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LEGAL

AND REGULATORY
FRAMEWORK
OF BANKING
BUSINESS

IMPORTANCE OF BANKS TO
ECONOMY
The banking system is an indispensable institution in the
modern world and plays a vital role in the economic life of
every civilized nation. Whether as mere passive entities for
the safekeeping and saving of money or as active instruments
of business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them
with respect and even gratitude and, most of all, confidence.
Thus, even the humble wage-earner has not hesitated to
entrust his life's savings to the bank of his choice, knowing
that they will be safe in its custody and will even earn some
interest for him.
Simex International (Manila), Inc. vs. CA 183 SCRA 360 (1990)

IMPORTANCE OF BANKS TO ECONOMY

our financial system is dominated by banks which


has almost P 5 Trillion assets as of September
2007 or about 78 percent of the countrys GDP.

IMPORTANCE OF BANKS TO ECONOMY


Facilitation and promotion of capital formation
Investment in new enterprises
Promotion of trade and industry, including export
Development of agriculture
Distribution of development across regions
Fuel economic activity
Implementation of economic and monetary policy
Monetization of the economy

BANKS

Entities engaged in the lending of


funds obtained in the form of
deposits.

DEPOSIT

unpaid balance of money or its equivalent


received by a bank in the usual course of
business and for which it has given or is obliged
to give credit to a commercial, checking, savings,
time or thrift account or which is evidenced by its
certificate of deposit, and trust funds held by
such bank

QUASI-BANKS

Entities engaged in the borrowing


of funds through the issuance,
endorsement or assignment with
recourse or acceptance of deposit
substitutes for purposes of
relending or purchasing of
receivables and other obligations.

DEPOSIT
SUBSTITUTES

as an alternative form of obtaining funds from the public,


other than deposits, through the issuance, endorsement, or
acceptance of debt instruments for the borrower's own
account, for the purpose of relending or purchasing of
receivables and other obligations. These instruments may
include, but need not be limited to, bankers acceptances,
promissory notes, participations, certificates of assignment
and similar instruments with recourse, and repurchase
agreements.

CLASSES OF BANKS
Banks

Universal
Banks
General
Banking Law
(RA 8791)

Commercial
Banks

Thrift
Banks

General
Banking Law
(RA 8791)

Thrift Banks
Act
(RA 7906)

Savings and
Mortgage
Banks

Stock Savings
And Loan
Associations

Rural Banks

Rural
Banking Act
(RA 7353)

Private
Development
Banks

Cooperative
Banks
Cooperative
Act
(RA 6938)

Islamic
Banks
Charter of
Al Amanah
Islamic
Investment
Bank of the
Philippines
(RA 6848)

THE CASE OF PALUGI BANK


PALUGI Bank started operations in
2000. After almost 15 years of operations,
it appeared to be one of the success
stories in the banking industry. From
one branch, it was able to put up 12
branches by 2015, attracting almost
300,000 depositors and an estimated P50
billion in deposits contained in about
125,000 accounts.
Much of its success is attributed to Mr.
Jose Kita, a minority stockholder on
record but is said to be the real owner.
He is the current President of the bank.

THE CASE OF PALUGI BANK


By 2014, however, the regulators
started to receive complaints about
its business practices, which seemed
to be unsafe and might compromise
the interest of depositors. It was also
found out that the bank has not been
submitting reports or had been
delayed in submitting the same.
It initially refused requests for
examination of its operations and
even threatened the filing of cases
against the BSP and PDIC.

THE CASE OF PALUGI BANK


When the Monetary Board eventually
ordered it to institute some measures
to address complaints of depositors,
PALUGI Bank initially refused but
eventually submitted falsified reports
to MB to cover up its non-compliance.
What is legal and regulatory
framework governing similarly
situated banks?

REGULATION OF THE BANKING


INDUSTRY

Importance of
Banks to
Economy

Protection of
Depositors

REGULATION OF THE BANKING


INDUSTRY

Law seeks to ensure the protection of the public


from potential abuses of banks and their owners.
Rule is no person or entity shall engage in
banking operations or quasi-banking functions
without authority from the BSP.
There are instances of abuse by the banks and
their owners in the past.

REGULATION OF THE BANKING


INDUSTRY
Prudential Measures
1.

Capitalization

Minimum capitalization

Risk-based capital

2. Fit and Proper Rule

Rules to govern directors and officers


3.

Reserves

Reserve requirements

Provision for losses and write offs

REGULATION OF THE BANKING


INDUSTRY
Prudential Measures
4. Investments

Restriction on equity investments in allied


undertakings
Restrictions on direct investments

5. Loan Restrictions

Single Borrowers Limit


Rules on DOSRI Loans

REGULATION OF THE BANKING INDUSTRY:


PRUDENTIAL MEASURES

Required Minimum Capital


Type Bank
Universal Commercial Banks
Regular Commercial Banks
Thrift Bank with head office in Metro Manila
Thrift Bank with head office outside Metro Manila
Rural Bank
Cooperative Bank

Minimum
Capitalization
P 5.4 Billion
P 2.8 Billion
P 650 Million
P 64 Million
P 2.6-20 Million
P 2.6-20 Million

REGULATION OF THE BANKING


INDUSTRY :PRUDENTIAL MEASURES

2. Investments

Restriction on equity investments in allied


undertakings
Restrictions on direct investments

UNIVERSAL BANK =COMMERCIAL


BANK

+ INVESTMENT HOUSE

A universal bank can:


Underwrite securities
Act as a securities dealer
Either directly (as a department within the bank) or
indirectly ( by owning up to 100% of the equity in such
entity)
This is absolutely prohibited for an ordinary
commercial bank

EQUITY INVESTMENTS OF BANKS


- A BANK MAY, WITH PRIOR APPROVAL OF THE MB, INVEST ITS FUNDS
Area of investment

by Universal Bank

by Commercial Bank

A thrift or rural bank

Up to 100% of the equity

Up to 100% of the equity

Only one other


universal/commercial bank

Up to 100% of the voting stock


(if investing bank is publicly listed)

Up to 100% of the voting stock


(if investing bank is publicly listed,
otherwise, must remain a minority
shareholder in another commercial
bank)

Quasi-bank

Up to 40% of the equity

Up to 40% of the equity

*Financial (e.g. credit card, leasing,


insurance companies)

Up to 100% of the equity

must remain a minority shareholder

*Non-Financial (e.g. warehousing,


safety deposit boxes, computer
services companies)

Up to 100% of the equity

must remain a minority shareholder

Non-Allied Enterprises (e.g. mining,


land development companies)

Up to 35% of total equity or 35% of


voting stock

prohibited

total investment 1) in allied and nonallied enterprises shall not exceed fifty
percent (50%) of the net worth of the
bank, and 2) the equity investment in
any one enterprise, whether allied or
non-allied, shall not exceed twenty-five
percent (25%) of the net worth of the
bank.

total investment 1) in allied


enterprises shall not exceed thirty-five
percent (35%) of the net worth of the
bank; and 2) the equity investment in
any one enterprise shall not exceed
twenty-five percent (25%) of the net
worth of the bank.

Allied Enterprises

REGULATION OF THE BANKING


INDUSTRY :PRUDENTIAL MEASURES

3. Fit and Proper Rule

MB to pass upon and review qualifications of bank directors and


officers
MB can, upon prior notice, remove, suspend and disqualify a bank
director or officer

4. Reserves
Reserve requirements
Provision for losses and write offs

REGULATION OF THE BANKING


INDUSTRY: PRUDENTIAL MEASURES

5.Loan Restrictions

5.LOAN RESTRICTIONS: SBL

Single Borrowers
Limit (SBL)

banks exposure to a single client must not exceed 25


percent of the banks net worth. The rule is meant to
prevent banks from risks, such as losses due to loan
defaults, arising from heavy exposure to one entity.
exposure comes in the form of loans extended to a
client, bonds bought by banks from the same client, as
well as securities issued by the client and being
underwritten by the bank.

