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BANK Secrecy, AMLA, PDIC- Reviewer
Accountancy (STI College)
Studocu is not sponsored or endorsed by any college or university
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*Law on Secrecy of Bank Deposits
(R.A. No. 1405, as amended)
creditor-debtor relationship between the depositor and the bank, falls under
the category of accounts which the law precisely seeks to protect for the
purpose of boosting the economic development of the country.
Considering the use of the phrase “of whatever nature” RA 1405 applies not
only to money which is deposited but also to those which are invested. Thus,
the protection afforded by RA 1405 extends to trust accounts. (Ejercito v.
Sandiganbayan (Special Division), 2006)
PURPOSE
To give encouragement to the people to deposit their money in banking
institutions and to discourage private hoarding; and
(2)
So that the people’s money may be properly utilized by banks in
authorized loans to assist in the economic development of the country. (Sec. 1)
(1)
The absolute confidentiality rule in R.A. No. 1405 actually aims at protection from
unwarranted inquiry or investigation if the purpose of such inquiry or investigation
is merely to determine the existence and nature, as well as the amount of the
deposit in any given bank account. (China Banking Corp. v. Ortega, 1973)
(1)
(2)
(3)
(a)
(b)
PROHIBITED ACTS
No person, government official, bureau or office may examine, inquire into
or look into such deposits; and
(2)
No official or employee of any banking institution may disclose to any
unauthorized person any information concerning said deposits. (Sec. 3)
(1)
DEPOSITS COVERED
Banks or banking institutions in the Philippines are hereby considered as of an
absolutely confidential nature and may not be examined. [N.B. The confidentiality
of foreign currency deposits is governed by the Foreign Currency Deposit Act.]
Includes investments in bonds issued by the Philippine Government, its political
subdivisions and its instrumentalities, regardless of the currency of denomination.
(Sec. 2)
Under the RA 1405, bank deposits are statutorily protected or recognized zones of
privacy. (People v. Estrada, G.R. No. 164368, April 2, 2009; Marquez v. Desierto,
G.R. No. 135882, June 27, 2001, 359 SCRA 772; Ople v. Torres, G.R. No. 107737.
October 1, 1999, 316 SCRA 43)
The term deposits as used in RA 1405 is to be understood broadly and not limited
only to accounts which give rise to a creditor-debtor relationship between the
depositor and the bank.
EXCEPTIONS
Upon written permission of the depositor;
In cases of impeachment;
Upon order of a competent court in cases of:
Bribery;
Dereliction of duty of public officials; or
(4) Where the money deposited or invested is the subject matter of the
litigation. (Sec. 2)
By the phrase "subject matter of the action" is meant "the physical facts, the
things real or personal, the money, lands, chattels, and the like, in relation to
which the suit is prosecuted, and not the delict or wrong committed by the
defendant. (Mathay v. Consolidated Bank and Trust Company, 1974).
We note with approval the difference between the "subject of the action" from
the "cause of action." We also find petitioner's definition of the phrase "subject
matter of the action" is consistent with the term "subject matter of the
litigation," as the latter is used in the Bank Deposits Secrecy Act.
Where the plaintiff is fishing for information so it can determine the culpability
of private respondent and the amount of damages it can recover from the
latter. It does not seek recovery of the very money contained in the deposit.
The subject matter of the dispute may be the amount of P999,000.00 that
petitioner seeks from private respondent as a result of the latter's alleged
failure to inform the former of the discrepancy; but it is not the P999,000.00
deposited in the drawer's account. By the terms of R.A. No. 1405, the "money
deposited" itself should be the subject matter of the litigation. (Union Bank v.
Court of Appeals, 1999)
The exception applies to cases of concealment of illegally acquired property in
anti-graft cases. The inquiry into illegally acquired property – or property NOT
If the money deposited under an account may be used by banks for authorized
loans to third persons, then such account, regardless of whether it creates a
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"legitimately acquired" – extends to cases where such property is concealed by
being held by or recorded in the name of other persons. (Banco Filipino v.
Purisima, 1988)
The exception even extends to cases of concealment of illegally acquired property
not involving anti-graft cases as long as money deposited was the subject matter
of
litigation. (Mellon Bank, N.A. v. Magsino, 1990)
(1)
(2)
(a)
(b)
OTHER EXCEPTIONS
Upon order of a competent court in cases of unexplained wealth under
Sec. 8 of RA 3019 or the AntiGraft and Corrupt Practices Act (PNB v. Gancayco,
1965; Banco Filipino v. Purisima, 1988; Marquez v. Desierto, 2001)
When inquiry is conducted under the authority of the Commissioner of
Internal Revenue into the bank accounts of the following:
A decedent in order to determine his gross estate
Any taxpayer who has filed an application for compromise of his tax
liability, which application shall include a written waiver of his privilege under RA
1405 or under other general or special laws
Note: Information obtained from banks and financial institutions may be furnished
to a foreign tax authority pursuant to an existing convention or agreement. (Sec.
6(F), NIRC, as amended by RA 10021)
(i)
(ii)
(iii)
(iv)
(v)
(3) Upon order of a competent court in cases under the Anti-Money Laundering
Act of 2001 (RA 9160, hereinafter “AMLA”), when there is probable cause that the
deposits or investments involved are in any way related to an unlawful activity or a
money laundering offense, except that no court order required if: (a) Funds or
property involved consists of investments; or (b) Said investments are related to:
Kidnapping for ransom
Unlawful activities under Comprehensive Drugs Act of 2002 (RA 9165);
Hijacking and other violations under RA 6235; and
Destructive arson and murder, including those perpetrated by terrorists
against non-combatants and similar targets.
BSP inquiry or examination in the course of its periodic or special
examination of the bank (Sec. 11, AMLA).
Disclosure of certain information about bank deposits which have been dormant
for at least 10 years, to the Treasurer of the Philippine in a sworn statement,
a copy of which is posted in the bank premises. (Sec. 2, Unclaimed Balances
Law [Act No. 3926, as amended])
(vi) The PDIC and/or the BSP can inquire into or examine deposit accounts and all
information related thereto in case there is a finding of unsafe and unsound
banking practice (Sec. 8, paragraph 8, R.A. 3591, as amended by R.A. 9576).
NOT CONSIDERED AS EXCEPTIONS
(1) In 1981, PD 1792 added the following grounds when the bank can be
compelled to reveal the amount of a depositor:
“made in the course of a special or general examination of a bank and is
specifically authorized by the Monetary Board after being satisfied that there is
reasonable ground to believe that a bank fraud or serious irregularity has been
or is being committed and that it is necessary to look into the deposit to
establish such fraud or irregularity,” or
“made by an independent auditor hired by the bank to conduct its regular audit
provided that the examination is for audit purposes only and the results thereof
shall be for the exclusive use of the bank.” However, Sec. 135 of RA 7653 or the
New Central Bank Act expressly repealed PD 1792 thereby reverting RA 1405 to
its version prior to the promulgation of the Decree.
Thus, Villanueva says that these two instances are excluded from the
enumeration of exceptions to the secrecy of bank deposits (VILLANUEVA,
Commercial Law Review, opinion).
Morales, however, notes that with the enactment of the AMLA, exception (i)
has been substantially resurrected (see items 4 and 6 of “Other exceptions”
above). While there is no similar development of exception (ii), the exclusion of
independent auditors from the coverage of the Secrecy of Bank Deposits Law
finds basis in Opinion No. 243 (s. 1975) of then Secretary of Justice Pedro
Tuason. (MORALES, The Philippine General Banking Law, opinion)
(2) It used to be believed that the RA 1405 did not apply to the Ombudsman,
on account of his authority under Sec. 15(8) of RA 6770 or the Ombudsman Act
of 1989 to “examine and have access to bank accounts and records.” However,
the SC in Marquez v. Desierto (G.R. No.135882, June 27, 2001) and
Ombudsman v. Ibay (G.R. No. 137538, September 3, 2001) restricted the
Ombudsman’s power as follows:
“[B]before an in camera inspection may be allowed, there must be a
pending case before a court of competent jurisdiction. Further, the account
must be clearly identified, the inspection limited to the subject matter of the
pending case before the court of competent jurisdiction. The bank personnel
and the account holder must be notified to be present during the inspection,
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and such inspection may cover only the account identified in the pending case.”
