Sample Memorandum

MEMORANDUM
To: General Counsel of BANK XYZ

From: XXX
Date: February 25, 2019
RE: Regarding the questions on the House Bill 6157 otherwise known as the Philippine
Compassionate Medical Cannabis Act
QUESTIONS PRESENTED
I. What is the summary of the bill, its current status, and the legislative process going
forward?
II. If the bill becomes law, will Bank XYZ (the “Bank”) be legally permitted to continue
to do business with existing clients who are interested in participating in activities that will
be legalized?
C. Will these transactions be considered suspicious transactions that must be reported?
D. What should the Bank be doing to prepare?
V.III. If the bill becomes law, will the Bank be legally permitted to offer banking services
to Medical Cannabis Compassionate Center (MCCC) and Medical Cannabis Research and
Safety Compliance Facilities (MCRSF)?
What type of additional due diligence or investigation should the Bank conduct?
What additional documents should they obtain?
A. Would the Bank need to report banking transactions from MCCCs and MCRSCFs
as “suspicious transactions”?
IV. Are there other issues to be considered?
BRIEF ANSWERS
I. The House Bill 6517, otherwise known as “Philippine Compassionate Medical Cannabis
Act”, generally aims to legalize and regulate the utilization of cannabis for medical
purposes to support patients who are suffering from debilitating medical conditions, to
enable both public and private research entities to further expand and develop the use of
cannabis for medical purposes, and to provide penalties for violators of the act.1 The bill
has recently been approved in the House of Representatives (HOR) in January 29, 2019.
1
An Act Providing Compassionate and Right of Access to Medical Cannabis and Expanding Research into its Medicinal Formatted: Font: (Default) Times New Roman, 9 pt
Properties [Philippine Compassionate Medical Cannabis Act], H.B No. 6517, 17th Cong., 3rd Reg. Sess. (2019).
Formatted: Font: (Default) Times New Roman, 9 pt
HB 6517 Memorandum Formatted: Font: (Default) Times New Roman, 11 pt
February 25, 2019
Page 2 of 9 Formatted: Font: (Default) Times New Roman, 11 pt,
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The bill will be subject for review and approval by the Senate, before being submitted to Formatted: Font: (Default) Times New Roman, 11 pt
the President.2
Formatted: Font: (Default) Times New Roman, 11 pt,
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II. YES. Despite the fact that possession, use, and distribution of cannabis is categorized
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as an unlawful activity under Republic Act 9165 or Comprehensive Dangerous Drugs Act,
should HB 6517 become a law, it will be considered to be legal but only insofar as it is
used for medical purposes in accordance with the provisions therein.3 Bank XYZ may
then continue to do business transactions with the existing clients who have interest in
participating in the activities to be legalized by the Act.
A. NO. Under the Anti-Money Laundering regulations of the Manual of Regulations for
Banks, suspicious transactions are those which is in any way related to any unlawful
activity.4 Should the HB 6517 be enacted into law, theIn addition, the activities relating
the use of cannabis for medical purposes will be considered as a legal activity, and
therefore not suspicious.
II. B. Bank XYZ, in preparing for the anticipated transactions that will be held with such
existing clients who may participate in the activities to be legalized should conduct
ongoing monitoring of these customers’ accounts, using enhanced due diligence.5 The
Bank shall re-classify existing clients from the exercise of reduced or average due
diligence into enhanced due diligence because it raises the risk for such clients to be related
to money laundering.
III. YES. The Bbank may extend banking their services including business loans to
MCCC and MCRSF so long as the process is exercised with due diligence in terms of the
new clients’ identification and application.
A. In the Manual of Regulations for Banks, the bank shall follow a criteria for classifying
its customers in accordance to the due diligence required to be either: reduced, average,
and enhanced.6 An enhanced due diligence is needed for customers that are assessed by
the covered institution as Since MCCCs and MCRSFs are high risk for money laundering,
they should . MCCC and MCRSCF are to be classified under the enhanced due diligence, Formatted: Font: (Default) Times New Roman, 9 pt
necessitating additional documents.
2
R. Agpalo, Statutory Construction. Sixth Edition. (2009). Formatted: Font: (Default) Times New Roman, 9 pt
3
An Act Instituting The Comprehensive Dangerous Drugs Act Of 2002, Repealing Republic Act No. 6425, Otherwise
Known As The Dangerous Drugs Act Of 1972, As Amended, Providing Funds Therefor, And For Other Purposes
[Comprehensive Dangerous Drugs Act] Rep. Act No. 9165, 12 th Cong., 1st Reg. Sess. (2002). Formatted: Font: (Default) Times New Roman, 9 pt
4 Formatted: Font: (Default) Times New Roman, 9 pt