THE 25% SBL CEILING INCLUDES:


(a)

(b)

(c)

(d)

the direct liability of the maker or acceptor of paper discounted


with or sold to such bank and the liability of a general indorser,
drawer orguarantor who obtains a loan or other credit
accommodation from or discounts paper with or sells papers to
such bank;
in the case of an individual who owns or controls a majority
interest in a corporation, partnership, association or any other
entity, the liabilities of said entities to such bank;
in the case of a corporation, all liabilities to such bank of all
subsidiaries in which such corporation owns or controls a
majority interest; and
in the case of a partnership, association or other entity, the
liabilities of the members thereof to such bank.

THE 25% SBL CEILING INCLUDES:


Even if a parent corporation, partnership, association, entity
or an individual who owns or controls a majority interest in
such entities has no liability to the bank, the Monetary
Board may prescribe the combination of the liabilities of
subsidiary corporations or members of the partnership,
association, entity or such individual under certain
circumstances, including but not limited to any of the
following situations:
(a)
the parent corporation, partnership, association, entity
or individual guarantees the repayment of the liabilities;
(b)
the liabilities were incurred for the accommodation of
the parent corporation or another subsidiary or of the
partnership or association or entity or such individual;
or
(c)
the subsidiaries though separate entities operate merely
as departments or divisions of a single entity.

5.LOAN RESTRICTIONS:

DOSRI
Loans, other credit accommodations and guarantees shall
refer to transactions of the bank which involve the grant
of any loan, advance or other credit accommodation in
any form whatsoever, whether renewal, extension or
increase, to:
Its own directors;
Its own officers;
Its own shareholders;
And their related interests, including:

5.LOAN RESTRICTIONS:

DOSRI

(1) Spouse or relative within the first degree of


consanguinity or affinity, or relative by legal adoption, of a
director, officer or stockholder of the bank;
(2) Partnership of which a director, officer, or stockholder
of a bank or his spouse or relative within the first degree of
consanguinity or affinity, or relative by legal adoption, is a
general partner;
(3) Co-owner with the director, officer, stockholder or his
spouse or relative within the first degree of consanguinity
or affinity, or relative by legal adoption, of the property or
interest or right mortgaged, pledged or assigned to secure
the loans or other credit accommodations, except when the
mortgage, pledge or assignment covers only said co-owner's
undivided interest;

DOSRI LOANS

(4) Corporation, association, or firm of which a director or officer of the bank, or his spouse is also a director
or officer of such corporation, association or firm, except (a) where the securities of such corporation,
association or firm are listed and traded in the big board or commercial and industrial board of domestic stock
exchanges and less than fifty percent (50%) of the voting stock thereof is owned by any one person or by
persons related to each other within the first degree of consanguinity or affinity; or (b) where the director,
officer or stockholder of the bank sits as a representative of the bank in the board of directors of such
corporation: Provided, That the bank representative shall not have any equity interest in the borrower
corporation except for the minimum shares required by law, rules and regulations, or by the by-laws of the
corporation: Provided, further, that the borrowing corporation is not among those mentioned in items e(5),
e(6), e(7) and e(8) of this Section;
(5) Corporation, association or firm of which any or a group of directors, officers, stockholders of the lending
bank and/or their spouses or relatives within the first degree of consanguinity or affinity, or relative by legal
adoption, hold or own at least twenty percent (20%) of the subscribed capital of such corporation, or of the
equity of such association or firm;

(6) Corporation, association or firm wholly or majority-owned or controlled by any related entity or a group
of related entities mentioned in Items e(2), e(4) and e(5) of this Section.
(7) Corporation, association or firm which owns or controls directly or indirectly whether singly or as part of
a group of related interest at least twenty percent (20%) of the subscribed capital of a substantial stockholder
of the lending bank or which controls majority interest of the bank pursuant to Subsection X303.1 of the
MOR.
(8) Corporation, association or firm in which the lending bank and/or its parent/subsidiary holds or owns at
least twenty percent (20%) of the subscribed capital of such corporation, or in the equity of such association or
firm, or has an existing management contract or any similar arrangement with the lending bank or its
parent/subsidiary.
Subsidiary shall refer to a corporation or firm more than fifty percent (50%) of the outstanding voting stock of
which is directly or indirectly owned, controlled or held with power to vote by its parent corporation.

CONDITIONS FOR GRANT OF DOSRI


LOANS
1.
2.
3.
4.

Must be approved by a majority vote of the members of the


board, without the vote of the DOSRI, regardless of amount
Written waiver of the secrecy of bank deposits
Amount cannot exceed total unencumbered deposit of the
DOSRI
Secured by non-risk assets, such as:
Cash;
Debt securities issued by the BSP or the Philippine government;
Deposits maintained in the lending bank and held in the Philippines;
Debt securities issued by the U.S. government;
Debt securities issued by central governments, central banks of foreign countries and
multilateral financial institutions such as International Finance Corporation, Asian
Development Bank and World Bank, with the highest credit quality given by any two
internationally accepted rating agencies;
Such other assets considered as non-risk by the Monetary Board.

REGULATION OF THE BANKING


INDUSTRY:CRIMINAL ACTS
Criminal/Administrative violations committed
by banks/quasi-bank:
Conducting business in an unsafe or
unsound manner
Willful violation of the charter or bylaws
Willful delay in submission of required
reports or publications
Refusal to permit examination into the
affairs of the institution

REGULATION OF THE BANKING


INDUSTRY: CRIMINAL ACTS
Administrative violations committed by
banks/quasi-banks
Willful making of false or misleading
statement to board or BSP
Commission of irregularities
Willful non-compliance with, or violation of,
any banking law or any MB order,
instruction or regulation by the MB or the
BSP

THE CASE OF PALUGI BANK


How should the mounting complaints
against PALUGI Bank be addressed?

Conservatorship is an exercise of police power


Banks

are affected with public interest because they


receive funds from the general public in the form of
deposits, creating a fiduciary relationship with their
depositors. Thus, banks are obligated to treat with
meticulous care and utmost fidelity the accounts of
those who have reposed their trust and confidence in
them.
Central Bank v. CA ((G.R. No. 76118 March 30, 1993)

BANKS IN DISTRESS
How do we know that a bank is in
distress?
Examination

of live bank by BSP or PDIC (Sec. Sec.

25, RA 7653, The New Central Bank Act; Sec. 8 (eighth),


RA 3591, as amended, PDIC Charter)
Declaration

of bank holiday or suspension of


payment of deposits continuously for 30 days (Sec.
53, RA 8791, The General Banking Law of 2000)

OPTIONS OF MONETARY BOARD OVER


DISTRESSED BANK

Order
the
placement of bank
under
conservatorship
(Sec. 29, RA 7653)

Order
the
placement
of
bank
under
receivership (Sec.
30, RA 7653)

ADDRESSING BANK DISTRESS


Conservatorship

Resumption
of Business

Receivership

Rehabilitation
Liquidation

THE REMEDY OF
CONSERVATORSHIP

THE REMEDY OF CONSERVATORSHIP


Ground for conservatorship

State of continuing inability or unwillingness of


bank/QB to maintain a condition of liquidity
adequate to protect the interest of depositors and
creditors, as found by the Supervising and
Examination Department (SED). (Sec. 29, R.A.
7653)

Basic effect of conservatorship

Bank/QB continues to operate as such, but the


conservator takes over the board and
management.

THE REMEDY OF CONSERVATORSHIP


Mandate of conservator
1.

