Again, if you are high risk, enhanced due diligence. From 2018 TSN:
If low risk ka, reduced due diligence.
Pwede ba na ang transaction both covered and
suspicious? Pwede. Should a transaction be
Now, shell company or shell bank. determined to be both a covered and a suspicious
transaction, the covered institution shall report the
Rule 9.a.19. Shell Company/Shell Bank. – A same as a suspicious transaction. In other words,
covered institution shall undertake there is greater monitoring when it is suspicious.
business/banking relationship with a shell
company with extreme caution and always apply Example of both a covered and a suspicious
enhanced due diligence under Rule 9.a.9.a. transaction: Let’s say walang legitimate purpose
tapos the amount is Php501,000. So covered na
No shell bank shall be allowed to operate or be siya kasi more than 500. Suspicious na siya kasi
established in the Philippines. A covered walang legitimate source.
institution shall refuse to enter into, or continue,
correspondent banking relationship with them.
It shall likewise guard against establishing Rule 9.c.3. Exemption from Bank Secrecy
relations with foreign financial institutions that Laws. – When reporting covered or suspicious
permit their accounts to be used by shell banks. transactions to the AMLC, covered institutions
and their officers and employees, shall not be
deemed to have violated R.A. No. 1405, as
What is a shell company? amended, R.A. No. 6426, as amended, R.A. No.
8791 and other similar laws, but are prohibited
Bawal na to actually eh. Theres a SEC Regulation na from communicating, directly or indirectly, in any
dinidiscourage na to eh. A shell company in manner or by any means, to any person the fact
relation to Enron, is an affiliate company na hindi that a covered or suspicious transaction report
mo sinasali as part of the conglomerate. Kaya shell. was made, the contents thereof, or any other
May sarili siyang mundo. It is frequently used to information in relation thereto.
hide assets. For example, conglomerate tapos
gusto nila magtayo ng shell company. Mga VIP In case of violation thereof, the concerned officer
assets ihiwalay so that in the event of bankruptcy and employee of the covered institution shall be
may mga nakahiwalay. criminally liable.
It is high risk because it not recorded as part of the

conglomerate so this may be used as a vessel to Kasi diba sabi natin when we discussed the Bank
put in the money from an unlawful activity. So you Secrecy Law and even the General Banking Law,
should always apply enhanced due diligence. bawal sabihin yung contents ng accounts by the
banking personnel because they are covered by
the confidentiality. This is an exception. When they
Rule 9.c. Reporting of Covered and report to the AMLA, that is exempt. But they are not
Suspicious Transactions. allowed to communicate by any manner directly or
indirectly to any person the fact that a covered or
Rule 9.c.1. Period of Reporting Covered suspicious transaction report was made, the
Transactions and Suspicious Transactions. – contents thereof, or any other information in
Covered institutions shall report to the AMLC all relation thereto.

53
Rule 10.a. Freezing of any monetary
Also take not, violation of this is a criminal violation. instrument or property. –
Rule 9.c.4. Confidentiality Provisions. – When (1) Upon verified ex parte petition by the
reporting covered transactions or suspicious AMLC and after determination that
transactions to the AMLC, covered institutions probable cause exists that any monetary
and their officers and employees are prohibited instrument or property is in any way
from communicating, directly or indirectly, in any related to any unlawful activity as
manner or by any means, to any person, entity, defined in Rule 3.h hereof or to a money
the media, the fact that a covered or suspicious laundering offense, the Court of Appeals
transaction report was made, the contents may issue a freeze order on said
thereof, or any other information in relation monetary instrument or property which
thereto. shall be effective immediately.
Neither may such reporting be published or

aired in any manner or form by the mass media, Please take note that it must be verified and there
electronic mail, or other similar devices. In case must be probable cause.
of violation thereof, the concerned officer, and
employee, of the covered institution, or media What is the meaning of ex parte?
shall be held criminally liable. With respect to or in the interests of one side only
or of an interested outside party.
(3) The freeze order shall be effective for twenty

Meron din naming Safe Harbor provisions. What is (20) days unless extended by the Court of
a Safe Harbor provision? Appeals upon motion by the AMLC.
So being a person under a covered institution, you (4) The Court shall act on the petition to freeze
are prone to suit, so… within twenty-four (24) hours from filing of the
petition. If the petition is filed a day before a non-
working day, the computation of the twenty-four
Rule 9.c.5. Safe Harbor Provisions. – No (24) hour period shall exclude the nonworking
administrative, criminal or civil proceedings shall days.
lie against any person for having made a covered
transaction report or a suspicious transaction
report in the regular performance of his duties Please take note, the Court shall act on the petition
and in good faith, whether or not such reporting within 24 hours, so mabilis ito. Bakit?
results in any criminal prosecution under this Act
or any other Philippine law. Cause there is danger that it might be transferred
to another account specially now that there is
online banking. SO pag malaman na nila na may
So how does the AMLA work? nag petition for freeze order, bank transfer or wire
transfer agad. That’s why they shall act within 24
Pag meron nareport na suspicious, they would do hours.
it discreetly. Magtatawag lang yan. Tapos minsan
pamgpapadala ng tao yan to look at the business (5) A person whose account has been frozen may
na sinasabi mong source and magtatanong sa file a motion to lift the freeze order and the court
neighbors. They are like the investigating must resolve this motion before the expiration of
department of the Ombudsman. the twenty (20) - day original freeze order.
The next provision is very very important for So the remedy is you can file a motion to lift the
purposes of your bar. freeze order, or a TRO or a writ of injunction before
the Supreme Court.
RULE 10
Authority to File Petitions for Freeze Order Ito very important and laging tinatanong:

54
(6) No court shall issue a temporary restraining their subsidiaries and affiliates upon order by the
order or a writ of injunction against any freeze Court of Appeals based on an ex parte
order, except the Supreme Court. application in cases of violation of this Act, when
it has been established that there is probable
cause that the deposits or investments involved,
So hindi mo pwede i-TRO yung freeze order, including related accounts, are related to an
except the Supreme Court. So di ka pwede unlawful activity as defined in Rule 3.h hereof or
magnayad ng judge dun para magissue siya ng a money laundering offense under Rule 4
TRO. It must be the Supreme Court. hereof; except in cases as provided under Rule
11.b.
The probable cause here…
Rule 10.b. Definition of Probable Cause. – This is also a favorite bar exam question.
Probable cause includes such facts and
circumstances which would lead a reasonably So, pwede nilang i-inquire by order from the Court
discreet, prudent or cautious man to believe of Appeals and upon establishment that there is
than an unlawful activity and/or a money probable cause that the deposits or investments
laundering offense is about to be, is being or has involved, including related accounts, are related to
been committed and that the account or any an unlawful activity as defined in Rule 3.h hereof or
monetary instrument or property sought to be a money laundering offense under Rule 4.
frozen is in any way related to said unlawful
activity and/or money laundering offense. Now when is a court order not required?
It is not required to have a court order for purposes

Take note of this provision… of inquiry in the bank deposits accounts in the
following…
Rule 10.f. Prohibition against Issuance of
Freeze Orders against candidates for an Rule 11.b. Authority to Inquire into Bank
electoral office during election period. – No Deposits without court order. – The AMLC may
assets shall be frozen to the prejudice of a inquire into or examine deposits or investments
candidate for an electoral office during an with any banking institution or non-bank
election period within twenty-four (24) hours financial institution and their subsidiaries and
from the freezing of said related accounts, affiliates without a court order in cases involving
monetary instruments and properties. any of the following activities:
(1) Kidnapping for ransom under Article 267 of

Why? Because this is going to be the remedy for Act No. 3815, otherwise known as the Revised
the kaaway. Alam nilang PEP yun, nagtatakbo so Penal Code, as amended;
syempre maraming funds, so sasabihin nila magfile
sila ng protection from freeze order sa Court of (2) Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15,
Appeals saying galling yung sa unlawful activity so and 16 of Republic Act No. 9165, otherwise
mafi-freeze. Kawawa naman yung candidates for known as the Comprehensive Dangerous Drugs
electoral office during elections. Act of 2002;
(3) Hijacking and other violations under Republic

RULE 11 Act No. 6235; destructive arson and murder, as
Authority to Inquire into Deposits or defined under the Revised Penal Code, as
Investments amended, including those perpetrated by
terrorists against non-combatant persons and
Rule 11.a.1. Notwithstanding the provisions of similar targets; and
Republic Act No. 1405, as amended; Republic
Act No. 6426, as amended; Republic Act No. (4) Felonies or offenses of a nature similar to
8791, and other laws, the AMLC may inquire into those mentioned in Section 3(i)(1), (2) and (12) of
or examine any particular deposit or investment, the AMLA, as amended, which are punishable
including related accounts, with any banking under the penal laws of other countries, and
institution or non-bank financial institution and terrorism and conspiracy to commit terrorism as

55
defined and penalized under Republic Act No.
9372. (2) giving information needed by the foreign
State within the procedures laid down in the
AMLA, as amended, and in these Rules; and
Please memorize the unlawful activities.
(3) applying for an order of forfeiture of any
(4) Felonies or offenses of a nature similar to those monetary instrument or property with the court:
mentioned in Section 3(i)(1), (2) and (12) of the Provided, That the court shall not issue such an
AMLA, as amended, which are punishable under order unless the application is accompanied by
the penal laws of other countries, and terrorism and an authenticated copy of the order of a court in
conspiracy to commit terrorism as defined and the requesting State ordering the forfeiture of
penalized under Republic Act No. 9372. said monetary instrument or property of a
person who has been convicted of a money
Please take note of “similar nature”. Kasi pwede laundering offense or an unlawful activity in the
naming siliar nature siya dun pero di naman requesting state, and a certification or an
punishable sa Pilipinas. affidavit of a competent officer of the requesting
State stating that the conviction and the order of
forfeiture are final and that no further appeal lies
RULE 12 in respect of either.
Authority to Institute Forfeiture Proceedings
Rule 12.a. Authority to Institute Civil Rule 13.d. Limitations on Requests for Mutual
Forfeiture Proceedings. – The AMLC is Assistance. – The AMLC may refuse to comply
authorized under Section 7(3) of the AMLA, as with any request for assistance where the action
amended, to institute civil forfeiture sought by the request contravenes any provision
proceedings and all other remedial proceedings of the Constitution or the execution of a request
through the Office of the Solicitor General. is likely to prejudice the national interest of the
Philippines, unless there is a treaty between the
Philippines and the requesting State relating to
Now we also have this provision because of the provision of assistance in relation to money
globalization… laundering offenses.
RULE 13
Mutual Assistance among States
RULE 15
Rule 13.a. Request for Assistance from a Prohibitions Against Political Harassment
Foreign State. – Where a foreign State makes a
request for assistance in the investigation or Rule 15.a. Prohibition against Political
prosecution of a money laundering offense, the Persecution. – The AMLA, as amended, and
AMLC may execute the request or refuse to these Rules shall not be used for political
execute the same and inform the foreign State of persecution or harassment or as an instrument to
any valid reason for not executing the request or hamper competition in trade and commerce. No
for delaying the execution thereof. The case for money laundering may be filed to the
principles of mutuality and reciprocity shall, for prejudice of a candidate for an electoral office
this purpose, be at all times recognized. during an election period.
Rule 13.b. Powers of the AMLC to Act on a Pwede naman kasi talaga siyang gamitin diba? You
Request for Assistance from a Foreign State. – know for a fact na kalaban ko sa negsyo yun
The AMLC may execute a request for assistance madami siguro pera yun so kunwari magfa-file ka,
from a foreign State by: gagawa ka muna ng kwento na from unlawful
funds.
(1) tracking down, freezing, restraining and
seizing assets alleged to be proceeds of any We have several cases…
unlawful activity under the procedures laid down
in the AMLA, as amended, and in these Rules; SUBIDO PAGENTE CERTEZA