Banko Sentral ng Pilipinas, Manual of Regulations for Banks, 30 September 2017 Edition, Volume 1, (2017).
5
Id., Sec X806.3
6
Id., Sec. X806.1.a
February 25, 2019
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There are minimum validation procedures and documents required for customers. 7 Formatted: Font: (Default) Times New Roman, 11 pt
However, additional documents are necessary for customers classified under the need for
enhanced due diligence as enumerated in the same manual.8 As with existing clients,
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B.III. NO. Tthe Bbank willis generally not be mandated to report theMCCC and MCRSF Formatted: Font: (Default) Times New Roman, 11 pt,
transactions to be held with the MCCC and the MCRSCF when the HB 6517 is enacted Not Bold
intoo a law, because such transactions will no longer be considered as in any way coming
from an unlawful activity. However, the duty of the bank to report suspicious transactions
should not be forgotten, and that any activity that raises doubt shall be reported to the
proper authorities.
IV. A particular issue that the Bank should take note of are the punishable acts enumerated
in Section 15 of the House Bill 6517.9 Activities falling under its enumeration shall be
classified as an unlawful activity, and therefore banking transactions associated with it will
be subject to the Anti-Money Laundering Regulations of the Manual of Regulations for
Banks.10
FACTS
Bank XYZ is a medium-sized financial institution with a strong presence in the medical
community, counting many doctors, pharmacists and hospitals among its business clients.
The Bank is concerned with the effects of the enactment of the House Bill 6517, otherwise
known as the Philippine Compassionate Medical Cannabis Act. As HB 6517 develops in
the legislative process for enactment into a law, the Bank requested a memorandum
concerning the summary of the bill, the continuation of its existing clients who are
interested in participating in the activities which will be covered by the Act, and in
expanding services to the entities which may become new clients when created under the
bill’s enactment.
Generally, the disposal of cannabis is prohibited under the Comprehensive Dangerous Formatted: Font: (Default) Times New Roman, 9 pt
Drugs Act.11 Pursuant to the anti-money laundering regulations of Bangko Sentral in Formatted: Font: (Default) Times New Roman, 9 pt
Part VIII of the Manual of Regulations or Banks, banking institutions are required to Formatted: Font: (Default) Times New Roman, 9 pt
conduct ongoing monitoring of their customers’ accounts and transactions,12 conduct due
7
Id., Sec. X806.1.c Formatted: Font: (Default) Times New Roman, 9 pt
8
Id., Sec. X806.1.b. Formatted: Font: (Default) Times New Roman, 9 pt
9
An Act Providing Compassionate and Right of Access to Medical Cannabis and Expanding Research into its Formatted: Font: (Default) Times New Roman, 9 pt
Medicinal Properties [Philippine Compassionate Medical Cannabis Act], H.B No. 6517, 17th Cong., 3rd Reg. Sess. Formatted: Font: (Default) Times New Roman, 9 pt
(2019). Sec. 15.
10
Supra., Sec. X803.f(2).
11 Id.
12
Banko Sentral ng Pilipinas, Manual of Regulations for Banks, 30 September 2017 Edition, Volume 1, (2017)., Sec. Formatted: Font: (Default) Times New Roman, 9 pt
X806.3
February 25, 2019
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diligence when entering into business with new customers, 13 and are mandated to report Formatted: Font: (Default) Times New Roman, 11 pt
suspicious transactions, which include transactions that are in any way related to unlawful
activity.14
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The Bank is seeking legal advice concerning its future transactions with existing and Formatted: Font: (Default) Times New Roman, 11 pt,
prospective clients related to the Philippine Compassionate Medicinal Cannabis Act in Not Bold
case it is passed into a law, fearing that such transactions may be considered as coming
from an unlawful activity, and subject to the anti-money laundering regulations of the
Manual of Regulations for Banks.As HB 6517 develops in the legislative process for
enactment into a law, the Bank requested a memorandum concerning the summary of the
bill, the continuation of its existing clients who are interested in participating in the
activities which will be covered by the Act, and in expanding services to the entities which
may become new clients when created under the bill’s enactment.
DISCUSSION
I. House Bill 6517 Summary
The House Bill 6517, otherwise known as “Philippine Compassionate Medical Cannabis
Act”, legalizes and regulates the medical use of cannabis which has been proven to have
therapeutic benefits to treat chronic and debilitating medical condition. 15 The use of
cannabis, under this Act, is only legal when it is consumed for medical purposes to treat a
registered qualified patient.
In this Act, Medical Cannabis Compassionate Centers (MCCC) will be created. These are
entities registered with the Department of Health (DOH) and licensed to acquire, possess,
deliver, sell, and dispense cannabis to duly qualified patients. It will also create Medical
Cannabis Research and Safety Compliance Facilities (MCRSCF) which are entities
“registered with the DOH that conduct scientific and medical research on medical use of
cannabis and provide testing services relative to its safe and efficient use, cultivation, and
proper security.”
Under Republic Act No. 9165 or the Comprehensive Dangerous Drugs Act, the use,
possession and administration of cannabis is deemed to be an unlawful activity. 16 Formatted: Font: (Default) Times New Roman, 9 pt
However, in accordance with Section 2 of the same Act, the State shall provide measures Formatted: Font: (Default) Times New Roman, 9 pt
to achieve a balance in the national drug control program so that patients with debilitating
medical condition may receive adequate amount of treatment and appropriate
Formatted: Font: (Default) Times New Roman
13
Id., Sec.s X806-X806.2
14 Id., Sec. X807 Formatted: Font: (Default) Times New Roman
15
Medicinal Properties [Philippine Compassionate Medical Cannabis Act], H.B No. 6517, 17th Cong., 3rd Reg. Sess. Formatted: Font: (Default) Times New Roman
(2019)
16
Comprehensive Dangerous Drugs Act, Rep. Act No. 9165, 12 th Cong., 1st Reg. Sess. (2002).
February 25, 2019
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medications.17 Moreover, the following are exempted from criminal liability: physicians Formatted: Font: (Default) Times New Roman, 11 pt
for prescribing medical cannabis to treat or alleviate the patient’s debilitating medical
condition, qualified patients for using cannabis in the prescribed dosage, cannabis
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caregivers for assisting a registered patient, MCRSCF and MCCC and its agents for
exercising its functions.18 Formatted: Font: (Default) Times New Roman, 11 pt,
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House Bill 6517 has been approved in the House of Representatives last January 29, 2019.
It will now be transmitted to the Senate which will undergo three readings.19 First, after
reading the title and number of the bill, the Senate Secretary will refer it to the appropriate
committee for study and recommendation. In the second reading, the bill shall be read in
full with the proposed amendments of the senators. In the third reading, it will be voted by
yeas and nays.20 If there are no amendments, the bill is passed by the Congress and is
submitted to the President. However, if there are amendments, the Conference Committee
of the House of Representatives and the Senate will settle the differences of both houses,
which will also need their approval.
The House Bill 6517, after being approved in the Congress, maywill be passed in three
ways: first, it will be transmitted to the President, and when the president signs it, it
becomes a law; second, when the president does not sign nor exercise his veto powers
within thirty days after his receipt, the law is automatically enacted as a law; lastly, when
the president exercises veto powers, the vetoed bill can be re-passed by the Congress by a
two-thirds vote of all its members, voting separately. 21
II. EXISTING CLIENTS WITH RELATED MEDICAL CANNABIS