Preserve the assets of the bank/QB

Take charge of assets


Collect all monies and debts
Foreclose mortgages

2. Reorganize management

Take over management


Overrule or revoke actions of previous board and
officers.

Conservator
cannot
transactions post facto

repudiate

perfected

THE CASE OF PALUGI BANK


Let us assume MB issued an Order
placing
PALUGI
Bank
under
conservatorship and a conservator was
appointed.
Within 15 days and before conservator
could assume, the Banks President, Jose
KITA, with authority from Board of
Directors, filed a case with the CA
against MB alleging grave abuse of
discretion, illegal taking of private
property and violations of his right to
due process.

THE CASE OF PALUGI BANK


Case should be dismissed
only

stockholders of record representing


majority of the capital stock may bring
petition for certiorari to question MB order
of conservatorship. The bank president, by
himself, cannot file petition.
petition must be filed within 10 days from
receipt by the board of the institution of the
order.
Actions of the MB placing a bank under
conservatorship are final and executory and
thus cannot be restrained or set aside by
courts except on jurisdictional grounds by
way of a petition for certiorari.

THE REMEDY OF CONSERVATORSHIP


Conservatorship is an exercise of police ower
The

government cannot simply cross its arms


while the assets of a bank are being depleted
through mismanagement or irregularities. It is the
duty of the BSP to step in and salvage the
remaining resources of the bank so that they may
not continue to be dissipated or plundered by those
entrusted with their management.
- PVB Employees Union v. PVB G.R. No. 76118 March 30,
1993.

The Remedy of Conservatorship


Termination of Conservatorship

When MB is satisfied
that the institution
can continue to
operate on its own
and the conservatorship is no longer
necessary. (Sec. 29,
R.A. 7653)

When MB determines
that the continuance in
business of the bank
would involve probable
loss to its depositors or
creditors. In which
case, bank will be
placed
under
receivership. (Sec. 29,
R.A. 7653)

THE CASE OF PALUGI BANK


Twelve months have lapsed and
PALUGI continues to be hounded by
liquidity problems forcing it to
declare bank holiday for 2 months.
Suppose MB finds that continuance
in business of the bank/QB would
involve probable loss to depositors or
creditors, what will now be the
remedy of the regulators?

THE REMEDY OF RECEIVERSHIP

THE REMEDY OF RECEIVERSHIP


The

placement of a bank under


conservatorship is not a precondition to
its placement under receivership. (Sec.
30, R.A. 7653)

THE REMEDY OF RECEIVERSHIP


Grounds for Receivership
1. Insolvency
Illiquidity: Bank/QB is unable to pay its liabilities
as they fall due in the ordinary course of business,
except if due to bank runs induced by financial panic
in the banking community.
Insolvency:
Bank/QB has insufficient realizable
assets to meet its liabilities

2. Probable Loss to Depositors

Bank/QB cannot continue in business without


involving probable losses to depositors or creditors

THE REMEDY OF RECEIVERSHIP


Grounds for Receivership
3. Dissipation of Assets

Bank/QB willfully violated a final cease-anddesist order for a violation involving fraud or
dissipation of assets.

4. Prolonged Bank Holiday

Declaration of bank holiday or suspension of


payment of deposits for 30 days.

THE CASE OF PALUGI BANK


Suppose MB summarily placed
PALUGI
Bank
under
receivership.

THE CASE OF PALUGI BANK


Immediately upon receipt of Order
of
receivership,
Jose
KITA,
together
with
the
majority
stockholder on record, filed a
certiorari petition alleging grave
abuse of discretion on the part of
the MB since his side was not
properly heard and merely relied
on the SED Report. He prays that
he be given his day in court to
explain the findings of the SED.

THE REMEDY OF RECEIVERSHIP


MB resolution is summary in nature

Prior hearing will defeat the purpose and efficacy of


receivership.
Prior hearing will result in bank runs, panic and
hysteria. (Rural Bank of Buhi v. CA, G.R. No. L61689 June 20, 1988)

THE REMEDY OF RECEIVERSHIP

Procedural rights of the bank should not take precedence over the
substantive interests of depositors, creditors, and stockholders over
the assets of the bank, as well as interest of the public and even the
bank itself. (Central Bank v. CA and Triumph Savings Bank, G.R. No. 76118 March 30,
1993)

THE REMEDY OF RECEIVERSHIP

Rationale
The

mere filing of a case for receivership


can trigger a bank run.
One can just imagine the dire consequences of
a prior hearing; bank runs would be the order of
the day, resulting in panic and hysteria. In the
process, fortunes may be wiped out and
disillusionment will run gamut of the entire
banking community. (Republic Bank of Buhi v. CA)
G.R. No. L-61689 June 20, 1988)

THE REMEDY OF RECEIVERSHIP


MB receivership order is final and
executory
thus

cannot be restrained or set aside by the


courts except on jurisdictional grounds by way of a
petition for certiorari
Can

only be set aside if there is convincing proof that


the action is plainly arbitrary and made in bad faith or
is capricious, discriminatory, whimsical, unjust, or a
denial of due process and equal protection.

EFFECT OF RECEIVERSHIP

Monetary Board will Summarily


forbid bank from doing business in the
Philippines

EFFECT OF RECEIVERSHIP
Forbidding a bank from doing
Fomeaning:
it cannot accept new deposits
it cannot grant new loans

EFFECT OF RECEIVERSHIP

Receivership is equivalent to an injunction to restrain


the bank officers from intermeddling with the property
of the bank in any way. (Villanueva vs. CA, 244 SCRA
396)

Articles of Incorporation/By-Laws of bank


suspended. (Sec. 10 [b], RA 3591, as amended)

are

The powers, functions and duties, as well as all


allowances, remunerations and perquisites of the
directors, officers and stockholders are suspended. (Sec.
10 [b], ibid)

THE REMEDY OF RECEIVERSHIP


What can the majority stockholders assail?

Receivership, being admittedly a harsh


remedy, should be granted with extreme
caution. Sound reasons for receivership
must appear of record, and there should be
a clear showing of necessity. The court
must consider the consequences or effects in
order to avoid irreparable injustice or
injury.

THE CASE OF PALUGI BANK


Because of the inability of PALUGI Bank to serve its
depositors, a petition for receivership is filed
praying to put the bank under receivership and
appoint a well-respected member of the community
as Receiver in order to protect the depositors from its
management

THE REMEDY OF RECEIVERSHIP

Only the MB can place a bank under


receivership and appoint receiver.

for Banks: PDIC


for QBs: One who has recognized
competence in banking or finance

Receivership is for 90 days from take


over of the bank or QB.

THE REMEDY OF RECEIVERSHIP


Specific powers of PDIC as bank receiver
1.
2.
3.
4.

Bring suits to enforce liabilities or recoveries


Hire experts as deputies and assistants
Suspend or terminate officers and employees
Pay accrued, utilities, rental and salaries for 3
months

THE REMEDY OF RECEIVERSHIP


Specific powers of PDIC as bank receiver
5.
6.

7.
8.

Collect or restructure loans and claims


Reduce unusually high interest rates for unpaid
interest
Retain private counsel
Borrow money and encumber asset to prevent
dissipation, redeem foreclosed assets, or
minimize losses to depositors and creditors

THE REMEDY OF RECEIVERSHIP


Limitation to powers of PDIC as bank
receiver

Receiver cannot pay, transfer, or dispose of any


asset of bank/QB, except

place
the
funds
in
non-speculative
investments
pay for administrative expenses of liquidation
pay accrued utilities, rentals and salaries of
closed bank from available funds for up to 3
months

THE REMEDY OF RECEIVERSHIP


Effect of receivership on banks directors and
officers
The authority of the bank and its directors and
officers over its property and effects is suspended,
such authority being reposed in the receiver.
Allowances and remunerations are also suspended.
In this respect, the receivership is equivalent to
an injunction to restrain the bank officers from
meddling with the property of the bank in any
way.