56
MENDOZA AND BINAY LAW OFFICES v CA
and the AMLC As this is a matter demanding serious and
immediate attention, the Firm respectfully
G.R. No. 216914, December 06, 2016 manifests that if no written response is received
within 24-hours from receipt of this letter, we
FACTS: shall be at liberty to assume that such a case
exists and we shall act accordingly.
This is a petition for certiorari and prohibition Hoping for your immediate action.
under Rule 65 of the Rules of Court questioning Respectfully yours, For the Firm
the constitutionality of Section 11 of Republic Act CLARO F. CERTEZA5
(R.A.) No. 9160, the Anti-Money Laundering Act,
as amended, specifically the Anti-Money Within twenty four (24) hours, Presiding Justice
Laundering Council's authority to file with the Reyes wrote SPCMB denying its request.
Court of Appeals (CA) in this case, an ex-parte
application for inquiry into certain bank deposits Manila Times published another article entitled,
and investments, including related accounts "CA orders probe of Binay's assets" reporting
based on probable cause. that the appellate court had issued a Resolution
granting the ex-parte application of the AMLC to
Subido Pagente Certeza Mendoza & Binay Law examine the bank accounts of SPCMB.
Firm (SPCMB) was most concerned with an
article was published in the Manila Times on 25 Thus SPCMB undertook direct resort to the
February 2015 entitled "Inspect Binay Bank Supreme Court via this petition for certiorari and
Accounts" which read, in pertinent part: prohibition on the following grounds:
xxx The Anti-Money Laundering Council (AMLC) 1. AMLC is UNCONSTITUTIONAL insofar as it

asked the Court of Appeals (CA) to allow the allows the examination of a bank account
[C]ouncil to peek into the bank accounts of the without any notice to the affected party. a.
Binays, their corporations, and a law office where Violating right to due process
a family member was once a partner. b. Violating right to privacy
xxxx
2. Even assuming that it is constitutional the CA
Also the bank accounts of the law office linked to committed grave abuse of discretion amounting
the family, the Subido Pagente Certeza Mendoza to lack or excess of jurisdiction considering that
& Binay Law Firm, where the Vice President's
daughter Abigail was a former partner. a. the refusal of respondent presiding justice to
provide petitioner with a copy of the ex-parte
The following day, 26 February 2015, SPCMB application for bank examination filed by
wrote public respondent, Presiding Justice of respondent AMLC and all other pleadings,
the CA, Andres B. Reyes, Jr.: motions, orders, resolutions, and processes
issued by the respondent court of appeals in
The law firm of Subido Pagente Certeza relation thereto violates petitioner's right to due
Mendoza and Binay was surprised to receive a process;
call from Manila Times requesting for a comment
regarding a [supposed petition] filed by the b. a carte blanche authority to examine any and
Republic of the Philippines represented by the all transactions pertaining to petitioner's bank
Anti-Money Laundering Council before the accounts violates the attorney-client privilege
Court of Appeals seeking to examine the law which is sacrosanct in the legal profession
office's bank accounts.
c. a blanket authority to examine petitioner's
To verify the said matter, the law office is bank accounts, including any and all transactions
authorizing its associate Atty. Jose Julius R. therein from its opening up to the present,
Castro to inquire on the veracity of said report partakes the nature of a general warrant that is
with the Court of Appeals. He is likewise clearly intended to aid a mere fishing expedition
authorized to secure copies of the relevant
documents of the case, such as the petition and d. there is nothing in the anti-money laundering
orders issued, if such a case exists. act that allows or justifies the withholding of

57
information and/or any court records or (1) It does not violate SUBSTANTIVE due
proceedings pertaining to an examination of a process, because there is no physical seizure of
bank account, especially if the court has already the bank accounts contemplated.
granted the authority to conduct the
examination (2) It does not violate PROCEDURAL due process
because it is not an investigative body exercising
e. the petitioner did not commit, nor has the quasi-judicial powers
petitioner been impleaded in any complaint
involving any predicate crime that would justify The right to due process has two aspects:
an inquiry into its bank accounts; and
(1) substantive which deals with the extrinsic and
intrinsic validity of the law; and
f. the examination of the petitioner's bank
accounts is a form of political persecution or (2) procedural which delves into the rules
harassment. government must follow before it deprives a
person of its life, liberty or property.
For their part, AMLC, represented by the Office
of the Solicitor General (OSG), argues that: Section 11 of the AMLA has three elements:
AMLC's inquiry into bank deposits does not (1) ex-parte application by the AMLC;
violate due process nor the right to privacy:
(2) determination of probable cause by the CA;
1. Section 11's allowance for AMLC's ex-parte and
application for an inquiry into particular bank
deposits and investments is investigative, not (3) exception of court order in cases involving
adjudicatory; unlawful activities defined in Sections 3(i)(1), (2),
and (12)
2. The text of Section 11 itself provides
safeguards and limitations on the allowance to
the AMLC to inquire into bank deposits: (a) Section 11 does not violate SUBSTANTIVE due
issued by the CA based on probable cause; and process
(b) specific compliance to the requirements of
Sections 2 and 3, Article III of the Constitution; The Court held that Section 11 of the AMLA
providing for ex-parte application and inquiry by
3. The ex-parte procedure for investigating bank the AMLC into certain bank deposits and
accounts is necessary to achieve a legitimate investments does not violate substantive due
state objective; process, there being no physical seizure of
property involved at that stage.
4. There is no legitimate expectation of privacy
as to the bank records of a depositor; It is the preliminary and actual seizure of the
bank deposits or investments in question which
5. The examination of, and inquiry, into SPCMB's brings these within reach of the judicial process,
bank accounts does not violate Attorney-Client specifically a determination that the seizure
Privilege; and violated due process.
6. A criminal complaint is not a pre-requisite to a The Court cited the same Eugenio case:
bank inquiry order.
A bank inquiry order under Section 11 does not
necessitate any form of physical seizure of
ISSUE: WON Sec 11 of RA 9160 is property of the account holder. What the bank
unconstitutional for being violative of the right to inquiry order authorizes is the examination of the
due process – particular deposits or investments in banking
institutions or non-bank financial institutions. The
monetary instruments or property deposited with
RULING: NO such banks or financial institutions are not seized
in a physical sense, but are examined on

58
particular details such as the account holder's persons who are in conspiracy with such public
record of deposits and transactions. Unlike the officers shall be under the jurisdiction of the
assets subject of the freeze order, the records to Sandiganbayan.
be inspected under a bank inquiry order cannot
be physically seized or hidden by the account Rule 5.b. Investigation of Money Laundering
holder. Said records are in the possession of the Offenses. - The AMLC shall investigate:
bank and therefore cannot be destroyed at the (1) suspicious transactions;
instance of the account holder alone as that (2) covered transactions deemed suspicious after
would require the extraordinary cooperation and an investigation conducted by the AMLC;
devotion of the bank. (3) money laundering activities; and
(4) other violations of the AMLA, as amended.
At the stage in which the petition was filed before
us, the inquiry into certain bank deposits and The enabling law itself, the AMLA, specifies the
investments by the AMLC still does not jurisdiction of the trial courts, RTC and
contemplate any form of physical seizure of the Sandiganbayan, over money laundering cases,
targeted corporeal property. and delineates the investigative powers of the
AMLC.
PROCEDURAL DUE PROCESS – SEC 11 does Textually, the AMLA is the first line of defense
NOT violate procedural due process against money laundering in compliance with
our international obligation. There are three (3)
Procedural due process is essentially the stages of determination, two (2) levels of
opportunity to be heard. In this case, at the investigation, falling under three (3) jurisdictions:
investigation stage by the AMLC into possible
money laundering offenses, SPCMB demands (1) The AMLC investigates possible money
that it have notice and hearing of AMLC's laundering offences and initially determines
investigation into its bank accounts. whether there is probable cause to charge any
person with a money laundering offence under
SPCMB Argues: Investigation is akin to Section 4 of the AMLA, resulting in the filing of a
extradition proceedings complaint with the Department of Justice or the
Office of the Ombudsman;
SPCMB points out that the AMLC 's bank inquiry
is preliminary to the seizure and deprivation of (2) The DOJ or the Ombudsman conducts the
its property as in a freeze order under Section 10 preliminary investigation proceeding and if after
of the AMLA which peculiarity lends itself to a sui due notice and hearing finds probable cause for
generis proceeding akin to the evaluation money laundering offences, shall file the
process in extradition proceedings Citing: necessary information before the Regional Trial
Secretary of Justice v. Hon. Lantion Courts or the Sandiganbayan;
(3) The RTCs or the Sandiganbayan shall try all

Jurisdiction of AMLC; AMLC does NOT exercise cases on money laundering, as may be
Quasi-Judicial Functions applicable.
In this instance, the grant of jurisdiction over Nowhere from the text of the law nor its
cases involving money laundering offences is Implementing Rules and Regulations can we
bestowed on the Regional Trial Courts and the glean that the AMLC exercises quasi-judicial
Sandiganbayan as the case may be. functions whether the actual preliminary
investigation is done simply at its behest or
In fact, Rule 5 of the IRR is entitled Jurisdiction of conducted by the Department of Justice and the
Money Laundering Cases and Money Ombudsman.
Laundering Investigation Procedures:
THEREFORE; The AMLC functions solely as an
Rule 5.a. Jurisdiction of Money Laundering investigative body in the instances mentioned in
Cases. The Regional Trial Courts shall have the Rule 5.b. Thereafter, the next step is for the
jurisdiction to try all cases on money laundering. AMLC to file a Complaint with either the DOJ or
Those committed by public officers and private the Ombudsman pursuant to Rule 6.b.

59
REPUBLIC ACT 10173
Plainly, the AMLC's investigation of money Data Privacy Act of 2012
laundering offenses and its determination of
possible money laundering offenses, specifically
its inquiry into certain bank accounts allowed by SECTION 1. Short Title. – This Act shall be known
court order, does not transform it into an as the “Data Privacy Act of 2012”.
investigative body exercising quasi-judicial SEC. 2. Declaration of Policy. – It is the policy of
powers. Hence, Section 11 of the AMLA, the State to protect the fundamental human right
authorizing a bank inquiry court order, cannot be of privacy, of communication while ensuring free
said to violate SPCMB's constitutional right to flow of information to promote innovation and
procedural due process. growth.
The State recognizes the vital role of information
and communications technology in nation-
Let’s go to Republic Act 10173. It is not yet sure if building and its inherent obligation to ensure
this will be part of the syllabus of the upcoming Bar that personal information in information and
Exams. communications systems in the government and
in the private sector are secured and protected.
(Sir, plays a video that can be found on You Tube)

What is a data subject?
Title: Data Protection Explained | Privacy
International SEC. 3. Definition of Terms. –
(c) Data subject refers to an individual whose
https://www.youtube.com/watch?v=VUae3XgIZV personal information is processed.
U
Let’s say you have a credit card. You are the data
Discussion: subject because pinoprocess yung information
mo.
They say that is the sign up is free, if everything is
free, you are the product. Ikaw yung binebenta. What is personal information?
This has been the case in Facebook regarding
politics. It highlited the lack of policies in data (g) Personal information refers to any
protection. information whether recorded in a material form
or not, from which the identity of an individual is
Try niyo magsearch sa google ng isang product of apparent or can be reasonably and directly
topic of interest. The next day lahat ng lalabas sa ascertained by the entity holding the
feed mo related na dun. They say na even daw, just information, or when put together with other
speaking of it, yun na yung lalabas sa feed mo. So information would directly and certainly identify
how dangerous is that. an individual.
Now, dahil 60itto, marami masyadong tao ang So when you talk about personal information, you
naniniwala sa fake news. Actually kung meron ka are not just referring to your name, it can also be
ng isang, diba the theory of inception. Meron ka ng any information that can be reasonably and directly
idea of what has happened tapos ise-search mo ascertained by the entity holding the information
siya, chances are lahat ng mababasa at mababasa or when put together with other information would
mo for the nxt few days are related to that. This will directly and certainly identify an individual.
figure the belief that that idea is true when in fact
hindi naman. Binebenta yung data mo sa mga Pinaka obvious, full name. Hindi lang limited dun.
marketing departments ng companies. This is the So any information na kapag tinahi-tahi mo
problem in social media. malalaman mo na ikaw to.
Because of this problem, the arising threat to data In contrast to that, we have the Sensitive Personal
privacy, they were compelled to enact a Data Information. If you try to read the different Data
Privacy Law. Privacy Laws of different jurisdictions laging may
dalawa yan. You have:

60
1. Personal Information
2. Sensitive Personal Information
What is the scope of this law?
What’s the reason for classification and
categorization? SEC. 4. Scope. – This Act applies to the
processing of all types of personal information
It’s because the security required for Personal and to any natural and juridical person involved
Information is different from those of Sensitive in personal information processing including
Personal Information. those personal information controllers and
processors who, although not found or
Sensitive Personal Information refers to an established in the Philippines, use equipment
information regarding that are located in the Philippines, or those who
(1) An individual’s race, ethnic origin, marital maintain an office, branch or agency in the
status, age, color, religious or philosophical Philippines subject to the immediately
affiliation, succeeding paragraph:
(2) An individual’s health, education, genetic
or sexual life of a person, or to any Provided, That the requirements of Section 5 are
proceeding for any offense committed or complied with.
alleged to have been committed by such
person, the disposal of such proceedings, This Act does not apply to the following:
or the sentence of any court in such
proceedings; (a) Information about any individual who is or
(3) Issued by government agencies peculiar to was an officer or employee of a government
an individual which includes, but not limited institution that relates to the position or functions
to, social security numbers, previous or cm- of the individual, including:
rent health records, licenses or its denials, (1) The fact that the individual is or was an
suspension or revocation, and tax returns; officer or employee of the government
(4) Specifically established by an executive institution;
order or an act of Congress to be kept (2) The title, business address and office
classified. telephone number of the individual;
(3) The classification, salary range and
Very important in Data Privacy Laws is consent of responsibilities of the position held by the
the subject. Pwede naman siya i-disclose but individual; and
kailangan ng consent. (4) The name of the individual on a document
prepared by the individual in the course of
If you have tried paying bills in SM Dept. compare employment with the government;
that with when this was not yet effective. Magfi-fill
up ka lang ng form. Ngayon may nakatatak na
waiver conforming… etc. In fact there was even a (b) Information about an individual who is or was
time na lahat ng social media nagchange ng performing service under contract for a
privacy terms and conditions. government institution that relates to the
services performed, including the terms of the
So what is consent? contract, and the name of the individual given in
the course of the performance of those services;
SEC. 3. Definition of Terms. –
(c) Information relating to any discretionary
(b) Consent of the data subject refers to any benefit of a financial nature such as the granting
freely given, specific, informed indication of will, of a license or permit given by the government
whereby the data subject agrees to the to an individual, including the name of the
collection and processing of personal individual and the exact nature of the benefit;
information about and/or relating to him or her.
Consent shall be evidenced by written, (d) Personal information processed for
electronic or recorded means. It may also be journalistic, artistic, literary or research
given on behalf of the data subject by an agent purposes;
specifically authorized by the data subject to do
so.

61
(e) Information necessary in order to carry out (a) The act, practice or processing relates to
the functions of public authority which includes personal information about a Philippine citizen
the processing of personal data for the or a resident;
performance by the independent, central
monetary authority and law enforcement and (b) The entity has a link with the Philippines, and
regulatory agencies of their constitutionally and the entity is processing personal information in
statutorily mandated functions. Nothing in this the Philippines or even if the processing is
Act shall be construed as to have amended or outside the Philippines as long as it is about
repealed Republic Act No. 1405, otherwise Philippine citizens or residents such as, but not
known as the Secrecy of Bank Deposits Act; limited to, the following:
Republic Act No. 6426, otherwise known as the
Foreign Currency Deposit Act; and Republic Act (1) A contract is entered in the Philippines;
No. 9510, otherwise known as the Credit
Information System Act (CISA); (2) A juridical entity unincorporated in the
Philippines but has central management and
(f) Information necessary for banks and other control in the country; and
financial institutions under the jurisdiction of the
independent, central monetary authority or (3) An entity that has a branch, agency, office or
Bangko Sentral ng Pilipinas to comply with subsidiary in the Philippines and the parent or
Republic Act No. 9510, and Republic Act No. affiliate of the Philippine entity has access to
9160, as amended, otherwise known as the Anti- personal information; and
Money Laundering Act and other applicable
laws; and
(c) The entity has other links in the Philippines
(g) Personal information originally collected such as, but not limited to:
from residents of foreign jurisdictions in
accordance with the laws of those foreign (1) The entity carries on business in the
jurisdictions, including any applicable data Philippines; and
privacy laws, which is being processed in the (2) The personal information was collected
Philippines. or held by an entity in the Philippines.
What is peculiar here is that it has (a) The act, practice or processing relates to
EXTRATERRITORIAL APPLICATION. Most laws, are personal information about a Philippine citizen or
territorial in nature but Data Privacy Law is a resident;
extraterritorial because data is processed not only
locally but globally. Thus it must be comprehensive Let’s say sa India yung call center and I am Unilever
enough to secure those outside the country. in the Philippines, but my customer services is
processed by a call center in India, so kung may
SEC. 5. Protection Afforded to Journalists and customers ako from the Philippines calling for
Their Sources. – Nothing in this Act shall be some defects in my products, it will refer you to the
construed as to have amended or repealed the call center in India. In that case, the call center in
provisions of Republic Act No. 53, which affords India is also included kasi it processes information
the publishers, editors or duly accredited for customers in the Philippines.
reporters of any newspaper, magazine or
periodical of general circulation protection from Some countries have what they call the “White List
being compelled to reveal the source of any Provision”. Like Malaysia. It has a white list
news report or information appearing in said provision wherein any information of their
publication which was related in any confidence residents can only be processed by jurisdictions
to such publisher, editor, or reporter. within the white list. Usually nasa white list ka if
meron kang effective na Data Privacy Law.
SEC. 6. Extraterritorial Application. – This Act What if your country is not among the white list?
applies to an act done or practice engaged in
and outside of the Philippines by an entity if: Ipasok mo muna sa white list. Anyway, those are
the tricks of the trade.

62
(f) Coordinate with other government agencies
SO if meron tayong AMLA, meron tayong DATA and the private sector on efforts to formulate and
PRIVACY COMMISSION. implement plans and policies to strengthen the
protection of personal information in the
Kunwari sa credit card may gumamit ng country;
information mo, you can actually file a complaint.
(g) Publish on a regular basis a guide to all laws
SEC. 7. Functions of the National Privacy relating to data protection;
Commission. – To administer and implement the
provisions of this Act, and to monitor and ensure (h) Publish a compilation of agency system of
compliance of the country with international records and notices, including index and other
standards set for data protection, there is hereby finding aids;
created an independent body to be known as
the National Privacy Commission, winch shall (i) Recommend to the Department of Justice
have the following functions: (DOJ) the prosecution and imposition of
penalties specified in Sections 25 to 29 of this
(a) Ensure compliance of personal information Act;
controllers with the provisions of this Act;
(j) Review, approve, reject or require
(b) Receive complaints, institute investigations, modification of privacy codes voluntarily
facilitate or enable settlement of complaints adhered to by personal information controllers:
through the use of alternative dispute resolution
processes, adjudicate, award indemnity on Provided, That the privacy codes shall adhere to
matters affecting any personal information, the underlying data privacy principles embodied
prepare reports on disposition of complaints in this Act: Provided, further,That such privacy
and resolution of any investigation it initiates, codes may include private dispute resolution
and, in cases it deems appropriate, publicize any mechanisms for complaints against any
such report: participating personal information controller.
For this purpose, the Commission shall consult
Provided, That in resolving any complaint or with relevant regulatory agencies in the
investigation (except where amicable settlement formulation and administration of privacy codes
is reached by the parties), the Commission shall applying the standards set out in this Act, with
act as a collegial body. For this purpose, the respect to the persons, entities, business
Commission may be given access to personal activities and business sectors that said
information that is subject of any complaint and regulatory bodies are authorized to principally
to collect the information necessary to perform regulate pursuant to the law:
its functions under this Act;
Provided, finally. That the Commission may
(c) Issue cease and desist orders, impose a review such privacy codes and require changes
temporary or permanent ban on the processing thereto for purposes of complying with this Act;
of personal information, upon finding that the
processing will be detrimental to national (k) Provide assistance on matters relating to
security and public interest; privacy or data protection at the request of a
national or local agency, a private entity or any
(d) Compel or petition any entity, government person;
agency or instrumentality to abide by its orders
or take action on a matter affecting data privacy; (l) Comment on the implication on data privacy
of
(e) Monitor the compliance of other government proposed national or local statutes, regulations
agencies or instrumentalities on their security or procedures, issue advisory opinions and
and technical measures and recommend the interpret the provisions of this Act and other data
necessary action in order to meet minimum privacy laws;
standards for protection of personal information
pursuant to this Act; (m) Propose legislation, amendments or
modifications to Philippine laws on privacy or
data protection as may be necessary;

63
processed for historical, statistical or scientific
(n) Ensure proper and effective coordination purposes, and in cases laid down in law may be
with data privacy regulators in other countries stored for longer periods: Provided, further,That
and private accountability agents, participate in adequate safeguards are guaranteed by said
international and regional initiatives for data laws authorizing their processing.
privacy protection; The personal information controller must ensure
implementation of personal information
(o) Negotiate and contract with other data processing principles set out herein.
privacy authorities of other countries for cross-
border application and implementation of
respective privacy laws; When we are talking about consent of the subject,
we are not only referring to consent of the subject
(p) Assist Philippine companies doing business but also as to the reason. Kunin po naming ang
abroad to respond to foreign privacy or data information kasi kailangan po naming sa ganito.
protection laws and regulations; and The reason must be specific hindi general. Actually
(q) Generally perform such acts as may be pwede ka mag file ng kaso if the processor
necessary to facilitate cross-border enforcement retained your information.
of data privacy protection.
SEC. 12. Criteria for Lawful Processing of
Personal Information. – The processing of
What are the principles? personal information shall be permitted only if
not otherwise prohibited by law, and when at
SEC. 11. General Data Privacy Principles. – The least one of the following conditions exists:
processing of personal information shall be (a) The data subject has given his or her consent;
allowed, subject to compliance with the (b) The processing of personal information is
requirements of this Act and other laws allowing necessary and is related to the fulfillment of a
disclosure of information to the public and contract with the data subject or in order to take
adherence to the principles of transparency, steps at the request of the data subject prior to
legitimate purpose and proportionality. entering into a contract;
Personal information must, be:, (c) The processing is necessary for compliance
(a) Collected for specified and legitimate with a legal obligation to which the personal
purposes determined and declared before, or as information controller is subject;
soon as reasonably practicable after collection, (d) The processing is necessary to protect vitally
and later processed in a way compatible with important interests of the data subject, including
such declared, specified and legitimate life and health;
purposes only; (e) The processing is necessary in order to
(b) Processed fairly and lawfully; respond to national emergency, to comply with
(c) Accurate, relevant and, where necessary for the requirements of public order and safety, or
purposes for which it is to be used the to fulfill functions of public authority which
processing of personal information, kept up to necessarily includes the processing of personal
date; inaccurate or incomplete data must be data for the fulfillment of its mandate; or
rectified, supplemented, destroyed or their (f) The processing is necessary for the purposes
further processing restricted; of the legitimate interests pursued by the
(d) Adequate and not excessive in relation to the personal information controller or by a third
purposes for which they are collected and party or parties to whom the data is disclosed,
processed; except where such interests are overridden by
(e) Retained only for as long as necessary for the fundamental rights and freedoms of the data
fulfillment of the purposes for which the data was subject which require protection under the
obtained or for the establishment, exercise or Philippine Constitution.
defense of legal claims, or for legitimate
business purposes, or as provided by law; and In the 2019 BAR, this was asked:
(f) Kept in a form which permits identification of
data subjects for no longer than is necessary for What are the rights of a Data Subject?
the purposes for which the data were collected
and processed: Provided, That personal SEC. 16. Rights of the Data Subject. – The data
information collected for other purposes may lie subject is entitled to:

64
(a) Be informed whether personal information for any decision significantly affecting or will
pertaining to him or her shall be, are being or affect the data subject;
have been processed; (7) Date when his or her personal information
(b) Be furnished the information indicated concerning the data subject were last accessed
hereunder before the entry of his or her personal and modified; and
information into the processing system of the (8) The designation, or name or identity and
personal information controller, or at the next address of the personal information controller;
practical opportunity: (d) Dispute the inaccuracy or error in the
(1) Description of the personal information to be personal information and have the personal
entered into the system; information controller correct it immediately and
(2) Purposes for which they are being or are to accordingly, unless the request is vexatious or
be processed; otherwise unreasonable. If the personal
(3) Scope and method of the personal information have been corrected, the personal
information processing; information controller shall ensure the
(4) The recipients or classes of recipients to accessibility of both the new and the retracted
whom they are or may be disclosed; information and the simultaneous receipt of the
(5) Methods utilized for automated access, if the new and the retracted information by recipients
same is allowed by the data subject, and the thereof:
extent to which such access is authorized; Provided, That the third parties who have
(6) The identity and contact details of the previously received such processed personal
personal information controller or its information shall he informed of its inaccuracy
representative; and its rectification upon reasonable request of
(7) The period for which the information will be the data subject;
stored; and (e) Suspend, withdraw or order the blocking,
(8) The existence of their rights, i.e., to access, removal or destruction of his or her personal
correction, as well as the right to lodge a information from the personal information
complaint before the Commission. controller’s filing system upon discovery and
Any information supplied or declaration made to substantial proof that the personal information
the data subject on these matters shall not be are incomplete, outdated, false, unlawfully
amended without prior notification of data obtained, used for unauthorized purposes or are
subject: no longer necessary for the purposes for which
Provided, That the notification under subsection they were collected. In this case, the personal
(b) shall not apply should the personal information controller may notify third parties
information be needed pursuant to who have previously received such processed
a subpoena or when the collection and personal information; and
processing are for obvious purposes, including (f) Be indemnified for any damages sustained
when it is necessary for the performance of or in due to such inaccurate, incomplete, outdated,
relation to a contract or service or when false, unlawfully obtained or unauthorized use of
necessary or desirable in the context of an personal information.
employer-employee relationship, between the
collector and the data subject, or when the
information is being collected and processed as (b) Be furnished the information indicated
a result of legal obligation; hereunder before the entry of his or her personal
(c) Reasonable access to, upon demand, the information into the processing system of the
following: personal information controller, or at the next
(1) Contents of his or her personal information practical opportunity:
that were processed;
(2) Sources from which personal information I you are a company that is heavy on data
were obtained; processing dapat meron kang idedesignate na
(3) Names and addresses of recipients of the data controller and data processor.
personal information;
(4) Manner by which such data were processed; If your data has been entered into incorrectly, you
(5) Reasons for the disclosure of the personal actually have the right to correct.
information to recipients;
(6) Information on automated processes where (f) Be indemnified for any damages sustained due
the data will or likely to be made as the sole basis to such inaccurate, incomplete, outdated, false,

65
unlawfully obtained or unauthorized use of Sir stopped the discussion with this provision.
personal information.
BAR EXAM QUESTIONS
If there is a merchant gamit ka ng credit card tapos
nahack because yung merchant has insufficient
security, you can file a case against the merchant. 2019
You can file a complaint with the NPC (National
Privacy Commission). 1. May the AMLC examine the bank accounts
of the accused even without securing a
prior court order?
SEC. 17. Transmissibility of Rights of the Data 2. Several public officials were charged
Subject. – The lawful heirs and assigns of the data before the Sandiganbayan for violation of
subject may invoke the rights of the data subject the Anti-Graft and Corrupt Practices Act
for, which he or she is an heir or assignee at any involving the anomalous award of a multi-
time after the death of the data subject or when billion contract to Corporation Z.
the data subject is incapacitated or incapable of
exercising the rights as enumerated in the The Information alleged that each of the
immediately preceding section. accused received kickbacks from
Corporation Z in exchange for the
dispensation of certain bidding
SEC. 18. Right to Data Portability. – The data requirements, and that the said kickbacks
subject shall have the right, where personal were deposited to the accused's respective
information is processed by electronic means bank accounts in the Philippines. Upon
and in a structured and commonly used format, request of the Office of the Ombudsman,
to obtain from the personal information the Compliance and Investigation Staff of
controller a copy of data undergoing processing the Anti-Money Laundering Council
in an electronic or structured format, which is (AMLC) conducted an intelligence
commonly used and allows for further use by the database search.
data subject. The Commission may specify the The search revealed that there were
electronic format referred to above, as well as remittances to the bank accounts of the
the technical standards, modalities and accused with six (6) different banks.
procedures for their transfer.
(a) May the AMLC examine the bank
accounts of the accused-public officials
(skipped some provisions) even without seeking a prior court
order? Explain.(2.5%)
SEC. 34. Extent of Liability. – If the offender is a
corporation, partnership or any juridical person, (b) May a court order be issued ex
the penalty shall be imposed upon the parte for the freezing of the bank
responsible officers, as the case may be, who accounts of the accused-public officials
participated in, or by their gross negligence, upon application of the AMLC? If so, in
allowed the commission of the crime. If the what instance may this be done and
offender is a juridical person, the court may which court can issue such order?
suspend or revoke any of its rights under this Act. Explain. (2.5%)
If the offender is an alien, he or she shall, in
addition to the penalties herein prescribed, be
deported without further proceedings after 2018
serving the penalties prescribed.
If the offender is a public official or employee Through various acts of graft and bribery, Mayor
and lie or she is found guilty of acts penalized Ycasiano accumulated a large amount of wealth
under Sections 27 and 28 of this Act, he or she which he converted into U.S. dollars and deposited
shall, in addition to the penalties prescribed in a Foreign Currency Deposit Unit (FCDU) account
herein, suffer perpetual or temporary absolute with the Yuen Bank (YB). On a tip given by the
disqualification from office, as the case may be. secretary of the mayor, the Anti-Money Laundering
Council (AMLC) sent an order to YB to confirm the

66
amount of U.S. dollars that Mayor Ycasiano had in probable cause that his deposits and
his FCDU account. YB claims that, under the investments in various banks, including
Foreign Currency Deposit Act (R.A. No. 6426, as Prosperous Bank, were related to money
amended), a written permission from the depositor laundering.
is the only instance allowed for the examination of
FCDU accounts. YB alleges that AMLC on its own Accordingly, the AMLC now transmits to
cannot order a banking institution to reveal matters Prosperous Bank a formal demand to allow
relating to bank accounts. its agents to examine the banking
transactions of Lorenzo, but Prosperous
(a) Is the legal position of YB, in requiring written Bank refuses the demand.
permission from the depositor, correct?
Is Prosperous Bank’s refusal justified?
(b) Does AMLC have the power to order a banking
institution to reveal matters relating to bank
accounts? 3. What is the distinction between a covered
and suspicious transaction?
2017 4. Does the AMLC have authority to freeze

deposits?
1. Flora, a frequent traveler, found a purse
concealed between the cushions of a large 5. What are the exemptions to the secrecy of
sofa inside the VIP lounge in NAIA while she Foreign Currency Deposits?
was waiting for her flight to be called. Inside
the purse was a very valuable diamond-
studded necklace. She decided not to turn ONLINE CLASS: MANA-AY
over the purse to the airport management,
and instead to keep it. On her return from
her travels, she had a dependable jeweler REPUBLIC ACT No. 9829
appraise the necklace, and the latter told
her that the necklace was easily worth at AN ACT ESTABLISHING THE PRE-NEED CODE
least Php5,000,000 in the open market. To OF THE PHILlPPlNES
test the appraisal, she pawned the necklace
CHAPTER I
for Php2,000,000. She then deposited the
GENERAL PROVISIONS
entire amount in her checking account with
Metro Bank. Promptly, Metro Bank reported Section 1. Title. - This Act shall be known as
the transaction to the Anti-Money the "Pre-need Code of the Philippines".
Laundering Council (AMLC).
Given that her appropriation of the Section 2. Declaration of Policy. - It is the policy of
necklace was theft, may Flora be the State to regulate the establishment of pre-need
successfully prosecuted for money companies and to place their operation on sound,
laundering? efficient and stable basis to derive the optimum
advantage from them in the mobilization of savings
and to prevent and mitigate, as far as practicable,
practices prejudicial to public interest and the
2. Prosperous Bank is a domestic bank with
protection of planholders.
head office in Makati. It handles the banking
The State shall hereby regulate, through an
requirements of thousands of clients.
empowered agency, pre-need companies based
on prudential principles to promote soundness,
The AMLC initiated a discreet investigation
stability and sustainable growth of the pre-need
of the financial transactions of Lorenzo, a
industry.
suspected drug trafficker based in Naga
City. The intelligence group of the AMLC, in When we talk about prudential principles, it means
coordination with the counterpart group that preneed companies should be conservative in
from the PDEA and the NBI, gathered managing their resources. Hindi sila dapat puro
ample evidence establishing Lorenzo’s speculations. We will discuss later on the concept
unlawful drug activities. The AMLC had of trust fund when it comes to preneed which is

67
similar to what we have discussed previously in STANDARD CONTRACT PROVISIONS FOR PRE-
terms of the right of banks to operate as trust entity. NEED PLANS
Prudent man rule.
Note: During the discussion Sir referred to it as 2011-16 pero pagsearch
Section 3. Construction. - Any doubt in the ko kay 2016-11. ☺
interpretation and implementation of any

provision in this Code shall be interpreted in favor Mandated that a preneed plan should
of the rights and interests of the planholder. contain Standard Contract Provisions.
You know what happened with CAP diba,
Section 4. Definition of Terms. - Whenever used in that’s why it is heavily regulated to create a
this Code, the following terms shall have their preneed company. When you try to create
respective meanings; a preneed company, please make sure na
(a) "Commission" "refers to the Insurance iba yung registration ng preneed company,
Commission. iba din yung registration ng *inaudible,
technical glitch*. To all plans that will be
(b) "Pre-need plans" are contracts, agreements,
offered to you by a preneed company that
deeds or plans for the benefit of the planholders
has to be registered.
which provide for the performance of future
service/s, payment of monetary considerations or SOME STANDARD CONTRACT
delivery of other benefits at the time of actual need PROVISIONS UNDER ICL NO. 2016-11
or agreed maturity date, as specified therein, in
exchange for cash or installment amounts with or The Standard Contract Provisions must
without interest or insurance coverage and contain an eligibility clause.
includes life, pension, education, interment and III. ELIGIBILITY
other plans, instruments contracts or deeds as may
in the future he determined by the Commission. If your age was misstated in the application
and your true age at that time was beyond
(i) "Affiliate of, or affiliated with, a specified the maximum entry age, you or your
person" refers to a person that directly or beneficiary shall not be entitled to any of
indirectly, through one (1) or more intermediaries, the benefits of the Plan Contract. All your
controls, or is controlled by, or is under common payments shall be refunded accordingly
control with, the person specified. Exercising without interest, provided, that you or your
control over a legal entity shall mean any one of the beneficiary surrender your Plan Contract
following; (1) owning either solely or together with and all supporting documents associated
affiliated persons more than twenty - five percent with the same. After all the payments made
(25%) of the outstanding capital stock of a legal are paid to you or your beneficiary, we shall
entity; and (2) being an officer or director of such be discharged from any liability or
legal entity. obligation under this Plan Contract.
Discussion for (b) Pre-need plans: If you misstated your age, your eligibility,
you are NOT entitled to any benefits.
As distinguished from insurance: However, please take note, all your
payments shall be refunded accordingly
INSURANCE PRENEED PLAN without interest, provided, that you or your
beneficiary surrender your Plan Contract
One cannot determine One can actually have
and all supporting documents associated
the time wherein one the maturity date. Alam
with the same. The preneed plan should not
will pay the insurance. mo kelan mag-aaral
contain any provision that your payments
yung nasa educational
Example: Death plan. It has a future are considered non-refundable,
although death is determinative period. confiscated. It must be returned of course
certain, the time of without any interest because you misstated
death is not certain. your eligibility.
IX. INCONTESTABILITY
INSURANCE COMMISSION CIRCULAR LETTER The contestability period for any of the
NO. 2016-11 above insurance benefits shall be one (1)