(Morales, The Philippine General Banking Law)
“Further, it is interesting to note that the Secretary of Justice in his Opinion No. 13
(s. 1987) concluded that the Presidential Commission on Good Government can
compel banks to disclose or produce bank records without violating the bank
secrecy laws.” (Morales, The Philippine General Banking Law)
“Moreover, under Sec. 1(d) of RA 6382 (1990), which created the Davide
Commission that conducted a fact finding investigation of the failed coup d’ etat of
December 1989, the commission had the power to ‘ask the Monetary board to
disclose information on and/or grant authority to examine bank deposits, trust
finds, or banking transactions in the name of and/or utilized by a person, natural
or juridical, under investigation by the Commission, in any bank or banking
institution in the Philippines, when the Commission has reasonable ground to
believe that said deposits, trust or investment funds, or banking transactions have
been used in support of furtherance of the objectives of the coup d’ etat.’”
(Morales, The Philippine General Banking Law)
Notwithstanding the exceptions enumerated by law, the prevailing policy on the
matter is to preserve the absolute confidentiality enjoyed by bank deposits.
Indeed, by force of statute, all bank deposits are absolutely confidential, and that
nature is unaltered even by the legislated exceptions referred to above. There is
disfavor towards construing these exceptions in such a manner that would
authorize unlimited discretion on the part of the government or of any party
seeking to enforce those exceptions and inquire into bank deposits. If there are
doubts in upholding the absolutely confidential nature of bank deposits against
affirming the authority to inquire into such accounts, then such doubts must be
resolved in favor of the former. Such a stance would persist unless Congress passes
a law reversing the general state policy of preserving the absolutely confidential
nature of Philippine bank accounts. (Republic v. Eugenio, 2008)
It is conceded that while the fundamental law has not bothered with the triviality
of specifically addressing privacy rights relative to banking accounts, there,
nevertheless, exists in our jurisdiction a legitimate expectation of privacy
governing such accounts. The source of this right of expectation is statutory, and it
is found in R.A. No. 1405, otherwise known as the Bank Secrecy Act of 1955. (BSB
Group, Inc., v. Go, 2010)
Subsequent statutory enactments have expanded the list of exceptions to this
policy yet the secrecy of bank deposits still lies as the general rule, falling as it
does within the legally recognized zones of privacy. There is, in fact, much
disfavor to construing these primary and supplemental exceptions in
a manner that would authorize unbridled discretion, whether governmental
or otherwise, in utilizing these exceptions as authority for unwarranted
inquiry into bank accounts. It is then perceivable that the present legal order
is obliged to conserve the absolutely confidential nature of bank deposits.
GARNISHMENT OF DEPOSITS
General rule: The prohibition against examination of or inquiry into a bank
deposit under Republic Act 1405 does not preclude its being garnished to
insure satisfaction of a judgment (China Banking Corporation v. Ortega, 1973;
Philippine Commercial and Industrial Bank v. Court of
Appeals, 1991)
“…the prohibition against examination of or inquiry into a bank deposit under
Republic Act 1405 does not preclude its being garnished to insure satisfaction
of a judgment. Indeed there is no real inquiry in such a case, and if the
existence of the deposit is disclosed the disclosure is purely incidental to the
execution process. It is hard to conceive that it was ever within the intention
of Congress to enable debtors to evade payment of their just debts, even if
ordered by the
Court, through the expedient of converting their assets into cash and
depositing the same in a bank.” (China Banking
Corporation v. Ortega, 1973)
Exception: Foreign Currency Deposits – The foreign currency deposits shall be
exempt from attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative body
whatsoever.
(Sec. 8, Foreign Currency Deposit Act)
CONFIDENTIALITY OF FOREIGN
CURRENCY DEPOSITS
General rule: Foreign currency deposits are confidential.
Exceptions:
(1) Upon written permission of the depositor (Sec. 8, Foreign Currency Deposit
Act ; Intengan vs CA ; 2002)
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Upon order of a competent court in cases of violation of the Anti-Money
Laundering Act of 2001 [as in the case of peso deposits, supra]
(3)
During Bangko Sentral’s periodic or special examinations [as in the case of
peso deposits, supra], and
(4)
Disclosure of the Treasurer of the Philippines when the unclaimed
balances law applies (Act 3936, as amended by PD 679)
(5)
BSP/PDIC inquiry if there is a finding of unsafe and unsound banking
practice (as in the case of peso deposits, supra)
(6)
In Salvacion vs. CB (1997), where a Filipino child was raped by a foreigner,
the SC allowed, pro hac vice, garnishment of foreign currency deposits stating:
“If we rule that the questioned Section 113 of CB Circular No. 960 which
exempts from attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative body
whatsoever, is applicable to a foreign transient, injustice would result especially
to a citizen aggrieved by a foreign guest.”
insured with the PDIC (Sec. 5)
(2)
PENALTIES FOR VIOLATION OF R.A. No. 1405
Imprisonment of not more than 5 years or a fine of not more than P20,000 or
both, in the discretion of the court. (Sec. 5)
Notes:
’Bank’ and ‘Banking Institution’ shall include banks, commercial banks,
savings bank, mortgage banks, rural banks, development banks, cooperative
banks, stock savings and loan associations and branches and agencies in the
Philippines of foreign banks and all other corporations authorized to perform
banking functions in the Philippines (Sec. 4(b), as amended)
(2) ‘Deposit’ means the 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
issued in accordance with Bangko Sentral rules and regulations and other
applicable laws, together with such other obligations of a bank, which,
consistent with banking usage and practices, the Board of Directors shall
determine and prescribe by regulations to be deposit liabilities of the bank
(Sec. 4(f), as amended).
(3) What is not considered a deposit? Any obligation of a bank which is payable
at the office of the bank located outside of the Philippines (Sec. 4(f), as
amended).
(1)
*Philippine Deposit Insurance Corporation Act
(R.A. No. 3591, as amended)
COMMENCEMENT OF LIABILITY
Liability commences upon the approval of application.
BASIC POLICY
Promote and safeguard the interests of the depositing public by way of providing
permanent and continuing insurance coverage on all insured deposits (Sec. 1, as
amended)
DEPOSIT ACCOUNT NOT ENTITLED TO PAYMENT
CONCEPT OF INSURED DEPOSITS
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 500,000 or its equivalent in
foreign currency (Sec. 4(g), as amended)
(1)
(2)
(3)
LIABILITY OF DEPOSITORS
DEPOSIT LIABILITIES REQUIRED TO BE INSURED WITH PDIC The deposit liabilities
of any bank or banking institution, which is engaged in the business of receiving
deposits on the effective date of this Act, or which thereafter may engage in the
business of receiving deposits, shall be
(4)
The PDIC shall not pay deposit insurance for the following accounts or
transactions, whether denominated, documented, recorded or booked as
deposit by the bank:
Investment products such as bonds and securities, trust accounts, and other
similar instruments;
Unfunded, fictitious or fraudulent deposit accounts or transactions;
Deposits accounts or transactions constituting, and/or emanating from,
unsafe and unsound banking practice/s, as determined by the PDIC, in
consultation with the BSP, after due notice and hearing, and publication of a
cease and desist order issued by the PDIC against such deposit accounts or
transactions; and
Deposits that are determined to be the proceeds of an unlawful activity as
defined under Republic Act 9160, as amended.
