The
PHILJA
OCTOBER - DECEMBER 2004 VOL. 6, ISSUE NO. 22
UDICIAL
OURNAL
De
Devvelopments in
Commer
cial La
w
Commercial
Law
i
The
PHILJA
OCTOBER-DECEMBER 2004 VOL. 6, ISSUE NO. 22
UDICIAL
OURNAL
D EVELOPMENTS IN
C OMMER
CIAL L AW
OMMERCIAL
I. LECTURES
II. R EFERENCES
iv
T he PHILJ
A JJudicial
udicial JJour
our
nal.
PHILJA
ournal.
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v
SUPREME COURT OF THE PHILIPPINES
CHIEF JUSTICE
Hon. HILARIO G. DAVIDE, Jr.
ASSOCIATE JUSTICES
Hon. REYNATO S. PUNO
Hon. ARTEMIO V. PANGANIBAN
Hon. LEONARDO A. QUISUMBING
Hon. CONSUELO YÑARES-SANTIAGO
Hon. ANGELINA SANDOVAL-GUTIERREZ
Hon. ANTONIO T. CARPIO
Hon. MA. ALICIA AUSTRIA MARTINEZ
Hon. RENATO C. CORONA
Hon. CONCHITA CARPIO MORALES
Hon. ROMEO J. CALLEJO, Sr.
Hon. ADOLFO S. AZCUNA
Hon. DANTE O. TINGA
Hon. MINITA V. CHICO-NAZARIO
Hon. CANCIO C. GARCIA
COURT ADMINISTRATOR
Hon. PRESBITERO J. VELASCO, Jr.
DEPUTY COURT ADMINISTRATORS
Hon. ZENAIDA N. ELEPAÑO
Hon. JOSE P. PEREZ
Hon. CHRISTOPHER O. LOCK
CLERK OF COURT
Attorney LUZVIMINDA D. PUNO
ASST. COURT ADMINISTRATORS
Attorney ANTONIO H. DUJUA
Attorney ISMAEL G. KHAN, Jr.
ASST. CLERK OF COURT
Attorney MA. LUISA D. VILLARAMA
DIVISION CLERKS OF COURT
Attorney ENRIQUETA ESGUERRA VIDAL
Attorney LUDICHI Y. NUNAG
Attorney JULIETA Y. CARREON
vi
PHILIPPINE JUDICIAL ACADEMY
Board of Trustees
Hon. HILARIO G. DAVIDE Jr.
Chief Justice
Chairman
Hon. REYNATO S. PUNO
Senior Associate Justice, Supreme Court
Vice Chairman
Members
Hon. AMEURFINA A. MELENCIO HERRERA
Chancellor
Hon. PRESBITERO J. VELASCO, Jr.
Court Administrator
Hon. EUBOLO G. VERZOLA
Acting Presiding Justice, Court of Appeals
Hon. EDILBERTO G. SANDOVAL
Acting Presiding Justice, Sandiganbayan
Hon. ROMEO F. BARZA
President, Philippine Judges Association
Dean ANDRES D. BAUTISTA
President, Philippine Association of Law Schools
Hon. RALPH S. LEE
Executive Judge, Presiding Judge, MeTC, Br. 38, Quezon City
Executive Officials
Hon. AMEURFINA A. MELENCIO HERRERA
Chancellor
Hon. ANTONIO M. MARTINEZ
Vice Chancellor
Hon. PRISCILA S. AGANA
Executive Secretary
Heads of Offices
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Fr. RANHILIO C. AQUINO
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Research and Linkages Office
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Hon. AMEURFINA A. MELENCIO HERRERA
Chair
Dr. PACIFICO A. AGABIN
Constitutional Law
Hon. RICARDO C. PUNO
Civil Law
Hon. OSCAR M. HERRERA, Sr.
Remedial Law
Hon. EDILBERTO G. SANDOVAL
Criminal Law
Hon. PRESBITERO J. VELASCO, Jr.
Court Management
Hon. HILARION L. AQUINO
Ethics and Judicial Conduct
Professor CESAR L. VILLANUEVA
Commercial Law
Dr. PURIFICACION V. QUISUMBING
International and Human Rights Law
Fr. RANHILIO C. AQUINO
Jurisprudence and Legal Philosophy
Professor MYRNA S. FELICIANO
Legal Method and Research
Professor SEDFREY M. CANDELARIA
Special Areas of Concern
Atty. IVAN JOHN E. UY
Court Technology
Judicial Reforms Groups
Hon. AMEURFINA A. MELENCIO HERRERA
Presiding Officer
vii
Justice Ameurfina A. Melencio Herrera
Chancellor
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VOLUME 6
ISSUE NO. 22
OCTOBER - DECEMBER 2004
THE PHILJ
A JUDICIAL JOURN
AL
PHILJA
JOURNAL
CONTENTS
OFFICIALS OF THE SUPREME COURT OF THE PHILIPPINES .......... v
OFFICIALS OF THE PHILIPPINE JUDICIAL ACADEMY ...................... vi
I. LECTURES
THE PHILIPPINE E-COMMERCE LAW (REPUBLIC ACT NO. 8792):
A LEGISLATIVE RESPONSE TO ELECTRONIC
COMMERCE ISSUES
Attorney Rodolfo Noel S. Quimbo ............................................ 1
DEVELOPMENTS IN COMMERCIAL LAW
Dean Cesar L. Villanueva ............................................................. 23
CROSS-BORDER INSOLVENCY AND PRIVATIZATION
Judge Sixto C. Marella, Jr. ......................................................... 107
DEVELOPMENTS TO EXPAND JURISDICTION OF
SPECIAL COMMERCIAL COURTS AND
LEADING DEVELOPMENTS IN COMMERCIAL LAW
Dr. Cheselden George V. Carmona ........................................ 116
COMPARATIVE DISCUSSION ON THE
PROPOSED CONSOLIDATED INTERIM RULES OF PROCEDURE
ON CORPORATE LIQUIDATION IN INSOLVENCY AND THE
URGENT RULES ON CORPORATE INSOLVENCY
Attorney Manuel D. Yngson, Jr. .................................................. 161
CONTENTS
II. REFERENCES
REPUBLIC ACT NO. 8762
RETAIL TRADE LIBERALIZATION ACT OF 2000 ................. 198
REPUBLIC ACT NO. 8792
ELECTRONIC COMMERCE ACT OF 2000 .............................. 205
REPUBLIC ACT NO. 9160
ANTI-MONEY LAUNDERING ACT OF 2001 ........................ 236
REPUBLIC ACT NO. 9194
AN ACT AMENDING REPUBLIC ACT NO. 9160,
OTHERWISE KNOWN AS THE “ANTI-MONEY
LAUNDERING ACT OF 2001” .................................................. 256
RULES AND REGULATIONS IMPLEMENTING
REPUBLIC ACT NO. 8762 .......................................................... 266
IMPLEMENTING RULES AND REGULATIONS OF THE
ELECTRONIC COMMERCE ACT ................................................ 283
RULES AND REGULATIONS IMPLEMENTING THE
ANTI-MONEY LAUNDERING ACT OF 2001
(REPUBLIC ACT NO. 9160) ...................................................... 328
REVISED IMPLEMENTING RULES AND REGULATIONS
REPUBLIC ACT NO. 9160, AS AMENDED BY
REPUBLIC ACT NO. 9194 .......................................................... 368
CONTENTS
I. LECTURES
THE PHILIPPINE E-COMMERCE LAW (REPUBLIC ACT NO. 8792):
A LEGISLATIVE RESPONSE TO ELECTRONIC
COMMERCE ISSUES
Attorney Rodolfo Noel S. Quimbo
I.
INTRODUCTION ...................................................................... 2
II.
TOWARDS THE INFORMATION ECONOMY..................... 3
III. LEGAL RECOGNITION OF
ELECTRONIC DOCUMENTS ................................................ 4
IV. INTEGRITY OF ELECTRONIC DOCUMENTS .................. 8
V.
FROM FILE CABINETS TO ELECTRONIC FILES ......... 11
VI. ELECTRONIC CONTRACTS ............................................... 12
VII. TOWARDS E-GOVERNMENT .......................................... 18
VIII. DEVELOPING TRUST .......................................................... 20
IX. A GLOBAL LEGAL FRAMEWORK .................................. 22
DEVELOPMENTS IN COMMERCIAL LAW
Dean Cesar L. Villanueva
I.
INTRODUCTION ................................................................... 25
II.
THE RETAIL TRADE
LIBERALIZATION LAW OF 2000 ..................................... 25
III. THE ELECTRONIC COMMERCE ACT ........................... 38
IV. THE GENERAL BANKING LAW OF 2000 .................... 46
V.
THE SECURITIES REGULATION CODE ........................ 58
VI. REGIONAL TRIAL COURT’S (RTC’S)
CORPORATE JURISDICTION ............................................. 66
CONTENTS
CROSS-BORDER INSOLVENCY AND PRIVATIZATION
Judge Sixto C. Marella, Jr
I.
CROSS-BORDER INSOLVENCY ....................................... 108
II. PRIVATIZATION ................................................................... 112
DEVELOPMENTS TO EXPAND JURISDICTION OF
SPECIAL COMMERCIAL COURTS AND
LEADING DEVELOPMENTS IN COMMERCIAL LAW
Dr. Cheselden George V. Carmona
I.
INTRODUCTION .................................................................. 117
II. CONSOLIDATION OF INTELLECTUAL PROPERTY (IP)
COURTS WITH COMMERCIAL COURTS ....................... 121
III. INCLUSION OF VIOLATION OF ANTI-MONEY
LAUNDERING ACT IN THE
SPECIAL COMMERCIAL COURTS’ JURISDICTION ...... 125
IV. PROPOSAL TO EXPAND JURISDICTION OF
COMMERCIAL COURTS .................................................... 127
V. SPECIALIZATION .................................................................. 130
VI. LEADING DEVELOPMENTS IN COMMERCIAL LAW .... 136
VII. CONCLUSION ....................................................................... 157
COMPARATIVE DISCUSSION ON THE
PROPOSED CONSOLIDATED INTERIM RULES OF PROCEDURE
ON CORPORATE LIQUIDATION IN INSOLVENCY AND THE
URGENT RULES ON CORPORATE INSOLVENCY
Attorney Manuel D. Yngson, Jr.
I.
BACKGROUND ...................................................................... 162
II. SUMMARY OF RULES PROPOSED .................................. 193
CONTENTS
II. REFERENCES
REPUBLIC ACT NO. 8762
RETAIL TRADE LIBERALIZATION ACT OF 2000 ................. 198
REPUBLIC ACT NO. 8792
ELECTRONIC COMMERCE ACT OF 2000 .............................. 205
REPUBLIC ACT NO. 9160
ANTI-MONEY LAUNDERING ACT OF 2001 ........................ 236
REPUBLIC ACT NO. 9194
AN ACT AMENDING REPUBLIC ACT NO. 9160,
OTHERWISE KNOWN AS THE “ANTI-MONEY
LAUNDERING ACT OF 2001” .................................................. 256
RULES AND REGULATIONS IMPLEMENTING
REPUBLIC ACT NO. 8762 .......................................................... 266
IMPLEMENTING RULES AND REGULATIONS OF THE
ELECTRONIC COMMERCE ACT ................................................ 283
RULES AND REGULATIONS IMPLEMENTING THE
ANTI-MONEY LAUNDERING ACT OF 2001
(REPUBLIC ACT NO. 9160) ...................................................... 328
REVISED IMPLEMENTING RULES AND REGULATIONS
REPUBLIC ACT NO. 9160, AS AMENDED BY
REPUBLIC ACT NO. 9194 .......................................................... 368
T he Philippine E-Commer
ce La
w
E-Commerce
Law
(R
lic Act No
No.. 8792):
(Ree pub
public
A Le
gislati
esponse to
Legislati
gislativve R
Response
Electronic Commerce Issues ∗
Attorney Rodolfo Noel S. Quimbo∗∗
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
INTRODUCTION.................................................................................. 2
TOWARDS THE INFORMATION ECONOMY............................... 3
LEGAL RECOGNITION OF ELECTRONIC DOCUMENTS ..... 4
INTEGRITY OF ELECTRONIC DOCUMENTS ............................. 8
FROM FILE CABINETS TO ELECTRONIC FILES ..................... 11
ELECTRONIC CONTRACTS ......................................................... 12
TOWARDS E- GOVERNMENT......................................................... 18
DEVELOPINGTRUST.......................................................................... 20
A GLOBAL LEGAL FRAMEWORK?................................................ 22
∗
Delivered at the Roundtable Discussion with Corps of
Professors, on July 21, 2000, at the Conference Room, Office
of the Court Administrator (OCA), Supreme Court, Manila.
∗∗
Attorney Rodolfo Noel S. Quimbo is currently the Chief of
Staff of Senate President Pro Tempore Juan M. Flavier. Prior
to that, he was the Head Executive Assistant of Secretary Nieves
R. Confesor of the Department of Labor and Employment
(DOLE) in 1995. His career with the Philippine Senate started
in 1992 when he became Senator Orlando S. Mercado’s Chief
of Staff until 1994. He has also been an Associate in Bautista
Picazo and Fider Law Offices in 1992.
He has done numerous information technology (IT)
consultancies in projects here and abroad and likewise authored
and co-authored books and publications on IT and the E-
2
THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
I. I NTR
ODUCTION
NTRODUCTION
When President Joseph Ejercito Estrada signed the E-Commerce
Law, the Philippines became the third country in ASEAN – after
Singapore and Malaysia – with legislation to promote and protect
electronic transactions. It culminated a long and tedious process
that started on July 1, 1998, when Senator Juan M. Flavier filed
Senate Bill No. 10, “An Act Promoting the Use of Electronic
Data Interchange in Trade Transactions and for Other Purposes,”
the first of many bills that eventually led to the Philippine
Electronic Commerce Act (Republic Act No. 8792, An Act
Providing for the Recognition and Use of Electronic Commercial
and Non-Commercial Transactions, Penalties for the Unlawful
Use Thereof, and for Other Purposes).
The E-Commerce Law addresses the significant legal challenges
facing Filipinos who wish to participate in this wealth-creating
global phenomenon. First, it gives validity and legal recognition
to electronic documents, electronic signatures and electronic
transactions. Second, it facilitates the admission of electronic
documents and electronic signatures as evidence in cases of
disputes. Third, it outlaws and penalizes unauthorized access to
information and interference in communications systems (e.g.,
hacking, introduction of viruses). Finally, it calls upon government
to formulate and institute programs that are not only supportive
of e-commerce but would actually get the government online.
Commerce Law. He has delivered speeches and papers on the
same topics in various seminars and fora within and outside the
country.
Attorney Quimbo, who has also been a member of several civic
and professional organizations, obtained his Bachelor’s degree
in English in 1988 and Laws in 1991 from the University of
the Philippines where he had actively participated in college
activities.
2004]
THE PHILIPPINE E-COMMERCE LAW:
A LEGISLATIVE RESPONSE TO ELECTRONIC COMMERCE ISSUES
3
This paper attempts to provide some answers to questions on
what the law intends. This will also discuss the provisions of the
law in the order of their appearance in the law itself.
II. T OWARDS
THE
I NFORMA
TION E CONOMY
NFORMATION
In the E-Commerce Law, the Philippine government explicitly
recognizes the vital role of information and communications
technology (ICT) in nation-building. The need to create an
information-friendly environment that would ensure the
availability, diversity, and affordability of ICT products and
services is recognized as an important component of government
policy. It recognizes the need for policies and programs to develop
human resources for the information age. The law also recognizes
the need to marshal, organize, and deploy a national information
infrastructure. Towards achieving these goals, the primary
responsibility of the private sector in contributing investments
and services in ICT is acknowledged.1
This law is meant to facilitate the use of electronic dealings,
transactions, arrangements, agreements, contracts, and exchanges
and storage of information, domestically and internationally,
through electronic, optical, and similar media. It recognizes the
authenticity and reliability of electronic data messages, as well as
promotes the universal use of electronic transactions.2 While
many believe that the law is intended to apply only to commercial
transactions between and among private persons, the law is meant
as well to cover government in its dealings with the public. In
terms of coverage, this law is to apply to any kind of electronic
data message or electronic document used in commercial and non1. Republic Act No. 8792, § 1.
2. Id. § 3.
4
THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
commercial activities.3 It is important to underscore that noncommercial electronic documents, such as wills and affidavits,
could fall under the purview of this law, if the intent as stated
during the interpellations is allowed to govern. (Senator Jaworski
asked, during interpellations, whether the bill was intended to
apply to will-making and donations. In reply, Senator Magsaysay
said “yes x x x, wills will also be covered because there will be
documents there.”)
III. L EGAL R ECOGNITION OF
E LECTR
ONIC D OCUMENTS
LECTRONIC
Electronic documents are now provided the same legal protection
as paper-based documents. Philippine courts will be duty-bound
to accept electronic documents as evidence. But this is not to say
that courts can accept any type of electronically-generated
document for certain standards have been set for a document’s
acceptability.
Information shall not be denied validity or enforceability solely
on the ground that it is in the form of an electronic data message
or that it is merely incorporated by reference in that electronic
message.4
This provision’s last phrase may be better understood through
this example: A sends an e-mail to B offering to sell his car, the
picture and specifications of which are contained in, say, a web
page. Although the web page is merely referred to in the e-mail
message, it becomes part of the whole communication. The law
says that neither the web page nor the e-mail can be denied legal
effect. This creates, among other things, convenience, because the
3. Id. § 4.
4. Id. § 6.
2004]
THE PHILIPPINE E-COMMERCE LAW:
A LEGISLATIVE RESPONSE TO ELECTRONIC COMMERCE ISSUES
5
primary messages do not have to be too bulky as they are allowed
to be incorporated by reference in that e-mail message.
This could be considered the heart of the law: removing the
previous discrimination against electronic data messages/
documents in favor of paper-based/real-world counterparts.
Section 7 assuages whatever doubts Section 6 might still leave
by explicitly saying that electronic documents shall have the legal
effect, validity, or enforceability as any other document or legal
writing. Further it states that where the law requires a document
to be in writing, that requirement is met by an electronic document
if the said electronic document maintains its integrity and
reliability and can be authenticated so as to be usable for
subsequent reference. This applies whether the requirement in the
law is in the form of an obligation or whether the law simply
provides consequences for the document not being presented or
retained in its original form. For evidentiary purposes, the
electronic document is now deemed to be the functional equivalent
of a written document under existing laws. Limits are set, however,
where the provision states that this Act is not intended to modify
any statutory rule relating to the admissibility of electronic data
messages, except the rules relating to authentication and best
evidence.
The phrase “functional equivalent” recognizes that electronic
documents can never be the same as paper-based ones, but that
electronic documents can achieve the same purposes or functions:
1. To provide that a document will be legible to all;
2. To provide that a document will remain unaltered over
time;
3. To allow for the reproduction of a document so that each
party will hold a copy of the same data;
6
THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
4. To allow for the authentication of data by means of a
signature; and
5. To provide that a document will be in a form acceptable
to public authorities and courts.
Most important in this provision is a final proviso that states:
(P)rovided That no provision of this Act shall apply to
vary any and all requirements of existing laws on the
formalities required in the execution of documents for their
validity.
This is meant to highlight the fact that the E-Commerce Law
was intended to be least intrusive insofar as other laws were
concerned. Thus, formal requirements remain, but, when the law
refers to “documents” and “signatures,” they will now include
electronic documents as well as electronic/digital signatures.
Legal recognition of Electronic Signatures is provided for in
Section 8. An electronic signature on the electronic document is
now recognized as equivalent to the signature of a person on a
written document. However, certain conditions are imposed for
an electronic signature to be recognized: a prescribed procedure
must be followed, which identifies the party sought to be bound,
and affords him the access necessary to obtain his consent and
approval through the electronic signature.
The legal recognition of electronic signatures will
unambiguously allow contracts subject to the Statute of Frauds5
to be rendered in electronic form. The Statute makes unenforceable
certain contracts – e.g., contracts that have for their object goods
exceeding Php500.00 in value – unless they are written and
subscribed. In this situation, the requirement for a memorandum
5. CIVIL CODE, art. 1404.
2004]
THE PHILIPPINE E-COMMERCE LAW:
A LEGISLATIVE RESPONSE TO ELECTRONIC COMMERCE ISSUES
7
is now met by the legal validity of the electronic document, and
the subscription part is now answered by the declared equivalence
between manual and digital signatures. Again, it must be stated
that when the issue to a controversy refers to the need for written
form in order to make valid an act or contract, such may now be
rendered in electronic forms as well.
Insofar as those agreements which require specific forms to
be rendered as absolute necessities for validity, that requirement
remains absolute and indispensable,6 inter alia, donations of real
property which must be made and adopted in public instruments
to be valid, even as between the parties,7 contracts of partnerships
where immovable property is contributed and thus, must be made
in a public instrument.8
The law also says that:
(T)he Supreme Court may adopt such other authentication
procedures, including the use of electronic notarization
systems as necessary and advisable as well as the certificates
of authentication on printed or hard copies of the
electronic documents or electronic data messages by
electr
onic notaries
electronic
notaries, service providers, and other dulyrecognized or appointed certification authorities.9
The Notarial Law (Section 231, et. seq. of the Revised
Administrative Code), set forth the qualifications of notaries
public at Section 233 when it says:
(T)o be eligible for appointment as notary public, a person
must be a citizen x x x.
6. Id. art. 1356.
7. Id. art. 749.
8. Id. arts. 1771 and 1773.
9. Republic Act No. 8792, § 11 (b).
8
THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
It clearly contemplates a person. May then a machine
programmed to work on behalf of a notary public be allowed to
perform the functions of a notary public? And if the answer is
yes, may the notarial functions be done online or electronically?
What about the witnesses, who will perform that function of
witnessing the execution of the documents? What about the
process of affixing documentary stamps? I am an optimist,
however, and I will end this by saying the problem in the long run
can and must be solved technologically rather than legally.
IV
IV.. I NTEGRITY
OF
E LECTR
ONIC D OCUMENTS
LECTRONIC
The integrity of electronic documents provides for prima facie
presumptions relating to electronic signatures:
that the electronic signature is that of the person to whom
it correlates, and that the signature was affixed with the
intention of signing or approving the electronic document
x x x.10
This means that when A’s signature is attached to a document,
one may presume that it is A’s signature and that he was the one
who signed it with the intention of signing or approving the
same, unless the party relying on the signature knows or has notice
of defects in or unreliability of the signature. The presumption
is, of course, merely prima facie and it may be rebutted with,
perhaps, better evidence to the contrary.
What constitutes “Original Documents” is also discussed in
the law at Section 10. This is important as it impacts on rules of
evidence or court procedures where the concept of original is
most vital to whether or not one’s piece of evidence is admitted,
10. Id. § 9.
2004]
THE PHILIPPINE E-COMMERCE LAW:
A LEGISLATIVE RESPONSE TO ELECTRONIC COMMERCE ISSUES
9
or whether or not sufficient weight is given to it. Currently, where
the law requires information to be presented or retained in its
original form, that requirement would be deemed met by an
electronic data message or document if the integrity of the
information is shown by evidence aliunde or otherwise and that
it is capable of being displayed to the person to whom it is to be
presented. This provision of law will be of great help to those
who go to court presenting electronic evidence. While the old
paradigms could only conceive of original document as just being
generally singular, this paves the way for the existence of many
“originals” as long as the provision’s criteria of integrity and
reliability are met – unless, of course, new technologies will pave
the way for the production of “unique” copies. The development
of technologies that could produce “unique” copies is important
especially in transactions requiring the surrender or presentment
of a document, e.g., the original of the bill of lading, or of
negotiable instruments.
The authentication of electronic data messages and electronic
documents, covered in Section 11, amends the rules on evidence.
Given the different nature of electronic data messages vis-à-vis
paper or other objects, authentication procedures necessarily will
have to be different too. This law calls for electronic data messages
to be authenticated by demonstrating, substantiating, and
validating a claimed identity of a user, device, or another entity
in an information system. Electronic signatures are to be
authenticated by proof that a symbol or character representing
the person named therein or attached thereto, or that appropriate
technology or security, was used with the intention of
authenticating or approving the electronic document. The
electronic data message shall be authenticated with the use of an
appropriate security procedure, when applicable, to verify the
originator, or detect errors. This section contains the provision
10
THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
on electronic notarization, which, if allowed, will facilitate the
making into “public documents” of many e-commerce-related
documents.
w also pr
or admission into
T he la
law
proovides a guide ffor
es and to ho
w muc
evidence of electr
onic data messag
electronic
messages
how
muchh
11
weight is to be gi
givven them. T he pr
proovision states that
no rule shall render the data message inadmissible on
the sole ggrround that it is in electr
onic ffor
or
m or on the
electronic
orm
g round that it is not in the standar
d written ffor
or
m. T he
standard
orm.
pr
oper eevidential
vidential w
eight is to be gi
onic
proper
weight
givven suc
suchh electr
electronic
document after assessing the ffollo
ollo
wing: the rreliability
eliability
ollowing:
of the manner in which the electronic document was
generated, stored, or communicated; the reliability by
as identif
ied; as w
ell as after other
whic
identified;
well
hichh its originator w
was
relevant factors have been given due regard.
It has been said, as a criticism, that this provision provides too
simple a guide and grants the judge too much latitude in the
appreciation and determination of the weight of evidence
presented. However, Congress deemed it better to rely on the
courts and their judgments and experience rather than on hard
and fast legislative enactments that have, many times, proved to
be inflexible later on. We know how difficult and time-consuming
it is to make laws, or amendments to laws.
The above provision is one of the most, if not the most,
debated provisions in the bill. There were positions stated, during
the interpellations, that Congress is not in possession of the power
to change or amend the Rules, as such is within the sole prerogative
of the Supreme Court.12 Another posited that Congress may also
11. Id. § 12.
12. PHIL. CONST. art. VIII, § 5(5).
2004]
THE PHILIPPINE E-COMMERCE LAW:
A LEGISLATIVE RESPONSE TO ELECTRONIC COMMERCE ISSUES
11
promulgate rules on procedures as well, citing as examples the
Civil Code rule that when a relative sues another, there must first
be a showing that efforts towards an amicable settlement were
exerted but failed; and the Speedy Trial Law containing several
provisions delineating procedure. It was also posited further that
the power to promulgate rules is not one under the rubric of
“irreducible powers” of the Court, but merely auxiliary and one
which the legislature may validly co-share. In the end, a compromise
was reached by agreeing to a formula designed or intended to
function in the interim, i.e., pending the promulgation by the
Supreme Court of its own relevant rules.
V.
F ROM F ILE C ABINETS
TO
E LECTR
ONIC F ILES
LECTRONIC
Nothing represents the modern office more than filing cabinets.
Offices have rooms full of filing cabinets largely because there is
no other way of keeping files that are required by government or
by law. This Act may yet make filing cabinets obsolete.
A document may now be considered to be original even if it
is in the form of an electronic data message or electronic document
as long as the criteria of accessibility, integrity, accuracy and
identification of persons, and time of transmission and receipt
are met.13 The person required to retain the forms may also do so
by using the services of a third party. This may be applied where
the government, say: the Bureau of Internal Revenue (BIR),
requires the retention of receipts for at least three (3) years, for
audit purposes. This can free corporations from having to keep
the required documents in paper form. This could also pave the
way for growth in data management businesses.
13. Republic Act No. 8792, § 13.
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Affidavits are dealt with under Sections 14 and 15. The
requirements in Section 9 on integrity, and Section 12 on
admissibility, may be established by affidavit. This is meant to
simplify the procedure of proving electronic data messages as
evidence in courts. This is useful as the requirements in Sections
9 and 12 may prove to be too stringent or cumbersome. Of course,
as in any statement contained in affidavits and presented in courts,
such are subject to the right of the person against whom the
affidavit is executed, to test the accuracy and truth of the affidavit
by cross-examination. It has been said that the requirement for
cross- examination may be an obstacle to expeditious resolution
by courts of controversies involving electronic evidence, what
with affidavits not subjected to cross examination being regarded
as hearsay. We submit that Section 15 is a useful provision. The
person against whom the affidavit has been presented has the right
to test it. Of course, one’s failure to cross-examine may be deemed
as waiver of that right.
VI. E LECTR
ONIC C ONTRA
CTS
LECTRONIC
ONTRACTS
The Formation and Validity of Electronic Contracts is tackled in
Section 16 of the law. Despite the provisions of the Civil Code,
which says that a contract is a meeting of the minds and generally
could take whatever shape or form, many still feared that contracts
entered into electronically would encounter some problems. Here
the law states that:
an offer, the acceptance of an offer and such other elements
required under existing laws for the formation of contracts,
may be expressed in, demonstrated and proved by means
of electronic documents.
2004]
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13
The law further stipulates that no contract shall be denied
validity or enforceability on the sole ground that it is in the form
of an electronic document.
The requisites for contract in the Philippines are consent freely
given, object certain, and cause of the obligation.14 While the
previous drafts during the process of legislation dealt only with
“offer and acceptance” or the question of consent being allowed
to be manifested in electronic forms, the scope of this provision,
as finalized, was expanded with the inclusion of the passage:
and such other elements required under existing laws for
the formation of contracts may be expressed in,
demonstrated and proved by means of electronic data
messages xxx and no contract shall be denied validity on
the sole ground that it is in the form of an electronic data
message xxx or that any or all of the elements required
under existing law for the formation of contracts is
expressed, demonstrated, and proved by means of electronic
data messages.
Section 17 is entitled Recognition by Parties of Electronic
Data Messages. This was felt to be necessary since the previous
section dealt basically only with conclusion of contracts but not
the performance of contractual obligations (e.g., notice of defective
goods; an offer to pay; notice of place where a contract would be
performed, or recognition of debt). This provision is not intended
to impose the use of electronic data messages but to validate their
use. This section should not then be used as a basis to impose on
the addressee the legal consequence of the message, if the use of
a non-paper-based method for its transmission comes as a surprise
to the addressee.
14. CIVIL CODE, art. 1318.
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The question “From whom does the message come?” is
answered in Section 18. A message is that of the originator if the
originator him/herself (or his/her authorized representative) sent
it, or if it was sent by an authorized person for him/her, or sent
by an information system programmed by or on behalf of the
originator to operate automatically. The last phrase recognizes the
situation whereby one programs a computer to look for bargains
or, on the other hand, by another to look for buyers. When these
two (2) systems meet, even without the direct intervention of
the parties at that particular and exact time, the messages sent will
be deemed as having come from both the originators. As between
the originator and the addressee, the latter is also entitled to regard
a message as having come from the originator and to act on such
an assumption if the addressee properly applies a procedure agreed
upon, or if the message as received by the addressee resulted from
the acts of a person related to the originator or his agent in such
a way as to have gained lawful access to the method used by the
originator to identify the message as his own.
The above provision does not apply, however, where the
addressee knew or should have known, had he exercised sufficient
care, that the message received was not that of the originator.
Neither will it apply in the situation where the addressee is entitled
to assume that what was received by him/her is the exact message
sent if he/she knew or should have known, with the exercise of
reasonable care, that the message was not what it was purporting
to be. To allow otherwise, would be to reward bad faith and
carelessness.
Section 19 on errors on electronic messages is, in a sense, a
restatement of Section 18(5) whereby the addressee is entitled to
regard the message received as being the exact one sent unless the
addressee knew or should have known, with the exercise of proper
2004]
THE PHILIPPINE E-COMMERCE LAW:
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15
care, that the message contains errors or that it was sent to an
information system not so designated.
Section 20 lays down the rules insofar as acknowledgment of
receipt of electronic data messages is concerned, i.e., where the
parties have agreed beforehand that an acknowledgment be made.
Where no method is agreed upon, any mode of acknowledgment
– automated or otherwise – is allowed; where the originator has
stated that the effects or significance of the message is conditional
on the receipt of acknowledgment, the message is deemed not
sent until receipt of acknowledgment; and where the originator
has not stated that the significance of the data message is
conditional on the receipt of acknowledgment and the
acknowledgment has not been received within the time specified,
he may inform the addressee that the acknowledgment has not
been received, specifying a reasonable time with which to make
the acknowledgment, and if no acknowledgment is still not
received, to so inform the addressee of that fact and to treat the
message as not having at all been sent or exercise other rights he
may have. The purpose of paragraph (c) of this provision is to
deal with the most common situation where an acknowledgment
is requested, without any statement being made by the originator
that the data message is of no effect until an acknowledgment has
been received.
Such a provision is needed to establish the time that the
originator of a data message who has requested an acknowledgment
of receipt is relieved from any legal implication of sending that
data message if an acknowledgment has not been received. An
example of where a provision along the lines of paragraph (c)
would be particularly useful is if the originator of an offer to a
contract who has not received the requested acknowledgment from
the addressee of the offer may need to know the point in time
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after which he is freed to transfer the offer to another party. It
may be noted that the provision does not create any obligation
binding on the originator, but merely establishes means by which
the originator, if he so wishes can clarify its status in cases where
he has not received the requested acknowledgement.
Time of dispatch of electronic data messages is treated in
Section 21, which provides that the dispatch of a message occurs
at the time the message enters an information system outside of
the originator or his agent’s control. This is but logical as only
when one does not possess absolute control over one’s dispatched
message may the message be deemed as having been really sent.
Time of receipt is in Section 22, where receipt is deemed to
have occurred: when the message enters an information system
agreed upon, or if both originator and addressee are parts of the
same information system, or if the message enters a system not so
designated at the time of retrieval. This rule does apply even if
the places of the addressee and the information are different. To
rule otherwise would create great impracticability as ISPs, (or the
information system) are invariably in places different from their
subscriber/addressees.
Place of dispatch and receipt of data messages are dealt with
in Section 23. Dispatch and receipt are always – as a default mode
– deemed to be the places of business of both originator and
addressee. This is so even if the parties use a laptop or other
portable device in the transmission and receipt of messages. In
the absence of a place of business, habitual residence is deemed
the place of dispatch and receipt. This rule acquires great
significance most especially when it says that the tax situs of
particular transactions will be determined using these rules.
The autonomy of “parties-to-a-transaction” choice of type
or level of security for their own purposes is explicitly recognized
2004]
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17
in Section 24. However, this is subject to rules and guidelines
which government may promulgate regarding e-commerce
transactions security. This is important as no one should be forced
to use a particular security system when his needs require otherwise.
There may be transactions which require little or less security
compared with others.
The law is designed also to apply to actions on contracts related
to carriage of goods.15 What is envisioned is that airway bills,
bills of lading, receipts, sales, transfers of ownership, and other
documents or papers related to carriage of goods by land, sea, or
air may now be executed electronically; this also includes giving
notices in connection with the performance of the contract;
undertaking to deliver goods; granting, acquiring, renouncing,
er
ring or ne
erring
neggotiating rights in goods, and
surrendering, transf
transfer
acquiring or transferring rights and obligations under the contract.
Given the scores of copies of documents necessary for imports
and exports, and even domestic trade, this will be of great help in
reducing inefficiency and making transactions move faster.
Section 26 refers to transport documents in saying:
when the law requires that any act referred to in Section
25 (Acts Related to Contracts on Carriage of Goods) be
carried out in writing or in a paper document, that
requirement is met if the act is carried out by using one or
more electronic data messages.
Further, it says that:
if a right is to be granted to, or an obligation is to be
acquired, by one person and no other person, and if
the law requires that x x x the right or obligation must
be conveyed to that person by the transfer, or use of, a
15. Republic Act No. 8792, § 25.
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paper document, that requirement is met if the right or
obligation is conveyed by using one or more electronic data
messages x x x. 16
and,
where one or more electronic data messages or electronic
documents are used to effect any action, no paper document
used to effect any such action is valid unless the use of
electronic data messages or electronic documents has been
terminated and replaced by the use of paper documents.17
Some view this as too much of a restriction on the parties’
right to choose the medium of communication. We view this as
an encouragement in the further use of electronic data messages
in trade transactions.
VII. T OWARDS E-G OVERNMENT
The law will move us closer to e-government, or, at least, to the
electronic delivery of government services. It mandates that
government as well as government-owned and controlled
corporations use electronic transactions in all their processes:
creation, filing, and retention of documents; issuance of permits,
licenses, or certificates of registration; or the payment or settlement
of fees and other obligations to government,18 including the use
of electronic or digital signatures where a signature will be necessary
or required. The law also mandates government to undertake these
initiatives within two (2) years.
16. Id. § 26 (3).
17. Id. § 26 (5).
18. Id. § 27.
2004]
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In order to facilitate the abovementioned goal, Section 28 of
the law calls for the installation of a government-wide electronic
online network that will facilitate the open, speedy, and efficient
online transmission between and among all government agencies,
down to the regional and provincial offices. Included in Section
28 is a provision which says:
(T)he physical infrastructure of cable and wireless systems
og
ramming
for cable TV and broadcast excluding pr
prog
ogramming
and content and the management thereof shall be
considered as within the activity of telecommunications
for the purpose of electronic commerce and to maximize
the convergence of ICT in the installation of the GII.
This is one provision that was not discussed well. It was a last
minute amendment in the House, and was included in the
bicameral report as there was no conflicting provision from the
Senate. While the philosophy contained in the provision is also
the same as that contained in the Cable Bill pending in the Senate
– i.e., the creation of a distinction between content and network
facilities in order not to violate the Constitutional requirements
of one hundred percent (100%) Filipino ownership of media
entities – I must admit that this has not been sufficiently debated
upon. How this will affect existing cable and broadcast entities
remains to be seen.
Section 29 empowers the Department of Trade and Industry
(DTI) to promote and develop electronic commerce as well as to
promulgate rules and regulations within sixty (60) days from
effectivity of the Act, which was signed on the 14th of June this
year; provide quality standards, or issue certifications in pursuance
of this Act’s intentions. Also, Section 34 states that:
(F)ailure to issue rules and regulations shall not in any manner
affect the executory nature of the provisions of this Act.
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This was intentionally placed in order to speed up the process
and also in order not to hold the implementation of this Act
hostage to what is sometimes a very slow executive department
process.
By 2003, we should expect government agencies to do most
of their licensing functions, acceptance of payments, or the issuance
of receipts online. To make this a reality, the executive agencies
should immediately develop a strategic plan to deal with the public
online. An important effect of this provision of the law is that it
will create a huge market for private sector activities in this area.
This law clearly shows that aside from creating a favorable
environment for electronic commerce, government is interested
in stimulating e-commerce growth by itself becoming a leadingedge user.
VIII. D EVEL
OPING T RUST
EVELOPING
Section 30 deals with the liability of service providers. Service
providers are not deemed liable for things where they merely acted
as access providers. Neither are they liable for acts of infringement
provided they were not aware of it; they did not knowingly receive
financial benefit from criminal or infringing acts; or they did not
directly or indirectly commit the infringement act themselves.
Service providers who have no knowledge that materials passing
through them are unlawful, and those who do not financially
benefit directly from unlawful activity, or do not commit an
unlawful act, need not be penalized. This refers to materials that
pass through a provider that may either be libelous, seditious,
pirated, etc. The service provider is not tasked with monitoring
every material that passes through its facilities as that may either
be impossible or an undue invasion of the privacy of others.
2004]
THE PHILIPPINE E-COMMERCE LAW:
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21
An important goal of any e-commerce legislation is also to
ensure that electronic transactions are safe and that data collected
electronically are kept private and confidential.
Privacy issues are addressed in Sections 31 and 32 of the law.
Section 31 says that access to an electronic file, signature, or
document shall be limited only to those who are authorized to
possess and use it. An electronic key used for identity and integrity
may only be made available to another upon consent of the
individual in lawful possession of the key. Section 32 bars those
who obtain access to an electronic key, signature, or document
from conveying or sharing the same with another.
These two (2) sections are important in that they recognize
that these files are the property of an individual and can be
possessed only by another upon the consent of their owner. They
further recognize the privacy and personal nature of the key by
prohibiting those who gain possession of it from sharing it with
others. It is our opinion that a violation of these two (2) sections
may be punishable by the catch-all provision in Section 33,
paragraph (d).
Security issues are addressed in Section 33. While this section
deals with penalties, its net effect is to help create a more secure
environment for electronic transactions. This law specifically
punishes hacking or cracking, which has been defined as either
unauthorized access or interference in a computer system or any
other type of access – authorized or not – with the intention to
destroy, corrupt, alter, or steal data. Included in this definition is
the introduction of viruses. Penalty is a minimum fine of
Php100,000.00 and mandatory imprisonment of six (6) months
to three (3) years.
Piracy or the unauthorized copying, reproduction,
dissemination, distribution, importation, as well as broadcast of
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protected works is also punishable by penalties ranging from a
minimum fine of Php100,000.00 and mandatory imprisonment
of six (6) months to three (3) years.
IX. A G LOBAL L EGAL F RAMEWORK?
The Philippine E-Commerce Act is based on the United Nations
Commission on International Trade Law (UNCITRAL) Model
Law on Electronic Commerce. The UNCITRAL is that UN
organ tasked to draft model laws which its member nations may
adopt in order to have harmonized legal regimes insofar as business
and trade are concerned. Under Section 37, it is stipulated that in
the interpretation of this law, regard must be given to its
international origin. Section 39 states that if the other party to a
transaction comes from a country that does not grant the Filipino
similar rights, he in turn will not be allowed to enjoy the benefits
of this law.
In recognizing the international character of electronic
commerce, this law is not merely bowing to reality. It is committing
the country to a mode of action that will move us closer to a
universal set of rules for e-commerce. This is important since the
real benefits for us of electronic commerce will be experienced
not when we are able to electronically transact among ourselves,
but when Filipinos outside the country are able to buy goods
from Filipinos in the Philippines, and when Filipinos in the
Philippines are able to sell their goods internationally as easily as
they would sell them to fellow Filipinos.
De
cial La
w∗
Devvelopments in Commer
Commercial
Law
Dean Cesar L. Villanueva∗∗
I. INTRODUCTION ................................................................................. 25
II. THE RETAIL TRADE LIBERATION LAW OF 2000 ................. 25
A. Liberal Policy under the Act
B. Definition and Coverage of “Retail Trade”
C. Exempted Transactions
D. Categories of Retail Trade Enterprises
E. Rules on Who May Engage in Retail Trade
F. Issue on When Business Medium is “Foreign Owned;”
Application of the Grandfather Rule
G. Requirements of Foreign Investors
H. Qualifications of Foreign Retailers
∗
Delivered at the Judicial Career Enhancement Program for
Regional Trial Court Judges (Basic Course) , on August 30, 2000,
at the PHILJA Development Center, Tagaytay City.
∗∗
Dean Cesar L. Villanueva obtained his Bachelor of Laws degree
from the Ateneo de Manila University in 1981 graduating Cum
Laude and Class Valedictorian. In the bar examinations given
that year, he placed 2nd. Shortly thereafter, he took the Certified
Public Accountant (CPA) Board Examinations, where he also
ranked 6th. He pursued further studies in law at Harvard
University where he conferred his Masters of Law. He authored
several books, namely: Philippine Corporate Law, Law on Sales,
and Commercial Law Review. He is presently the Dean of the
Ateneo Law School, Chair of the Department of Commercial
Law of the Philippine Judicial Academy, and Governor of the
Mandatory Continuing Legal Education (MCLE) Committee.
He is also a member of the Legal Education Panel of the
Commission on Higher Education (CHED), and is also a Senior
Partner of Villanueva Gabionza and de Santos.
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I. Foreign Investors Acquiring Share of Stock of Local
Retailers
J. Requirements of Foreign Retailers
III. THE ELECTRONIC COMMERCE ACT............................................ 38
A. Sales Effected as Electronic Commerce
IV. THE GENERAL BANKING LAW OF 2000 ................................. 46
A. Bank Ownership and Corporate Structures
B. Bank Powers, Requirements, and Prohibitions
C. Deposits-Taking Activities
D. Loans and Investments Functions of Banks
E. Penalties Applicable
F. Supervision, Processes, and Actions Against Banks
V. THE SECURITIES REGULATION CODE ...................................... 58
A. Tender Offer Rules
B. Proxy Solicitations
C. Broker-Directorship Rule
D. Exchanges
E. Broker-Dealer Rule
F. Independent Directors
G. Self Regulating Organizations (SRO)
VI. REGIONAL TRIAL COURT’S (RTC’S)
“CORPORATE” JURISDICTION ....................................................... 66
A. The Significant Provision of Section 5 of Presidential
Decree No. 902-A
B. The “Absolute Jurisdiction” Provisions of
Section 3 of Presidential Decree No. 902-A
C. The Powers Under Section 6 of P.D. No. 902-A
2004]
DEVELOPMENTS IN COMMERCIAL LAW
25
I. I NTR
ODUCTION
NTRODUCTION
At this point in time, there are actually four (4) major
developments in the field of Commercial Law that fall within
the judicial competence and jurisdiction of the Regional Trial
Courts, namely:
a. The Retail Trade Liberalization Act of 2000;1
b. The Electronic Commerce Act;2
c. The General Banking Law of 2000;3 and
d. The Securities Regulation Code.4
The Securities Regulation Code actually has the greatest impact
on the Regional Trial Courts since it has effectively transferred
the quasi-judicial powers and jurisdiction of the Securities and
Exchange Commission (SEC) under Sec. 5 of Presidential Decree
(P.D.) No. 902-A to the regular courts.
II. T HE R ET
AIL T RADE L IBERALIZA
TION
ETAIL
IBERALIZATION
L AW OF 2000
Republic Act No. 8762, entitled as the “RetailTrade Liberalization
Act of 2000,” was enacted in 07 March 2000, which specifically
took the place of and repealed Republic Act No. 1180, otherwise
known as the “Retail Trade Nationalization Law.”The difference
1. Republic Act No. 8762 (March, 2000).
2. Republic Act No. 8792 (June, 2000).
3. Republic Act No. 8791 (May, 2000).
4. Republic Act No. 8799 (July, 2000).
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in nomenclature used (“liberalization” versus “nationalization”),
indicates the impetus to open the Philippine economy to world
trade, and encourage foreign investments.
A. Liberal P
olic
Polic
olicyy under the Act
Essentially, the Act liberalized the Philippine retail industry to
encourage Filipino and foreign investors to forge an efficient and
competitive retail trade sector in the interest of empowering the
Filipino consumer through lower prices, higher quality goods,
better services and wider choices.5
B.
Def
inition and Co
etail Trade”
Definition
Covverag
eragee of “R
“Retail
The Act retained the same definition of “retail trade” to cover
any act, occupation or calling of habitually selling direct to the
general public merchandise, “commodities or goods for
consumption.”6 It provides for criminal penalties for those who
unlawfully engage in retail trade.7
5. Republic Act No. 8762, § 2.
6. Ibid, § 3(1).
7. Ibid, § 12 provides:
Any person who shall be found guilty of violation of any
provision of the Act shall be punished by: (a) Imprisonment
of not less than six (6) years and one (1) day but not more
than eight (8) years; and (b) Fine of not less than One million
pesos (Php1,000,000.00), but not more than Twenty million
pesos (Php20,000,000.00).
In the case of associations, partnerships or corporations,
the penalty shall be imposed upon its partners, president,
directors, manager and other officers responsible for the
violation. If the offender is not a citizen of the Philippines, he
shall be deported immediately after service of sentence.
2004]
DEVELOPMENTS IN COMMERCIAL LAW
27
The Act uses the same phrase “merchandise, commodities or
goods for consumption” in defining retail trade as found in R. A.
No. 1180, which the Supreme Court had interpreted to exclude
from its coverage merchandise and goods which are not “consumer
goods.”
Balmaceda vv.. Union Carbide Philippines, Inc.
Inc.,8 held
that the term “retail” should be associated with and limited to
goods for personal, family or household use, consumption and
utilization. It construed the Law to refer to “consumption goods”
or “consumer goods” which directly satisfy human wants and
desires and are needed for home and daily life. Accordingly, it
excluded from the coverage of retail trade goods which are
considered generally raw materials used in the manufacture of
other goods, or if not, as one of the component raw material, or
at least as elements utilized in the process of production and
manufacturing.
Good
ub
ber Co
ey
es
Goodyyear Tir
iree and R
Rub
ubber
Co.. vv.. R
Rey
eyes
es,9 held that a
manufacturer which sells rubber products to the government,
public utilities, agricultural enterprises, logging, mining, and other
entities and persons engaged in the exploitation of natural
resources, automotive assembly plants, industrial and commercial
enterprises engaged in manufacturing and sale of essential
commodities, is not engaged in retail business within the purview
of the law; but its sales to its own officers and employees would
be considered retail trade.
If the Filipino offender is a public officer or employee,
he shall, in addition to the penalty prescribed herein, suffer
dismissal and permanent disqualification from public office.
8. 124 SCRA 893 (1983).
9. 123 SCRA 273 (1983).
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In Marsman & Co
Co.,., Inc. vv.. First Coconut Central
10
Co
Co.,., Inc.
Inc., the Supreme Court defined “producer goods,” which
are not within the coverage of the Law, as:
goods (as tools and raw material) that are factors in the
production of other goods and that satisfy wants only
indirectly – called also auxiliary goods, instrumental goods,
intermediate goods.
It held that since a diesel generating unit is not a consumer
item, it necessarily did not come within the ambit of retail business
as defined by R. A. No. 1180.
By way of comparison, the Consumer Act of the Philippines
defines “consumer products” as:
goods x x x which are primarily for personal, family,
household or agricultural purposes, which shall include but
not limited to, food, drugs, cosmetics, and devices.11
Consequently, the Retail Trade Liberalization Act of 2000 is
deemed not to include within its coverage “producer goods,” which
can be sold at retail even by foreigners.
C. Ex
empted Transactions
Exempted
The Act basically maintained the same exceptions under the Retail
Trade Nationalization Act, as follows:
1. Sales by a manufacturer, processor, laborer, or worker, to
the general public of the products manufactured, processed,
or produced by him if his capital does not exceed One
hundred thousand pesos (Php100,000.00);
10. 162 SCRA 206 (1988).
11. CONSUMER ACT OF THE PHILIPPINES, art. 4(q).
2004]
DEVELOPMENTS IN COMMERCIAL LAW
29
2. Sales by a farmer or agriculturist selling the products of
his farm;
3. Sales in restaurant operations by a hotel owner or
inn-keeper irrespective of the amount of capital: Provided,
that the restaurant is incidental to the hotel business; and
4. Sales which are limited only to products manufactured,
processed or assembled by a manufacturer through a single
outlet, irrespective of capitalization.
The Act maintained the same exceptions under repealed Law,
except that:
a. It increased the capital ceiling of sales by manufacturers,
and processors from then Five thousand pesos
(Php5,000.00) to now One hundred thousand pesos
(Php100,000.00); and
b. Removed exemption introduced under P.D. No. 714,
which exempted sales of manufacturers or processors
selling to industrial or commercial users or consumers who
use the produce to render service to the general public or
to produce or manufacture goods, which are sold by them
to the public. However, as seen in the existing case-law on
the matter, such transactions would still be considered
not within the definition of retail trade law since they
would not be considered as sale of “consumer goods.”
In addition, the Act did not incorporate the exemption granted
under the Revised Rules and Regulations Implementing R. A.
No. 1180, issued by the Department of Trade and Industry (DTI),
covering sales by a manufacturer or processor to the Government
or its agencies, including government-owned and controlled
corporations.
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D. Cate
etail Trade Enter
prises
Categgories of R
Retail
Enterprises
Unlike the repealed Law, for purposes of determining who are
qualified to engage in retail trade in the Philippines, the present
Act provides for four (4) categories of retail trade activities based
on capital infusion into the trade, namely: 12
1. Category A – Enterprises with paid-up capital of the
equivalent in Philippine pesos of less than Two million
five hundred thousand US dollars (US$2,500,000.00);
2. Category B – Enterprises with a minimum paid-up
capital of the equivalent in Philippine pesos of Two
million five hundred thousand US dollars
(US$2,500,000.00), but less than Seven million five
hundred thousand US dollars (US$7,500,000.00),
provided that in no case shall the investments for
establishing a store be less than the equivalent in Philippine
Pesos of Thirty thousand US dollars (US$30,000.00);
3. Category C – Enterprises with a paid-up capital of the
equivalent in Philippine pesos of Seven million five
hundred thousand US dollars (US$7,500,000.00) or
more, provided that in no case shall the investments for
establishing a store be less than the equivalent in
Philippine pesos of Thirty thousand US dollars
(US$30,000.00); and
4. Category D – Enterprises specializing in high-end or
luxury products13 with a paid-up capital of the equivalent
12. Republic Act No. 8762, § 5.
13. Ibid, § 3(2).
“High-end or luxury goods” refers to goods which are not
necessary for life maintenance and whose demand is
generated in large part by the higher income groups. Luxury
2004]
DEVELOPMENTS IN COMMERCIAL LAW
31
in Philippine pesos of Two hundred fifty thousand US
dollars (US$250,000.00) per store.
The four (4) categories would only have relevance if the
transactions would involve consumer goods; and would have no
application to non-consumer goods since the retail of such item
is opened to all aliens and foreign corporations.
E. R
ag
etail Trade
Rules
Mayy Eng
Engag
agee in R
Retail
ules on W ho Ma
Based on the Categories, by way of summary, it is clear that the
Act provides for the following rules on who may engage in retail
oods
trade in the Philippines, when they co
covver consumer ggoods
oods,
thus:
1. Citizens of the Philippines, natural-born citizens of the
Philippines who have lost their Philippine citizenship but
who reside in the Philippines, and partnership, associations,
and corporation for or organized under the laws of the
Philippines, which are wholly-owned by Filipino citizens,
may engage in all forms of retail trade in the Philippines
and in all the categories provided for under the Act;
2. Other than in the Exempted Transactions, partnerships,
associations, and corporations organized under foreign
laws, irrespective of the Filipino ownership in their equity,
cannot engage in any form of retail trade in the Philippines.
3. Other than in the Exempted Transactions, alien individuals,
foreign partnerships, associations and corporations
organized under foreign laws, and foreign-owned
goods shall include, but are not limited to, products such
as: jewelry, branded or designer clothing and footwear,
wearing apparel, leisure and sporting goods, electronics and
other personal effects.
32
THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
partnership, associations, and corporations formed and
organized under Philippine laws, may not engage in retail
trade under Category A (enterprises with paid-up capital
of the equivalent in Philippine Pesos of less than Two
million five hundred thousand US dollars
(US$2,500,000.00) which are reserved exclusively for
Filipino citizens, natural-born citizens of the Philippines
who have lost their Philippine citizenship but who reside
in the Philippines, and corporations wholly owned by
Filipino citizens.
4. Foreign-owned partnership, associations and corporations
formed and organized under the laws of the Philippines
may, upon registration with the SEC and the DTI, or in
case of foreign-owned single proprietorships, with the
DTI, may engage or invest in the retail trade business, as
follows:
a. Under Category B (enterprises with a minimum paidup capital of the equivalent in Philippine Pesos of
Two million five hundred thousand US dollars
(US$2,500,000.00), but less than Seven million five
hundred thousand US dollars (US$7,500,000.00),
as follows:
i. Limited to not more than sixty percent (60%)
of the total equity of such retail enterprise within
the first two (2) years after the effectivity of the
Act (or up to March, 2002); and
ii. May wholly own such retail enterprises two (2)
years after the effectivity of the Act ( i.e. ,
beginning April, 2002)
2004]
DEVELOPMENTS IN COMMERCIAL LAW
33
b. May wholly own retail enterprises under Cate
Categgor
oryy
C (enterprises with a paid-up capital of the equivalent
in Philippine pesos of Seven million five hundred
thousand US dollars (US$7,500,000.00) or more);
and
iii. May wholly own retail enterprises under Cate
Categgor
oryy
D (enterprises specializing in high-end or luxury
products with a paid-up capital of the equivalent in
Philippine pesos of Two hundred fifty thousand U.S.
dollars (US$250,000.00 per store).
5. Foreign-owned partnership, associations and corporations
formed and organized under Philippine laws, may not
engage in retail trade in:
a. Cate
Categgor
oryy BB, the investments for establishing a store
is less than the equivalent in Philippine pesos of
Thirty thousand US dollars (US$30,000.00);
b. Cate
Categgor
oryy C
C, the investments for establishing a store
is less than the equivalent in Philippine pesos of
Thirty thousand US dollars (US$30,000.00); and
c. Cate
Categgor
oryy D
D, when the paid-up capital is less than
the equivalent in Philippine pesos of Two hundred
fifty thousand US dollars (US$250,000.00) per store.
F . Issue on W hen Business Medium is “F
or
“For
oreign
eign
Owned;” A
pplication of the Grandf
ather R
ule
Rule
Application
Grandfather
The Act does not define when a domestic partnership, association
or corporation is deemed “foreign-owned,” to qualify to engage
in retail activities under Categories B, C, and D.
Since the old Retail Trade Nationalization Law prohibited
corporations whose shares of stock are not one hundred percent
34
THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
(100%) owned by Filipino citizens from engaging in retail trade,
the question arose as to how to determine the citizenship of the
shares of the selling corporation when they are not held directly
by individuals, but in turn held by another entity.
Both the SEC and the DTI have applied the so-called
“grandfather rule” which is a process of characterizing the
citizenship of shares in one corporation held by another
corporation by attributing the controlling interest of the second
layer of corporate ownership.
For purposes of in
invvestments
estments, the SEC had adopted the rule
that shares belonging to corporations or partnerships of which at
least sixty percent (60%) of the capital is owned by Filipino
citizens shall be considered as of Philippine nationality, but if
the percentage of Filipino ownership in the corporation or
partnership is less than sixty percent (60%), only the number of
shares corresponding to such percentage shall be counted as of
Philippine nationality.14
In a meeting en banc of the SEC on 2 November 1989,15 the
SEC formally adopted the method of determining corporate
nationality on the basis of the Opinion of the Department of
Justice No. 18, s. 1989, dated 19 January 1989, which read as
follows:
Shares belonging to corporations or partnerships at least
60% of the capital of which is owned by Filipino citizens
shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or
partnership is less than 60% only the number of shares
corresponding to such percentage shall be counted as of
14. SEC Opinion, dated 20 March 1972.
15. SEC Quarterly Bulletin, Vol. XXIV, No.1 (March 1990).
2004]
DEVELOPMENTS IN COMMERCIAL LAW
35
Philippine nationality. Thus, if 100,000 shares are registered
in the name of a corporation or partnership at least 60%
of the capital stock or capital respectively, of which belong
to Filipino citizens, all of the said shares shall be recorded
as owned by Filipinos. But if less than 60% or, say, only
50% of the capital stock or capital of the corporation or
partnership, respectively belongs to Filipino citizens, only
50,000 shares shall be counted as owned by Filipinos and
the other 50,000 shares shall be recorded as belonging to
aliens.