68
year from the issue date of the contract or S: It also applies if there is only one currency
from date of last reinstatement. but because of the extraordinary
inflation or deflation, the value of the
In contrast with Insurance: currency changes.
INSURANCE PRE-NEED PLAN Atty: 1250 refers to a situation, let’s say,
Two years One year kapag yung utang mo ngayon babayaran
mo in 10 years, 1 Million Pesos, if there are
changes, the 1M will be lower, liliit na yun.
Reinstatement
Pero 1250 envisions that whatever is the
Diba ang tawag kapag hindi ka na
value at the time of your agreement, even if
nakabayad sa due date, ang tawag diyan
there is extraordinary inflation or deflation,
magla-lapse. Now pagmag-lapse, pwede
that should be the value that you should use
mo pa siya ireinstate. Bayaran mo yung any
when the time comes that you will pay.
penalties associated with that to have the
Dapat walang effect yung extraordinary
contract reinstated. The one (1) year from
inflation or deflation. Unless there is a
the issue date of the plan, once it is
stipulation.
reinstated you also have the one year from
the date of reinstatement. The waiver of 1250 also states that.
Magkakaroon ng waiver ng 1250. So
XX. WAIVER OF ARTICLE 1250
meaning niyan, for example, may preneed
The provision of Article 1250 of the plan ka, meron kang binabayaran sa anak
Republic Act No. 386, otherwise known as mo, let’s say magbabayad tuition worth 50K
the Civil Code of the Philippines which per semester, that is payable in 10 years
states that in case an extraordinary inflation kasi in 10 years saka pa mag-aaral yung
or deflation of the currency stipulated anak mo diba. Hindi pwede, for example
should supervene, the value of the currency mag-iinflate, hindi pwede sabihin ng
at the time of the establishment of the preneed company na konte nalang yung
obligation shall be the basis of payment, value ng 50K kasi there is extraordinary
unless there is a contract to the contrary, inflation, dapat yung babayaran ng pre-
shall be waived in determining the extent of need company will be the value of 50K that
benefits or liabilities under this Plan you have stipulated, regardless of the
Contract. inflation or deflation. Like what happened
in CAP, the problem is that they did not
This is my purpose for having you read the foresee the increase in tuition, so
Insurance Circular kasi meron siyang waiver nangyayari noon hindi na nakakarecover
of Article 1250. yung current payor doon sa binabayaran
nila na tuition fee.
*RECIT TIME, APPLICATION OF 1250*
That is the waiver of Article 1250. The
S: The application of 1250 is applied to the
preneed company cannot disregard the
currency, for example, they entered into
value of benefits.
a transaction to pay and the rate of the
currency is, for example, 1 PHP = 1 $ and INSURANCE COMMISSION CIRCULAR LETTER
they stipulated in their contract that the NO. 2016-23
same value of their currency at the time
of the establishment of the obligation KEY FEATURES OF MICRO PRE-NEED
shall be the basis of the payment. So, in PRODUCTS
the course of 10 years, that ratio should
1. Types of Pre-Need Products - A micro
still apply unless there is an agreement to
pre-need product may be classified as any
the contrary when there is extraordinary
of the following, depending on the
inflation or deflation.
coverage it provides:
Atty.: Article 1250 envisions that there is a. Education Plan
extraordinary inflation or deflation wherein b. Pension Plan
there are two currencies. Hindi ba siya mag- c. Memorial Plan
aapply kung one currency lang? All Micro pre-Need products are fixed value
plans, of which benefits and cost are fixed

69
and pre-determined at the inception or 10. Grace Period - During the effectivity of
purchase of the plan. the contract, the planholder is entitled to a
minimum grace period of seventy-five (75)
2. Period of Cover -The period of cover of calendar days from the date of default of
a micro pre-need contract shall depend on installment payment.
the type of coverage:
a. Education Plan - 10 to 18 Years 11. lncontestability - The insurance benefit
b. Pension Plan - 10 Years and up. provided under a micro pre-need contract
shall be subject to a contestability period of
3. Maximum Gross Contract Price (GCP) - one (1) year from the effectivity date of the
The maximum GCP computed on a daily insurance contract or from the date of last
basis shall not exceed 7.5% of the daily reinstatement.
minimum wage rate for nonagricultural
workers in Metro Manila. 12.Claims Settlemenf - Claims for a micro
pre-need contract must be settled within
4. Plan lnstallment - The manner and ten (10) working days upon receipt of
frequency of installments shall, if possible, complete documents by the provider.
coincide with the cash flow of the
planholder and may be collected weekly, (c) "Pre-need company" refers to any corporation
monthly, quarterly, semi-annually or registered with the Commission and
annually. authorized/licensed to sell or offer to sell pre-need
plans. The term "pre-need company" also refers to
5. lnstallment Payment Period - The schools, memorial chapels, banks, nonbank
installment payment period shall depend financial institutions and other entities which have
on the type of pre-need product, as follows: also been authorized/licensed to sell or offer to sell
Education Plan - five (5) years or less pre-need plans insofar as their pre-need activities
Pension Plan - five (5) to ten (10) years or business are concerned.
Memorial Plan - five (5) years or less
Discussion:
6. Coverage - The Planholder/Payor shall
be enrolled under a Group Credit Life with So pwede po yung school magiging pre-need
Total and Permanent Disability Benefit to company, magbebenta siya for example, ng
cover for unpaid installments in case the educational plan.
PlanholderlPayor dies or becomes totally Also regulated, kalevel niya yung mga insurance
and permanently disabled. companies, banks, nonbank financial institutions.
7. Maximum Benefit (Total Education (d) "Planholder" refers to any natural or juridical
Benefit for education plans, Maturity person who purchases pre-need plans from a pre-
Benefit for pension plans and Plan Value for need company for whom or for whose
memorial plans) - The Maximum Benefit beneficiaries' benefits are to be delivered, as
shall not exceed 1000 times the daily stipulated and guaranteed by the pre-need
minimum wage rate for non-agricultural company. The term includes the assignee,
workers in Metro Manila. transferee and any successor - in - interest of the
planholder.
8. Terms and Conditions - A micro pre-
need contract shall clearly state the benefit Discussion:
amount (Total Education Benefit, Maturity Similar to a policy holder.
Benefit or Plan Value whichever is
applicable) and terms of coverage. A planholder could be a natural or juridical person.
Contract provisions shall be clearly stated in Please take note. Hindi lang limited sa natural
simple and easy to understand language. person. A juridical person could also be
considered as a planholder as long as that juridical
9. Effectivity - A micro pre-need contract person purchases a pre-need plan from a pre-need
becomes effective immediately upon full company for whom or for whose beneficiaries'
payment of the first installment including benefits are to be delivered.
fees or charges.

70
This also includes the assignee, once the plan is for its in - force plans or lapsed plans as of valuation
assigned, transferee and any successor - in - date.
interest of the planholder.
(l) "Liquidity reserve" refers to a portion of the trust
(e) "Beneficiary" refers to the person designated by fund set aside by the trustee to cover benefits due
the planholder as the recipient of the benefits in to planholders for the ensuing year.
the pre-need plan.
(m) "Fixed value plans" refers to pre-need plans
(f) "Contract price" refers to the stipulated price in whose 'benefits and costs are fixed and
the pre-need plan. predetermined at the inception or purchase of the
plan.
(g) "Benefits" refers to the payment of monetary
considerations and/or performance of future (n) "In - force plan" refers to a plan for which the
services which the pre-need company undertakes pre-need company has an outstanding obligation
to deliver either to the planholder or his beneficiary for the delivery of benefits or services or payment
at the time of actual need or agreed maturity date, of termination value.
as specified in the pre-need plan. (o) "Lapsed plan" refers to a plan that is delinquent
(h) "Sales counselors" refers to natural persons who in payment of installments provided for in the
are engaged in the sale of, or offer to sell, or contract, the delinquency, of which extends
counsel of prospective planholders for the beyond the grace period provided for in the plan
purpose of selling, whether or not on commission or contract.
basis, pre-need plans upon the authority of the (p) "Cancelled plan" refers to a plan that can no
pre-need company. longer be reinstated by reason of delinquency in
DISCUSSION for (h) Sales counselors: the payment of installments for more than two (2)
years or a longer period as provided in the
Specific creature of the Pre-Need Code. Merong contract, counted from the expiry of the grace
sales counselors. Iba yung nagbebenta, iba yung period provided for in the plan or
preneed company. Refers to natural persons who contract.1avvphi1
are engaged in the sale of, or offer to sell, or
counsel of prospective planholders for the purpose (q) "Scheduled benefit plans" refers to plans the
of selling, whether or not on commission basis, pre- date of availment of the benefits of which is set at
need plans upon the authority of the pre-need the inception or purchase of the plan.
company. (r) "Contingent benefit plans" refers to plans the
Si pre-need company dapat meron siyang sales timing of the provision of the benefits of which is
counselors. Hindi pwede na si pre-need company conditional on the occurrence of the contingency.
yung directly magbebenta ng pre-need plans. (s) "Risk - based capital" refers to a method to
measure the minimum amount of capital that a pre-
(j) "Trust fund" refers to a fund set up from the
need company needs to support its overall
planholders' payments to pay for the cost of
business operation. It is used to set capital
benefits and services, termination values payable
requirements, considering the size and degree of
to planholders and other costs necessary to ensure
risk taken by the pre-need company.
the delivery of benefits or services to planholders
as provided for in the contracts. (t) "BSP" refers to "Bangko Sentral ng Pllipinas".
Discussion: The terms not otherwise defined under this Code

shall be construed in their usual and commonly
Because of the problem that we had with CAP, it understood trade, business, commercial or
requires now to have trust fund. A part of the investment meaning.
premium or payment of the premium, a
percentage of that goes to a trust fund. This is to • Prospective pre-need companies are
ensure that kahit anong mangyari meron paring directed to include the word plan or plans
source to pay for the benefits that the preneed in its corporate name. (ex: St. Peter Life
companies promised to the planholders.
Plan)
(k) "Pre-need reserve liabilities" refers to the
measure of the liabilities of the pre-need company

71
CHAPTER II act with transparency and dispatch and shall have,
AUTHORITY OF THE COMMISSION among others, the following powers and functions;
Section 5. Supervision. - All pre-need companies,
(a) Approve, amend, renew or deny any license,
as defined under this Act, shall be under the registration or certificate issued under this Code;
primary and exclusive supervision and regulation
of the Insurance Commission. The Commission is (b) Fix and assess fees and/or charges as it may find
hereby authorized to provide for its reorganization, reasonable in the exercise of regulation;
to streamline its structure and operations, upgrade
its human resource component to enable it to (c) Regulate, supervise and monitor the operations
effectively and efficiently perform its functions and and management of pre-need companies to
exercise its powers under this Code. ensure compliance with the provisions of this
Code, existing laws, rules and regulations
All - positions of the - Commission shall be including, but not limited to:
governed by compensation and position
classification systems and qualification standards (1) Revoking or nullifying investments made and/or
approved by the Commission based on a entered into by a - pre-need company or a trustee
comprehensive job analysis and audit of actual which are contrary to existing laws, rules and
duties and responsibilities. The compensation plan regulations;
shall be comparable with the prevailing (2) Demanding for the conversion of the
compensation plan in the Bangko Sentral ng investments made by the trustee to cash or other
Pilipinas (BSP) and other government financial liquid assets to protect the interest of the
institutions and shall be subject to periodic review planholders; and
by the Commission no more than once every two
(2) years without prejudice to yearly merit reviews (3) Regulating, investigating or supervising
or increases based on productivity and efficiency. activities of pre-need companies, their officers,
The Commission shall, therefore, be exempt from employees, sales counselors, consultants or
laws, rules and regulations on compensation, agents;
position classification and qualification standards.
(d) Issue cease and desist orders to prevent fraud
The Commission shall, however, endeavor to make and injury to the investing public;
its system conform as closely as possible with the
principles under the Compensation and Position (e) Issue subpoena duces tecum and ad
Classification Act of 1989 (Republic Act No. 6758, testificandum, order the examination, search and
as amended). seizure of documents, papers, files, tax returns,
books of accounts and other records, in whatever
The salary and allowances or personal services form, of any entity or person under investigation;
expense of the employees of the Insurance
Commission shall be sourced from the retained (f) Punish for contempt of the Commission, both
amount of the fees, charges and other income direct and indirect, in accordance with the
derived from the regulation of pre-need pertinent provisions of and penalties prescribed by
companies and from the Insurance Fund under the Rules of Court;
Section 418 of the Insurance Code of the
Philippines (Presidential Decree No. 612, as (g) Impose sanctions, institute cases and/or
amended) and Section 286 of the National Internal prosecute offenders for violation of this Code,
Revenue Code. If the personal services expense related laws, rules, regulations and orders issued
cannot be covered by the retained amount and the pursuant thereto;
Insurance Fund, it shall be appropriated in the (h) Suspend or revoke licenses.
General Appropriations Fund.
(i) Enlist the aid and support of and/or deputize any
Insurance Commission has Jurisdiction over and all enforcement agencies of the government in
Preneed Companies the implementation of its powers and in the
exercise of its functions under this Code;
Jurisdiction of preneed company before was
under SEC but now it is under the Insurance (j) Take over pre-need companies which fail to
Commission. comply with this Code, related laws, rules,
regulations and orders issued pursuant thereto,
Section 6. Powers and Functions of the either through the appointment of a conservator,
Commission. - The Commission shall, at all times, receiver or liquidator;