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(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
Notes: ‘Unlawful Activity’ refers to any act or omission or series or combination
thereof involving or having direct relation to following:
Kidnapping for ransom under Article 267 of Act No. 3815, otherwise
known as the Revised Penal Code, as amended;
Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15, and 16 of Republic Act No. 9165,
otherwise known as the Comprehensive Dangerous Act of 2002;
Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as
amended, otherwise known as the Anti-Graft and Corrupt Practices Act;
Plunder under Republic Act No. 7080, as amended;
Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302
of the Revised Penal Code, as amended;
Jueteng and Masiao punished as illegal gambling under Presidential
Decree No. 1602;
Piracy on the high seas under the Revised Penal Code, as amended and
Presidential under the Revised Penal Code, as amended and Presidential Decree
No. 532;
Qualified theft under Article 310 of the Revised penal Code, as amended;
Swindling under Article 315 of the Revised Penal Code, as amended;
Smuggling under Republic Act Nos. 455 and 1937;
Violations under Republic Act No. 8792, otherwise known as the
Electronic Commerce Act of 2000;
Hijacking and other violations under Republic Act No. 6235; destructive
arson and murder, as defined under the Revised Penal Code, as amended,
including those perpetrated by terrorists against non-combatant persons and
similar targets;
Fraudulent practices and other violations under Republic Act No. 8799,
otherwise known as the Securities Regulation Code of 2000;
Felonies or offenses of a similar nature that are punishable under the
penal laws of other countries (Sec. 3(i) of R.A. 9160, as amended).
EXTENT OF LIABILITY
The liability of the Corporation is to the extent of the insured deposit (Sec.14).
Whenever an insured bank shall have been closed by the Monetary Board
pursuant to Section 30 of R.A. 7653,
payment of the insured deposits on such closed bank shall be made by the PDIC as
soon as possible either (1) by cash or (2) by making available to each depositor a
transferred deposit in another insured bank in an amount equal to insured deposit
of such depositor (Sec. 14).
Note: Insured deposit shall not exceed 500,000 (Sec. 4(g), as amended).
DETERMINATION OF INSURED DEPOSIT
The determination of insured deposits shall commence upon the PDIC’s
actual takeover of the closed bank (Sec. 16(a), as amended).
The amount of the insured deposit shall be determined according to such
regulations as the Board of Directors may prescribe, 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 benefits either in
his own name or in the name of others (Sec. 4(g), as amended).
Note: The PDIC may require proof of claims to be filed before paying the
insured deposits, and that in any case where the PDIC is not satisfied as to
the viability of a claim for an insured deposit, it may require final
determination of a court of competent jurisdiction before paying such claim
(Sec. 14)
Notice and publication requirement
(1) The PDIC shall give notice to the depositors of the closed bank of the
insured deposits due them by whatever means deemed appropriate by the
Board of Directors.
(2) The PDIC shall publish the notice once a week for at least three (3)
consecutive weeks in a newspaper of general circulation or, when
appropriate, in a newspaper circulated in the community or communities
where the closed bank or its branches are located (Sec. 16(a), as amended).
CALCULATION OF LIABILITY
Per depositor, per capacity rule
In determining the amount due to any depositor, there shall be added
together all deposits in the bank maintained in the same right and capacity
for his benefits either in his own name or in the name of others (Sec. 4(g), as
amended)
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 (Sec. 4(g), as amended).
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If the account is held by two or more natural persons or two or more juridical
persons.
General rule: The maximum insured deposit shall be divided into as many equal shares as
there are individuals or juridical persons (Sec. 4(g), as amended).
Exception: Unless a different sharing is stipulated in the document of deposit (Sec. 4(g), as
amended).
Subrogation to all the rights of the depositor
The PDIC, upon payment of any depositor as provided for in Section 14 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 on the part
of the PDIC 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.
If the account is held by a juridical person or entity jointly with one or more natural
persons The maximum insured deposits shall be presumed to belong entirely to such
juridical person or entity (Sec. 4(g), as amended).
BUT the depositor shall retain his claim for any uninsured portion of his
deposit (Sec. 15).
Note: The aggregate of the interest 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 P500,000.00 (Sec. 4(g), as
amended).
Payment of insured deposits as preferred credit under Art. 2244 of the Civil
Code
All payments by the 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 New Civil Code (Sec. 15)
Mode of payment
Payment of the insured deposits on such closed bank shall be made by the PDIC as soon as
possible either:
(1)
by cash;
(2)
by making available to each depositor a transferred deposit in another insured
bank in an amount equal to insured deposit of such depositor (Sec. 14)
Note: ‘Transfer Deposit’ means a deposit in an insured bank made available to a depositor
by the PDIC as payment of insured deposit of such depositor in a closed bank and assumed
by another insured bank (Sec. 4(h), as amended).
Effect of Payment of Insured Deposit
Discharge from liability to the depositor
The PDIC shall be discharged from liability upon payment under Sec. 14, i.e.:
(1)
Payment of an insured deposit to any person by the PDIC;
(2)
Payment of a transferred deposit to any person by the new bank or by an insured
bank in which a transferred deposit has been made available (Sec.16(b), as amended)
Failure to settle claim of insured depositor
General rule: Failure to settle the claim within six (6) months from the date of
filing of claim for insured deposit shall, upon conviction, subject the directors,
officers or employees of the PDIC responsible for the delay to imprisonment
from six (6) months to one (1) year.
Exceptions:
(1) Such failure was not due to grave abuse of discretion, gross negligence,
bad faith, or malice of the directors, officers or employees; or
(2) The validity of the claim requires the resolution of issues of facts and or
law by another office, body or agency including the case mentioned in the
first proviso or by PDIC together with such other office, body or agency.
Failure of depositor to claim insured deposits All rights of the depositor
against the PDIC with respect to the insured deposit shall be barred:
(1) If he fails to claim the insured deposits within two (2) years from actual
takeover of the closed bank by the receiver; or
(2) If he does not enforce his claim filed with the corporation within two (2)
years after the two-year period to file a claim.
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BUT all rights of the depositor against the closed bank and its shareholders or the
receivership estate to which the PDIC may have become subrogated, shall
thereupon revert to the depositor.
Thereafter, the PDIC shall be discharged from any liability on the insured deposit
(Sec. 16(e), as amended).
*UP Review Materials
A Bangko Sentral ng Pilipinas briefer on the Anti-Money Laundering Act of 2001
Plunder
Robbery and extortion
Jueteng and masiao
Piracy on the high seas
Qualified theft
Swindling
Smuggling
Electronic Commerce crimes
Hijacking, destructive arson and murder, including those perpetrated against
non-combatant persons (terrorist acts)
Securities fraud
Felonies or offenses of a similar nature punishable under penal laws of other
countries
1. What is money laundering?
Money laundering is an act or series or combination of acts whereby proceeds of
an unlawful activity, whether in cash, property or other assets, are converted,
concealed or disguised to make them appear to have originated from legitimate
sources. One way of laundering money is through the financial system.
Republic Act No. 9160, otherwise known as the Anti-Money Laundering Act of
2001 (AMLA), as amended, defined money laundering as a scheme whereby
proceeds of an unlawful activity are transacted or attempted to be transacted,
thereby making them appear to have originated from legitimate sources.
4. How is money laundered through the financial system?
Placement – involves initial placement or introduction of the illegal funds into
the financial system. Financial institutions are usually used at this point.
Layering – involves a series of financial transactions during which the dirty
money is passed through a series of procedures, putting layer upon layer of
persons and financial activities into the laundering process. Ex. wire transfers,
use of shell corporations, etc.
2. What has the Philippine government done to curb money laundering?
The government enacted Republic Act (R.A.) No. 9160 (The Anti-Money
Laundering Act of 2001), which took effect on 17 October 2001. Certain provisions
of AMLA were amended by R.A. No. 9194 (An Act Amending R.A. 9160) effective
23 March 2003. It has also issued the Revised Implementing Rules and Regulations
(RIRR) implementing R.A. No. 9160, as amended.
3. What are considered unlawful activities under the AMLA, as amended?
There are 14 unlawful activities or predicate crimes covered by the AMLA. These
are, in the order enumerated in the law:
Kidnapping for ransom
Drug offenses
Graft and corrupt practices
Integration – the money is once again made available to the criminal with the
occupational and geographic origin obscured or concealed. The laundered
funds are now integrated back into the legitimate economy through the
purchase of properties, businesses and other investments.