However, the SEC Opinion clarified that “while a corporation
with sixty percent (60%) Filipino and forty percent (40%) foreign
equity ownership is considered a Philippine national for purposes
of investment, it is not qualified to invest in or enter into a joint
venture agreement with corporations or partnerships, of which,
capital or ownership under the Constitution or other special laws,
are limited to Filipino citizens only.”16
For purposes of the repealed Law, whatever the percentage
of Filipino ownership in the owning corporation, the foreign
ownership therein would always render a portion of its holding
in the selling company as foreign equity and would disqualify the
selling corporation to engage in retail trade.17
16. Reiterated in SEC Opinion dated 14 December 1989, SEC
Quarterly Bulletin, Vol. XXIV, No. 2 (June 1990).
17. SEC Opinion dated 21 November 1972, Securities and
Exchange Commission FOLIO 1960-1976, p. 581, published
by Media Systems, Inc.; SEC Opinion dated 22 February 1973;
ibid, p. 598; SEC Opinion dated 21 November 1972, Securities
and Exchange Commission FOLIO 1960-1976, p. 581,
published by Media Systems, Inc.; SEC Opinion dated 22
February 1973, ibid, p. 598.
36
THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
It would appear therefore that under the Act, which provides
for a more liberal policy towards foreign investments and foreign
participation in retail trade activities, the definition of when a
partnership, association or corporation is “foreign-owned” can be
expected to follow a more liberal application of the grandfather
rule under the DOJ-SEC formula, and would be interpreted to
mean foreign ownership that exceeds forty percent (40%) of the
equity of a partnership, association, or corporation organized
under Philippine laws.
G. R
equir
ements of FFor
or
eign In
Requir
equirements
oreign
Invvestors
1. The foreign investor shall be required to maintain in the
Philippines the full amount of the prescribed minimum
capital, unless the foreign investor has notified the SEC
and the DTI of its intention to repatriate its capital and
cease operation in the Philippines.18
2. Failure to maintain the full amount of the prescribed
minimum capital prior to notification of the SEC and
the DTI, shall subject the foreign investor to penalties or
restrictions on any future trading activities and business
in the Philippines.19
H. Qualif
ications of FFor
or
eign R
etailers
Qualifications
oreign
Retailers
20
No foreign retailer shall be allowed to engage in retail trade in the
Philippines unless all the following qualifications are met:
1. A minimum of Two hundred million US dollars
(US$200,000,000.00) net worth in its parent corporation
18. Republic Act No. 8762, § 5.
19. Ibid, § 5.
20. Ibid, § 8.
2004]
DEVELOPMENTS IN COMMERCIAL LAW
37
for Categories B and C, and Fifty million US dollars
(US$50,000,000.00) net worth in its parent corporation
for Category D;
2. Five (5) retailing branches or franchises in operation
anywhere around the world unless such retailer has, at least
one (1) store capitalized at a minimum of Twenty-five
million US dollars (US$25,000,000.00);
3. Five (5) years track record in retailing; and
4. Only nationals from, or juridical entities formed or
incorporated in countries which allow the entry of
Filipino retailers shall be allowed to engage in retail trade
in the Philippines.
I. FFor
or
eign In
oreign
Invv estors Acquiring Shar
Sharee of Stoc
Stockk of
Local R
etailers
Retailers
Foreign investors acquiring shares from existing retail stores
whether or not publicly listed whose net worth is in excess of the
peso equivalent of Two million five hundred thousand U.S. dollars
(US$2,500,000.00), may purchase only up to a maximum of
sixty percent (60%) of the equity thereof within the first two
(2) years from the effectivity of the Act and thereafter, they may
acquire the remaining percentage consistent with the allowable
foreign participation.21
J. Requir
ements of FFor
eign R
etailers
equirements
oreign
Retailers
or
Under the Act, the following are required of qualified foreign
retailers, namely:
1. Public Offering of Shares of Stock – All retail
trade enterprises under Categories B and C in which
21. Ibid, § 6.
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THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
foreign ownership exceeds eighty percent (80%) of equity
shall offer a minimum of thirty percent (30%) of their
equity to the public through any stock exchange in the
Philippines within eight (8) years from their start of
operations;22
2. Promotion of Locally Manufactured Products –
For ten (10) years after the effectivity of the Act, at least
thirty percent (30%) of the aggregate cost of the stock
inventory of foreign retailers falling under Categories B
and C and ten percent (10%) for Category D shall be
made in the Philippines;23 and
3. Prohibited Activities of Qualified Foreign
Retailers – Qualified foreign retailers shall not be allowed
to engage in certain retailing activities outside their
accredited stores through the use of mobile or rolling
stores or carts, the use of sales representatives, door-todoor selling, restaurants and sari- sari stores, and such other
similar retailing activities.24
III. T HE E LECTR
ONIC C OMMER
CE A CT
LECTRONIC
OMMERCE
The Electronic Commerce Act provides for the following salient
features:
a. Legal recognition, admissibility, and evidential weight of
electronic data messages, and electronic documents;
22. Ibid, § 7.
23. Ibid, § 9.
24. Ibid, § 10.
2004]
DEVELOPMENTS IN COMMERCIAL LAW
39
b. Recognition of electronic signatures;
c. Recognition that an electronic data message or an electronic
document suffices as an original document;
d. Mandates that within two (2) years for all government
agencies to use and accept electronic data messages,
electronic signatures in their transactions;
e. Installation within two (2) years of an electronic online
network otherwise known as RPWEB to promote the
use of electronic documents and electronic data messages
to the government and to the general public;
f. Authorizes the DTI to direct and supervise the promotion
of e-commerce in the country in coordination with other
government and private agencies;
g. Penalizes hacking or cracking which is the unauthorized
access to intrusion or interference in a computer or a
computer network by means of a computer, device or
gadget, including the introduction of viruses; and
h. Penalizes piracy of copyrighted works, including legally
protected sound recordings or information materials
through the use of telecommunications networks in a
manner that infringes intellectual property rights.
A. Sales Effected as Electronic Commerce
1. Le
ecognition of Electr
onic Data Messag
Leggal R
Recognition
Electronic
Messagee
Under Section 6 of the Electronic Commerce Act, information
shall not be denied validity or enforceability solely on the ground
that it is in the form of an electronic data message purporting to
give rise to such legal effect, or that it is merely incorporated by
reference in that electronic data message.
40
THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
The Act defines an “electronic document” as that referring
to information or the representation of information, data, figures,
symbols or other modes of written expression, described or
however represented, by which a right is established or an obligation
extinguished, or by which a fact may be proved and affirmed,
which is received, recorded, transmitted, stored, processed, retrieved,
or produced electronically.25
It defines an “electronic signature” as that referring to any
distinctive mark, characteristic and/or sound in electronic form,
representing the identity of a person and attached to or logically
associated with the electronic data message or electronic document
or any methodology or procedures employed or adopted by a
person and executed or adopted by such person with the intention
of authenticating or approving an electronic data message or
electronic document. 26
2. Le
ecognition of Electr
onic Documents
Leggal R
Recognition
Electronic
Under Section 7 of the Act, electronic documents shall have the
legal effect, validity or enforceability as any other document or
legal writing, and:
a. Where the law requires a document to be in writing, that
requirement is met by an electronic document if the said
electronic document maintains its integrity and reliability
and can be authenticated so as to be usable for subsequent
reference, in that:
i. The electronic document has remained complete and
unaltered, apart from the addition of any endorsement
and any authorized change, or any change which arises
25. ELECTRONIC COMMERCE ACT, § 5(f).
26. Ibid., § 5(e).
2004]
DEVELOPMENTS IN COMMERCIAL LAW
41
in the normal course of communication, storage, and
display; and
ii. The electronic document is reliable in the light of
the purpose for which it was generated and in the
light of all relevant circumstances.
b. Paragraph (a) applies whether the requirement therein is
in the form of an obligation or whether the law simply
provides consequences for the document not being
presented or retained in its original form.
c. Where the law requires that a document be presented or
retained in its original form, that requirement is met by
an electronic document if:
i. There exists a reliable assurance as to the integrity of
the document from the time when it was first
generated in its final form; and
ii. That document is capable of being displayed to the
person to whom it is to be presented: Provided, that
no provision of this Act shall apply to vary any and
all requirements of existing laws on formalities
required in the execution of documents for their
validity.
For evidentiary purposes, an electronic document shall be
the functional equivalent of a written document under existing
laws.27
This Act does not modify any statutory rule relating to the
admissibility of electronic data messages or electronic documents,
except the rules relating to authentication and best evidence.28
27. Ibid, § 7.
28. Ibid, § 7.
42
THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
Under Section 12 of the Act, in any legal proceedings, nothing
in the application of the rules on evidence shall deny the
admissibility of an electronic data message or electronic document
in evidence:
a. On the sole ground that it is in electronic form; or
b. On the ground that it is not in the standard written form,
and the electronic data message or electronic document
meeting, and complying with the requirements under
Section 6 or 7 hereof shall be the best evidence of the
agreement and transaction contained therein.
In assessing the evidential weight of an electronic data message
or electronic document, the reliability of the manner in which it
was generated, stored or communicated, the reliability of the
manner in which its originator was identified, and other relevant
factors shall be given due regard. 29
Under Section 16(1) of the Act, except as otherwise agreed
by the parties, an offer, the acceptance of an offer and such other
elements required under existing laws for the formation of
contracts may be expressed in, demonstrated and proved by means
of electronic data messages or electronic documents and no
contract shall be denied validity or enforceability on the sole ground
that it is in the form of an electronic data message or electronic
documents, or that any or all of the elements required under
existing laws for the formation of the contracts is expressed,
demonstrated and proved by means of electronic data messages
or electronic documents.
3. Le
ecognition of Electr
onic Signatur
es
Leggal R
Recognition
Electronic
Signatures
Under Section 8 of the Act, an electronic signature on the
electronic document shall be equivalent to the signature of a person
29. Ibid, § 12.
2004]
DEVELOPMENTS IN COMMERCIAL LAW
43
on a written document if the electronic signature is proved by
showing that a prescribed procedure, not alterable by the parties
interested in the electronic document, existed under which:
a. A method is used to identify the party sought to be bound
and to indicate said party’s access to the electronic
document necessary for his consent or approval through
the electronic signature;
b. Said method is reliable and appropriate for the purpose
of which the electronic document was generated or
communicated, in the light of all circumstances, including
any relevant agreement;
c. It is necessary for the party sought to be bound, in order
to proceed further with the transaction, to have executed
or provided the electronic signature; and
d. The other party is authorized and enabled to verify the
electronic signature and to make the decision to proceed
with the transaction authenticated by the same.
4. Pr
esumption R
elating to Electr
onic Signatur
es
Presumption
Relating
Electronic
Signatures
Section 9 of the Act specifically provides that in any proceedings
involving an electronic signature, it shall be presumed that:
a. The electronic signature is the signature of the person to
whom it correlates; and
b. The electronic signature was affixed by that person with
the intention of signing or approving the electronic
document unless the person relying on the electronically
signed electronic document knows or has notice of defects
in or unreliability of the signature or reliance on the
electronic signature is not reasonable under the
circumstances.
44
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5. Consummation of Electr
onic Transactions
Electronic
Under Section 16(2) of the Act, electronic transactions made
through networking among banks, or linkages, thereof, with other
entities or networks, and vice versa, shall be deemed consummated
upon the actual dispensing of cash or the debit of one account
and the corresponding credit to another, whether such transaction
is initiated by the depositor or by an authorized collecting party:
Provided, that the obligation of one bank, entity, or person
similarly situated to another arising therefrom shall be considered
absolute and shall not be subjected to the process of preference
of credits.
onic Commer
ce in Car
riag
6. Electr
Carriag
riagee of Goods
Electronic
Commerce
The Electronic Commerce Acts is expressly applicable to any action
in connection with, or in pursuance of, a contract of carriage of
goods, including but not limited to:
a. Furnishing the marks, number, quantity or weight of
goods; stating or declaring the nature or value of goods;
issuing a receipt for goods; and confirming that goods
have been loaded;
b. Notifying a person of the terms and conditions of the
contract; and giving instructions to a carrier;
c. Claiming delivery of goods; authorizing release of goods;
and giving notice of loss of, or damage to goods;
d. Giving any other notice or statement in connection with
the performance of the contract;
e. Undertaking to deliver goods to a named person or a
person authorized to claim delivery;
f. Granting, acquiring, renouncing, surrendering, transferring
or negotiating rights in goods;
2004]
DEVELOPMENTS IN COMMERCIAL LAW
45
g. Acquiring or transferring rights and obligations under
the contract. 30
Rule on Transpor
ransportt Documents 31 – The Act provides for the
following rules when it covers the transport documents for carriage
of goods effected through electronic commerce, thus:
a. Subject to paragraph (c) below, where the law requires
that any action referred to in Sec. 25 be carried out in
writing or by using a paper document, that requirement
is met if the action is carried out by using one or more
electronic data messages or electronic documents.
b. Paragraph (a) above applies whether the requirement
therein is in the form of an obligation or whether the law
simply provides consequences for failing either to carry
out the action in writing or to use a paper document.
c. If a right is to be granted to, or an obligation is to be
acquired by, one person and no other person, and if the
law requires that, in order to effect this, the right or
obligation must be conveyed to that person by the transfer
or use of a paper document, that requirement is met if
the right or obligation is conveyed by using one or more
electronic data messages or electronic documents:
Provided, that a reliable method is used to render such
electronic data messages or electronic documents unique.
For the purposes of paragraph (c) immediately above, the
standard of reliability required shall be assessed in the light of the
purpose for which the right or obligation was conveyed and in
the light of all the circumstances, including any relevant agreement.
30. Ibid, § 25.
31. Ibid, § 26.
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[VOL. 6:22
Where one or more electronic data messages or electronic
documents are used to effect any action in subparagraphs (f) and
(g) of Section 25, no paper document used to effect any such
action is valid unless the use of electronic data message or electronic
document has been terminated and replaced by the use of paper
documents.32
A paper document issued in these circumstances shall contain
a statement of such termination. The replacement of electronic
data messages or electronic documents by paper documents shall
not affect the rights or obligations of the parties involved.33
If a rule of law is compulsorily applicable to a contract of
carriage of goods which is in, or is evidenced by, a paper document,
that rule shall not be inapplicable to such a contract of carriage
of goods which is evidenced by one or more electronic data
messages or electronic documents by reason of the fact that the
contract is evidenced by such electronic data messages or electronic
documents instead of by a paper document.34
IV
IV.. T HE G ENERAL B ANKING L AW
OF
2000 35
The General Banking Law of 2000, basically applies to universal
banks36 and commercial banks.37 It only has suppletory application
32. Ibid, § 26(5).
33. Ibid, § 26(5).
34. Ibid, § 26(6).
35. Based on and reconfigured from the paper prepared by Atty.
Jose Salvador Y. Mirasol.
36. GENERAL BANKING LAW OF 2000, §§ 3.2, 28-28.
37. Ibid, §§ 3.2, 29-32.
2004]
DEVELOPMENTS IN COMMERCIAL LAW
47
to thrift banks, rural banks, and other banks, of which the
organization, ownership, capital, powers, supervision, and general
conduct of business continue to be primarily governed by the
Thrift Banks Act, Rural Banks Act and other special laws.38
The Law provides that no new commercial bank will be
established within three (3) years from the Law’s effectivity (13
June 2000).39
Entry of foreign banks is governed by the Foreign Banks
Liberalization Act in connection with the proper special law
applicable to the type of bank invested in by the foreign bank.40
The following are the salient features of the Law, as regrouped
in relevant areas of consideration, thus:
A. Bank Ownership and Corporate Structures
eign Bank Ownership – Within seven (7) years
1. For
oreign
from effectivity of the Law, foreign banks may be allowed
to own up to one hundred percent (100%) equity of
only one (1) domestic bank as a mode of entry. 41
2. Other Foreign Ownership – Other foreign
individuals and non-bank corporation may only own up
to forty percent (40%) of the voting stock of a domestic
bank. The nationality of the controlling shareholders of
the non-bank corporations will be traced (grandfather rule)
to determine the foreign ownership of the domestic
38. Ibid, § 71.
39. Ibid, § 8.
40. Ibid, § 72.
41. Ibid, § 73.
48
THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
bank.42 However, at least sixty percent (60%) of the
voting stock of thrift banks may be foreign-owned.43
3. Local Banks Owning Banks – A publicly-listed
universal bank or commercial bank may own up to one
hundred percent (100%) of the voting stock of only
one other universal or commercial bank.44
amil
4. Limits to FFamil
amilyy Holdings – There is no more limit
to the stockholdings of individuals related within the 4th
degree of consanguinity or affinity, whether legitimate or
common-law,45 or by the corporations that they own or
control,46 so long as the stockholdings are fully disclosed
in all transactions with the bank.
5. Disclosure of Ownership – Any person who acquires
directly or indirectly the beneficial ownership of more
than five percent (5%) of a listed bank shall disclose his
ownership and proposed plans to the bank, the Philippine
Stock Exchange and the SEC.47
ectors – At least two (2) directors of a bank must be
6. Dir
Directors
“independent,” that is, not an officer or employee of the
bank, its subsidiaries or affiliates or related interests.48
Meetings of the board may now be conducted through
teleconferencing and video-conferencing.49
42. Ibid, § 11.
43. THRIFT BANK ACT OF 1995, § 8.
44. GENERAL BANKING LAW OF 2000, § 25.
45. Ibid, § 12.
46. Ibid, § 13.
47. SECURITIES REGULATION CODE, § 18.
48. GENERAL BANKING LAW OF 2000, § 15.
49. Ibid, § 15.
2004]
DEVELOPMENTS IN COMMERCIAL LAW
49
ements of Listed Banks – All listed banks
7. Requir
equirements
shall disclose to the SEC, PSE and all shareholders an
Annual Report [17, SRC]. While transfer of bank
securities traded in the PSE may be validly made by book
entries, banks and their shareholders shall comply with
the applicable ceilings on shareholdings prescribed by law.50
oper R
ule – To protect depositors, the
8. Fit and Pr
Proper
Rule
Monetary Board shall review the competence, integrity,
training, experience and education (CITEE) of a director
or officer of a bank and disqualify, suspend or remove
those found unfit.51
9. Compensation – To protect the funds of depositors,
the compensation package of directors and officers may
be regulated in exceptional cases, such as when a bank is
under comptrollership or conservatorship, is conducting
business in an unsafe or unsound manner, or is in an
unsatisfactory financial condition.52
B. Bank P
equir
ohibitions
Poowers, R
Requir
equirements,
Prohibitions
ements, and Pr
wed Allied Under
takings – A bank may use its
1. Allo
Allow
Undertakings
branches as outlets for the presentation and/or sale of
the financial products of its allied undertakings or
investment house units.53
onic Banking – The use of electronic devices,
2. Electr
Electronic
such as computers, and processes for recording, storing
50. SECURITIES REGULATION CODE, § 43.3.
51. GENERAL BANKING LAW OF 2000, § 16.
52. Ibid, § 18.
53. Ibid, § 20.
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and transmitting information or data in connection with
the operations of bank, quasi-bank or trust entity,
including the delivery of services and products to
customers, is now recognized and made subject to
regulation by the Bangko Sentral.54
national Settlements – The Monetary
3. Bank of Inter
International
Board shall prescribe risk-based capital,55 as well as ratios,
ceilings, limitations, or other forms of regulation on the
different types of accounts and practices,56 which conform
to the internationally accepted standards, including those
of the Bank for International Settlements.
4. Unsaf
Unsafee and Unsound Banking – The Monetary Board
shall determine if a bank is deemed as conducting business
in an unsafe or unsound manner by considering if the act
or omission may result in material loss or damage or
abnormal risk or danger to the safety, stability, liquidity
or solvency of the institution, or its depositors, creditors,
investors, stockholders or the public, or has caused undue
injury or unwarranted benefit, or is grossly and manifestly
disadvantageous to the bank, even if the act or omission
is not otherwise prohibited by law or regulation.57
Consequences are (i) fines of up to Thirty thousand pesos
(Php30,000.00) daily, (ii) suspension of rediscounting
privileges or access to Bangko Sentral ng Pilipinas (BSP)
credit facilities, (iii) suspension of lending or forex
54. Ibid, § 59.
55. Ibid, § 34.
56. Ibid, § 5.
57. Ibid, § 56.
2004]
DEVELOPMENTS IN COMMERCIAL LAW
51
operations, (iv) suspension of authority to accept new
deposits or make new investments, (v) suspension of
interbank clearing privileges, (vi) revocation of QuasiBanking (QB) license, (vii) preventive suspension of
director or officer, (viii) cease and desist order,58 and (ix)
receivership and liquidation.
5. Outsourcing – No bank shall outsource inherent
banking functions.59
C. De
posits-T
aking Acti
vities
Deposits-T
posits-Taking
Activities
1. Demand Deposits – A bank other than a universal or
commercial bank cannot accept or create demand deposits
except upon prior approval of, and subject to conditions
and rules set by the Monetary Board.60
ersonnel – No bank shall
2. Casuals and Nonr
Nonreegular P
Personnel
employ casual or nonregular personnel or too lengthy
probationary personnel in the conduct of its business
involving bank deposits.61
3. Financial Statements – A bank must publish a
statement of its true financial condition in terms
understandable to the layman at least once quarterly.62
4. Bank Holidays – If a bank or quasi-bank declares a
bank holidays or in any manner suspends the payment of
58. NEW CENTRAL BANK ACT OF 1993, § 37.
59. GENERAL BANKING LAW OF 2000, § 55.1(e).
60. Ibid, § 33.
61. Ibid, § 55.4.
62. Ibid, § 61.
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its deposit liabilities continuously for more than thirty
(30) days, the Monetary Board may summarily and
without need for prior hearing close the bank and place it
under receivership of the Philippine Deposit Insurance
Corporation (PDIC).63
D. Loans and In
Invvestments Functions of Banks
le Bor
1. Sing
Single
Borrrowers Limits – The total loans, credit
accommodations and guarantees (except those secured by
non-risk items) extended to any person or entity shall
not exceed twenty percent (20%) (from 25%) of the net
worth of the bank.64
2. Bank Guarantees – Banks are now impliedly allowed to
issue guarantees.65
3. DOSRI Loans – No Director, Officer, Stockholder,
or their Related Interest shall borrow from or become a
guarantor or obligor of the bank, unless approved in
writing by majority of the other members of the board,
on terms not less favorable to the bank. Not only direct
borrowing, by the Director, Officer or Stockholder but
even indirect borrowing by their Related Interest should
not exceed the respective unencumbered deposits and book
value of the paid-in capital.66
4. Security Co
Covv er – Loans and other credit
accommodations against real estate shall not exceed
63. Ibid, § 53.
64. Ibid, § 35.
65. Ibid, §§ 35 and 36 in connection with § 55.
66. Ibid, § 36.
2004]
DEVELOPMENTS IN COMMERCIAL LAW
53
seventy-five percent (75%) of the appraised value of
the estate and sixty percent (60% ) (previously at 70%)
of the appraised value of the insured improvements.67
Those made against chattels and intangibles shall not
exceed seventy-five percent (75%) (previously at 50%)
of the appraised value of the security.68 However, the
Monetary Board may otherwise prescribe another ratio.69
5. Loan Applications – Among the documents which
may be required of the credit applicant aside from his
statement of assets and liabilities and income and
expenditure can be his income tax return.70 Not only
fraudulent overvaluation of security, false
misrepresentation, bribery, or attempt to defraud, but even
suppression of material facts in a loan application, renewal
or increase, shall constitute a crime.71
tizations – Loans with maturities of more
6. Loan Amor
Amortizations
than five (5) years must have an initial amortization no
later than the five (5) years (previously three [3] years)
from grant of the loan.72
of
inancing – The peculiar characteristics of
7. Micr
Microf
ofinancing
microfinance and cash flow-based lending not covered by
traditional collaterals must be considered in the
67. Ibid, § 37.
68. Ibid, § 38.
69. Ibid, §§ 37 and 38.
70. Ibid, § 40.
71. Ibid, § 55.2.
72. Ibid, § 44.
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formulation of rules regarding (i) the qualifications and
financial capacities of borrowers in the grant of loans and
other credit accommodations;73 (ii) the interest rates,
especially unconscionable rates, that may be imposed
especially by lending investors and similar lenders of salary
loans and similar credit accommodations;74 and (iii) the
schedule of loan amortization.75
8. Social-Content Loans – Loans to finance educational
institutions, cooperatives, hospitals and other medical
services, socialized or low-cost housing, local government
units, and other activities with social content, if granted
without government guarantee, will be given incentives.76
ec
losur
tg
ag
9. For
orec
eclosur
losuree of Mor
Mortg
tgag
agee – While the right of
redemption of one (1) year is retained for both judicial
and extrajudicial foreclosure, an exception is now created
in the case of extrajudicial foreclosures where the
mortgagor is a juridical person. After the effectivity of
the Law, redemption is available only until the registration
of the certificate of foreclosure sale, which shall be no
more than three (3) months after foreclosure, “whichever
is earlier.”77
E . Penalties A
pplicab
le
Applicab
pplicable
1. Penalty in Connection with Bank Examination –
Refusal to file required report, to permit any lawful
73. Ibid, § 40.
74. Ibid, § 43.
75. Ibid, § 44.
76. Ibid, § 46.
77. Ibid, § 47.
2004]
DEVELOPMENTS IN COMMERCIAL LAW
55
examination of the bank,78 or to comply with required
presentation or production of records within a reasonable
time:79 Fine of Fifty thousand (Php50,000.00) pesos to
One hundred thousand (Php100,000.00) pesos, or
imprisonment of one (1) to five (5) years, or both.80
ting –
2. Penalty in Connection with Bank R
Ree por
porting
False Statement: Willful making of a false or misleading
statement on a material fact,81 or making of false report:82
Fine of One hundred thousand (Php100,000.00) pesos
to Two hundred thousand (Php200,000.00)pesos, or
imprisonment of up to five (5) years, or both.83
or Willful Violations – Willful violation
3. Penalty ffor
of the law or order or regulation, or carrying business in
an unlawful or unsafe manner,84 including willful violation
of DOSRI loan limitations,85 violations after a bank has
been declared insolvent or placed under receivership,86and
violations in connection with the trust functions:87 Fine
of Fifty thousand (Php50,000.00) pesos to Two hundred
78. NEW CENTRAL BANK ACT OF 1993, § 34.
79. Ibid, § 6.
80. Ibid, § 34.
81. Ibid, § 35.
82. GENERAL BANKING LAW OF 2000, § 55.3.
83. NEW CENTRAL BANK ACT OF 1993, § 35.
84. Ibid, § 36.
85. GENERAL BANKING LAW OF 2000, § 36.
86. Ibid, § 70.
87. Ibid, § 91.
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thousand (Php200,000.00) pesos, or imprisonment of
two (2) years to ten (10) years, or both.88
F . Supervision, Processes, and Actions Against Banks
vision oovver Subsidiaries – The Bangko
1. BSP Super
Supervision
Sentral shall, when examining a bank, have authority to
examine wholly or majority owned or controlled
subsidiaries of the bank.89 To enhance bank supervision,
the Monetary Board shall establish criteria for reviewing
major acquisitions or investments by a bank including
corporate affiliates or structures that may expose the bank
to undue risks or hinder effective supervision.90
2. Philippine Deposit Insurance Corporation (PDIC)
Audit of Banks – The power of the PDIC to audit
banks whose deposits it is mandated to insure up to One
hundred thousand pesos (Php100,000.00) per depositor
has been discontinued.91
3. Conservatorship – If the Monetary Board finds a bank
in a state of continuing inability or unwillingness to
maintain a condition of liquidity deemed adequate to
protect depositors and creditors, it may appoint a
conservator to take charge of the assets, liabilities and
management to restore the bank’s viability. In one (1)
88. NEW CENTRAL BANK AACT OF 1993, § 36.
89. GENERAL BANKING LAW OF 2000, §§ 4 and 7.
90. Ibid, § 50.
91. Ibid., § 95. This was effected through the repeal of par. 8, § 8
of R.A. No. 3591, as amended by R.A. No. 7400.
2004]
DEVELOPMENTS IN COMMERCIAL LAW
57
year, the conservator shall recommend restoration of
management or receivership.92
4. Recei
eceivvership and In
Invvoluntar
oluntaryy Liquidation – If the
Monetary Board finds that a bank:
(i) is unable to pay its liabilities as they become due in
the ordinary course of business (excluding financial
panic);
(ii) has insufficient realizable assets to meet its liabilities;
(iii) cannot continue in business without involving
probable losses to depositors and creditors; or
(iv) has willfully violated a final cease and desist order
involving acts of fraud or dissipation of assets;
the Monetary Board may summarily and without need
for prior hearing, forbid the bank from doing business
and designate the PDIC as receiver.
The PDIC shall take charge of all assets and liabilities
and act as a receiver, without the power to dispose of
assets. Within ninety (90) days, the receiver shall
determine if the bank may be rehabilitated without risk
to depositors and creditors; otherwise, it will recommend
liquidation by filing an ex parte petition for assistance in
liquidation with the Regional Trial Court (RTC), in which
case the RTC will adjudicate dispute claims, enforce
liabilities, and decide on other issues. It will then liquify
the assets (which assets are exempt from attachment and
deemed in custodia legis) and pay the debts according to
the rules on concurrence and preference of credits.
5. Review of BSP Action – Action of the Monetary
Board with respect to conservatorship, receivership or
92. NEW CENTRAL BANK ACT OF 1993, § 30.
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liquidation shall be final and executory and may not be
restrained or set aside by the court except on petition for
certiorari on jurisdictional grounds filed by the majority
of shareholders within ten (10) days from receipt of order
directing receivership.93
6. Settlement of Disputes – The Bangko Sentral shall
be consulted by other government agencies or
instrumentalities in actions involving controversies in
banks, their directors, officers or stockholders.94
V.
T HE S ECURITIES R EGULA
TION C ODE
EGULATION
The salient changes brought about underThe Securities Regulation
Code, in contrast to the Revised Securities Act, are as follows:
a. The Code took away the quasi-judicial powers of the SEC
under Section 5 of P. D. No. 902-A, and transferred such
controversies within the original and exclusive jurisdiction
of the RTC (Sec. 5.2);
b. Its greater “stockholders protection” under the “TenderOffer” Rules (Sec. 19) and “Proxy Solicitation” Rules
(Sec. 20);
c. Expressly disqualified Brokers from being directors or
from occupying similar positions in issuer corporations
whose securities are listed in the Exchange (Sec. 30);
d. Demutualized Exchanges to rid them of “old boys
network” (Sec. 33.2);
93. NEW CENTRAL BANK ACT OF 1993, §§30, 31 and 32; GENERAL
BANKING LAW of 2000, §§ 67 and 69.
94. GENERAL BANKING LAW OF 2000, § 63.
2004]
DEVELOPMENTS IN COMMERCIAL LAW
59
e. Prohibition of brokers from acting as dealers and from
dealing in securities for their own account (Sec. 34);
f. It provided for “Independent Directors” for Listed or
Large Corporations (Sec. 38);
g. Defined and provided rules for “Self Regulatory
Organizations” (Sec. 39);
The first item on the transfer of the quasi-judicial powers of
the SEC over “corporate” cases is thoroughly discussed in Section
II since, it is the more important issue insofar as the audience is
concerned.
A. Tender Of
ules
Offfer R
Rules
1. Obligations of the Offeror
Any person or group of persons who intends:
a. To acquire at least fifteen percent (15%) of:
i. Any class of any equity security of a listed
corporation; or
ii. Any class of any equity security of a corporation with
assets of at least Fifty million pesos (Php50 Million)
and having two hundred (200) or more stockholders
with at least one hundred (100) shares each;
b. To acquire at least thirty percent (30%) of such equity
over a period of twelve (12) months;
shall comply with the following requirements:
i. Make a tender offer to stockholders by filing with the
SEC a declaration to that effect;
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ii. Furnish the issuer a statement containing the prescribed
information under Notice of General Safeguard Measures
in Sec. 17 of the Code;
iii. Publish all requests or invitations for tender, materials
making a tender offer and requesting or inviting letters
of such a security;
iv. File with the SEC additional material soliciting or
requesting such tender offers subsequent to the initial
solicitation; and
v. Send such additional materials to the issuer not later than
the time copies of such materials are first published , sent
or given to security holders. (Sec. 19.1a)
2. Right of Stockholders on Deposited Securities
Securities deposited pursuant to a tender offer or request or
invitation for tenders may be withdrawn by the depositor at any
time throughout the period that the tender offer remains open
and if the securities deposited have not been previously accepted
for payment, and at any time after sixty (60) days from the date
of the original tender offer or request or invitation, except as the
SEC may otherwise prescribe. (Sec. 19.1c)
3. R
ule W hen Securities Tender
ed Ex
ceed Of
Rule
endered
Exceed
Offfer
Where the securities offered exceed that which a person or group
of persons is bound or willing to take and pay, the securities that
are subject of the tender offer shall be taken up as nearly as may
be pro rata, disregarding fractions, according to the number of
securities deposited by each depositor. This shall also apply to
securities deposited within ten (10) days after notice of an increase
in the consideration offered to security holders is first published
or sent or given to security holders. (Sec. 19.1d)
2004]
DEVELOPMENTS IN COMMERCIAL LAW
61
4. Var
ying of Ter
m of Tender Of
arying
erm
Offfer
Where any person varies the terms of a tender offer or request or
invitation for tenders before the expiration thereof by increasing
the consideration offered to holders of such securities, such person
shall pay the increased consideration to each security holder whose
securities are taken up and paid for whether or not such securities
have been taken up by such person before the variation of the
tender offer or request or invitation. (Sec. 19.1e)
5. Unla
wful Acts in Tender Of
Unlawful
Offfers
It shall be unlawful for any person to make any untrue statement
of a material fact or omit to state any material fact necessary in
order to make the statements, in the light of the circumstances
under which they are made, not misleading; or to engage in any
fraudulent, deceptive, or manipulative acts or practices, in
connection with any tender offer or request or invitation for
tenders, or any solicitation of security holders in opposition to or
in favor of any such offer, request, or invitation. The Commission
shall, for the purposes of this subsection, define and prescribe
means reasonably designed to prevent such acts and practices as
fraudulent, deceptive, or manipulative. (Sec. 19.2)
B. Pr
Prooxy Solicitations
Proxies must be issued and proxy solicitation must be made in
accordance with rules and regulations to be issued by the SEC
(Sec. 20.1), consistent with the following rules:
1. Proxies must be in writing, signed by the stockholder or
his duly authorized representative and filed before the
scheduled meeting with the corporate secretary. (Sec. 20.2)
2. Unless otherwise provided in the proxy, it shall be valid
only for the meeting for which it is intended. No proxy
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shall be valid and effective for a period longer than five
(5) years at one time. (Sec. 20.3)
3. No broker or dealer shall give any proxy consent or
authorization, in respect of any security carried for the
account of a customer, to a person other than the
customer, without the express written authorization of
such customer. (Sec. 20.4)
4. A broker or dealer who holds or acquires the proxy for at
least ten per centum (10%) or such percentage as the
SEC may prescribe of the outstanding share of the issuer,
shall submit a report identifying the beneficial owner
within ten (10) days after such acquisition, for its own
account or that of the customer, to the issuer of the
security, to the Exchange where the security is traded and
to the SEC. (Sec. 20.5)
C. Br
ok
er
-Dir
ectorship R
ule
Brok
oker
er-Dir
-Directorship
Rule
No broker or dealer shall deal in or otherwise buy or sell, for its
own account or for the account of its customers, listed securities
issued by a corporation, where:
1. Any of its stockholder, director, associated person or
salesman, or authorized clerk of said broker or dealer;
2. All the relatives of the foregoing within the fourth civil
decree of consanguinity or affinity;
is at the time holding office in said issuer corporation, as a director,
president, vice-president, manager, treasurer, comptroller, secretary
or any office of trust and responsibility, or is a controlling person
of the issuer. (Sec. 30).
2004]
DEVELOPMENTS IN COMMERCIAL LAW
63
D. Ex
es
Excchang
hanges
The Code provides for the following changes when it comes to
the stock exchanges, which would affect the Philippine Stock
Exchange, the more salient ones of which are as follows (Sec.
33.2):
1. Stock Exchange must be organized as a stock corporation;
2. It shall engage solely in the business of operating an
exchange;
3. No person may beneficially own or control, directly or
indirectly, more than five percent (5%) of the voting
rights of the Exchange;
4. No industry or business group may beneficially own or
control, directly or indirectly, more than twenty percent
(20%) of the voting rights of the exchange;
• But the SEC may adopt rules, regulations or issue an
order, upon application, exempting an applicant from
this prohibition where it finds that such ownership
or control will not negatively impact the exchange’s
ability to effectively operate in the public interest.
5. A fair procedure for disciplining members and associated
persons, including denial of membership, expulsion,
suspension;
6. The brokers in the board of the Exchange shall comprise
of not more than forty-nine percent (49%) of such board
and shall proportionately represent the Exchange
membership in terms of volume/value of trade and paidup capital, and that any natural person associated with a
juridical entity that is a member shall himself be deemed
to be a member for this purpose;
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7. For the board of the Exchange to include in its
composition:
• The President of the Exchange;
• Not less than fifty-one percent (51%) of the
remaining members of the Board to be comprised of
three (3) independent directors and persons who
represent the interests of issuers, investors, and other
market participants, who are not associated with any
broker or dealer or member of the Exchange for a
period of two (2) years prior to his/her appointment.
8. The president and other management of the Exchange
shall consist only of persons who are not members and
are not associated in any capacity, directly or indirectly
with any broker or dealer or member or listed company
of the Exchange.
E . Br
ok
er
-Dealer R
ule
Brok
oker
er-Dealer
Rule
The Code defines a “Broker” as a person engaged in the business
of buying and selling securities for the account of others. (Sec.
3.3); while a “Dealer” is any person who buys and sells securities
for his/her own account in the ordinary course of business. (Sec.
3.4)
Under the Code, it shall be unlawful for any member-broker
of an Exchange to effect any transaction on such Exchange for its
own account, the account of an associated person, or an account
with respect to which it or an associated person thereof exercises
investment discretion; except with respect to the following:
1. Any transaction by a member-broker acting in the capacity
of a market maker;
2004]
DEVELOPMENTS IN COMMERCIAL LAW
65
2. Any transaction reasonably necessary to carry on an
odd-lot transaction;
3. Any transaction to offset a transaction made in error;
and
4. Any transaction of a similar nature as may be defined by
the SEC. (Sec. 34)
F . Independent Directors
At least two (2) independent directors, or such independent
directors constituting at least twenty percent (20%) of the member
of the Board, whichever is lesser, shall be required of:
1. Every corporation with a class of equity securities listed
for trading on an Exchange; or
2. Every corporation having two hundred (200) or more
holders of equity securities, of which at least two hundred
(200) are holding at least one hundred (100) shares of a
class of its equity securities or which has sold a class of
equity securities to the public pursuant to an effective
registration statement. (Sec. 38)
An “independent director” shall mean a person other than an
officer or employee of the corporation, its parent or subsidiaries,
or any other individual having a relationship with the corporation,
which would interfere with the exercise of independent judgment
in carrying out the responsibilities of a director. (Sec. 38)
G . Self R
O)
Ree gulating Or
Orgganizations (SR
(SRO)
The Code now expressly provides for the power of the SEC to
register and to issue license to self-regulatory organizations relating
to the securities market, which would include: Associations of
brokers, dealers, transfer agents, custodians, fiscal and paying agents,
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computer services, news dissemination services, proxy solicitor,
statistical agencies, securities rating agencies, and securities
information processors. (Sec. 39)
VI. R EGION
TC’ S )
AL T RIAL C OUR
T ’ S (R
EGIONAL
OURT
(RT
“C ORPORA
TE ” J URISDICTION
ORPORATE
A. T he Most Signif
icant Pr
Significant
Proovision of Section 5 of
Presidential Decree No. 902-A
The most significant provision of The Securities Regulation Code
insofar as the Regional Trial Courts (RTC) are concerned would
be Section 5.2 thereof which effectively transferred the quasijudicial jurisdiction of the SEC under Section 5 of P. D. No.
902-A to the regular courts, thus:
5.2 The Commission’s jurisdiction over all cases
enumerated under Section 5 of Presidential Decree No.
902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court;
Provided, That the Supreme Court in the exercise of
its authority may designate the Regional Trial Court
branches that shall exercise jurisdiction over these cases.
The Commission shall retain jurisdiction over pending
cases involving intra-corporate disputes submitted for
final resolution which should be resolved within one
(1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending
suspension of payments/rehabilitation cases filed as of
30 June 2000 until finally disposed.
The exclusive and original jurisdiction of the SEC, in the
exercise of its quasi-judicial power under Section 5 of P. D. No.
902-A, covered four (4) main areas, namely:
2004]
DEVELOPMENTS IN COMMERCIAL LAW
67
1. Fraud schemes;
2. Intra-corporate disputes;
3. Election cases; and
4. Petitions for suspension of payments and/or
rehabilitation.
These same cases now would fall within the original and
exclusive jurisdiction of the RTC and, consequently, some of the
case-law that has evolved pertaining thereto while still under the
SEC, would now apply and be relevant to the RTC as they hear
and resolve such “corporate” cases. Those items are discussed
hereunder.
The second significant provision would be Section 63 of the
Code, which provides that all suits to recover damages under the
specified provisions of The Securities Regulation Code “shall be
brought before the Regional Trial Court, which shall have exclusive
jurisdiction to hear and decide such suits. . . [and] authorized to
award damages in an amount not exceeding triple the amount of
the transaction plus actual damages.” The same section authorizes
the RTC to award exemplary damages “in cases of bad faith, fraud
malevolence or wantonness in the violation of this Code or the
rules and regulations promulgated thereunder;” as well as attorney’s
fees not exceeding thirty percent (30%) of the award. (Sec. 63)
On the other hand, Section 64 of The Securities Regulation
Code provides for the “juridical review” of the orders of the
SEC to be with the Court of Appeals, thus:
S EC . 70. Judicial R
der
Reeview of Commission Or
Order
der.. –
Any person aggrieved by an order of the Commission may
appeal the order to the Court of Appeals by petition for
review in accordance with the pertinent provisions of the
Rules of Court.
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Section 5.2 of The Securities Regulation Code did not state
that the SEC no longer has quasi-judicial powers, since it limited
its effect only to the cases covered by Section 5 of P. D. No. 902A, although that may seem to be the intention. Consequently,
there are three (3) significant areas that are not clearly covered by
the afore-quoted provisions, namely:
1. The proper disposition of cases that were already pending
with SEC en banc which are not yet submitted for final
resolution;
2. Jurisdiction over cases that fell within the SEC’s
quasi-judicial powers, but not within the coverage of
Section 5 of P. D. No. 902-A;
3. Whether or not the coercive powers under Section 6 of
P. D. No. 902-A, can be availed of by the RTC in the
exercise of their “corporate” jurisdiction under Section 5
of the Decree.
The SEC, recently issued the “Guidelines on Intra-Corporate
Cases Pending Before the Securities Investigation and Clearing
Department (SICD) and the Commission En Banc of the
Securities and Exchange Commission;” 95 but unfortunately, the
guidelines still did not provide a settlement for the first issue,
since they resolved only the issue on what happens for cases decided
by the SICD which were ready for appeal, thus:
Sec. 5. All cases already decided by the SICD may be
elevated to the Commission en banc on appeal provided
that the appeal is perfected on or before August 8, 2000.
No appeal shall be accepted by the Commission thereafter.
95. Isssued on 1 August 2000.
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DEVELOPMENTS IN COMMERCIAL LAW
69
In fact, the inference that one gets from the afore-quoted
provision is that the SEC en banc does not consider itself bound
by the provision in Section 5.2 of The Securities Regulation Code,
which allows retention of pending cases only when they have
been submitted for resolution.
We will now consider the second and third issues, which are
most significant to RTC judges.
B. T he “Absolute JJurisdiction”
urisdiction” Pr
Proovisions of Sec. 3 of
P.D
.D.. No
No.. 902-A
There is no express provision under The Securities Regulation
Code which divested the SEC of its quasi-judicial powers,
although it may be clear that such was the intention when it came
to “corporate” cases. What Section 5.2 of the Code does is merely
to transfer the quasi-judicial jurisdiction of the SEC under Section
5 of P.D. No. 902-A to the RTC, but it did not amend nor
abrogate Section 3 of the Decree, thus:
The Commission shall have absolute jurisdiction, supervision,
and control over all corporations, partnerships, or
associations, who are the grantees of primary franchises and/
or a license or permit issued by the government to operate
in the Philippines x x x 96
Even prior to the passage of The Securities Regulation Code,
while it would seem that reliance upon the “absolute jurisdiction”
language of Section 3 would be sufficient to vest jurisdiction
with the SEC on practically all controversies involving
corporations and partnerships, the Supreme Court in several cases,
C Enter
prises vv.. Este Del Sol Mountain
starting with DMR
DMRC
Enterprises
97
Reser
eservve, Inc., has held that is not the case, thus:
96. Emphasis supplied.
97. 132 SCRA 293 (1984).
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The purpose and the wording of the law escapes the
respondent. Nowhere in said decree do we find even so
much as an intimidation (sic) that absolute jurisdiction and
control is vested in the Securities and Exchange Commission
in all matters affecting corporations. To uphold the
respondent’s argument would remove, without legal
imprimatur from the regular courts, all conflicts over matters
involving or affecting corporations, regardless of the nature
of the transactions which give rise to such disputes. The
courts would then be divested of jurisdiction not by reason
of the nature of the dispute submitted to them for
adjudication, but solely for the reason that the dispute
involves a corporation. This cannot be done. To do so would
not only be to encroach on the legislative prerogative to
grant and revoke jurisdiction of the courts but such
sweeping interpretation may suffer constitutional infirmity.
Neither can we reduce jurisdiction of the courts by judicial
fiat.98
Peneyra vv.. Inter
mediate A
ppellate Cour
Intermediate
Appellate
Courtt ,99 strucked
down the absolute language of Section 3 as follows:
Under Section 3 of Presidential Decree No. 902-A, the
jurisdiction of the SEC is limited to matters intrinsically
connected with the regulation of corporations, partnerships
and associations and those dealing with the internal affairs
of such entities. P.D. 902-A does not confer in the SEC
absolute jurisdiction and control over all matters affecting
corporations. To uphold the appellate court’s ruling would
remove, without legal imprimatur from the regular courts,
all controversies over matters involving or affecting
corporations regardless of the nature of the transactions
which give rise to such disputes.100
98.
Ibid, at pp. 299-300; emphasis supplied.
99.
181 SCRA 244 (1990).
100. Ibid, at p. 249; emphasis supplied.
2004]
DEVELOPMENTS IN COMMERCIAL LAW
71
Or
osa, Jr
ppeals 101 clarified that “Section
Orosa,
Jr.. vv.. Cour
Courtt of A
Appeals
3 of P.D. No. 902-A should also be read in conjunction with
Section 5” of the same law, and would seem clear therefore that
the enumerative language of Section 5 was the primary source of
determining the jurisdiction of the SEC in the exercise of its
quasi-judicial powers.
Nevertheless, Section 3 served a very important role in
determining the jurisdiction of the SEC in the exercise of its
quasi-judicial functions apart from Section 5 of the Decree. The
“absolute jurisdiction” language of Section 3 actually covers the
jurisdiction of the SEC to hear and render judgment involving a
sundry of matters not covered by Section 5, simply because of
the administrative jurisdiction of the SEC over corporations,
partnerships and associations, and the enforcement of laws
applicable to them.
An example of the second type would be in cases involving
corporations who seek to establish a better right to corporate names
that are confusingly similar. Such cases were being resolved by
the SEC pursuant to the mandate under Section 18 of the
Corporation Code which provides that:
No corporate name may be allowed by the Securities and
Exchange Commission if the proposed name is identical
or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by
law or is patently deceptive, confusing, or contrary to existing
laws.
And yet such issues clearly did not fall within the enumerated
cases under Section 5 of the Decree, but there was no doubt then
that the SEC was proper forum to resolve such issues.
101. 193 SCRA 391 (1991).
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The third area of controversies are those that fell under the
Revised Securities Act, such as claims made by investors against
brokers. Such cases where being decided by the SEC in the exercise
of quasi-judicial powers, when there was no provision under the
Revised Securities Act that granted or recognized quasi-judicial
power in the SEC, and such cases did not fall under any of the
enumerated cases of Section 5 of P.D. No. 902-A.
1. Identifying the P
Poowers and Functions of the SEC –
Section 5.1 of the Code expressly provides that the SEC:
shall have the powers and functions provided by x x x
Presidential Decree No. 902-A, [and] the Corporation
Code x x x
In fact, in defining the powers and functions of the SEC,
Section 5.1 (a) of the Code follows the language (without the
word “absolute”) of Section 3 of P. D. No. 902-A when it provides
that SEC shall:
[h]ave jurisdiction and supervision over all corporations,
partnerships or associations who are grantees of primary
franchises and/or license or permit issued by the
government;
Finally, Section 5.1 (m) provides that the SEC has power to:
[s]uspend, or revoke, after proper notice and hearing the
franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds
provided by law.
C. T he P
.D
Poowers Under Section 6 of P
P.D
.D.. No
No.. 902-A
Nothing in the Code deals with what happens with the provisions
of Section 6 of P.D. No. 902-A. In fact, by the language of Section
5.1 of the Code which provides that the SEC “shall have the
2004]
DEVELOPMENTS IN COMMERCIAL LAW
73
powers and functions provided [in] x x x Presidential Decree No.
902-A, there would be clear basis to say that SEC’s powers under
Section 6 still pertain to it in the exercise of its regulatory powers.
Section 6 provides that:
In order to effectively exercise such [ i.e. , Section 5]
jurisdiction, the Commission shall possess the following
powers,
which, among other things, authorized the SEC to appoint a
management or rehabilitation committee which effectively
triggered the suspension of all pending actions against the
corporation, and to order the dissolution of corporations. In fact,
many of the controversies that abound the SEC’s exercise of quasijudicial powers were actually resolved by referring to the provisions
of Section 6 of the Decree. Do RTC now have the powers granted
under Section 6 of the Decree which are given expressly to allow
the effective exercise of jurisdiction under Section 5?
The answer does not seem clear at the present time, but its
resolution is important because of the application of doctrine of
primary jurisdiction or the doctrine of prior resort, which calls
for the determination of administrative questions, which are
ordinarily questions of fact, by administrative agencies rather than
courts of justice.102 The application of the doctrine would require
the referral to an administrative body of an issue involved in a
suit over which a regular court has, and had actually acquired,
jurisdiction,103 thus:
102. Cruz, PHILIPPINE ADMINISTRATIVE LAW (1993 ed.), pp. 8687.
103. Industrial Enterprises, Inc. v. Court of Appeals, 184 SCRA
426 (1990).
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In recent years, it has been the jurisprudential trend to apply
the doctrine of primary jurisdiction in many cases involving
matters that demand the special competence of
administrative agencies. It may occur that the Court has
jurisdiction to take cognizance of a particular case, which
means that the matter involved is judicial in character.
However, if the case is such that its determination requires
the expertise, specialized skills and knowledge of the proper
administrative bodies because technical matters or intricate
questions of facts are involved, then relief must first be
obtained in an administrative proceeding before a remedy
will be supplied by the courts even though the matter is
within the property jurisdiction of a court. This is the
doctrine of primary jurisdiction. It applies “where a claim
is originally cognizable in the courts, and resolution of
issues which, under a regulatory scheme, have been placed
within the special competence of an administrative body,
in such case the judicial process is suspended pending referral
of such issues to the administrative body for its view.”
In the case of the SEC, its expertise of corporate matters has
uz,104 thus:
long-been recognized in Abejo vv.. De la Cr
Cruz
In this era of clogged court dockets, the need for
specialized administrative boards or commissions with the
special knowledge, experience and capability to hear and
determine promptly disputes on technical matters or
essentially factual matters, subject to judicial review in case
of grave abuse of discretion, has become well nigh
indispensable x x x Between the power lodged in the
administrative body and a court, the unmistakable trend
has been to refer it to the former.
Even when controversies and cases are, by law, within the
original and exclusive jurisdiction of the regular courts of law,
104. 149 SCRA 654, 670 (1987).
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DEVELOPMENTS IN COMMERCIAL LAW
75
jurisprudence provides that there would be no cause of action on
such cases to allow the proper exercise by the courts of their
jurisdiction, unless it can be shown that the administrative remedies
afforded by law have been exhausted.
Since the SEC retains regulatory power over all corporations
under Section 3 of P.D. No. 902-A, Sub-section 5(a) of The
Securities Regulatory Code, and under the provisions of the
Corporation Code, then controversies arising from corporate
disputes, essentially those that have to do with the franchises issued
to corporations, must first be resolved within the administrative
regulatory powers of the SEC, whenever the same are recognized
under applicable laws, before the parties may resort to the civil
jurisdiction of the RTC. But then the order of the SEC, which
clearly would be in the exercise of its regulatory functions, would
actually be appealable to the Court of Appeals, and perhaps all
the way to the Supreme Court, which would warrant to judicial
proceedings covering the same set of parties. These matters should
be threshed out properly in the implementing rules and regulations
to be issued for The Securities Regulation Code.
The paper will now deal with case-law developments as they
pertained to Sections 5 and 6 of P. D. No. 902-A, which would
still seem relevant under Section 5.2 of The Securities Regulation
Code as it transferred jurisdiction over “corporate cases” from
the SEC to the RTC.
1. Fraud Schemes
Under Section 5.2 of The Securities Regulation Code, in relation
to Section 5(a) of the Decree, RTC shall have original and
exclusive jurisdiction to hear and decide cases involving:
(a) De
vices or sc
hemes emplo
Devices
schemes
employyed bbyy or an
anyy acts, of
the board of directors, business associates, its
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[VOL. 6:22
of
tners, amounting to fraud and
offficers or par
partners,
misrepresentation which may be detrimental to
the interest of the public and/or of the
stoc
kholders, par
tners, members of associations
stockholders,
partners,
or organizations registered with the Commission.
Before the passage of the Code, the rule was that Section 5(a)
vested the SEC with the original and exclusive jurisdiction over
devices and schemes employed by directors or officers of
corporations “amounting to fraud or misrepresentation,” and a
reading of the decisions of the Supreme Court on the matter
would reveal that the test for determining the jurisdiction of the
SEC over these types of cases was three-fold, namely:
a. The covered transactions must be characterized by fraud
or misrepresentation;
b. The actors must be corporate directors, business associates,
or officers; and
c. The covered transaction may be offered to the public, or
may be a private transaction with a stockholder or member.
The old controversy on whether a fraud case was a “corporate”
fraud within the jurisdiction the SEC, or a “non-corporate” fraud
within the jurisdiction of the regular courts, should now be wholly
irrelevant because of the merger of jurisdiction over both types
of cases with the RTC.
The more significant area of controversy is that if the fraud
upon which an action is based is considered to be “corporate”
fraud, then must remedy first be obtained with the SEC in the
exercise of the regulatory power and jurisdiction over corporations,
or can the aggrieved party go directly to the RTC?
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DEVELOPMENTS IN COMMERCIAL LAW
77
2. Intra-Corporate Disputes
Under Section 5(b) of the Decree, the RTC shall now have original
and exclusive jurisdiction to hear and decide cases involving:
(b) Contr
porate or
Controov ersies arising out of intra-cor
intra-corporate
par tnership rrelations,
elations, betw
een and among
between
stockholders, members or associates; between
any or all of them and the corporation,
hic
par tnership or association of w
whic
hichh they ar
aree
stockholders,
members
or
associates,
respectively; and between such corporation,
par
tnership or association and the State insof
ar
insofar
partnership
as it concer
ns their indi
vidual franc
hise or right
concerns
individual
franchise
to eexist
xist as suc
suchh entity
entity..”
poration vv..
In Union Glass and Container Cor
Corporation
105
Securities and Ex
c
hang
e
Commission
Exchange
, the Supreme Court
identified the relationships that fall within “intra-corporate”
disputes under Section 5(b) of the Decree, as covering the
following:
Otherwise stated, in order that the SEC can take cognizance
of a case, the controversy must pertain to any of the
following relationships:
[a] between the corporation, partnership or association
and the public;
[b] between the corporation, partnership or association
and its stockholders, partners, members, or officers;
[c] between the corporation, partnership or association
and the state in so far as its franchise, permit or license
to operate is concerned; and
105. 126 SCRA 31 (1983).
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[d] among the stockholders, partners or associates
themselves.106
Within the definition of “intra-corporate” relationship under
Section 5(b) would fall the relationship “between the corporation
and the State insofar as its franchise, permit, or license to operate
is concerned.” This would lead to the conclusion that all
controversies involving the relationship between the corporation
and the State would fall within the original and exclusive
jurisdiction of the regular courts. These would include matters
which, under the Corporation Code, would have been within the
quasi-judicial jurisdiction of the SEC.
For example, under Section 118 of the Corporation Code,
voluntary petitions for dissolution of corporations where no
creditors are involved are within the competence of the SEC, and
the matter is treated purely as an administrative matter.
Nevertheless, if there are stockholders or members who are
opposed to the proceedings and they must file an action, are we to
say that the case may be filed directly with the regular courts and
cannot be decided upon by the SEC?
More in point, under Section 119 of the Corporation Code,
in voluntary dissolutions of corporation where the rights of
creditors are prejudiced, the filing of a petition with the SEC,
which will hold a hearing on the matter is required, after due
notice to the creditors. Although the Corporation Code makes
no reference to P.D. No. 902-A, the proceeding would fall within
the “intra-corporate” cases defined under Section 5(b) of the
Decree. Although no provision in The Securities Regulation Code
divest powers of the SEC under the Corporation Code, would
such proceedings now fall within the original and exclusive
jurisdiction of the RTC?