EFFECTS OF RECEIVERSHIP
On unpaid time deposit in the bank
An

unpaid time deposit in a bank is not a


preferred claim against the bank. Central Bank v. Morfe,
(G.R. No. L-20119 June 30, 1967.

On banks deposit liabilities to depositors


When a banks operations are suspended by the
BSP, the bank is not liable for interest accrued
during the period of suspension, and this should be
deemed read into every contract of deposit with a
bank. Overseas Bank of Manila v. CA, 105 SCRA 49 (1981).

THE CASE OF PALUGI BANK


When Jose KITA learned about the
order of MB placing PALUGI Bank
under receivership, he
Refused

to turn over the banks


records and assets to the receivers
tampered with the banks records
Appropriated the banks assets for
himself or another party
Destroyed the banks assets

THE CASE OF PALUGI BANK


And he
Continued

to receive deposits as
well payments from banks debtors
Paid a favored supplier from funds
of the bank
Transferred to his sons name title to
a car owned by the bank
Asked an officer of the bank to
perform any of the foregoing acts

OUTCOME OF RECEIVERSHIP

Within 90 days from take-over of the


bank/QB, the receiver must determine
and recommend to the MB if
the
bank/QB may resume
business
with
safety
to
depositors, creditors, and the
general public.
may be rehabilitated.
cannot
be rehabilitated or
permitted to resume business

notify the board of the bank/QB in


writing of findings
direct the receiver to proceed with
liquidation.

The Remedy of Receivership


Possible Outcome of
Receivership
Receiver
recommends to
the
MB
the
rehabilitation of
the bank. (Sec. 30,
R.A. 7653)

Receiver
recommends to
the MB the
liquidation of
the bank. (Sec. 30,
R.A. 7653)

REHABILITATION REMEDY
Nature of rehabilitation

Rehabilitation contemplates a continuance of corporate life


and activities in an effort to restore and reinstate the
corporation to its former position of successful operation
and solvency.
Not all enterprises which fail in a competitive market place
should necessarily be liquidated. A corporation with a
reasonable prospect of survival should be given the
opportunity to rehabilitate.

there is greater value and greater benefit for creditors in the


long term in keeping essential business and other component
parts of such a corporation together.

REHABILITATION REMEDY

Effect on pending receivership or liquidation

Rehabilitation suspends a pending liquidation.


To allow the liquidation proceedings to continue
when rehabilitation has already been mandated
by RA 7169 would seriously hinder the
rehabilitation of the subject bank.
Philippine
Veterans Bank v. Vega, GR 105364, 28 June 2001)

THE CASE OF PALUGI BANK


Upon examination of the books and
records of PALUGI Bank, PDIC
immediately
arrived
at
the
conclusion that the bank cannot be
rehabilitated.
By
then,
the
depositors of the bank have camped
outside its branches, creditors have
demanded payment of outstanding
obligations, suppliers threatened to
discontinue provision of supplies,
etc.

THE REMEDY OF LIQUIDATION


When a person, bank, partnership,
association, corporation or other legal
entity can no longer pay its debts as
they come due and when rehabilitation
is not a feasible option

Institution of insolvency proceeding


Liquidation of its assets
Settlement of claims
Distribution of remaining assets

THE REMEDY OF LIQUIDATION


General Objectives and Features of
Insolvency Proceedings
First Overall Objective

the allocation of risk among participants in a


market economy in a predictable, equitable, and
transparent manner.

Second Overall Objective

to protect and maximize value for the benefit of


all interested parties and the economy in general

THE REMEDY OF LIQUIDATION

Economic Theory Behind


Liquidation

in a competitive market economy, an


enterprise that is unable to compete has no
place in and should be removed from the
market place.
Insolvency is the principal identifying mark of
an uncompetitive enterprise.

THE REMEDY OF LIQUIDATION


Legal Theory Behind Liquidation

Liquidation process can only function


effectively if it is regarded as a collective
process, from the time of its inception.
Follows that an ordered, civilized
administration is necessary under which
all creditors (of varying ranks and classes)
should be bound and treated equally.

THE REMEDY OF LIQUIDATION


Role of Liquidator

A liquidator assumes the role of the receiver. His


task is to dispose of all the assets of the bank
and effect partial payments of the bank's
obligations in accordance with legal priority, for
the benefit of the bank and its creditors. Larrobis
v. Philippine Veterans Bank, G.R. No. 135706, October 1, 2004.

THE REMEDY OF LIQUIDATION


Nature of Liquidation Proceedings

Not an ordinary civil action but a special


proceeding
Not an interpleader
Akin to settlement of estate of a deceased person
In rem in nature
A single proceeding but admitting of multiple
appeals

LIQUIDATION STEPS
Petition for Assistance in
Liquidation
Adjudication of disputed
claims
Approval of Project of
Distribution of Assets
Payment of claims and
distribution of assets
Termination of
proceedings

THE REMEDY OF LIQUIDATION


1.

Petition for Assistance in Liquidation


The receiver is mandated to file an ex parte
Petition for Assistance in the Liquidation (PAL)
of closed bank in the proper RTC pursuant to a
liquidation plan adopted by PDIC. (Sec. 30, RA 7653)
When the proper RTC gives due course to the
PAL, it is constituted as the Liquidation Court
(LC) of the closed bank. (Sec. 30, RA 7653)

THE REMEDY OF LIQUIDATION

Jurisdiction of Liquidation Court


(LC)
The

court shall adjudicate disputed


claims against the closed bank.
The court shall assist in the enforcement
of
individual
liabilities
of
the
stockholders, directors and officers of the
bank.
The court shall decide on issues as may
be material in the implementation of the
liquidation plan adopted. (Sec. 30, RA 7653)

THE REMEDY OF LIQUIDATION


2. Adjudication of Disputed Claims

Disputed claims refer to all claims, whether


against the assets of the insolvent bank, for
specific performance, breach of contract,
damages, or whatever.

A claim need not be initially disputed in a court or agency


before it is filed with the liquidation court. Disputed claim
simply connotes that in the course of liquidation, contentious
cases might arise which require a full-dress hearing where
legal issues have to be resolved. Ong v. CA, G.R. No.
112830. February 1, 1996.

THE REMEDY OF LIQUIDATION


2. Adjudication of Disputed Claims
A

liquidation court has exclusive jurisdiction to


resolve all claims against an insolvent bank on
considerations of practicality and necessity, and to
prevent multiplicity of suits. Indeed, it will be
burdensome on the liquidator to appear before
several courts to litigate claims against the
insolvent bank. Star Forwarders, Inc. v. Navarro; and
Hernandez vs. Rural Bank of Lucena , G.R. No. L-29791 January
10, 1978.

THE REMEDY OF LIQUIDATION


2
Disputed

claims must be proven in court.


Liquidation requires the holding of hearings and
presentation of evidence of the parties concerned,
i.e., creditors who must prove and substantiate
their claims, and the liquidator disputing the
same. Rural Bank of Bokod v. BIR, G.R. No. 158261, December
18, 2006.

THE REMEDY OF LIQUIDATION


3. Project of Distribution

specify in detail all the assets available for


distribution
identify the creditors whose claims were earlier
allowed by the liquidation court
specify the order of preference and concurrence
of credits under the Civil Code

Rule on concurrence and preference of credit


applicable only if the assets of the bank are not
enough to pay all creditors.

THE REMEDY OF LIQUIDATION


3. Project of Distribution

Assets available for distribution


Includes all assets belonging to the bank or
QB in its own right
But excludes assets held in trust, on which the
bank only holds legal (but not beneficial) title.