5. Why is Money Laundering a problem?
Money laundering allows criminals to preserve and enjoy the proceeds of
their crimes, thus providing them with the incentives and the means to
continue their illegal activities. At the same time, it provides them the
opportunity to appear in public like legitimate entrepreneurs. Organized
crime, through money laundering, is known to have the capacity to
destabilize governments and undermine their financial systems. It is thus a
threat to national security.
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6. What are the salient features of the law?
It criminalizes money laundering, meaning it makes money laundering a crime,
and provides penalties for its commission, including hefty fines and imprisonment.
It states clearly the determination of the government to prevent the Philippines
from becoming a haven for money laundering, while ensuring to preserve the
integrity and confidentiality of good bank accounts.
Issue orders to determine the true identity of the owner of any monetary
instrument or property that is the subject of a covered or suspicious
transaction report, and to request the assistance of a foreign country if the
Council believes it is necessary.
Institute civil forfeiture and all other remedial proceedings through the Office
of the Solicitor General.
It creates an Anti-Money Laundering Council (AMLC) that is tasked to oversee the
implementation of the law and to act as a financial intelligence unit to receive and
analyze covered and suspicious transaction reports.
It establishes the rules and the administration process for the prevention,
detection and prosecution of money laundering activities.
Cause the filing of complaints with the Department of Justice or the
Ombudsman for the prosecution of money laundering offenses.
It relaxes the bank deposit secrecy laws authorizing the AMLC and the Bangko
Sentral ng Pilipinas access to deposit and investment accounts in specific
circumstances.
Secure the order of the Court of Appeals to freeze any monetary instrument
or property alleged to be the proceeds of unlawful activity.
It requires covered institutions to report covered and suspicious transactions and
to cooperate with the government in prosecuting offenders. It also requires them
to know their customers and to safely keep all records of their transactions.
It carries provisions to protect innocent parties by providing penalties for causing
the disclosure to the public of confidential information contained in the covered
and suspicious transactions.
It establishes procedures for international cooperation and assistance in the
apprehension and prosecution of money laundering suspects.
7. What is the Anti-Money Laundering Council (AMLC)? What are its powers?
The AMLC is the Philippines’ financial intelligence unit, which is tasked to
implement the AMLA. It is composed of the Governor of the Bangko Sentral ng
Pilipinas (BSP) as Chairman & the Commissioner of the Insurance Commission (IC)
and the Chairman of the Securities and Exchange Commission (SEC) as members.
The AMLC is authorized to:
Investigate suspicious transactions, covered transactions deemed suspicious,
money laundering activities and other violations of the AMLA.
Implement such measures as may be necessary and justified to counteract
money laundering.
Receive and take action on any request from foreign countries for assistance
in their own anti-money laundering operations.
Develop educational programs to make the public aware of the pernicious
effects of money laundering and how they can participate in bringing the
offenders to the fold of the law.
Enlist the assistance of any branch of government for the prevention,
detection and investigation of money laundering offenses and the
prosecution of offenders. In this connection, the AMLC can require
intelligence agencies of the government to divulge any information that will
facilitate the work of the Council in going after money launderers.
Impose administrative sanctions on those who violate the law, and the rules,
regulations, orders and resolutions issued in connection with the
enforcement of the law.
Require and receive covered or suspicious transaction reports from covered
institutions.
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Undertake the necessary adequate measures to ensure the confidentiality of
such files;
8. What are the covered institutions?
Banks, offshore banking units, quasi-banks, trust entities, non-stock savings and
loan associations, pawnshops, and all other institutions, including their
subsidiaries and affiliates supervised and/or regulated by the Bangko Sentral ng
Pilipinas (BSP)
Insurance companies, holding companies and all other institutions supervised or
regulated by the Insurance Commission (IC)
Prepare and maintain documentation, in accordance with client identification
requirements, on their customer accounts, relationships and transactions
such that any account, relationship or transaction can be so reconstructed as
to enable the AMLC and/or the courts to establish an audit trail for money
laundering;
Securities dealers, brokers, pre-need companies, foreign exchange corporations,
investment houses, trading advisers, as well as other entities supervised or
regulated by the Securities and Exchange Commission (SEC)
Maintain and safely store all records of existing and new accounts and of new
transactions for 5 years from October 17, 2001 or from the dates of the
accounts or transactions, whichever is later;
9. What are the Customer Identification Requirements – KYC (Know Your Customer
Rule)?
Anent closed accounts, preserve and safely store the records on customer
identification, account files and business correspondence for at least 5 years
from the dates they were closed;
Covered institutions shall:
Establish and record the true identity of their clients based on official documents.
In case of individual clients, maintain a system of verifying the true identity of their
clients.
If a money laundering case based on any record kept by the covered
institution has been filed in court, retain said files until it is confirmed that
the case has been finally resolved or terminated by the court; and
Retain records as originals in such forms as are admissible in court
In case of corporate clients, require a system verifying their legal existence and
organizational structure, as well as the authority and identification of all persons
purporting to act in their behalf.
Establish appropriate systems and methods based on internationally compliant
standards and adequate internal controls for verifying and recording the true and
full identify of their customers.
11. What are covered transactions?
Transaction in cash or other equivalent monetary instruments involving a
total amount in excess of P500,000.00 within one business day.
12. What are suspicious transactions?
Transactions, regardless of the amount involved, where the following
circumstances exist:
10. What are the Record-Keeping Requirements?
All covered institutions shall:
Maintain and safely store all records of all their transactions for five years from the
transaction dates;
a. there is no underlying legal or trade obligation, purpose or economic
justification;
b. the client is not properly identified;
Ensure that said records/files contain the full and true identity of the owners or
holders of the accounts involved in the covered transactions and all other
identification documents;
c. the amount involved is not commensurate with the business or financial
capacity of the client;
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d. taking into account all known circumstances, it may be perceived that the
client’s transaction is structured in order to avoid being the subject of reporting
requirements under the Act;
e. any circumstance relating to the transaction which is observed to deviate from
the profile of the client and/or the client’s past transactions with the covered
institution;
f. the transaction is in any way related to an unlawful activity or offense under this
Act that is about to be, is being or has been committed; or
g. any transaction that is similar or analogous to the foregoing.
13. What are the reporting requirements?
Covered institutions shall report to the AMLC all covered transactions and
suspicious transactions within five working days from occurrence thereof, unless
the Supervision Authority (the Bangko Sentral ng Pilipinas, the Securities and
Exchange Commission, or the Insurance Commission) prescribes a longer period
not exceeding ten working days.
16. What are the sanctions for failure to report covered or suspicious
transactions?
Any person, required to report covered and suspicious transactions failed to
do so will be subjected to penalty of 6 months to 4 years imprisonment or a
fine of not less than P100,000.00 but not more than P500,000.00, or both.
17. Are there confidentiality restrictions on the reporting of covered
transaction and/or suspicious transaction?
When reporting covered transactions or suspicious transactions to the AMLC,
covered institutions and their officers and employees, are prohibited from
communicating, directly or indirectly, in any manner or by any means, to any
person, entity, the media, the fact that a covered or suspicious transaction
report was made, the contents thereof, or any other information in relation
thereto. 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
violation thereof, the concerned officer, and employee, of the covered
institution, or media shall be held criminally liable.
18. What are the other offenses punishable under the AMLA, as amended?
Should a transaction be determined to be both a covered transaction and a
suspicious transaction, it shall be reported as suspicious transaction.
14. How is reporting done?
The reports on covered and/or suspicious transactions shall be accomplished in
the prescribed formats and submitted within five business days from occurrence
of the transactions in a secured manner to the AMLC in electronic form, either via
diskettes, leased lines, or through internet facilities. The corresponding hard copy
for suspicious transactions shall be sent to AMLC at the 5th Floor EDPC Building,
Bangko Sentral ng Pilipinas Complex, Manila, Philippines. All pawnshops should
coordinate with the AMLC thru tel. nos. 523-4421, 521-5662 or 302-3979 on
reporting requirements, procedures and deadlines.