106. Ibid, at p. 38; emphasis supplied.
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DEVELOPMENTS IN COMMERCIAL LAW
79
Finally, under Section 121 of the Corporation Code,
involuntary dissolution of corporations can be proceeded by “the
Securities and Exchange Commission upon filing of a verified
complaint and after proper notice and hearing on grounds provided
by existing laws, rules and regulations.” Are cases for involuntary
proceedings now within the competence of regular courts, simply
because they fall within the intra-corporate cases under Section
5(b) of P.D. No. 902-A?
The resolution of this issue is not that simple because Section
5.1 of The Securities Regulation Code itself expressly provides
that the SEC “shall have the powers and functions provided by
this Code, P. D. No. 902-A, the Corporation Code x x x”
In addition, Section 6(1) of the Decree itself, grants to the
SEC the powers to:
To suspend, or revoke, after proper notice and hearing, the
franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds
provided by law, including the following:
1. Fraud in procuring its certificate of registration;
2. Serious misrepresentation as to what the
corporation can do or is doing to the great
prejudice of or damage to the general public;
3. Refusal to comply or defiance of any lawful order
of the Commission restraining commission of acts
which would amount to a grave violation of its
franchise;
4. Continuous inoperation for a period of at least
five (5) years;
5. Failure to file by-laws within the required period;
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6. Failure to file required reports in appropriate
forms as determined by the Commission within
the prescribed period.
This power of the SEC is actually reiterated in Section 5.1
(m) of The Securities Regulation Code which empowers the SEC
to:
[s]uspend, or revoke, after proper notice and hearing the
franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds
provided by law.
In the same manner, under Section 6(d) of the Decree, the
SEC may, on the basis of the findings and recommendation of
the management committee, rehabilitation receiver, or board of
body; or in its own findings, determine that the continuance in
business of such corporation or entity would not be feasible or
profitable nor work to the best interest of the stockholders, partieslitigants, creditors, or the general public, and order the dissolution
of such corporation or entity and its remaining assets liquidated
accordingly.
Are we therefore to see the Supreme Court rulings in the
future that when there is the specific law, such as the Corporation
Code, granting the SEC power to hear and decide upon certain
types of cases, the same fall within SEC jurisdiction and will not
be construed to fall within the “intra-corporate” cases under
Section 5(b) of P.D. No. 902-A and therefore not within the
original and exclusive jurisdiction of the RTC?
Even if we take the sensible position that the SEC no longer
has quasi-judicial powers as to such cases under the Corporation
Code, by virtue of the provisions of Section 5.2 of The Securities
Regulation Code, it would still mean that the SEC retains
regulatory powers over issues and controversies involving
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DEVELOPMENTS IN COMMERCIAL LAW
81
corporations and their franchises, and consequently, the doctrine
of exhaustion of administrative remedies requires that the same
be first resolved by the SEC before any judicial action can be
commenced with the RTC.
3. Election Cases
Under Section 5(c) of the Decree, the RTC now have original
and exclusive jurisdiction to hear and decide cases involving:
(c) Contr
Controov ersies in the election or appointments
of directors, trustees, officers or managers of
suc
porations, par
tnerships or associations.
suchh cor
corporations,
partnerships
Since the issue of appointment of directors and officers was
within the exclusive and original jurisdiction of the SEC, then
necessarily, the extension issue, thereof, which involves termination,
should also be within the jurisdiction of the SEC. Consequently,
more often than not, the issues and controversies on such cases
run along the line of “Who are corporate ‘officers’?” and who
would have proper jurisdiction over the matter, whether it would
be the SEC or the NLRC.
Today, the case-law that has evolved with corporate election
contests when the same were still within SEC jurisdiction would,
to a great extent, still be relevant, even as such matters now fall
within the jurisdiction of the RTC, mainly because of the conflict
of jurisdiction between the RTC and the NLRC on election and
termination cases involving corporate officers.
a. Theory of the Power of the Board Over Corporate Officers
The prevailing theory in Corporate Law is that officers of
the corporation are within the competence of the board of
directors to terminate in the absence of a specific period of
employment provided in their contracts or in the by-laws.
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ar
do de Tavera vv.. Philippine
In the case of Mita P
Par
ardo
107
Tuber
culosis Society
uberculosis
Society,, Inc., it was held that since the
letter of appointment as Executive Secretary to the Board of
the officer did not contain a fixed term, the implication is
that appointee held an appointment at the pleasure of the
appointing power, which in essence is temporary in nature; it
is co-extensive with the desire of the Board of Directors. When
the Board opted to replace the incumbent, technically, there
was no removal but only an expiration of the term and in an
expiration of term, there is no need of prior notice, due
hearing, or sufficient grounds before the incumbent can be
separated from office.
It must be noted that in De Tavera case, the disputed
position of Executive Secretary was also provided for in the
Code of By-Laws of the Philippine Tuberculosis Society, Inc.
In Corporate Law, there are two (2) levels of discussions
when it comes to the coverage of “officers.” The first level,
relates to the power of the board of directors to hire and
terminate officers in the exercise of business judgment, as
contrasted from non-officers who are protected by the security
of tenure policy under Labor Law, a policy embodied in the
Constitution.
On the other hand, the second level of determination of
who are corporate officers deals on the distinction of corporate
officers from non-officers to determine who are bound by
the duties of loyalty and diligence. Thus, under Section 31 of
the Corporation Code, both directors and officers are jointly
and severally liable for assenting to patently unlawful acts of
the corporation or who are guilty of gross negligence or bad
107. 112 SCRA 243 (1982).
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DEVELOPMENTS IN COMMERCIAL LAW
83
faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as
such directors or officers. Non-officers therefore are not
generally imposed any duty of loyalty or diligence. The
differentiation of such “officers” from non-officers must
necessarily lie on the nature of the office held by them.
b. Two (2) Disciplines Diverging in Corporate Officership Issues
In strict Corporate Law sense, the terms of corporate officers
are coterminous with that of the Board. It can even be said
that corporate officers serve at the pleasure of the Board. This
is a fundamental doctrine in Corporate Law because the ability
of the Board to hire and terminate officers lies at the very
heart of the operations of the corporation; it is part of the
exercise of the business judgment of the Board.
On the other, under Labor Laws, corporate officers are
also looked upon as employees, and the corporation as the
employer. Consequently, the protective policies of the Labor
Code, as well as the Constitution (e.g., due process and security
of tenure) are also made to apply to corporate officers.
It is the divergence of policies and principles in Corporate
Law and Labor Law that creates jurisprudential tension and
has spun several doctrines on the matter.
c. Tests of Who are Officers
Gur
zama,108 held that the term “corporate officer”
Lezama
Gurrrea vv.. Le
refers only to officers of a corporation who are given that
character either by the then Corporation Law, or by the
corporation’s by-laws. Since the then Corporation Law did
not mention the general manager as an officer, and the by108. 103 Phil. 553 (1958).
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laws did not give him that character, he is not an officer of
the corporation, but a mere employee or subordinate official.109
The SEC itself in its opinions has held that even when
the intention of the board of a corporation is to make the
“General Financial Secretary” an officer thereof, he cannot be
classified as such where the by-laws of the corporation discloses
that the position is not one of the offices provided therein.110
In another opinion, the Commission opined that if the bylaws enumerate the officers to be elected by the board, the
provision is conclusive and the board is without power to
create new offices without amending the by-laws.111
Under Section 25 of the Corporation Code, the President,
Secretary, and Treasurer are specifically mentioned as officers
of the corporation. In addition, the same section provides
that the board of directors may elect “such other officers as
may be provided for in the by-laws.”The Code therefore has
continued the principle that corporate officers shall include,
in addition, only such positions as are provided for in the bylaws of the corporation. The Corporation Code does not
require that the one elected or appointed as vice-president of
a corporation should be the owner of shares of stock of the
corporation.112
ar
do de Tavera vv.. Philippine
In the case of Mita P
Par
ardo
113
Tuber
culosis Society
uberculosis
Society,, Inc., it was held that since the
letter of appointment of Pardo deTavera as Executive Secretary
109. Ibid. at pp. 555-556.
110. SEC Opinion, 15 May 1969.
111. SEC Opinion, 19 October 1971.
112. Baguio v. Court of Appeals, 226 SCRA 366 (1993).
113. 112 SCRA 243 (1982).
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DEVELOPMENTS IN COMMERCIAL LAW
85
to the Board did not contain a fixed term, the implication is
that appointee held an appointment at the pleasure of the
appointing power and was in essence temporary in nature, coextensive with the desire of the Board of Directors. The
Supreme Court took note in Tavera that the disputed position
of Executive Secretary was also provided for in the Code of
By-Laws of the Philippine Tuberculosis Society, Inc.
In Philippine School of Business Administration
v. Leano,114 the Court, in holding that the Commission has
jurisdiction over the ouster of the Executive Vice-President,
noted that said position was provided for in the corporate
by-laws.
In Philippine School of Business Administration ,
Justice Melencio Herrera concluded her ratiocination with
the cryptic denouement:
The matter of whom to elect is a prerogative that
belongs to the Board, and involves the exercise of
deliberate choice and the faculty of discriminative
selection. Generally speaking, the relationship of a
person to a corporation, whether as officer or as agent
or employee, is not determined by the nature of the
services performed, but by the incidents of the
relationship as they actually exist. 115
The ponente cites the American case of Br
Bruce
uce vv..
116
ravvelers Ins. Co
Co.., which reiterated the doctrine in
Tra
common law jurisdiction that the distinction between an agent
or employee and an officer is not determined by the nature
114. 127 SCRA 778, 781 (1984).
115. Ibid, at p. 783; emphasis supplied.
116. 266 F2d 781.
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of the work performed, but by the nature of the relationship
of the particular individual to the corporation:
x x x One distinction between officers and agents or
employees of a corporation lies in the manner of their
creation. An Office is created usually by the charter or
by-laws of the corporation, while an agency or
employment is created usually by the officers. A further
distinction may thus be drawn between an officer and
an employee of a private corporation in that the latter
is subordinate to the officers and under their control
and direction x x x It is clear that the two terms officers
and agents are by no means interchangeable x x x 117
It should be reiterated therefore that in Corporate Law,
in determining the power of the Board to hire and terminate
corporate officers, the nature of the position, its accompanying
duties and responsibilities, are not essential in classifying such
position.
The evolving test of the Supreme Court in determining
who are corporate officers therefore follows closely the
American doctrine on the matter. Clearly, the President,
Secretary and Treasurer are officers of the corporation and
specifically mentioned by the Corporation Code. Thus, under
Section 25 of the Code, it provides that immediately after
the election of the directors, they must be formally organized
“by the election of a president who shall be a director, a
treasurer who may or may not be a director, and a secretary
who shall be a resident and citizen of the Philippines.”
But in addition, the same Section 25 of the Corporation
Code provides that the board of directors may elect “such
117. 266 F2d 781, at pp. 784-785.
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DEVELOPMENTS IN COMMERCIAL LAW
87
other officers as may be provided for in the by-laws.”
Therefore, the terms “officers” includes such positions as are
provided for also in the by-laws of the corporation.
Therefore, the proper “officers” of a corporation are those
who are given that character either (a) by the Corporation
Code, or (b) by its by-laws.118 The directors, trustees, president,
vice-presidents, treasurer, and secretary or assistant secretary,
may be considered as officers mentioned under corporation
law.119
d. Special Branching of Officership Test Determining Forum
In Dy vv.. National Labor R
Relations
elations Commission , 120
where the board of directors were ousted by non-election of
the bank manager, the Supreme Court took note that the
position is an elective position provided for in the by-laws of
the corporation. However, the Supreme Court in sustaining
that the Commission had jurisdiction over the controversy
held that:
x x x The question of remuneration, involving as it
does, a person who is not a mere employee but a
stockholder and officer, an integral part, it might be
said, of the corporation, is not a simple labor problem
but a matter that comes within the area of corporate
affairs and management, and is in fact a corporate
controversy in contemplation of the Corporation
Code.121
The aforequoted portion of the decision in Dy seems to
imply that if the controversy is intertwined with management
118. Gurrea v. Lezama, 103 Phil. 553 (1958).
119. 14-A C.J., §§ 1858-1861.
120. 145 SCRA 211 (1986).
121. Ibid, at p. 222.
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matters by persons who have special relations to the
corporation, such as being a stockholder, the controversy is
essentially corporate, by virtue of Section 3 or Section 5(b)
on intra-corporate disputes. This therefore seems to create two
(2) branches of RTC’s corporate jurisdiction when it comes
to corporate officers. The first are those who are strictly
“officers” because their positions are provided for either by
law or in the by-laws of the corporation. Any controversy
arising from such relationship is within the original and
exclusive jurisdiction of the RTC by virtue of Section 5(c).
The other corporate “officers” whose positions are not
provided for in the by-laws, who therefore are strictly mere
employees of the corporation, when they are at the same time
stockholders or members of the corporation, and seem to
occupy such employment positions by virtue of such
relationship to the corporation, the controversies arising
therefrom are within the jurisdiction of the SEC (now the
RTC) by virtue of the expanded coverage of Section 5(b) in
Union Glass. In both instances, the emphasis of the Supreme
Court has always been that the controversies involved primarily
a corporate matter, with the right and power of a board to
terminate corporate officers.
oundation vv..
In Gr
Gree g orio Araneta Uni
Univv ersity FFoundation
122
Teodor
eodoroo, although the respondent interposed illegal
dismissal and sought recovery of separation pay, retirement
benefits and other monetary claims with the NLRC arising
from the “non-extension” of his appointment as Vice President
and concurrently, as Treasurer of the corporation, the Court
denied the contention of the petitioning corporation that
jurisdiction over the case should be with the Commission
122. 167 SCRA 79 (1988).
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DEVELOPMENTS IN COMMERCIAL LAW
89
since respondent was undoubtedly a corporate officer. In
denying the petitioner’s contention and distinguishing it from
PSB
A and Dy, the Court held that the complaint was filed
PSBA
by the respondent with the NLRC not questioning the
validity of the board of directors’ meetings wherein the
corporate officers involved were not reelected, resulting in
the termination of their services. Therefore, no issue which
was intra-corporate in nature was necessary to be resolved which
would necessitate the vesting of the controversy with the
jurisdiction of the Commission.
The RTC, rather than the NLRC, should have jurisdiction
to hear matters relating to the appointment and removal of
tune Cement Cor
corporate officers. As held in For
ortune
Corpp. vv..
123
C, “a corporate officer’s dismissal is always a corporate
NLRC
NLR
act and/or intra-corporate controversy and that nature is not
altered by the reason or wisdom which the Board of Directors
may have in taking such action.”124
e. The Issue of Jurisdiction Between SEC and NLRC
In the particular issue of whether it was the SEC, now the
RTC, or the NLRC which has jurisdiction over the dispute
of termination or dismissal, the Supreme Court seemed to
have narrowed down the coverage of “officers” to include
only those provided for in the by-laws.
In Philippine School of Business Administration
v. Leano,125 the Supreme Court, in holding that the SEC
123. 193 SCRA 258 (1991).
124. Also Lozon v. NLRC, 240 SCRA 1 (1995); Espino v.
NLRC, 240 SCRA 52 (1995).
125. 127 SCRA 778, 781 (1984).
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(now the RTC) has jurisdiction over the ouster of the
Executive Vice-President, took note that said position was
provided for in the corporate by-laws.
However, it is interesting to note that in Leano the
Supreme Court affirmed the principle that:
Generally speaking, the relationship of a person to a
corporation xwhether as officer or as agent or employee,
is not determined by the nature of the services
performed, but by the incidents of the relationship as
they actually exists.126
Also in the case of Dy vv.. National Labor R
Relations
elations
127
Commission, where the Supreme Court in ruling on the
ouster by non-election of the bank manager, noted that the
position in an elective position is provided for in the by-laws
of the corporation.
Again, however, the Supreme Court in Dy, in sustaining
that the SEC (now, the RTC) had jurisdiction over the
controversy held that:
x x x It is of no moment that Vailoces, in his amended
complaint, seeks other relief which would seemingly
fall under the jurisdiction of the Labor Arbiter, because
a closer look at these – underpayment of salary and
non-payment of living allowance – shows that they
are actually part of the prerequisites of his elective
position, hence, intimately linked with his relations with
the corporation. The question of remuneration,
involving as it does, a person who is not a mere employee
but a stockholder and officer, an integral part, it might
126. Ibid, citing Bruce v. Travelers Ins. Co., 266 F2d 781, cited in
19 Am. Jur2d 526.
127. 145 SCRA 211 (1986).
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DEVELOPMENTS IN COMMERCIAL LAW
91
be said, of the corporation, is not a simple labor
problem but a matter that comes within the area of
corporate affairs and management, and is in fact a
corporate controversy in contemplation of the
Corporation Code.128
The aforequoted provision implies that if the controversy
is intertwined in management matters by persons who have
special relations to the corporation, such as being a
stockholder, the controversy is essentially corporate and within
the jurisdiction of the RTC.
The implication of the foregoing is that the RTC judges
would also necessitate having competent knowledge on Labor
Laws applicable to situations that fall within their jurisdiction
where, strictly speaking, the “officer” involved does not fall
within the “corporate officer” definition, and therefore would
be entitled to protection of security of tenure mandated both
under the Constitution and the Labor Code.
4. Suspension of
Proceedings
P
ehabilitation
Paa yments and R
Rehabilitation
Under Section 5(d) of the Decree, the RTC would now have
original and exclusive jurisdiction to hear and decide cases
involving:
d ) Petitions of cor
porations, par tnerships or
corporations,
associations to be declared in the state of suspension
of payments in cases where the corporation,
par tnership or association possesses suf
sufff icient
bts bbut
ut ffor
or
esees the
pr
oper ty to co
debts
oresees
proper
covv er all its de
impossibility of meeting them when they
respectively fall due or in cases where the
128. Ibid, at p. 213.
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cor
poration, par tnership or association has no
corporation,
suf
f
ut is under
sufficient assets to co
covv er liabilities, bbut
the management of a rehabilitation receiver or
management committee created pursuant to this
Decree.
The old controversy as to who would have jurisdiction over
suspension of payments proceedings/rehabilitation proceedings
over a corporate debtor and whether an individual surety of the
corporation may be included as proper party to the proceedings,129
no longer matter since the RTC would now have original and
exclusive jurisdiction over such cases and parties.
Although rehabilitation proceedings over corporations are now
within the jurisdiction of RTC, there exists no substantive law
by which to allow RTC to decide upon rehabilitation proceedings.
The Insolvency Law provides for remedial and substantive rules
for suspension of payments and insolvency proceedings, but none
for rehabilitation proceedings.
Unlike the SEC, which being an administrative agency, had
much leeway to formulate rules governing matters within its
jurisdiction, regular courts and even the Supreme Court cannot
formulate rules that go into substantive matters, especially those
that would undermine the proprietary and contractual rights of
the various parties involved, namely the corporate debtor itself,
the creditors and the stockholders. Apart from Section 6, there is
nothing in P.D. No. 902-A that could be used as the basis for
pursuing rehabilitation proceedings. And can the RTC rely upon
and apply the provisions of The Insolvency Law for rehabilitation
proceedings?
129. Traders Royal Bank v. Court of Appeals, 177 SCRA 788
(1989); Union Bank of the Phils. v. Court of Appeals, 290
SCRA 198 (1998).
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DEVELOPMENTS IN COMMERCIAL LAW
93
In fact, the Supreme Court has held in Ching vv.. Land Bank
of the Philippines,130 that to the extent not otherwise amended
under the terms of P.D. No. 902-A, the terms and provisions of
The Insolvency Law were binding on the SEC in simple suspension
of payments and insolvency proceedings, thus:
The SEC, like any other administrative body, is a tribunal
of limited jurisdiction and as such, could wield only such
powers as are specifically granted to it by its enabling statute.
Its jurisdiction should be interpreted in strictissimi juris.”131
More importantly, in resolving the issue on whether Section
6 of P.D. No. 902-A is deemed to have repealed the provisions
of The Insolvency Law, Ching held that:
A well-recognized rule in statutory construction is that
repeals by implication are not favored and will not be so
declared unless it manifest that the legislature so intended.
When statutes are in pari materia they should be construed
together. In construing them the old statutes relating to
the same subject matter should be compared with the new
provisions and if possible by reasonable construction, both
should be construed that effect may be given to every
provision of each.132
The implication from the above-quoted ruling is clear, that
since P.D. No. 902-A has not expressly repealed the provisions of
The Insolvency Law as they apply to corporations and other
juridical entities, they must be construed as still binding on the
SEC, now on the RTCs, on suspension of payments and
insolvency proceedings validly filed, insofar as they have not been
130. 201 SCRA 190 (1991).
131. Ibid, at p. 198.
132. Ibid, at p. 202.
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amended or supplanted by specific provisions of the Decree. If
the provisions of The Insolvency Law were binding on the SEC
in the exercise of its jurisdiction under Section 5(d) of P.D. No.
902-A, then the policies, thrusts and substantive requirements
should also be binding upon the RTC as guiding principles in
pursuing rehabilitation proceedings on corporations and other
juridical entities.
Nevertheless, the following issues pertaining to rehabilitation
proceedings remain outstanding, namely:
a. In effecting the automatic stay or suspension of action
provisions for rehabilitation cases, do the RTC apply the
provisions of The Insolvency Law which applies only to
non-secured creditors, or the provisions of Section 6 of
P.D. No. 902-A, which comes into effect only upon the
appointment of a rehabilitation or management
committee and applies to all creditors, both secured and
unsecured?
b. Do the RTC have the power to appoint a management or
rehabilitation committee pursuant to the powers vested
under Section 6 of P.D. No. 902-A?
c. When it comes to the adoption of the rehabilitation
plan, may the RTC rely upon the voting requirements
under The Insolvency Law when it comes to creditors’
action, or can the RTC, as in the case of the SEC under
Section 6 of P. D. No. 902-A, have a right to approve the
rehabilitation plan that it deems to be for the benefit of
all concerned even against the wishes of the secured
creditors and/or unsecured creditors?
In order to see the first issue in proper perspective, we should
enumerate the basic differences between two (2) types of
2004]
DEVELOPMENTS IN COMMERCIAL LAW
95
suspension of payments (one without rehabilitation, and the other
pursuant to a rehabilitation proceeding) involving corporate
debtors, under the Insolvency Law and under P.D. No. 902-A,
prior to enactment of The Securities Regulations Code, thus:
(a) The appointment of a management committee or a
rehabilitation receiver automatically takes the case out
of the provisions of the ordinary courts and would
make the provisions of P.D. No. 902-A applicable as
to confer exclusive jurisdiction upon the SEC;
(b) Under the Insolvency Law, the suspensive effect of the
order issued pursuant to the petition for suspension of
payment does not cover secured creditors, while the
suspensive effect under P.D. No. 902-A upon
appointment of the management committee or
rehabilitation receiver, would cover all corporate
creditors, both secured and unsecured;
(c) Under the Insolvency Law, in the absence of any
agreement among the corporate creditors, the automatic
stay would expire after three (3) months; whereas, under
P.D. No. 902-A, the suspensive effect has no time limit
and would prevail for so long as the corporate debtor
is under a management committee or rehabilitation
receiver and there is no directive to have its assets
liquidated;
(d) The effectiveness of final agreement on the manner of
payment of the obligations of the corporate debtor is
subject to the qualifying majority votes required under
The Insolvency Law; whereas, under P.D. No. 902-A,
the management committee or the rehabilitation
receiver is granted sufficient powers to take such measures
as are necessary to bring back to financial health the
distressed company without need to obtain approval
of the corporate creditors.
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Under Section 6 (c) and (d) of P.D. No. 902-A, in order to
effectively exercise its jurisdictions, the SEC was empowered:
(a) To appoint one or more receivers of the property, real
or personal, which is the subject of action pending
before the Commission in accordance with the
pertinent provisions of the Rules of Court;
(b) In appropriate cases, appoint a rehabilitation receiver
of corporations not supervised or regulated by other
government agencies who shall have, in addition to the
powers of a regular receiver under the provisions of
the Rules of Court, such functions and powers as
provided in the Decree; and
(c) Upon petition or motu proprio , to appoint a
management committee, board, or body to undertake
the management of corporations not supervised or
regulated by other government agencies in appropriate
cases when there is imminent danger of dissipation, loss,
wastage or destruction of assets or other properties or
paralyzation of business operations of such
corporations which may be prejudicial to the interest
of minority stockholders, parties-litigants or the general
public.
It should be noted that the powers granted to the SEC under
Section 6 of the Decree were “intended to effectively exercise
such jurisdiction” enumerated under Section 5 of the Decree.
The enumerated jurisdictions do not only cover proceedings for
suspension of payments, but also in intra-corporate disputes, fraud
scheme proceedings, and election of officers and directors.133
133. See Ching v. Land Bank of the Philippines, 301 SCRA 190,
201-202 (191).
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DEVELOPMENTS IN COMMERCIAL LAW
97
Section 6 may have to be construed as being applicable also
to the RTC, otherwise, its judicial power in corporate rehabilitation
proceedings would be meaningless. There is no doubt that Section
5.2 of The Securities Regulation Code intended to afford RTC
effective jurisdiction and power over corporation rehabilitation
proceedings as it sets out the interim provisions on transfer of
such cases from the SEC to the RTC.
If such position is accepted, then the issues that would now
confront the RTC is whether a proceeding for suspension of
payments is one purely governed by The Insolvency Law or that
pursuant to P.D. No. 902-A, which would afford different remedies
to the parties involved.
a. Legal Effect of Appointment of Management Committee
or Rehabilitation Receiver; The Automatic Stay
The Decree provides that:
upon appointment of a management committee,
rehabilitation receiver, board or body, x x x all actions
for claims against corporations x x x under management
or receivership pending before any court, tribunal,
board or body shall be suspended accordingly,134
which is known in American bankruptcy parlance as the
“automatic stay.”
The Decree does not provide for any duration of the
suspension, and therefore is deemed to apply during the entire
period that the corporate debtor is under the management
committee or the rehabilitation receiver.135
134. Presidential Decree No. 902-A, § 6(c).
135. See BF Homes, Inc. v. Court of Appeals, 190 SCRA 262
(1990), at p. 268.
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It has been ruled that the suspensive effect, such as the
prohibition against foreclosure:
attaches as soon as a petition for rehabilitation is filed.
Were it otherwise, what is to prevent the petitioner
from delaying the creation of the Management
Committee and in the meantime dissipate all its assets.
The sooner the SEC takes over and imposes a free on
all the assets, the better for all concerned.136
Nevertheless, in a subsequent decision, it was ruled that
the appointment of a management committee or rehabilitation
receiver may only take place after the filing with the
Commission of an appropriate petition for suspension of
payments.The conclusion is inevitable that pursuant to Section
6(c), taken together with Sections 5(d) and (d), a court action
is ipso jure suspended only upon the appointment of a
management committee or a rehabilitation receiver.137
Unlike the provisions in The Insolvency Law, which
exempt secured creditors from the suspensive effect of the
order issued by the court in an ordinary suspension of
payments proceedings, the provisions of P.D. No. 902-A, when
it comes to the appointment of a management committee or
a rehabilitation receiver, do not contain an exemption for
secured creditor from the suspensive effect provided in the
Decree.
cial
Originally, in the early case of Philippine Commer
Commercial
138
ppeals, the Supreme
International
Courtt of A
Appeals
Inter
national Bank vv.. Cour
136. RCBC v. Intermediate Appellate Court, 213 SCRA 830,
838 (1992).
137. Barotac Sugar Mills, Inc. v. Court of Appeals, 275 SCRA
497 (1997).
138. 172 SCRA 436 (1989).
2004]
DEVELOPMENTS IN COMMERCIAL LAW
99
Court, relying on jurisprudential rule pre-P.D. No. 902-A,
held that the SEC’s order for suspension of payments of a
corporation, as well as for all actions of claims against the
corporation, could only be applied to claims of unsecured
creditors and that:
[s]uch orders can not extend to creditors holding a
mortgage, pledge or any lien on the property unless
they give up the property, security or lien in favor of
all the creditors. 139
The PCIB ruling has since been abrogated in subsequent
decisions of the Supreme Court140 interpreting the proper
coverage of the suspensive effect upon the SEC’s appointment
of a management committee or rehabilitation receiver. It has
held rule that whenever a distressed corporation has asked the
Commission for rehabilitation and suspension of payments,
preferred creditors may no longer assert such preference, but
shall stand on equal footing with other creditors.
Alemar’
Alemar’ss Sibal and Sons, Inc. vv.. Elbinias ,141 held
that during rehabilitation receivership, the assets are held in
trust for the equal benefit of all creditors to preclude one
from obtaining an advantage or preference over another by
139. Ibid, at p. 440, citing Chartered Bank v. Imperial and National
Bank, 48 Phil. 931.
140. Alemar’s Sibal and Sons v. Elbinias, 186 SCRA 94 (1990);
BF Homes, Inc. v. Court of Appeals, 190 SCRA 262 (1990);
Araneta v. Court of Appeals, 211 SCRA 390 (1992); RCBC
v. Intermediate Appellate Court, 213 SCRA 830 (1992);
and State Investment House, Inc. v. Court of Appeals, G.R
No. 123240, February 5, 1996.
141. 186 SCRA 94 (1990).
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the expediency of attachment, execution or otherwise. The
Court held:
x x x For what would prevent an alert creditor, upon
learning of the receivership, from rushing posthaste to
the courts to secure judgments for the satisfaction of
its claims to the prejudice of the less alert creditors.
As between creditors, the key phrase is “equality is
equity.” When a corporation threatened by bankruptcy
is taken over by a receiver, all the creditors should stand
on an equal footing. Not anyone of them should be
given any preference by paying one or some of them
ahead of the others. This is precisely the reason for the
suspension of all pending claims against the corporation
under receivership. Instead of creditors vexing the
courts with suits against the distressed firm, they are
directed to file their claims with the receiver who is a
duly appointed officer of the SEC.142
BF Homes, Inc. vv.. Cour t of A
ppeals , 143 also
Appeals
explained that the reason for suspending actions for claims
against a corporation is to enable the management committee
or rehabilitation receiver to effectively exercise its/his powers
free from any judicial or extra-judicial interference that might
unduly hinder the “rescue” of the debtor company.144
Bank of the Philippine Islands vv.. Cour t of
Appeals,145 held that even foreclosure of mortgage shall be
disallowed so as not to prejudice other creditors or cause
142. Ibid, at pp. 99-100.
143. 190 SCRA 262 (1990).
144. Ibid, at p. 269.
145. 229 SCRA 223 (1994).
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DEVELOPMENTS IN COMMERCIAL LAW
101
discrimination among them. If foreclosure is undertaken
despite the fact that a petition for rehabilitation has been filed,
the certificate of sale shall not be delivered pending
rehabilitation. If that has already been done, no transfer
certificate of title shall likewise be effected within the period
of rehabilitation. The Court held that the rationale behind
P.D. No. 902-A, is to effect a feasible and viable rehabilitation,
which cannot be achieved if one creditor is preferred over the
others.146
ppeals ,147
In Rub
ubyy Industrial Cor
Corpp. vv.. Cour
Courtt of A
Appeals
the Court held that when a distressed company is placed under
rehabilitation, the appointment of a management committee
follows to avoid collusion between the previous management
and creditors it might favor, to the prejudice of the other
creditors:
All assets of a corporation under rehabilitation
receivership are held in trust for the equal benefit of
all creditors to preclude one from obtaining an
advantage or preference over another by the expediency
of attachment, execution or otherwise. As between the
creditors, the key phrase is equality in equity. Once the
corporation threatened by bankruptcy is taken over by
a receiver, all the creditors ought to stand in equal
footing. Not anyone of them should be paid ahead
of the others. This is precisely the reason for suspending
all pending claims against the corporation under
receivership.
146. RCBC v. Intermediate Appellate Court, 213 SCRA 830,
838; State Investment House, Inc. v. Court of Appeals, G.R.
No. 123240, February 5, 1996 (unpublished).
147. 284 SCRA 445 (1998).
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Although the ruling in Philippine Commercial
ppeals , 148 that
Appeals
Inter national Bank vv.. Cour t of A
suspension of actions provided for under P.D. No. 902-A
covers all corporate creditors, whether secured or non-secured,
has been abrogated by the Supreme Court, nevertheless, PCIB
is still relevant when it decreed that:
We take judicial notice of the fact that the SEC order
for the dissolution and liquidation of Philfinance has
already been upheld by this Court x x x In view of
this development, it appears that the Rehabilitation
Receiver has no more right to enjoin the auction sale
since its prayer for injunctive relief was based on the
order for suspension of payments x x x 149
Clearly when rehabilitation is no longer pursued in the
case of a corporate debtor, the suspensive effect provided for
by P.D. No. 902-A upon the appointment of the management
committee or rehabilitation receiver, ceased to have any
further hold, and the corporate creditors are then at liberty to
pursue their claims in different fora against the corporate
debtor.
b. Addressing the Other Issues Raised
The foregoing discussions on the issues and controversies
involved in the RTC’s jurisdiction in corporate rehabilitation
are in fact merely the “tip of the iceberg.” There are other
more fundamental issues that have to be tackled, simply because
there is no existing substantive corporate rehabilitation or
corporate reorganization law in the Philippines today.
148. 172 SCRA 436 (1989).
149. Ibid, at p. 441.
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DEVELOPMENTS IN COMMERCIAL LAW
103
Perhaps to a great extent, the RTC would have to rely
upon case-law applicable to corporate rehabilitation
proceedings when they fell within SEC’s jurisdiction. Likewise,
we anticipate RTC applying relevant provisions of The
Insolvency Act.
Under such scenario, RTC should, in order to properly
exercise such jurisdiction and not to allow their actions to be
vulnerable to legal attack, recognize constitutional right of
the parties involved in corporate recovery to the following
precepts: due process and protection of property rights and
the constitutional recognition of the sanctity of contracts in
the following areas of corporate rehabilitation, thus:
Secured Creditors have property rights under existing
security arrangements with the debtors that cannot be
put asunder without their consent or in exchange for
valuable consideration that preserves at least the value
of their property rights.
Since the 1935 Constitution, our society has
constitutionally sanctified the binding effects of contracts
between the parties and prohibits the passage of any law, rule
or regulation impairing the obligation of contracts, now
embodied in Section 10, Article III of the 1987 Constitution.
The sanctity of contractual commitments is likewise
emblazoned in basic provisions of the Civil Code, which
requires that contracts shall:
bind both contracting parties; its validity or compliance
cannot be left to the will of one of them150
and from the moment of their perfection,
150. CIVIL CODE, art. 1308.
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the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the
consequences which, according to their nature, may be
in keeping with good faith, usage and law.151
Contracts
shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites
for their validity are present.152
By way of comparison and illustration, in First Phil.
ppeals , 153 the
Appeals
Inter national Bank vv.. Cour t of A
conservator appointed by the Central Bank over an insolvent
bank who repudiated the contract entered into by the bank’s
officer on the ground that the contract was entered into
without proper authority. On the issue of whether the
conservator had the power to revoke or overrule actions of
the management or the board of directors of a bank, pursuant
to then Section 28-A of the Central Bank Act. The Court
ruled that:
While admittedly the Central Bank Law gives vast and
far-reaching powers to the conservator of a bank, it
must be pointed out that such powers must be related
to the “preservation of the assets of the bank, (the
reorganization of) the management thereof and (the
restoration of) its viability.” Such powers, enormous
and extensive as they are, cannot extend to the postfacto repudiation of perfected transactions, otherwise
they would infringe against the non-impairment clause
of the Constitution. If the legislature itself cannot
151. Ibid, art. 1315.
152. Ibid, art. 1356.
153. 254 SCRA (1996).
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DEVELOPMENTS IN COMMERCIAL LAW
105
revoke an existing valid contract, how can it delegate
such non-existent powers to the conservator under
Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives
the conservator power to revoke contracts that are,
under existing law, deemed to be defective – i.e., void,
voidable, unenforceable or rescissible. Hence, the
conservator merely takes the place of a bank’s board
of directors. What the said board cannot do – such as
repudiating a contract validly entered into under the
doctrine of implied authority – the conservator cannot
do either. Ineluctably, his power is not unilateral and
he cannot simply repudiate valid obligations of the
Bank. His authority would be only to bring court
actions to assail such contract – as he has already do so
in the instant case. A contrary understanding of the
law would simply not be permitted by the Constitution.
Neither by common sense. To rule otherwise, would
be to enable a failing bank to become solvent, at the
expense of third parties, by simply getting the
conservator to unilaterally revoke dealings which had
one way or another come to be considered unfavorable
to the Bank, yielding nothing to perfected contractual
rights nor vested interests of the third parties who had
dealt with the Bank.
The provisions of the Central Bank Act construed by
national
the Supreme Court in First Philippine Inter
International
Bank used the same language of Section 6(d) of P.D. No.
902-A. Despite the fact that the banking industry is
acknowledged to be vested with public interest, 154
154. Philippine Commercial and Industrial Bank v. Court of
Appeals, 269 SCRA 695 (1997).
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rehabilitation proceedings for any banking institution cannot
authorize the highly specialized Central Bank or Monetary
Board from amending contractual obligations owed by the
bank with third parties, specially creditors of the bank.
Consequently, the same principles would have to apply to
RTC in deciding rehabilitation proceedings under Section
5(d) of the P.D. No. 902-A, especially when corporate business
in general is not really vested with public interests.
The doctrine would be relevant in RTC deciding on the
following issues:
a. Can a rehabilitation plan, that impinges upon the
contractual rights of creditors, be adopted without
the approval of the creditors?
b. Can a rehabilitation plan be adopted even with the
approval of the unsecured creditors, without the
approval of the secured creditors who actually are the
only stakeholders who continue to have real value
for their claims covered by their security contracts?
c. What would be the qualifying vote of secured and
unsecured creditor to effectively allow the enforcement
of a rehabilitation plan?
d. Under what law can the adverse terms of a
rehabilitation plan be enforced and effected against
the contractual rights of secured creditors who have
voted against said plan?
These serious issues, fraught with constitutional, contract
law and property law implications, were in fact confronting
the SEC at the time The Securities Regulation Code was
promulgated and would remain the same serious issues that
now confront the RTC as they exercise their powers over
corporate rehabilitation proceedings.
Cr
oss-Bor
der Insolv
enc
Cross-Bor
oss-Border
Insolvenc
encyy and
Pri
Privvatization ∗
Judge Sixto C. Marella, Jr.∗∗
I. CROSS-BORDER INSOLVENCY...................................................... 108
A. Relevance of Cross-Border Insolvency (Expansion
of Coverage to Include All Debt Relief Proceedings)
B. Developments in the ASEAN Region
C. Extra Territorial Effect of a Decree of Insolvency
II. PRIVATIZATION.................................................................................... 112
A. Schemes Recognized
B. Common Provisions
∗
Delivered at the Seminar-Workshop for Commercial Court
Judges, on September 15 to 17, 2004, at the Eugenio Lopez
Center, Sumulong Highway, Antipolo City.
∗∗
Judge Sixto C. Marella, Jr. is presently the Executive Judge of
the Regional Trial Court of Makati City and the Presiding
Judge of Regional Trial Court, Branch 138 of Makati City, a
designated commercial court. He earned his Foreign Service
degree in 1967 and his law degree in 1971 from the University
of the Philippines, and subsequently passed the bar examination
given that same year. He also undertook postgraduate studies
at the Academy of American and International Laws in Dallas,
Texas and the Harvard Law School. He was the recipient of
the Chief Justice Cayetano Arellano Award for Best Decision,
Second Level Courts for the 2004 Judicial Excellence Awards.
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I. C ROSS -B ORDER I NSOL
VENCY
NSOLVENCY
A. Rele
oss-Bor
der Insolv
enc
elevvance of Cr
Cross-Bor
oss-Border
Insolvenc
encyy (Expansion
oceedings)
of Co
lude All De
elief Pr
Covverag
eragee to Inc
Include
Debt
Relief
Proceedings)
bt R
Recent developments in International Law practice expanded the
coverage of the term insolvency to include the broad range of
proceedings intended to protect the interests of creditors to enable
them to, at least, secure a partial satisfaction of claims. It is deemed
to include all interferences in the ownership rights of a person or
entity under supervision of state power as a consequence of
inability to honor obligations to pay sums of money aimed at
satisfying creditors’ claims by way of liquidation or conversion
into cash of the debtor’s estate. The inability may be the result of
overindebtedness, market conditions, bad investments, or even
company mismanagement. Other jurisdictions refer to them as
compulsory court settlement, winding up by the Court,
administration of the insolvent estate, administration by a judicial
factor and voluntary arrangements under insolvency.
Thus, the proceedings under the Interim Rules of Procedure
on Corporate Rehabilitation as well as the pending legislation,
the Corporate Recovery Act, may now fall under the term
insolvency proceedings.
B. De
Devvelopments in the ASEAN R
Ree gion
In the recently concluded ASEAN Finance Ministers meeting in
Jakarta, it has been agreed by member countries including the
Philippines to take an aggressive stance towards economic
integration. Priority areas identified were automobile, textile and
electronics. Governments were called upon to provide legal
framework to include improvement of domestic laws.
2004]
CROSS-BORDER INSOLVENCY
AND PRIVATIZATION
109
Cross-border insolvency is one area, which would require
legislation if economic integration is to be pushed through.
C. Extra Ter
ritorial Ef
ee of Insolv
enc
erritorial
Efffect of a Decr
Decree
Insolvenc
encyy
Under the present law, insolvency and other similar proceedings
opened and conducted abroad have no effect on hearings before a
domestic court involving a foreign person or entity regarding
whose assets the insolvency proceedings are being conducted
abroad. Insolvency proceedings commenced abroad therefore are
not obstacles to domestic proceedings.
The following operates to limit the foregoing:
1. Comity
Comity.. A common law tradition to give recognition by
one nation within its territory to the legislative, executive or
judicial acts of another nation having due regard to
international duty and convenience and to the rights of its
own citizens or others who are under the protection of its
laws. This can be applied even in the absence of a treaty or
domestic legislation and a court can tailor the level and extent
of recognition and assistance according to the specific
circumstance.
equatur
2. Ex
Exequatur
equatur.. A tradition in civil law countries whereby
recognition of foreign insolvency cases may be made by
utilizing local law to obtain an “enabling order.” In effect,
this is like a recognition of a foreign judgments.
ocity of JJudgments
udgments Le
gislation. Where laws are
3. Recipr
eciprocity
Legislation.
enacted providing for the recognition of foreign judgments.
etionar
gislation. This is the most
4. Unilateral Discr
Discretionar
etionaryy Le
Legislation.
predominant means of providing assistance in relation to cases
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THE PHILJA JUDICIAL JOURNAL
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of cross-border insolvency. There are various forms but
generally common provisions are:
a. Authority is provided for a court to recognize judgment
and provide assistance in respect of foreign insolvency
proceeding originating in any jurisdiction;
b. Set out certain conditions or tests that may be fulfilled
before recognition must be granted;
c. Provide for the procedure to be followed in making an
application for recognition; and
d. Prescribe the nature and extent of assistance that can be
provided.
gislation
5. Unilateral Mandator
Mandatoryy Le
Legislation
gislation. The situation where
the law requires mandatory recognition and assistance for
insolvency proceedings initiated abroad. This is not, however,
universal because mandatory recognition is required of crossborder cases originating in certain prescribed countries.
gislation
6. Bilateral Le
Legislation
gislation. These are treaty arrangements
providing for mutual recognition and assistance in cases of
insolvency.
gislation
7. Multilateral or R
Reegional Treaty Le
Legislation
gislation. Legislation
for a limited group of countries having mutual group relations
and a confidence in court’s legal system.
8. Economic Union Legislation
Legislation. Similar to multilateral or
regional legislation.
w Le
gislation. The United Nations
9. Global Model La
Law
Legislation.
Commission on International Trade Law (UNCITRAL)
conducted work from 1994 to 1997 on cross-border
insolvency which resulted in UNCITRAL Model Law on
2004]
CROSS-BORDER INSOLVENCY
AND PRIVATIZATION
111
Cross-Border Insolvency, approved by a general resolution
of the General Assembly of the Umbel Nation in 1997.
The broad scheme of the basis on which the UNCITRAL
Model Law is intended to operate is as follows:
a. It applies to an insolvency proceeding in which the debtor
is subject to the control or supervision of a foreign court
for the purposes of reorganization or liquidation;
b. It applies to both “inbound” and “outbound” requests
for recognition and assistance, but obviously concentrates
on “inbound” applications;
c. It provides access to the courts (or other relevant
institutions) of an enacting state for a “foreign
representative” (a person or body who is authorized in a
foreign proceeding to administer the reorganization or
liquidation of a debtor) to apply for recognition and
assistance;
d. An application for recognition and assistance may be made
without unnecessary formality or procedure;
e. A decision on recognition should, in most cases, be quickly
decided and amount to not much more than a mere
formality;
f. Depending on the nature of the foreign proceeding and
the extent of assistance that is required, automatic,
immediate relief and assistance will follow from
recognition. The main relief is in the form of a stay or
suspension of actions and proceedings against the property
of the debtor located in the enacting state;
g. The UNCITRAL Model Law provides for the possibility
of cooperation between office holders, courts and judges
in the various jurisdictions that might be involved.
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The UNCITRAL Model Law on Cross-Border Insolvency
is not a treaty or convention. This will become effective only if a
jurisdiction legislate it as part of its domestic legislation. Further,
it will not, by itself, result in reciprocity.
II. P RIV
ATIZA
TION
RIVA
TIZATION
lic Act No
The applicable laws are Repub
public
No.. 6957 entitled “An
Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector and
lic Act No
for Other Purpose” and R
Reepub
public
No.. 7718 entitled
“An Act Amending Certain Sections of R.A. No. 6957.” Both
were enacted to implement the policy of state:
a. To recognize the indispensable role of the private sector
as the main engine for national growth; and
b. To develop and provide the most appropriate favorable
incentives to mobilize private resources for the purpose.
In R.A. No. 7758, the coverage and applicability of the Build,
Operate and Transfer (BOT) law was expanded to include
government development projects in addition to government
infrastructure projects.
A. Sc
hemes R
ecognized
Schemes
Recognized
The law recognizes the following:
er
1. Build, Operate and Transf
ransfer
A contractual arrangement whereby a private entity undertakes
the construction including financing of an infrastructure, operates
and maintains it, and at the end of the the contracted period,
transfers it to the government unit concerned thereof.
2004]
CROSS-BORDER INSOLVENCY
AND PRIVATIZATION
113
2. Build and Transf
er
ransfer
A contractual arrangement whereby the private company
undertakes the construction of an infrastructure, turns it over,
after completion, to the government unit concerned, and shall
pay the private company its total investment plus a reasonable
rate of return.
These are normally employed in the construction of any
infrastructure projects considered as critical for security or strategic
reasons.
3. Build, Own, Operate
A private entity will construct and then own, operate, and maintain
the infrastructure from which it will recover its investment,
operating, and maintenance costs by collecting tolls, fees, rentals,
and other charges. Assignment of right to operate and maintain
to a facility operator allowed.
4. Build, Lease, Transf
er
ransfer
An arrangement where a private group will construct an
infrastructure and upon its completion turns it over to the
government on a lease arrangement for a fixed period after which
ownership is automatically transferred to the government agency.
5. Build, Transf
er and Operate
ransfer
A private group builds the facility on a turn key basis assuming
cost overrun, delay, and specified performance risk and once
completed, title is transferred to the implementing agency. The
private agency operates the facility in behalf of the implementing
agency.
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6. Contract-Add and Operate
A contractual arrangement whereby a private entity adds to an
existing facility, which it is renting from the government, and
operates it over an agreed franchise period.
er
7. De
Devvelop
elop,, Operate and Transf
ransfer
An arrangement whereby favorable conditions are external to a
new infrastructure project, which is to be built by a private company
or integrated into the arrangement by giving that entity the right
to develop adjoining property and enjoy some of the benefits
such as higher property or rent values.
8. Rehabilitate, Operate and Transf
er
ransfer
A contractual arrangement whereby an existing facility is to be
refurbished and then operated and maintained for a franchise period
and of which at the expiration, the legal title is to be turned over
to the government.
9. Rehabilitate, Own and Operate
Arrangement whereby an existing facility is turned over to the
private sector to refurbish and operate with no time limitation
imposed on ownership so long as the operation is not in violation
of its franchise.
B. Common Pr
Proovisions
In all of the foregoing schemes, the common provisions are:
a. If the infrastructure facility requires a public utility
franchise, sixty (60%) percent Filipino ownership is
required;
2004]
CROSS-BORDER INSOLVENCY
AND PRIVATIZATION
115
b. Adequacy of financial base to implement the projects
which shall consist of equity and firm commitment from
reputable financial institutions;
c. The return on investment must be at “reasonable rate”
defined by R.A. No. 7718 as the rate that reflects the
prevailing cost of capital in the domestic and international
markets. In case of negotiated contracts, the rate of return
shall be determined by the National Economic
Development Authority (NEDA) prior to the
negotiation and/or call for proposals;
d. The contractor transfers the facility to the government
concerned at the end of the fixed term, which shall not
exceed fifty (50) years;
e. Financing may be provided from foreign and domestic
sources; and
f. In case of foreign contractors, Filipino labor shall be
employed or hired in the different phases of the
construction where Filipino skills are available.
Awarding of project is through public bidding but in case
there is only one complying bidder, direct negotiation is allowed.
For the disqualified bidders, they have the right to appeal the
decision of the implementing agency or the pre-qualification bids
and awards committee of the local government unit to the head
of the agency or to the Department of the Interior and Local
Government (DILG) in case of local government projects.
De
urisdiction
Devvelopments to Expand JJurisdiction
of Special Commer
cial Cour
ts
Commercial
Courts
and Leading De
Devvelopments
in Commercial Law ∗
Dr. Cheselden George V. Carmona∗∗
I. INTRODUCTION .................................................................................. 117
II. C ONSOLIDATION OF I NTELLECTUAL P ROPERTY (IP)
COURTS WITH COMMERCIAL COURTS ........................................ 121
III. INCLUSION OF VIOLATION OF
ANTI-MONEY LAUNDERING ACT IN THE
SPECIAL COMMERCIAL COURTS’ JURISDICTION ...................... 125
IV. PROPOSAL TO EXPAND JURISDICTION OF
COMMERCIAL COURTS .................................................................. 127
V. SPECIALIZATION ............................................................................... 130
VI. LEADING DEVELOPMENTS IN COMMERCIAL LAW ............ 136
∗
Delivered at the Seminar Workshop for Commercial Court
Judges, on September 15 to 17, 2004, at the Eugenio Lopez
Center, Sumulong Highway, Antipolo City.
∗∗
Dr. Cheselden George V. Carmona has a law degree and a PhD
in public administration. He is currently a professorial lecturer
at the Philippine Judicial Academy, Ateneo De Manila
University School of Law, and the Graduate School of UP
National College of Public Administration and Governance.
He is likewise a faculty of the Canadian International
Development Agency – Justice Reforms Initiative Support
(CIDA – JURIS) mediation project. He taught at the De La
Salle University, University of the Philippines and San Sebastian
College of Law, and lectured at the Institute of Judicial
Administration.
2004]
DEVELOPMENTS TO EXPAND JURISDICTION OF
SPECIAL COMMERCIAL COURTS AND
LEADING DEVELOPMENTS IN COMMERCIAL LAW
117
A. The Anti-Money Laundering Act
B. The Intellectual Property Code
C. The E-Commerce Law
D. The General Banking Law
E. The Special Purpose Vehicle Act
F. The Securitization Act of 2004
VII. CONCLUSION .................................................................................... 157
I. I NTR
ODUCTION
NTRODUCTION
It has been more than four (4) years now since the Securities
Regulation Code (SRC) mandated the transfer of certain cases
under the exclusive and original jurisdiction of the Securities and
Exchange Commission (SEC) to the regional trial courts. Section
5.2 thereof provides that the:
Commission’s jurisdiction over all cases enumerated under
Section 5 of Presidential Decree No. 902-A is hereby
He finished his Bachelor of Arts from De La Salle University,
Bachelor of Laws from the University of the Philippines College
of Law in 1993 and masters (with distinction) and doctorate
degree from the UP National College of Public Administration
and Governance (NCPAG) in 2000 and 2003, respectively. His
doctoral dissertation examines the impact of court decisions
on economic policy making and implementation.
Atty. Carmona is currently the task manager on Legal and Judicial
Reform Program of the United States Agency for International
Development – Economic Governance Technical Assistance
(USAID – EGTA) project. He was part of a team that
undertook a Governance Assessment of the Philippines in the
areas of Legal and Judicial Reform for the Asian Development
Bank. From 1994 to 1999, he was a senior partner of the
Pangilinan Carmona Santo Law Office before he went into
development and consulting work.
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transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court: Provided, that the
Supreme Court in the exercise of its authority may designate
the Regional Trial Court branches that shall exercise
jurisdiction over these cases. x x x.1
The law’s directive was almost a surprise to the legal and
business community because the original version of the SRC did
not contain this provision. There was a separate bill then that
proposed the creation of special commercial courts, but it was
still in the committee level and the transfer was still being studied
by a technical working group.2 The law’s intent, nevertheless, is
clear. It wants SEC to concentrate on its regulatory and corporate
registrar functions and the regional trial courts to assume its quasijudicial powers.
The transfer was probably accelerated by the inability of the
SEC to rationalize and resolve debt relief petitions in the country.
From 1997 to 2000, a large number of corporations went bankrupt
or had financial liquidity problems and had petitioned the SEC
for rehabilitation or suspension of payment. Many of these cases
remained unresolved for a long period of time and have affected
the image of the country as an investment destination.
Still reeling from the effects of the regional financial crisis
that started in 1997, the policymakers wanted to put in order
debt relief and intra-corporate proceedings in the country in order
to lure back the investors. There was a need for a credible
commercial tribunal and the regional trial courts were the most
1. Republic Act No. 8799, Securities Regulation Code.
2. House Bill No. 9933 entitled “An Act to Strengthen the
Regulatory Powers of the SEC by Transferring its Quasi-Judicial
Functions to Specialized Commercial Courts.”
2004]
DEVELOPMENTS TO EXPAND JURISDICTION OF
SPECIAL COMMERCIAL COURTS AND
LEADING DEVELOPMENTS IN COMMERCIAL LAW
119
logical choice. The Explanatory Note of the original version of
the bill was to the point:
In recent years, however, the retirement of more experienced
and competent hearing officers in the Commission has forced
the Commission to hire younger and inexperienced hearing
officers who promulgate decisions which more often than
not, are reversed on appeal by the Commission en banc.
Thus, a significant amount of the Commissioner’s time is
spent on correcting decisions of its subordinates, which it
could have devoted instead to regulating the securities
market, encouraging the inflow of foreign and domestic
investments and in increasing public awareness of the role
of capital market in the country’s economic development.
Immediately after the passage of the Securities Regulation
Code, the Supreme Court laid down the procedures for the transfer
of these cases and the designation of certain branches of the
regional trial court for this purpose. Sixty (60) regional trial courts
all over the country were appointed as special commercial courts
on November 21, 2000. The Court likewise promulgated the
Interim Rules on Corporate Rehabilitation and the Interim Rules
of Procedure on Intra-Corporate Controversies.
The Philippine Judicial Academy (PHILJA) conducted a series
of training seminars to update the commercial court judges on
the developments in corporate rehabilitation and intra-corporate
disputes. For a long time, or since 1976, these types of cases were
being heard by the SEC and both the judges and the Academy
realized the need for rigorous trainings in this field.
At least four (4) seminars were immediately conducted in the
Philippine Judicial Academy campus and DAP Training Facility
both in Tagaytay City, in Holiday Inn in Clark, Pampanga, and in
Marriot Hotel in Cebu City. The seminars were productive as
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they reintroduced the judges to the world of corporate
rehabilitation and intra-corporate dynamics. The first two (2)
seminars in Tagaytay City focused on the newly promulgated rules,
while the other two (2) deepened the discussion on technical
matters like finance and business issues. Professors of the Asian
Institute of Management (AIM) partnered with PHILJA
professors in the conduct of the lectures.
The seminar held in Cebu City also discussed securities
regulation, and a mock trial was held wherein prosecutors of the
Department of Justice (DOJ) and lawyers of the Securities and
Exchange Commission (SEC) participated. The then Cebu
Regional Trial Court (RTC) Judge, now Court of Appeals (CA)
Justice, Isaias P. Dicdican, presided over the trial. It was a good
exercise, which exposed the commercial court judges on concepts
like insider trading and other fraudulent or manipulative devices
and practices that distort the securities market.
During the open forum with the Chief Justice, one commercial
court judge pointed out that cases arising out of violations of
the Securities Regulation Code do not automatically fall under
the jurisdiction of the commercial courts. Because they are not
among those SEC cases that were transferred to commercial courts,
any regional trial court can hear cases on violations of the Securities
Regulation Code. It is thus possible that a judge who has not
received any training on securities regulation may have to decide
on fraudulent securities transaction. It probably triggered the
proposal to increase the jurisdiction of commercial courts to
include other business related cases.
2004]
DEVELOPMENTS TO EXPAND JURISDICTION OF
SPECIAL COMMERCIAL COURTS AND
LEADING DEVELOPMENTS IN COMMERCIAL LAW
121
II. C ONSOLID
ATION OF I NTELLECTU
AL P ROPER
TY
ONSOLIDA
NTELLECTUAL
OPERTY
(IP) C OUR
TS WITH C OMMER
CIAL C OUR
TS
OURTS
OMMERCIAL
OURTS
On June 17, 2003, the Supreme Court issued Administrative
Circular A.M. No. 03- 03-03-SC, which consolidated Intellectual
Property Courts with Commercial Courts. The Court pointed
out that since their establishment, fifteen (15) designated IP courts
in Regions 1, 2, 3, 4, 5, 6, 7, 8, 9 and 12 have zero IP cases and,
hence, their continued designation as special IP courts is no longer
warranted. Noting that intellectual property cases are commercial
in nature, the Court decided to consolidate the two (2) courts in
order to streamline the court structure and to promote expediency
and efficiency in handling such special cases. With the
consolidation, the regional trial courts previously as SEC Courts:
are hereby DESIGNATED and shall be CALLED as
Special Commercial Court to try and decide cases involving
violations of Intellectual Property Rights which fall within
their jurisdiction and those cases formerly cognizable by
the Securities and Exchange Commission.3
With the passage of new legislations that seek to protect
intellectual property rights in the Philippines, it is expected that
more cases will be filed with the Special Commercial Courts. Aside
from the 1987 Constitution,4 there are least five (5) major laws
now that call for the protection of intellectual property rights:5
3. Paragraph 1, SC A.M. No. 03-03-03, June 17, 2003.
4. The State shall protect and secure the exclusive rights of scientists,
inventors, artists, and other gifted citizens to their intellectual
property and creations, particularly when beneficial to the
people, for such period as may be provided by law.