THE REMEDY OF LIQUIDATION


4. Payment of Claims (accdg to POD)

All revenues and earnings realized in winding up


the affairs and administering the assets of the
bank/QB shall be used.

THE REMEDY OF LIQUIDATION


Payment of Claims

4.

First to be paid: Administrative expenses


Cost, fees, and expenses of liquidation proceedings
Reasonable expenses and fees of the receiver
Salaries of such personnel whose employment is
rendered necessary in discharge of the liquidation,
and other additional expenses caused thereby

THE REMEDY OF LIQUIDATION


4. Payment of Claims

Next for payment are claims of creditors


according to the rules on concurrence and
preference of credit under the Civil Code.

THE REMEDY OF LIQUIDATION


Republic vs. Peralta (G.R. No. L-56568, May
20, 1987)
Arts. 2241 and 2242 jointly with Arts. 2246 to
2249 establish a two-tier order of preference.
The first tier includes only taxes, duties and
fees due on specific movable or immovable
property.
All other special preferred credits stand on
the same second tier to be satisfied, pari passu
and pro rata, out of any residual value of the
specific property to which such other credits
relate.

THE REMEDY OF LIQUIDATION


Republic vs. Peralta (G.R. No. L-56568, May
20, 1987)
Ordinary Preferred Credits, Article 2244
CC
Art. 2244 creates no liens on determinate
property which follow such property. What
Article 2244 creates are simply rights in favor
of certain creditors to have the cash and other
assets of the insolvent applied in a certain
sequence or order of priority.

THE REMEDY OF LIQUIDATION


Republic vs. Peralta (G.R. No. L-56568, May 20,
1987)
Ordinary Preferred Credits, Article 2244 CC
Only in respect of the insolvent's "free property"
is an order of priority established by Article 2244.

THE REMEDY OF LIQUIDATION


4. Payment of Claims (preference of taxes)
All

payments by PDIC of insured deposits in


closed banks partake of the nature of public funds
and, as such, must be considered a preferred credit
similar to taxes due to the National Government in
the order of preference under Article 2244 of the
Civil Code.

THE REMEDY OF LIQUIDATION


4. Payment of Claims (preference of taxes)
Duties,

taxes, and fees due the Government enjoy priority


only when they are with reference to a specific movable
property under Article 2241(1), or immovable property under
Article 2242(1), of the Civil Code. But with reference to the
other real and personal property of the debtor, sometimes
referred to as free property, taxes and assessment due
the National Government, other than those in Articles
2241(1) and 2242(1), will come only in ninth place in the
order of preference under Article 2244. Rural Bank of Bokod v.
BIR, G.R. No. 158261, December 18, 2006.

THE REMEDY OF LIQUIDATION


4.

Payment of Claims (preference of taxes)


Depositors are not considered preferred
creditors within the meaning of Article 2244. A
general depositor is merely a general creditor
who does not enjoy any preference over other
general creditors. Judgment for payment of
time deposit only seeks to fix the amount of
debt and does not establish its preference.
Central Bank vs. Morfe (G.R. No. L-20119 June 30, 1967.

THE REMEDY OF LIQUIDATION


4.

Payment of Claims (preference of taxes)


PDIC, upon payment of any depositor, shall be
subrogated to all rights of the depositor against the
closed bank to the extent of such payment. Such
subrogation shall include the right to receive the same
dividends and payments from the proceeds of the assets
of such closed bank and recoveries on account of
stockholders liability as would have been payable to
the depositor on a claim for the insured deposits.

THE REMEDY OF LIQUIDATION


4.

Payment of Claims (preference of taxes)


Creditors have 3 years from date of last notice to
claim payment.
After the lapse of the 3-year period, unclaimed
payments are escheated to the Republic.

MANDATE OF PDIC
UNDER R.A. 3591 AS AMENDED
BY R.A. 9576

Insurer of deposits
Receiver of banks

MANDATE OF PDIC
AS INSURER OF DEPOSITS
SEC. 3. Section 4 (g) :
"(g) The term insured deposit means the
amount due to any bona fide depositor for
legitimate deposits in an insured bank net of any
obligation of the depositor to the insured bank as
of the date of closure, but not to exceed Five
hundred thousand pesos (P500,000.00). Such net
amount shall be determined according to such
regulations as the Board of Directors may
prescribe.

WHAT CANNOT BE INSURED?


The PDIC shall not pay deposit insurance for the following
accounts or transactions, whether denominated,
documented, recorded or booked as deposit by the bank:
"(1) Investment products such as bonds and securities, trust
accounts, and other similar instruments;
"(2) Deposit accounts or transactions which are unfunded,
or that are fictitious or fraudulent;
"(3) Deposit accounts or transactions constituting, and/or
emanating from, unsafe and unsound banking practice/s, as
determined by the Corporation, in consultation with the
BSP, after due notice and hearing, and publication of a
cease and desist order issued by the Corporation against
such deposit accounts or transactions; and
"(4) Deposits that are determined to be the proceeds of an
unlawful activity as defined under Republic Act No. 9160,
as amended.

SINGLE ACCOUNT

In determining such amount due to any depositor, there


shall be added together all deposits in the bank maintained
in the same right and capacity for his benefit either in his
own name or in the name of others.

MULTIPLE SINGLE ACCOUNTS

o All the four deposit accounts (i.e., Account Nos. 1 to 4) are owned by the same
person, Juan Dela Cruz, and maintained in the same Bank (Head Office and all
its Branches), thus, the balance of the accounts will be added together, as they
are maintained in the same right and capacity, regardless of account type and
banking unit/branch.
oTotal amount of insured deposit cannot exceed P 500,000.00, the Maximum
Deposit Insurance Coverage (MDIC).
oOf the total balance of P 900,000.00, the amount insured is P 500,000.00 and
the uninsured amount is P 400,000.00.

SINGLE ACCOUNT/SOLE PROPRIETORSHIP

The first three deposit accounts (i.e., Account Nos. 1 to 3) are owned by the
same person, Juan Dela Cruz, hence, the balance of the accounts will be added
together.
A sole proprietor is wholly owned by the owner, hence, the Dela Cruz Flower
Shop (Account No. 4) owned by Juan Dela Cruz will be added to his first three
accounts as all of them (Account Nos. 1 to 4) are maintained in the same right
and capacity. The total amount insured cannot exceed P500,000.00.
Of the total balance of P 900,000.00, the amount insured is P 500,000.00 and
the uninsured amount is P 400,000.00.

SINGLE /ITF/ BY ACCOUNTS

Juan Dela Cruz is the principal owner of three accounts (i.e., Account Nos. 1, 3 & 4). As these
are maintained in the same right and capacity, these accounts will be consolidated.
The single account (Account No. 1) is under his name alone and the other two are By accounts
(Account Nos. 3 and 4) which are owned by him as the PRINCIPAL DEPOSITOR or
BENEFICIAL OWNER while Maria Dela Cruz and Pedro Dela Cruz ACTED AS HIS AGENTS
only. Thus, the total insured amount payable to Juan Dela Cruz is P 500,000.00 and the
uninsured amount is P700,000.00.
Antonio Dela Cruz on the other hand has only one account (Account No. 2), an ITF account in
which Antonio is the PRINCIPAL OR BENEFICIAL OWNER and Juan acted as AGENT. Thus,
Antonio Dela Cruz is entitled to a separate deposit insurance of P 400,000.00 for his savings
deposit.