15. Are there sanctions for failure to report covered or suspicious transactions and
non-compliance with R.A. 9160, as amended?
Sanctions/penalties shall be imposed on pawnshops that will fail to comply with
the provisions of R.A. 9160, as amended.
a. 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 transactions for 5 years from the dates the transactions were
made or when the accounts were closed.
The penalty is 6 months to 1 year imprisonment or a fine of not less than
P100,000.00 but not more than P500,000.00, or both.
b. Malicious reporting is committed by any person who, with malice or in bad
faith, reports or files completely unwarranted or false information regarding a
money laundering transaction against any person. The penalty is 6 months to
4 years imprisonment and a fine of not less than P100,000.00 but not more
than P500,000.00. The offender is not entitled to the benefits of the
Probation Law.
c. Breach of Confidentiality. For this offense, the penalty is 3 to 8 years
imprisonment and a fine of not less than P500,000.00 but not more than P1
million. In case the prohibited information is reported by media, the
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responsible reporter, writer, president, publisher, manager, and editor-in-chief are
held criminally liable.
d. Administrative offenses. The AMLC, after due investigation, can impose fines
from P100,000.00 to P500,000.00 on officers and employees of covered
institutions or any person who violates the provisions of the AMLA, as amended,
the Implementing Rules and Regulations, and orders and resolutions issued
pursuant thereto.
First published in bsp.gov.ph on March 14, 2006.
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Banking Law of 2000*
(R.A. No. 8791)
debt securities; in commercial papers and accounts receivables, drafts, bills of
exchange, acceptances or notes arising out of commercial transactions; and
in such other investments and loans which the Monetary Board may
determine as necessary in the furtherance of national economic objectives;
(2) Providing short-term working capital, medium- and long-term financing,
to businesses engaged in agriculture, services, industry and housing; and
(3) Providing diversified financial and allied services for its chosen market and
constituencies especially for small and medium enterprises and individuals.
(Sec.3(a), R.A. 7906)
POLICY
To promote and maintain a stable and efficient banking and financial system that is
globally competitive, dynamic and responsive to the demands of a developing
economy. (Sec. 2)
DEFINITION AND CLASSIFICATION OF BANKS
Banks shall refer to entities engaged in the lending of funds obtained in the form
of deposits. (Sec. 3.1, GBL)
(4)
CORE BANKING FUNCTIONS
(1)
Taking of deposits from the public
(2)
Lending out these funds (Morales, The Philippine GBL Annotation).
CLASSIFICATION OF BANKS
(1)
Universal Banks (UB) – These used to be called expanded commercial
banks and their operations are primarily governed by the GBL. They can exercise
the powers of an investment house and invest in non-allied enterprises. They
have the highest capitalization requirement.
(2)
Commercial Banks (KB) – These are ordinary or regular commercial banks,
as distinguished from a universal bank. They have a lower capitalization
requirement than a UB and cannot exercise the powers of an investment house
and invest in non-allied enterprises.
(3)
Thrift Banks – These are:
(a)
Savings and mortgage banks;
(b)
Stock savings and loan associations; and
(c)
Private development banks (Sec. 3.2)
Note: The term ‘thrift banks’ also refers to any banking corporation organized for
the following purposes:
Cooperative Banks – These are banks organized primarily to make financial
and credit services available to cooperatives and their members. It may
perform any or all of the services offered by a rural bank, including the
operation of an FCDU subject to certain conditions. (Morales, The Philippine
GBL Annotation)
Note: A cooperative bank is one organized for the primary purpose of
providing a wide range of financial services to cooperatives and their
members. (Art. 23(i), R.A. 9520)
(5)
Islamic Banks – These are banks the business dealings and activities of which
are subject to the basic principles and rulings of Islamic Shari’a. The Al
Amanah Islamic Investment Bank of the Philippines, which was created by RA
6848, is the only Islamic bank in the country at this time.
Note: Islamic Bank refers to the Al-Amanah Islamic Investment Bank of the
Philippines, created under R.A. 6848. (See Sec. 44(1) and Sec. 2, R.A. 6848)
Rural Banks – Mandated to make needed credit available and readily
accessible in the rural areas on reasonable terms and which are primarily
governed by the Rural Banks Act of 1992 (RA 7353)
(7) Other Classifications of Banks – As determined by the Monetary Board, i.e.,
Philippine Veterans Bank (RA 3518), Landbank of the Philippines (RA 3844),
Development Bank of the Philippines (RA 85)
(6)
(1) Accumulating the savings of depositors and investing them, together with
capital loans secured by bonds, mortgages in real estate and insured
improvements thereon, chattel mortgage, bonds and other forms of security or in
loans for personal or household finance, whether secured or unsecured, or in
financing for homebuilding and home development; in readily marketable and
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DISTINCTIONS BETWEEN BANKS,
QUASI-BANKS AND TRUST ENTITIES
AS OPPOSED TO QUASI-BANKS
Quasi-banks (QB) refer to entities engaged in the borrowing of funds through the
issuance, endorsement or assignment with recourse or acceptance of depositsubstitute instruments, for purposes of relending the funds so borrowed or using
them to purchase receivables and other obligations. (last paragraph of Sec. 4)
The term “deposit substitutes” is defined as funds obtained from the public, other
than deposits, through the issuance, endorsement, or acceptance of depositsubstitute instruments for the borrower's own account, for the purpose of
relending or purchasing of receivables and other obligations. It includes banker’s
acceptances, promissory notes, participations, certificates of assignment and
similar instruments with recourse, and repurchase agreements. (Sec. 95, New
Central Bank Act, hereinafter “NCBA”)
AS OPPOSED TO TRUST ENTITIES
A Trust Entity is a stock corporation or a person duly authorized by the Monetary
Board to engage in trust business. (Sec. 79, GBL)
A Trust Business is any activity resulting from trusteeship involving the ppointment
of a trustee by a trustor for the administration, holding, and management of funds
and/or properties of the trustor by the trustee for the use, benefit or advantage of
the trustor or of beneficiaries.
BANK POWERS AND LIABILITIES
Apart from its general powers as a stock corporation, it can:
(1)
Exercise all the powers specified in Sec. 29
(2)
Provide the other banking services in Sec 53
(3)
Purchase, hold, and convey real estate under Secs. 51 and 52 (Morales,
The Philippine GBL Annotation)
Commercial Bank
Powers
Corporate powers Section 29 GBL
Banking and Incidental Powers
Section 29 GBL
Power to invest in allied enterprise (
financial or non-financial Sec 30 GBL
Universal Bank
Powers
Corporate powers Section 29 GBL
Banking and Incidental Powers Sec
23 GBL
Power to invest in allied enterprise
( financial or non-financial Sec 24
GBL
Power to invest in Non-allied
enterprises – (Sec. 24, GBL)
Powers of an investment house
(Sec. 23, GBL
CORPORATE POWERS
General powers incident to corporations
(1) To sue and be sued in its corporate name;
(2) Succession by its corporate name for the period stated in the AOI and the
certificate of incorporation
(3) To adopt and use a corporate seal
(4) To amend its AOI
(5) To adopt by-laws, not contrary to law, morals, or public policy, and to amend
or repeal them
(6) To issue or sell stocks to subscribers and to sell treasury stocks.