5. Avenido, Administrative Remedies for the Enforcement of
intellectual Property Rights – The Philippine Experience.
WIPO, Geneva, June 28 - 30, 2004.
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•
Re pub
lic Act No
public
No.. 8293 , or the Intellectual
Proper
operty
Pr
oper
ty Code of the Philippines. The Code took effect
in January 1998 and provides for the fundamental legal
basis for the protection of intellectual property rights in
the country and for IP enforcement actions.
•
Repub
lic Act No
onic Commer
ce
public
No.. 8792, the Electr
Electronic
Commerce
Act, which took effect in June 2000, brings IP protection
Act
to the digital environment. Section 33, thereof, is an
encompassing provision which penalizes, among other
actions, “hacking” and “piracy” or the unauthorized
copying, reproduction, dissemination, distribution,
importation, use, removal, alteration, substitution,
modification, storage, uploading, downloading,
communication, making available to the public or
broadcasting of protected material, electronic signatures
or copyrighted works including legally protected sound
recordings or phonograms or information material on
protected works through the use of telecommunication
networks, such as, but not limited to the internet. The ECommerce Act, therefore, is considered a potent weapon
to combat on-line piracy.
•
Re pub
lic Act No
w Pr
otecting
public
No.. 9150
9150, the La
Law
Protecting
Layout-Designs of Integrated Circuits was signed
on August 6, 2001. Under this law, protection of layout
designs follows after registration.
•
Repub
lic Act No
public
No.. 9168 or the New Plants Varieties
Protection
Pr
otection Act took effect on July 20, 2002. This
legislation provides a sui generis protection for new plant
varieties and is administered by the Department of
Agriculture.
2004]
DEVELOPMENTS TO EXPAND JURISDICTION OF
SPECIAL COMMERCIAL COURTS AND
LEADING DEVELOPMENTS IN COMMERCIAL LAW
123
•
To further enhance and update copyright and related rights
protection in the country, the Philippine senate ratified
Philippine membership to the W1PO CopyrightTreaty
and the W1PO Performance and Phonograms Treaty in
2002. The treaties took effect in October 2002.
•
Repub
lic Act No
public
No.. 9239, or the Optical Media Act
Act,
was signed into law on 11 February 2004. The law is
intended to address the problem of optical disc piracy by
getting to the source – the manufacturers of pirated
optical media and equipment used in the production
thereof.
Statistics provided by organizations looking into violations
of IP rights in the Philippines are indicative of the type of cases
that the special commercial courts will have to hear and resolve.
As of 2003, there are 543 cases involving motion pictures and
twelve (12) cases involving business software – four (4) are in
the Regional Trial Courts and eight (8) are on appeal either with
the Department of Justice, Court of Appeals or the Supreme
Court. The following statistics on the Philippine criminal and
civil copyright enforcement for the year 2003 provide a general
overview of IP cases.6
6. 2004 Special 310 Report, Philippines, International Intellectual
Property Alliance.
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Because of these numbers, there is an increasing concern that
the Philippines may soon become a manufacturing hub of optical
discs in the DVD format, both for local consumption and export.
However, there have been positive developments in the fight
against IP violations. The year 2003 saw the convictions of major
pirates in two (2) cases. The Bulacan Regional Trial Court found
seven (7) Indonesian nationals and five (5) Chinese nationals
guilty of illegal production of DVDs and music CDs under
Sections 6 and 7 of Presidential Decree 1987 (An Act Creating
2004]
DEVELOPMENTS TO EXPAND JURISDICTION OF
SPECIAL COMMERCIAL COURTS AND
LEADING DEVELOPMENTS IN COMMERCIAL LAW
125
the Videogram Regulatory Board). According to the Videogram
Regulatory Board (VRB), the case was the first successful
conviction for video piracy by the VRB since its creation in 1985.
The twelve (12) defendants (all foreigners) were each sentenced
to jail terms ranging from three (3) months and one (1) day to
one (1) year in prison and were ordered to pay fines totaling
Php1.2 million (approximately US$23,000). They were or will
be deported after serving their sentences. The case took seven (7)
months to complete.7
In another case, a Legaspi City court convicted a couple, also
under Sections 6 and 7 of Presidential Decree (P.D.) 1987, for
illegal production of CDs and DVDs, resulting in sentences of
three (3) months and a day to one (1) year of imprisonment
each, without probation, and fines of Php50,000 each for each
offense. 8
III. I NCL
USION OF V IOLA
TION OF
NCLUSION
IOLATION
A NTI -M ONEY L AUNDERING A CT IN THE
S PECIAL C OMMER
CIAL C OUR
TS ’ J URISDICTION
OMMERCIAL
OURTS
In June 1, 2004, the Supreme Court En Banc issued a Resolution
expanding further the jurisdiction of special commercial courts.
The court resolved to designate the special commercial courts to
try and decide violations of Republic Act No. 9160 or AntiMoney Laundering Act of 2001, provided that if accused is a
public officer or a private person who is in conspiracy with such
public officer, the case shall be tried by the proper court vested
by law to try the said case. 9
7. Two More Video ‘Pirates’ Convicted, Philippine Daily Inquirer,
May 3, 2003, cited in 2004 Special 310 Report.
8. Ibid.
9. A.M. No. 04-4-197-RTC.
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Republic Act No. 9160 criminalized anti-money laundering
activities to ensure that the Philippines shall not be used as a
money laundering site for the proceeds of any unlawful activity.
At the same time, however, the law declares it a policy of the state
to protect and preserve the integrity and confidentiality of bank
accounts by penalizing unlawful opening of bank accounts in
violation of the bank secrecy law. 10
Ho
w is money laundering car ried out?
How
Money laundering involves entering into a single transaction or a
series of transactions in order to disguise the illegal origin of assets.
These transactions normally fall under three stages. (Appendix A)
1. Placement - In this stage, the launderer places money or property
derived from criminal activity into financial
institutions through deposits, money orders, wire
transfers or other means. The money or property
will then be mixed with legitimate deposits. Large
amounts of cash are broken up into smaller sums
that are either deposited on several bank accounts
or used to buy monetary instruments, which are then
collected and deposited in another location.
2. Layering
- In this stage, the launderer separates the proceeds of
criminal activity from their illicit origin through
complex and multiple financial transactions. This
stage is characterized by a series of conversions and
money movements. This can be done through the
purchase and sale of investment securities, the wiring
of funds through series of accounts worldwide, or
the disguised transfer of payments for non-existent
goods and services.
3. Integration - In this stage, the launderer re-infuses the funds into
legitimate circulation in the economy by
transforming the illegal proceeds into funds that
appear to have a legal source. The launderer can do
this by investing in real estate, money market
securities, or other business undertakings.
10. Republic Act No. 9160, § 1 .
2004]
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The designation of the special commercial courts to handle
anti-money laundering cases was hailed by various quarters
including the Anti-Money Laundering Council (AMLC), which
said that:
this development should boost the country’s chances of
being taken out of an international blacklist of dirty money
havens.
The AMLC had asked the Supreme Court to designate those
special courts to show the international anti-money-laundering
watchdog, the Financial Action Task Force (FATF), that the
Philippine government was serious in curbing money laundering.
Vicente Aquino, the AMLC Executive Director, was quoted as
saying that:
only in the Philippines that such move was made.11
IV
AND J URISDICTION
IV.. P ROPOSAL TO E XP
XPAND
C OMMER
CIAL C OUR
TS
OMMERCIAL
OURTS
OF
The Philippine Judicial Academy (PHILJA) is the leading
proponent of the move to expand the jurisdiction of commercial
courts. Since early 2002, PHILJA, through its Consultants’ Group,
has been looking into the proposal to expand the jurisdiction of
commercial courts to include, not only cases arising out of the
Securities Regulation Code, but other commercial disputes as well.
The Consultants’ Group held a series of meeting and roundtable
discussions to consider the proposal. The Group invited resource
persons that included National Capital Region (NCR)
commercial court judges to participate in its meeting. A
11. 60 Special Courts to Handle Money Laundering Cases,
Philippine Daily Inquirer, July 14, 2004.
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seminar-workshop involving all commercial court judges of Metro
Manila was also conducted for this purpose.
During the consultation, it was also pointed out that not very
many cases involving violation of the Intellectual Property Code
have been filed with the Regional Trial Courts designated as Special
Intellectual Property Courts.
The Consultants’ Group passed two (2) Resolutions:
1. Recommending to the Supreme Court the consolidation
of Intellectual Property Courts with Commercial Courts;
and
2. Expanding the jurisdiction of special commercial courts
to include business-related cases.
In the latter proposal, the Group proposed that the special
commercial courts shall have exclusive jurisdiction to try and decide
the following cases:12
a. Insolvency, whether voluntary or involuntary, under Act
No. 1956, otherwise known as The Insolvency Act;
b. Suspension of payments under the Insolvency Act;
c. Corporate Rehabilitation under Presidential Decree No.
902-A, as amended, and the Interim Rules of Procedure
on Corporate Rehabilitation;
d. Controversies under Presidential Decree No. 902-A, as
amended, and the Interim Rules of Procedure Governing
Intra-Corporate Controversies;
e. Receivership and liquidation of banks, insurance
companies, quasi-banks and cooperatives under the
respective laws governing them;
12. Recommendation No. C-21, Judicial Reforms Office,
Consultants’ Group, March 25, 2003.
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f. Enforcement of arbitral agreements and recognition and
enforcement of arbitral awards, including vacation,
annulment, or setting aside of arbitral awards;
g. Enforcement of foreign commercial judgments;
h. Cases under Presidential Decree (P.D.) No. 87, otherwise
known as An Act Creating the Videogram Regulatory
Board;
i. Cases involving credit and security transactions of banks
and licensed quasi-banks where the principal amount of
the demand or value of the property involved is Php50
million or more, such as, but not limited to mortgage to
trust indentures, real estate mortgage, chattel mortgage,
and pledge;
j. Cases under Republic Act No. 8799, otherwise known as
The Securities Regulation Code;
k. Cases under Batas Pambansa BIg. 68, otherwise known as
The Corporation Code of the Philippines;
l. Cases under Republic Act No. 9160, otherwise known as
The Anti-Money Laundering Act of 2001;
m. Cases under Republic Act No. 7653, otherwise known as
The New Central Bank Act;
n. Cases under Republic Act No. 8971, otherwise known as
The General Banking Law of 2000;
o. Cases under Republic Act No. 8972, otherwise known as
The Electronic Commerce Act;
p. Cases under Executive Order No. 226, otherwise known
as The Omnibus Investments Code of 1987, Republic
Act No. 7042, as amended, otherwise known as The
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Foreign Investments Act of 1991, and Republic Act No.
6597, as amended, otherwise known asThe Build-OperateTransfer Law; and
q. Insurance cases where the amount of the claim is
Php200 million or more.
T he Consultant’
oup
Consultant’ss Gr
Group
Justice Ameurfina A. Herrera
Justice Emilio A. Gancayco
Justice Camilo D. Quiason
Dean Pacifico A. Agabin
Dean Eduardo D. De Los Angeles
Fr. Ranhilio C. Aquino
Dean Reynaldo L. Suarez
Resource Persons
Judge Sixto C. Marella
Judge Antonio Eugenio, Jr.
Dr. George V. Carmona
Justice Jose Y. Feria
Justice Carolina C. Aquino
Justice Presbitero J. Velasco
Dean Cesar L. Villanueva
Justice Antonio M. Martinez
DCA Bernardo T. Ponferrada
Judge Artemio S. Tipon
Atty. Francis Ed Lim
Atty. Manuel Yngson
V. S PECIALIZA
TION
PECIALIZATION
One issue that has to be seriously considered in pursuing this
proposal to consolidate to the special commercial courts all these
so-called business cases is the merit of specialization. Is
specialization worth pursuing? There are arguments for and against
specialization. The following can be considered as the advantages
of having specialized courts:13
Judicial System Ef
Effficienc
iciencyy. With specialized courts, judges
in the general jurisdiction courts no longer have to wrestle
with, or spend the effort to remain current on, the issues in
that field of the law. With responsibility for fewer fields of
13. The Amer. Bar Assoc. Central and East European Law Initiative
(CEELI), Concept Paper on Specialized Courts, June 25, 1996.
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the law, their efficiency is increased. By contrast, judges in the
specialized courts who deal with those issues with much greater
frequency, develop the expertise to adjudicate disputes that
involve those issues much more efficiently and expeditiously.
Overall, the efficiency of the court system is enhanced.
Le
Leggal System Ef
Effficienc
iciencyy. Lawyers who appear before a
generalist judge, particularly in unusually complex cases where
the generalist judge may be only marginally familiar, typically
detail to an excess all conceivably relevant and useful
information on the record. They do both educate the judge
and lay the groundwork for an appeal if the judge’s decision
fails to grasp the nature of the dispute. Specialized court judges,
by contrast, do not need to be educated by the bar and, given
their expertise, are much more capable of reducing the scope
of the legal framework to the vital issues on which the
resolution of the case depends. The cost and delay are
commensurately reduced.
Unif
or
mity
Unifor
ormity
mity.. The specialty judges, given their expertise,
familiarity and fewer numbers, will produce decisions that are
much more uniform than a substantially larger number of
less-expert generalist judges who populate the regional trial
and appellate courts. Uniformity in decision-making lead to
predictability, and a principal benefit of predictability is that
it reduces the need for litigation.
Exper
tise. Generalist judges sometimes are referred to as
Expertise.
novices at everything and experts at nothing. Generalist judges
must continually immerse themselves into the diverse areas
of the law and sometimes technically difficult factual disputes
that their caseloads reflect, touching all but mastering none,
and producing decisions that, because they do not reflect
expertise, run the risk of being lower in quality and more
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prone to generate appeals. Specialized courts, by contrast, are
more likely to produce high-quality decisions from which no
appeal need be taken.
Impr
Improoved Case Manag
Management.
ement. Because the cases tend to
be similar, the procedural rules and requirements can be
specifically designed to facilitate effective case management.
Elimination of Conflicts and Forum Shopping.
Specialized courts serve to reduce and even eliminate conflicts
in the interpretation and application of the law in their field
or fields of jurisdiction. A consistent national body of law
can dramatically reduce or even eliminate conflicts and the
forum shopping that follows from them.
Incr
eased System Fle
xibility
Increased
Flexibility
xibility.. Court systems typically have
to deal with significant variations in caseload over time in
particular fields of the law. They may experience, for example,
an unexpected rash of administrative agency case filings that
continue to grow over a multi-year period then, equally
unexpectedly, begins to slow and finally diminishes to a trickle.
Tasking generalist courts with such fluctuating caseloads has
the potential to wreak havoc on the timely and systematic
resolution of their ongoing caseloads. Specialized courts can
play a significant role in helping court systems cope with such
variations by handling those volatile areas.
Administrati
enc
hanism. When the
Administrativve Ag
Agenc
encyy R
Reeview Mec
Mechanism.
power to review decisions of administrative agencies rests
within the institutional structure of the agencies themselves,
there may be cause for concern. The agencies are open to the
criticism that their own self-interest militates against their duty
to ensure that such fora are impartial. To that extent, the
interests of justice may dictate that there should be an
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independent tribunal with the authority, to review agency
actions and decisions.
Consistenc
enc
w. Where
Consistencyy of Administrati
Administrativve Ag
Agenc
encyy La
Law
agency decisions are subject to an independent dispute review
forum, such reviews should be conducted by a single
specialized forum rather than by a number of generalist
regional trial courts that are much more prone to issue varying
and conflicting interpretations of the relevant statutes and
whose case processing efficiency is likely to be congested and
obstructed by the addition of narrowly focused and sometimes
complex litigation.
There are equally compelling arguments against specialization
of courts. The following are arguments in opposition to specialized
courts: 14
Inef
Ineffficienc
iciencyy. Inefficiency could result when the
specialized tribunal focuses too narrowly on particular
issues in a case, and the litigants have to pursue further
litigation in other tribunals to seek resolution on broader
issues in the case that the specialized court did not or
would not consider. A case in point is Union Glass v.
SEC
SEC,15 where the Supreme Court ordered that Union
Glass be dropped as a party defendant in the SEC case
for the reason that it was not involved in any intracorporate dispute. The effect of the decision was that the
complainant in the SEC had to file a separate suit in the
regular courts against Union Glass to adjudicate basically
the same issues in the SEC.
14. Ibid.
15. G.R. No, L-64013, Nov. 28, 1983.
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Isolation. Specialized court judges, by having to focus
on particular legal issues at the cost of all others, are
removed from the mainstream of legal thought. They risk
developing a one-sided view of the issues, losing their
objectivity, and evolving a jargon, thought patterns,
litigation biases, and internal policies that are unique and
may be at odds with those of the law in general. The
narrowness of the work and the doctrinal isolation may
make it difficult to attract the most talented and qualified
jurists to judicial careers. The desirable expertise and
experience of a seasoned judge is adjudication that is based
on broad rather than narrow exposure to the law.
Furthermore, a judge’s familiarity with an area of law
reaches a point of diminishing returns. For litigants
presenting garden-variety appeals, the temptation for the
judge who sees little else is to decide the case on autopilot.
The bored judge does not give each case individualized
attention, and instead enforces blanket rules of thumb
that only the most extreme variation from standard fact
patterns can outweigh.
Captur
e. With a largely one-dimensional docket of cases
Capture.
and a core group of highly experienced and expert-level
attorneys who litigate them, judges run the risk of
developing a bias towards that core and, thereby,
compromising the court’s neutrality. In effect, over time
the court might slowly but inexorably be captured by its
own specialized bar, the equivalent of legal lobbyists,
resulting in the loss of public confidence in its objectivity
and its decisions.
Access. Specialized courts handle all cases in a relatively
narrow area of the law. The amount of litigation may
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necessitate no more than a single court for the entire
country. By holding court only where the court is
physically located, say Manila, the expense of going to
the place may have the potential to create a bias that favors
larger and wealthier litigants or those litigants who are
residents of the area and need not travel. Where the court
functions as a traveling tribunal, the administrative
efficiency and quality of court operations may suffer. An
appeals court, however, does not share the same concern
on access as a trial court does as, generally, the litigants do
not have to appear and be physically present in the
appellate tribunal.
Due Pr
ocess. Where a court’s jurisdiction is specialized
Process.
and narrow, the appeal to a well-heeled specialized interest
group in having candidates friendly to its interests
appointed to the court is much greater and may lead to
intense lobbying on behalf of those candidates. Such
lobbying is undertaken in the interest of a potential
payback through favorable decisions in future cases.Where
such specialized interest groups repeatedly appear before
judges of the specialized court, they gain an advantage
over litigants who may appear with much less frequency.
Quality of JJudg
udg
es. It is a perception that specialized
udges.
judges are accorded less prestige and status than judges
who are generalists. One primary reason is that generalist
judges must demonstrate the dexterity and intellect to
resolve disputes in a broad range of fields of the law. To
that extent, specialized courts are less likely to draw the
best possible applicants for judgeships because service on
such courts is considered to offer less professional stature
than in other tribunals with broader jurisdiction.
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VI. L EADING D EVELOPMENTS
CIAL L AW
IN C OMMER
OMMERCIAL
In the past four (4) years alone, or since the designation of
commercial courts, major commercial laws have been passed that
seek to improve business climate in the country. Most of the
disputes arising from these laws are unarguably commercial in
nature and should be under the jurisdiction of the special
commercial courts. However, given their still limited jurisdiction
most of these are outside the reach of special commercial courts.
Introductory discussions are provided below on recent
commercial laws that have been enacted. Two of these laws - the
Anti-Money Laundering Act and Intellectual Property Code are already part of the special commercial courts jurisdiction, while
the rest are being proposed to be included.
A. T he Anti-Money Laundering Act
On September 29, 2001, the Philippines passed Republic Act
No. 9160 also known as the Anti-Money Laundering Act. The
law was passed to ensure that the Philippines shall not be used as
a money laundering site for the proceeds of any unlawful activity.
At the same time, however, the law declares it a policy of the state
to protect and preserve the integrity and confidentiality of bank
accounts by penalizing unlawful opening of bank accounts in
violation of the bank secrecy law.16
16. Republic Act No. 9160, § I.
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Main Features of the
Anti-Money Laundering Act
a. It criminalizes money laundering.
b. It provides for the prosecution of money laundering
activities involving money or property derived from ceratin
crimes and offenses punishable under Philippine laws and
the laws of other countries.
c . It establishes the administrative process and procedural rules
for the prevention, detection, and prosecution of money
laundering activities.
d. It requires covered institutions to report suspicious
transactions and cooperate with the government in
prosecuting offenders.
e. It imposes a heavy penalty for money laundering offenses,
including both imprisonment and a fine.
f. It provides for the forfeiture of laundered money or
property.
g. It authorizes access to deposit and investment accounts for
the investigation and prosecution of money laundering
cases.
h. It creates an Anti-Money Laundering Council that will
oversee the implemenation of the law and primarily act as
a centralized financial agency to receive and analyze covered
transaction reports.
i. It establishes clear procedures for international cooperation
and assistance in the apprehension and prosecution of
suspended money launderers.
Under the law, there are three (3) kinds of money laundering
oper
offenses. The first is the Money Laundering Pr
Proper
oper, which is
the act of transacting or attempting to transact monetary
instruments or property that he knows are derived from one or
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more unlawful activities. The penalty for this offense is
imprisonment for seven (7) to fourteen (14) years and a fine of
not less than Php3 Million but not more than twice the value of
the monetary instruments or property involved in the transaction.
The second offense punished by the AMLA is the act of
Facilitating Money Laundering
Laundering. This is committed when a
person performs or fails to perform an act, as a result of which he
is able to facilitate the commission of the money laundering
transaction described above. This however requires that the person
must know that the monetary instruments or property are derived
from one or more unlawful activities. The penalty for facilitating
money laundering is imprisonment for four (4) to seven (7) years
and fine of not less than Php 1 Million but not more than Php3
Million.
ailuree to R
Reepor
portt. This offense is
The last act is the Failur
committed by any person who fails to comply with his obligation
under the AMLA to report suspicious transactions to the AMLC.
The law prescribes a penalty of six (6) months to four (4) years
or a fine not less than Php100,000.00 or both for this offense.
Aside from the penalties set forth above, conviction under
the law will result to the forfeiture of monetary instruments or
property involved in favor of the Philippine government.
Administrative sanctions may also be imposed upon corporations
or other juridical person by either suspension or revocation of its
corporate franchise. If the offender is an alien, he will be
immediately deported from the Philippines after he serves the
penalties imposed upon him. In the case of public official or
employee found liable under this act, an additional penalty of
perpetual or temporary absolute disqualification from office may
be imposed.
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Predicate Crimes to Money Laundering
I. Kidnapping for ransom
8. Drug offenses
2. Graft and corruption
practices
9. Plunder
3. Robbery and extortion
10. Jueteng and masiao
4. Piracy on the high seas
11. Qualified theft
5. Swindling
12. Smuggling
6. E-commerce crimes
13. Securities fraud
7. Felonies/offenses of a similar
nature punishable under
penal laws of other countries
14. Hijacking, destructive
arson and murder,
including those
perpetrated against
persons and
similar targets
While the law listed only fourteen (14) categories of unlawful
activities, there are actually over 114 felonies, crimes and offenses
that are punishable under the Revised Penal Code (RPC) and
various special laws. These felonies are enumerated in the
Implementing Rules and Regulations (IRR) of the AMLA.
The Anti-Money Laundering Council (AMLC) was also
created by the law. It is the government agency tasked to
implement the AMLA. It is composed of the Bangko Sentral ng
Pilipinas (BSP) Governor, who will serve as Chairman, the SEC
Chairman and the IC Commissioner. Its powers include the
following:
1. To require and receive covered transaction reports from
covered institutions;
2. To file money laundering complaints with the Department
of Justice and the Ombudsman;
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3. To receive and take action in respect of requests from
foreign states for assistance in their own money laundering
operations;
4. To develop educational programs on the methods,
techniques and effects of money laundering;
5. To enlist the assistance of any branch, department, bureau,
office, agency or instrumentality of the government,
including use of its personnel, facilities and resources for
the prevention, detection and investigation of money
laundering offenses and prosecution of offenders;
6. To freeze any account when there is probable cause that it
is related to any unlawful activity for a period not over
fifteen (15) days; and
7. To inquire into or examine deposits or investments upon
order of a competent court in cases of violation of R.A.
No. 9160.
Among the different powers of the AMLC, the power to
freeze accounts may probably be the most controversial, as this
can be subject to abuse to the prejudice of legitimate account
holders. Under the law, the AMLC has the authority to freeze
any money or property for a period of fifteen (15) days once it is
determined that probable cause exists that such money or property
is related to an unlawful activity. During the 15-day period, it
may also apply to the courts for an extension of the freeze order
and while the court has not decided on the extension, the 15-day
period is deemed suspended and the freeze order will remain
effective unless it is lifted by the court.
The law, however, provides safeguards to thwart the possibility
of abuse. Simultaneous with freezing an account, the AMLC
must serve notice upon the account-owner that his account has
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141
been frozen. He will then have seventy-two (72) hours upon
receipt of such notice to explain why the freeze order must be
lifted. If the AMLC fails to act on the account-owner’s explanation
within the 72-hour period, the freeze order will automatically be
dissolved.
A depositor whose account has been frozen can also obtain
a temporary restraining order or writ of injunction from
the Court of Appeals or the Supreme Court. Note,
however, Under the AMLA, no other court can issue a
temporary restraining order or writ of injunction against
any freeze order issued by the AMLC except the Supreme
Court and the Court of Appeals. The reason for this is to
prevent the proliferation of unfounded suits filed against
the AMLC.
Another potent power of the AMLC is the power to open
bank accounts. It provides that the AMLC may open a bank
account after it has applied with the court for an order allowing it
to do so. In order to obtain such court order, it must prove to the
court that there exists probable cause that the deposits or
investments invoked in the account are in any way related to a
money laundering offense.
This brings us to the question of whether or not our Bank
Secrecy Law was repealed by the AMLA. It was not. The only
effect of the AMLA upon bank secrecy laws is to provide an
additional exception to the operation of the rule on bank secrecy.
In total, there are now five (5) exceptions, to wit:
1. Upon written permission of the depositor;
2. In cases of impeachment;
3. Upon order of a competent court in cases or bribery or
dereliction of duty of public officials;
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4. In cases where the money deposited or invested is the
subject matter of the litigation; and
5. In connection with an investigation of a money laundering
offense.
B. T he Intellectual Pr
oper
ty Code
Proper
operty
Republic Act No. 8293, or the Intellectual Property Code, is the
basic legal framework that governs IP protection in the Philippines.
There are at least three (3) IP rights that are protected under the
law:
1. Patents. The Code grants the patent owner the exclusive right
to make, use, sell offer for sale, and import his patented product,
subject to limitations on patent rights, prior user, and use of
invention by the government. If the subject matter of a patent is
a process, the protection extends to the use of the process and to
products obtained directly or indirectly from such process. Any
of the following acts are considered violation of the IP code if
done without prior authorization of the owner:
a. Make, use, sell or offer for sale, or import a patented
product or a product obtained directly or indirectly from
a patented process; and
b. Use a patented process.
Any violations of the above give the right to the patent owners
to bring civil actions for infringement before the courts to recover
damages. The court may issue an injunction and in its discretion,
order the infringing goods, materials and implements used in the
infringement be disposed of outside the channels of commerce,
or destroyed without compensation (Section 76.5). It should be
emphasized that under Section 76.6, those who actively induce
the infringement of a patent or provide the infringer with
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components of a patented product or products produced from
patented process knowing that such will be used to infringe on a
patented invention and not suitable for substantial non-infringing
use shall likewise be liable as contributory infringers and shall be
jointly and severally liable with the infringer.
While patent infringement suits are predominantly civil
actions, if the infringement is repeated by the infringer or by
anyone in connivance with him after finality of judgment, the
violators shall, without prejudice to the institution of a civil action
for damages, be criminally liable therefore and, upon conviction,
shall suffer imprisonment for a period of not less than six (6)
months but not more than three (3) years and/or fine of not less
than One hundred thousand pesos (PhpI00,000) but not more
than Three hundred thousand pesos (Php300,000), at the
discretion of the court.
2. Trademarks. A trademark infringement is committed by a
person who, without the consent of the owner of a registered
mark shall:
a. Use in commerce any reproduction, counterfeit, copy, or
colorable imitation of registered mark or the same
container or a dominant feature thereof in connection
with the sale, offering for sale, distribution, advertising
of any goods or services including preparatory steps
necessary to carry out the sale of any goods or services
where such is likely to cause confusion, or mistake, or
deception; or
b. Reproduce, counterfeit, copy, or colorably imitate a
registered mark or a dominant feature thereof and apply
such reproduction, counterfeit, copy, or reproduction to
labels, signs, prints, packages, wrappers, receptacles or
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advertisements intended to be used in commerce in
connection with sale, offering for sale, distribution,
advertising any goods or services where such use is likely
to cause confusion, or mistake, or deception.
A trademark registration with the Intellectual Property Office
is an essential requirement in a suit for trademark infringement.
Damages can only be claimed in any suit for infringement, where
the infringer has the knowledge that the imitation is likely to
cause confusion, or mistake, or deception. Such knowledge is
presumed, however, if the trademark owner gives notice that its
mark is registered by displaying with the mark the words
“Registered Mark” or the letter “R” within a circle, or the infringer
had actual notice of the registration.
The law similarly gives the injured party the right to recover
damages. Where actual intent to mislead the public or to defraud
the injured party is proven, the courts may double the amount of
damages. The court may also grant injunction and during the
pendency of the action may also impound documents evidencing
sales. Once the cases are decided with finality, the courts can further
authorize the disposal of the infringing goods outside the channels
of commerce, or to order their destruction without compensation.
Independent of the foregoing sanctions, a criminal penalty
of imprisonment from two (2) years to five (5) years and a fine
ranging from Fifty thousand pesos (Php50,000) to Two hundred
thousand pesos (Php200,000) shall be further imposed on persons
found guilty of committing any of the acts mentioned in Section
155 and Section 168.
For trademark owners who do not have the benefit of
trademark registration, or for those whose applications for
registration are still pending, they are still protected under the law
against acts constituting unfair competition, to wit:
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a. The employment of deception or any other means
contrary to good faith by which one shall pass off the
goods manufactured by him or in which he deals, or his
business or services for those of the one having established
goodwill, or acts calculated to produce the same result;
b. The sale of one’s good and giving them the general
appearance of the goods of another, either as to the goods
themselves or in the wrapping of the packages in which
they are contained, or the devices or words thereon, or in
any other feature of their appearance, which would be
likely to influence purchasers to believe that the goods
offered are those of a manufacturer or dealer, other than
the actual manufacturer of dealer; and
c. The use of any artificial device, or employing other means
calculated to induce the false belief that one is offering
the services of another who has identified such services
in the mind of the public.
Relief against unfair competition is based on the theory that
one who has built up goodwill for his goods or services is entitled
to be protected from those who, by the employment of deceit or
fraudulent means, pass off their goods and services for that of
another in order to ride on such goodwill.
3. Cop
yright. Subject to limitations on fair use, the Code also
Copyright.
grants copyright protection to authors – by vesting him with
exclusive rights to prevent:
a. Reproduction of original artistic or literary works or
substantial portions of such works;
b. Dramatization, translation, adaptation, abridgment,
arrangement or transformation of any work;
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c. The first public distribution of the original and each copy
of any work by sale or other forms of transfer of
ownership;
d. Rental of the original or a copy of audiovisual or
cinematographic works, any work embodied in a sound
recording, computer programs, compilations of data and
other materials or musical works in graphic form;
e. Public display of the original or a copy of any work;
f. Public performance; and
g. Other communications to the public of the original or a
copy of any work.
Related rights owners such as performers, producers of
phonograms and broadcasting organizations are also conferred
with certain exclusive rights under the Code, subject to the
provisions on fair use.
Violations of the right of a copyright holder entitles the holder
the right to recover damages, including profits that may have been
made; impounding of documents evidencing sales, infringing
articles and implements for making them during the pendency of
the action; destruction without any compensation of all infringing
copies, devices or other means for making infringing copies; and
moral and exemplary damages as determined by the court, even
in the event of acquittal in a criminal case. He may also seek
injunction to restrain such infringement.
Anyone infringing or aiding and abetting infringement shall
be guilty of a crime punishable by:
First offense – Imprisonment of one (1) year to three (3)
years plus a fine ranging from Fifty thousand pesos (Php50,000)
to One hundred fifty thousand pesos (Php150,000);
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Second offense – Imprisonment of three (3) years and one
(1) day to six (6) years plus a fine ranging from One hundred
fifty thousand pesos (Php150,000) to Five hundred thousand
pesos (Php500,000); and
Third and subsequent offenses – Imprisonment of six (6)
years and one (1) day to nine (9) years plus a fine ranging from
Five hundred thousand pesos (Php500,000) to One million five
hundred thousand pesos (Php1,500,000).
In all cases, there is a corresponding subsidiary imprisonment.
C. The E-Commerce Law
On June 14, 2000, the E-Commerce Act, R.A. No. 8792 of the
Philippines (An Act Providing for the Recognition and Use of
Electronic Commercial and Non-Commercial Transactions,
Penalties for the Unlawful Use thereof, and for Other Purposes)
was signed into law, making the Philippines the third country in
Southeast Asia with legislation to promote and protect electronic
transactions. Its salient features can be summarized as follows: 17
First, it gives validity and legal recognition to electronic
documents, electronic signatures, and electronic transactions.
Second, the law makes electronic documents legally equivalent
to written documents. With proper authentication of authorship
and integrity of the data – that is, proof that the electronic
document has not been modified or altered without the knowledge
or consent of the author, the law provides for the admissibility
of electronic documents as evidence in the Philippine courts. Thus,
contracts expressed electronically are made legally binding. This
paves the way for the legal acceptance of electronic documents to
facilitate contract processing and to enable international businesses
I7. Legislative Briefing Notes (2002).
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to pursue business ventures by engaging in contractual agreements
over electronic mail or the Internet.
Third, the law recognizes electronic signatures as equivalent
to a hand-written one by a person. The intent is to enable Internet
transactions and credit card purchases without the use of written
signatures. With the passage of the Rules on Electronic Evidence,
the Philippines will be able to allow local purchases since the law
now recognizes electronic signatures.
Fourth, the law penalizes hacking or other unauthorized access
to, or intrusion or interference in, a computer or a computer
network by means of a computer device or gadget, including the
introduction of viruses.
Finally, the e-commerce law explicitly recognizes the vital role
of information and communications technology (ICT) in nationbuilding. It mandates the government to conduct its business
electronically within two (2) years. It orders that government as
well as government-owned and controlled corporations to use
electronic transactions in all its processes. In order to facilitate the
abovementioned goal, the law calls for the installation of a
government-wide electronic online network that would facilitate
the open, speedy, and efficient online transmission amongst all
government agencies, down to the regional and provincial offices
(including government departments, bureaus, offices, agencies,
government-owned and controlled corporations, local government
units, other public instrumentalities, universities, colleges and other
schools). It likewise empowers the Department of Trade and
Industry (DTI) to promote and develop electronic commerce as
well as to promulgate rules and regulations, and to provide quality
standards or issue certifications in the pursuance of this Act’s
intentions.
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Government bureaus, officers, and agencies are mandated to:
1. Accept documents in the form of electronic documents;
2. Accept payments and issue receipts through systems using
electronic documents;
3. Issue permits, licenses or approval in the form of electronic
documents; and
4. Transact government business or perform its functions
through the use of electronic documents.
This feature will facilitate the processing of documents and
avoid the redundancy of tasks prevalent in Philippine bureaucracy.
Because of this mandate, it was foreseen that the law will move
us closer to e-government, or, at least, to the electronic delivery
of government services. The projection was that by 2003, we
should expect government agencies to do most of their licensing
functions, acceptance of payments, or the issuance of receipts
online.
D. The General Banking Law
The financial crisis in Asia in 1997 has compelled several countries
to review their financial policies to determine how to prevent
another crisis. The Philippines responded to the crisis by passing
legislation that seeks to lay the groundwork for faster economic
recovery. The new General Banking Law (GBL), which amends
the 52-year-old General Banking Act of 1948, provides for the
regulation of the organization and operations of banks and quasibanks and trust entities.
The GBL also enhances the supervisory capability and
enforcement powers of the Bangko Sentral ng Pilipinas (BSP),
raises prudential standards to international norms, and fosters
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greater competition in the banking system. It also provides the
Monetary Board more teeth in the exercise of its regulatory powers.
Other important features of the law include: 18
Under the law, foreign banks are allowed to acquire voting
stocks in a domestic bank. From a previous limit of 60%, foreign
banks have been allowed to acquire up to 100% of the voting
stock of a single domestic bank. The law nevertheless directs the
Monetary Board to adopt measures to ensure that 70% of the
total resources of the banking system is still held by banks
majority-owned by Filipinos. This privilege expires after seven
(7) years of the effectivity of the Act. On the other hand, foreign
individuals and non-bank corporations may now acquire up to
40% of the voting stock of the domestic bank. This provision
was meant to cater to investors who want to gain access to the
banking system and to diversify the ownership structure of the
bank.
It also grants additional supervisory powers to the BSP. The
supplementary power granted by the law to BSP which is the power
to conduct examinations as the “circumstances so warrant as
determined by the Monetary Board,” significantly enhances the
oversight authority of the BSP. Regular yearly examinations can
be supplemented by special examinations to ensure prompt
corrective action on erring banks. Furthermore, the BSP is given
full authority to regulate electronic devices in the operations of a
bank. The law seeks to keep the BSP up to date with the emerging
trend of information technology and mandates the supervision
of all banks looking to engage in electronic banking.
Measures of capital adequacy is also made to conform to
internationally accepted standards of risk-based capital instead
of the previous nominal capital requirements. A commensurate
18. EGTA Legislative Briefing Notes (2002).
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capital provisioning is to be prescribed by the Monetary Board in
accordance with the total risk assets of the bank. This prescribes
that banks put in place their own risk management policies and
procedures. As an additional safeguard, all transactions of
individuals related to each other and considered as a family group
must now be fully disclosed by such individuals with the bank.
The GBA adopts the Fit and Proper Rule. The rule restores
to the Monetary Board the authority to disqualify directors and
officers of a bank found to be unfit for the position while banks
are to report to the BSP all proposed directors and officers of the
bank for proper review. Moreover, the law provides for stricter
rules on bank exposure to director/officer/stockholder/related
interests (DOSRI). Bank officials are now barred from borrowing
from the banks and serving as guarantors without the written
approval of majority of the bank’s board. The Monetary Board is
also empowered to regulate the amount of loans, credit
accommodations, and guarantees extended to DOSRI, including
bank investments in the firms owned or controlled by the bank
officers.
E . T he Special Pur
pose Vehic
le Act
Purpose
ehicle
Republic Act No. 9182 is a law that grants tax exemptions and
fee privileges to special purpose vehicles (SPV) which may acquire
or invest in non-performing assets. The law, therefore, seeks to,
among others, address the non-performing assets problems of
the financial sector.
The law specifies how SPVs shall be organized. It provides
that SPV shall be organized as stock corporations in accordance
with the Corporation Code and must have the following minimum
capitalization:
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•
Minimum authorized capital stock – Php500 Million
•
Minimum subscribed capital stock – Php250 Million
•
Minimum paid-up capital – Php31.25 Million
If the SPV will acquire land, then at least 60% of its
outstanding capital stocks should be owned by Filipino citizens
in accordance with the provisions of the Foreign Investments
Act.
The law gives SPVs tax exemption privileges. Transfers of
non-performing assets from financial institutions to SPVs, and
from SPV to a third party or dacion en pago by the borrower or
third party in favor of a financial institution or SPV are made
exempt by the law from the following taxes:
a. Documentary stamp tax (DST) on the transfer of NPAs
and dation in payment.
b. Capital gains tax on the transfer of lands and/or other
assets treated as capital assets.
c. Creditable withholding income taxes on the transfer of
land and/or buildings treated as ordinary assets.
d. Value-added tax on the transfer of NPAs or gross receipts
tax, whichever is applicable.
The SPV shall likewise be exempt from income tax on net
interest income, DST, and mortgage registration fees on new loans
in excess of existing loans extended to borrowers with nonperforming loans (NPLs) acquired by the SPV. In case of capital
infusion by the SPV to borrowers with NPLs, the SPV shall also
be exempt from DST. The tax exemptions and fee privileges given
to FIs and SPVs can also be extended to any individual provided
that:
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a. The transaction is limited to a single family’s residential
unit, Real and Other Properties Owned or Acquired
(ROPOA), or NPL secured by real estate mortgage on a
residential unit;
b. There shall only be one transaction consisting of one
residential unit per individual; and
c. The two-year transfer and the five-year entitlement period
granted to NPA shall also apply to said single family
residential unit.
In addition to the tax exemption privileges, there are also fee
privileges granted to SPVs. In lieu of the usual fees provided
under applicable laws, SPVs pay much lower registration and/or
filing fees, to wit:
a. Fifty percent (50%) of the applicable mortgage
registration and transfer fees on the transfer of real estate
mortgage and chattel mortgage registrations to and from
the SPV;
b. Fifty percent (50%) of the filing fees for any foreclosure
initiated by the SPV in relation to any Non-Performing
Asset (NPA) acquired from a financial institution (FI);
c. Fifty percent (50%) of the land registration fees.
However, these are time-bound incentives. In order to avail
of these fee privileges and tax exemptions, applications for
establishment of SPV must be filed within eighteen (18) months
from effectivity of implementing rules and regulations.
Considering that the IRR took effect on April I2, 2003,
prospective SPVs still have until April I2, 2005 within which to
register.
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During the same period,
(a) all sales or transfers of NPAs from a financial institution
to an SPV, and
(b) all transfers by way of dation in payments by the borrower
or by a third party to the financial institution must be
completed.
Transfer from SPV to third parties, on the other hand, must
be made within five (5) years from acquisition of NPA by the
SPV from the financial institution.
F . The Securitization Act of 2004
Republic Act No. 9267 seeks to promote the development of
capital market by:
(a) supporting securitization,
(b) providing a legal and regulatory framework for
securitization and
(c) creating a favorable market environment for a range of
asset-backed securities.
The law rationalizes the rules, regulations and laws that impact
upon the securitization process, particularly on matters of taxation
and sale of real estate on installment. With the Securitization
Act, it is envisioned that the secondary market, particularly on
residential mortgage-backed securities and other housing-related
financial instruments, can be developed, thus, generating
investment and accelerating the growth of the housing finance
sector.
The theory behind securitization is to allow a relatively smaller
and less well-known entity to sell its securities to the general public.
According to the Lotilla, the usual barrier to the sale of securities
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to the public is the size and the financial strength of the issuer. It
is for this reason that our capital markets today have only big
Philippine companies as regular issuers of securities. 19 Smaller
companies find it difficult to raise fund from the capital market.
Securitization Act sought to address this problem by providing
the regulatory framework for securitization and granting certain
privileges.
The process of securitization allows an improvement of the
ability of an originator or seller to tap the capital markets for
funding. Lotilla explains the process of securitization under the
law:20
The Securitization Law allows financial assets to be sold
on a without recourse basis by an originator or seller to the
SPE. The assets contemplated in the law are loans, receivables,
or other similar financial assets with an expected cash
payment stream. There are several entities involved in
securitization. These are the originator or seller, the SPE,
the servicer, the rating agency, the underwriter, and the
SEC. The originator or seller creates the financial assets or
receivables. These are the banks, the financing companies,
the leasing companies, the telephone companies, the public
utility companies, and all other entities which in the course
of their doing business, either provide a service or sell a
product resulting in the creation of a receivable. The sale
has to be on a “true sale” basis to the SPE to transfer title
over the financial asset to the SPE.
19. Lotilla, Jose Perpetuo. Securitize, Philippine Business
Magazine: Volume II No. 4-Capital Markets, http://
www.philippinebusiness.com.ph/magazines/capital
markets.htm.
20. Ibid.
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The SPE then issues ABS for investment by the public. In
order to sell such ABS to the public, the SPE has to register
the same in accordance with the law. The SEC is the entity
which approves registration. In order that the registration
may be approved, there is a requirement that the SPE must
submit a securitization plan to the SEC. The plan shall
include, among others, a description of the nature and the
mechanics of the sale of the assets from the seller to the
SPE, any credit enhancement or liquidity support, the
identities of the originator, seller, servicer and underwriter
and describing their compensation, the identity,
qualifications and compensation of the trustee, the aggregate
principal amount of the ABS to be issued, and the rating
agency which will rate the issue.
After complying with the registration requirements and
the approval of the plan by the SEC, the SPE may proceed
to sell the ABS to investors. Although the main regulatory
entity for securitization is the SEC, in cases when the
originator of the assets is a bank or any other financial
intermediary subject to the supervision of the Bangko
Sentral ng Pilipinas (BSP) or in the event that the SPE is
constituted in the form of a special purpose trust, the
endorsement by the BSP of the securitization plan shall be
required before its approval by the SEC.
The law provides tax incentives to persuade companies to
securitize. The transfer or sale of assets, if made in accordance
with the law, is exempt from value added tax and documentary
stamp taxes. Registration fees are reduced by fifty percent (50%)
and dacion en pago is not subject to capital gains tax. Furthermore,
the issuance of ABS and other forms of credit enhancement are
exempt from value added tax and the secondary trading of ABS
is also exempt from documentary stamp tax and value added tax.
Unlike the SPV law, tax incentives under this law are not timebound. Thus, the Securitization Act, aside from laying down the
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framework for securitization, also reduces the cost of
securitization.21
VII. C ONCLUSION
There is an increasing recognition that the judiciary plays a vital
role in economic development. Studies and literatures abound in
support of the theory that judicial actions have implications on
economic development. In a study of “The Role of Law and
Legal Institutions in Asian Economic Development from 19601995,”22 the importance of commercial dispute resolution in
economic development was highlighted. A modernizing nation’s
economic prosperity, according to another study, requires at least
a model legal infrastructure centered on the protection of property
and contract rights.23 It has been argued that the absence of lowcost means of enforcing contracts is “the most important source
of both historical stagnation and contemporary underdevelopment
in the Third World.”24 A “high-performance economy,” on the
other hand, is one that is characterized by a significant number of
long-term contracts – just the type of business relationship that
21. Ibid.
22. Pistor, Katharina, et al. Asian Development Bank (2000).
23. Posner, Richard, Creating a Legal Framework for Economic
Development.
24. North. Douglass C. 1990. Institutions, Institutional Change,
and Economic Performance: Cambridge, U.K.: Cambridge
University Press.
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is unlikely to thrive in the absence of a well-functioning judicial
system.25
Take the case of IP protection. It has been shown that economic
development may be promoted or hindered by an effective system
of intellectual property rights (IPRS). IPRS can play a positive
role in encouraging new business development, rationalization
of inefficient industry, and inducing technology acquisition and
creation.
This relationship is especially true for special commercial
courts, which have been tasked to hear important commercial
disputes. As noted earlier, economic development was one of the
major reasons for the transfer of SEC cases to the regional trial
courts. Policymakers wanted a more efficient and effective
resolution of commercial cases because of the complaints of the
business sector regarding the manner by which the SEC was then
handling corporate rehabilitation and intra-corporate disputes.
This is also a main consideration for the proposal to expand
the jurisdiction of commercial courts. In the draft Resolution
submitted by PHILJA to the Supreme Court, it was also noted
that “the slow pace in the handling of commercial cases is a
disincentive to business, especially on the part of foreign investors.”
But should the judiciary play an active role in economic
development? Apparently, the Supreme Court thinks so. In the
two (2) vital documents detailing its reform agenda, the Supreme
Court has recognized the vital task it plays in economic
25. Williamson, Oliver E. 1995. “The Institutions and Governance
of Economic Development and Reform.” In Michael Bruno
and Boris Pleskovic, eds., Proceedings of the Annual World
Bank Conference on Development Economics 1994.
Washington, D.C.: World Bank.
2004]
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development. In its Blueprint of Action for Judicial Reform, the
Court took note of the impact of its actions to the economy.
The Blueprint states:
Impact of JJudicial
udicial Decisions on the Econom
Economyy. As
world affairs, international relations, security and stability
are increasingly defined by economic issues and national
competitiveness, court decisions are now being subjected
to far closer analysis to determine what effects, if any, they
will have on the economy.26
Likewise, in the Action Program for Judicial Reform (APJR)
the Court recognized the important role of the Philippine
judiciary in shaping economic and business policies as indicated
by cases brought to court relating to trade liberalization,
privatization, regulation/deregulation, intellectual property rights,
and environment, among other cases.”27
The need for an effective and efficient commercial dispute
resolution in the Philippines has never been more urgent. A private
sector assessment of the Philippines listed the inadequate dispute
resolution mechanism as a major disincentive to doing business
in the country. The cost of dispute resolution in the Philippines
is reportedly one of the highest in the world.28
Likewise, recent disputes concerning private contracts in the
power, water and airport sectors have highlighted the weakness of
the legal and regulatory framework, the limited recourse available
to resolve disputes, and the high level of political intervention in
the commercial sector. Adding to this, the high cost of power and
26. Blueprint of Action for the Judiciary, p. 34.
27. APJR, p.96.
28. World Bank, Doing Business Database.
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labor and the costs of doing business in the Philippines become
comparatively higher than in alternate regional destinations.29
Because of the perceived risks of doing business in the
Philippines, foreign investors seek alternative investment
destinations such as China, Thailand and Korea. We cannot afford
this at this time. Restoring investor confidence to fuel investment
needs and economic growth is a must, as the country teeters on
the brink of a financial crisis.
The expansion of the jurisdiction of special commercial courts
can lessen regulatory risk and may bring about stability in
commercial transactions. Having a set of efficient and effective
special commercial courts can lead to uniformity in decisionmaking which will also give way to predictability.
29. Private Sector Assessment: Philippines, Asian Development Bank
(2004).
Comparati
Comparativve Discussion on the
Pr
oposed Consolidated Interim R
ules
Proposed
Rules
of Pr
ocedur
porate Liquidation
Procedur
oceduree on Cor
Corporate
in Insolv
enc
ules on
Insolvenc
encyy and the Ur
Urggent R
Rules
porate Insolv
enc
Cor
encyy ∗
Corporate
Insolvenc
Attorney Manuel D. Yngson, Jr.∗∗
I. BACKGROUND.................................................................................... 162
A. Quick Review of Insolvency Concepts
B. Sources of Insolvency Laws in the Philippines
C. Remedies Available in Case of Insolvency
D. Mechanics of Liquidation Proceedings
∗
Delivered at the Seminar-Workshop for Commercial Court
Judges, on September 17, 2004, at the Eugenio Lopez Center,
Sumulong Highway, Antipolo City.
∗∗
Attorney Manuel D. Yngson, Jr., is a member of the Consultants’
Group of the Philippine Judicial Academy (PHILJA) and has
been an insolvency law practitioner since 1984 when he was
appointed as the first external counsel of the then Central Bank
of the Philippines to represent a number of banks closed by
the Central Bank for insolvency. Prior to that, he specialized
on litigation, taxation, labor, and corporate services for seventeen
(17) years. He is the Founding President of both the Tax
Management Association of the Philippines (TMAP), and the
Corporate Recovery and Insolvency Practitioners Association
of the Philippines, Inc.(INSOLPHIL). He obtained his
Associate in Arts, with honors, in 1960; Bachelor of Arts degree,
Cum Laude, in 1962; Bachelor of Laws degree, in 1966; and
Master in Business Administration, in 1981 from the University
of the Philippines.
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E. Laws on Dissolution
F. Rules of Procedure on Corporate Rehabilitation
G. Rules of Procedure on Corporate Liquidation in
Insolvency
II. SUMMARY OF RULES PROPOSED................................................. 193
I. B ACK
GR
OUND
CKGR
GROUND
What happens when insolvency sets in is a major concern of
investors because from recent experience in most parts of the
world, if the rules on insolvency (which cover both corporate
rehabilitation and liquidation) are vague or obsolete, investors
tend to lose more and recovery of their investment almost becomes
nil. On the other hand, if the rules are clear, updated and favorable
to corporate recovery (or if such recovery is not possible, to a
quick resort to liquidation and distribution of assets of the
insolvent company), the “frozen” assets of the insolvent debtor
are brought back to mainstream business sooner, the prevalence
of non-performing assets is minimized, and correspondingly,
investment losses tend to be limited and become tolerable business
risks.
A. Quic
enc
pts
Quickk R
Reeview of Insolv
Insolvenc
encyy Conce
Concepts
1. Insolvency of a corporation is its state, status or condition
of being unable to pay its obligations as they fall due in the
ordinary or usual course of trade or business.1
2. Bankruptcy occurs when the realizable assets of a corporation
are less than its liabilities.
3. Tec
hnical Insolv
enc
echnical
Insolvenc
encyy or Illiquidity is a situation in which
a firm is unable to meet its current obligations as they come
1. Black’s Law Dictionary.
2004]
COMPARATIVE DISCUSSION
163
due, even though the value of its assets may exceed its
liabilities.2 When a corporation becomes insolvent, it is like a
natural person who is sick.
4. Rehabilitation of a corporation means restoring it to its
former capacity as such corporation, clothing it again with its
right, authority or dignity.3 It also includes the totality of the
efforts to cure the sickness of the corporation and such efforts
could be compared to the hospitalization of a natural person.
5. Liquidation of a corporation is the process of reducing or
conversion of its assets to cash and the distribution thereof
to its creditors, discharging liabilities and dividing surplus or
loss in the process.4 The proceedings involved in liquidation
can be compared to the burial ceremonies of a natural person.
6. Dissolution of a corporation is the termination of the legal
existence of the juridical corporate entity arising from either
the expiration of its term or withdrawal of its certificate of
registration. Thus, dissolution is akin to the death of a
corporation.
B. Sources of Insolvency Laws in the Philippines
1. In the Case of Individuals. Act No. 1956 (20 May 1909)
2. In the Case of Banks and Quasi-banks.
a. The General Banking Law of 2000 (R.A. No. 8791)
particularly Section 68 on Voluntary Liquidation and Sec.
69 on Receivership and Involuntary Liquidation.
2. Ibid.
3. Ibid.
4. Ibid.
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Section 68. Voluntary Liquidation, provides:
Sec. 68. In case of the voluntary liquidation of
any bank organized under the laws of the
Philippines, or of any branch or office in the
Philippines of a foreign bank, written notice
of such liquidation shall be sent to the
Monetary Board before such liquidation is
en, and the Monetary Board shall have
under
tak
undertak
taken,
right
to intervene and take such steps as
the
may be necessary to protect the interests
of creditors. [Underscoring added for emphasis]
S ECTION 69 . Recei
eceivv ership and In
Invv oluntar
oluntaryy
Liquidation , provides:
SEC. 69
69. The grounds and procedures for placing
a bank under receivership or liquidation, as well as
the powers and duties of the receiver or liquidator
appointed for the bank shall be governed by the
provisions of Sections 30, 31, 32 and 33 of
the New Central Bank Act: Provided, That the
petitioner or plaintiff files with the clerk or judge
of the court in which the action is pending a
bond, executed in favor of the Bangko Sentral, in
an amount to be fixed by the Court. This section
shall also apply to the extent possible to
the receivership and liquidation proceedings
of quasi-banks. [Underscoring added for
emphasis]
b. The New Central Bank Act (R.A. No. 7653) particularly
Sections 30, 31, 32 and 33 on Proceedings in Receivership
and Liquidation; Distribution of Assets; Disposition of
Revenues and Earnings; and Disposition of Banking
Franchise, respectively;
2004]
COMPARATIVE DISCUSSION
165
c. The charter of the Philippine Deposit Insurance
Corporation (R.A. No. 3591, as amended); and
d. Administrative rehabilitation and judicial liquidation. The
receivership (or process of corporate rehabilitation) of
banks and quasi-banks is an administrative proceeding
proceeding,
with the Monetary Board of the Bangko Sentral ng
Pilipinas (BSP) as the administrative authority and the
Philippine Deposit Insurance Corporation (PDIC) as the
designated statutory receiver (or rehabilitation receiver).
der
ed bbyy the
However, once liquidation is or
order
dered
Monetary Board, the insolvency proceedings
become judicial in nature, with the PDIC specifically
required to seek the assistance of a liquidation court to:
x x x adjudicate disputed claims against the
institution, assist in the enforcement of individual
liabilities of the stockholders, directors and
officers, and decide on other issues as may be
material to implement the liquidation plan
adopted x x x.
In implementing administrative receivership
proceedings, PDIC is primarily governed by the
provisions of its charter, R.A. No. 3591, as amended by
R.A. No. 7400, particularly Sections 6 to 16 thereof.
3. In the Case of Insurance Companies. The governing
law is Presidential Decree No. 612 (The Insurance Code, as
amended by P.D. No. 1141), particularly Section 249, Title
15 on Proceedings Upon Insolvency. As in the case of banks
and quasi-banks, the proceedings for the corporate
rehabilitation of insurance companies in financial distress are
administrative in nature
nature, with the Insurance Commissioner
as the administrative authority. However, if liquidation
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becomes necessary because the insurance company is insolvent
or cannot resume business with safety to its policy holders
and creditors, the Commissioner is tasked just like the PDIC,
to seek the assistance of the liquidation court:
to adjudicate disputed claims against the stockholders
and do all that is necessary to preserve the assets of the
insurance company and to implement the liquidation
plan approved by the Commissioner.