JOINT ACCOUNTS

A joint account regardless of whether the conjunction and,


or, and/or is used, shall be insured separately from any
individually-owned deposit account: Provided, That
(1) If the account is held jointly by two or more natural
persons, or by two or more juridical persons or entities, the
maximum insured deposit shall be divided into as many equal
shares as there are individuals, juridical persons or entities,
unless a different sharing is stipulated in the document of
deposit, and
(2) If the account is held by a juridical person or entity
jointly with one or more natural persons, the maximum
insured deposit shall be presumed to belong entirely to such
juridical person or entity: Provided, further, That the
aggregate of the interests of each co-owner over several joint
accounts, whether owned by the same or different
combinations of individuals, juridical persons or entities, shall
likewise be subject to the maximum insured deposit of Five
hundred thousand pesos (P500,000.00):

JOSE, PILAR AND ANITA


AS DEPOSITORS OF THE CLOSED

Deposi Deposit
t
Share
Balanc
e

PALUGI BANK

Maximum Joses
Insurance Share in
max.
Cover

Insurance
cover

Pilars

Anitas

Share in
max.
Insurance
cover

Share in
max.
Insurance
cover

600

600

500

500

n/a

n/a

2.1 Jose and / or Pilar

500

250

500

250

250

2.2 Jose and Pilar

800

400

500

250

250

2.3 Jose or Anita

600

300

500

250

250

1. Jose
Individual

2. Jose Joint
Accounts

Total DEPOSIT

2,500

1,250

650

300

Total Insured deposit

1,750

1,000

500

250

Total Uninsured Deposit

750

250

150

50

JOSES TOTAL SHARE IS P1,250,000 BUT HIS MAXIMUM INSURANCE COVER IS


ONLY P1,000,000.00 --P500,000 FOR HIS INDIVIDUAL ACCOUNT AND ANOTHER
P500,000.00 FOR ALL HIS JOINT ACCOUNTS. THE P250,000 EXCESS OF
P500,000 IS PART OF HIS UNINSURED DEPOSIT WHICH MUST BE CLAIMED
DURING THE LIQUIDATION PROCEEDINGS OF THE BANK.

SUMMARY (IN THOUSANDS OF PESOS)


Total
Deposit
Share

Share in
Insurance
Cover

Insured
Deposit

Uninsured
Deposit

Jose

1550

1250

1000

250

Pilar

650

500

500

150

Anita

300

250

250

50

______

_____

______

2,500

1750

450

Total

ACCESS DEVICES REGULATION


ACT OF 1998

Republic Act No. 8484

WHAT IS AN ACCESS DEVICE?

It is any card, plate, code, account number,


electronic serial number, personal identification
number, or other telecommunications service,
equipment, or instrumental identifier, or other
means of account access that can be used to
obtain money, good, services, or any other thing
of value or to initiate a transfer of funds (other
than a transfer originated solely by paper
instrument). It includes a credit card.

WHAT IS A CREDIT CARD?

It is any card, plate, coupon book, or other credit


device existing for the purpose of obtaining
money, goods, property, labor or services or any
thing of value on credit.

WHAT ARE THE INFORMATION REQUIRED TO BE


DECLARED IN CREDIT CARD APPLICATION AND
SOLICITATION?

Any application to open a credit card account for any


person under an open-end credit plan or a solicitation
to open such an account, either by mail, telephone or
other means, shall disclose in writing or orally, as the
case may be, the following information:
(a) Annual Percentage Rate
Each annual percentage rate of interest on the
amount of credit obtained by the credit card holder
under such credit plan. Where an extension of credit
is subject to a variable rate, the fact that the rate is
variable, and the annual percentage rate in effect at
the time of the mailing.
Where more than one rate applies, the range of
balances to which each rate applies.

WHAT ARE THE INFORMATION REQUIRED


TO BE DECLARED IN CREDIT CARD
APPLICATION AND SOLICITATION?
(b) Annual and other Fees
Any annual fee, other periodic fee, or membership fee imposed for
the issuance or availability of a credit card, including any account
maintenance fee or any other charge imposed based on activity or
inactivity for the account during the billing cycle.
Any minimum finance charge imposed for each period during
which any extension of credit which is subject to a finance charge
is outstanding (a finance charge represents the amount to be
paid by the debtor incident to the extension of credit such as
interest or discounts, collection fees, credit investigation fees, and
other service charges).
Any transaction charge imposed in connection with use of the
card to purchase goods or services.
Any fee, penalty or surcharge imposed for the delay in payment of
an account. (a penalty charge means such amount, in addition
to interest, imposed on the credit card holder for non-payment of
an account within a prescribed period).

WHAT ARE THE INFORMATION REQUIRED


TO BE DECLARED IN CREDIT CARD
APPLICATION AND SOLICITATION?
(c) Balance

Calculation Method the name or a detailed


explanation of the balance calculation method used in
determining the balance upon which the finance charge is
computed.
(d) Cash Advance Fee any fee imposed for an extension of credit
in the form of cash.
(e) Over-the-Limit-Fee any fee imposed in connection with an
extension of credit in excess of the amount of credit authorized
to be extended with respect to such amount. In case the
application or solicitation to open a credit card account for any
person under an open-end consumer credit plan be made
through catalogs, magazines, or other publications, the following
additional information shall be disclosed:

WHAT ARE THE INFORMATION REQUIRED TO BE


DECLARED IN CREDIT CARD APPLICATION AND
SOLICITATION?
1) A statement, in a conspicuous and prominent location on
the application or solicitation, that,
the information is accurate as of the date the application or
solicitation was printed;
the information contained in the application or solicitation
is subject to change after such date;
the applicant should contact the creditor for information on
any change in the information contained in the application
or solicitation since it was printed;
(2) The date the application or solicitation was printed; and
(3) In a conspicuous and prominent location on the
application or solicitation, a toll free telephone number or
mailing address which the applicant may contact to obtain
any change in the information provided in the application
or solicitation since it was printed.

OVERVIEW OF ANTI-MONEY
LAUNDERING ACT
RA 9160 as amended by RA 9194, RA 10167 and
most recently RA 10365 (signed into law 15
February 2013)

WHY THE LAW?

The Philippines , while striving to sustain


economic development and poverty alleviation
through, among others, corporate governance and
public office transparency, must contribute its
share and play a vital role in the global fight
against money laundering. Hence, the compelling
need to enact responsive anti-money laundering
legislation in order to establish and strengthen
an anti-money laundering regime in the country
which will not only increase investors confidence
but also ensure that the Philippines is not used
as a site to launder proceeds of unlawful
activities.

HISTORY OF THE ACT

Republic Act No. 9160 otherwise known as The AntiMoney Laundering Act of 2001 was signed into law on
September 29, 2001 and took effect on October 17,
2001 . The Implementing Rules and Regulations took
effect on April 2, 2002 . On March 7, 2003 , R.A. No.
9194 (An Act Amending R.A. No. 9160) was signed
into law and took effect on March 23, 2003 . The
revised Implementing Rules and Regulations took
effect on September 7, 2003.
Two additional amendatory laws have been enacted:
Republic Act No. 10167 and most recently, Republic
Act No. 10365. It is one of the most dynamic statutes
in Philippine history, constantly reviewed and
updated in order to cover emerging trends and
patterns in financial crimes.

SIGNIFICANT AMENDMENTS
TO THE ORIGINAL LAW

Lowers the threshold amount for single covered transactions


(cash or other equivalent monetary instrument) from P4M to
P500,000.00 within one (1) banking day.
Expands the reporting requirements to include the reporting of
suspicious transactions regardless of the amount involved
Authorizes AMLC to inquire into or examine any particular
deposit or investment, with any banking institution or non-bank
financial institution and their subsidiaries and affiliates upon
order of any competent court in cases of violation of this Act,
when it has been established that there is probable cause that the
deposits or investments are related to an unlawful activity.
However, no court order is required in cases involving unlawful
activities of kidnapping for ransom, narcotics offenses and
hijacking, destructive arson and murder, including those
perpetrated by terrorists against non-combatant persons and
similar targets.