TRANSACTIONS
II. Should HB 6517 be passed in the Congress and approved by the President, Bank XYZ
can still continue conducting business transactions with the existing clients who have
interest in participating in activities to be legalized by the Act. Despite the fact that
possession, use, and disposal of cannabis is categorized as an unlawful activity under
Republic Act 9165 or Comprehensive Dangerous Drugs Act, if HB 6517 is enacted into a Formatted: Font: (Default) Times New Roman, 9 pt
law, such acts will be considered as legal but only insofar as it is used for medical purposes Formatted: Font: (Default) Times New Roman, 10 pt
in accordance with the provisions therein. Formatted: Font: (Default) Times New Roman, 9 pt
A. The transactions to be conducted with such existing clients will generally not be Formatted: Font: (Default) Times New Roman, 9 pt
considered as suspicious transactions under Section X803(6) of Anti-Money Laundering Formatted: Font: (Default) Times New Roman, 9 pt
regulations (Part VIII) of the Manual of Regulations for Banks. Suspicious transactions
17
Id., Sec. 2
18
Id., Sec. 14
19
Press and Public Affairs Bureau ‘House Approves Medical Cannabis bill on final reading’ Available at
http://www.congress.gov.ph/press/details.php?pressid=11248&key=philippine%20cannabis. January 30, 2019 [2]
20
R. Agpalo, Statutory Construction. Sixth Edition. (2009).
21
Id.
February 25, 2019
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are those “in any way related to any unlawful activity.”22 Should HB 6517 be enacted into Formatted: Font: (Default) Times New Roman, 11 pt
law, the business transactions that will be conducted by the bank coming from the clients
who have interest in participating in the activities of the medical use of cannabis will be
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considered as a legal activity, not suspicious. However, the duty of the bank to detect
unusual or suspicious patterns of activity should not be forgotten. Formatted: Font: (Default) Times New Roman, 11 pt,
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B. Bank XYZ, in preparing for the anticipated transactions that will be held with existing
clients who may participate in the activities to be legalized should conduct ongoing
monitoring of its customers’ accounts as stated under Section X806.3 of Part VIII of the
Manual of Regulations for Banks.23 To exercise control and reduce the risk associated
with money laundering, the banking institution should have “a system that will enable it
to understand the normal and reasonable account activity of customers and detect unusual
or suspicious patterns of account activity.” 24 Bank XYZ should take the necessary
precautions to ensure that the existing clients will definitely be participating solely in
activities which are not prohibited by the HB 6517.
Under Section X806.3.a., an enhanced due diligence should be practiced if the
bank acquires information that raises the risk of existing clients to be associated in
money laundering.25 It justifies re-classification of the customer from low or normal
risk to high-risk pursuant to the criteria laid down in Section X806.1.a of the Manual
of Regulations for Banks.26 Therefore, I recommend that the existing clients who will
have interest in participating in the activities to be legalized by HB 6517 be reclassified
under the enhanced due diligence because their participation in such activities
increases the risk of involvement in unlawful activities under Comprehensive
Dangerous Drugs Act.
III. NEW CLIENTS IN THE MEDICAL CANNABIS BUSINESS