Ergo, the proceedings for the liquidation of insolvent
insurance companies are also judicial in nature
nature.
4. In the Case of Cooperati
porations. The
Cooperativv e Cor
Corporations.
governing law is the Cooperative Code of the Philippines
(R.A. No. 6938) particularly Article 64 on Proceedings Upon
Insolvency. Under this article, an insolvent cooperative:
x x x may apply for such remedies as it may deem fit
under the provisions of the Insolvency Law (Act. No.
1956 as amended). xxx Nothing in this article,
however, precludes creditors from seeking protection
from said Insolvency Law.
a. Cooperati
Cooperativve Liquidation. Aside from resort to
voluntary or involuntary insolvency thru the courts under
the Insolvency Law, cooperatives may likewise undergo
liquidation by the Cooperative Development Authority
(CDA) as a consequence of dissolution.
Cooperative Liquidation . Every cooperative,
whose charter expires by its own limitation or
whose cooperative existence is terminated by
voluntary dissolution or is ter minated by
appropriate judicial proceedings shall nevertheless
be continued as a body cooperative for three (3)
years after the time when it would have been so
2004]
COMPARATIVE DISCUSSION
167
dissolved, for the purpose of prosecuting and
defending suits by or against it and enabling
it to settle and close its affairs, to dispose
of and con
oper
ty and to distrib
ute
convvey its pr
proper
operty
distribute
its assets, but not for the purpose of continuing
the business for which it was established. xxx5
[Underscoring added for emphasis]
Like corporations, in general, under the Corporation Code
(B.P. Blg. 68), cooperatives may undergo dissolution
involuntarily or voluntarily and in the case of the latter,
whether creditors may be affected or not (Articles 67, 66,
and 65 of R.A. No. 6938, respectively). Unlike in the
Corporation Code, however, “insolvency” is one of the
grounds for involuntary dissolution, to wit:
In
Invvoluntar
oluntaryy Dissolution. A cooperative may
be dissolved by order of competent court after
due hearing on the grounds of: (1) violation of
any law, regulation, or provisions of its by laws; or
enc
insolvenc
encyy . 6 [ Underscoring added for
(2) insolv
emphasis]
Also, Article 71 of R.A. No. 6938 requires the CDA
to issue rules and regulations on liquidation, hence, the
CDA issued the corresponding rules and regulations for
administrative liquidation in dissolution.
Consequently, under existing laws, liquidation of
cooperatives may either be administrative or judicial
depending on whether dissolution precedes liquidation
or vice-versa.
5. Republic Act No. 6938 (1994), art. 70 (1).
6. Ibid. art. 67.
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5. In the Case of Cor
porations in General (excluding
Corporations
banks, quasi-banks and insurance companies). The principal
law applicable is also Act No. 1956. The Insolvency Law
primarily applies to individual debtors who are discharged
from their obligation upon their availment of the benefits of
the law. However, under Sec. 52 of said law:
the pr
proovisions of this Act shall (also) appl
applyy to
corporations and sociadades anónimas x x x
but no discharge shall be granted to any
corporation x x x (Underscoring added for emphasis)
6. Go
ning La
w on Cor
porate R
ehabilitation. Except
Govver
erning
Law
Corporate
Rehabilitation.
for banks, quasi-banks, and insurance companies, the
rehabilitation of an insolvent corporation is governed by P.D.
No. 902-A. This law also allows suspension of payment thru
the stay order, as well as liquidation in case of dissolution
after a failed attempt to rehabilitate the insolvent corporation.
Under Section 5.2 of the Securities Regulation Code (R.A.
No. 8799), the jurisdiction of the Securities and Exchange
Commission (SEC) under Section 5 of P.D. No. 902-A was
transferred to the regular courts.
7. Common R
ules in the Distrib
ution of the Pr
oceeds
Rules
Distribution
Proceeds
of Liquidation in Insolv
enc
Insolvenc
encyy. Regardless of the type of
corporation, only one law applies when it comes to distribution
of the proceeds of liquidation the Civil Code of the
Philippines (R.A. No. 386) particularly Title XIX on
Concurrence and Preference of Credits covering Articles 2236
to 2251.
a. For All Corporations. For all types of corporations,
the distribution of the “liquidating dividend” or the
proceeds of liquidation in insolvency is done in accordance
with Articles 2236 to 2251 of the Civil Code.
2004]
COMPARATIVE DISCUSSION
169
b. Labor Claims. Article 110 of The Labor Code of the
Philippines (P.D. No. 442), as amended by R.A. No. 6715
on “Workers’ preference in case of bankruptcy,” has
amended Article 2244 of the Civil Code by giving
workmen’s claims against a bankrupt corporation, number
one preference in the order of preferences under said
article.
A distinction should be made between a preference
of credit and a lien. A preference applies only to
claims which do not attach to specific properties.
A lien creates a charge on a particular property.
The right of first preference as regards unpaid
wages recognized by Article 110 does not
constitute a lien on the property of the insolvent
debtor in favor of workers. It is but a preference
of credit in their favor, a preference in application.
It is a method adopted to determine and specify
the order in which credits should be paid in the
final distribution of the proceeds of the insolvent’s
assets. It is a right to a first preference in the
discharge of the funds of the judgment debtor. In
the words of Republic v. Peralta (150 SCRA 37,
20 May 1987): Art. 110 of the Labor Code does
not purport to create a lien in favor of workers or
employees for unpaid wages either upon all of the
properties or upon any particular property owned
or unpaid w
ag
es
by their employer. Claims ffor
wag
ages
do not therefore fall at all within the
cate
ef
er r ed cclaims
laims
categg or y of speciall
speciallyy pr
pref
efer
estab
lished under Ar
tic
les 2241 and 2242
established
Artic
ticles
of the Civil Code, except to the extent
that such claims for unpaid wages are
alr
ed bbyy Ar tic
le 2241, number
alread
eadyy co
covv er
ered
ticle
ead
6:” claims for laborers’ wages, on the goods
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manufactured or the work done; or by
laims of labor
ers
Ar
tic
le 2242, number 3; “ cclaims
laborers
Artic
ticle
and other workers engaged in the
construction, reconstruction or repair of
buildings, canals and other works, upon said
b uildings, canals or other w
orks. “To the
works.
extent that claims for unpaid wages fall outside
the scope of Article 2241, number 6 and Article
2242, number 3, they would come within the
ambit of the category of ordinary preferred credits
under Article 2244.”7
c. Philippine Deposit Insurance Corporation (PDIC)
Claims. Section 10 (d) of PDIC Charter (R.A. No.
3591), as amended by R.A. No. 7400, likewise amended
Article 2244 of the Civil Code by elevating the claim of
the PDIC for subrogation (to the rights of the depositors
against a closed bank to the extent of its payment for the
issuance of their insurance deposit), to “a preferred credit
similar to taxes due to the National Government.”
C. R
emedies A
le in Case of Insolv
enc
Remedies
Avvailab
ailable
Insolvenc
encyy
1. Under the Insolv
enc
w (IL). The remedies available
Insolvenc
encyy La
Law
apply to both corporations and individuals.
a. Suspension of Payment for debtors with “sufficient
property”
i. Quorum – Three-fifth (3/5) of Liabilities
ii. Decision Liabilities – Two-thirds (2/3) majority
representing Three-fifth (3/5) liabilities
7. Development Bank of the Philippines v. NLRC, 186 SCRA
841, 27 June 1990.
2004]
COMPARATIVE DISCUSSION
171
b. Liquidation (Word used in IL is “insolvency”)
i. Voluntary Liquidation (Secs. 14 to 19)
ii. Involuntary Liquidation (Secs. 20 to 28)
2. Under Presidential Decree No. 902-A, as amended.
a.
Cor
porate R
ehabilitation. In order to effectively
Corporate
Rehabilitation.
exercise such jurisdiction, the Commission shall possess
the following powers:
xxx
Sec. 6 (c). To appoint one or more receivers of
the property, real or personal, which is the subject
of the action pending before the Commission in
accordance with the pertinent provisions of the
Rules of Court in such other cases whenever
necessary in order to preserve the rights of the
parties-litigants and/or protect the interest of the
investing public and creditors: Provided, however,
That the Commission may, in appropriate cases,
appoint a rehabilitation receiver of corporations,
partnerships or other associations not supervised
or regulated by other government agencies, who
shall have, in addition to the powers of a regular
receiver under the provisions of the Rules of Court,
such functions and powers as are provided for in
the succeeding paragraph (d) hereof x x x.8
xxx
(d) To create and appoint a management committee,
board or body upon petition or motu proprio to
undertake the management of corporations,
partnerships or other associations not supervised
8. Presidential Decree No. 902-A as amended, § 6(c).
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[VOL. 6:22
or regulated by other government agencies in
appropriate cases when there is imminent danger
of dissipation, loss, wastage or destruction of assets
or other properties or paralyzation of business
operations of such corporations or entities which
may be prejudicial to the interest of minority
stockholders, parties-litigants or the general public
x x x.
The management committee or rehabilitation
receiver board or body shall have the power to
take custody of, and control over, all the existing
assets and property of such entities under
management; to evaluate the existing assets and
liabilities, earnings and operations of such
corporations, partnerships or other association; to
determine the best way to salvage and protect the
interest of the investors and creditors; to study,
review and evaluate the feasibility or continuing
operations and restructure and rehabilitate such
entities if determined to be feasible by the
Commission. It shall report and be responsible to
the Commission until dissolved by the Commission
x x x.9
b. Suspension of P
Paayment.
x x x Provided, finally, That upon appointment of
a management committee, rehabilitation receiver,
board or body, pursuant to this Decree, all actions
for cclaims
laims against corporations, partnerships or
associations under management or receivership
pending before any court, tribunal, board or body
shall
be
suspended
accor
according
dingll y. 10
ding
[Underscoring added for emphasis]
9. Ibid. § 6(d).
10. Ibid. § 6(c).
2004]
COMPARATIVE DISCUSSION
173
c. Liquidation in Dissolution.
x x x Provided, however, That if the commission
may, on the basis of the findings and
recommendation of the management committee,
or rehabilitation receiver, board or body, or on its
own findings, determine that the continuance in
business of such corporation or entity would not
be feasible or profitable nor work to the best
interest of the stockholders, parties-litigants,
creditors, or the general public, order the
dissolution of such corporation entity and
its remaining assets liquidated accordingly
xxx. 11 [Underscoring added for emphasis]
3. Remedies A
le in Case of Banks, Quasi-banks,
Avvailab
ailable
Insurance Companies and Cooperatives.
a. Receivership through administrative proceedings;
b. Judicial Liquidation; and
c. Conservatorship
Appointment of Conser
Conservvator
ator.. Whenever, on
the basis of a report submitted by the appropriate
supervising or examining department, the Monetary
Board finds that a bank or a quasi-bank is in a state
of continuing inability or unwillingness to
maintain a condition of liquidity deemed
adequate to protect the interest of
depositors and creditors, the Monetary
Board may appoint a conservator with such
powers as the Monetary Board shall deem necessary
to take charge of the assets, liabilities, and the
11. Ibid. § 6(d), ¶ (2).
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management thereof, reorganize the management,
collect all monies and debts due said institution,
and exercise all powers necessary to restore its
viability. The conservator shall report and be
responsible to the Monetary Board and shall have
the power to overrule or revoke the actions of the
previous management and board of directors of
the bank or quasi-bank.12 [Underscoring added for
emphasis]
xxx
Assistance to Cooperati
Cooperativve Bank. Whenever a
cooperative bank organized under this Code is
distressed or may need assistance in the
rehabilitation of its financial condition or to avoid
bankruptcy, the Monetary Board of the Central
Bank of the Philippines shall designate an
official of the Central Bank or a person of
recognized competence in banking or
finance as receiver or conservator of the said
bank pursuant to the provisions of Section 29 of
Republic Act. No. 265, as amended. 13
[Underscoring added for emphasis]
xxx
Title XIV Appointment of Conservator.
S EC. 248
248. If at any time before, or after, the
suspension or revocation of the certificate of
authority of an insurance company as provided in
the preceding title, the Commissioner finds that
such company is in a state of continuing
12. Republic Act No. 7653, § 29.
13. Republic Act No. 6938, art. 109.
2004]
COMPARATIVE DISCUSSION
inability or unwillingness to maintain a
condition of solvency or liquidity deemed
adequate to protect the interest of policy
holders and creditors, he may appoint a
conservator to take charge the assets, liabilities,
and the management of such company, collect all
moneys and debts due said company and exercise
all powers necessary to preserve the assets of said
company, reorganize the management thereof, and
restore its viability. The said conservator shall have
the power to overrule or revoke the actions of the
previous management and board of directors of
the said company, any provision of law, or of the
articles of incorporation or by-laws of the
company, to the contrary notwithstanding, and such
other powers as the Commissioner shall deem
necessary.14 [Underscoring added for emphasis]
D. Mec
hanics of Liquidation Pr
oceedings
Mechanics
Proceedings
1. The stakeholders – the beneficiaries (hats).
a. Corporate Debtor
b. Creditors and Third Party Claimants
c. Directors, Officers, Stockholders
d. Employees
e. Government
f. General Public
2. The court – the brain.
3. The liquidator – the heart.
14. Presidential Decree No. 612, § 248, ¶ (1).
175
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4. The objectives of the liquidation.
a. Maximize value of assets, minimize liabilities.
b. Distribute proceeds of liquidation soonest.
5. The tools of liquidation.
a. Liquidation Plan
b. Administrative expenses
6. Main Tasks of the Liquidator.
a. Inventory of Assets – Gather, collect, preserve, administer,
store, guard.
b. Schedule of Liabilities – Record, verify, process, contest
if necessary.
c. Nullification of fraudulent transactions.
d. Sale/conversion of assets to cash.
e. Representation of insolvent corporation in suits,
contracts, etc.
f. Distribution of proceeds of liquidation.
E. Laws on Dissolution
A corporation whether solvent or otherwise may be dissolved
voluntarily or involuntarily.
1. Dif
ence betw
een demise of juridical person with
Difffer
erence
between
that of natural person
person. We stated above that the
“liquidation of a corporation” may be likened to the burial
ceremonies of a deceased natural person, while “dissolution”
is likened to the death of such person. Unlike in the case of a
natural person, however, where burial must always follow
death, in the case of a corporation, liquidation may follow
2004]
COMPARATIVE DISCUSSION
177
dissolution and vice-versa. Liquidation may also arise either
by virtue of dissolution or by insolvency.
2. Dissolution of Corporations. A corporation may be
dissolved and liquidated administratively or quasi-judicially
by the SEC in accordance with Sections 117 to 121 in relation
to Section 122 of the Corporation Code (B.P. Blg. 68), or
judiciall
judiciallyy under Rule 104 of the Rules of Court in case of
voluntary dissolution, to wit:
a. SEC. 117. Methods of dissolution. A corporation
formed or organized under the provisions of this Code
may be dissolved voluntarily or involuntarily.15
xxx
her
b. S EC . 118. Voluntar y dissolution w
wher
heree no
creditors are affected. If dissolution of a
corporation does not prejudice the rights of any
creditor having a claim against such corporation, then
such dissolution may be effected by majority vote of
the board of directors or trustees, and by a resolution
duly adopted by the affirmative vote of the
stockholders owning at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds (2/
3) of the members at a meeting to be held upon call
of the directors or trustees after publication of the
notice of the time, place and object of the meeting
for three (3) consecutive weeks in a newspaper published
in the place where the principal office of said
corporation is located x x x.16 [Underscoring added
for emphasis]
15. CORPORATION CODE.
16. Ibid.
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[VOL. 6:22
xxx
her
oluntaryy dissolution w
wher
heree cr
creditors
c. S EC . 119. Voluntar
editors
ar
aree af
afffected. Where the dissolution of a corporation
may prejudice the rights of any creditor, the
petition for dissolution shall be filed with the Securities
and Exchange Commission. The petition shall be signed
by a majority of its board of directors or trustees or
other officers having the management of its affairs,
verified by its president or secretary or one of its
directors, or trustees, and shall set forth all claims and
demands against it, and that its dissolution was resolved
upon by the affirmative vote of the stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock or by at least two-thirds (2/
3) of the members, at a meeting of its stockholders or
members called for that purpose.
If the petition is sufficient in form and substance, the
Commission shall, by an order reciting the purpose of
the petition, fix a date on or before which objections
thereto may be filed by any person, which date shall
not be less than thirty (30) days nor more than sixty
(60) days after the entry of the order. Before such
date, a copy of the order shall be published at least
once a week for three (3) consecutive weeks in three
(3) public places in such municipality or city.
Upon five (5) days’ notice, given after the date on which
the right to file objections as fixed in the order has
expired, the Commission shall proceed to hear the
petition and try any issue made by the objections filed;
and if no such objection is sufficient, and the material
allegations of the petition are true, it shall render
judgment dissolving the corporation and directing
such disposition of its assets as justice requires,
2004]
COMPARATIVE DISCUSSION
and may appoint a receiver to collect such assets and
pay the debts of the corporation.17 [Underscoring added
for emphasis].
xxx
tening cor
d. S EC . 120. Dissolution bbyy shor
shortening
corporate
porate
ter
m. A vvoluntar
oluntar
term.
oluntaryy dissolution ma
mayy be ef
efffected
b y amending the ar tic
les of incor
poration to
ticles
incorporation
shor ten the cor
porate ter m pursuant to the
corporate
provisions of this Code. A copy of the amended
articles of incorporation shall be submitted to the
Securities and Exchange Commission in accordance with
this Code. Upon approval of the amended articles of
incorporation or the expiration of the shortened term,
as the case may be, the corporation shall be deemed
dissolved without any further proceedings, subject to
the provisions of this Code on liquidation. 18
[Underscoring added for emphasis]
xxx
poration
e. S EC. 121. In
Invvoluntar
oluntaryy dissolution. A cor
corporation
may be dissolved by the Securities and Exchange
Commission upon filing of a verified complaint
and after proper notice and hearing on grounds provided
by existing laws, rules and regulations.19 [Underscoring
added for emphasis]
i.
17. Ibid.
18. Ibid.
19. Ibid.
Grounds for dissolution under the Corporation
Code.
179
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[VOL. 6:22
•
Under Sec. 144, in case of violations of the
Corporation Code by the corporation, upon
notice and hearing at the SEC;
•
Under Sec. 104, in case of deadlocks among
directors or stockholders of a close corporation
and the SEC deems dissolution to be proper;
•
Under Sec. 105, in case the acts of directors,
officers or those in control of the close
corporation are illegal, fraudulent, dishonest,
oppressive, unfairly prejudicial to the
corporation or any stockholder, or whenever
corporate assets are misapplied or wasted; and
•
A corporation may likewise be dissolved thru
quo warranto proceedings under Rule 66 of
the Rules of Court filed by the Office of the
Solicitor General contesting the right of the
corporation to continue existing as such.
ii. Grounds to revoke a certificate of registration
under P.D. No. 902-A.
In order to effectively exercise such
jurisdiction, the Commission shall possess
the following powers:
xxx
SEC. 6.1. To suspend, or revoke, after proper
notice and hearing, the franchise or
certificate of registration of corporations,
partnerships or associations, upon any of
the grounds provided by law, including the
following:
1. Fraud in procuring its certificate of
registration;
2004]
COMPARATIVE DISCUSSION
2. Serious misrepresentation as to what
the corporation can do or is doing to
the great prejudice of or damage to
the general public;
3. Refusal to comply or defiance of any
lawful order of the Commission
restraining commission of acts which
would amount to a grave violation of
its franchise;
4. Continuous inoperation for a period
of at least five (5) years;.
5. Failure to file by-laws within the
required period;
6. Failure to file required reports in
appropriate forms as determined by
the Commission within the prescribed
period;20
xxx
f. S EC . 122. Corporate Liquidation. Every
ter eexpir
xpir
es bbyy its oown
wn
cor
hose cchar
har
corporation
whose
harter
xpires
poration w
limitation or is annulled by forfeiture or
otherwise, or whose corporate existence for
other pur poses is ter minated in an
anyy other
manner
manner,, shall nevertheless be continued as a body
corporate for three (3) years after the time when it
would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and
enabling it to settle and close its affairs, to dispose of
and convey its property and to distribute its assets, but
not for the purpose of continuing the business for
which it was established.
20. Presidential Decree No. 902-A, § 6(l).
181
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At any time during said three (3) years,
said cor
poration is authorized and empo
wer
ed
corporation
empow
ered
to con
oper ty to tr ustees ffor
or
convv ey all of its pr
proper
the benefit of stockholders. members, creditors.
and other persons in interest. From and after any
such conveyance by the corporation of its property in
trust for the benefit of its stockholders, members,
creditors and others in interest, all interest which the
corporation had in the property terminates, the legal
interest vests in the trustees, and the beneficial interest
in the stockholders, members, creditors or other person
in interest.
Upon the winding up of the corporate affairs; any
asset distributable to any creditor or stockholder or
member who is unknown or cannot be found shall be
escheated to the city or municipality where such assets
are located x x x.21 [Underscoring added for emphasis].
xxx
g. R ULE 104. Voluntar y
Corporations.
Dissolution
of
S EC. 1. W her
e, bbyy w
hom and on w
hat sho
wing
here,
whom
what
showing
application made. A petition for dissolution of a
corporation shall be filed in the Regional Trial Court
of the province where the principal office of a
corporation is situated. The petition shall be signed by
a majority of its board of directors or other officers
having the management of its affairs, verified by its
president or secretary or one of its directors, and shall
set forth all claims and demands against it, and that its
dissolution was resolved upon by a majority of the
members, or, if a stock corporation, by the affirmative
21. CORPORATION CODE.
2004]
COMPARATIVE DISCUSSION
vote of the stockholders holding and representing twothirds of all shares of stock issued or subscribed, at a
meeting of its members or stockholders called for that
purpose.
S EC . 2. Order there upon for filing objections.
If the petition is sufficient in form and substance, the
court, by an order reciting the purpose of the petition,
shall fix a date on or before which objections thereto
may be filed by any person, which date shall not be
less than thirty (30) nor more than sixty (60) days
after the entry of the order. Before such date a copy
of the order shall be published at least once a week for
four (4) successive weeks in some newspaper of general
circulation published in the municipality or city where
the principal office of the corporation is situated or,
if there be no such newspaper, then in some newspaper
of general circulation in the Philippines, and a similar
copy shall be posted for four (4) weeks in three public
places in such municipality or city.
S EC. 3. Hearing, dissolution, and disposition of
assets. Receiver. Upon five (5) days’ notice given after
the date on which the right to file objections as fixed
in the order expired, the court shall proceed to hear
the petition and try any issue made by the objections
filed; and if no such objection is sufficient, and the
material allegations of the petition are true, it shall
render judgment dissolving the corporation and
directing such disposition of its assets as justice
requires, and may appoint a receiver to collect such
assets and pay the debts of the corporation. x x x22
22. RULES OF COURT.
183
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xxx
licting pr
enc
w, Ci
vil
h. Conf
Conflicting
proovisions of Insolv
Insolvenc
encyy La
Law
Civil
Code, Cor
poration Code and R
t.
Corporation
Rules
Court.
ules of Cour
We have already discussed the duplication of
procedures for liquidation of cooperatives under the
Insolvency Law and liquidation in insolvency arising
from involuntary dissolution under Arts. 67 and 70 of
the Cooperative Code or R.A. No. 6938.
Additionally, applying altogether the provisions
of the Insolvency Law (Act No. 1956) especially those
on Voluntary and Involuntary Insolvency (Sections 14
to 28) on Assignees (Secs. 29 to 47), Proof of Debts
(Secs. 53 to 62), Compositions (Chapter IX),
Discharge (Chapter X), Fraudulent Preferences
(Chapter XI) and Penal (Chapter XII) and
Miscellaneous Provisions (Chapter XIII); the Civil Code
(R.A. No. 386) on Concurrence and Preference of
Credits (Title XIX, Arts. 2236 to 2251) which
superseded Secs. 48 to 50 of the Insolvency Law on
Classification and Preference of Creditors; the
Corporation Code (B.P. Blg. 68) particularly Secs. 117
to 122 discussed above; and Rule 104 of the Rules of
Court, it would readily appear that there is indeed
some conflict in our laws when it comes to
administrative vis-à-vis judicial liquidation.
i . Meaning of “Insolv
enc
“Insolvenc
encyy and “Assignee”
under the Insolv
enc
Insolvenc
encyy La
Law
w. A simple reading
of the Insolvency Law would leave no doubt in
anyone’s mind that the word “insolvency” used in
this law refers to no other than liquidation
liquidation, which
is the process of converting assets to cash and
distributing such cash (or the unconverted assets)
to its creditors; and that the word “assignee” among
whose main tasks defined by this law are to gather
2004]
COMPARATIVE DISCUSSION
and recover all the assets of the debtor, sue for and
defend suits against the debtor, nullify fraudulent
transactions and settle all matters and accounts
between the debtor and its creditors (Sec. 36, IL)
refers to none but the Liquidator or Trustee.
Undoubtedly, under the Insolvency Law,
liquidation of corporations to which the IL applies
though without the privilege of discharge (Sec.
51, IL), is a judicial process
process, which may be
initiated only thru either a voluntary (by the
debtor) or involuntary (by the creditors) petition.
Parenthetically, along the same vein, Title XV,
Section 249 of the Insurance Code (P.D. No. 612),
though entitled “Proceedings Upon Insolvency,”
actually speaks of “liquidation” which shall be
undertaken thru court action.
ii. Distribution of the proceeds of liquidation
pursuant to the Ci
vil Code. When the Civil
Civil
Code was enacted in 1950, its provisions on
“Concurrence and Preference of Credits”
superseded the provisions on “Classification and
Preference of Creditors” of the 1909 vintage IL.
All other subsequent laws which provide for
distribution of assets in liquidation such as Sec. 31
of the New Central Bank Act (R.A. No. 7653)
and Sec. 9-B of the PDIC Charter (R.A. No.
3591) make reference, as basis for such distribution,
either to the “rules on concurrence and preference
of credit as provided in the Civil Code” or to the
“preference established by law” which of course
refers to the Civil Code. Under Sec. 250 of the
Insurance Code (P.D. No. 612 as amended by P.D.
No. 1460), the payment of claims in case of
185
186
THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
liquidation of an insurance company is to be made
“in accordance with their legal priority,” which
likewise impliedly refers to the Civil Code. In fact,
even the SEC Rules of Procedure on Corporate
Recovery directs that the distribution of the
proceeds of liquidation “shall be governed by the
provisions of the Civil Code on the concurrence
and preference of credits.” 23
iii. Liquidation in solvency and insolvency under
the Cor
poration Code. Now comes the
Corporation
Corporation Code (B.P. Blg. 68) on the laws on
corporate dissolution and cor responding
liquidation, specifically Secs. 117 to 122. The law
oluntar
speaks of both vvoluntar
oluntaryy and in
invv oluntar
oluntaryy
dissolution
dissolution, followed by a three year-period of
liquidation in either case.
Involuntary dissolution on the other hand,
iled with the
requires a Petition to be ffiled
Securities and Exchange Commission (SEC)
(Sec. 121). Again, such dissolution may or may
not affect creditors.
If creditors are “not
afff ected
ected” by the
not af
dissolution defined as “does not prejudice the
rights of creditors” that means the dissolved
corporation is solvent. On the other hand, if
creditors are “af
“afffected,
ected,”” understood as “may
prejudice the rights of any creditors” obviously it
is insolvent, or more specifically, bankrupt, with its
realizable assets being less than its liabilities.
Under Section 122, regardless of the manner
of initiating the dissolution (voluntary or
23. Securities and Exchange Commission Rules, Sec. 6-6m.
2004]
COMPARATIVE DISCUSSION
involuntary) or whether it affects creditors or not,
there is a requirement for administrative
liquidation under the jurisdiction of the SEC.
Since the SEC will handle the administrative
or quasi-judicial liquidation of the dissolved
bankrupt corporation, what happens now to the
jurisdiction of courts over liquidation under the
Insolvency Law? Does this mean that the Insolvency
Law has been totally repealed by the Corporation
Code in so far as corporate liquidation is
concerned? Probably not, for implied repeal is not
favored. Or is there now an option to go either
thru the court or the SEC when it comes to
“corporate liquidation” concurrent jurisdiction? Yes,
it would appear so. But then, what rules shall govern
the distribution of the proceeds of liquidation?
i v. “Concur r ence and Pr
ef
er
ence of Cr
edits”
Pref
efer
erence
Credits”
ustice-R
equir
v. “As JJustice-R
ustice-Requir
equires.
es.”” Obviously, it should
es.
be the Civil Code rules on Concurrence and
Preference of Credits. Notably, however, under Sec.
119 on voluntary dissolution where creditors are
affected ( i.e ., insolvency situation) after the
corporation is dissolved, the SEC is empowered to
issue an order “directing such disposition of its
assets as justice requires” even in case of
liquidation in insolvency.
v. Rule 104 of R
ules of Cour
t. As if the laws
Rules
Court.
are not muddled enough, we now have Rule 104
of the Rules of Court, which apply to “Voluntary
Dissolution of Corporations,” which in turn refer
to the same situations contemplated under Sections
118, 119 and 120 of the Corporation Code, since
a corporation can only be dissolved by either
187
188
THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
allowing its term to expire or by shortening it, or
removing the corporation from the SEC list of
registered corporations. In fact, the provisions of
this particular Rule have been lifted directly from
Section 119 of the Corporation Code the only
difference being a 4-week publication and posting
requirement of the notice of hearing under Rule
104 compared to only a 3-week publication
requirement under Section 119.
Since the Rules of Court cannot possibly
amend the Corporation Code, in case of
v oluntar y dissolution and corresponding
liquidation, whether for solvent or insolvent
corporations, the SEC continues to exercise
administrative or quasi-judicial jurisdiction as it
likewise exercises jurisdiction over in
invvoluntar
oluntaryy
dissolution and consequential liquidation,
whether in insolvency or not.
On the other hand, as far as courts are
concerned, Rule 104 of the Rules of Court
nevertheless continues to apply. Unfortunately,
since this Rule was merely copied from Section
119, the disposition of assets after dissolution is
as justice rrequir
equir
es
ordered by the court, also “as
equires
es”
and not in accordance with the rules of
Concurrence and Preference of Credits in case of
liquidation in insolvency.
vi. Sec. 6(d) of P
.D
P.D
.D.. No
No.. 902-A. The transfer
of the SEC jurisdiction under P.D. No. 902-A in
case of corporate rehabilitation did not help but
instead exacerbated the problem. For under
Section 6(d) of P.D. No. 902-A the SEC had the
power to order the dissolution of a corporation
in case of a failed attempt at rehabilitation.
2004]
COMPARATIVE DISCUSSION
Unfortunately, under Section 5.2 of the Securities
Regulation Code (R.A. No. 8799) only the SEC
jurisdiction under Section 5 of P.D. No. 902-A
was transferred to the regular courts. The law was
silent as regards Section 6.
vii. Har
monizing the la
ws. Since laws are to be
Harmonizing
laws.
interpreted to give them effect and not to nullify
them, we contend that Rule 104 applies in all cases
of voluntary dissolution of corporations and
corresponding liquidation which is not in
insolvency; the SEC jurisdiction in turn applies to
involuntary dissolution of corporations and
corresponding liquidation which is likewise not in
insolvency; while the special commercial courts
have jurisdiction over all liquidation in insolvency,
whether dissolution precedes the liquidation or
vice-versa.
Pending formal amendment of the laws
involved, in case of involuntary dissolution
involving liquidation, the SEC shall, upon issuing
an order of dissolution, endorse the liquidation in
insolvency to the special commercial court. Or, the
SEC can immediately endorse the corporate
liquidation to the special commercial court, with
corporate dissolution with the SEC to follow after
liquidation.
With regard to voluntary dissolution of
corporations cases, including such cases in the
jurisdiction of the special commercial courts will
eliminate the problem discussed above.
189
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THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
F. R
ules of Pr
ocedur
porate R
ehabilitation
Rules
Procedur
oceduree on Cor
Corporate
Rehabilitation
1. For corporations in general (other than banks, quasibanks, insurance companies and corporations).
a. Interim R
ules of Pr
ocedur
Rules
Procedur
oceduree on Cor porate
Rehabilitation. Applicable to cases initiated in the
regular courts under Section 5.2 of R.A. No. 8799; and
b. SEC R
ules of Pr
ocedur
porate R
eco
Rules
Procedur
oceduree on Cor
Corporate
Reco
ecovver
eryy.
Applicable to unfinished insolvency proceedings still being
handled by the SEC (not transferred to the regular courts
if pending with the SEC as of 30 June 2000).
2. For banks, quasi-banks, insurance companies, and
cooperatives administrative proceedings.
G. R
ules of Pr
ocedur
porate Liquidation in
Rules
Procedur
oceduree on Cor
Corporate
Insolvency
1. Judicial Notice. It is a matter of judicial notice that
presently, unlike in the case of corporate rehabilitation as
discussed above, we do not have judicial rules of procedure
for corporate liquidation in insolvency, either for ordinary
corporations, or “special corporations” namely banks, quasibanks, insurance companies and cooperatives. In the case of
the last two (2) special corporations, what they have are
administrative rules of procedure but when the proceedings
are converted to judicial upon liquidation in insolvency, there
are no more governing rules. Of course, in the case of
cooperatives, they have administrative rules on liquidation
which apply to involuntary dissolution on grounds of
insolvency, but this only furthers confusion. As for the first
two (2), i.e. banks and quasi-banks, they do not even have
formal administrative procedures to speak of.
2004]
COMPARATIVE DISCUSSION
191
2. For Banks and Quasi-banks. As regards banks and quasibanks, the only provision that may be considered “procedural”
under R.A. No. 7653 is found in Sec. 30 entitled “Proceedings
in Receivership and Liquidation,” and it pertains only to the
right of the stockholders of record representing majority of
the capital stock to question the closure of the bank or quasibank, to wit:
The actions of the Monetary Board taken under this
section or under Section 29 of this Act shall be final
and executory, and may not be restrained or set aside
by the court except on petition for certiorari on the
ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as
to amount to lack or excess of jurisdiction. The petition
for certiorari may only be filed by the stockholders
of record representing the majority of the capital stock
within ten (10) days from receipt by the board of
directors of the institution of the order directing
receivership, liquidation or conservatorship.24
3. For insurance companies. With regard to insurance
companies, the counterpart provision of the aforequoted
Section 30 that may also be considered “procedural” is
found in Section 249 of the Insurance Code (under Title
XV “Proceedings Upon Insolvency”), and it likewise
pertains to the company’s right to contest the closure of
the insurance company, to wit:
The provision of any law to the contrary
notwithstanding, the actions of the Commissioner under
this Section shall be final and executory, and can be set
aside by the Court upon petition by the company and
24. Republic Act No. 7653, § 30.
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THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
only if there is convincing proof that the action is
plainly arbitrary and made in bad faith. The
Commissioner, through the Solicitor General, shall then
file the corresponding answer reciting the proceedings
taken and praying for the assistance of the Court in
the liquidation of the company. No restraining order
or injunction shall be issued by the Court enjoining
the Commissioner from implementing his actions under
this section, unless there is convincing proof that the
action of the Commissioner is plainly arbitrary and
made in bad faith and the petitioner or plaintiff files
with the clerk or Judge of the Court in which the
action is pending a bond executed in favor of the
Commissioner in an amount to be fixed by the Court
x x x.25
4. For Cooperatives. Likewise, there are no rules of procedure
governing the judicial liquidation of insolvent cooperatives.
Cooperatives undergo liquidation under the Insolvency Law
(Act 1956) which apply both procedural and substantive rules
simultaneously.
5. For Cor
porations in General. Outside of those provisions
Corporations
of the Insolvency Law (Act 1956) which may be considered
procedural in nature, there are no judicial rules of procedure
governing the liquidation of insolvent corporations except
what we have already discussed in the case of liquidation in
dissolution (and not for insolvency) under Secs. 117 to
122 of the Corporation Code and under Rule 104 of the
Rules of Court.
25. Presidential Decree No. 1460, as amended, § 249.
2004]
COMPARATIVE DISCUSSION
II.
S UMMAR
Y
UMMARY
OF
193
R ULES P ROPOSED
The Proposed Summary of Rules are as follows:
1. Main features of the Consolidated Interim Rules of
Procedure governing corporate liquidation in insolvency:
a. Consolidated to cover all kinds of corporations;
b. Interim as to be flexible and easier to amend;
c. Limited only to corporations; and
d. Limited only to liquidation in insolvency.
2. It does not amend or change:
a. The administrative nature of corporate rehabilitation
proceedings in the case of banks, quasi-banks,
insurance companies;
b. The substantive provisions of the Insolvency Law
and for that matter, any other substantive law; and
c. Not even the mischievous provisions of Sections 117
to 122 of the Corporation Code.
3. Updates the Insolvency Law Procedures by:
a. Incorporating the procedural provisions of the
Insolvency Law after updating their language to
conform to current law, rules, and regulations.
b. Clarifying the meaning of, among others,
“administrative expense”; “bankruptcy estate”;
“claims”; “barred claims”; “claimant”; “insolvency”;
“liquidation”; “liquidation plan”; “liquidator”;
“ownership interest”; “stakeholders”; “third party
claimant”; and allowing the intervention of a third
party claimant.
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THE PHILJA JUDICIAL JOURNAL
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c. Clarifying the procedures for commencement of both
Voluntary and Involuntary Liquidation proceedings
as to:
i. Substantive allegations to support the Petition;
ii. Required attachments to the Petition;
iii. Verification – updated to cover references to no
forum shopping;
iv. Amount of Filing Fees;
v. Amount of Bond – left to the discretion of the
court; and
vi. Adjudication or Commencement Order.
d. Introducing no forum shopping and mediation
requirements and making Insolvency Procedures
available to cross-border insolvency.
e. Adopting the general provisions embodied in the
Supreme Court Interim Rules of Procedure on
Corporate Rehabilitation and the Rules of Court.
f. Incorporating parallel concepts from the Law on
Succession embodied in the Rules of Court as regards
the actions to be filed by or against the Liquidator or
Assignee.
g. Expanding the role of the court in fixing the amount
of bond, appointment of the Liquidator and
determining his compensation and initiating the
speedy conversion to liquidation if corporate
rehabilitation is not feasible.
h. Allowing the referral of receivables to collection
agents and the use of appraisers, brokers and
auctioneers in the marketing of assets.
2004]
COMPARATIVE DISCUSSION
195
i. Adopting the provisions of the SEC’s Rules on
Corporate Recovery with regard to the Liquidation
Plan and Liquidation in general.
4. Facilitates the transition from corporate rehabilitation to
corporate liquidation regardless of the type of corporation
through appropriate conversion proceedings and by
allowing such conversion by mere motion or upon motu
proprio order of the court.
5. Provides clearer guidelines for the qualifications, election,
appointment, compensation, powers and functions of the
Liquidator or Assignee:
a. As to qualifications, it stresses experience, formal
training, know how, character, and absence of conflict;
b. Election of Liquidator by creditors with majority as
to both number and amount claimed (Under Sec 30,
IL, two-thirds (2/3) as to number, three-fifths (3/
5) as to amount of claim);
c. Appointment of Liquidator by court when creditors
do not attend election or fail or refuse to elect an
Assignee or Assignee fails to qualify or dies (Sec. 31
of IL);
d. Guidelines on compensation of Liquidator – fixes
the maximum rates payable but actual amount to be
paid the Liquidator considers the assets he handled
and distributed, the savings he realized, the level of
administrative expenses he incurred, the contingency
or certainty of the Liquidator’s compensation, his
educational attainment, qualifications, experience,
know how and professional standing and of course
his achievement of the objectives of liquidation i.e.
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THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
to preserve if not enhance the value of assets and
distribute it speedily to the claimants; and
e. The objectives, principal tasks, and main tasks of
liquidation as well as the specific powers and duties
of the Liquidator are clearly outlined in the Rules.
6. Consolidates the procedure on Liquidation proceedings
as to:
a. Adjudication Order declaring insolvency; and
b. Stay Order against all actions, attachments, and
executions including foreclosures.
i. Stay on secured creditors – Stay limited to 180
days.
ii.
•
Treatment of secured creditors under Sec. 59
of the IL.
•
Articles 2247 and 2249 in relation to Arts.
2243, 2241 and 2242 of the Civil Code on
“Concurrence and Preference of Credits.”
Stay of execution (Sec. 6 of IL – three (3)
months).
iii. Stay of action and attachment (Sec. 60 of the
IL) – until question of discharge is resolved.
iv. Suspension of proceedings upon granting of Order
of Adjudication (Sec. 24, IL).
c. Publication of Adjudication Order and Notice.
d. Turn over of assets to the Liquidator.
e. Order to take over custody of debtor’s property (Sec.
26, IL) for the benefit of all creditors (Sec. 27, IL).
2004]
COMPARATIVE DISCUSSION
197
f. Form, content, approval and implementation of the
Liquidation Plan.
g. Procedures for filing and proof of claims made
uniform and patterned after IL as well as procedures
of countries with well developed insolvency systems
i.e. ,USA.
7. Updates the rules on the distribution of the proceeds of
liquidation by incorporating current laws and
jurisprudence in the rules on concurrence and Preference
der of pa
yment itself, and
of Credits as well as in the or
order
payment
adding new provisions to facilitate and expedite the
distribution of the proceeds of liquidation.
Re pub
lic Act No
public
No.. 8762
A N A CT L IBERALIZING THE R ET
AIL T RADE
ETAIL
B USINESS , R EPEALING FOR THE P URPOSE
R EPUBLIC A CT N O. 1180, AS A MENDED, AND
FOR O THER P URPOSES
Be it enacted by the Senate and House of Representatives of the
Philippines in Congress assembled:
SECTION 1. Title. – This Act shall be known as the “Retail
Trade Liberalization Act of 2000.”
SEC. 2. Dec
laration of P
olic
Declaration
Polic
olicyy. – It is the policy of the State
to promote consumer welfare in attracting, promoting and
welcoming productive investments that will bring down prices
for the Filipino consumer, create more jobs, promote tourism,
assist small manufacturers, stimulate economic growth and enable
Philippine goods and services to become globally competitive
through the liberalization of the retail trade sector.
Pursuant to this policy, the Philippine retail industry is hereby
liberalized to encourage Filipino and foreign investors to forge
an efficient and competitive retail trade sector in the interest of
empowering the Filipino consumer through lower prices, higher
quality goods, better services and wider choices.
SEC. 3. Definition. – As used in this Act:
(1) “Retail Trade” shall mean any act, occupation or calling
of habitually selling direct to the general public
2004]
REPUBLIC ACT NO. 8762
199
merchandise, commodities or goods for consumption, but
the restriction of this law shall not apply to the following:
(a) Sales by a manufacturer, processor, laborer, or worker,
to the general public the products manufactured,
processed or produced by him if his capital does not
exceed One Hundred Thousand Pesos
(Php100,000.00);
(b) Sales by a farmer or agriculturist selling the products
of his farm;
(c) Sales in restaurant operations by a hotel owner or
innkeeper irrespective of the amount of capital:
Provided, that the restaurant is incidental to the hotel
business; and
(d) Sales which are limited only to products manufactured,
processed or assembled by a manufacturer through a
single outlet, irrespective of capitalization.
(2) “High-end or luxury goods” shall refer to goods which
are not necessary for life maintenance and whose demand
is generated in large part by the highest income groups.
Luxury goods shall include, but are not limited to,
products such as: jewelry, branded or designer clothing
and footwear, wearing apparel, leisure and sporting goods,
electronics and other personal effects.
S EC . 4. Treatment of Natural-Bor
Natural-Bornn Citizen W ho Has
Lost His Philippine Citizenship
Citizenship.. – A natural-born citizen
of the Philippines who has lost his Philippine citizenship but
who resides in the Philippines shall be granted the same rights as
Filipino citizens for purposes of this Act.
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[VOL. 6:22
S EC . 5. For
eign Equity P
ar
ticipation. – Foreign-owned
oreign
Par
articipation.
partnerships, associations and corporations formed and organized
under the laws of the Philippines may, upon registration with the
Securities and Exchange Commission (SEC) and the Department
of Trade and Industry (DTI), or in case of foreign-owned single
proprietorships, with the DTI, engage or invest in the retail trade
business, subject to the following categories:
Category A – Enterprises with paid-up capital of the
equivalent in Philippine Pesos of less than
Two million five hundred thousand US
dollars (US$2,500,000.00) shall be reserved
exclusively for Filipino citizens and
corporations wholly owned by Filipino
citizens.
Category B – Enterprises with a minimum paid-up capital
of the equivalent in Philippine Pesos of Two
million five hundred thousand US dollars
(US$2,500,000.00) but less than Seven
million five hundred US dollars
(US$7,500,00.00) may be wholly owned by
foreigners except for the first two (2) years
after the effectivity of this Act wherein foreign
participation shall be limited to not more
than sixty percent (60%) of total equity.
Category C – Enterprises with a paid-up capital of the
equivalent in Philippine Pesos of Seven
million five hundred thousand US dollars
(US$7,500,000.00) or more may be wholly
owned by foreigners: Provided, however, that
in no case shall the investments for
establishing a store in Categories B and C be
2004]
REPUBLIC ACT NO. 8762
201
less than the equivalent in Philippine Pesos
of Eight hundred thirty thousand US dollars
(US$830,000.00).
Category D – Enterprises specializing in high-end or luxury
products with a paid-up capital of the
equivalent in Philippine Pesos of Two
hundred fifty thousand US dollars
(US$250,000.00) per store may be whollyowned by foreigners.
The foreign investor shall be required to maintain in the
Philippines the full amount of the prescribed minimum capital,
unless the foreign investor has notified the SEC and the DTI of
its intention to repatriate its capital and cease operations in the
Philippines. The actual use in Philippine operations of the
inwardly remitted minimum capital requirements shall be
monitored by the SEC.
Failure to maintain the full amount of the prescribed
minimum capital prior to notification of the SEC and the DTI,
shall subject the foreign investor to penalties or restrictions on
any future trading activities/ business in the Philippines.
Foreign retail stores shall secure a certification from the
Bangko Sentral ng Pilipinas (BSP) and the DTI, which will verify
or confirm inward remittance of the minimum required capital
investment.
S EC. 6. FFor
or
eign In
oreign
Invvestors Acquiring Shar
Shares
Stockk of
es of Stoc
Local R
etailers.
Retailers. – Foreign Investors acquiring shares from
existing retail stores whether or not publicly listed whose net worth
is in excess of the peso equivalent of Two million five hundred
thousand US dollars (US$2,500,000.00) may purchase only up
to a minimum of sixty percent (60%) of the equity thereof
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THE PHILJA JUDICIAL JOURNAL
[VOL. 6:22
within the first two (2) years from the effectivity of this Act and
thereafter, they may acquire the remaining percentage consistent
with the allowable foreign participation as herein provided.
SEC. 7. Public Offering of Shares of Stock. – All retail
trade enterprises under Categories B and C in which foreign
ownership exceeds eighty percent (80%) of equity shall offer a
minimum of thirty percent (30%) of their equity to the public
through any stock exchange in the Philippines within eight (8)
years from their start of operations.
SEC. 8. Qualif
ications of FFor
or
eign R
etailers. – No foreign
Qualifications
oreign
Retailers.
retailer shall be allowed to engage in retail trade in the Philippines
unless all the following qualifications are met:
(a) A minimum of Two hundred million US dollars
(US$200,000,000.00) net worth in its parent corporation
for Categories B and C, and Fifty million US dollars
(US$50,000,000.00) net worth in its parent corporation
for Category D;
(b) Five (5) retailing branches or franchises in operation
anywhere around the world unless such retailers has at
least one (1) store capitalized at a minimum of Twentyfive million US dollars (US$25,000,000.00);
(c) Five (5)-year track record in retailing; and
(d) Only nationals from, or judicial entities formed or
incorporated in countries which allow the entry of
Filipino retailers shall be allowed to engage in retail trade
in the Philippines.
The DTI is hereby authorized to pre-qualify all foreign
retailers, subject to the provisions of this Act, before they are
allowed to conduct business in the Philippines.
2004]
REPUBLIC ACT NO. 8762
203
The DTI shall keep a record of qualified foreign retailers
who may, upon compliance with law, establish retail stores in the
Philippines. It shall ensure that the parent retail trading company
of the foreign investor complies with the qualifications on
capitalization and track record prescribed in this Section.
The Inter-Agency Committee on Tariff and Related Matters
of the National Economic Development Authority (NEDA)
Board shall formulate and regularly update a list of foreign retailers
of high-end or luxury goods and render an annual report on the
same to Congress.
S EC . 9. Promotion of Locally Manufactured Products.
– For ten (10) years after the effectivity of this Act, at least thirty
percent (30%) of the aggregate cost of the stock inventory of
foreign retailers falling under Categories B and C and ten percent
(10%) for Category D shall be made in the Philippines.
S EC . 10. Prohibited Activities of Qualified Foreign
Retailers. – Qualified foreign retailers shall not be allowed to
engage in certain retailing activities outside their accredited stores
through the use of mobile or rolling stores or carts, the use of
sales representatives, door-to-door selling, restaurants and sarisari stores and such other similar retailing activities: Provided,
that a detailed list of prohibited activities shall hereafter be
formulated by the DTI.
S EC. 11. Implementing Ag
enc
ules and R
Agenc
ency;
Rules
Ree gulations.
y; R
– The monitoring and regulation of foreign sole proprietorships,
partnerships, associations or corporations allowed to engage in
retail trade shall be the responsibility of the DTI. This shall include
resolution of conflicts.
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[VOL. 6:22
The DTI, in coordination with the SEC, the NEDA and the
BSP shall formulate and issue the implementing rules and
regulations necessary to implement this Act within ninety (90)
days after its approval.
SEC. 12. Penalty Clause. – Any person who shall be found
guilty of violation of any provision of this Act shall be punished
by imprisonment of not less than six (6) years and one (1) day
but not more than eight (8) years, and a fine of not less than One
million pesos (Php1,000,000.00) but not more than Twenty
million pesos (Php20,000,000.00). In the case of associations,
partnerships or corporations, the penalty shall be imposed upon
its partners, president, directors, managers and other officers
responsible for the violation. If the offender is not a citizen of
the Philippines, he shall be deported immediately after service of
sentence. If the Filipino offender is a public officer or employee,
he shall, in addition to the penalty prescribed herein, suffer
dismissal and permanent disqualification from public office.
SEC. 13. Re pealing Clause. – Republic Act No. 1180, as
amended, is hereby repealed. Republic Act No. 3018, as amended,
and all other laws, executive orders, rules and regulations or parts
thereof inconsistent with this Act are repealed or modified
accordingly.
SEC. 14. Se
parability Clause. – If any provision of this Act
Separability
shall be held unconstitutional, the other provisions not otherwise
affected thereby shall remain in force and effect.
SEC. 15. Ef
vity
Efffecti
ectivity
vity.. – This Act shall take effect fifteen (15)
days after its approval and publication in at least two (2)
newspapers of general circulation in the Philippines.
Approved, March 7, 2000.
Repub
lic Act No
public
No.. 8792
A N A CT P ROVIDING FOR THE R ECOGNITION AND
U SE OF E LECTR
ONIC C OMMER
CIAL AND N ON LECTRONIC
OMMERCIAL
C OMMER
CIAL T RANSA
CTIONS AND D OCUMENTS ,
OMMERCIAL
RANSACTIONS
P EN
AL
TIES FOR U NLA
WFUL U SE T HEREOF AND FOR
ENAL
ALTIES
NLAWFUL
O THER P URPOSES
Be it enacted by the Senate and House of Representatives of the
Philippines in Congress assembled:
S HOR
T T ITLE
HORT
P AR
T I
ART
AND D ECLARA
TION
ECLARATION
OF
P OLICY
SECTION 1. Shor
Shortt Title. – This Act shall be known as the
“Electronic Commerce Act of 2000.”
SEC. 2. Dec
laration of P
olic
Declaration
Polic
olicyy. – The State recognizes the
vital role of information and communications technology (ICT)
in nation-building; the need to create an information-friendly
environment which supports and ensures the availability, diversity
and affordability of ICT products and services; the primary
responsibility of the private sector in contributing investments
and services in telecommunications and information technology;
the need to develop, with appropriate training programs and
institutional policy changes, human resources for the information
technology age, a labor force skilled in the use of ICT and a
population capable of operating and utilizing electronic appliances
and computers; its obligation to facilitate the transfer and
promotion of adaptation technology, to ensure network security,
connectivity and neutrality of technology for the national benefit;
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and the need to marshal, organize and deploy national information
infrastructures, comprising in both telecommunications network
and strategic information services, including their interconnection
to the global information networks, with the necessary and
appropriate legal, financial, diplomatic and technical framework,
systems and facilities.
E LECTR
ONIC
LECTRONIC
P AR
T II
ART
C OMMER
CE
OMMERCE
IN
G ENERAL
C HAPTER I
G ENERAL P ROVISIONS
SECTION 3. Objecti
Objectivve. – This Act aims to facilitate domestic
and international dealings, transactions, arrangements, agreements,
contracts and exchanges and storage of information through the
utilization of electronic, optical and similar medium, mode,
instrumentality and technology to recognize the authenticity and
reliability of electronic documents related to such activities and
to promote the universal use of electronic transaction in the
government and general public.
SEC. 4. Spher
Spheree of A
Application.
pplication. – This Act shall apply to any
kind of data message and electronic document used in the context
of commercial and non-commercial activities to include domestic
and international dealings, transactions, arrangements, agreements,
contracts and exchanges and storage of information.
SEC. 5. Def
inition of Ter
ms. – For the purposes of this Act,
Definition
erms.
the following terms are defined, as follows:
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REPUBLIC ACT NO. 8792
207
a. “Addressee” refers to a person who is intended by the
originator to receive the electronic data message or
electronic document. The term does not include a person
acting as an intermediary with respect to that electronic
data message or electronic document.
b. “Computer” refers to any device or apparatus which, by
electronic,electro-mechanical or magnetic impulse, or by
other means, is capable of receiving, recording,
transmitting, storing, processing, retrieving, or producing
information, data, figures, symbols or other modes of
written expression according to mathematical and logical
rules or of performing any one or more of those functions.
c. “Electronic Data Message” refers to information
generated, sent, received or stored by electronic, optical
or similar means.
d. “Information and Communication System” refers to a
system intended for and capable of generating, sending,
receiving, storing or otherwise processing electronic data
messages or electronic documents and includes the
computer system or other similar device by or in which
data is recorded or stored and any procedures related to
the recording or storage of electronic data message or
electronic document.
e. “Electronic Signature” refers to any distinctive mark,
characteristic and/or sound in electronic form,
representing the identity of a person and attached to or
logically associated with the electronic data message or
electronic document or any methodology or procedures
employed or adopted by a person and executed or adopted
by such person with the intention of authenticating or
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approving an electronic data message or electronic
document.
f. “Electronic Document” refers to information or the
representation of information, data, figures, symbols or
other modes of written expression, described or however
represented, by which a right is established or an obligation
extinguished, or by which a fact may be proved and
affirmed, which is received, recorded, transmitted, stored,
processed, retrieved or produced electronically.
g. “Electronic Key” refers to a secret code which secures and
defends sensitive information that crosses over public
channels into a form decipherable only with a matching
electronic key.
h. “Intermediary” refers to a person who in behalf of another
person and with respect to a particular electronic document
sends, receives and/or stores or provides other services in
respect of that electronic document.
i. “Originator” refers to a person by whom, or on whose
behalf, the electronic document purports to have been
created, generated and/or sent . The term does not include
a person acting as an intermediary with respect to that
electronic document.
j. “Service Provider” refers to a provider of –
(i) On-line services or network access, or the operator of
facilities therefor, including entities offering the
transmission, routing, or providing of connections
for online communications, digital or otherwise,
between or among points specified by a user, of
electronic documents of the user’s choosing; or
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REPUBLIC ACT NO. 8792
209
(ii) The necessary technical means by which electronic
documents of an originator may be stored and made
accessible to a designated or undesignated third party.
Such service providers shall have no authority to modify
or alter the content of the electronic data message or
electronic document received or to make any entry therein
on behalf of the originator, addressee or any third party
unless specifically authorized to do so, and who shall retain
the electronic document in accordance with the specific
request or as necessary for the purpose of performing the
services it was engaged to perform.
C HAPTER II
L EGAL R ECOGNITION OF E LECTR
ONIC W RITING
LECTRONIC
GES
OR D OCUMENT AND D ATA M ESSA
ESSAGES
S ECTION 6. Le
ecognition of Data Messag
es . –
Legg al R
Recognition
Messages
Information shall not be denied legal effect, validity or
enforceability solely on the grounds that it is in the data message
purporting to give rise to such legal effect, or that it is merely
referred to in that electronic data message.
S EC. 7. Le
ecognition of Electr
onic Documents. –
Leggal R
Recognition
Electronic
Electronic documents shall have the legal effect, validity or
enforceability as any other document or legal writing, and –
(a) Where the law requires a document to be in writing, that
requirement is met by an electronic document if the said
electronic document maintains its integrity and reliability
and can be authenticated so as to be usable for subsequent
reference, in that –
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(i) The electronic document has remained complete and
unaltered, apart from the addition of any endorsement
and any authorized change, or any change which arises
in the normal course of communication, storage and
display; and
(ii) The electronic document is reliable in the light of
the purpose for which it was generated and in the
light of all the relevant circumstances.
(b) Paragraph (a) applies whether the requirement therein is
in the form of an obligation or whether the law simply
provides consequences for the document not being
presented or retained in its original form.
(c) Where the law requires that a document be presented or
retained in its original form, that requirement is met by
an electronic document if –
(i) There exists a reliable assurance as to the integrity of
the document from the time when it was first
generated in its final form; and
(ii) That document is capable of being displayed to the
person to whom it is to be presented: Provided, That
no provision of this Act shall apply to vary any and
all requirements of existing laws on formalities
required in the execution of documents for their
validity.
For evidentiary purposes, an electronic document shall be the
functional equivalent of a written document under existing laws.