SIGNIFICANT AMENDMENTS
TO THE ORIGINAL LAW

Authorizes the Bangko Sentral ng Pilipinas to inquire into or


examine any deposit or investment with any banking institution
or non-bank financial institution and their subsidiaries and
affiliates when the examination is made in the course of a periodic
or special examination, in accordance with the rules of
examination of the BSP to ensure compliance with R.A. No. 9160,
as amended.
Transfers the authority to freeze any money/property from the
AMLC to the Court of Appeals.

Money Laundering Offenses


(amended under RA 10365)

MONEY LAUNDERING OFFENSES (AMENDED


UNDER RA 10365)

Under Section 4, Money laundering is committed by


any person, who, knowing that any monetary
instrument or property represents, involves, ore
relates to the proceeds of any unlawful activity:
Transacts monetary Instrument or Property;
Converts, transfers, disposes of, moves, acquires, possesses
or used said monetary instrument or property;
Conceals or disguises the true nature, source, location,
disposition, movement or ownership of or rights with
respect to said monetary instrument or property;
Attempts or conspires to commit money laundering
offenses referred to in Paragraphs (A), (B), or (C);

MONEY LAUNDERING OFFENSES (AMENDED UNDER


RA 10365)

Aids, abets, assists in or counsel the commission of the money


laundering offenses referred to in paragraphs (A), (B) or (C)
above; and
Performs or facilitates to perform any act as a result of which
he facilitates money laundering as referred to in paragraphs
(A), (B), or (C) above.
Money laundering is also committed by any covered person,
who, knowing that a suspicious transaction is required under
this Act to be reported to the Anti-Money Laundering Council
(AMLC), fails to do so.

PREDICATE CRIMES/UNLAWFUL ACTIVITIES


(EXPANDED UNDER RA 10365)

Unlawful Activity is the offense which generates dirty


money. It is commonly called the predicate crime.
Prosecution or conviction for a predicate crime is not a
condition precedent to prosecution for the crime of
money laundering. The two are independent from one
another. Predicate crime/unlawful activity refers to
any act or omission or series or combination thereof
involving or having direct relation to the following:

PREDICATE CRIMES/UNLAWFUL ACTIVITIES


(EXPANDED UNDER RA 10365)

Kidnapping for ransom


Drug trafficking and related offenses
Graft and corrupt practices
Plunder
Robbery and Extortion
Jueteng and Masiao
Piracy
Qualified theft
Swindling
Smuggling
Violations under the Electronic Commerce Act of 2000

PREDICATE CRIMES/UNLAWFUL
ACTIVITIES (EXPANDED UNDER RA 10365)

Hijacking; destructive arson; and murder, including those perpetrated


by terrorists against non-combatant persons and similar targets
Fraudulent practices and other violations under the Securities
Regulation Code of 2000
Terrorism and conspiracy to commit terrorism as defined and
penalized under sections 3 and 4 of Republic Act No. 9372;
Financing of terrorism under section 4 and offenses punishable under
Sections 5, 6, 7 and 8 of Republic Act No. 10168, and otherwise known
as the Terrorism Financing Prevention and Suppression act. Of 2012;
Bribery under articles 210, 211 and 211-A of the Revised Penal Code,
as amended, and corruption of public officers under article 212 of the
Revised Penal Code, as amended;
Frauds and Illegal Exactions and Transactions under articles 213,
214, 215 and 216 of the Revised Penal Code, as amended;
Malversation of Public Funds and Property under Articles 217 and
222 of the Revised Penal Code, as amended;
Forgeries and Counterfeiting under Articles 163, 166, 167, 168, 169
and 176 of the Revised Penal Code, as amended;

PREDICATE CRIMES/UNLAWFUL
ACTIVITIES (EXPANDED UNDER RA 10365)

Violations of Sections 4 to 6 of Republic Act No. 9208, otherwise


known as the anti-Trafficking in Persons act of 2003;
Violations of Sections 78 to 79 of Chapter IV, of Presidential Decree
No. 705, otherwise known as the Revised Forestry Code of the
Philippines, as amended;
Violations of Sections 86 to 106 of Chapter VI, of Republic Act No.
8550, otherwise known as the Philippine Fisheries Code of 1998;
Violations of Sections 101 to 107 and 110 of Republic Act No. 7942,
otherwise known as the Philippine Mining Act of 1995;
Violations of Sections 27(c), (e), (f), (g) and (i) of Republic Act No.
9147, otherwise known as Wildlife Resources Conservation and
Preservation act;
Violation of Section 7(b) of Republic Act No. 9072, otherwise known as
the National Caves and Cave Resources Management Protection Act;
Violation of Republic Act No. 6539, otherwise known as the AntiCarnapping of 2002, as amended;

PREDICATE CRIMES/UNLAWFUL
ACTIVITIES (EXPANDED UNDER RA 10365)

Violation of Presidential Decree No. 1612, otherwise known as the


Anti-Fencing Law;
Violation of Section 6 of Republic Act No. 8042, otherwise known as
the Migrant Workers and Overseas Filipinos Act of 1995, as amended
by Republic Act No. 10022;
Violation of Republic Act No. 8293, otherwise known as the
Intellectual Property Code of The Philippines;
Violation of Section 4 of Republic Act No. 9995, otherwise known as
the Anti-Photo and Video Voyeurism Act of 2009;
Violation of Section 4 of Republic Act No. 9775, otherwise known as
the Anti-Child Pornography Act of 2009;
Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12, and 14 of
Republic Act No. 7610, otherwise known as the Special Protection of
Children Against, Abuse, Exploitation and Discrimination;
Fraudulent practices and other violations under Republic act No.
8799, otherwise known as the Securities Regulation Code of 2000;
and
Felonies or offenses of similar nature that are punishable under the
penal laws of other countries.

OTHER OFFENSES/PENALTIES

Failure to keep records is committed by any responsible official or employee of a


covered institution who fails to maintain and safely store all records of all
transactions of said institution, including closed accounts, for five (5) years from the
date of the transaction/closure of the account. Penalty is 6 months to 1 year
imprisonment or a fine of not less than P100,000 but not more than P500,000, or
both.
Malicious reporting is committed by any person who, with malice or in bad faith,
reports/files a completely unwarranted or false information relative to money
laundering transaction against any person. Penalty is 6 months to 4 years
imprisonment and a fine of not less than P100,000 but not more than P500,000, at
the discretion of the court. The offender is not entitled to avail the benefits of the
Probation Law.
If the offender is a corporation, association, partnership or any juridical person,
the penalty shall be imposed upon the responsible officers, as the case may be,
who participated in, or allowed by their gross negligence, the commission of the
crime.
If the offender is a juridical person, the court may suspend or revoke its license.
If the offender is an alien, he shall, in addition to the penalties prescribed, be
deported without further proceedings after serving the penalties prescribed.
If the offender is a public official or employee, he shall, in addition to the
penalties prescribed, suffer perpetual or temporary absolute disqualification
from office, as the case may be.

BREACH OF CONFIDENTIALITY.

When reporting covered or suspicious transactions to the


AMLC, covered institutions and their officers/employees
are prohibited from communicating directly or indirectly, in
any manner or by any means, to any person/entity/media,
the fact that such report was made, the contents thereof, or
any other information in relation thereto. In case of
violation thereof, the concerned official and employee of the
covered institution shall be criminally liable. Neither may
such reporting be published or aired in any manner or form
by the mass media, electronic mail or other similar devices.
In case of a breach of confidentiality published or reported
by media, the responsible reporter, writer, president,
publisher, manager and editor-in-chief shall also be held
criminally liable. Penalty is 3 to 8 years imprisonment and
a fine of not less than P500,000 but not more than P1M.