(7) To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage
and otherwise deal with such real and personal property, including securities
and bonds of other corporations, as the transaction of the lawful business of
the corporation may reasonably and necessarily require, subject to the
limitations prescribed by law and the Constitution
(8) To enter into merger or consolidation
(9) To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes: provided
that no corporation, domestic or foreign, shall give donations in aid of any
political party or candidate or for purposes of partisan political activity
(10) To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers and employees
(11) To exercise such other powers as may be essential or necessary to carry out
its purposes as stated in the AOI. (Sec. 36, Corporation Code)
BANKING AND INCIDENTAL POWERS
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renters. The prevailing rule is that the relation between the bank renting out
and the renter is that of bailor and bailee the bailment being for hire and
mutual benefit. (CA Agro-industrial Dev. Corp. v. CA, 1983)
All such powers as may be necessary to carry on the business of commercial
banking (Sec. 29)
Accepting drafts – By accepting a draft, a bank creates a “banker’s
acceptance”, which is a negotiable time draft or bill of exchange drawn on and
accepted by a commercial bank. This is different from “trade acceptance”, which is
accepted by the buyer. (Morales, The Philippine GBL Annotation)
(2)
Issuing letters of credit
(3)
Discounting and negotiating promissory notes, drafts, bills of exchange,
and other evidence of debt
(4)
Accepting or creating demand deposits
(5) Receiving other types of deposits and deposit substitutes
(1)
Deposit function
General rule: Only a Universal Bank (UB) Commercial Bank (KB) can accept or
create demand deposits.
Exception: Banks other than a UB or KB with prior approval of, and subject to such
conditions and rules as may be prescribed by the Monetary Board (Sec. 33, GBL)
Presumption of ownership of deposits
It is presumed that money deposited in a bank account belongs to the person in
whose name the deposit account is opened.
A depositor is presumed to be the owner of funds standing in his name in a bank
deposit; and where a bank is not chargeable with notice that the money deposited
in such account is the property of some other person than the depositor, the bank
is justified in paying out the money to the depositor or upon his order, and cannot
be liable to any other person as the true owner. (Fultron Iron Works Co. v.
China Banking Corporation, 1930)
A bank is under no duty or obligation to make an application or set-off against the
deposit accounts of a borrower. To apply the deposit to the payment of a loan is a
privilege, a right of set-off which the bank has the option (but not the obligation)
to exercise. (BPI v. CA, 1994)
Types of Deposits
Time Deposit – Interest rate stipulated depending on the number of days.
During this period, the money deposited may not be withdrawn without
incurring penalty. High interest rates.
(b) Savings Deposit – Bank pays an interest rate, but not as high as time deposits.
(c) Demand Deposits/Current Accounts - No interest is paid by the bank because
the depositor can take out his funds any time. It is called demand deposit
because the depositor can withdraw the money he deposited on the very
same day when he deposited it or at any time thereafter. (Villanueva,
Commercial Law Review, opinion)
(a)
(6)
(7)
(8)
Buying and selling foreign exchange and gold or silver bullion
Acquiring marketable bonds and other debt securities
Extending credit
Loan Function
“Know your customer” rule
Before granting a loan or other credit accommodation, a bank must ascertain
that the debtor is capable of fulfilling its commitments to the bank. (Sec. 40)
The bank may demand from its credit applicants a statement of their assets
and liabilities and of their income and expenditure and such information as
may be prescribed by law or by rules and regulations of MB to enable the
bank to properly evaluate the credit application which includes the
corresponding financial statements submitted for taxation purposes to the
BIR. (Sec. 40)
The rent of safety deposit boxes is a special kind of deposit and cannot be
characterized as an ordinary contract of lease because the full and absolute
possession and control of the deposit box is not given to the
Credit enhancement
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If the borrower is less than creditworthy, third persons may enhance his credit by
providing guarantees and other security devices in favor of the bank. (Morales,
The Philippine General Banking Law, opinion)
otherwise prescribes
(Sec. 38)
Grant of loans
Only in amounts and for the periods of time essential for the effective
completion of the operations to be financed; and
(b) Consistent with safe and sound banking practices. (Sec. 39)
(a)
A bank cannot lend pesos to a nonresident (BSP Circular No. 22; Sec. 22, Manual
of Regulations on Foreign Exchange Transactions). (Morales, The Philippine GBL
Annotation)
If there is material misrepresentation, the bank may:
(a)
Terminate any loan or other credit accommodation granted on the basis of
said statements; and
(b)
Shall have the right to demand immediate repayment or liquidation of the
obligation (Sec. 40)
Purpose of loans
Purpose must be stated in the application and in the contract between the
bank and the borrower. (Sec. 39)
Effect of usage of loan proceeds for purposes other than those agreed upon
with the bank
(c)
Limit on loans, credit accommodations and guarantees
Real estate
General rule: Shall not exceed
75% of the appraised value of the respective real
estate security, plus 60% of
the appraised
value of the insured improvements, and such
loans may be made to the owner of the real estate
or to his assignees
Exception:
The
Monetary
Board
otherwise prescribes
(Sec. 37)
Security of chattels and General rule: Shall not
intangible properties
exceed 75% of the
(patents, trademarks, appraised value of the
trade
names,
and security, and such loans
copyrights)
and
other
credit
accommodations may
be made to the titleholder of the chattels
and intangible
properties
or
his
assignees
Exception:
Monetary
The
Board
The bank shall have the right to terminate the loan or other credit
accommodation and demand immediate repayment of the obligation. (Sec.
39)
Amortization on loans and other credit accommodations
(a) In case of loans and other credit accommodations with maturities of more
than 5 years, provisions must be made for periodic amortization
payments, but such payments must be made at least annually: Provided,
however, That when the borrowed funds are to be used for purposes
which do not initially produce revenues adequate for regular amortization
payments therefrom, the bank may permit the initial amortization
payment to be deferred until such time as said revenues are sufficient for
such purpose, but in no case shall the initial amortization date be later
than 5 years from the date on which the loan or other credit
accommodation is granted.
(b) In case of loans and other credit accommodations to microfinance sectors,
the schedule of loan amortization shall take into consideration the projected
cash flow of the borrower and adopt this into the terms and conditions formulated
by banks. (Sec. 44)
All are subject to such rules as the Monetary Board may promulgate. (Sec. 29,
GBL)
DILIGENCE REQUIRED OF BANKS
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public in general in the banking industry. Consequently, the diligence
required of banks is more than that of a Roman pater familias or a good
father of a family. The highest degree of diligence is expected (Phil. Savings
Bank v. Chowking Food Corporation, 2008).
Banks should observe diligence that is higher than that expected from a good
father of a family.
Notwithstanding the degree of diligence required, a bank is not expected to be
infallible (Prudential Bank vs. CA, 2000).
The banking business is so impressed with public interest where the trust and
confidence of the public in general is of paramount importance such that the
appropriate standard of diligence must be a high degree of diligence, if not
the utmost diligence (Bank of America NT&SA v. Phil. Racing Club, 2009).
FIDUCIARY NATURE OF BANKS
Failure on the part of the bank to satisfy the degree of diligence required
of banks may warrant the award of damages.
(2)
Under Sec. 2, the degree of diligence is “high standards of integrity and
performance” and no longer “highest degree of diligence” as was decided prior to
the effectivity of the General Banking Law of 2000 but also (mistakenly) even
thereafter. In numerous cases, the Supreme Court has held that the highest
degree of diligence and care is expected from banks (Simex International v. CA
[1990]; Philippine Bank of Commerce v. CA [1997]; Westmont Bank v. Ong [2002];
Solidbank v. Spouses Tan [2003]; Samsung Construction v. FEBTC [2004]; Citibank,
N.A. v. Spouses Cabamongan [2006]; Philippine Savings Bank v. Chowking Food
Corporation [2008]; Bank of America NT &SA v. Philippine Racing Club [2009].
(1)
(1)
(2)
(3)
(4)
As a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.
Under the doctrine of last clear chance, a bank may be held liable for loss
despite the negligence of a depositor. Examples of these cases are the
following:
For disbursing funds to a dishonest employee despite the employee’s failure
to strictly abide with the bank’s internal procedure. (PBC v. CA, 1997)
Allowing the execution of a mortgage on parcels of land as security for a loan
not owned by the prospective borrower. (Canlas v. Court of Appeals, 2000)
Crediting the deposit in favor of another depositor, a check where the
signature of the drawer was forged. (Westmont Bank v. Ong, 2002)
Encashing pre-signed checks of the depositor which were stolen by its
employee. (Bank of America NT & SA v. Philippine Racing Club, 2009)
A bank is liable to a depositor when it honored and paid on a forged check
against the depositor’s account even if the bank followed its internal
procedure in preventing a faulty discharge. (Samsung Construction v. FEBTC,
2004)
In every case, the depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred pesos or of millions.