This Act does not modify any statutory rule relating to the
admissibility of electronic data messages or electronic documents,
except the rules relating to authentication and best evidence.
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REPUBLIC ACT NO. 8792
211
S EC . 8. Le
ecognition of Electr
onic Signatur
es . –
Leggal R
Recognition
Electronic
Signatures
An electronic signature on the electronic document shall be
equivalent to the signature of a person on a written document if
that signature is proved by showing that a prescribed procedure,
not alterable by the parties interested in the electronic document,
existed under which –
(a) A method is used to identify the party sought to be bound
and to indicate said party’s access to the electronic
document necessary for his consent or approval through
the electronic signature;
(b) Said method is reliable and appropriate for the purpose
for which the electronic document was generated or
communicated, in the light of all the circumstances,
including any relevant agreement;
(c) It is necessary for the party sought to be bound, in order
to proceed further with the transaction, to have executed
or provided the electronic signature; and
(d) The other party is authorized and enabled to verify the
electronic signature and to make the decision to proceed
with the transaction authenticated by the same.
SEC. 9. Pr
esumption R
elating to Electr
onic Signatur
es. Presumption
Relating
Electronic
Signatures
In any proceedings involving an electronic signature, it shall be
presumed that –
(a) The electronic signature is the signature of the person to
whom it correlates; and
(b) The electronic signature was affixed by that person with
the intention of signing or approving the electronic
document unless the person relying on the electronically
signed electronic document knows or has notice of defects
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in or unreliability of the signature or reliance on the
electronic signature is not reasonable under the
circumstances.
S EC. 10. Original Documents. –
(1) Where the law requires information to be presented or retained
in its original form, that requirement is met by an electronic
data message or electronic document if:
(a) the integrity of the information from the time when it
was first generated in its final form, as an electronic data
message or electronic document is shown by evidence
aliunde or otherwise; and
(b) where it is required that information be presented, that
the information is capable of being displayed to the person
to whom it is to be presented.
(2) Paragraph (1) applies whether the requirement therein is in
the form of an obligation or whether the law simply provides
consequences for the information not being presented or
retained in its original form.
(3) For the purposes of subparagraph (a) of paragraph (1):
(a) the criteria for assessing integrity shall be whether the
information has remained complete and unaltered, apart
from the addition of any endorsement and any change
which arises in the normal course of communication,
storage and display; and
(b) the standard of reliability required shall be assessed in the
light of the purpose for which the information was
generated and in the light of all relevant circumstances.
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REPUBLIC ACT NO. 8792
213
S EC . 11. Authentication of Electronic Data Messages
and Electr
onic Documents. – Until the Supreme Court by
Electronic
appropriate rules shall have so provided, electronic documents,
electronic data messages and electronic signatures, shall be
authenticated by demonstrating, substantiating and validating a
claimed identity of a user, device, or another entity in an
information or communication system, among other ways, as
follows:
(a) The electronic signature shall be authenticated by proof
that a letter, character, number or other symbol in
electronic form representing the persons named in and
attached to or logically associated with an electronic data
message, electronic document, or that the appropriate
methodology or security procedures, when applicable, were
employed or adopted by a person and executed or adopted
by such person, with the intention of authenticating or
approving an electronic data message or electronic
document;
(b) The electronic data message and electronic document shall
be authenticated by proof that an appropriate security
procedure, when applicable was adopted and employed
for the purpose of verifying the originator of an electronic
data message and/or electronic document, or in detecting
error or alteration in the communication, content or
storage of an electronic document or electronic data
message from a specific point, which, using algorithm or
codes, identifying words or numbers, encryptions, answers
back or acknowledgment procedures, or similar security
devices.
The Supreme Court may adopt such other authentication
procedures, including the use of electronic notarization systems
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as necessary and advisable, as well as the certificate of
authentication on printed or hard copies of the electronic
document or electronic data messages by electronic notaries, service
providers and other duly recognized or appointed certification
authorities.
The person seeking to introduce an electronic data message
and electronic document in any legal proceeding has the burden
of proving its authenticity by evidence capable of supporting a
finding that the electronic data message and electronic document
is what the person claims it to be.
In the absence of evidence to the contrary, the integrity of
the information and communication system in which an electronic
data message or electronic document is recorded or stored may be
established in any legal proceeding –
(a) By evidence that at all material times the information
and communication system or other similar device was
operating in a manner that did not affect the integrity of
the electronic data message and/or electronic document,
and there are no other reasonable grounds to doubt the
integrity of the information and communication system;
(b) By showing that the electronic data message and/or
electronic document was recorded or stored by a party to
the proceedings who is adverse in interest to the party
using it; or
(c) By showing that the electronic data message and/or
electronic document was recorded or stored in the usual
and ordinary course of business by a person who is not a
party to the proceedings and who did not act under the
control of the party using the record.
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REPUBLIC ACT NO. 8792
215
S EC . 12. Admissibility and Evidential Weight of
Electronic Data Message and Electronic Documents. –
In any legal proceedings, nothing in the application of the rules
on evidence shall deny the admissibility of an electronic data
message or electronic document in evidence –
a. On the sole ground that it is in electronic form; or
b. On the ground that it is not in the standard written form,
and the electronic data message or electronic document
meeting, and complying with the requirements under
Sections 6 or 7 hereof shall be the best evidence of the
agreement and transaction contained therein.
In assessing the evidential weight of an electronic data message
or electronic document, the reliability of the manner in which it
was generated, stored or communicated, the reliability of the
manner in which its originator was identified, and other relevant
factors shall be given due regard.
S EC . 13. Retention of Electr
onic Data Messag
Electronic
Messagee and
Electr
onic Document. – Notwithstanding any provision of
Electronic
law, rule or regulation to the contrary –
(a) The requirement in any provision of law that certain
documents be retained in their original form is satisfied
by retaining them in the form of an electronic data
message or electronic document which –
i. Remains accessible so as to be usable for subsequent
reference;
ii. Is retained in the format in which it was generated,
sent or received, or in a format which can be
demonstrated to accurately represent the electronic
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data message or electronic document generated, sent
or received;
iii. Enables the identification of its originator and
addressee, as well as the determination of the date
and the time it was sent or received.
(b) The requirement referred to in paragraph (a) is satisfied
by using the services of a third party, provided that the
conditions set forth in subparagraphs (i), (ii) and (iii) of
paragraph (a) are met.
SEC. 14. Pr
oof By Af
vit. – The matters referred to in
Proof
Afffida
idavit.
Section 12, on admissibility and Section 9, on the presumption
of integrity, may be presumed to have been established by an
affidavit given to the best of the deponent’s knowledge subject
to the rights of parties in interest as defined in the following
section.
S EC. 15. Cross-Examination. –
(1) A deponent of an affidavit referred to in Section 14 that has
been introduced in evidence may be cross-examined as of
right by a party to the proceedings who is adverse in interest
to the party who has introduced the affidavit or has caused
theaffidavit to be introduced.
(2) Any party to the proceedings has the right to cross-examine a
person referred to in Section 11, paragraph 4, sub-paragraph c.
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REPUBLIC ACT NO. 8792
217
C HAPTER III
C OMMUNICA
TION OF E LECTR
ONIC D ATA
OMMUNICATION
LECTRONIC
M ESSA
GES AND E LECTR
ONIC D OCUMENTS
ESSAGES
LECTRONIC
S ECTION 16. F or mation and Validity of Electr
onic
Electronic
Contracts. –
(1) Except as otherwise agreed by the parties, an offer, the
acceptance of an offer and such other elements required under
existing laws for the formation of contracts may be expressed
in, demonstrated and proved by means of electronic data
message or electronic documents and no contract shall be
denied validity or enforceability on the sole ground that it is
in the form of an electronic data message or electronic
document, or that any or all of the elements required under
existing laws for the formation of the contracts is expressed,
demonstrated and proved by means of electronic documents.
(2) Electronic transactions made through networking among
banks, or linkages thereof with other entities or networks,
and vice versa, shall be deemed consummated upon the actual
dispensing of cash or the debit of one account and the
corresponding credit to another, whether such transaction is
initiated by the depositor or by an authorized collecting party:
Provided, that the obligation of one bank, entity, or person
similarly situated to another arising therefrom shall be
considered absolute and shall not be subjected to the process
of preference of credits.
S EC . 17. Recognition bbyy P
ar ties of Electr
onic Data
Par
Electronic
Messag
onic Document. – As between the
Messagee or Electr
Electronic
originator and the addressee of a electronic data message or
electronic document, a declaration of will or other statement shall
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not be denied legal effect, validity or enforceability solely on the
ground that it is in the form of an electronic data message or
electronic document.
S EC. 18. Attribution of Electronic Data Message. –
(1) An electronic data message or electronic document is that of
the originator if it was sent by the originator himself.
(2) As between the originator and the addressee, an electronic
data message or electronic document is deemed to be that of
the originator if itwas sent:
(a) by a person who had the authority to act on behalf of
the originator with respect to that electronic data message
or electronic document; or
(b) by an information system programmed by, or on behalf
of the originator to operate automatically.
(3) As between the originator and the addressee, an addressee is
entitled to regard an electronic data message or electronic
document as being that of the originator, and to act on that
assumption, if:
(a) in order to ascertain whether the electronic data message
or electronic document was that of the originator, the
addressee properly applied a procedure previously agreed
to by the originator for that purpose; or
(b) the electronic data message or electronic document as
received by the addressee resulted from the actions of a
person whose relationship with the originator or with any
agent of the originator enabled that person to gain access
to a method used by the originator to identify electronic
data messages as his own.
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REPUBLIC ACT NO. 8792
219
(4) Paragraph (3) does not apply:
(a) as of the time when the addressee has both received notice
from the originator that the electronic data message or
electronic document is not that of the originator, and has
reasonable time to act accordingly; or
(b) in a case within paragraph (3) sub-paragraph (b), at any
time when the addressee knew or should have known,
had it exercised reasonable care or used any agreed
procedure, that the electronic data message or electronic
document was not that of the originator.
(5) Where an electronic data message or electronic document is
that of the originator or is deemed to be that of the originator,
or the addressee is entitled to act on that assumption, then, as
between the originator and the addressee, the addressee is
entitled to regard the electronic data message or electronic
document as received as being what the originator intended
to send, and to act on that assumption. The addressee is not
so entitled when it knew or should have known, had it exercised
reasonable care or used any agreed procedure, that the
transmission resulted in any error in the electronic data
message or electronic document as received.
(6) The addressee is entitled to regard each electronic data message
or electronic document received as a separate electronic data
message or electronic document and to act on that assumption,
except to the extent that it duplicates another electronic data
message or electronic documentand the addressee knew or
should have known, had it exercised reasonable care or used
any agreed procedure, that the electronic data message or
electronic document was a duplicate
.
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SEC. 19. Er
onic Data Messag
onic
Errror on Electr
Electronic
Messagee or Electr
Electronic
Document. – The addressee is entitled to regard the electronic
data message or electronic document received as that which the
originator intended to send, and to act on that assumption, unless
the addressee knew or should have known, had the addressee
exercised reasonable care or used the appropriate procedure –
(a) That the transmission resulted in any error therein or in
the electronicdocument when the electronic data message
or electronic document enters the designated information
system, or
(b) That electronic data message or electronic document is
sent to an information system which is not so designated
by the addressee for thepurpose.
S EC. 20. Ag
kno
wledgment of R
eceipt of
Agrreement on Ac
Ackno
knowledgment
Receipt
Electronic Data Messages or Electronic Documents. –
The following rules shall apply where, on or before sending an
electronic data message or electronic document, the originator
and the addressee have agreed, or in that electronic document or
electronic data message, the originator has requested, that receipt
of the electronic document or electronic data message be
acknowledged:
(a) Where the originator has not agreed with the addressee
that the acknowledgment be given in a particular form or
by a particular method, an acknowledgment may be given
by or through any communication bythe addressee,
automated or otherwise, or any conduct of the addressee,
sufficient to indicate to the originator that the electronic
data message or electronic document has been received.
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REPUBLIC ACT NO. 8792
221
(b) Where the originator has stated that the effect or
significance of the electronic data message or electronic
document is conditional on receiptof the acknowledgment
thereof, the electronic data message or electronic document
is treated as though it has never been sent, until the
acknowledgment is received.
(c) Where the originator has not stated that the effect or
significance of the electronic data message or electronic
document is conditional on receipt of the
acknowledgment, and the acknowledgment has not
been received by the originator within the time specified
or agreed or, if no time has been specified or agreed, within
a reasonable time, the originator may give notice to the
addressee stating that no acknowledgment has been
received and specifying a reasonable time by which the
acknowledgment must be received; and if the
acknowledgment is not received within the time specified
in subparagraph (c), the originator may, upon notice to
the addressee, treat the electronic document or electronic
data message as though it had never been sent, or exercise
any other rights it may have.
SEC. 21. Time of Dispatc
onic Data Messag
es
Dispatchh of Electr
Electronic
Messages
or Electr
onic Documents. – Unless otherwise agreed between
Electronic
the originator and the addressee, the dispatch of an electronic
data message or electronic document occurs when it enters an
information system outside the control of the originator or of
the person who sent the electronic data message or electronic
document on behalf of the originator.
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S EC. 22. Time of R
eceipt of Electr
onic Data Messag
es
Receipt
Electronic
Messages
or Electr
onic Documents. – Unless otherwise agreed between
Electronic
the originator and the addressee, the time of receipt of an electronic
data message or electronic document is as follows:
(a) If the addressee has designated an information system for
the purpose of receiving electronic data message or
electronic document,receipt occurs at the time when the
electronic data message or electronic document enters the
designated information system: Provided, however,that
if the originator and the addressee are both participants
in the designated information system, receipt occurs at
the time when the electronic data message or electronic
document is retrieved by the addressee.
(b) If the electronic data message or electronic document is
sent to an information system of the addressee that is not
the designated information system, receipt occurs at the
time when the electronic data message or electronic
document is retrieved by the addressee;
(c) If the addressee has not designated an information system,
receipt occurs when the electronic data message or
electronic document enters an information system of the
addressee.
These rules apply notwithstanding that the place where the
information system is located may be different from the place
where the electronic data message or electronic document is deemed
to be received.
S EC. 23. Place of Dispatc
eceipt of Electr
onic
Dispatchh and R
Receipt
Electronic
Data Messages or Electronic Documents. – Unless otherwise
agreed between the originator and the addressee, an electronic data
message or electronic document is deemed to be dispatched at the
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REPUBLIC ACT NO. 8792
223
place where the originator has its place of business and received at
the place where the addressee has its place of business. This rule
shall apply even if the originator or addressee had used a laptop
or other portable device to transmit or receive his electronic data
message or electronic document. This rule shall also apply to
determine the tax situs of such transaction.
For the purpose hereof a. If the originator or the addressee has more than one place
of business ,the place of business is that which has the
closest relationship to the underlying transaction or, where
there is no underlying transaction, the principal place of
business.
b. If the originator of the addressee does not have a place
of business, reference is to be made to its habitual
residence; or
c. The “usual place of residence” in relation to a body
corporate, means the place where it is incorporated or
otherwise legally constituted.
SEC. 24. Choice of Security Methods. – Subject to applicable
laws and/or rules and guidelines promulgated by the Department
of Trade and Industry with other appropriate government agencies,
parties to any electronic transaction shall be free to determine the
type and level of electronic data message and electronic document
security needed, and to select and use or implement appropriate
technological methods that suit their needs.
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P AR
T III
ART
E LECTR
ONIC C OMMER
CE
LECTRONIC
OMMERCE
IN
S PECIFIC A REAS
C HAPTER I
C ARRIA
GE OF G OODS
ARRIAGE
S ECTION 25. Actions R
elated to Contracts of Car
riag
Related
Carriag
riagee
of Goods. – Without derogating from the provisions of part
two of this law, this chapter applies to any action in connection
with, or in pursuance of, a contract of carriage of goods, including
but not limited to:
(a) (i) furnishing the marks, number, quantity or weight of
goods;
(ii) stating or declaring the nature or value of goods;
(iii)issuing a receipt for goods;
(iv)confirming that goods have been loaded;
(b) (i) notifying a person of terms and conditions of the
contract;
(ii) giving instructions to a carrier;
(c) (i) claiming delivery of goods;
(ii) authorizing release of goods;
(iii)giving notice of loss of, or damage to, goods;
(d) giving any other notice or statement in connection with
the performance of the contract;
(e) undertaking to deliver goods to a named person or a
person
(f) granting, acquiring, renouncing, surrendering, transferring
or negotiating rights in goods;
2004]
REPUBLIC ACT NO. 8792
225
(g) acquiring or transferring rights and obligations under the
contract.
SEC. 26. Transpor
ransportt Documents. –
(1) Where the law requires that any action referred to contract
of carriage of goods be carried out in writing or by using a
paper document, that requirement is met if the action is carried
out by using one or more electronic data messages or electronic
documents.
(2) Paragraph (1) applies whether the requirement therein is in
the form of an obligation or whether the law simply provides
consequences for failing either to carry out the action in writing
or to use a paper document.
(3) If a right is to be granted to, or an obligation is to be acquired
by, one person and no other person, and if the law requires
that, in order to effect this, the right or obligation must be
conveyed to that person by the transfer, or use of, a paper
document, that requirement is met if the right or obligation
is conveyed by using one or more electronic data messages or
electronic documents Provided, That a reliable method is used
to render such electronic data messages or electronic documents
unique.
(4) For the purposes of paragraph (3), the standard of reliability
required shall be assessed in the light of the purpose for which
the right or obligation was conveyed and in the light of all
the circumstances, including any relevant agreement.
(5) Where one or more data messages are used to effect any action
in subparagraphs (f) and (g) of Section 25, no paper document
used to effect any such action is valid unless the use of
electronic data message or electronic document has been
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terminated and replaced by the use of paper documents. A
paper document issued in these circumstances shall contain a
statement of such termination. The replacement of electronic
data messages or electronic documents by paper documents
shall not affect the rights or obligations of the parties
involved.
(6) If a rule of law is compulsorily applicable to a contract of
carriage of goods which is in, or is evidenced by, a paper
document, that rule shall not be inapplicable to such a contract
of carriage of goods which is evidenced by one or more
electronic data messages or electronic documents by reason
of the fact that the contract is evidenced by such electronic
data messages or electronic documents instead of by a paper
document.
P AR
T IV
ART
E LECTR
ONIC T RANSA
CTIONS
LECTRONIC
RANSACTIONS
IN
G OVERNMENT
S ECTION 27. Go
onic Data
Govv er nment Use of Electr
Electronic
Messages, Electronic Documents and Electronic
Signatur
es. – Notwithstanding any law to the contrary, within
Signatures.
two (2) years from the date of the effectivity of this Act, all
departments, bureaus, offices and agencies of the government, as
well as all government-owned and-controlled corporations, that
pursuant to law require or accept the filing of documents, require
that documents be created, or retained and/or submitted, issue
permits, licenses or certificates of registration or approval, or
provide for the method and manner of payment or settlement of
fees and other obligations to the government, shall –
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REPUBLIC ACT NO. 8792
227
(a) accept the creation, filing or retention of such documents
in the form of electronic data messages or electronic
documents;
(b) issue permits, licenses, or approval in the form of electronic
data messages or electronic documents;
(c) require and/or accept payments, and issue receipts
acknowledging such payments, through systems using
electronic data messages or electronic documents; or
(d) transact the government business and/or perform
governmental functions using electronic data messages or
electronic documents, and for the purpose, are authorized
to adopt and promulgate, after appropriate public hearing
and with due publication in newspapers of general
circulation, the appropriate rules, regulations, or guidelines,
to, among others, specify –
(1) the manner and format in which such electronic data
messages orelectronic documents shall be filed, created,
retained or issued;
(2) where and when such electronic data messages or
electronic documents have to be signed, the use of a
electronic signature, the type of electronic signature
required;
(3) the format of an electronic data message or electronic
document and the manner the electronic signature
shall be affixed to the electronic data message or
electronic document;
(4) the control processes and procedures as appropriate
to ensure adequate integrity, security and
confidentiality of electronic data messages or electronic
documents or records or payments;
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(5) other attributes required of electronic data messages
or electronic documents or payments; and
(6) the full or limited use of the documents and papers
for compliance with the government requirements:
Provided, That this Act shall by itself mandate any
department of the government, organ of state or
statutory corporation to accept or issue any document
in the form of electronic data messages or electronic
documents upon the adoption, promulgation and
publication of the appropriate rules, regulations, or
guidelines.
onic
S EC . 28. RPWEB To Pr
Promote
Electronic
omote the Use of Electr
Documents and Electr
onic Data Messag
es in Go
nment
Electronic
Messages
Govver
ernment
and to the General Pub
lic. – Within two (2) years from the
Public.
effectivity of this Act, there shall be installed an electronic online
network in accordance with Administrative Order 332 and House
of Representatives Resolution 890, otherwise known as RPWEB,
to implement Part IV of this Act to facilitate the open, speedy
and efficient electronic online transmission, conveyance and use
of electronic data messages or electronic documents amongst all
government departments, agencies, bureaus, offices down to the
division level and to the regional and provincial offices as
practicable as possible, government owned and controlled
corporations, local government units, other public
instrumentalities, universities, colleges and other schools, and
universal access to the general public.
The RPWEB network shall serve as initial platform of the
government information infrastructure (GII) to facilitate the
electronic online transmission and conveyance of government
services to evolve and improve by better technologies or kinds of
electronic online wide area networks utilizing, but not limited to,
2004]
REPUBLIC ACT NO. 8792
229
fiber optic, satellite, wireless and other broadband
telecommunication mediums or modes. To facilitate the rapid
development of the GII, the Department of Transportation and
Communications, NationalTelecommunications Commission and
the National Computer Center are hereby directed to aggressively
promote and implement a policy environment and regulatory or
non-regulatory framework that shall lead to the substantial
reduction of costs of including, but not limited to, lease lines,
land, satellite and dial-up telephone access, cheap broadband and
wireless accessibility by government departments, agencies, bureaus,
offices, government owned and controlled corporations, local
government units, other public instrumentalities and the general
public, to include the establishment of agovernment website portal
and a domestic internet exchange system to facilitate strategic access
to government and amongst agencies thereof and the general
public and for the speedier flow of locally generated internet traffic
within the Philippines.
The physical infrastructure of cable and wireless systems for
cable TV and broadcast excluding programming and content and
the management thereof shall be considered as within the activity
of telecommunications for the purpose of electronic commerce
and to maximize the convergence of ICT in the installation of
the GII.
S EC . 29. Authority of the De
par
tment of Trade and
Depar
partment
Industr
ticipating Entities. – The Department of
Industryy and Par
articipating
Trade and Industry (DTI) shall direct and supervise the promotion
and development of electronic commerce in the country with
relevant government agencies, without prejudice to the provisions
of Republic Act No. 7653 (Charter of Bangko Sentral ng
Pilipinas) and Republic Act No. 337 (General Banking Act), as
amended.
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Among others, the DTI is empowered to promulgate rules
and regulations, as well as provide quality standards or issue
certifications, as the case may be, and perform such other functions
as may be necessary for the implementation of this Act in the area
of electronic commerce to include, but shall not be limited to,
the installation of an online public information and quality and
price monitoring system for goods and services aimed in protecting
the interests of the consuming public availingof the advantages
of this Act.
F IN
AL
INAL
P AR
T V
ART
P ROVISIONS
S ECTION 30. Extent of Liability of a Ser
vice Pr
Service
Proovider
vider..
– Except as otherwise provided in this Section, no person or party
shall be subject to any civil or criminal liability in respect of the
electronic data message or electronic document for which the
person or party acting as a service provider as defined in Section 5
merely provides access if such liability is founded on –
(a) The obligations and liabilities of the parties under the
electronic data message or electronic document;
(b) The making, publication, dissemination or distribution
of such material or any statement made in such material,
including possible infringement ofany right subsisting in
or in relation to such material: Provided, That:
i.
The service provider does not have actual knowledge,
or is not aware of the facts or circumstances from
which it is apparent, that the making,publication,
dissemination or distribution of such material is
unlawful or infringes any rights subsisting in or in
relation to such material;
2004]
REPUBLIC ACT NO. 8792
231
ii. The service provider does not knowingly receive a
financial benefit directly attributable to the unlawful
or infringing activity; and
iii. The service provider does not directly commit any
infringement or other unlawful act and does not
induce or cause another person or party to commit
any infringement or other unlawful act and/or does
not benefit financially from the infringing activity or
unlawful act of another person or party: Provided,
further, That nothing in this Section shall affect –
a) Any obligation founded on contract;
b) The obligation of a service provider as such under
a licensing or other regulatory regime established
under written law; or
c) Any obligation imposed under any written law;
d) The civil liability of any party to the extent that
such liability forms the basis for injunctive relief
issued by a court under any law requiring that
the service provider take or refrain from actions
necessary to remove, block or deny access to any
material, or to preserve evidence of a violation
of law.
SEC. 31. Lawful Access. – Access to an electronic file, or an
electronic signature of an electronic data message or electronic
document shall only be authorized and enforced in favor of the
individual or entity having a legal right to the possession or the
use of the plaintext, electronic signature or file and solely for the
authorized purposes. The electronic key for identity or integrity
shall not be made available to any person or party without the
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consent of the individual or entity in lawful possession of that
electronic key.
SEC. 32. Ob
lig
ation of Conf
identiality
Oblig
ligation
Confidentiality
identiality.. – Except for the
purposes authorized under this Act, any person who obtained
access to any electronic key, electronic data message, or electronic
document, book, register, correspondence, information, or other
material pursuant to any powers conferred under this Act, shall
not convey to or share the same with any other person.
SEC. 33. Penalties. – The following Acts shall be penalized by
fine and/or imprisonment, as follows:
(a) Hacking or cracking which refers to unauthorized access
into or interference in a computer system/server or
information and communication system; or any access in
order to corrupt, alter, steal, or destroy using a computer
or other similar information and communication devices,
without the knowledge and consent of the owner of the
computer or information and communications system,
including the introduction of computer viruses and the
like, resulting in the corruption,destruction, alteration,
theft or loss of electronic data messages or electronic
documents shall be punished by a minimum fine of One
hundred thousand pesos (P100,000.00) and a maximum
commensurate to thedamage incurred and a mandatory
imprisonment of six (6) months to three (3) years;
(b) Piracy or the unauthorized copying, reproduction,
dissemination, distribution, importation, use, removal,
alteration, substitution, modification, storage, uploading,
downloading, communication, making available to the
public, or broadcasting of protected material, electronic
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REPUBLIC ACT NO. 8792
233
signature or copyrighted works including legally protected
sound recordings or phonograms or information material
on protected works,through the use of
telecommunication networks, such as, but not limited to,
the internet, in a manner that infringes intellectual property
rights shall be punished by a minimum fine of One
hundred thousand pesos (P100,000.00) and a maximum
commensurate to the damage incurred and a mandatory
imprisonment of six (6) months to three (3) years;
(c) Violations of the Consumer Act or Republic Act No.
7394 and other relevant or pertinent laws through
transactions covered by or using electronic data messages
or electronic documents, shall be penalized with the same
penalties as provided in those laws;
(d) Other violations of the provisions of this Act, shall be
penalized with a maximum penalty of One million pesos
(P1,000,000.00) or six (6) years imprisonment.
SEC. 34. Implementing R
ules and R
Rules
Reegulations. – The DTI,
Department of Budget and Management and the Bangko Sentral
ng Pilipinas are hereby empowered to enforce the provisions of
this Act and issue implementing rules and regulations necessary,
in coordination with the Department of Transportation and
Communications, National Telecommunications Commission,
National Computer Center, National Information Technology
Council, Commission on Audit, other concerned agencies and
the private sector, to implement this Act within sixty (60)days
after its approval.
Failure to issue rules and regulations shall not in any manner
affect the executory nature of the provisions of this Act.
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S EC . 35. Ov
ersight Committee. – There shall be a
Oversight
Congressional Oversight Committee composed of the
Committees on Trade and Industry/Commerce, Science and
Technology, Finance and Appropriations of both the Senate and
House of Representatives, which shall meet at least every quarter
of the first two years and every semester for the third year after
the approval of this Act to oversee its implementation. The DTI,
DBM, Bangko Sentral ng Pilipinas, and other government agencies
as may be determined by the Congressional Committee shall
provide a quarterly performance report of their actions taken in
the implementation of this Act for the first three (3) years.
SEC. 36. Appr
opriations. – The amount necessary to carry
ppropriations.
out the provisions of Secs. 27 and 28 of this Act shall be charged
against any available funds and/or savings under the General
Appropriations Act of 2000 in the first year of effectivity of
this Act. Thereafter, the funds needed for the continued
implementation shall be included in the annual General
Appropriations Act.
S EC . 37. Statutory Interpretation. – Unless otherwise
expressly provided for, the interpretation of this Act shall give
due regard to its international origin and the need to promote
uniformity in its application and the observance of good faith in
international trade relations. The generally accepted principles of
international law and convention on electronic commerce shall
likewise be considered.
S EC. 38. Variation bbyy Ag
Agrreement. – As between parties
involved in generating, sending, receiving, storing or otherwise
processing electronic data message or electronic document, any
provision of this Act may be varied by agreement between and
among them.
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REPUBLIC ACT NO. 8792
235
SEC. 39. Recipr
ocity. – All benefits, privileges, advantages or
eciprocity
statutory rules established under this Act, including those involving
practice of profession, shall be enjoyed only by parties whose
country of origin grants the same benefits and privileges or
advantages to Filipino citizens.
SEC. 40. Se
parability Clause. – The provisions of this Act
Separability
are hereby declared separable and in the event of any such provision
is declared unconstitutional, the other provisions, which are not
affected, shall remain in force and effect.
SEC. 41. Repealing Clause. – All other laws, decrees, rules
and regulations or parts thereof which are inconsistent with the
provisions of this Act are hereby repealed, amended or modified
accordingly.
SEC. 42. Ef
vity
Efffecti
ectivity
vity.. – This Act shall take effect immediately
after its publication in the Official Gazette or in at least two (2)
national newspapers of general circulation.
This Act, which is a consolidation of Senate Bill No. 1902 and
House Bill No. 9971 was finally passed by the Senate and the
House of Representatives on June 8, 2000 and June 7, 2000,
respectively.
Approved, June 14, 2000.
Re pub
lic Act No
public
No.. 9160
A N A CT D EFINING THE C RIME OF M ONEY
L AUNDERING , P ROVIDING P EN
AL
TIES T HEREFOR
ENAL
ALTIES
AND FOR O THER P URPOSES
Be it enacted by the Senate and House of Representatives of the
Philippines in Congress assembled:
SECTION 1. Shor
Shortt Title. – This Act shall be known as the
“Anti-Money Laundering Act of 2001.”
SEC. 2. Dec
laration of P
olic
Declaration
Polic
olicyy. – It is hereby declared the
policy of the State to protect and preserve the integrity and
confidentiality of bank accounts and to ensure that the Philippines
shall not be used as a money laundering site for the proceeds of
any unlawful activity. Consistent with its foreign policy, the State
shall extend cooperation in transnational investigations and
prosecutions of persons involved in money laundering activities
wherever committed.
SEC. 3. Def
initions. – For purposes of this Act, the following
Definitions.
terms are hereby defined as follows:
(a) “Covered institution” refers to:
(1) banks, non-banks, quasi-banks, trust entities, and all
other institutions and their subsidiaries and affiliates
supervised or regulated by the Bangko Sentral ng
Pilipinas (BSP);
(2) insurance companies and all other institutions
supervised or regulated by the Insurance Commission;
and
2004]
REPUBLIC ACT NO. 9160
237
(3) a. securities dealers, brokers, salesmen, investment
houses and other similar entities managing
securities or rendering services as investment agent,
advisor, or consultant;
b. mutual funds, close-end investment companies,
common trust funds, pre-need companies and
other similar entities;
c. foreign exchange corporations, money changers,
money payment, remittance, and transfer
companies and other similar entities; and
d. other entities administering or otherwise dealing
in currency, commodities or financial derivatives
based thereon, valuable objects, cash substitutes
and other similar monetary instruments or
property supervised or regulated by the Securities
and Exchange Commission.
(b) “Covered transaction” is a single, series, or combination
of transactions involving a total amount in excess of Four
million Philippine pesos (Php4,000,000.00) or an
equivalent amount in foreign currency based on the
prevailing exchange rate within five (5) consecutive
banking days except those between a covered institution
and a person who, at the time of the transaction was a
properly identified client and the amount is commensurate
with the business or financial capacity of the client; or
those with an underlying legal or trade obligation, purpose,
origin or economic justification.
It likewise refers to a single, series or combination or
pattern of unusually large and complex transactions in
excess of Four million Philippine pesos
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(Php4,000,000.00) especially cash deposits and
investments having no credible purpose or origin,
underlying trade obligation or contract.
(c) “Monetary instrument” refers to:
(1) coins or currency of legal tender of the Philippines,
or of any other country;
(2) drafts, checks and notes;
(3) securities or negotiable instruments, bonds,
commercial papers, deposit certificates, trust
certificates, custodial receipts or deposit substitute
instruments, trading orders, transaction tickets and
confirmations of sale or investments and money
market instruments; and
(4) other similar instruments where title thereto passes to
another by endorsement, assignment or delivery.
(d) ”Offender” refers to any person who commits a money
laundering offense.
(e) “Person” refers to any natural or juridical person.
(f) “Proceeds” refers to an amount derived or realized from
an unlawful activity.
(g) “Supervising Authority” refers to the appropriate
supervisory or regulatory agency, department or office
supervising or regulating the covered institutions
enumerated in Section 3(a).
(h) “Transaction” refers to any act establishing any right or
obligation or giving rise to any contractual or legal
relationship between the parties thereto. It also includes
any movement of funds by any means with a covered
institution.
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REPUBLIC ACT NO. 9160
239
(i) “Unlawful activity” refers to any act or omission or series
or combination thereof involving or having relation to
the following:
(1) Kidnapping for ransom under Article 267 of Act
No. 3815, otherwise known as the Revised Penal
Code, as amended;
(2) Sections 3, 4, 5, 7, 8 and 9 of Article Two of
Republic Act No. 6425, as amended, otherwise
known as the Dangerous Drugs Act of 1972;
(3) 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;
(4) Plunder under Republic Act No. 7080, as amended;
(5) Robbery and extortion under Articles 294, 295,
296, 299, 300, 301 and 302 of the Revised Penal
Code, as amended;
(6) Jueteng and Masiao punished as illegal gambling
under Presidential Decree No. 1602;
(7) Piracy on the high seas under the Revised Penal
Code, as amended and Presidential Decree No. 532;
(8) Qualified theft under Article 310 of the Revised
Penal Code, as amended;
(9) Swindling under Article 315 of the Revised Penal
Code, as amended;
(10) Smuggling under Republic Act Nos. 455 and 1937;
(11) Violations under Republic Act No. 8792, otherwise
known as the Electronic Commerce Act of 2000;
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(12) 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;
(13) Fraudulent practices and other violations under
Republic Act No. 8799, otherwise known as the
Securities Regulation Code of 2000;
(14) Felonies or offenses of a similar nature that are
punishable under the penal laws of other countries.
SEC. 4. Money Laundering Offense. – Money laundering is
a crime whereby the proceeds of an unlawful activity are transacted,
thereby making them appear to have originated from legitimate
sources. It is committed by the following:
(a) Any person knowing that any monetary instrument or
property represents, involves, or relates to, the proceeds
of any unlawful activity, transacts or attempts to transact
said monetary instrument or property.
(b) Any person knowing that any monetary instrument or
property involves the proceeds of any unlawful activity,
performs or fails to perform any act as a result of which
he facilitates the offense of money laundering referred to
in paragraph (a) above.
(c) Any person knowing that any monetary instrument or
property is required under this Act to be disclosed and
filed with the Anti-Money Laundering Council
(AMLC), fails to do so.
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REPUBLIC ACT NO. 9160
241
SEC. 5. Jurisdiction of Money Laundering Cases. – The
regional trial courts shall have jurisdiction to try all cases on money
laundering. Those committed by public officers and private
persons who are in conspiracy with such public officers shall be
under the jurisdiction of the Sandiganbayan.
S EC. 6. Prosecution of Money Laundering. –
(a) Any person may be charged with and convicted of both
the offense of money laundering and the unlawful activity
as herein defined.
(b) Any proceeding relating to the unlawful activity shall be
given precedence over the prosecution of any offense or
violation under this Act without prejudice to the freezing
and other remedies provided.
S EC . 7. Creation of Anti-Money Laundering Council
(AML
C). – The Anti-Money Laundering Council is hereby
(AMLC).
created and shall be composed of the Governor of the Bangko
Sentral ng Pilipinas as chairman, the Commissioner of the
Insurance Commission and the Chairman of the Securities and
Exchange Commission as members. The AMLC shall act
unanimously in the discharge of its functions as defined hereunder:
(1) to require and receive covered transaction reports from
covered institutions;
(2) to issue orders addressed to the appropriate Supervising
Authority or the covered institution to determine the
true identity of the owner of any monetary instrument
or property subject of a covered transaction report or
request for assistance from a foreign State, or believed
by the Council, on the basis of substantial evidence, to
be, in whole or in part, wherever located, representing,
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involving, or related to, directly or indirectly, in any
manner or by any means, the proceeds of an unlawful
activity;
(3) to institute civil forfeiture proceedings and all other
remedial proceedings through the Office of the Solicitor
General;
(4) to cause the filing of complaints with the Department
of Justice or the Ombudsman for the prosecution of
money laundering offenses;
(5) to initiate investigations of covered transactions, money
laundering activities and other violations of this Act;
(6) to freeze any monetary instrument or property alleged
to be proceeds of any unlawful activity;
(7) to implement such measures as may be necessary and
justified under this Act to counteract money laundering;
(8) to receive and take action in respect of, any request from
foreign states for assistance in their own anti-money
laundering operations provided in this Act;
(9) to develop educational programs on the pernicious
effects of money laundering, the methods and
techniques used in money laundering, the viable means
of preventing money laundering and the effective ways
of prosecuting and punishing offenders; and
(10) to enlist the assistance of any branch, department,
bureau, office, agency or instrumentality of the
government, including government-owned and controlled corporations, in undertaking any and all antimoney laundering operations, which may include the
use of its personnel, facilities and resources for the more
2004]
REPUBLIC ACT NO. 9160
243
resolute prevention, detection and investigation of
money laundering offenses and prosecution of
offenders.
SEC. 8. Cr
eation of a Secr
etariat. – The AMLC is hereby
Creation
Secretariat.
authorized to establish a secretariat to be headed by an Executive
Director who shall be appointed by the Council for a term of
five (5) years. He must be a member of the Philippine Bar, at
least thirty-five (35) years of age and of good moral character,
unquestionable integrity and known probity. All members of the
Secretariat must have served for at least five (5) years either in the
Insurance Commission, the Securities and Exchange Commission
or the Bangko Sentral ng Pilipinas (BSP) and shall hold full-time
permanent positions within the BSP.
S EC . 9. Prevention of Money Laundering; Customer
Identif
ication R
equir
ements and R
ecor
ee
ping
Identification
Requir
equirements
Recor
ecordd K
Kee
eeping
ping.. –
(a) Customer Identification. – Covered institutions shall
establish and record the true identity of its clients based
on official documents. They shall maintain a system of
verifying the true identity of their clients and, in case of
corporate clients, require a system of verifying their legal
existence and organizational structure, as well as the
authority and identification of all persons purporting to
act on their behalf.
The provisions of existing laws to the contrary
notwithstanding, anonymous accounts, accounts under
fictitious names, and all other similar accounts shall be
absolutely prohibited. Peso and foreign currency nonchecking numbered accounts shall be allowed. The BSP
may conduct annual testing solely limited to the
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determination of the existence and true identity of the
owners of such accounts.
(b) Record Keeping. – All records of all transactions of
covered institutions shall be maintained and safely stored
for five (5) years from the dates of transactions. With
respect to closed accounts, the records on customer
identification, account files and business correspondence,
shall be preserved and safely stored for at least five (5)
years from the dates when they were closed.
(c) Reporting of Covered Transactions. – Covered
institutions shall report to the AMLC all covered
transactions within five (5) working days from occurrence
thereof, unless the Supervising Authority concerned
prescribes a longer period not exceeding ten (10) working
days.
When reporting covered transactions to the AMLC,
covered institutions and their officers, employees,
representatives, agents, advisors, consultants or associates
shall not be deemed to have violated Republic Act No.
1405, as amended; Republic Act No. 6426, as amended;
Republic Act No. 8791 and other similar laws, but are
prohibited from communicating, directly or indirectly, in
any manner or by any means, to any person the fact that a
covered transaction report was made, the contents thereof,
or any other information in relation thereto. In case of
violation thereof, the concerned officer, employee,
representative, agent, advisor, consultant or associate of
the covered institution, shall be criminally liable.
However, no administrative, criminal or civil
proceedings, shall lie against any person for having made
a covered transaction report in the regular performance
of his duties and in good faith, whether or not such
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REPUBLIC ACT NO. 9160
245
reporting results in any criminal prosecution under this
Act or any other Philippine law.
When reporting covered transactions to the AMLC,
covered institutions and their officers, employees,
representatives, agents, advisors, consultants or associates
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 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, employee, representative, agent, advisor,
consultant or associate of the covered institution, or media
shall be held criminally liable.
SEC. 10. Authority to FFrree
ze. – Upon determination that
eeze.
probable cause exists that any deposit or similar account is in any
way related to an unlawful activity, the AMLC may issue a freeze
order, which shall be effective immediately, on the account for a
period not exceeding fifteen (15) days. Notice to the depositor
that his account has been frozen shall be issued simultaneously
with the issuance of the freeze order. The depositor shall have
seventy-two (72) hours upon receipt of the notice to explain
why the freeze order should be lifted. The AMLC has seventytwo (72) hours to dispose of the depositor’s explanation. If it
fails to act within seventy-two (72) hours from receipt of the
depositor’s explanation, the freeze order shall automatically be
dissolved. The fifteen (15)-day freeze order of the AMLC may
be extended upon order of the court, provided that the fifteen
(15)-day period shall be tolled pending the court’s decision to
extend the period.
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No court shall issue a temporary restraining order or writ of
injunction against any freeze order issued by the AMLC except
the Court of Appeals or the Supreme Court.
S EC . 11. Authority to Inquire into Bank Deposits. –
Notwithstanding the provisions of Republic Act No. 1405, as
amended; Republic Act No. 6426, as amended; Republic Act
No. 8791, and other laws, the AMLC may inquire into or examine
any particular deposit or investment with any banking institution
or non-bank financial institution upon order of any competent
court in cases of violation of this Act when it has been established
that there is probable cause that the deposits or investments
involved are in any way related to a money laundering offense:
Provided, That this provision shall not apply to deposits and
investments made prior to the effectivity of this Act.
S EC. 12. Forf
eitur
orfeitur
eituree Pr
Proovisions. –
(a) Civil Forfeiture. – When there is a covered transaction
report made, and the court has, in a petition filed for the
purpose ordered seizure of any monetary instrument or
property, in whole or in part, directly or indirectly, related
to said report, the Revised Rules of Court on civil
forfeiture shall apply.
(b) Claim on Forfeited Assets. – Where the court has issued
an order of forfeiture of the monetary instrument or
property in a criminal prosecution for any money
laundering offense defined under Section 4 of this Act,
the offender or any other person claiming an interest
therein may apply, by verified petition, for a declaration
that the same legitimately belongs to him and for
segregation or exclusion of the monetary instrument or
property corresponding thereto. The verified petition shall
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247
be filed with the court which rendered the judgment of
conviction and order of forfeiture, within fifteen (15)
days from the date of the order of forfeiture, in default
of which the said order shall become final and executory.
This provision shall apply in both civil and criminal
forfeiture.
(c) Payment in Lieu of Forfeiture. – Where the court has
issued an order of forfeiture of the monetary instrument
or property subject of a money laundering offense defined
under Section 4, and said order cannot be enforced because
any particular monetary instrument or property cannot,
with due diligence, be located, or it has been substantially
altered, destroyed, diminished in value or otherwise
rendered worthless by any act or omission, directly or
indirectly, attributable to the offender, or it has been
concealed, removed, converted or otherwise transferred
to prevent the same from being found or to avoid
forfeiture thereof, or it is located outside the Philippines
or has been placed or brought outside the jurisdiction of
the court, or it has been commingled with other monetary
instruments or property belonging to either the offender
himself or a third person or entity, thereby rendering the
same difficult to identify or be segregated for purposes
of forfeiture, the court may, instead of enforcing the order
of forfeiture of the monetary instrument or property or
part thereof or interest therein, accordingly order the
convicted offender to pay an amount equal to the value
of said monetary instrument or property. This provision
shall apply in both civil and criminal forfeiture.
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SEC. 13. Mutual Assistance among States. –
(a) Request for Assistance from a Foreign State. – Where a
foreign State makes a request for assistance in the
investigation or prosecution of a money laundering
offense, the AMLC may execute the request or refuse to
execute the same and inform the foreign State of any
valid reason for not executing the request or for delaying
the execution thereof. The principles of mutuality and
reciprocity shall, for this purpose, be at all times
recognized.
(b) Powers of the AMLC to Act on a Request for Assistance
from a Foreign State. -–The AMLC may execute a request
for assistance from a foreign State by: (1) tracking down,
freezing, restraining and seizing assets alleged to be proceeds
of any unlawful activity under the procedures laid down
in this Act; (2) giving information needed by the foreign
State within the procedures laid down in this Act; and
(3) applying for an order of forfeiture of any monetary
instrument or property in the court: Provided, That the
court shall not issue such an order unless the application
is accompanied by an authenticated copy of the order of
a court in the requesting State ordering the forfeiture of
said monetary instrument or property of a person who
has been convicted of a money laundering offense in the
requesting State, and a certification or an affidavit of a
competent officer of the requesting State stating that the
conviction and the order of forfeiture are final and that
no further appeal lies in respect of either.
(c) Obtaining Assistance from Foreign States. – The AMLC
may make a request to any foreign State for assistance in
(1) tracking down, freezing, restraining and seizing assets
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REPUBLIC ACT NO. 9160
249
alleged to be proceeds of any unlawful activity; (2)
obtaining information that it needs relating to any covered
transaction, money laundering offense or any other matter
directly or indirectly related thereto; (3) to the extent
allowed by the law of the foreign State, applying with the
proper court therein for an order to enter any premises
belonging to or in the possession or control of, any or all
of the persons named in said request, and/or search any
or all such persons named therein and/or remove any
document, material or object named in said request:
Provided, That the documents accompanying the request
in support of the application have been duly authenticated
in accordance with the applicable law or regulation of the
foreign State; and (4) applying for an order of forfeiture
of any monetary instrument or property in the proper
court in the foreign State: Provided, That the request is
accompanied by an authenticated copy of the order of
the regional trial court ordering the forfeiture of said
monetary instrument or property of a convicted offender
and an affidavit of the clerk of court stating that the
conviction and the order of forfeiture are final and that
no further appeal lies in respect of either.
(d) Limitations on Requests for Mutual Assistance. – The
AMLC may refuse to comply with any request for
assistance where the action sought by the request
contravenes any provision of the Constitution or the
execution of a request is likely to prejudice the national
interest of the Philippines unless there is a treaty between
the Philippines and the requesting State relating to the
provision of assistance in relation to money laundering
offenses.
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(e) Requirements for Requests for Mutual Assistance from
Foreign States. – A request for mutual assistance from a
foreign State must (1) confirm that an investigation or
prosecution is being conducted in respect of a money
launderer named therein or that he has been convicted of
any money laundering offense; (2) state the grounds on
which any person is being investigated or prosecuted for
money laundering or the details of his conviction; (3)
give sufficient particulars as to the identity of said person;
(4) give particulars sufficient to identify any covered
institution believed to have any information, document,
material or object which may be of assistance to the
investigation or prosecution; (5) ask from the covered
institution concerned any information, document, material
or object which may be of assistance to the investigation
or prosecution; (6) specify the manner in which and to
whom said information, document, material or object
obtained pursuant to said request, is to be produced; (7)
give all the particulars necessary for the issuance by the
court in the requested State of the writs, orders or
processes needed by the requesting State; and (8) contain
such other information as may assist in the execution of
the request.
(f) Authentication of Documents. – For purposes of this
Section, a document is authenticated if the same is signed
or certified by a judge, magistrate or equivalent officer in
or of, the requesting State, and authenticated by the oath
or affirmation of a witness or sealed with an official or
public seal of a minister, secretary of State, or officer in
or of, the government of the requesting State, or of the
person administering the government or a department
of the requesting territory, protectorate or colony. The
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REPUBLIC ACT NO. 9160
251
certificate of authentication may also be made by a
secretary of the embassy or legation, consul general, consul,
vice consul, consular agent or any officer in the foreign
service of the Philippines stationed in the foreign State
in which the record is kept, and authenticated by the seal
of his office.
(g) Extradition. – The Philippines shall negotiate for the
inclusion of money laundering offenses as herein defined
among extraditable offenses in all future treaties.
SEC. 14. Penal Pr
Proovisions. –
(a) Penalties for the Crime of Money Laundering. – The
penalty of imprisonment ranging from seven (7) to
fourteen (14) years and a fine of not less than Three
million Philippine pesos (Php3,000,000.00) but not more
than twice the value of the monetary instrument or
property involved in the offense, shall be imposed upon
a person convicted under Section 4(a) of this Act.
The penalty of imprisonment from four (4) to seven
(7) years and a fine of not less than One million five
hundred thousand Philippine pesos (Php1,500,000.00)
but not more than Three million Philippine pesos
(Php3,000,000.00), shall be imposed upon a person
convicted under Section 4(b) of this Act.
The penalty of imprisonment from six (6) months
to four (4) years or a fine of not less than One hundred
thousand Philippine pesos (Php100,000.00) but not more
than Five hundred thousand Philippine pesos
(Php500,000.00), or both, shall be imposed on a person
convicted under Section 4(c) of this Act.
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(b) Penalties for Failure to Keep Records. – The penalty of
imprisonment from six (6) months to one (1) year or a
fine of not less than One hundred thousand Philippine
pesos (Php100,000.00) but not more than Five hundred
thousand Philippine pesos (Php500,000.00), or both,
shall be imposed on a person convicted under Section
9(b) of this Act.
(c) Malicious Reporting. – Any person who, with malice, or
in bad faith, reports or files a completely unwarranted or
false information relative to money laundering transaction
against any person shall be subject to a penalty of six (6)
months to four (4) years imprisonment and a fine of not
less than One hundred thousand Philippine pesos
(Php100,000.00) but not more than Five hundred
thousand Philippine pesos (Php500,000.00), at the
discretion of the court: Provided, That the offender is
not entitled to avail the benefits of the Probation Law.
If the offender is a corporation, association,
partnership or any juridical person, the penalty shall be
imposed upon the responsible officers, as the case may be,
who participated in the commission of the crime or who
shall have knowingly permitted or failed to prevent its
commission. If the offender is a juridical person, the court
may suspend or revoke its license. If the offender is an
alien, he shall, in addition to the penalties herein prescribed,
be deported without further proceedings after serving the
penalties herein prescribed. If the offender is a public
official or employee, he shall, in addition to the penalties
prescribed herein, suffer perpetual or temporary absolute
disqualification from office, as the case may be.
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REPUBLIC ACT NO. 9160
253
Any public official or employee who is called upon
to testify and refuses to do the same or purposely fails to
testify shall suffer the same penalties prescribed herein.
(d) Breach of Confidentiality. – The punishment of
imprisonment ranging from three (3) to eight (8) years
and a fine of not less than Five hundred thousand
Philippine pesos (Php500,000.00) but not more than
One million Philippine pesos (Php1,000,000.00), shall
be imposed on a person convicted for a violation under
Section 9(c).
SEC. 15. System of Incenti
ew
ar
ds. – A system
Incentivves and R
Rew
ewar
ards.
of special incentives and rewards is hereby established to be given
to the appropriate government agency and its personnel that led
and initiated an investigation, prosecution and conviction of
persons involved in the offense penalized in Section 4 of this
Act.
S EC . 16. Pr
ohibitions Ag
ainst P
Prohibitions
Against
Political
olitical Harassment. –
This Act shall not be used for political persecution or harassment
or as an instrument to hamper competition in trade and commerce.
No case for money laundering may be filed against and no
assets shall be frozen, attached or forfeited to the prejudice of a
candidate for an electoral office during an election period.
SEC. 17. Restitution. – Restitution for any aggrieved party
shall be governed by the provisions of the New Civil Code.
SEC. 18. Implementing R
ules and R
Rules
Ree gulations. – Within
thirty (30) days from the effectivity of this Act, the Bangko
Sentral ng Pilipinas, the Insurance Commission and the Securities
and Exchange Commission shall promulgate the rules and
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[VOL. 6:22
regulations to implement effectively the provisions of this Act.
Said rules and regulations shall be submitted to the Congressional
Oversight Committee for approval.
Covered institutions shall formulate their respective money
laundering prevention programs in accordance with this Act
including, but not limited to, information dissemination on money
laundering activities and its prevention, detection and reporting,
and the training of responsible officers and personnel of covered
institutions.
SEC. 19. Cong
ersight Committee. – There is
Congrressional Ov
Oversight
hereby created a Congressional Oversight Committee composed
of seven (7) members from the Senate and seven (7) members
from the House of Representatives. The members from the Senate
shall be appointed by the Senate President based on the
proportional representation of the parties or coalitions therein
with at least two (2) Senators representing the minority. The
members from the House of Representatives shall be appointed
by the Speaker also based on proportional representation of the
parties or coalitions therein with at least two (2) members
representing the minority.
The Oversight Committee shall have the power to promulgate
its own rules, to oversee the implementation of this Act, and to
review or revise the implementing rules issued by the Anti-Money
Laundering Council within thirty (30) days from the
promulgation of the said rules.
S EC. 20. Appr
opriations Clause. – The AMLC shall be
ppropriations
provided with an initial appropriation of Twenty-five million
Philippine pesos (Php25,000,000.00) to be drawn from the
national government. Appropriations for the succeeding years shall
be included in the General Appropriations Act.
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REPUBLIC ACT NO. 9160
255
SEC. 21. Se
parability Clause. – If any provision or section
Separability
of this Act or the application thereof to any person or
circumstance is held to be invalid, the other provisions or sections
of this Act, and the application of such provision or section to
other persons or circumstances, shall not be affected thereby.
SEC. 22. Repealing Clause. – All laws, decrees, executive orders,
rules and regulations or parts thereof, including the relevant
provisions of Republic Act No. 1405, as amended; Republic Act
No. 6426, as amended; Republic Act No. 8791, as amended and
other similar laws, as are inconsistent with this Act, are hereby
repealed, amended or modified accordingly.
SEC. 23. Ef
vity
Efffecti
ectivity
vity.. – This Act shall take effect fifteen (15)
days after its complete publication in the Official Gazette or in at
least two (2) national newspapers of general circulation.
The provisions of this Act shall not apply to deposits and
investments made prior to its effectivity.
Approved, September 29, 2001.
Re pub
lic Act No
public
No.. 9194
A N A CT A MENDING R EPUBLIC A CT N O . 9160,
O THER
WISE K NO
WN AS THE “A NTI -M ONEY
THERWISE
NOWN
L AUNDERING A CT OF 2001”
Be it enacted by the Senate and House of Representatives of the
Philippines in Congress assembled:
SECTION 1. Section 3, paragraph (b), of Republic Act No. 9160
is hereby amended as follows:
“(b) ‘Covered transaction’ is a transaction in cash or other
equivalent monetary instrument involving a total
amount in excess of Five hundred thousand pesos
(Php500,000.00) within one (1) banking day.”
SEC. 2. Section 3 of the same Act is further amended by inserting
between paragraphs (b) and (c) a new paragraph designated as (b1) to read as follows:
“(b-1) ‘Suspicious transaction’ are transactions with covered
institutions, regardless of the amounts involved, where
any of the following circumstances exist:
“1. there is no underlying legal or trade obligation,
purpose or economic justification;
“2. the client is not properly identified;
“3. the amount involved is not commensurate with
the business or financial capacity of the client;
“4. taking into account all known circumstances, it
may be perceived that the client’s transaction is
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REPUBLIC ACT NO. 9194
257
structured in order to avoid being the subject of
reporting requirements under the Act;
“5. 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;
“6. 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
“7. any transaction that is similar or analogous to any
of the foregoing.”
SEC. 3. Section 3(i) of the same Act is further amended to read
as follows:
“(i)‘Unlawful activity’ refers to any act or omission or series
or combination thereof involving or having direct
relation to the following:
“(1) Kidnapping for ransom under Article 267 of Act
No. 3815, otherwise known as the Revised Penal
Code, as amended;
“(2) Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15, and 16 of
Republic Act No. 9165, otherwise known as the
Comprehensive Dangerous Drugs Act of 2002;
“(3) 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;
“(4) Plunder under Republic Act No. 7080, as
amended;
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[VOL. 6:22
“(5) Robbery and extortion under Articles 294, 295,
296, 299, 300, 301 and 302 of the Revised Penal
Code, as amended;
“(6) Jueteng and Masiao punished as illegal gambling
under Presidential Decree No. 1602;
“(7) Piracy on the high seas under the Revised Penal
Code, as amended and Presidential Decree No. 532;
“(8) Qualified theft under Article 310 of the Revised
Penal Code, as amended;
“(9) Swindling under Article 315 of the Revised Penal
Code, as amended;
“(10)Smuggling under Republic Act Nos. 455 and 1937;
“(11)Violations under Republic Act No. 8792, otherwise
known as the Electronic Commerce Act of 2000;
“(12)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;
“(13)Fraudulent practices and other violations under
Republic Act No. 8799, otherwise known as the
Securities Regulation Code of 2000;
“(14)Felonies or offenses of a similar nature that are
punishable under the penal laws of other countries.”
SEC. 4. Section 4 of the same Act is hereby amended to read as
follows:
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REPUBLIC ACT NO. 9194
259
“SEC. 4. Money Laundering Offense. – Money laundering
is a crime whereby the proceeds of an unlawful activity as
herein defined are transacted, thereby making them appear to
have originated from legitimate sources. It is committed by
the following:
“(a) Any person knowing that any monetary instrument or
property represents, involves, or relates to, the proceeds
of any unlawful activity, transacts or attempts to transact
said monetary instrument or property.