72
(k) Prepare, approve, amend or repeal rules, (b) Seventy - five million pesos (P75, 000,000.00)
regulations and orders, and issue opinions and for companies selling two (2) types of plan; and
provide guidance on and supervise compliance
with such rules, regulations and orders; (c) Fifty million pesos (P50, 000,000.00) for
companies selling a single type of plan.
(l) Formulate policies and recommendations on
issues concerning the pre-need industry, including
Existing pre-need companies with traditional
proposed legislations;
education plans shall have a minimum unimpaired
(m) Retain and utilize, in addition to its annual paid-up capital of One hundred million pesos
budget, an amount up to One hundred million (P100, 000,000.00)
pesos (Pl00, 000,000.00) of the fees, charges and
other income derived from the regulation of the The Commission may adopt risk - based principles
pre-need companies; and on capital adequacy based on internationally
accepted standards. In the exercise of its authority
(n) Exercise such other powers as may be provided under this paragraph, the Commission may
by law as well as those which may be implied from, prescribe a higher minimum unimpaired paid - up
or which are necessary or incidental to carry out the capital for pre-need companies.
express powers granted the Commission to
achieve the objectives and purposes of the law.
Section 10. Licensing of Pre-need Companies. –
No person shall operate as a pre-need company or
CHAPTER III
engage in the business of a pre-need company
ORGANIZATION, LICENSING AND
unless licensed by the Commission in accordance
MANAGEMENT OF PRE-NEED COMPANIES
with this Code.
The license under this section shall expire one (1)
Section 7. Prerequisites to Incorporation. - Except year from the time of the registration. It may be
upon favorable recommendation of the renewed upon compliance with the prescribed
Commission, the Securities and Exchange requirements of the Commission. Such renewal
Commission (SEC) shall not accept or approve the shall be deemed approved if not acted upon within
articles of incorporation and bylaws of any pre- thirty (30) days from the time of filing of the
need company. application for renewal.
A foreign corporation may be allowed to engage

in a pre-need business in the Section 11. Qualification and Disqualification of
Philippines: Provided, That it shall comply with the Directors and Officers. - To maintain the quality of
pertinent laws, rules and regulations. management of pre-need companies and afford
better protection to planholders and beneficiaries,
the Commission shall prescribe, pass upon and
Section 8. Amendment of the Articles of review the qualifications and disqualifications of
Incorporation and Bylaws. - Amendments to the individuals elected or appointed directors or
articles of incorporation and bylaws of a pre-need officers of pre-need companies, including its
company, including merger, consolidation and actuaries, and disqualify those found unfit. The
dissolution, shall not be approved by the SEC Commission may disqualify, suspend or remove
without the favorable recommendation from the any director or officer who commits or omits an act
Commission. which renders him unfit for the position.
Section 9. Paid-up Capital. - A pre-need company In determining whether an individual is fit and
incorporated after the effectivity of this Code shall proper to hold the position of a director or officer
have a minimum paid - up capital of One hundred of a pre-need company, regard shall be given to
million pesos (P100, 000,000.00). Existing pre- his integrity, experience, education, training and
need companies shall comply with the following competence. The following persons, and those
minimum unimpaired paid - up capital: determined by the Commission to be unfit, shall in
no case be allowed to serve or act in the capacity
(a) One Hundred million pesos (P100, 000,000.00) of an officer, employee, director, consultant or
for companies selling at least three (3) types of sales counselor of any pre-need company:
plan;

73
(a) Any person convicted of any crime involving any (c) Any person who, by reason of any
pre-need plan, security or financial product; misconduct, is enjoined by order, judgment
or decree by any court, quasi - judicial body
(b) Any person convicted of an offense involving or administrative agency of competent
moral turpitude or involving fraud or
jurisdiction from acting as a director, officer,
embezzlement, theft, estafa or other fraudulent
acts or transactions; employee, consultant, agent or occupying
any fiduciary position;
(c) Any person who, by reason of any misconduct, (d) Any person found by the Commission to
is enjoined by order, judgment or decree by any have willfully violated or willfully aided,
court, quasi - judicial body or administrative abetted, counseled, commanded, induced
agency of competent jurisdiction from acting as a or procured the violation of this Code, the
director, officer, employee, consultant, agent or
Insurance Code, the Securities Regulation
occupying any fiduciary position;
Code or any related laws and any rules or
(d) Any person found by the Commission to have orders thereunder;
willfully violated or willfully aided, abetted, (e) Any person judicially declared to be
counseled, commanded, induced or procured the insolvent or incapacitated to contract; and
violation of this Code, the Insurance Code, the (f) Any person found guilty by a foreign court,
Securities Regulation Code or any related laws and regulatory authority or government agency
any rules or orders thereunder;
of the acts or violations similar to any of the
(e) Any person judicially declared to be insolvent acts or misconduct enumerated in the
or incapacitated to contract; and foregoing paragraphs: Provided, That
conviction in the first instance shall be
(f) Any person found guilty by a foreign court, considered as sufficient ground for
regulatory authority or government agency of the disqualification.
acts or violations similar to any of the acts or
misconduct enumerated in the foregoing
paragraphs: Provided, That conviction in the first
instance shall be considered as sufficient ground ONLINE CLASS: TAN
for disqualification.
ORGANIZATION, LICENSING AND
Pre-Need Company Directors must also comply MANAGEMENT OF PRE-NEED COMPANIES
with the Fit and Proper Rule. Similar with banks
because again ka level niya ito sa regulation. This is similar to the banking qualifications.
DISCUSSION: Section 12. Independent Directors. – Pre-need

companies shall have at least two (2)
The regulation for sales counsellor is also effective. independent directors or twenty percent (20%)
of the members of the board, whichever is
The following persons, and those determined by higher. For this purpose an "independent
the Commission to be unfit, shall in no case be director" shall refer to a person other than an
allowed to serve or act in the capacity of an officer, officer, employee or any person having a
employee, director, consultant or sales counselor fiduciary relation to the pre-need company, its
of any pre-need company: parent or subsidiaries, or any other individual
having a relationship therewith, which may
(a) Any person convicted of any crime interfere with the exercise of independent
involving any pre-need plan, security or judgment in carrying out the responsibilities of
financial product; a director.
(b) Any person convicted of an offense
involving moral turpitude or involving fraud
Section 13. Investment Restrictions of Directors
or embezzlement, theft, estafa or other
and Officers. – No director or officer of any pre-
fraudulent acts or transactions; need company shall, after his election or
appointment as such, directly or indirectly, for
74
himself or as the representatives or agent of authorized capital stock nor a subscribed capital
others, have an investment in excess of Five stock, meaning that this is really cash or in kind
million pesos (P5, 000,000.00) in any invested with the company. Again, this is required
corporation or business undertaking in which in order to insure the promises made by the
the pre-need company’s trust fund has an company.
investment in or has a financial interest with. No
relatives of directors or officers of the pre-need
company within the fourth degree of REGISTRATION OF PRE-NEED PLANS
consanguinity or affinity shall, directly or Section 18. Pre-need Advertising Rules. - Pre-
indirectly, have an investment of more than Five need plans shall be advertised and sold in an
million pesos (P5, 000,000.00) in any appropriate non - misleading manner in
corporation or business undertaking in which accordance with the rules to be prescribed by
the pre-need company’s trust fund has an the Commission.
investment in or has a financial interest with
during the incumbency or term of the director It shall be unlawful for any pre-need company
or officer involved. to advertise itself or its pre-need plans unless
the Commission has approved such advertising
That trust fund will be invested in the stocks of material. The Commission shall have a period of
other companies, so a director cannot have an ten (10) working days to approve or deny the
interest of over P5 million over the investee advertising material and failure to act within the
company for reasons of conflict of interest, said period shall cause the advertising material
because the director might dictate where to to be approved. For purposes hereof, the
funnel the funds from the trust fund. Commission shall have the power to define the
scope of its advertising rules to appropriately
Section 9. Paid-up Capital. - A pre-need cover advertising or other communications to
company incorporated after the effectivity of the public.
this Code shall have a minimum paid - up Any person who sells or offers to sell any pre-
capital of One hundred million pesos (P100, need plan or contract by any means or
000,000.00). Existing pre-need companies shall instruments of communication in violation of
comply with the following minimum unimpaired this section shall be liable to the person
paid - up capital: purchasing such pre-need contract who may
(a) One Hundred million pesos (P100, sue to recover the consideration paid for such
000,000.00) for companies selling at pre-need contract with interest thereon. In
least three(3) types of plan; addition hereto, the Commission shall have the
(b) Seventy - five million pesos (P75, power to pursue the erring pre-need company
000,000.00) for companies selling two in an administrative or criminal proceeding.
(2) types of plan; and
(c) Fifty million pesos (P50, 000,000.00) A fine of One hundred thousand pesos (P100,
for companies selling a single type of 000,000.00) shall be imposed on any pre-need
plan.1avvphi1 company found to have violated this section:
Provided, That a second violation of this section
Existing pre-need companies with traditional shall, in addition to the fine imposed, result in
education plans shall have a minimum the suspension of the license of the pre-need
unimpaired paid-up capital of One hundred company.
million pesos (P100, 000,000.00)
Even if a premium company promotes something,
The Commission may adopt risk - based it must be approved. The Commission is aiming to
principles on capital adequacy based on prevent misrepresentation, because there is a
internationally accepted standards. In the possibility that in contrary to what was promoted,
exercise of its authority under this paragraph, the company might not be able to provide the
the Commission may prescribe a higher actual benefits advertised.
minimum unimpaired paid - up capital for pre-
need companies. Section 14. Registration of Pre-need
Contracts/Plans. – Within a period of forty - five
A pre-need company must have a minimum paid- (45) days after the grant of a license to do
up capital of at least P100 million. It’s not business as a pre-need company, and for every