III. YES. The bank may extend their services including the creation of deposit accounts,
business cards, and availing business loans to MCCCs and MCRSFs so long as the
application and identification process is exercised with due diligence in terms of the new
clients’ identification and application.
A. Similar to the existing clients of the Bank who have interest in participating in the Formatted: Font: (Default) Times New Roman, 9 pt
activities to be legalized by the HB 6517, Bank XYZ should exercise an enhanced due Formatted: Font: (Default) Times New Roman, 9 pt
diligence to the prospective clients that are entities to be created by the Act. The Bank Formatted: Font: (Default) Times New Roman, 9 pt
shall develop a systematic procedure for establishing the true and full identity of new
22
Banko Sentral ng Pilipinas, Manual of Regulations for Banks, 30 September 2017 Edition, Volume 1, (2017)., Sec.
X803(6) Formatted: Font: (Default) Times New Roman, 9 pt
23
Id., Section X806.3 Formatted: Font: (Default) Times New Roman, 9 pt
24 Formatted: Font: (Default) Times New Roman, 9 pt

Id.
25
Id., Sec. X806.3.a
26
Id., Sec. X806.1.a
February 25, 2019
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customers and shall open and maintain the account only in the true account of the Formatted: Font: (Default) Times New Roman, 11 pt
owner.27
Under Manual Regulations for Banks, Bank XYZ shall follow a criteria for Not Bold
classifying its customers in accordance to the due diligence required to be practiced in Formatted: Font: (Default) Times New Roman, 11 pt,
relation to the degree of risk they entail.28 It is either: reduced, average or enhanced. Not Bold
An enhanced due diligence is needed to be exerted in identifying and monitoring
customers that are assessed as high risk for money laundering.
MCCCs and MCRSCFs are entities closely related to the use of cannabis.
Although the medical use of cannabis will be legalized through the Philippine
Compassionate Medical Cannabis Act, the newly-created entities still impose a high
risk for money laundering because their activities are to be strictly limited by those
legalized in the Act, and should follow the enumerated requirements therein. Any
other activity is to be construed as a suspicious transaction coming from an unlawful
activity because HB 6517 is only an exception to the general law, Comprehensive
Dangerous Drugs Act.
Section X806.1.c has enumerated the minimum validation procedures for
customers. However, additional documents are needed for customers classified under
the need for enhanced due diligence. The bank shall obtain additional information and
documents required in exercising average due diligence.29 In cases of entities assessed
as high risk, it shall obtain additional information including, but not limited to, “prior
or existing bank references, the name, present address, date and place of birth, nature
of work, nationality and source of funds of each of the primary officers, major
stockholders, and directors/trustees/partners as well as their respective identification
documents.” The Bank shall also conduct validation procedures on any or all of the
information provided in accordance with Sec. X806.1.c, and obtain the senior
management approval for establishing business relationship.30
B. The transactions to be conducted between the Bank and the MCCC or MCRSCF is
not to be mandated to be reported as suspicious transactions when the HB 6517 is
enacted into a law. Such transactions will no longer be considered as coming from an Formatted: Font: (Default) Times New Roman, 9 pt
unlawful activity which is required to be reported under Section X803.c.6. of the
Manual of Regulations for Banks.31 Transactions with MCCC and MCRSCF, being Formatted: Font: (Default) Times New Roman, 9 pt
legally established entities, will not be classified as suspicious. However, the duty of Formatted: Font: (Default) Times New Roman, 9 pt
the bank to detect unusual or suspicious patterns of activity should not be forgotten. Formatted: Font: (Default) Times New Roman, 9 pt
27
Banko Sentral ng Pilipinas, Manual of Regulations for Banks, 30 September 2017 Edition, Volume 1, (2017)., Sec.
X806.2.a Formatted: Font: (Default) Times New Roman
28
Id., Sec. X806.1.a Formatted: Font: (Default) Times New Roman
29 Formatted: Font: (Default) Times New Roman