“(b) Any person knowing that any monetary instrument or
property involves the proceeds of any unlawful activity,
performs or fails to perform any act as a result of which
he facilitates the offense of money laundering referred
to in paragraph (a) above.
“(c) Any person knowing that any monetary instrument or
property is required under this Act to be disclosed and
filed with the Anti-Money Laundering Council
(AMLC), fails to do so.”
SEC. 5. Section 7 of the same Act is hereby amended as follows:
“SEC. 7. Creation of Anti-Money Laundering Council
(AML
C). – The Anti-Money Laundering Council is hereby
(AMLC)
created and shall be composed of the Governor of the Bangko
Sentral ng Pilipinas as chairman, the Commissioner of the
Insurance Commission and the Chairman of the Securities
and Exchange Commission as members. The AMLC shall act
unanimously in the discharge of its functions as defined
hereunder:
“(1) to require and receive covered or suspicious transaction
reports from covered institutions;
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[VOL. 6:22
“(2) to issue orders addressed to the appropriate Supervising
Authority or the covered institution to determine the
true identity of the owner of any monetary instrument
or property subject of a covered transaction or
suspicious transaction report or request for assistance
from a foreign State, or believed by the Council, on
the basis of substantial evidence, to be, in whole or in
part, wherever located, representing, involving, or
related to, directly or indirectly, in any manner or by
any means, the proceeds of an unlawful activity.
“(3) to institute civil forfeiture proceedings and all other
remedial proceedings through the Office of the
Solicitor General;
“(4) to cause the filing of complaints with the Department
of Justice or the Ombudsman for the prosecution of
money laundering offenses;
“(5) to investigate suspicious transactions and covered
transactions deemed suspicious after an investigation
by AMLC, money laundering activities, and other
violations of this Act;
“(6) to apply before the Court of Appeals, ex parte, for
the freezing of any monetary instrument or property
alleged to be the proceeds of any unlawful activity as
defined in Sec. 3(i) hereof;
“(7) to implement such measures as may be necessary and
justified under this Act to counteract money
laundering;
“(8) to receive and take action in respect of, any request
from foreign states for assistance in their own antimoney laundering operations provided in this Act;
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REPUBLIC ACT NO. 9194
261
“(9) to develop educational programs on the pernicious
effects of money laundering, the methods and
techniques used in money laundering, the viable means
of preventing money laundering and the effective ways
of prosecuting and punishing offenders;
“(10) to enlist the assistance of any branch, department,
bureau, office, agency or instrumentality of the
government, including government-owned and controlled corporations, in undertaking any and all
anti-money laundering operations, which may include
the use of its personnel, facilities and resources for the
more resolute prevention, detection and investigation
of money laundering offenses and prosecution of
offenders; and
“(11) to impose administrative sanctions for the violation
of laws, rules, regulations and orders and resolutions
issued pursuant thereto.”
SEC. 6. Section 9(c) of the same Act is hereby amended to read
as follows:
“(c) Reporting of Covered and Suspicious Transactions. –
Covered institutions shall report to the AMLC all covered
transactions and suspicious transactions within five (5)
working days from occurrence thereof, unless the Supervising
Authority prescribes a longer period not exceeding ten (10)
working days.
“Should a transaction be determined to be both a covered
transaction and a suspicious transaction, the covered institution
shall be required to report the same as a suspicious transaction.
“When reporting covered or suspicious transactions to
the AMLC, covered institutions and their officers and
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[VOL. 6:22
employees shall not be deemed to have violated Republic Act
No. 1405, as amended, Republic Act No. 6426, as amended,
Republic Act No. 8791 and other similar laws, but are
prohibited from communicating, directly or indirectly, in any
manner or by any means, to any person, the fact that a covered
or suspicious transaction report was made, the contents
thereof, or any other information in relation thereto. In case
of violation thereof, the concerned officer and employee of
the covered institution shall be criminally liable. However, no
administrative, criminal or civil proceedings, shall lie against
any person for having made a covered or suspicious transaction
report in the regular performance of his duties in good faith,
whether or not such reporting results in any criminal
prosecution under this Act or any other law.
“When reporting covered 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 or
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 and media shall be held criminally liable.”
SEC. 7. Section 10 of the same Act is hereby amended to read as
follows:
“S EC . 10. Freezing of Monetary Instrument or
Pr
oper
ty
Proper
operty
ty.. – The Court of Appeals, upon application ex
parte by the AMLC and after determination that probable
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REPUBLIC ACT NO. 9194
263
cause exists that any monetary instrument or property is in
any way related to an unlawful activity as defined in Section
3(i) hereof, may issue a freeze order which shall be effective
immediately. The freeze order shall be for a period of twenty
(20) days unless extended by the court.”
SEC. 8. Section 11 of the same Act is hereby amended to read as
follows:
“SEC. 11. Authority to Inquire into Bank Deposits. –
Notwithstanding the provisions of Republic Act No. 1405,
as amended, Republic Act No. 6426, as amended, Republic
Act No. 8791, and other laws, the AMLC may inquire into
or examine any particular deposit or investment with any
banking institution or non-bank financial institution upon
order of any competent court in cases of violation of this
Act, when it has been established that there is probable cause
that the deposits or investments are related to an unlawful
activity as defined in Section 3(i) hereof or a money
laundering offense under Section 4 hereof; except that no
court order shall be required in cases involving unlawful
activities defined in Sections 3(i)(1), (2) and (12).
“To ensure compliance with this Act, the Bangko Sentral
ng Pilipinas (BSP) may inquire into or examine any deposit
or investment with any banking institution or nonbank
financial institution when the examination is made in the
course of a periodic or special examination, in accordance
with the rules of examination of the BSP.”
SEC. 9. Section 14, paragraphs (c) and (d) of the same Act is
hereby amended to read as follows:
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[VOL. 6:22
“(c) Malicious Reporting. Any person who, with malice, or
in bad faith, reports or files a completely unwarranted or false
information relative to money laundering transaction against
any person shall be subject to a penalty of six (6) months to
four (4) years imprisonment and a fine of not less than One
hundred thousand Philippine pesos (PhP100,000.00) but not
more than Five hundred thousand Philippine pesos (Php
500,000.00), at the discretion of the court: Provided, That
the offender is not entitled to avail the benefits of the
Probation Law.
“If the offender is a corporation, association, partnership
or any juridical person, the penalty shall be imposed upon the
responsible officers, as the case may be, who participated in,
or allowed by their gross negligence, the commission of the
crime. If the offender is a juridical person, the court may
suspend or revoke its license. If the offender is an alien, he
shall, in addition to the penalties herein prescribed, be deported
without further proceedings after serving the penalties herein
prescribed. If the offender is a public official or employee, he
shall, in addition to the penalties prescribed herein, suffer
perpetual or temporary absolute disqualification from office,
as the case may be.
“Any public official or employee who is called upon to
testify and refuses to do the same or purposely fails to testify
shall suffer the same penalties prescribed herein.
“(d) Breach of Confidentiality. The punishment of
imprisonment ranging from three (3) to eight (8) years and a
fine of not less than Five hundred thousand Philippine pesos
(PhP500,000.00) but not more than One million Philippine
pesos (Php 1,000,000.00) shall be imposed on a person
convicted for a violation under Section 9(c). In the case of a
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REPUBLIC ACT NO. 9194
265
breach of confidentiality that is published or reported by
media, the responsible reporter, writer, president, publisher,
manager and editor-in-chief shall be liable under this Act.”
SEC. 10. Section 15 of Republic Act No. 9160 is hereby deleted.
SEC. 11. Section 23 of the same Act is hereby amended to read
as follows:
“SEC. 23. Ef
Efffecti
ectivity
vity.. – This Act shall take effect fifteen
vity
(15) days after its complete publication in the Official Gazette
or in at least two (2) national newspapers of general
circulation.”
SEC. 12. Transitor
ransitoryy Pr
Proovision. – Existing freeze orders issued
by the AMLC shall remain in force for a period of thirty (30)
days after the effectivity of this Act, unless extended by the Court
of Appeals.
SEC. 13. Ef
vity. – This Act shall take effect fifteen (15)
Efffecti
ectivity
days after its complete publication in the Official Gazette or in at
least two (2) national newspapers of general circulation.
Approved, March 7, 2003.
Rules and R
Ree gulations Implementing
Re pub
lic Act No
No.. 8762
public
A N A CT L IBERALIZING THE R ET
AIL T RADE
ETAIL
B USINESS , R EPEALING R EPUBLIC A CT N O . 1180,
AS A MENDED
Pursuant to the provisions of Section 11 of Republic Act No.
8762, the following rules and regulations are hereby promulgated.
R ULE I
D EFINITION
OF
T ERMS
SECTION 1. For purposes of this Rules and Regulations:
(a) “Retail Trade” shall mean any act, occupation or calling
of habitually selling direct to the general public
merchandise, commodities or goods for consumption.
(b) “High-end or Luxury Goods” shall refer to goods which
are not necessary for life maintenance and whose demand
is generated in large part by the higher income groups.
Luxury goods shall include, but are not limited to,
products such as jewelry, branded or designer clothing and
footwear, wearing apparel, leisure and sporting goods,
electronics and other personal effects.
(c) “Investment” shall mean assets, tangible or intangible
including but not limited to buildings, leasehold rights,
furniture, equipment and inventory.
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(d) “Foreign Retailer” shall mean a non-Filipino citizen, if a
natural person, or if a juridical person, a duly formed and
organized corporation, partnership, association or entity
that is not wholly-owned by Filipinos, engaged in retail
trade.
(e) “Foreign Investor” shall mean a non-Filipino citizen, if a
natural person, or if a juridical person, a duly formed and
organized corporation, partnership, association or entity
that is not wholly-owned by Filipinos, whether or not
engaged in retail trade.
(f) “Natural-born Filipino Citizen” are those who are citizens
of the Philippines from birth without having to perform
any act to acquire or perfect their citizenship. Those who
elect Philippine citizenship in accordance with Article IV,
paragraph 3 of the 1987 Constitution shall be deemed
natural-born citizens.
(g) “Consumption” shall mean the utilization of economic
goods in the satisfaction of want resulting in immediate
destruction, gradual decay or deterioration or
transformation into other goods.
(h) “Manufacturer” refers to a person who alters raw material
or manufactured or partially manufactured products, or
combines the same in order to produce finished products
for the purpose of being sold or distributed to others.
(i) “Processor” refers to a person who converts raw materials
into marketable form by special treatment or a series of
action that changes the nature or state of the product,
like slaughtering, milling, pasteurization, drying, or
dessicating, quick freezing and the like. Mere packing,
packaging, sorting or classifying does not make a person
a processor.
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(j) “Farmer or Agriculturist” refers to an individual
personally engaged in dairy farming, fish farming,
aquaculture, poultry or livestock raising, and his principal
income is derived from any one or more of the foregoing
operations.
(k) “Capital” shall mean the working capital for sole
proprietorships and partnerships, while for corporations,
it shall be the paid-up capital.
(l) “Paid-Up Capital” shall mean the total investment in a
business that has been paid-in in a corporation or
partnership or invested in a single proprietorship, which
may be in cash or in property. It shall also refer to inward
remittance or assigned capital in the case of foreign
corporations.
(m)“Retail Store” shall mean the company that owns the retail
store and/or the physical location, such as a shop, where
goods are sold on a retail basis. It includes the
administrative offices, warehouse, preparation facility or
storage facility of such goods, regardless of whether or
not it is adjacent to such outlet.
In cases where the administrative office, warehouse,
preparation facility, or storage facility services several stores,
the capital for such administrative office, warehouse,
preparation or storage facility to be included in the
investment requirement for one store shall be pro-rated
to the number of stores being serviced.
(n) “Locally Manufactured Goods” shall mean goods
produced in the Philippines.
(o) “Branch Office” shall mean an office of a foreign company
that carries out the business activities of such head office
and derives income from the host country.
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269
(p) “Franchise” shall mean a business relationship wherein,
for a consideration, the franchisor grants to the franchisee
a licensed right, subject to agreed-upon requirements and
restrictions, to conduct business utilizing the trade and/
or service marks of the franchisor, and also provides to
the franchisee, advice and assistance in organizing,
merchandising, and managing the business conducted
pursuant to the license. This type of agreement may
include a licensing agreement or any similar arrangement.
(q) “Net Worth” shall mean total equity of a business; total
assets less total liabilities.
(r) “Track record” shall include the track record of the
applicant-foreign retailer, its predecessors, or its principal
stockholders, affiliates and subsidiaries.
(s) “Reciprocity Rights” shall denote the relation between
two states when each of them, by their respective laws or
by treaty, gives the citizens or nationals of the other
certain privileges, as in the undertaking of retail trade
activities, on condition that its own citizens or nationals
shall enjoy similar privileges in the latter state.
Notwithstanding the law allowing one hundred
percent foreign ownership of retail activities subject to
the capitalization requirements, a foreign retailer shall only
be allowed to own up to the extent of the foreign
ownership allowed for retailing in its home country.
(t) A former natural born Filipino citizen is deemed “residing
in the Philippines” if he physically stays in the country
for at least one hundred eighty (180) days within a given
year.
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SEC. 2. Sales Not Consider
ed As R
etail. – The following
Considered
Retail
sales are not considered as retail:
(a) Sales of a manufacturer, processor, laborer, or worker of
products manufactured, processed or produced by him
to the general public whose capital does not exceed One
hundred thousand pesos (Php100,000.00);
(b) Sales by a farmer or agriculturist selling the products of
his farm, regardless of capital;
(c) Sales arising from restaurant operations by a hotel owner
or inn-keeper irrespective of the amount of capital,
provided, that the restaurant is incidental to the hotel
business;
(d) Sales through a single outlet owned by a manufacturer of
products manufactured, processed or assembled in the
Philippines, irrespective of capitalization;
(e) Sales to industrial and commercial users or consumers who
use the products bought by them to render service to the
general public and/or produce or manufacture of goods
which are in turn sold by them; or
(f) Sales to the government and/or its agencies and
government-owned and controlled corporations.
R IGHTS
R ULE II
OF F ORMER N ATURAL B ORN F ILIPINOS
GE IN R ET
AIL T RADE
T O E NGA
NGAGE
ETAIL
SECTION 1. Rights of FFor
ormer
bornn Filipinos. –
or
mer Natural bor
Any natural born Filipino citizen who has lost his Philippine
citizenship and who has legal capacity to enter into a contract
under Philippine laws may be allowed to engage in retail trade,
provided that he resides in the Philippines.
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SEC. 2. Documentary Evidences. – Any person who meets
the requirements provided for under the preceding paragraph shall
be considered as a Filipino citizen for purposes of this Act, upon
showing any of the following documents:
1. Copy of birth certificate
(i) certified by the local civil registrar or the National
Statistics Office; or
(ii) for those born abroad, certificate of birth from the
appropriate government agency of the country where
the birth is recorded showing the father or mother to
be a Filipino at the time of birth or if the citizenship
of the parents is not indicated, additional proof that
the parent/s is a Filipino citizen or has not lost his/
her Filipino citizenship at the time of the applicant’s
birth; or
(iii) those born before 17 January 1973 of Filipino
mothers must additionally submit all of the
following: certified true copies of his/her sworn
statement of election of Filipino citizenship, oath of
allegiance from the civil registrar where the documents
were filed and/or forwarded, and identification
certificate issued by the Bureau of Immigration;
2. In case of loss and/or destruction of the record of birth
or non-registration of birth, a
(i) Certificate of non-availability of birth certificate on
account of loss and/or destruction of birth record
from the local civil registrar and/or appropriate
government agency if birth was registered abroad; or
(ii) copy of birth certificate of mother or father certified
by the local civil registrar or the NSO; and
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(iii) affidavit of two (2) disinterested persons attesting
to their personal knowledge that at the time of the
applicant’s birth, the child was born of a Filipino
mother or father.
Any document executed or issued abroad must be
authenticated by the Philippine Embassy/Consulate having
jurisdiction over the place of execution or issuance of the
document.
C APIT
ALIZA
TION
APITALIZA
ALIZATION
R ULE III
AND E Q UITY R EQ
UIREMENTS
EQUIREMENTS
SECTION 1. For
eign Equity P
ar
ticipation. – Foreign-owned
oreign
Par
articipation.
partnerships, associations and corporations formed and organized
under the laws of the Philippines may, upon registration with the
Securities and Exchange Commission (SEC), or in case of foreignowned single proprietorships, with the Department of Trade and
Industry (DTI), engage or invest in the retail trade business, subject
to the following categories:
Category A – Enterprises with paid-up capital of the
equivalent in Philippine pesos of less than
Two million five hundred thousand US
dollars (US$2,500,000.00) shall be reserved
exclusively for Filipino citizens and
corporations wholly owned by Filipino
citizens.
Category B – Enterprises with a minimum paid-up capital
of the equivalent in Philippines pesos of Two
million five hundred thousand US dollars
(US$2,500,000.00) but less than Seven
million five hundred thousand US dollars
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273
(US$7,500,000.00) may be wholly owned by
foreigners except for the first two (2) years
after the effectivity of this Act wherein foreign
participation shall be limited to not more
than sixty percent (60%) of total equity.
Category C – Enterprises with a paid-up capital of the
equivalent in Philippine pesos of Seven
million five hundred thousand US dollars
(US$7,500,000.00) or more may be wholly
owned by foreigners.
Category D – Enterprises specializing in high-end or luxury
products with a paid-up capital of the
equivalent in Philippine pesos of Two
hundred fifty thousand US dollars
(US$250,000.00) per store may be wholly
owned by foreigners.
SEC. 2. Branches/Stores. – Opening of branches/stores by
the registered foreign retailer shall be allowed, provided that the
investments for each branch/store established by registered foreign
retailers falling under Categories B and C must be no less than the
equivalent in Philippine pesos of Eight hundred thirty thousand
US dollars (US$830,000.00).
R ULE IV
P REQ
UALIFICA
TION OF F OREIGN R ET
AILERS
REQU
ALIFICATION
ETAILERS
S ECTION 1. Pr
equalif
ication R
equir
ements. – Before a
Prequalif
equalification
Requir
equirements.
foreign retailer is allowed to engage in the retail trade business or
invest in an existing retail store in the Philippines, it must possess
all of the following qualifications:
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(a) A minimum of Two hundred million US dollars
(US$200,000,000.00) net worth in its parent corporation
for Categories B and C, and Fifty million US dollars
(US$50,000,000.00) net worth in its parent corporation
for Category D;
(b) Five (5) retailing branches or franchises in operation
anywhere around the world unless such retailer has at least
one (1) store capitalized at a minimum of Twenty-five
million US dollars (US$25,000,000.00):
(c) Five (5)-year track record in retailing; and
For purposes of determining compliance with the above
requirements, the net worth, track record and existence
of branches and franchises of the parent company, its
branches and subsidiaries and of its affiliate companies,
as well as their predecessors, which substantially owns,
controls or administers the operations of the applicant
shall be considered.
(d) Only nationals from, or juridical entities formed or
incorporated in countries which allow the entry of
Filipino retailers shall be allowed to engage in retail trade
in the Philippines.
SEC. 2. Application for Pre-Qualification. – A request for
pre-qualification by the aforementioned foreign retailer must be
submitted to the Board of Investments before filing a formal
application to engage in the retail business or invest in an existing
retail store. Said request for pre-qualification must be accompanied
by the following documents:
(a) Latest Annual Financial Statement showing the net worth
of the applicant;
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(b) Certification by a responsible officer of the applicantforeign retailer duly authenticated by the Philippine
Embassy/Consulate stating that:
i. it has been engaged in retailing for the past five years;
and
ii. has at least five (5) retailing branches anywhere in the
world, or at least one branch is capitalized at a
minimum of Twenty-five million US dollars
(US$25,000,000.00);
(c) Copies of franchise or licensing agreements between the
applicant and its franchisee/licensee if the applicant fails
to meet the preceding requirement of at least five (5)
retailing branches; and
(d) Certification by the proper official of the home state of
the applicant-foreign retailer to the effect that the laws of
such state allows or permits reciprocal rights to Philippine
citizens and enterprises together with the extent of
participation allowed.
S E C . 3. Enter
Enterprises
Moree
prises composed of Two (2) or Mor
Stoc
kholders/P
ar
tners. – If a single retailing corporation/
Stockholders/P
kholders/Par
artners
partnership to be formed and organized under Philippine laws
will be owned by several foreign retailers and foreign investors, an
application for all of the stockholders/partners for prequalification must be filed with the BOI. The foreign retailerstockholder/partner with the highest equity in said company
should satisfy the conditions mentioned under Rule IV, Sections
1 and 2.
However, In cases where all or two or more of the foreign
stockholders/partners have equal shares, the prequalification
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condition shall be deemed complied with if the stockholders/
partners owning or controlling at least majority of the stocks or
interests meet the aforementioned conditions.
S EC . 4. Issuance of Cer tif
icate of Compliance with
tificate
Pr
equalif
ication
Prequalif
equalification
ication. – The Board of Investments (BOI), shall
issue, within twenty (20) working days from submission of all
necessary documents, after evaluation and verification, a
Certification that the foreign retailer meets the qualifications
prescribed by the law.
S EC. 5. List of Qualif
ied FFor
or
eign R
etailers. – The DTI
Qualified
oreign
Retailers.
through the Board of Investments (BOI) shall keep a record of
foreign retailers who have been pre-qualified to establish retail
stores in the Philippines. It shall ensure that the parent retail trading
company of the foreign investor complies with the qualifications
on capitalization and track record.
I NVESTMENTS
IN
R ULE V
E XISTING R ET
AIL S T ORES
ETAIL
S ECTION I. For
eign In
es.
oreign
Invvestments in Existing Stor
Stores.
– Any foreign investor, whether or not it is presently engaged in
retail trade, may be allowed to invest in existing retail stores, publicly
listed or not, subject to the paid up capitalization amounts
expressed in net worth, investment per store and equity
requirements under Rule III hereof.
SEC. 2. Pr
e-qualif
ication R
equir
ements. – In addition to
Pre-qualif
e-qualification
Requir
equirements.
the foregoing, foreign investors which are also retailers that will
invest in existing retail stores are required to be pre-qualified before
they may actually buy shares thereto.
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277
R ULE VI
H IGH- END OR L UXUR
Y G OODS
UXURY
SECTION 1. List of R
etailers Selling High-End or Luxur
Retailers
Luxuryy
Goods. – An annual list of foreign retailers selling high-end or
luxury goods shall be formulated and regularly updated by the
Inter-Agency Committee on Tariff and Related Matters of the
National Economic Development Authority (NEDA) Board, in
coordination with the relevant organizations and the private sector
concerned. (Section 8, second to the last paragraph)
SEC. 2. Annual R
Ree por
portt to Cong
Congrress. – The Inter-Agency
Committee on Tariff and Related Matters of the National
Economic Development Authority (NEDA) Board shall annually
report to Congress the list of foreign retailers selling high-end or
luxury goods. (Section 8, last paragraph)
R ULE VII
A PPLICA
TION FOR R EGISTRA
TION
PPLICATION
EGISTRATION
S ECTION 1. Filing of Application. – Applications for
registration, together with supporting documents, shall be filed
with the Securities and Exchange Commission (SEC) in the case
of domestic corporations or partnerships that are owned wholly
or partially by foreign retailers, or the DTI through its Regional
and Provincial Offices, in the case of single proprietorships.
All applications shall be subject to the payment of the
prescribed filing fees.
SEC. 2. Cer
tif
icate of Compliance with Pr
e-qualif
ication
Certif
tificate
Pre-qualif
e-qualification
Requir
ements. – No corporation/partnership/association or
equirements.
sole proprietorship owned wholly or partially by foreign retailers
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may be allowed to register without securing the necessary certificate
of compliance with the prequalification conditions from the Board
of Investments.
SEC. 3. Issuance of Cer
tif
icate of Incor
poration/Business
Certif
tificate
Incorporation/Business
Name. – Upon submission of all the required documents, the
Securities and Exchange Commission (SEC), in cases of
corporations/partnerships/association and the Department of
Trade & Industry, through its Regional or Provincial Offices in
cases of sole proprietorships, shall issue the Certificate of
Incorporation and the Business Name, respectively, granting legal
personality to the applicant-retailer.
In addition, the foreign retailers shall secure all necessary
permits and licenses from the concerned government agencies.
SEC. 4. BSP R
ar
emittance. – Prior
Ree gistration of Inw
Inwar
ardd R
Remittance.
to operations, foreign retail stores and foreign investors shall register
their investments with the Bangko Sentral ng Pilipinas (BSP) to
ensure that the inward remittance of the required capital
investment is fully documented.
The BSP shall issue the Bangko Sentral Registration Certificate
(BSRC) upon submission of a bank certification of remittance
of foreign exchange converted and sold to pesos through the
authorized agent bank and compliance with such other BSP rules
for such registration.
SEC. 5. Establishment of Branches. – All registered foreign
retailers that will establish additional branches shall be required
to file an application with the DTI, supported by documents
showing proof of compliance with the US$830,000 investment
requirement per branch, and the Certificate of Incorporation/
DTI Certificate issued to the retailer.
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279
SEC. 6. R
ting R
equir
ements. – Every registered foreign
Reepor
porting
Requir
equirements
retail enterprise shall submit annually to the Department of Trade
and Industry (DTI) the following reports:
(a) A general information sheet in the prescribed form
showing, among others, the accredited stores of the
enterprise and the status of operations of the entity;
(b) An audited financial statement and income tax return;
(c) Certification by a responsible officer of the company
showing the maintenance of the required minimum capital
unless the foreign investor has notified the SEC and the
DTI of its intention to repatriate its capital and cease
operations in the Philippines.
R ULE VIII
P ROHIBITED A CTIVITIES OF Q UALIFIED
F OREIGN R ET
AILERS
ETAILERS
SECTION 1. Accredited Stores. – Qualified foreign retailers
shall not be allowed to engage in certain retailing activities outside
their accredited stores through the use of mobile or rolling stores
or carts, the use of sales representatives, door-to-door selling,
restaurants and sari-sari stores and such other similar retailing
activities.
SEC. 2. List of Prohibited Activities. – A detailed list of
these prohibited activities shall be formulated by the DTI.
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R ULE IX
C OMPLIANCE R EQUIREMENTS
S ECTION 1. Maintenance of Prescribed Minimum
Capital. – The foreign investor shall be required to maintain in
the Philippines the full amount of the prescribed minimum capital,
unless the foreign investor has notified the SEC and the DTI of
its intention to repatriate its capital and cease operations in the
Philippines.
The SEC shall establish mechanisms to monitor the actual
use in Philippine operation of the inwardly remitted minimum
capital requirement.
Failure to maintain the full amount of the prescribed
minimum capital prior to notification of the SEC and the DTI,
shall subject the foreign investor to penalties or restrictions on
any future trading activities/business in the Philippines.
SEC. 2. Public Offering of Shares of Stock. – All registered
retail enterprises under Categories B and C in which foreign
ownership exceeds eighty percent (80%) of equity shall offer a
minimum of thirty percent (30%) of their equity to the public
through any stock exchange in the Philippines within eight (8)
years from their start of operations. (Section 7)
Affected registered retailers shall then be required to list their
shares at any stock exchange duly formed and organized under
Philippine laws.
Compliance with this requirement shall be supervised and
monitored by the SEC.
S EC . 3. Promotion of Locally Manufactured Products .
– For ten (10) years after the effectivity of this Act, at any given
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RULES AND REGULATIONS IMPLEMENTING
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281
time, at least thirty percent (30%) of the aggregate cost of the
stock inventory situated in the Philippines of foreign retailers
falling under Categories B and C and ten percent (10%) for
Category D shall be made in the Philippines.
All registered foreign retailers shall be required to maintain
books of accounts showing the inventory situated in the
Philippines and its origin at all times and these books may be
examined at any time, by the duly authorized representative of
the Department of Trade and Industry.
Furthermore, these registered foreign retailers shall be required
to submit quarterly statements under oath certifying the ratio of
their local and imported inventory.
SEC. 4. Visitorial P
Poowers. – In the public interest and/or for
the enforcement of any applicable law, rules and regulations, the
DTI/BOI, SEC or any government office having jurisdiction
on the matter may, through any of its duly authorized
representatives, conduct necessary examination of records,
inventory and books of accounts of the registered foreign retail
enterprise in the Philippines, make pertinent inquiries from its
officials and take such action as may be necessary for the proper
exercise of its authority.
S EC . 5. Implementing Ag
enc
Agenc
encyy. – The monitoring and
regulation of foreign sole proprietorships, partnerships,
associations, or corporations allowed to engage in retail trade shall
be the responsibility of the DTI. This shall include resolution of
conflicts, through mediation.
S EC. 6. Withdra
wal/Closur
etail Estab
lishments.
ithdraw
al/Closuree of R
Retail
Establishments.
– Applications for withdrawal or closure of retail establishments
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shall be filed with the Securities and Exchange Commission for
corporations/partnerships/associations or the DTI, through its
Regional or Provincial Offices, with respect to sole proprietorships.
The DTI shall be notified by the concerned agency of actions
taken on requests for withdrawal or closure of foreign retail
establishments.
SEC. 7. Penalties. – Any person who shall be found guilty of
violation of any provision of this Act, or its implementing rules
and regulations, or other terms and conditions of its registration,
shall be punished by imprisonment of not less than six (6) years
and one (1) day but not more that eight (8) years, and a fine of
not less than One million pesos (Php1,000,000.00) but not more
than Twenty million pesos (Php20,000,000.00).
In the case of associations, partnerships or corporations, the
penalty shall be imposed upon its partners, president, directors,
manager, and other officers responsible for the violation. If the
offender is not a citizen of the Philippines, he shall be deported
immediately after service of sentence. If the Filipino offender is a
public officer or employee, he shall, in addition to the penalty
prescribed herein, suffer dismissal and permanent disqualification
from public office.
R EPEALING
R ULE X
AND E FFECTIVITY C LA
USES
LAUSES
SECTION 1. All other rules and regulations or parts thereof,
inconsistent with the foregoing rules and regulations are repealed,
amended or modified accordingly.
SEC. 2. These Rules shall take effect fifteen (15) days upon
publication in two (2) newspapers of general circulation.
Implementing R
ules and R
Rules
Ree gulations
of the
Electronic Commerce Act
Pursuant to the provisions of Section 34 of Republic Act No.
8792, otherwise known as the Electronic Commerce Act (the
“Act”), the following implementing rules and regulations (the
“Rules”) are hereby promulgated:
P AR
T I
ART
D ECLARA
TION OF P OLICY AND P RINCIPLES
ECLARATION
E LECTR
ONIC C OMMER
CE P ROMO
TION
LECTRONIC
OMMERCE
OMOTION
FOR
C HAPTER I
D ECLARA
TION
ECLARATION
OF
P OLICY
SECTION 1. Dec
laration of P
olic
Declaration
Polic
olicyy. – The State recognizes
the vital role of information and communications technology
(ICT) in nation-building; the need to create an informationfriendly environment which supports and ensures the availability,
diversity and affordability of ICT products and services; the
primary responsibility of the private sector in contributing
investments and services in ICT; the need to develop, with
appropriate training programs and institutional policy changes,
human resources for the information age, a labor force skilled in
the use of ICT and a population capable of operating and utilizing
electronic appliances and computers; its obligation to facilitate
the transfer and promotion of technology; to ensure network
security, connectivity and neutrality of technology for the national
benefit; and the need to marshal, organize and deploy national
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information infrastructures, comprising in both communications
network and strategic information services, including their
interconnection to the global information networks, with the
necessary and appropriate legal, financial, diplomatic and technical
framework, systems and facilities.
S EC . 2. A uthority of the De
par tment of Trade and
Depar
Industr
ticipating Entities. – The Department of
Industryy and P
Par
articipating
ar
Trade and Industry (DTI) shall direct and supervise the promotion
and development of electronic commerce in the country with
relevant government agencies, without prejudice to the provisions
of Republic Act. 7653 (Charter of Bangko Sentral ng Pilipinas)
and Republic Act No. 8791 (General Banking Act).
C HAPTER II
D ECLARA
TION OF P RINCIPLES FOR
ECLARATION
E LECTR
ONIC C OMMER
CE P ROMO
TION
LECTRONIC
OMMERCE
OMOTION
SECTION 3. Principles. – Pursuant to the mandate under Section
29 of the Act to direct and supervise the promotion and
development of electronic commerce in the country, the following
principles are hereby adopted as Government policy on electronic
commerce:
(a) Role of the Government. – Government intervention,
when required, shall promote a stable legal environment,
allow a fair allocation of scarce resources and protect public
interest. Such intervention shall be no more than is
essential and should be clear, transparent, objective, nondiscriminatory, proportional, flexible, and technologically
neutral. Mechanisms for private sector input and
involvement in policy making shall be promoted and
widely used.
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285
(b) Role of the Private Sector. – The development of
electronic commerce shall be led primarily by the private
sector in response to market forces. Participation in
electronic commerce shall be pursued through an open
and fair competitive market.
(c) International Coordination and Harmonization. –
Electronic commerce is global by nature. Government
policies that affect electronic commerce will be
internationally coordinated and compatible and will
facilitate interoperability within an international,
voluntary and consensus-based environment for standards
setting.
(d) Neutral Tax Treatment. – Transactions conducted using
electronic commerce should receive neutral tax treatment
in comparison to transactions using non-electronic means
and taxation of electronic commerce shall be administered
in the least burdensome manner.
(e) Protection of Users. – The protection of users, in
particular with regard to privacy, confidentiality,
anonymity and content control shall be pursued through
policies driven by choice, individual empowerment, and
industry-led solutions. It shall be in accordance with
applicable laws. Subject to such laws, business should make
available to consumers and, where appropriate, business
users the means to exercise choice with respect to privacy,
confidentiality, content control and, under appropriate
circumstances, anonymity.
(f) Electronic Commerce Awareness. – Government and the
private sector will inform society, both individual
consumers and businesses, about the potentials of
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electronic commerce and its impact on social and economic
structures.
(g) Small and Medium-Sized Enterprises. – Government will
provide small and medium-sized enterprises (SMEs) with
information and education relevant to opportunities
provided by global electronic commerce. Government will
create an environment that is conducive to private sector
investment in information technologies and encourage
capital access for SMEs.
(h) Skills Development. – Government shall enable workers
to share in the new and different employment generated
by electronic commerce. In this regard, the Government
shall continue to promote both formal and non-formal
skills-development programs.
(i) Government as a Model User. – Government shall utilize
new electronic means to deliver core public services in
order to demonstrate the benefits derived therefrom and
to promote the use of such means. In this regard, the
Government will be a pioneer in using new technologies.
In particular, the Government Information System Plan
(GISP), which is expected to include, but not be limited
to, online public information and cultural resources,
databases for health services, web sites at local, regional
and national levels and public libraries and databases, where
appropriate, will be implemented in accordance with the
provisions of the Act and RPWEB.
(j) Convergence. – Convergence of technologies is crucial
to electronic commerce and will be supported by
appropriate government policies. Government will work
closely with business in preparing for and reacting to
changes caused by convergence.
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(k) Domain Name System. – The Government supports
initiatives to ensure that Internet users will have a sufficient
voice in the governance of the domain name system.
(l) Access to Public Records. – Government shall provide
equal and transparent access to public domain information.
(m)Dispute Mechanisms. – Government encourages the use
of self-regulatory extra-judicial dispute settlement
mechanisms such as arbitration and mediation as an
effective way of resolving electronic commerce disputes.
O BJECTIVE
C HAPTER III
AND S PHERE OF A PPLICA
TION
PPLICATION
SECTION 4. Objecti
Objectivve of the Act. – The Act aims to facilitate
domestic and international dealings, transactions, arrangements,
agreements, contracts and exchanges and storage of information
through the utilization of electronic, optical and similar medium,
mode, instrumentality and technology to recognize the
authenticity and reliability of electronic documents related to such
activities and to promote the universal use of electronic
transactions in the government and by the general public.
SEC. 5. Spher
pplication. – The Act shall apply to any
Spheree of A
Application.
kind of electronic data message and electronic document used in
the context of commercial and non-commercial activities to
include domestic and international dealings, transactions,
arrangements, agreements, contracts and exchanges and storage of
information.
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G ENERAL
C HAPTER I
G ENERAL P ROVISIONS
SECTION 6. Def
inition of Ter
ms. – For the purposes of the
Definition
erms.
Act and these Rules, the following terms are defined, as follows:
(a) “Addressee” refers to a person who is intended by the
originator to receive the electronic data message or
electronic document, but does not include a person acting
as an intermediary with respect to that electronic data
message or electronic document.
(b) “Commercial Activities” shall be given a wide
interpretation so as to cover matters arising from all
relationships of a commercial nature, whether contractual
or not. The term shall likewise refer to acts, events,
transactions, or dealings occurring between or among
parties including, but not limited to, factoring,
investments, leasing, consulting, insurance, and all other
services, as well as the manufacture, processing, purchase,
sale, supply, distribution or transacting in any manner, of
tangible and intangible property of all kinds such as
commodities, goods, merchandise, financial and banking
products, patents, participations, shares of stock, software,
books, works of art and other intellectual property.
(c) “Computer” refers to any device or apparatus singly or
interconnected which, by electronic, electro-mechanical,
optical and/or magnetic impulse, or other means with
the same function, can receive, record, transmit, store,
process, correlate, analyze, project, retrieve and/or produce
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information, data, text, graphics, figures, voice, video,
symbols or other modes of expression or perform any
one or more of these functions.
(d) “Convergence” refers to technologies moving together
towards a common point and elimination of differences
between the provisioning of video, voice and data, using
digital and other emerging technologies; the coming
together of two or more disparate disciplines or
technologies; the ability of different network platforms
to carry any kind of service; and the coming together of
consumer devices such as, but not limited to, the telephone,
television and personal computer.
(e) “Electronic data message” refers to information generated,
sent, received or stored by electronic, optical or similar
means, but not limited to, electronic data interchange
(EDI), electronic mail, telegram, telex or telecopy.
Throughout these Rules, the term “electronic data
message” shall be equivalent to and be used interchangeably
with “electronic document.”
(f) “Information and Communications System” refers to a
system for generating, sending, receiving, storing or
otherwise processing electronic data messages or electronic
documents and includes the computer system or other
similar device by or in which data is recorded or stored
and any procedures related to the recording or storage of
electronic data message or electronic document.
(g) “Electronic signature” refers to any distinctive mark,
characteristic and/or sound in electronic form,
representing the identity of a person and attached to or
logically associated with the electronic data message or
electronic document or any methodology or procedures
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employed or adopted by a person and executed or adopted
by such person with the intention of authenticating or
approving an electronic data message or electronic
document.
(h) “Electronic document” refers to information or the
representation of information, data, figures, symbols or
other modes of written expression, described or however
represented, by which a right is established or an obligation
extinguished, or by which a fact may be proved and
affirmed, which is received, recorded, transmitted, stored,
processed, retrieved or produced electronically.
Throughout these Rules, the term “electronic document”
shall be equivalent to and be used interchangeably with
“electronic data message.”
(i) “Electronic key” refers to a secret code, which secures and
defends sensitive information that crosses over public
channels into a form decipherable only by itself or with a
matching electronic key. This term shall include, but not
be limited to, keys produced by single key cryptosystems,
public key cryptosystems or any other similar method or
process, which may hereafter, be developed.
(j) “Intermediary” refers to a person who in behalf of another
person and with respect to a particular electronic data
message or electronic document sends, receives and/or
stores, or provides other services in respect of that
electronic data message or electronic document.
(k) “Non-Commercial Activities” are those not falling under
commercial activities.
(l) “Originator” refers to a person by whom, or on whose
behalf, the electronic data message or electronic document
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291
purports to have been created, generated and/or sent. The
term does not include a person acting as an intermediary
with respect to that electronic data message or electronic
document.
(m)“Person” means any natural or juridical person including,
but not limited to, an individual, corporation, partnership,
joint venture, unincorporated association, trust or other
juridical entity, or any governmental authority.
(n) “Service provider” refers to a provider of –
i. Online services or network access, or the operator of
facilities therefor, including entities offering the
transmission, routing, or providing of connections
for online communications, digital or otherwise,
between or among points specified by a user, of
electronic data message or electronic documents of
the user’s choosing; or
ii. The necessary technical means by which electronic
data message or electronic documents of an originator
may be stored and made accessible to a designated or
undesignated third party.
Such service providers shall have no authority to modify
or alter the content of the electronic data message or
electronic document received or to make any entry therein
on behalf of the originator, addressee or any third party
unless specifically authorized to do so, and shall retain
the electronic data message or electronic document in
accordance with the specific request or as necessary for
the purpose of performing the services it was engaged to
perform.
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C HAPTER II
L EGAL R ECOGNITION OF E LECTR
ONIC D ATA
LECTRONIC
M ESSA
GES A ND E LECTR
ONIC D OCUMENTS
ESSAGES
LECTRONIC
ecognition of Electr
onic Data
S ECTION 7. Le
Legg al R
Recognition
Electronic
Messag
es
and
Electr
onic
Documents.
Messages
Electronic
– Information shall
not be denied validity or enforceability solely on the ground that
it is in the form of an electronic data message or electronic
document, purporting to give rise to such legal effect. Electronic
data messages or electronic documents shall have the legal effect,
validity or enforceability as any other document or legal writing.
In particular, subject to the provisions of the Act and these Rules:
(a) A requirement under law that information is in writing is
satisfied if the information is in the form of an electronic
data message or electronic document.
(b) A requirement under law for a person to provide
information in writing to another person is satisfied by
the provision of the information in an electronic data
message or electronic document.
(c) A requirement under law for a person to provide
information to another person in a specified nonelectronic form is satisfied by the provision of the
information in an electronic data message or electronic
document if the information is provided in the same or
substantially the same form.
(d) Nothing limits the operation of any requirement under
law for information to be posted or displayed in specified
manner, time or location; or for any information or
document to be communicated by a specified method
unless and until a functional equivalent shall have been
developed, installed, and implemented.
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293
SEC. 8. Incor
poration bbyy R
ef
er
ence. – Information shall
Incorporation
Ref
efer
erence.
not be denied validity or enforceability solely on the ground that
it is not contained in an electronic data message or electronic
document but is merely incorporated by reference therein.
SEC. 9. Use Not Mandator
Mandatoryy. – Without prejudice to the
application of Section 27 of the Act and Section 37 of these
Rules, nothing in the Act or these Rules requires a person to use
or accept information contained in electronic data messages,
electronic documents, or electronic signatures, but a person’s
consent to do so may be inferred from the person’s conduct.
SEC. 10. Writing
riting.. – Where the law requires a document to be
in writing, or obliges the parties to conform to a writing, or
provides consequences in the event information is not presented
or retained in its original form, an electronic document or
electronic data message will be sufficient if the latter:
(a) maintains its integrity and reliability; and
(b) can be authenticated so as to be usable for subsequent
reference, in that:
i. It has remained complete and unaltered, apart from
the addition of any endorsement and any authorized
change, or any change which arises in the normal
course of communication, storage and display; and
ii. It is reliable in the light of the purpose for which it
was generated and in the light of all relevant
circumstances.
SEC. 11.Original. – Where the law requires that a document
be presented or retained in its original form, that requirement is
met by an electronic document or electronic data message if:
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(a) There exists a reliable assurance as to the integrity of the
electronic document or electronic data message from the
time when it was first generated in its final form and such
integrity is shown by evidence aliunde (that is, evidence
other than the electronic data message itself) or otherwise;
and
(b) The electronic document or electronic data message is
capable of being displayed to the person to whom it is to
be presented.
(c) For the purposes of paragraph (a) above:
i. The criteria for assessing integrity shall be whether
the information has remained complete and unaltered,
apart from the addition of any endorsement and any
change which arises in the normal course of
communication, storage and display; and
(ii) The standard of reliability required shall be assessed
in the light of the purpose for which the information
was generated and in the light of all relevant
circumstances.
An electronic data message or electronic document meeting
and complying with the requirements of Sections 6 or 7 of
the Act shall be the best evidence of the agreement and
transaction contained therein.
SEC. 12. Solemn Contracts. – No provision of the Act shall
apply to vary any and all requirements of existing laws and relevant
judicial pronouncements respecting formalities required in the
execution of documents for their validity. Hence, when the law
requires that a contract be in some form in order that it may be
valid or enforceable, or that a contract is proved in a certain way,
that requirement is absolute and indispensable.
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ONIC S IGN
ATURES
LECTRONIC
IGNA
S ECTION 13. Le
ecognition of Electr
onic
Legg al R
Recognition
Electronic
Signatures. – An electronic signature relating to an electronic
document or electronic data message shall be equivalent to the
signature of a person on a written document if the signature:
(a) is an electronic signature as defined in Section 6(g) of
these Rules; and
(b) is proved by showing that a prescribed procedure, not
alterable by the parties interested in the electronic
document or electronic data message, existed under which:
(i) A method is used to identify the party sought to be
bound and to indicate said party’s access to the
electronic document or electronic data message
necessary for his consent or approval through the
electronic signature;
(ii) Said method is reliable and appropriate for the purpose
for which the electronic document or electronic data
message was generated or communicated, in the light
of all circumstances, including any relevant agreement;
(iii) It is necessary for the party sought to be bound, in
order to proceed further with the transaction, to have
executed or provided the electronic signature; and,
(iv) The other party is authorized and enabled to verify
the electronic signature and to make the decision to
proceed with the transaction authenticated by the
same.
The parties may agree to adopt supplementary or
alternative procedures provided that the requirements of
paragraph (b) are complied with.
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For purposes of subparagraphs (i) and (ii) of
paragraph (b), the factors referred to in Annex “2” may
be taken into account.
SEC. 14. Pr
esumption R
elating to Electr
onic Signatur
es.
Presumption
Relating
Electronic
Signatures.
– In any proceeding involving an electronic signature, the proof
of the electronic signature shall give rise to the rebuttable
presumption that:
(a) The electronic signature is the signature of the person to
whom it correlates; and
(b) The electronic signature was affixed by that person with
the intention of signing or approving the electronic data
message or electronic document unless the person relying
on the electronically signed electronic data message or
electronic document knows or has notice of defects in or
unreliability of the signature or reliance on the electronic
signature is not reasonable under the circumstances.
M ODES
OF
A UTHENTICA
TION
UTHENTICATION
S ECTION 15. Method of Authenticating Electronic
Documents, Electronic Data Messages, and Electronic
Signatures. – Electronic documents, electronic data messages
and electronic signatures, shall be authenticated by demonstrating,
substantiating and validating a claimed identity of a user, device,
or another entity in an information or communication system.
Until the Supreme Court, by appropriate rules, shall have so
provided, electronic documents, electronic data messages and
electronic signatures shall be authenticated, among other ways, in
the following manner:
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297
(a) The electronic signature shall be authenticated by proof
that a letter, character, number or other symbol in
electronic form representing the persons named in and
attached to or logically associated with an electronic data
message, electronic document, or that the appropriate
methodology or security procedures, when applicable, were
employed or adopted by a person and executed or adopted
by such person, with the intention of authenticating or
approving an electronic data message or electronic
document;
(b) The electronic data message or electronic document shall
be authenticated by proof that an appropriate security
procedure, when applicable was adopted and employed
for the purpose of verifying the originator of an electronic
data message or electronic document, or detecting error
or alteration in the communication, content or storage
of an electronic document or electronic data message from
a specific point, which, using algorithm or codes,
identifying words or numbers, encryptions, answers back
or acknowledgment procedures, or similar security devices.
S EC . 16. Burden of Authenticating Electronic
Documents or Electr
onic Data Messag
Electronic
Messages.
es. – The person
seeking to introduce an electronic document or electronic data
message in any legal proceeding has the burden of proving its
authenticity by evidence capable of supporting a finding that the
electronic data message or electronic document is what the person
claims it to be.
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E ST
ABLISHING I NTEGRITY
STABLISHING
S ECTION 17. Method of Establishing the Integrity of
an Electronic Document or Electronic Data Message. –
In the absence of evidence to the contrary, the integrity of the
information and communication system in which an electronic
data message or electronic document is recorded or stored may be
established in any legal proceeding, among other methods:
(a) By evidence that at all material times the information
and communication system or other similar device was
operating in a manner that did not affect the integrity of
the electronic document or electronic data message, and
there are no other reasonable grounds to doubt the
integrity of the information and communication system;
(b) By showing that the electronic document or electronic
data message was recorded or stored by a party to the
proceedings who is adverse in interest to the party using
it; or
(c) By showing that the electronic document or electronic
data message was recorded or stored in the usual and
ordinary course of business by a person who is not a party
to the proceedings and who did not act under the control
of the party using the record.
A DMISSIBILITY
AND
E VIDENTIAL W EIGHT
S ECTION 18. Admissibility and Evidential Weight of
Electronic Data Messages and Electronic Documents. –
For evidentiary purposes, an electronic document or electronic
data message shall be the functional equivalent of a written
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299
document under existing laws. In any legal proceeding, nothing
in the application of the rules on evidence shall deny the
admissibility of an electronic data message or electronic document
in evidence:
(a) On the sole ground that it is in electronic form; or
(b) On the ground that it is not in the standard written form.
The Act does not modify any statutory rule relating to the
admissibility of electronic data messages or electronic documents,
except the rules relating to authentication and best evidence.
In assessing the evidential weight of an electronic data message
or electronic document, the reliability of the manner in which it
was generated, stored or communicated, the reliability of the
manner in which its originator was identified, and other relevant
factors shall be given due regard.
S EC. 19. Proof by Affidavit and Cross-Examination. –
The matters referred to in Section 12 of the Act on admissibility
and evidentiary weight, and Section 9 of the Act on the
presumption of integrity of electronic signatures, may be
presumed to have been established by an affidavit given to the
best of the deponent’s or affiant’s personal knowledge subject to
the rights of parties in interest to cross-examine such deponent
or affiant as a matter of right. Such right of cross-examination
may likewise be enjoyed by a party to the proceedings who is
adverse in interest to the party who has introduced the affidavit
or has caused the affidavit to be introduced.
Any party to the proceedings has the right to cross-examine a
person referred to in Section 11, paragraph 4, and sub-paragraph
(c) of the Act.
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E LECTR
ONIC D ATA M ESSA
GE
LECTRONIC
ESSAGE
E LECTR
ONIC D OCUMENT
LECTRONIC
OF
AND
SECTION 20. Retention of Electr
onic Data Messag
Electronic
Messagee and
Electr
onic Document. – Notwithstanding any provision of
Electronic
law, rule or regulation to the contrary:
(a) The requirement in any provision of law that certain
documents be retained in their original form is satisfied
by retaining them in the form of an electronic data
message or electronic document which:
(i) Remains accessible so as to be usable for subsequent
reference;
(ii) Is retained in the format in which it was generated,
sent or received, or in a format which can be
demonstrated to accurately represent the electronic
data message or electronic document generated, sent
or received; and,
(iii)Where applicable, enables the identification of its
originator and addressee, as well as the determination
of the date and the time it was sent or received.
(b) The requirement referred to in paragraph (a) is satisfied
by using the services of a third party, provided that the
conditions set forth in subparagraphs (i), (ii) and (iii) of
paragraph (a) are met.
(c) Relevant government agencies tasked with enforcing or
implementing applicable laws relating to the retention of
certain documents may, by appropriate issuances, impose
regulations to ensure the integrity, reliability of such
documents and the proper implementation of Section
13 of the Act.
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301
C HAPTER III
C OMMUNICA
TION OF E LECTR
ONIC D ATA M ESSA
GES
OMMUNICATION
LECTRONIC
ESSAGES
A ND E LECTR
ONIC D OCUMENTS
LECTRONIC
S ECTION 21. F or mation and Validity of Electr
Electronic
onic
Contracts. – Except as otherwise agreed by the parties, an offer,
the acceptance of an offer and such other elements required under
existing laws for the formation and perfection of contracts may
be expressed in, demonstrated and proved by means of electronic
data message or electronic documents and no contract shall be
denied validity or enforceability on the sole ground that it is in
the form of an electronic data message or electronic document,
or that any or all of the elements required under existing laws for
the formation of the contracts is expressed, demonstrated and
proved by means of electronic documents.
SEC. 22. Consummation of Electr
onic Transactions with
Electronic
Banks. – Electronic transactions made through networking among
banks, or linkages thereof with other entities or networks, and
vice versa, shall be deemed consummated under rules and
regulations issued by the Bangko Sentral under the succeeding
paragraph hereunder, upon the actual dispensing of cash or the
debit of one account and the corresponding credit to another,
whether such transaction is initiated by the depositor or by an
authorized collecting party; Provided, that the obligation of one
bank, entity, or person similarly situated to another arising
therefrom shall be considered absolute and shall not be subjected
to the process of preference of credits; Provided, however, that
the foregoing shall apply only to transactions utilizing the
Automated Teller Machine switching network.
Without prejudice to the foregoing, all electronic transactions
involving banks, quasi-banks, trust entities, and other institutions
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which, under special laws are subject to the supervision of the
Bangko Sentral ng Pilipinas, shall be covered by the rules and
regulations issued by the same pursuant to its authority under
Section 59 of Republic Act No. 8791 (The General Banking
Act), Republic Act No. 7653 (the Charter of the Bangko Sentral
ng Pilipinas) and Section 20, Article XII of the Constitution.
S EC . 23. Recognition bbyy P
ar ties of Electr
onic Data
Par
Electronic
Messag
e. – As between the originator and the addressee of an
Message.
electronic data message or electronic document, a declaration of
will or other statement shall not be denied legal effect, validity or
enforceability solely on the ground that it is in the form of an
electronic data message or electronic document.
A TTRIB
UTION OF E LECTR
ONIC D ATA M ESSA
GE
TTRIBUTION
LECTRONIC
ESSAGE
E LECTR
ONIC D OCUMENT
LECTRONIC
AND
S ECTION 24. Origin of Electronic Data Message. – An
electronic data message or electronic document is that of the
originator if it was sent by the originator himself.
S EC . 25. Origin of Electronic Data Message Not
Personall
ersonallyy Sent bbyy an Originator
Originator.. – As between the originator
and the addressee, an electronic data message or electronic
document is deemed to be that of the originator if it was sent:
(a) by a person who had the authority to act on behalf of
the originator with respect to that electronic data message
or electronic document; or
(b) by an information and communications system
programmed by, or on behalf of the originator to operate
automatically.
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303
S EC . 26. W hen an Originator Ma
Mayy Be Bound By an
onic Data Messag
e. – As between the originator and
Electr
Electronic
Message.
the addressee, an addressee is entitled to regard an electronic data
message or electronic document as being that of the originator,
and to act on that assumption, if:
(a) in order to ascertain whether the electronic data message
was that of the originator, the addressee properly applied
a procedure previously agreed to by the originator for
that purpose; or
(b) the electronic data message or electronic document as
received by the addressee resulted from the actions of a
person whose relationship with the originator or with any
agent of the originator enabled that person to gain access
to a method used by the originator to identify electronic
data messages or electronic documents as his own.
The provisions of this Section do not exclude other instances
or circumstances when an originator may be bound by the reliance
and consequent action of an addressee respecting an electronic
data message, which purports to have been that of the originator.
SEC. 27. When an Originator Ma
Mayy Not Be Bound By an
onic Data Messag
e. – As between the originator and
Electronic
Message.
Electr
the addressee, an addressee is not entitled to regard an electronic
data message as being that of the originator, and to act on that
assumption:
(a) as of the time when the addressee has both received notice
from the originator that the electronic data message or
electronic document is not that of the originator, and has
reasonable time to act accordingly; or
(b) in a case within paragraph (b) Section 26 of these Rules,
at any time when the addressee knew or should have
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known, had it exercised reasonable care or used any agreed
procedure, that the electronic data message or electronic
document was not that of the originator.
The provisions of this Section do not exclude other instances
or circumstances when an originator may not be liable for the
reliance and consequent action of an addressee respecting an
electronic data message, which purports to have been that of the
originator.
S EP
ARA
TE R ECEIPT
EPARA
ARATE
D ATA M ESSA
GE
ESSAGE
OF AND
AND
E RR
OR
RROR
ON
E LECTR
ONIC
LECTRONIC
E LECTR
ONIC D OCUMENT
LECTRONIC
SECTION 28. Assumption R
ding R
eceipt of Se
parate
Ree gar
arding
Receipt
Separate
Electr
onic Data Messag
es. – The addressee is entitled to regard
Electronic
Messages.
each electronic data message or electronic document received as a
separate electronic data message or electronic document and to
act on that assumption, except to the extent that it duplicates
another electronic data message or electronic document and the
addressee knew or should have known, had it exercised reasonable
care or used any agreed procedure, that the electronic data message
or electronic document was a duplicate.
SEC. 29. Er
onic Data Messag
onic
Errror on Electr
Electronic
Messagee or Electr
Electronic
Document. – The addressee is entitled to regard the electronic
data message or electronic document received as that which the
originator intended to send, and to act on that assumption, unless
the addressee knew or should have known, had the addressee
exercised reasonable care, used the appropriate procedure or applied
an agreed procedure:
(a) That the transmission resulted in any error therein or in
the electronic data message or electronic document when
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305
the latter enters the designated information and
communications system; or
(b) That electronic data message or electronic document is
sent to an information and communications system which
is not so designated by the addressee for the purpose.
D ISP
AT CH AND R ECEIPT OF E LECTR
ONIC D ATA
ISPA
LECTRONIC
M ESSA
GE AND E LECTR
ONIC D OCUMENT
ESSAGE
LECTRONIC
SECTION 30. Ag
kno
eceipt
Agrreement on Ac
Ackno
knowledgment
Receipt
wledgment of R
of Electronic Data Messages or Electronic Documents.
– The following rules shall apply where, on or before sending an
electronic data message or electronic document, the originator
and the addressee have agreed, or in that electronic document or
electronic data message, the originator has requested, that receipt
of the electronic document or electronic data message be
acknowledged:
(a) Where the originator has not agreed with the addressee
that the acknowledgment be given in a particular form or
by a particular method, an acknowledgment may be given
by or through any communication by the addressee,
automated or otherwise, or any conduct of the addressee,
sufficient to indicate to the originator that the electronic
data message or electronic document has been received.