75
pre-need plan which the pre-need company convicted of any crime involving moral
intends to offer for sale to the public, the pre- turpitude;
need company shall file with the Commission a (b) The applicant has undergone a
registration statement for the sale of pre-need training program approved by the
plans pursuant to this Code. The Commission Commission and such fact has been
shall promulgate rules governing the certified under oath by a duly authorized
registration of pre-need plans and the required representative of a pre-need company;
documents which include, among others, the and
viability study with certification, under oath, of a (c) The applicant has passed a written
pre-need brochure, a copy of the pre-need examination administered by the.
plan, and information and documents necessary Commission: Provided, That the
to ensure the protection of planholders and the administration of the examination may
general public. Said rules shall further set forth be delegated to an independent
the conditions under which such registration organization under the supervision of
may be denied revoked, suspended or the Commission.
withdrawn, and the remedies of pre-need
companies in such instances. Such license shall automatically expire every
thirtieth (30th) day of June or such date of every
Section 15. Registration Requirements. – The year as may be fixed by the Commission and
Commission shall set forth the requirements for may be accordingly renewed.
registration of pre-need plans and shall require
the following documents, among others; Sales counselors and all agents must be licensed
(a) Duly accomplished Registration with the Insurance Commission. If you did not
Statements; comply with the qualifications, you will be in
(b) Board resolution authorizing the violation of this Code.
registration of applicant’s pre-need
plans; Section 21. Denial, Suspension, Revocation of
(c) Opinion of independent counsel on License. - An application for the issuance or
the legality of the issue; renewal of a license to act as sales counselor
(d) Audited financial statements; may be denied, or such license, if already
(e) Viability study with certification, issued, shall be suspended or revoked based
under oath, of pre-need actuary on the following grounds:
accredited by the Commission; (a) Materially misrepresented statements
(f) Copy of the proposed pre-need plan; in the application requirements;
and (b) Obtained or attempted to obtain a
(g) Sample of sales materials. license by fraud or misrepresentation;
Such registration statements and sales (c) Materially misrepresented the terms
materials required under this section and conditions of pre-need plan which
shall contain the appropriate risk factors he sold or offered to sell;
as may be determined by the (d) Solicited, sold or attempted to solicit
Commission. or sell a pre-need plan by means of false
or misleading representation and other
It’s not only the pre-need company that needs to fraudulent means;
be registered, but also the pre-need plans. (e) Terminated for cause from another
pre-need company;
LICENSING OF SALES COUNSELORS AND (f) Similar grounds found in Section II of
GENERAL AGENTS this Code;
Section 20. Licensing of Sales Counselors. - No (g) Willfully allowing the use of one's
sales counselor shall be allowed to solicit, sell license by a non - licensed or barred
or offer to sell pre-need plans under this Code individual; and
without being licensed as such by the (h) Analogous circumstances.
Commission. No license shall be issued unless
the following qualifications have been complied Materially misrepresented the terms and
with: conditions of pre-need plan which he sold or
(a) The applicant must be of good moral offered to sell
character and must not have been

76
This is common, because if you’re a salesperson,
you are committed to getting your commission, so “The planholder shall be allowed a period of not
you may misrepresent. So if you oversell, your less than two (2) years from the lapse of the grace
license may be revoked or suspended. period or a longer period as provided in the
contract within which to reinstate his plan.”
Willfully allowing the use of one's license by a non For example, you were not able to pay due to the
- licensed or barred individual quarantine. If you pay after the grace period, you
Also very common because since you don’t want can also have the reinstatement period of two
to take the examination, you will use the license of years.
another sales counsellor.
Section 24. Termination of Pre-need Plans. - A
DEFAULT AND TERMINATION BY planholder may terminate his pre-need plan at
PLANHOLDERS any time by giving written notice to the issuer.
Section 23. Default; Reinstatement Period. -
The pre-need company must provide in all A pre-need plan shall contain a schedule of
contracts issued to planholders a grace period termination values to which the planholder is
of at least sixty (60) days within which to pay entitled to upon termination. Such schedule of
accrued installments, counted from the due termination value shall be required for all in -
date of the first unpaid installment. force pre-need plans and shall be fair, equitable
and in compliance with the Commission
Nonpayment of a plan within the grace period issuances. The termination value of the pre-
shall render the plan a lapsed plan. Any need plan shall be predetermined by the
payment by the planholder after the grace actuary of the pre-need company upon
period shall be reimbursed forthwith, unless the application for registration of the pre-need
planholder duly reinstates the plan. The plans with the Commission and shall be
planholder shall be allowed a period of not less disclosed in the contract.
than two (2) years from the lapse of the grace
period or a longer period as provided in the “A pre-need plan shall contain a schedule of
contract within which to reinstate his plan. No termination values to which the planholder is
cancellation of plans shall be made by the entitled to upon termination”
issuer during such period when reinstatement This is similar to the cash rendered value, so once
may be effected. you terminate your plan, there is a termination
value, but not paid up to 100% due to
Within thirty (30) days from the expiration of the administration expenses and fees incurred with
grace period and within thirty (30) days from the pre-need company, especially if the
the expiration of the reinstatement period, termination’s due to your fault.
which is two (2) years from the lapse of the
grace period, the pre-need company shall give “Actuary”
written notice to the planholder that his plan These are mathematicians and statisticians who
will be cancelled if not reinstated within two (2) compute the termination value. There are actually
years. Failure to give either of the required only a few actuaries accredited right now.
notices shall preclude the pre-need company
from treating the plans as cancelled. In the entire Philippines, we only have six
accredited actuaries, namely
Grace Period • Cabral, Purification
Example of grace period: You were not able to • Dela Cruz
pay on the deadline of payment. However you still • De la Paz
have a grace period of 60 days to pay until your • Mabini
plan is considered as a lapsed plan policy.
• Bang
Lapsed Plan • Sison
“Any payment by the planholder after the grace
period shall be reimbursed forthwith, unless the
planholder duly reinstates the plan” CLAIMS SETTLEMENT
There is reimbursement but not per feature, so Section 25. Unfair Claims Settlement Practices.
reimbursement without interest. –

77
(a) No pre-need company shall refuse, without of the plan shall be paid immediately upon
just cause, to pay or settle claims arising under maturity of the contract, unless such proceeds
coverages provided by its plans nor shall any are made payable in installments or as an
such company engage in unfair claim annuity, in which case the installments or
settlement practices. Any of the following acts annuities shall be paid as they become due.
by a pre-need company, if committed without Refusal or failure to pay the claim within fifteen
just cause, shall constitute unfair claims (15) days from maturity or due date will entitle
settlement practices: the beneficiary to collect interest on the
(1) Knowingly misrepresenting to proceeds of the plan for the duration of the
claimants pertinent facts or plan delay at the rate twice the legal interest unless
provisions relating to coverages at issue; such failure or refusal to pay is based on the
(2) Failing to acknowledge with ground that the claim is fraudulent: Provided,
reasonable promptness pertinent That the planholder has duly complied with the
communications with respect to claims documentary requirements of the pre-need
arising under its plan; company.
(3) Failing to adopt and implement
reasonable standards for the prompt In the case of contingent benefit plans, the
investigation of claims arising under its benefits shall be paid by the pre-need company
plan; thirty (30) days upon submission of all necessary
(4) Failing to provide prompt, fair and documents.
equitable settlement of claims submitted
in which liability has become reasonably Since the current legal interest is 6%, you would
clear; or get twice or 12%, unless the exception applies.
(5) Compelling planholders to institute This usually happens, because when a person
suits or recover amounts due under its claims his insurance, many insurance companies
plan by offering, without justifiable delay it on the presumption that it is a fraudulent
reason, substantially less than the claim.
amounts ultimately recovered in suits
brought by them. Section 29. Distribution of Profits. – A pre-need
company may declare divided: Provided, That
(b) Evidence as to the number and types of the following shall remain unimpaired, as
valid and justifiable complaints to the certified under oath by the president and the
Commission against a pre-need company shall treasurer with respect to items (a) and (b); and
be deemed admissible in an administrative or in the case of item (c), by the trust officer:
judicial proceeding brought under this section. (a) One hundred percent (100%) of the
capital stock;
(c) Any violation of this section shall be (b) An amount sufficient to pay all net
considered sufficient cause for the suspension losses reported, or in the course of
or revocation of the company's certificate of settlement, and all liabilities for
authority. expenses and taxes; and
(c) Trust fund.
“Failing to provide prompt, fair and equitable
settlement of claims submitted in which liability Any dividend declared under the preceding
has become reasonably clear” paragraph shall be reported to the Commission
Very important. within thirty (30) days after such declaration.
“Any violation of this section shall be considered “One hundred percent (100%) of the capital stock”
sufficient cause for the suspension or revocation of The pre-need companies may declare dividends,
the company's certificate of authority” because they are stock corporations, with the
This again shows that it is not easy to organize a condition (as to all corporation) that there is
pre-need company. Aside from the heavy sufficient capital that will not impair 100% of the
regulations, there is a strict qualification as to the capital stock (subscribed capital). So the company
director. cannot declare if a,b and c are not covered by the
retained earnings and others.
Section 26. Payment of Plan Proceeds. - In the
case of scheduled benefit plans, the proceeds TRUST FUND

78
Section 30. Trust Fund. - To ensure the delivery In case of installment payments, the minimum
of the guaranteed benefits and services limits of the deposit contributions to the trust
provided under a pre-need plan contract, a fund, unless the viability study done by the
trust fund per pre-need plan category shall be actuary requires otherwise, shall be in
established. A portion of the installment accordance with the following schedule:
payment collected shall be deposited by the Life Other
pre-need company in the trust fund, the amount Plans Plans
of which will be as determined by the actuary
based on the viability study of the pre-need Collection
plan approved by the Commission. Assets in of the 1st
the trust fund shall at all times remain for the 20% of 5% 5%
sole benefit of the planholders. At no time shall Contract
any part of the trust fund be used for or Price
diverted to any purpose other than for the
exclusive benefit of the planholders. In no case Collection
shall the trust fund assets be used to satisfy of the 2nd
claims of other creditors of the pre-need 20% of 10% 10%
company. The provision of any law to the Contract
contrary notwithstanding, in case of insolvency Price
of the pre-need company, the general creditors
Collection
shall not be entitled to the trust fund. of the 3rd
20% of 70% 80%
Except for the payment of the cost of benefits or Contract
services, the termination values payable to the
Price
planholders, the insurance premium payments
for insurance - funded benefits of memorial life Collection
plans and other costs necessary to ensure the of the 4th
delivery of benefits or services to planholders, 20% of 70% 80%
no withdrawal shall be made from the trust fund Contract
unless approved by the Commission. The Price
benefits received by the planholders shall be
exempt from all taxes and the trust fund shall Collection
not be held liable for attachment, garnishment, of the 5th
levy or seizure by or under any legal or 20% of 70% 80%
equitable processes except to pay for the debt Contract
of the planholder to the benefit plan or that Price
arising from criminal liability imposed in a Contributions to the trust fund shall not form
criminal action. part of the income or gross receipts of the pre-
need company and, therefore, shall not be
The trust fund shall at all times be sufficient to available for dividend declaration or payment
cover the required pre-need reserve. to creditors.
(b) The deposits to the trust fund shall be made

Section 31. Deposits to the Trust Fund. within twenty (20) days from the end of each
(a) The pre-need company shall make monthly reference month for payments received from
deposits to the trust fund in an amount plans whether paid for in full or in installments.
determined by the accredited actuary, sufficient Failure to make the trust fund deposit shall
to pay the benefits promised under the subject the pre-need company to administrative
contract. For plans paid for in full, the pre-need liability as provided for under this Code.
company shall deposit into the trust fund at
least forty - five percent (45%) for life plans and (c) Should the Commission discover a
fifty - one percent (51%) for education and deficiency in the trust fund, it shall give notice of
pension plans of said full payment or such the same to the pre-need company and require
higher amount as determine by the actuary. the said company to make additional deposits.
The pre-need company shall have thirty (30)
days from receipt of notice to make the said