The bank must record every single transaction accurately, down to the last
In Gempesaw v. Court of Appeals (1993), a bank was held liable for damages
centavo, and as promptly as possible. This has to be done if the account is to
for failing to follow its internal procedures in paying on a forged check despite
reflect at any given time the amount of money the depositor can dispose as he
the gross negligence on the part of the depositor.
sees fit, confident that the bank will deliver it as and to whomever he directs. A
blunder on the part of the bank, such as the failure to duly credit him his deposits
as soon as they are made, can cause the depositor not a little embarrassment if
not
financial loss and perhaps even civil and criminal litigation (Simex
STIPULATION ON INTERESTS
International v. CA, 1990).
Board may prescribe the maturities, as well as related terms and
Banks are expected to exercise the highest degree of diligenceThe
in Monetary
the
selection and supervision of their employees (PCI Bank v. CA, 2001). conditions for various types of bank loans and other credit accommodations.
Anywith
change by the Board in the maximum maturities shall apply only to loans and
It cannot be over emphasized that the banking business is impressed
credit accommodations made after the date of such action.
public interest. Of paramount importance is the trust and confidenceother
of the
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The Monetary Board shall regulate the interest imposed on micro finance
borrowers by lending investors and similar lenders such as, but not limited to, the
unconscionable rates of interest collected on salary loans and similar credit
accommodations (Sec. 43, GBL)
readily marketable evidences of indebtedness of the RP and the BSP and any
other evidences of indebtedness or obligations the servicing and repayment
of which are fully guaranteed by the RP, until the minimum required capital
ratio has been restored. (Sec. 34, GBL)
SINGLE BORROWER’S LIMIT
General rule: The total loans, credit accommodations and guarantees that
may be extended by a bank to any person, partnership, association, or
corporation or other entity shall at no time exceed 20% of the net worth of
such bank. (Sec.
35.1,GBL)
GRANT OF LOANS AND SECURITY REQUIREMENTS
(PRUDENTIAL MEASURES)
RATIO OF NET WORTH TO TOTAL RISK ASSETS
Risk-based capital ratio
The minimum ratio which the net worth of a bank must bear to its total risk assets
which may include contingent accounts [i.e. net worth: total risk assets] (Sec. 34,
GBL)
General rule: A bank must conform to the risk-based capital ratio prescribed by the
Monetary Board (MB).
Exceptions: The MB may alter or suspend compliance with such ratio whenever
necessary for a maximum period of 1 year.
(1)
In case of a bank merger or consolidation; OR
(2)
When a bank is under rehabilitation under a program approved by the
BSP; (Sec. 34, GBL)
Purpose
A bank must not be allowed to expand the volume of its loans and investments in
a manner that is disproportionate to its net worth. (MORALES, Phil. Gen. Banking
Law)
Exceptions:
(1) The Monetary Board otherwise prescribes for reasons of national interest.
(Sec. 35.1, GBL) Now, the single borrower’s limit is 25% of the net worth of
the lending bank.
(2) Wholesale lending activities of government banks to participating institutions
for relending to end-user borrowers: separate limit of 35% net worth. (BSP
Circular No. 425 dated March 25, 2004)
Increase of limit
The Monetary Board may increase the limit prescribed by an additional 10%
of the net worth, when:
(1) The additional liabilities of any borrower are adequately secured by trust
receipts, shipping documents, warehouse receipts or other similar
documents
transferring or securing title;
(2) Covering readily marketable, non-perishable goods; and
(3) Which must be fully covered by insurance (Sec. 35.2, GBL)
Purpose
To prevent the bank from making excessive loans and other credit
accommodations
to a single borrower or corporate group, including guarantees for
(1) The MB may limit or prohibit the distribution of net profits by such bank
and
account of such borrower or group. The bank is prohibited from… placing
may require that part or all of the net profits be used to increase thethe
capital
accounts of the bank until the minimum requirement has been met. many eggs in the basket of one client. [It] is a damage control mechanism [and] a
device for risk amelioration. (MORALES, The Philippine General Banking Law,
(2) The MB may restrict or prohibit the acquisition of major assets and
Opinion)
the
Basis for
making of new investments by the bank, with the exception of purchases
of determining compliance
Effect of non-compliance
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The basis for determining compliance with the SBL is the total credit commitment
of the bank to the borrower. (Sec. 35.1, GBL)
Inclusions in the ceiling
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 or guarantor who
obtains a loan or other credit accommodation from or discounts paper with or
sells papers to such bank;
(2)
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;
(3)
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
(4)
In the case of a partnership, association or other entity, the liabilities of
the members thereof to such bank. (Sec. 35.3, GBL)
(1)
The MB 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:
(1) The parent corporation, partnership, association, entity or individual
guarantees the repayment of the liabilities;
(2) 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
(3) The subsidiaries though separate entities operate merely as departments or
divisions of a single entity. (Sec. 35.4, GBL)
Loans and other credit accommodations, deposits maintained with, and usual
guarantees by a bank to any other bank or non-bank entity, whether locally
or abroad, shall be subject to the prescribed limits. (Sec. 35.6, GBL)
Guidelines on the wholesale lending of government banks
It shall apply only to loans granted by participating financial institutions
(PFIs) on a wholesale basis for on lending to end-user borrowers;
(2)
It shall apply only to loan programs funded by multilateral, international,
or local development agencies, organizations, or institutions, especially designed
for wholesale lending activities of government banks;
(3)
The end-user borrowers of the PFIs shall be subject to the 25% SBL, not
the increased ceiling of 35%; and
(4)
Government banks shall observe appropriate criteria for accrediting PFIs
and for the grant/renewal of credit lines to accredited PFIs. (BSP Circular No. 425
dated March 25, 2004)
(1)
RESTRICTIONS ON INSIDER LENDING:
BANK EXPOSURE TO DIRECTORS, OFFICERS, STOCKHOLDERS AND THEIR
RELATED INTERESTS (DOSRI) General rule: No director or officer of any bank:
(1) Shall, directly or indirectly, for himself or as the representative or agent of
others, borrow from such bank, nor
(2) Shall he become a guarantor, endorser or surety for loans from such bank to
others, or in any manner be an obligor or incur any contractual liability to the
bank
(1)
(2)
Exceptions:
Valid insider lending (Sec. 36, GBL)
Loans, credit accommodations and guarantees extended by a cooperative
bank to its cooperative shareholders (Sec. 36, GBL)
Exclusions from the ceiling
Loans and other credit accommodations
(1)
Secured by obligations of the BSP or of the Philippine Government;
Requirements
for valid insider lending
(2) Fully guaranteed by the government as to the payment of principal
and
In the regular course of business;
interest;
(3) Covered by assignment of deposits maintained in the lending bank and held Upon terms not less favorable to the bank than those offered to others;
There is a written approval of the majority of all the directors of the bank,
in the Philippines;
(4) Under letters of credits to the extent covered by margin deposits; and excluding the director concerned; (Except: granted to officers under a fringe
benefit plan approved by the BSP;
(5) Specified by the Monetary Board as non-risk items (Sec. 35.5, GBL)
Combination of liabilities
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The required approval shall be entered upon the record of the bank and a
copy of such entry shall be transmitted forthwith to the appropriate supervising
and examining department of the BSP;
(5)
Limited to an amount equivalent to the DOSRI borrower’s unencumbered
deposits and book value of his paid-in capital contribution in the bank (Sec. 36,
GBL)
RESERVES
(4)
(1)
(2)
Exceptions:
Non-risk items; and
Loans in the form of fringe benefits.