COVERED PERSONS (AMENDED AND EXPANDED


UNDER RA 10365)
Covered Institutions are those mandated by the AMLA
to submit covered and suspicious transaction reports
to the AMLC. These are:
Banks and all other entities, including their
subsidiaries and affiliates, supervised and regulated
by the Bangko Sentral ng Pilipinas
Insurance companies and all other institutions
supervised or regulated by the Insurance Commission
Securities dealers, pre-need companies, foreign
exchange corporations and other entities supervised or
regulated by the Securities and Exchange Commission

COVERED PERSONS (AMENDED AND


EXPANDED UNDER RA 10365)

Jewelry dealers in precious metals, who, as a business, trade


in precious metals, for transactions in excess of One million
Pesos (P1,000,000.00)
Jewelry dealers in precious stones, who, as a business, trade
in precious stones, for transactions in excess of One million
Pesos (P1,000,000.00)
Company service providers which, as a business, provide any
of the following services to third parties:
Acting as a formation agent of juridical persons;
Acting as (or arranging for another person to act as) a director or a
corporate secretary of a company, a partner of a partnership, or a
similar person in relation to other juridical persons;
Providing a registered office, business address or accommodation,
correspondence or administrative address for a company, a
partnership or any other legal person or arrangement; and

Acting as (or arranging for another person to act as) a


nominee shareholder for another person:

COVERED PERSONS (AMENDED AND


EXPANDED UNDER RA 10365)

Persons who provide any of the following services:


Managing of client money, securities or other assets;
Management of bank, savings or securities accounts;
Organization of contributions for the creation, operation or
management of companies; and
Creation, operation of juridical persons or arrangements and buying
and selling business entities.

Notwithstanding the foregoing, the term covered persons


shall exclude lawyers and accountants acting as independent
legal professionals in relation to information concerning their
clients or where disclosure of information would compromise
client confidences or the attorney-client relationship:
Provided, That these lawyers and accountants are authorized
to practice in the Philippines and shall continue to be subject
to the provisions of their respective codes of conduct and/or
professional responsibility or any of its amendments.

COVERED & SUSPICIOUS TRANSACTIONS (AS


AMENDED BY RA 9194)

Covered transactions are single transactions in cash or


other equivalent monetary instrument involving a
total amount in excess of Five Hundred Thousand
(P500,000) Pesos within one (1) banking day

COVERED & SUSPICIOUS TRANSACTIONS


(AS AMENDED BY RA 9194)
Suspicious transactions are transactions with covered
institutions, regardless of the amounts involved, where any
of the following circumstances exists:
there is no underlying legal/trade obligation, purpose or
economic justification; the client is not properly identified;
the amount involved is not commensurate with the business
or financial capacity of the client;
the transaction is structured to avoid being the subject of
reporting requirements under the AMLA;
there is a deviation from the clients profile/past
transactions;
the transaction is related to an unlawful activity/offense
under the AMLA;
and transactions similar or analogous to the above.

FREEZING OF MONETARY INSTRUMENT OR


PROPERTY (AS AMENDED BY RA 10167 AND RA
10365)
The Court of Appeals, upon a verified application ex parte
(without notice to the other party) by the AMLC and after
determination that probable cause exists that any monetary
instrument or property is in any way related to an unlawful
activity, may issue a freeze order which shall be effective
immediately. The freeze order shall be for a period of six (6)
months unless extended by the court.
No court, except the Supreme Court, shall issue a temporary
restraining order or a writ of injunction against a freeze
order.

AUTHORITY TO INQUIRE INTO BANK DEPOSITS


(AS AMENDED BY RA 10167)
Notwithstanding the provisions of R.A. No. 1405, as amended, R.A.
No. 6426, as amended, R.A. No. 8791, and other laws, the AMLC
may inquire into or examine any particular deposit or investment
with any banking institution or non-bank financial institution
upon order of any competent court in cases of violation of this
act when it has been established that there is probable cause that
the deposits/investments are involved/related to an unlawful
activity as defined in Sec. 3(i) of the AMLA or a money laundering
offense under Sec. 4 thereof;
except that no court order shall be required in cases
involving kidnapping for ransom; drug trafficking and
related offenses; and hijacking, destructive arson and
murder, including those perpetrated by terrorists against
non-combatant persons and similar targets.

LAW ON SECRECY OF BANK DEPOSITS


(REPUBLIC ACT NO. 1405 AS AMENDED, IN
REL. TO R.A. 6426)

PURPOSES (SEC. 1)

to encourage savings in banks


to prevent private hoarding of money

SCOPE

All deposits of whatever nature with banks or


banking institutions in the Philippines including
investments in bond issued by the government of
the Philippines, its political subdivisions and its
instrumentalities, are considered absolutely
confidential and may not be examined, inquired
or look into by any person, government official,
bureau or office (Sec. 2 R. A. No. 1405)

PROHIBITED ACTS (SECS. 2-3)

The

examination and inquiry


or looking into deposits

The

disclosure by any bank


official or employee to any
unauthorized person

E XCEPTIONS:
When there is written permission of the depositor
or investor;
Impeachment cases;
Upon the order of competent court in cases of
bribery or dereliction of duty of public officials;
Upon order of competent court in cases where the
money deposited or invested is the subject of
litigation;
Upon the order of competent court or tribunal in
cases involving unexplained wealth under the
Anti-Graft and Corrupt Practices Act, R.A No.
3019

E XCEPTIONS:

Upon inquiry by the Commissioner of Internal revenue for


the purpose of determining the net estate of a deceased
depositor;
Upon the order of competent court or in proper cases by the
Anti-Money Laundering Council where there is probable
cause of money laundering and in some instances even
without the court order. (Sec. 11, R.A No. 9160);
Disclosure to the treasurer of the Philippines for dormant
deposits for atleast (10) ten years under the ,Unclaimed
Balances Act(Sec.2 R.A. No. 3936);
Report of banks to Anti-Money Laundering council of
covered and/or suspicious transactions ( Sec. 9 R.A No.
9160 as amended);
Upon order of the Court of Appeals, examination by law
enforcers in terrorism cases under Human security Act of
2007 ( Sec. 27 and 28, R.A. No. 8372).

FOREIGN CURRENCY DEPOSITS


ACT
(Republic Act No. 6426, as amended)

GSIS V. CA, 8 JUNE 2011


These two laws both support the confidentiality of bank deposits.
There is no conflict between them. Republic Act No. 1405 was
enacted for the purpose of giving encouragement to the people
to deposit their money in banking institutions and to
discourage private hoarding so that the same may be properly
utilized by banks in authorized loans to assist in the economic
development of the country.It covers all bank deposits in the
Philippines and no distinction was made between domestic
and foreign deposits. Thus, Republic Act No. 1405 is
considered a law of general application.
On the other hand, Republic Act No. 6426 was intended to
encourage deposits from foreign lenders and investors. It is a
special law designed especially for foreign currency deposits in
the Philippines. A general law does not nullify a specific or
special law. Generalia specialibus non derogant. Therefore, it
is beyond cavil that Republic Act No. 6426 applies in this case.

PRIVILEGES

ABSOLUTE CONFIDENTIALITY
GSIS v. CA, 8 June 2011
China Banking v. CA, 511 S 110
Intengan v. CA, 377 S 63

NUMBERED ACCOUNTS
RATE OF INTEREST
TAXES
EXEMPTION FROM COURT ORDER OR
PROCESS

Salvacion v. Central Bank, 278 S 27


Benedicto v. CA, 4 September 2001

EXCEPTIONS TO ABSOLUTE
CONFIDENTIALITY
When there is written consent of depositor under Sec.
8 of the Foreign Currency deposit Act, and:
Under Sec. 11 of the Anti- Money Laundering Act;
Under sec. 27 and 28 of the Human Security Act.

THANK YOU VERY MUCH


AND GOOD LUCK!

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