79
deposits and correct the deficiency. Failure to can see the co-relation of these financial
pay the deficiency inspite of notice by the institutions.
Commission shall subject the pre-need
company to the payment of a penalty, in Section 38. Trustees. - Upon approval of the
addition to other sanctions imposable under Commission or when the Commission requires
this Code. for the protection of planholders, the pre-need
company shall entrust the management and
(d) For plans sold prior to the effectivity of this administration of the trust fund to any reputable
law, the minimum contributions to the trust fund bank's trust department, trust company or any
shall be governed by rules and regulations in entity - authorized to perform trust functions in
force at the time of sale. the Philippines: Provided, That no director
and/or officer of the affiliate or related trust
“The pre-need company shall make monthly entity: Provided, further, That no trust fund shall
deposits to the trust fund” be established by a pre-need company with a
This gives an assurance that they will be able to subsidiary, affiliate or related trust entity.
provide the benefits promised. However, such may be allowed: Provided, That
the following conditions are complied with:
Section 32. Terms and Conditions of a Trust (a) A written approval of the Commission
Fund. - A trust fund must be established has been previously obtained; and
separately for each type of pre-need plan with (b) Public disclosure of the affiliation with
the trust department of a trust company, bank the trust entity be included in all
or investment house doing business in the materials in whatever form.
Philippines. No trust fund shall be established
by a pre-need company with an affiliate trust The Commission shall have the authority to
entity subject to Section 38 hereof. prescribe appropriate rules that shall ensure
The trust agreement shall be submitted to the that the yield of the trust fund is maximized,
Commission for approval before execution and consistent with the requirements of safety and
shall contain the following salient provisions, liquidity.
among others:
(a) The manner in which the trust fund is The trustee can be any reputable bank's trust
to be operated; department, trust company or any entity -
(b) Investment powers of the trustee with authorized to perform trust functions in the
respect to trust deposits, including the Philippines.
character and kind of investment;
(c) Auditing and settlement of accounts As of June 25,2019, these is a list of BSP-
of the trustee with respect to the trust accredited financial institutions with trust
fund; authority, so they can function as a trust entity,
(d) Basis upon which the trust fund may namely:
be terminated; • Asia United Bank
(e) Provisions for withdrawals from the • Bank of Commerce
trust fund; • BDO
(f) That the trustee shall submit to the • East West
power of the Commission to examine
• Land Bank
and verify the trust fund;
• Maybank
(g) An undertaking by the trustee that it
shall abide by the rules and regulations • Metrobank
of the Commission with respect to the • PBC
trust fund; and • PNB
(h) An undertaking by the trustee that it • PTC
shall submit such other data or
information as may be prescribed by the ONLINE CLASS: PAULMA
Commission.
Example: Universal banks can function as a trust

entity, so a pre-need company can assign the trust
fund to be managed by a universal bank. So you SEC v Laigo
GR No. 188639, September 2, 2015
80
Facts: SEC issued the corresponding New Rules Legacy is not a beneficiary. It must be stressed
on the Registration and Sale of Pre-Need that a person is considered as a beneficiary of a
Plans (New Rules) to govern the pre-need trust if there is a manifest intention to give such a
industry prior to the enactment of R.A. No. 9829, person the beneficial interest over the trust
otherwise known as the Pre-Need Code of the properties. Here, the terms of the trust
Philippines (Pre-Need Code). It required from agreement plainly confer the status of
the pre-need providers the creation of trust beneficiary to the planholders, not to Legacy.
funds as a requirement for registration. The beneficial ownership is vested in the
planholders and the legal ownership in the
As defined in Rule 1.9 of the New Rules, "'Trust trustee, LBP; Legacy, as trustor, is left without any
Fund' means a fund set up from planholders' iota of interest in the trust fund.
payments, separate and distinct from the paid-
up capital of a registered pre-need company, To rule that Legacy has retained a beneficial
established with a trustee under a trust interest in the trust fund is to perpetuate the
agreement approved by the SEC, to pay for the injustices being committed against the
benefits as provided in the pre-need plan." planholders and violate not only the spirit of the
trust agreement but, more importantly, the
Legacy (pre-need company) entered into a trust lawmaker's intent. If indeed Legacy had an
agreement with the Land Bank of the interest that could be reached by its creditors
Philippines (LBP). Subsequently, Legacy became even during insolvency, the planholders would
a subject of a petition for involuntary insolvency be prejudiced as they would be forced to share
by private respondents in their capacity as in the assets that would be distributed pro rata
planholders. to all creditors, whether planholders or not.
It was declared insolvent by the RTC and it also Legacy merely agreed to facilitate the payment
ordered Legacy to submit an inventory of its of the benefits from the trust fund to the
assets and liabilities. SEC opposed the inclusion intended beneficiaries, acting as a conduit or an
of the trust fund in the inventory of corporate agent of the trustee in the enforcement of the
assets on the ground that to do so would trust agreement.
contravene the New Rules which treated trust
funds as principally established for the exclusive Issue 2: Is Legacy a debtor of the planholders
purpose of guaranteeing the delivery of benefits relative to the trust fund? – NO.
due to the planholders.
Ruling: The Court cannot subscribe either to the
Despite the opposition of the SEC, Judge Laigo Assignee's position that Legacy is a debtor of the
ordered the insolvency Assignee to take planholders relative to the trust fund. In trust, it is
possession of the trust fund. RTC stated that the the trustee, and not the trustor, who owes
trust fund could be withdrawn by the Assignee fiduciary duty to the beneficiary. The trustee,
to be used for the expenses he would incur in the LBP, is tasked with the fiduciary duty to act for the
discharge of his functions and to be distributed benefit of the planholders as to matters within
among the creditors who had officially filed their the scope of the relation.
valid claims with the court.
The trust fund should not revert to Legacy, which
Issue 1: Whether or not the trust fund of Legacy has no beneficial interest over it. Not being an
form part of its corporate assets. – NO. asset of Legacy, the trust fund is immune from its
reach and cannot be included by the RTC in the
Ruling: The Trust Fund is for the sole benefit of insolvency estate.
the planholders and it cannot be used to satisfy
the claims of other creditors of Legacy.
Sir’s Question: Would it be necessary for a
The Assignee argues that Legacy has retained a planholder to file a notice of claim in the
beneficial interest in the trust fund despite the proceeding where the rehabilitation or
execution of the trust agreement and that the insolvency is taking place?
properties can be the subject of insolvency
proceedings. Diba sa FRIA we have discussed na kapag may
insolvency proceedings, lahat ng creditors magfi-
81
file ng notice of claim dun sa proceedings to of suits. Kaya ang recourse nila (planholders or
participate in the insolvency proceedings. creditors) ay to file a notice of claim with the court
where the proceeding of insolvency or
rehabilitation is taking place.
Sabi natin, si planholder, necessary ba kay
planholder na mag file ng notice of claim given na
hindi naman kasali dun sa assets na ili-liquidate SEC v CAP
yung trust fund? GR No. 202052, March 7, 2018
Student: The planholder as creditors of the pre- Facts: College Assurance Plan Philippines, Inc.
need company may file a claim against the pre- (CAP) sells preneed education plans. To
need company in the insolvency proceeding. guarantee the payment of benefits under its
educational plans, CAP set up a Trust Fund
Sir: How would you reconcile that with the ruling in
contributing therein a certain percentage of the
this case which says that the trust fund is not part of amount actually collected from each planholder.
the assets which should be given to the creditors? The Trust Fund, with the aid of trustee banks, is
Student: They will raise the claim against the trust invested in assets and securities with yields
higher than the projected increase in tuition
itself for the release of their claims against the trust
fees.
fund given that the trust fund is solely for their
benefit. CAP incurred a trust fund deficiency of 3.179
Sir: So the answer is yes, magfi-file ka pa rin kasi billion. In compliance with the directive of SEC to
what's going to be resolved by the insolvency submit a funding scheme to correct the
deficiency, CAP, among others, proposed to
proceedings ay hindi lang naman yung
purchase MRT III Bonds and assign the same to
distribution. Pati yung issue, yung genuine issue
the Trust Fund.
on whether or not may utang ba talaga sayo,
that is also resolved. Once ma-determine na CAP purchased MRT III bonds from SMART and
meron talaga [utang], yung sa planholders will be FEMI but was ordered by the SEC Oversight
from a different asset which is the trust fund. Board to stop paying SMART/FEMI due to its
perceived inadequacy of CAP's funds.
Sino CAP planholder dito? Did you remember that
time wherein there was information saying na kung Subsequently, CAP filed a Petition for
meron kayong claim, you file within a particular Rehabilitation. In the interim, CAP sold the MRT
period? If hindi, they will no longer consider that III bonds and the buyers’ payment was credited
you have a claim. There was that time na nag issue to CAP’s trust accounts with Philippine Veterans
sila ng circular. It was posted in the CAP office that Bank (PVB). However, CAP’s payment to SMART
you have to file a claim. Kung meron kayong claim, and FEMI remained to be executed. Because of
then just attach your plan policy. That is for the this, the receiver moved for the payment of the
purpose of determining the validity of your respondent's obligations to Smart and FEMI.
claims. Kung meron ka naman talagang claim, it
will not come from the general assets but from Issue: Does the obligation to pay to SMART and
FEMI constitute
the trust fund.
• “benefits” or
So please take note, hindi pwedeng (--choppy or • “cost of services rendered or property
nawala talaga si Sir dito--) if there is a pending delivered” or
insolvency or rehabilitation proceeding kasi it • “administrative expense”
would result to multiplicity of suits, which is really that could be validly withdrawn from the trust
prohibited or what the court is trying to prevent. fund? – NO.
Transcriber’s comment: I think what Sir refers to the Ruling:

choppy part is hindi pwedeng mag file ng another The obligation to pay Smart and FEMI did not
claim or suit ang planholder (creditor) while there constitute the "benefits" or "cost of services
is already a pending insolvency or rehabilitation rendered" or "property delivered".
proceeding because it would result to multiplicity

82
In respect of pre-need companies, the trust fund ordinary maintenance of trust fund assets.
is set up from the planholders' payments to pay Evidently, the purchase price of the bonds for
for the cost of benefits and services, termination the capital infusion to the trust fund was not
values payable to the planholders and other included as an administrative expense that could
costs necessary to ensure the delivery of benefits be validly taken from the trust fund.
or services to the planholders as provided for in
the contracts.
The term "benefits" used in Section 16.4 is

defined as “the money or services which the Pre-
Need Company undertakes to deliver in the
future to the planholder or his
beneficiary.” Accordingly, benefits refer to the
payments made to the planholders as stipulated
in their pre-need plans. Worthy of emphasis
herein is that the trust fund is established "to
ensure the delivery of the guaranteed benefits
and services provided under a pre-need plan
contract."
Section 30 of R.A. No. 9829 expressly stipulates

that the trust fund is to be used at all times for
the sole benefit of the planholders, and cannot
ever be applied to satisfy the claims of the
creditors of the company.
The CA gravely erred in authorizing the payment

out of the trust fund of the obligations due to
Smart and FEMI. Even assuming that the
obligations were incurred by the respondent in
order to infuse sufficient money in the trust fund
to correct its deficiencies, such obligations
should be paid for by its assets, not by the trust
fund.
The financial reports submitted by respondent

to the SEC as well as its April 18, 2009
Certification only show that indeed the MRT III
bonds were infused to respondent's Trust Fund
free from any liens and encumbrances, and that
the purchase price thereof is and remains to be
respondent's loan obligation to Smart and FEMI,
or its corporate liability, and not of the Trust
Fund.
Payment to Smart and FEMI was not an

administrative expense to be withdrawn from
the trust fund.
Section 16.4, Rule 6 of the New Rules made an

exclusive enumeration of the administrative
expenses that may be withdrawn from the trust
fund, as follows: trust fees, bank charges and
investment expenses in the operation of the trust
fund, taxes on trust funds, as well as reasonable
withdrawals for minor repairs and costs of

83

2019 BANKING TSN Third Exam

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BANKING AND OTHER COMMERCIAL LAWS

(1) Accumulating the savings of depositors and

TRANSCRIBED BY 3-MANRESA [2019-2020]

The type and classification of a bank will depend

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Sec. 29. Separability Clause. — If any provision of

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6. Dispose or encumber the property or the crops

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"(3) The articles of cooperative and bylaws of a

What are the powers and functions of a RA 8367

SECTION 2. Declaration of policy. — It is hereby

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Non-stock savings and loan associations are similar

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What types of deposits are insured by the PDIC?

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Let’s go to the prohibitions: Issue: WON trust account is covered by the

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Section 2. Authority to deposit foreign currencies.

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A: YES. It falls under the exception: in CHINA BANKING CORPORATION VS

R.A. 1405 PD 1246 The relevant provision provides:

Local deposits Foreign currency Section 8. Secrecy of foreign currency

(Lifted from 2018 TSN) Let’s go to another special law—The Unclaimed

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Siguro you’re familiar with Money Heist. Mga

3. BULK CASH SMUGGLING

Involves physical sumggling of cash into

4. CASH INTENSIVE BUSINESS

Service intensive businesses are the best

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Ultimately nahabol ng Bank of Bangladesh kasi na

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DISCUSSION: A transaction is covered if it amounts 1. there is no underlying legal or trade

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