Id., Sec. X806.1.b
30
Id., Sec. X806.1.c
31
Id., Sec. X803.c.6.
February 25, 2019
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Any additional information that raises doubt as to the legality of the transactions to be Formatted: Font: (Default) Times New Roman, 11 pt
conducted with MCCC and MCRSCF through the exercise of enhanced due diligence
should be reported to the proper authorities as stated in Section Section 4 of the House
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Bill 6517.32
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IV. OTHER ISSUES OF CONCERN

IV. In Section 15 of the House Bill 6517, prohibited acts were enumerated in relation to
the patients, physicians, MCCCs, and any person who may be associated with activities
which are not recognized to be legal by the Act, and will therefore fall under the
prohibitions of the Comprehensive Dangerous Drugs Act.33 A patient is thus prohibited
to possess and use cannabis in any mode of public transportation or in any public place,
operate any vehicle while under the influence of cannabis, and use cannabis for purposes
other than medical. Meanwhile, physicians are prohibited to prescribe medical cannabis to
any person who is not a qualified patient. MCCCs are also prohibited to acquire, possess,
or deliver to any person except to registered patients or through their caregivers. Any
activityies falling under Section 15 shall be classified as an unlawful activity, and therefore
banking transactions associated with it will be subject to the Anti-Money Laundering
Regulations, including suspicious activity reporting of the Manual of Regulations for
Banks.
CONCLUSION
TIn conclusion, the provisions of the House Bill 6517 that legalizes the use of cannabis
for medical purposes, when enacted into a law, are to be interpreted as exceptions to the
prohibitions stated in the R.A. No. 9165 or the Comprehensive Dangerous Drugs Act. The
medical use of cannabis will no longer be considered as an unlawful activity, and thus, the
Banks’ transactions related to it will generally not be classified as “suspicious
transactions”. Bank XYZ then, may still continue to conduct transactions with existing
clients who have interest in participating in the activities that will be legalized by the Act.
However, they should be reclassified under high-risk customers and be treated with
enhanced due diligence. The Bank may also extend its services to the MCCC and
MCRSCF, but they should also be classified under the need for enhanced due diligence.
32
Medicinal Properties [Philippine Compassionate Medical Cannabis Act], H.B No. 6517, Sec. 4. 17th Cong., 3rd Reg.
Sess. (2019). Formatted: Font: (Default) Times New Roman, 9 pt
33
Medicinal Properties [Philippine Compassionate Medical Cannabis Act], H.B No. 6517, Sec. 15. 17th Cong., 3rd Reg. Formatted: Font: (Default) Times New Roman, 9 pt
Sess. (2019).
February 25, 2019
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Moreover, additional documents should be required for their identification and monitoring Formatted: Font: (Default) Times New Roman, 11 pt
of their accounts and transactions.
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MEMORANDUM

To: General Counsel of BANK XYZ

IV. Are there other issues to be considered?

4 Formatted: Font: (Default) Times New Roman, 9 pt

II. EXISTING CLIENTS WITH RELATED MEDICAL CANNABIS

III. NEW CLIENTS IN THE MEDICAL CANNABIS BUSINESS

24 Formatted: Font: (Default) Times New Roman, 9 pt

29 Formatted: Font: (Default) Times New Roman

IV. OTHER ISSUES OF CONCERN

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