A DOSRI borrower is required to waive the secrecy of his “deposits of whatever
nature in all banks in the Philippines.” (Sec. 26, NCBA)
Purpose
The general policy behind DOSRI rules is to level the lending field between the
“insiders” and the “outsiders”. The objective is to prevent the bank from becoming
a captive source of finance for DOSRI. (Morales, The Philippine General Banking
Law, Opinion)
LOAN-LOSS PROVISIONING
The following are subject to regulation by the Monetary Board:
(1)
The amount of reserves for bad debts or doubtful accounts or other
contingencies; and
(2)
The writing off of loans, other credit accommodations, advances and
other assets. (Sec. 49, GBL)
Purposes
To control the volume of money created by the credit operations of the
banking system, the BSP requires all banks to maintain reserves against their
deposit and deposit-substitute liabilities.
(2) As a ready source of funds that will respond to unusually large number of
withdrawals or preterminations of deposits or deposit-substitutes, taking in
the shape of a bank run. (Morales, The Philippine General Banking Law,
Opinion)
(1)
Unified reserve
(1) Statutory or legal and liquidity reserve [N.B. The two reserves have been
combined or unified: 18% for deposits and deposit substitutes (BSP Circular
No. 753 dated March 29, 2012)
(a) For deposit-substitutes evidenced by repurchase agreements covering
government securities: 2% (BSP Circular No. 444 dated August 18, 2004)
(b) For foreign currency deposit units: 100% (BSP Circular No. 1389 dated April
13, 1993, as amended); 30% of this cover must be in the form of liquid assets
(BSP CircularLetter dated June 6, 1997, as cited in MORALES)
(2) Reserve: The required reserves are to be kept in the form of deposits
placed in the banks’ Demand Deposit Account with the BSP (BSP Circular No.
753 dated March
29, 2012)
The BSP shall not pay interest on the reserves maintained with it unless the
Monetary Board decides otherwise as warranted by circumstances. (Sec. 94,
NCBA)
Purpose
For effective banking supervision. There is a problem of mismatch when a loan
becomes non-performing. The bank is paying interest on the money it borrowed
from the depositors or other placers of funds, but is not recouping that interest
PDIC INSURANCE
from the loan it made. Eventually, the bank may have to write off loan losses
Banks are required to insure their deposit liabilities with the PDIC.
against profits. To cushion this eventuality, the bank is required to set aside
reserved for bad debts and other doubtful accounts or contingencies.
(Morales, The Philippine General Banking Law, Opinion)
Partial Insurance
Each depositor is a beneficiary of the insurance for a maximum amount of
To address the non-performing asset problem, RA 9182 Special Purpose Vehicle Act P500,000, or its foreign currency equivalent in the case of an FCDU deposit. (RA
was passed. The Monetary Board approved certain accounting guidelines on the 9576, 2009)
sale by banks and other financial institutions for housing under the said Act. Note: PDIC only insures deposit (not deposit substitute) liabilities of a bank or
MORALES, The Philippine GBL Annotation) [N.B. RA 9182 is no longer in effect.]
banking institution (Sec.5, RA 3591, as amended)
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Purpose
Full insurance might encourage risky banking activities. A limited insurance of bank
deposits serves to limit moral hazard.
EQUITY INVESTMENT LIMITS
(ALLIED V. NON-ALLIED ENTERPRISES)
This is a prudential measure by limiting the exposure of banks in different
businesses for the purpose of control, affiliation or other continuing business
advantage.
General Rule
Total
investment in
equities:
The equity
investment in
any one
enterprise:
UB (Sec. 24)
(allied & nonallied
enterprises)
Not exceeding
50% of the net
worth of the
bank
(allied/nonallied)
Not exceeding
25% of the net
worth of the
bank
KB (Sec. 30)
(of
allied
enterprises)
Not exceeding
35% of the net
worth of the
bank
PENALTIES FOR VIOLATION
Violation of any of the provisions of the GBL shall be subject to Sections 34,
35, 36 and 37 of the New Central Bank Act, unless otherwise provided under
therein.
FINE/IMPRISONMENT
(allied)
Not exceeding
25% of the net
worth of the
bank
Net Worth – the total of the unimpaired paid-in capital including paid-in surplus,
retained earnings and undivided profit, net of valuation reserves and other
adjustments
The acquisition of such equity is subject to the prior approval of the MB.
The equity investment of a Universal Bank in:
(1)
Financial Allied Enterprises – 100% of the equity in a thrift bank, rural
bank, or financial allied enterprise. (Sec 25 GBL). A publicly-listed UB or KN may
own up to 100% of the voting stock of only one other UB or KB.
Non-Financial Allied Enterprises – 100% of the equity of that
enterprise (Sec 26 GBL)
(3) Non-Allied Enterprises – Not exceeding 35% of the total equity in a
single non-allied enterprise not shall it exceed 35% of the voting
stock in that enterprise. (Sec 27 GBL)
(4) Quasi-banks – 40% of the equity of quasi-banks (Sec 28 GBL)
(2)
The equity investment of Commercial Banks in:
(1) Financial Allied enterprises – 100% of the equity of a thrift or rural bank. (Sec
31 GBL). Where the equity investment of a KB is in other financial allied
enterprises, including other KBs, such investment shall remain a minority
holding in that enterprise.
(2) Non-Financial Allied enterprises – 100% of the equity of said enterprises.
(Sec 32 GBL)
(3) Quasi-banks – 40% of the equity of quasi-banks. (Sec
28 GBL)
Criminal sanctions
(1) Refusal by an institution subject to examination and supervision by the
Monetary Board to file the required report or permit any lawful examination
into its affairs (Sec. 34, NCBA)
(a) Fine: Not less than Fifty thousand pesos (P50,000) nor more than One
hundred thousand pesos (P100,000); or
(b) Imprisonment: Not less than one (1) year nor more than five (5) years; or
(c) Both fine and imprisonment: in the discretion of the Court.
(2) Wilful making of a false or misleading statement on a material fact to the
Monetary Board or to the examiners of the Bangko Sentral (Sec. 35, NCBA)
(a) Fine: Not less than One hundred thousand pesos (P100,000) nor more than
One hundred thousand pesos (P200,000); or
(b) Imprisonment: Not more than five (5) years; or
(c) Both fine and imprisonment, in the discretion of the Court.
(3) Wilful violation of the NCBA and other pertinent banking laws (including
the GBL) being enforced or implemented by the Bangko Sentral or any order,
instruction, rule or regulation issued by the Monetary Board (Sec. 36, NCBA)
(a) Fine: Not less than Fifty thousand pesos (P50,000) nor more than One
hundred thousand pesos (P200,000); or
(b) Imprisonment: Not less than two (2) years nor more than ten (10) years; or
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(c)
(a)
(b)
(c)
(d)
Both fine and imprisonment, in the discretion of the Court.
ADMINISTRATIVE SANCTIONS
(1) Wilful violation of its charter or by-laws; wilful delay in the submission of
reports or publications thereof as required by law, rules and regulations; Criminal
Acts in Nos. 1 to 3 above; and/or conducting business in an unsafe or unsound
manner as may be determined by the Monetary Board
Fine not exceeding Thirty thousand pesos (P30,000) a day for each
violation, taking into consideration the attendant circumstances, such as the
nature and gravity of the violation or irregularity and the size of the bank or quasibank; or
Suspension of rediscounting privileges or access to Bangko Sentral credit
facilities;
Suspension of lending or foreign exchange operations or authority to
accept new deposits or make new investments;
Suspension of interbank clearing privileges; and/or (e) Revocation of
quasi-banking license.
(2) Suspension or Removal of Director
If the offender is a director or officer of a bank, quasibank or trust entity,
the Monetary Board may also suspend or remove such director or officer (Sec. 66,
GBL).
(b)
Resignation or termination from office shall not exempt such director or
officer from administrative or criminal sanctions. (Sec. 37, NCBA)
(a)
(3) Dissolution of Bank
If the violation is committed by a corporation, such corporation may be
dissolved by quo warranto proceedings instituted by the Solicitor General (Sec. 66,
GBL)
(b)
Whenever a bank or quasi-bank persists in carrying on its business in an
unlawful or unsafe manner, the Monetary Board may commence proceedings in
liquidation. (Sec. 36, NCBA in relation to Sec. 30, NCBA)
(a)
*UP Bar Review Materials
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