(b) Where the originator has stated that the effect or
significance of the electronic data message or electronic
document is conditional on receipt of the
acknowledgment thereof, the electronic data message or
electronic document is treated as though it has never been
sent, until the acknowledgment is received.
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(c) Where the originator has not stated that the effect or
significance of the electronic data message or electronic
document is conditional on receipt of the
acknowledgment, and the acknowledgment has not been
received by the originator within the time specified or
agreed or, if no time has been specified or agreed, within
a reasonable time, the originator may give notice to the
addressee stating that no acknowledgment has been
received and specifying a reasonable time by which the
acknowledgment must be received; and if the
acknowledgment is not received within the time specified,
the originator may, upon notice to the addressee, treat the
electronic document or electronic data message as though
it had never been sent, or exercise any other rights it may
have.
SEC. 31. Time of Dispatc
onic Data Messag
Dispatchh of Electr
Electronic
Messagee
or Electr
onic Document. – Unless otherwise agreed between
Electronic
the originator and the addressee, the dispatch of an electronic
data message or electronic document occurs when it enters an
information and communications system outside the control of
the originator or of the person who sent the electronic data message
or electronic document on behalf of the originator.
S EC. 32. Time of R
eceipt of Electr
onic Data Messag
Receipt
Electronic
Messagee
or Electr
onic Document. – Unless otherwise agreed between
Electronic
the originator and the addressee, the time of receipt of an electronic
data message or electronic document is as follows:
(a) If the addressee has designated an information and
communications system for the purpose of receiving
electronic data message or electronic document, receipt
occurs at the time when the electronic data message or
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307
electronic document enters the designated information
and communications system; Provided, however, that if
the originator and the addressee are both participants in
the designated information and communications system,
receipt occurs at the time when the electronic data message
or electronic document is retrieved by the addressee.
(b) If the electronic data message or electronic document is
sent to an information and communications system of
the addressee that is not the designated information and
communications system, receipt occurs at the time when
the electronic data message or electronic document is
retrieved by the addressee.
(c) If the addressee has not designated an information and
communications system, receipt occurs when the
electronic data message or electronic document enters an
information and communications system of the addressee.
These rules apply notwithstanding that the place where the
information and communications system is located may be
different from the place where the electronic data message or
electronic document is deemed to be received.
S EC. 33. Place of Dispatc
eceipt of Electr
onic
Dispatchh and R
Receipt
Electronic
Data Message or Electronic Document. – Unless otherwise
agreed between the originator and the addressee, an electronic data
message or electronic document is deemed to be dispatched at the
place where the originator has its place of business and received at
the place where the addressee has its place of business. This rule
shall apply even if the originator or addressee had used a laptop
or other portable device to transmit or receive his electronic data
message or electronic document. This rule shall also apply to
determine the tax situs of such transaction to the extent not
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inconsistent with Philippine situs rules and the regulations which
may be promulgated by the Bureau of Internal Revenue (BIR)
relating to the tax treatment of electronic commerce transactions.
For the purpose hereof:
(a) If the originator or the addressee has more than one place
of business, the place of business is that which has the
closest relationship to the underlying transaction or, where
there is no underlying transaction, the principal place of
business.
(b) If the originator or the addressee does not have a place of
business, reference is to be made to its habitual residence;
or
(c) The “usual place of residence” in relation to a body
corporate, which does not have a place of business, means
the place where it is incorporated or otherwise legally
constituted.
Nothing in this Section shall be deemed to amend the rules
of private international law.
S ECURITY M ETHODS
S ECTION 34. Choice of Security Methods. – Subject to
applicable laws and/or rules and guidelines promulgated by the
Department of Trade and Industry and other appropriate
government agencies, parties to any electronic transaction shall
be free to determine the type and level of electronic data message
or electronic document security needed, and to select and use or
implement appropriate technological methods that suit their needs.
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ONIC
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P AR
T III
ART
C OMMER
CE IN C ARRIA
GE
OMMERCE
ARRIAGE
OF
309
G OODS
S ECTION 35. Actions R
elated to Contracts of Car
riag
Related
Carriag
riagee
of Goods. – Without derogating from the provisions of Part
Two of the Act, this Part of the Rules applies to any action in
connection with, or in pursuance of, a contract of carriage of
goods, including but not limited to:
(a) (i) furnishing the marks, number, quantity or weight of
goods;
(ii) stating or declaring the nature or value of goods;
(iii)issuing a receipt for goods;
(iv)confirming that goods have been loaded;
(b) (i) notifying a person of terms and conditions of the
contract;
(ii) giving instructions to a carrier;
(c) (i) claiming delivery of goods;
(ii) authorizing release of goods;
(iii)giving notices of loss of, or damage to goods;
(d) giving any other notice or statement in connection with
the performance of the contract;
(e) undertaking to deliver goods to a named person or a
person authorized to claim delivery;
(f) granting, acquiring, renouncing, surrendering, transferring
or negotiating rights in goods;
(g) acquiring or transferring rights and obligations under the
contract.
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SEC. 36. Transpor
ransportt Documents. –
(1) Subject to paragraph (3), where the law requires that any
action referred to in the immediately preceding Section
be carried out in writing or by using a paper document,
that requirement is met if the action is carried out by
using one or more electronic data messages or electronic
documents. The transport documents referred to herein
shall include, but not be limited to, those enumerated in
Annex “1” hereof. Concerned agencies such as, but not
limited to, the DTI, Department of Finance, DOTC,
Philippine Ports Authority and other port authorities,
shall, within their respective mandates, issue appropriate
rules and guidelines with respect to transport documents
as provided herein.
(2) Paragraph (1) applies whether the requirement therein is
in the form of an obligation or whether the law simply
provides consequences for failing either to carry out the
action in writing or to use a paper document.
(3) If a right is to be granted to, or an obligation is to be
acquired by, one person and no other person, and if the
law requires that, in order to effect this, the right or
obligation must be conveyed to that person by the transfer,
or use of, a paper document, that requirement is met if
the right or obligation is conveyed by using one or more
electronic data messages or electronic documents:
Provided, That a reliable method is used to render such
electronic data messages or electronic documents unique.
(4) For the purposes of paragraph (3), the standard of
reliability required shall be assessed in the light of the
purpose for which the right or obligation was conveyed
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and in the light of all the circumstances including any
relevant agreement.
(5) Where one or more electronic data messages or electronic
documents are used to effect any action in subparagraphs
(f) and (g) of Section 25 of the Act, no paper document
used to effect any such action is valid unless the use of
electronic data message or electronic document has been
terminated and replaced by the use of paper documents.
A paper document issued in these circumstances shall
contain a statement of such termination. The replacement
of electronic data messages or electronic documents by
paper documents shall not affect the rights or obligations
of the parties involved.
(6) If a rule of law is compulsorily applicable to a contract
of carriage of goods which is in, or is evidenced by, a
paper document, that rule shall not be inapplicable to
such a contract of carriage of goods which is evidenced
by one or more electronic data messages or electronic
documents by reason of the fact that the contract is
evidenced by such electronic data message or electronic
document instead of a paper document.
P AR
T IV
ART
E LECTR
ONIC T RANSA
CTIONS
LECTRONIC
RANSACTIONS
IN
C HAPTER I
G OVERNMENT U SE OF D ATA
E LECTR
ONIC D OCUMENTS AND
LECTRONIC
S IGN
ATURES
IGNA
G OVERNMENT
M ESSA
GES,
ESSAGES
E LECTR
ONIC
LECTRONIC
onic Data
S ECTION 37. Go
Govver nment Use of Electr
Electronic
Messages, Electronic Documents and Electronic
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Signatur
es. – Notwithstanding any law to the contrary, within
Signatures.
two (2) years from the date of the effectivity of the Act, all
departments, bureaus, offices and agencies of the government, as
well as all government-owned and -controlled corporations, that
pursuant to law require or accept the filing of documents, require
that documents be created, or retained and/or submitted, issue
permits, licenses or certificates of registration or approval, or
provide for the method and manner of payment or settlement of
fees and other obligations to the government, shall:
(a) accept the creation, filing or retention of such documents
in the form of electronic data messages or electronic
documents;
(b) issue permits, licenses, or approval in the form of electronic
data messages or electronic documents;
(c) require and/or accept payments, and issue receipts
acknowledging such payments, through systems using
electronic data messages or electronic documents; or
(d) transact the government business and/or perform
governmental functions using electronic data messages or
electronic documents, and for the purpose, are authorized
to adopt and promulgate, after appropriate public hearing
and with due publication in newspapers of general
circulation, the appropriate rules, regulations, or guidelines,
to, among others, specify:
(1) the manner and format in which such electronic data
messages or electronic documents shall be filed, created,
retained or issued;
(2) where and when such electronic data messages or
electronic documents have to be signed, the use of a
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electronic signature, the type of electronic signature
required;
(3) the format of an electronic data message or electronic
document and the manner the electronic signature
shall be affixed to the electronic data message or
electronic document;
(4) the control processes and procedures as appropriate
to ensure adequate integrity, security and
confidentiality of electronic data messages or electronic
documents or records or payments;
(5) other attributes required of electronic data messages
or electronic documents or payments; and
(6) the full or limited use of the documents and papers
for compliance with the government requirements;
Provided, That the Act shall by itself mandate any
department of the government, organ of state or statutory
corporation to accept or issue any document in the form of
electronic data messages or electronic documents upon the
adoption, promulgation and publication of the appropriate
rules, regulations, or guidelines. Nothing in the Act or the
Rules authorizes any person to require any branch, department,
agency, bureau, or instrumentality of government to accept
or process electronic data messages; conduct its business; or
perform its functions by electronic means until the adoption,
promulgation and publication of the aforementioned
appropriate rules, regulations or guidelines. Such rules,
regulations or guidelines as well as the underlying technologies
utilized in the implementation of the Act and these Rules
shall conform to the principles set forth in the immediately
succeeding section.
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S EC . 38. Principles Go
Govv er ning Go
Govv er nment Use of
Electronic Data Messages, Electronic Documents and
Electr
onic Signatur
es. – The following principles shall govern
Electronic
Signatures.
the implementation of Section 27 of the Act and shall be
mandatory upon all departments, bureaus, offices and agencies of
the government, as well as all government-owned and -controlled
corporations:
(a) Technology Neutrality. – All solutions implemented shall
neither favor a particular technology over another nor
discriminate against or in favor of particular vendors of
technology.
(b) Interoperability. – All implementation of technological
solutions shall ensure the interoperability of systems
forming part of the government network.
(c) Elimination of Red Tape. – Government processes shall
be re-examined and if appropriate, simplified or reengineered to maximize the functionality of technology
and to eliminate unnecessary delays in the delivery of
governmental services.
(d) Security Measures. – Government shall implement
appropriate security measures to guard against
unauthorized access, unlawful disclosure of information,
and to ensure the integrity of stored information.
(e) Auditability. – All systems installed shall provide for an
audit trail.
S EC. 39. Go
nment Inf
or
mation System Plan (GISP).
Govver
ernment
Infor
ormation
– It is hereby mandated that the GISP shall be adjusted, modified
and amended to conform to the provisions and requirements of
the Act, RPWEB and these Rules.
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C HAPTER II
RPWEB
SECTION 40. RPWEB To Pr
omote the Use of Electr
onic
Promote
Electronic
Documents and Electronic Data Messages in
Go
nment and to the General Pub
lic. – Within two (2)
Govver
ernment
Public.
years from the effectivity of the Act, there shall be installed an
electronic online network in accordance with Administrative Order
332 and House of Representatives Resolution 890, otherwise
known as RPWEB, to implement Part IV of the Act to facilitate
the open, speedy and efficient electronic online transmission,
conveyance and use of electronic data messages or electronic
documents amongst all government departments, agencies,
bureaus, offices down to the division level and to the regional
and provincial offices as practicable as possible, government-owned
and -controlled corporations, local government units, other public
instrumentalities, universities, colleges and other schools, and
universal access to the general public.
The RPWEB network shall serve as initial platform of the
government information infrastructure to facilitate the electronic
online transmission and conveyance of government services to
evolve and improve by better technologies or kinds of electronic
online wide area networks utilizing, but not limited to, fiber optic,
satellite, wireless and other broadband telecommunication
mediums or modes.
SEC. 41. Implementing Ag
encies. – To facilitate the rapid
Agencies.
development of the government information infrastructure, the
Department of Transportation and Communications, National
Telecommunications Commission and the National Computer
Center shall in coordination with each other, promulgate the
appropriate issuances in accordance with their respective mandate
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to aggressively formulate, promote and implement a policy
environment and regulatory or non-regulatory framework that
shall lead to the substantial reduction of costs of including, but
not limited to, leased lines, land, satellite and dial-up telephone
access, cheap broadband and wireless accessibility by government
departments, agencies, bureaus, offices, government-owned and controlled corporations, local government units, other public
instrumentalities and the general public, to include the
establishment of a government website portal and a domestic
internet exchange system to facilitate strategic access to government
and amongst agencies thereof and the general public and for the
speedier flow of locally generated internet traffic within the
Philippines.
SEC. 42. Cab
le Tele
vision and Br
oadcast as Telecommunications.
Cable
elevision
Broadcast
– The physical infrastructure of cable and wireless systems for cable
TV and broadcast excluding programming and content and the
management thereof shall be considered as within the activity of
telecommunications for the purpose of electronic commerce and
to maximize the convergence of ICT in the installation of the
government information infrastructure.
C HAPTER III
D ELINEA
TION OF F UNCTIONS
ELINEATION
SECTION 43. Delineation of Functions and Coordination
by the DTI. – In the implementation of the Act, the following
government agencies shall have the functions stated hereunder:
(a) The Department of Trade and Industry shall:
(i) Supervise and coordinate the full implementation of
Section 27 of the Act. For this purpose, all
2004]
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317
government agencies intending to comply with the
said provision of law shall coordinate with the DTI
in order to ensure adherence with the principles
provided for in Section 38 of these Rules. Observance
of all laws and regulations on public bidding,
disbursements and other restrictions, including COA
policies, shall be mandatory.
(ii) Install an online public information and quality and
price monitoring system for goods and services aimed
in protecting the interests of the consuming public
availing of the advantages of the Act.
(iii) Establish a voluntary listing system for all businesses
or entities involved in electronic commerce including,
but not limited to, value-added service (VAS)
providers as this term is understood in Republic Act
No. 7925, banks, financial institutions, manufacturing
companies, retailers, wholesalers, and on-line
exchanges. The list of electronic commerce entities
shall be maintained by the DTI and made available
electronically to all interested parties.
(iv) Review, study and assess all legal, technical and
commercial issues arising in the field of electronic
commerce which may be directed to the DTI and if
necessary, convene the appropriate government
agencies in order to discuss, deliberate on and resolve
the same and in the proper cases, promulgate additional
rules and regulations to implement the Act.
(b) The Bangko Sentral ng Pilipinas shall exercise and perform
such functions as mandated under the Act including the
promulgation of the rules and regulations to implement
the provisions of the Act with respect to banks, quasi-
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banks, trust entities, and other institutions which, under
special laws are subject to the Bangko Sentral ng Pilipinas
supervision.
(c) The Department of Budget and Management shall
identify the fund source for the implementation of
Sections 37, 39 and 40 of the Rules, consistent with the
provisions of the annual General Appropriations Act, and
in its capacity in managing the budget execution and
accountability processes of government, shall be
responsible for putting such core processes online.
P AR
T V
ART
F IN
AL P ROVISIONS
INAL
S ECTION 44. Extent of Liability of a Ser
vice Pr
Service
Proovider
vider..
– Except as otherwise provided in this Section, no person or party
shall be subject to any civil or criminal liability in respect of the
electronic data message or electronic document for which the
person or party acting as a service provider as defined in Section
6(n) of these Rules merely provides access if such liability is
founded on:
(a) The obligations and liabilities of the parties under the
electronic data message or electronic document;
(b) The making, publication, dissemination or distribution
of such material or any statement made in such material,
including possible infringement of any right subsisting
in or in relation to such material: Provided, That –
(i) The service provider: (1) does not have actual
knowledge, or (2) is not aware of the facts or
circumstances from which it is apparent, that the
2004]
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319
making, publication, dissemination or distribution of
such material is unlawful or infringes any rights
subsisting in or in relation to such material, or (3)
having become aware, advises the affected parties
within a reasonable time, to refer the matter to the
appropriate authority or, at the option of the parties,
to avail of alternative modes of dispute resolution;
(ii) The service provider does not knowingly receive a
financial benefit directly attributable to the unlawful
or infringing activity; and
(iii) The service provider does not directly commit any
infringement or other unlawful act and does not
induce or cause another person or party to commit
any infringement or other unlawful act and/or does
not benefit financially from the infringing activity or
unlawful act of another person or party;
Provided, further, That nothing in this Section shall affect:
(a) Any obligation founded on contract;
(b) The obligation of a service provider as such under a
licensing or other regulatory regime established under
written law;
(c) Any obligation imposed under any written law; or
(d) The civil liability of any party to the extent that such
liability forms the basis for injunctive relief issued by a
court under any law requiring that the service provider
take or refrain from actions necessary to remove, block or
deny access to any material, or to preserve evidence of a
violation of law.
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L AWFUL A CCESS
S ECTION 45. Lawful Access to Electronic Documents,
Electronic Data Messages, and Electronic Signatures. –
Access to an electronic file, or an electronic signature of an
electronic data message or electronic document shall only be
authorized and enforced in favor of the individual or entity having
a legal right to the possession or the use of the plaintext, electronic
signature or file and solely for the authorized purposes.
wful Access to Electr
eys. – The electronic
SEC. 46. La
Lawful
Electronic
Keys.
onic K
key for identity or integrity shall not be made available to any
person or party without the consent of the individual or entity
in lawful possession of that electronic key. The testimonial
disclosure of an electronic key in any proceeding shall be limited
by the Constitutional right against self-incrimination.
SEC. 47. Ob
lig
ation of Conf
identiality
Oblig
ligation
Confidentiality
identiality.. – Except for the
purposes authorized under the Act, any person who obtained access
to any electronic key, electronic data message, or electronic
document, book, register, correspondence, information, or other
material pursuant to any powers conferred under the Act, shall
not convey to or share the same with any other person.
P EN
AL P ROVISIONS
ENAL
SECTION 48. Hacking. – Hacking or cracking which refers to
unauthorized access into or interference in a computer system/
server or information and communication system; or any access
in order to corrupt, alter, steal, or destroy using a computer or
other similar information and communication devices, without
the knowledge and consent of the owner of the computer or
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321
information and communications system, including the
introduction of computer viruses and the like, resulting in the
corruption, destruction, alteration, theft or loss of electronic data
messages or electronic document shall be punished by a minimum
fine of One hundred thousand pesos (Php100,000.00) and a
maximum commensurate to the damage incurred and a mandatory
imprisonment of six (6) months to three (3) years.
S EC. 49. Pirac
Piracyy. – Piracy or the unauthorized copying,
reproduction, dissemination, distribution, importation, use,
removal, alteration, substitution, modification, storage, uploading,
downloading, communication, making available to the public, or
broadcasting of protected material, electronic signature or
copyrighted works including legally protected sound recordings
or phonograms or information material on protected works,
through the use of telecommunication networks, such as, but not
limited to, the internet, in a manner that infringes intellectual
property rights shall be punished by a minimum fine of One
hundred thousand pesos (Php100,000.00) and a maximum
commensurate to the damage incurred and a mandatory
imprisonment of six (6) months to three (3) years. The foregoing
shall be without prejudice to the rights, liabilities and remedies
under Republic Act No. 8293 or Intellectual Property Code of
the Philippines and other applicable laws.
SEC. 50. Other P
enal Of
Penal
Offfenses. – Violations of the Consumer
Act or Republic Act No. 7394 and other relevant or pertinent
laws through transactions covered by or using electronic data
messages or electronic documents, shall be penalized with the same
penalties as provided in those laws.
SEC. 51. Other Violations of the Act. – Other violations
of the provisions of the Act, shall be penalized with a maximum
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penalty of One million pesos (Php1,000,000.00) or six-(6) years
imprisonment.
M ISCELLANEOUS P ROVISIONS
SECTION 52. Statutory Interpretation. – Unless otherwise
expressly provided for, the interpretation of these Rules and the
Act shall give due regard to the Act’s international origin – the
UNCITRAL Model Law on Electronic Commerce – and the
need to promote uniformity in its application and the observance
of good faith in international trade relations. The generally
accepted principles of international law and convention on
electronic commerce shall likewise be considered.
SEC. 53. Variation bbyy Ag
Agrreement. – Any provision of the
Act may be varied by agreement between and among parties;
Provided that such agreement involves only the generation, sending,
receiving, storing or otherwise processing of an electronic data
message or electronic document. Nothing shall authorize
contracting parties to agree upon stipulations or covenants, which
defeat the legal recognition, validity, and admissibility of electronic
data messages, electronic documents, or electronic signatures.
SEC. 54. Recipr
ocity
eciprocity
ocity.. – All benefits, privileges, advantages or
statutory rules established under this Act, including those involving
practice of profession, shall be enjoyed only by parties whose
country of origin grants the same benefits and privileges or
advantages to Filipino citizens. Inasmuch as the Act merely
contemplates the legal recognition of electronic forms of
documents and signatures and does not amend any law governing
the underlying substantive validity of acts or transactions, this
provision shall be subject to existing Constitutional and statutory
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323
restrictions relative to activities which are reserved to Philippine
citizens or juridical entities partially or wholly-owned by Philippine
citizens.
S EC . 55. Ov
ersight Committee. – There shall be a
Oversight
Congressional Oversight Committee composed of the
Committees on Trade and Industry/Commerce, Science and
Technology, Finance and Appropriations of both the Senate and
House of Representatives, which shall meet at least every quarter
of the first two years and every semester for the third year after
the approval of this Act to oversee its implementation. The DTI,
DBM, Bangko Sentral ng Pilipinas, and other government agencies
as may be determined by the Congressional Committee shall
provide a quarterly performance report of their actions taken in
the implementation of this Act for the first three (3) years.
S EC. 56. DTI’
uthority to Implement the
DTI’ss Continuing A
Authority
Act and Issue Implementing R
ules. – Among others, the
Rules.
DTI is empowered to promulgate rules and regulations, as well as
provide quality standards or issue certifications, as the case may
be, and perform such other functions as may be necessary for the
implementation of this Act in the area of electronic commerce.
parability
SEC. 57. Se
Separability
parability.. – If any provision in these Rules or
application of such provision to any circumstance is held invalid,
the remainder of these Rules shall not be affected thereby.
SEC. 58. Ef
Efffecti
ectivity
vity. – These Rules shall take effect fifteen
(15) days from the complete publication thereof in a newspaper
of general circulation.
Done in July, 2000.
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ANNEX I
OMS AND PRA
CTICE. 500
CUSTOMS
PRACTICE.
UNIFORM CUST
(UCP)
Art. 23. Marine/Ocean bill of Loading
23.1. Late delivery, Misrouting, Mishandling, Loss and
Damage
23.2 Customs Duties and Taxes
23.3 Port Charges i.e., Arrastre Wharfage
23.4 Inbound Shipment-Cargo Handler/Operator
23.4.1 Warehouse Operator
Art. 24. Non-Negotiable Seaway Bill
24.1. Claim- ibid
24.2. Customs Duties, and Taxes
24.3 Port Charges i.e., Arrastre Wharfage
24.4 Inbound Shipment-Cargo handler/operator
24.4.1 Warehouse Operator
Art. 25. Charter Party/Bill of Lading
25.1 Claim - ibid.
25.2 Customs Duties & Taxes
25.3 Port Charges i.e., Arrastre Wharfage
25.4 Inbound shipment-cargo handler/operator
25.4.1 Warehouse Operator
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Art. 26 Multi-Modal Transport Docs.
26.1 late delivery, misrouting, mishandling, loss and damage
26.2 Customs duties, and taxes
26.3 Port charges i.e., arrastre wharfage
26.4 Inbound shipment-cargo handler/operator
26.4.1. Warehouse operator
Art. 27. Airport Transport Documents
27.1. Claim-ibid
27.2 Customs duties & taxes
27.3 Airport charges
27.4 inbound shipment-cargo handler/operator
27.4.1. Warehouse operator
Art. 28. Road, Rail, or Inland Waterway Transport Documents
28.1 Claim- ibid
28.2 Customs Duties & taxes
28.3 Terminal charges
28.4 Inbound shipment-cargo handler/operator
28.4.1. Warehouse operator
Art 29. Courier and Post Receipts
29.1 Late delivery, misrouting, mishandling, loss & damage
29.2 Customs duties & taxes
29.3 Postal authority charges
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29.4 Inbound shipment-cargo handler/operator
29.4.1. Warehouse operator
Art. 30. Transport Documents issued by freight forwarders
30.1. Claim - ibid
30.2 Customs duties & taxes
30.3 Port charges i.e., arrastre wharfage
30.4 Inbound shipment-cargo handler/operator
30.4.1. Warehouse operator
ANNEX II
a) the sophistication of the equipment used by each of the
parties;
b) the nature of their trade activity;
c) the frequency at which commercial transactions take place
between the parties;
d) the kind and size of the transaction;
e) the function of signature requirements in a given statutory
and regulatory environment;
f) the capability of communication systems;
g) compliance with authentication procedures set forth by
intermediaries;
h) the range of authentication procedures made available by
any intermediary;
i) compliance with trade customs and practice;
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327
j) the existence of insurance coverage mechanisms against
unauthorized messages;
k) the importance and the value of the information
contained in the data message;
l) the availability of alternative methods of identification
and the cost of implementation;
m) the degree of acceptance or non-acceptance of the method
of identification in the relevant industry or field both at
the time the method was agreed upon and the time when
the data message was communicated; and
n) any other relevant factor.
Rules and R
Ree gulations Implementing
the Anti-Money Laundering Act of
2001 (R
lic Act No
(Ree pub
public
No.. 9160)
P OLICY
R ULE 1
AND A PPLICA
TION
PPLICATION
SECTION 1. Title. – These Rules shall be known and cited as
the “Rules and Regulations Implementing Republic Act No.
9160” (the Anti-Money Laundering Act of 2001 [AMLA]).
SEC. 2. Pur
pose. – These Rules are promulgated to prescribe
Purpose.
the procedures and guidelines for the implementation of the
AMLA.
SEC. 3. Dec
laration of P
olic
Declaration
Polic
olicyy. – It is the policy of the State
that:
(a) The integrity and confidentiality of bank accounts shall
be protected and preserved;
(b) The Philippines shall not be used as a money laundering
site for the proceeds of any unlawful activity; and
(c) Consistent with its foreign policy, the Philippines shall
extend cooperation in transnational investigations and
prosecutions of persons involved in money laundering
activities wherever committed.
SEC. 4. Def
inition of Ter
ms. –
Definition
erms
(a) “Covered institutions” refer to the following:
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329
(1) 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).
A subsidiary means an entity more than fifty
percent (50%) of the outstanding voting stock of
which is owned by a bank, quasi-bank, trust entity or
any other institution supervised or regulated by the
BSP.
An affiliate means an entity at least twenty percent
(20%) but not exceeding fifty percent (50%) of the
voting stock of which is owned by a bank, quasibank, trust entity, or any other institution supervised
and/or regulated by the BSP.
(2) Insurance companies, insurance agents, insurance
brokers, professional reinsurers, reinsurance brokers,
holding companies, holding company systems, and
all other persons and entities supervised and/or
regulated by the Insurance Commission (IC).
An insurance company includes those entities
authorized to transact insurance business in the
Philippines, whether life or non-life and whether
domestic, domestically incorporated, or branch of a
foreign entity. A contract of insurance is an agreement
whereby one undertakes for a consideration to
indemnify another against loss, damage, or liability
arising from an unknown or contingent event.
Transacting insurance business includes making or
proposing to make, as insurer, any insurance contract,
or as surety, any contract of suretyship as a vocation
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and not as merely incidental to any other legitimate
business or activity of the surety, doing any kind of
business specifically recognized as constituting the
doing of an insurance business within the meaning
of Presidential Decree (P.D.) No. 612, as amended,
including a reinsurance business and doing or
proposing to do any business in substance equivalent
to any of the foregoing in a manner designed to evade
the provisions of P.D. No. 612, as amended.
An insurance agent includes any person who
solicits or obtains insurance on behalf of any
insurance company or transmits for a person other
than himself an application for a policy or contract
of insurance to or from such company or offers or
assumes to act in the negotiation of such insurance.
An insurance broker includes any person who acts
or aids in any manner in soliciting, negotiating or
procuring the making of any insurance contract or in
placing risk or taking out insurance, on behalf of an
insured other than himself.
A professional reinsurer includes any person,
partnership, association, or corporation that transacts
solely and exclusively reinsurance business in the
Philippines, whether domestic, domestically
incorporated, or a branch of a foreign entity. A contract
of reinsurance is one by which an insurer procures a
third person to insure him against loss or liability by
reason of such original insurance.
A reinsurance broker includes any person who,
not being a duly authorized agent, employee or officer
of an insurer in which any reinsurance is effected, acts
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or aids in any manner in negotiating contracts of
reinsurance or placing risks of effecting reinsurance,
for any insurance company authorized to do business
in the Philippines.
A holding company includes any person who
directly or indirectly controls any authorized insurer.
A holding company system includes a holding
company together with its controlled insurers and
controlled persons.
(3) (i) Securities dealers, brokers, salesmen, associated
persons of brokers or dealers, investment houses,
investment agents and consultants, trading
advisors, and other entities managing securities
or rendering similar services; (ii) mutual funds or
open-end investment companies, close-end
investment companies, common trust funds, preneed companies or issuers and other similar
entities; (iii) foreign exchange corporations,
money changers, money payment, remittance, and
transfer companies and other similar entities, and
(iv) other entities administering or otherwise
dealing in currency, commodities or financial
derivatives based thereon, valuable objects, cash
substitutes and other similar monetary instruments
or property supervised and/or regulated by the
Securities and Exchange Commission (SEC).
A securities broker includes a person engaged
in the business of buying and selling securities
for the account of others.
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A securities dealer includes any person who
buys and sells securities for his/her account in
the ordinary course of business.
A securities salesman includes a natural
person, employed as such or as an agent, by a dealer,
issuer or broker to buy and sell securities.
An associated person of a broker or dealer
includes an employee thereof who directly
exercises control of supervisory authority, but
does not include a salesman, or an agent, or a person
whose functions are solely clerical or ministerial.
An investment house includes an enterprise
which engages or purports to engage, whether
regularly or on an isolated basis, in the
underwriting of securities of another person or
enterprise, including securities of the Government
and its instrumentalities.
A mutual fund or an open-end investment
company includes an investment company which
is offering for sale or has outstanding, any
redeemable security of which it is the issuer.
A closed-end investment company includes
an investment company other than open-end
investment company.
A common trust fund includes a fund
maintained by an entity authorized to perform
trust functions under a written and formally
established plan, exclusively for the collective
investment and reinvestment of certain money
representing participation in the plan received by
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it in its capacity as trustee, for the purpose of
administration, holding or management of such
funds and/or properties for the use, benefit or
advantage of the trustor or of others known as
beneficiaries.
A pre-need company or issuer includes any
corporation supervised and/or regulated by the
SEC and is authorized or licensed to sell or offer
for sale pre-need plans.
A foreign exchange corporation includes any
enterprise which engages or purports to engage,
whether regularly or on an isolated basis, in the
sale and purchase of foreign currency notes and
such other foreign-currency denominated nonbank deposit transactions as may be authorized
under its articles of incorporation.
An investment agent or consultant or trading
advisor includes any person who is engaged in
the business of advising others as to the value of
any security and the advisability of trading in any
security or in the business of issuing reports or
making analysis of capital markets. However, in
case the issuance of reports or the rendering of
the analysis of capital markets is solely incidental
to the conduct of the business or profession of
banks, trust companies, journalists, reporters,
columnists, editors, lawyers, accountants, teachers,
and publishers of newspapers and business or
financial publications of general and regular
circulation, including their employees, they shall
not be deemed to be investment agents or
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consultants or trade advisors within the
contemplation of the AMLA and these Rules.
A money changer includes any person in the
business of buying or selling foreign currency
notes.
A money payment, remittance and transfer
company includes any person offering to pay,
remit or transfer or transmit money on behalf of
any person to another person.
(b) “Customer” refers to any person or entity that keeps an
account, or otherwise transacts business, with a covered
institution and any person or entity on whose behalf an
account is maintained or a transaction is conducted, as
well as the beneficiary of said transactions. A customer
also includes the beneficiary of a trust, an investment fund,
a pension fund or a company or person whose assets are
managed by an asset manager, or a grantor of a trust. It
includes any insurance policy holder, whether actual or
prospective.
(c) “Monetary Instrument” refers to:
(1) Coins or currency of legal tender of the Philippines,
or of any other country;
(2) Drafts, checks and notes;
(3) Securities or negotiable instruments, bonds,
commercial papers, deposit certificates, trust
certificates, custodial receipts or deposit substitute
instruments, trading orders, transaction tickets and
confirmations of sale or investments and money
market instruments;
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335
(4) Other similar instruments where title thereto passes
to another by endorsement, assignment, or delivery;
and
(5) Contracts or policies of insurance, life or non-life,
and contracts of suretyship.
(d) “Offender” refers to any person who commits a money
laundering offense.
(e) “Person” refers to any natural or juridical person.
(f) “Proceeds” refers to an amount derived or realized from
an unlawful activity. It includes:
(1) All material results, profits, effects and any amount
realized from any unlawful activity;
(2) All monetary, financial or economic means, devices,
documents, papers or things used in or having any
relation to any unlawful activity; and
(3) All moneys, expenditures, payments, disbursements,
costs, outlays, charges, accounts, refunds and other
similar items for the financing, operations, and
maintenance of any unlawful activity.
(g) “Property” includes any thing or item of value, real or
personal, tangible or intangible, or any interest therein or
any benefit, privilege, claim or right with respect thereto.
(h) “Supervising Authority” refers to the BSP, the SEC and
the IC. Where the SEC supervision applies only to the
incorporation of the registered institution, within the
limits of the AMLA, the SEC shall have the authority
to require and ask assistance from the government agency
having regulatory power and/or licensing authority over
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said covered institution for the implementation and
enforcement of the AMLA and these Rules.
(i) “Transaction” refers to any act establishing any right or
obligation or giving rise to any contractual or legal
relationship between the parties thereto. It also includes
any movement of funds by any means with a covered
institution.
ules. –
SEC. 5. Limitations of the R
Rules.
(a) The provisions of the AMLA and these Rules shall not
apply to deposits, investments, and all other accounts of
customers with covered institutions that were opened or
created prior to the effectivity of the AMLA on October
17, 2001. Hence, no covered transaction reports,
investigation and prosecution of money laundering cases,
or any other action authorized under the AMLA, may be
undertaken with respect to such deposits, investments and
accounts as well as transactions or circumstances in relation
thereto, that have been completed prior to October 17,
2001. However, the AMLA and these Rules shall apply
to all movements of funds respecting such deposits,
investments and accounts as well as transactions or
circumstances in relation thereto, that are initiated or
commenced on or after October 17, 2001.
(b) The AMLA and these Rules shall not be used for political
persecution or harassment or as an instrument to hamper
competition in trade and commerce.
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R ULE 2
C OMPOSITION AND P ROCEEDINGS OF
THE A NTI -M ONEY L AUNDERING C OUNCIL
SECTION 1. Composition. – The members of the Anti-Money
Laundering Council (AMLC) created under the AMLA shall be
the Governor of the BSP, the Insurance Commissioner and the
Chairman of the SEC. The Governor of the BSP shall be the
Chairman.
SEC. 2. Colle
giality
Collegiality
giality.. – The AMLC is a collegial body where
the Chairman and the members of the AMLC are entitled to
one (1) vote each.
S EC . 3. Unanimous Decision. – The AMLC shall act
unanimously in discharging its functions as defined in the AMLA
and in these Rules. However, in the case of the incapacity, absence
or disability of any member to discharge his functions, the officer
duly designated or authorized to discharge the functions of the
Governor of the BSP, the Chairman of the SEC or the Insurance
Commissioner, as the case may be, shall act in his stead in the
AMLC.
S EC. 4. Dele
uthority
Deleggation of A
Authority
uthority.. – Action on routinary
administrative matters may be delegated to any member of the
AMLC or to any ranking official of the Secretariat under such
guidelines as the AMLC may determine.
SEC. 5. Secretariat. –
(a) The Secretariat shall be headed by an Executive Director
who shall be appointed by the AMLC for a term of five
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(5) years. He must be a member of the Philippine Bar, at
least thirty-five (35) years of age and of good moral
character, unquestionable integrity and known probity.
He shall be considered a regular employee of the BSP
with the rank of Assistant Governor, and shall be entitled
to such benefits and subject to such rules and regulations
as are applicable to officers of similar rank.
(b) Other than the Executive Director whose qualifications
are provided for in the preceding paragraph, in organizing
the Secretariat, the AMLC may only choose from among
those who have served, continuously or cumulatively, for
at least five (5) years in the BSP, the SEC or the IC, but
who need not be incumbents therein at the time of their
appointment in the Secretariat. All members of the
Secretariat shall be considered regular employees of the
BSP and shall be entitled to such benefits and subject to
such rules and regulations as are applicable to BSP
employees of similar rank.
SEC. 6. Detail and Secondment of P
ersonnel. – The AMLC
Personnel.
is authorized under Section 7 (10) of the AMLA to enlist the
assistance of the BSP, the SEC or the IC or any other branch,
department, bureau, office, agency or instrumentality of the
government, including government-owned and-controlled
corporations, in undertaking any and all anti-money laundering
operations. This includes the use of any member of their personnel
who may be detailed or seconded to the AMLC, subject to existing
laws and Civil Service Rules and Regulations.
SEC. 7. Conf
identiality of Pr
oceedings. – The members of
Confidentiality
Proceedings.
the AMLC, the Executive Director, and all the members of the
Secretariat, whether permanent, on detail or on secondment, shall
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not reveal in any manner except under orders of the court, the
Congress or any government office or agency authorized by law,
or under such conditions as may be prescribed by the AMLC,
any information known to them by reason of their office. In case
of violation of this provision, the person shall be punished in
accordance with the pertinent provisions of R.A. Nos. 3019, 6713
and 7653.
SEC. 8. Meetings. – The AMLC shall meet every first Monday
of the month or as often as may be necessary at the call of the
Chairman. Subject to the rule on confidentiality in the
immediately preceding section, the meetings of the AMLC may
be conducted through modern technologies such as, but not
limited to, teleconferencing and video-conferencing.
SEC. 9. Budg
et. – The budget appropriated by the Congress
Budget.
shall be used to defray operational expenses of the AMLC,
including indemnification for legal costs and expenses reasonably
incurred for the services of external counsel or in connection
with any civil, criminal or administrative action, suit or proceedings
to which members of the AMLC and the Executive Director
and other members of the Secretariat may be made a party by
reason of the performance of their functions or duties.
R ULE 3
P OWERS
OF THE
AML
C
AMLC
S ECTION 1. Authority to Initiate In
ations on the
Invvestig
estigations
nment
Basis of Voluntar
oluntaryy Citizens’ Complaints and Go
Govver
ernment
Ag
enc
ef
er
rals. –
Agenc
encyy R
Ref
efer
errals.
(a) Any person, including covered institutions not subject to
any account secrecy laws and branches, departments,
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bureaus, offices, agencies and instrumentalities of the
government, including government-owned and-controlled
corporations, may report to the AMLC any activity that
engenders reasonable belief that any money laundering
offense under Section 4 of the AMLA and defined under
Rule 4 of these Rules is about to be, is being or has been
committed.
(b) The person so reporting shall file a Voluntary Citizens’
Complaint (VCC) or Government Referral (GR) in the
form prescribed by the AMLC. The VCC and GR forms
shall indicate that the members of the AMLC, the
Executive Director and all the members of the Secretariat
are bound by the confidentiality rule provided in Section
7, Rule 2 of these Rules. The VCC shall be signed by the
complainant. The GR shall be signed by the authorized
representative of the government agency concerned,
indicating his current position and rank therein.
(c) Any person who files a VCC or GR shall not incur any
liability for all their acts in relation thereto that were done
in good faith. However, any person who, with malice, or
in bad faith, reports or files a completely unwarranted or
false information relative to any money laundering
transaction against any person shall be subject to the
penalties provided for under Section 14 (c) of the AMLA.
(d) On the basis of the VCC or GR, the AMLC may initiate
investigation thereof, and based on the evidence gathered,
the AMLC may cause the filing of criminal complaints
with the Department of Justice or the Ombudsman for
the prosecution of money laundering offenses.
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S EC. 2. Authority to Initiate In
ations on the Basis
Invvestig
estigations
ts. –
of Co
ed Transaction R
Covver
ered
Ree por
ports.
(a) Covered Transactions. The mandatory duty and obligation
of covered institutions to make reports to the AMLC
covers the following transactions:
(1) A single transaction involving an amount in excess of
Four million Philippine pesos (Php4,000,000.00) or
an equivalent amount in foreign currency based on
the prevailing exchange rate where the client is not
properly identified and/or the amount is not
commensurate with his business or financial capacity.
(2) A single transaction involving an amount in excess of
Four million Philippine pesos (Php4,000,000.00) or
an equivalent amount in foreign currency based on
the prevailing exchange rate which has no underlying
legal or trade obligation, purpose, origin, or economic
justification.
(3) A series or combination of transactions conducted
within five (5) consecutive banking days aggregating
to a total amount in excess of Four million Philippine
pesos (Php4,000,000.00) or an equivalent in foreign
currency based on the prevailing exchange rate where
the client is not properly identified and/or the amount
is not commensurate with his business or financial
capacity.
(4) A series or combination of transactions conducted
within five (5) consecutive banking days aggregating
to a total amount in excess of Four million Philippine
pesos (Php4,000,000.00) or an equivalent in foreign
currency based on the prevailing exchange rate here
most, if not all the transactions, do not have any
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underlying legal or trade obligation, purpose, origin,
or economic justification.
(5) A single unusually large and complex transaction in
excess of Four million Philippine pesos
(Php4,000,000.00), especially a cash deposit or
investment having no credible purpose or origin,
underlying trade obligation or contract, regardless of
whether or not the client is properly identified and/
or the amount is commensurate with his business or
financial capacity.
(6) A series, combination or pattern of unusually large
and complex transactions aggregating to, without
reference to any period, a total amount in excess of
Four million Philippine pesos (Php4,000,000.00),
especially cash deposits and/or investments having
no credible purpose or origin, underlying trade
obligation or contract, regardless of whether or not
the client is properly identified and/or the amount is
commensurate with his business or financial capacity.
(b) Obligation to Report Covered Transactions. All covered
institutions supervised or regulated by the BSP, the SEC
and the IC shall report all covered transactions to the
AMLC within five (5) working days from the date of
the transaction or from the date when the covered
institution concerned gained/acquired information/
knowledge that the transaction is a covered transaction.
(c) Covered Transaction Report Form . The Covered
Transaction Report (CTR) shall be in the form prescribed
by the appropriate Supervising Authority and approved
by the AMLC. It shall be signed by the employee(s) who
dealt directly with the customer in the transaction and/
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or who made the initial internal report within the covered
institution, the compliance officer or his equivalent, and
a senior official of the bank with a rank not lower than
senior vice-president. The CTR shall be filed with the
AMLC in a central location, to be determined by the
AMLC, as indicated in the instructions on the CTR form.
(d) Exemption from Bank Secrecy Laws. When reporting
covered transactions to the AMLC, banks and their
officers, employees, representatives, agents, advisors,
consultants or associates shall not be deemed to have
violated R.A. No. 1405, as amended, R.A. No. 6426, as
amended, R.A. No. 8791 and other similar laws.
(e) Safe Harbor Provision. No administrative, criminal or
civil proceedings shall lie against any person for having
made a covered transaction report in the regular
performance of his duties and in good faith, whether or
not such reporting results in any criminal prosecution
under the AMLA or any other Philippine law.
(f) Filing of Criminal Complaints. On the basis of the CTR,
the AMLC may initiate investigation thereof, and based
on the evidence gathered, the AMLC may cause the filing
of criminal complaints with the Department of Justice
or the Ombudsman for the prosecution of money
laundering offenses.
(g) Malicious Reporting. Any person who, with malice, or in
bad faith, reports or files a completely unwarranted or
false information relative to any money laundering
transaction against any person, shall be subject to a penalty
of imprisonment from six (6) months to four (4) years
and a fine of not less than One hundred thousand
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Philippine pesos (Php100,000.00) but not more than
Five hundred thousand Philippine pesos
(Php500,000.00), at the discretion of the court: Provided,
That the offender is not entitled to avail of the benefits
under the Probation Law.
If the offender is a corporation, association,
partnership or any juridical person, the penalty shall be
imposed upon the responsible officers, as the case may be,
who participated or failed to prevent its commission. If
the offender is a juridical person, the court may suspend
or revoke its license. If the offender is an alien, he shall, in
addition to the penalties herein prescribed, be deported
without further proceedings after serving the penalties
herein prescribed. If the offender is a public official or
employee, he shall, in addition to the penalties prescribed
herein, suffer perpetual or temporary absolute
disqualification from office, as the case may be.
(h) Breach of Confidentiality. When reporting covered
transactions to the AMLC, covered institutions and their
officers, employees, representatives, agents, advisors,
consultants or associates are prohibited from
communicating, directly or indirectly, in any manner or
by any means, to any person, entity, or the media, the fact
that a covered 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. Violation of this provision shall
constitute the offense of breach of confidentiality
punished under Section 14 (d) of the AMLA with
imprisonment from three (3) to eight (8) years and a fine
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of not less than Five hundred thousand Philippine pesos
(Php500,000.00) but not more than One million
Philippine pesos (Php1,000,000.00).
(i) File of Covered Transactions. Covered institutions shall
maintain a complete file on all covered transactions that
have been reported to the AMLC. Covered institutions
shall undertake the necessary adequate security measures
to ensure the confidentiality of such file. The file of
covered transactions shall be kept for at least five (5) years:
Provided, That if money laundering cases based thereon
have been filed in court, the file must be retained beyond
the five(5)-year period until it is confirmed that the case
has been finally resolved or terminated by the court.
S EC. 3. Authority to Freeze Accounts. –
(a) The AMLC is authorized under Sections 6 (6) and 10
of the AMLA to freeze any account or any monetary
instrument or property subject thereof upon
determination that probable cause exists that the same is
in any way related to any unlawful activity and/or money
laundering offense. The AMLC may freeze any account
or any monetary instrument or property subject thereof
prior to the institution or in the course of, the criminal
proceedings involving the unlawful activity and/or money
laundering offense to which said account, monetary
instrument, or property is any way related. For purposes
of Section 10 of the AMLA and Section 3, Rule 3 of
these Rules, probable cause includes such facts and
circumstances which would lead a reasonably discreet,
prudent or cautious man to believe that an unlawful
activity and/or a money laundering offense is about to
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be, is being or has been committed and that the account
or any monetary instrument or property subject thereof
sought to be frozen is in any way related to said unlawful
activity and/or money laundering offense.
(b) The freeze order on such account shall be effective
immediately for a period not exceeding fifteen (15) days.
(c) The AMLC must serve notice of the freeze order upon
the covered institution concerned and the owner or holder
of the deposit, investment or similar account,
simultaneously with the issuance thereof. Upon receipt
of the notice of the freeze order, the covered institution
concerned shall immediately stop, freeze, block, suspend
or otherwise place under its absolute control the account
and the monetary instrument or property subject thereof.
(d) The owner or holder of the account so notified shall have
a non-extendible period of seventy-two (72) hours upon
receipt of the notice to file a verified explanation with
the AMLC why the freeze order should be lifted. Failure
of the owner or holder of the account to file such verified
explanation shall be deemed waiver of his right to
question the freeze order.
(e) The AMLC shall have seventy-two (72) hours from
receipt of the written explanation of the owner or holder
of the frozen account to resolve the same. If the AMLC
fails to act within said period, the freeze order shall
automatically be dissolved. However, the covered
institution shall not lift the freeze order without securing
official confirmation from the AMLC.
(f) Before the fifteen (15)-day period expires, the AMLC
may apply in court for an extension of said period. Upon
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the timely filing of such application and pending the
decision of the court to extend the period, said period
shall be suspended and the freeze order shall remain
effective.
(g) In case the court denies the application for extension, the
freeze order shall remain effective only for the balance of
the fifteen (15)-day period.
(h) No court shall issue a temporary restraining order or writ
of injunction against any freeze order issued by the
AMLC or any court order extending period of effectivity
of the freeze order except the Court of Appeals or the
Supreme Court.
(i) No assets shall be frozen to the prejudice of a candidate
for an electoral office during an election period.
S EC. 4. Authority to Inquire into Accounts . –
(a) The AMLC is authorized under Section 7 (2) of the
AMLA to issue orders addressed to the appropriate
Supervising Authority or any covered institution to
determine and reveal the true identity of the owner of
any monetary instrument or property subject of a covered
transaction report, or a request for assistance from a
foreign State, or believed by the AMLC, on the basis of
substantial evidence, to be, in whole or in part, wherever
located, representing, involving, or related to, directly or
indirectly, in any manner or by any means, the proceeds
of an unlawful activity. For purposes of the AMLA and
these Rules, substantial evidence includes such relevant
evidence as a reasonable mind might accept as adequate
to support a conclusion.
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(b) In case of any violation of the AMLA involving bank
deposits and investments, the AMLC may inquire into
or examine any particular deposit or investment with any
banking institution or non-bank financial institution
upon order of any competent court when the AMLC
has established that there is probable cause that the deposits
or investments involved are in any way related to any
unlawful activity and/or money laundering offense. The
AMLC may file the application for authority to inquire
into or examine any particular bank deposit or investment
in court, prior to the institution or in the course of, the
criminal proceedings involving the unlawful activity and/
or money laundering offense to which said bank deposit
or investment is any way related. For purposes of Section
11 of the AMLA and Section 4, Rule 3 of these Rules,
probable cause includes such facts and circumstances which
would lead a reasonably discreet, prudent or cautious man
to believe that an unlawful activity and/or a money
laundering offense is about to be, is being or has been
committed and that the bank deposit or investment sought
to be inquired into or examined is in any way related to
said unlawful activity and/or money laundering offense.
S EC . 5. Authority to Institute Civil Forfeiture
Pr
oceedings. – The AMLC is authorized under Section 7 (3)
Proceedings.
of the AMLA to institute civil forfeiture proceedings and all
other remedial proceedings through the Office of the Solicitor
General.
S EC . 6. Authority to Assist the United Nations and
other Inter
national Or
International
Orgganizations and FFor
oreign
or
eign States. –
The AMLC is authorized under Sections 7 (8) and 13 (b) and
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(d) of the AMLA to receive and take action in respect of any
request of foreign states for assistance in their own anti-money
laundering operations. It is also authorized under Section 7 (7)
of the AMLA to cooperate with the National Government and/
or take appropriate action in respect of conventions, resolutions
and other directives of the United Nations (UN), the UN
Security Council, and other international organizations of which
the Philippines is a member. However, the AMLC may refuse to
comply with any such request, convention, resolution or directive
where the action sought therein contravenes the provision of the
Constitution or the execution thereof is likely to prejudice the
national interest of the Philippines.
SEC. 7. Authority to Develop and Implement Educational
Pr
og
Prog
ograms.
rams. – The AMLC is authorized under Section 7 (9) of
the AMLA to develop educational programs on the pernicious
effects of money laundering, the methods and techniques used in
money laundering, the viable means of preventing money
laundering, and the effective ways of prosecuting and punishing
offenders. The AMLC shall conduct nationwide information
campaigns to heighten awareness of the public of their civic duty
as citizens to report any and all activities which engender reasonable
belief that a money laundering offense under Section 4 of the
AMLA is about to be, is being or has been committed.
SEC. 8. Authority to Issue, Clarify and Amend the Rules
and R
Ree gulations Implementing R.A. No
No.. 9160. – The
AMLC is authorized under Sections 7 (7), 18 and 19 of the
AMLA to promulgate as well as clarify and/or amend, as may be
necessary, these Rules. The AMLC may make appropriate issuances
for this purpose.
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S EC . 9. A uthority to Estab
lish Inf
or mation Sharing
Establish
Infor
System. – Subject to such limitations as provided for by law, the
AMLC is authorized under Section 7 (7) of the AMLA to
establish an information sharing system that will enable the
AMLC to store, track and analyze money laundering transactions
for the resolute prevention, detection and investigation of money
laundering offenses. For this purpose, the AMLC shall install a
computerized system that will be used in the creation and
maintenance of an information database. The AMLC is also
authorized, under Section 7 (9) of the AMLA to enter into
memoranda of agreement with the intelligence units of the Armed
Forces of the Philippines, the Philippine National Police, the
Department of Finance, the Department of Justice, as well as
their attached agencies, and other domestic or transnational
governmental or non-governmental organizations or groups for
sharing of all information that may, in any way, facilitate the
resolute prevention, investigation and prosecution of money
laundering offenses and other violations of the AMLA.
S EC . 10. Authority to Establish System of Incentives
and R
ew
ar
ds. – The AMLC is authorized under Section 15 of
Rew
ewar
ards.
the AMLA to establish a system of special incentives and rewards
to be given to the appropriate government agency and its personnel
that led and initiated the investigation, prosecution, and conviction
of persons involved in money laundering offenses under Section
4 of the AMLA. Any monetary reward shall be made payable
out of the funds appropriated by Congress.
SEC. 11. Other Inher
ent, Necessar
Inherent,
Necessaryy, Implied or Incidental
Powers. – The AMLC shall perform such other functions and
exercise such other powers as may be inherent, necessary, implied
or incidental to the functions assigned, and powers granted, to it
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under the AMLA for the purpose of carrying out the declared
policy of the AMLA.
R ULE 4
M ONEY L AUNDERING O FFENSES
S ECTION 1. Money Laundering Offenses and their
Cor
enalties. – Money laundering is a crime
Corrresponding P
Penalties.
whereby the proceeds of an unlawful activity are transacted, thereby
making them appear to have originated from legitimate sources.
It is a process comprising of three (3) stages, namely, placement
or the physical disposal of the criminal proceeds, layering or the
separation of the criminal proceeds from their source by creating
layers of financial transactions to disguise the audit trail, and
integration or the provision of apparent legitimacy to the criminal
proceeds. Any transaction involving such criminal proceeds or
attempt to transact the same during the placement, layering or
integration stage shall constitute the crime of money laundering.
(a) When it is committed by a person who, knowing that
any monetary instrument or property represents, involves,
or relates to, the proceeds of any unlawful activity, transacts
or attempts to transact said monetary instrument or
property, the penalty is imprisonment from seven (7) to
fourteen (14) years and a fine of not less than Three
million Philippine pesos (Php3,000,000.00) but not more
than twice the value of the monetary instrument or
property involved in the offense.
(b) When it is committed by a person who, knowing that
any monetary instrument or property involves the
proceeds of any unlawful activity, performs or fails to
perform any act, as a result of which he facilitates the
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offense of money laundering referred to in paragraph (a)
above, the penalty is imprisonment from four (4) to seven
(7) years and a fine of not less than One million five
hundred thousand Philippine pesos (Php1,500,000.00)
but not more than Three million Philippine pesos
(Php3,000,000.00).
(c) When it is committed by a person who, knowing that
any monetary instrument or property is required under
this Act to be disclosed and filed with the AMLC, fails
to do so, the penalty is imprisonment from six (6) months
to four (4) years or a fine of not less than One hundred
thousand Philippine pesos (Php100,000.00) but not more
than Five hundred thousand Philippine pesos
(Php500,000.00), or both.
S EC. 2. Unla
wful Acti
vities. – These refer to any act or
Unlawful
Activities.
omission or series or combination thereof involving or having
relation to the following:
(a) Kidnapping for ransom under Article of Act No. 3815,
the Revised Penal Code, as amended;
(b) Robbery and extortion under Articles 294, 295, 296, 299,
300, 301 and 302 of the same Code;
(c) Qualified theft under Article 310 of the same Code;
(d) Swindling under Article 315 of the same Code;
(e) Piracy on the high seas under the same Code and
Presidential Decree (P.D.) No. 532;
(f) Destructive arson and murder as defined under the same
Code and hijacking and other violations under Republic
Act (R.A.) No. 6235, including those perpetrated by
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terrorists against non-combatant persons and similar
targets;
(g) Jueteng and Masiao punished as illegal gambling under
P.D. No. 1602;
(h) Smuggling under R.A. Nos. 455 and 1937;
(i) Section 3, paragraphs B, C, E, G, H and I of R.A. No.
3019, the Anti-Graft and Corrupt Practices Act, as
amended;
(j) Sections 3, 4, 5, 7, 8 and 9 of Article Two of R.A. No.
6425, the Dangerous Drugs Act of 1972 as amended;
(k) Plunder under R.A. No. 7080, as amended;
(l) Violations under R.A. No. 8792, the Electronic
Commerce Act of 2000;
(m)Fraudulent practices and other violations under R.A. No.
8799, the Securities Regulation Code of 2000; and
(n) Felonies or offenses of a similar nature that are punishable
under the penal laws of other countries.
SEC. 3. Jurisdiction of Money Laundering Cases. – The
Regional Trial Courts shall have the jurisdiction to try all cases on
money laundering. Those committed by public officers and private
persons who are in conspiracy with such public officers shall be
under the jurisdiction of the Sandiganbayan.
S EC. 4. Prosecution of Money Laundering. –
(a) Any person may be charged with and convicted of both
the offense of money laundering and the unlawful activity
as defined under Section 3 (i) of the AMLA.
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(b) Any proceeding relating to the unlawful activity shall be
given precedence over the prosecution of any offense or
violation under the AMLA without prejudice to the
issuance by the AMLC of a freeze order with respect to
the deposit, investment or similar account involved therein
and resort to other remedies provided under the AMLA.
(c) Knowledge of the offender that any monetary instrument
or property represents, involves, or relates to the proceeds
of an unlawful activity or that any monetary instrument
or property is required under the AMLA to be disclosed
and filed with the AMLC, may be established by direct
evidence or inferred from the attendant circumstances.
(d) All the elements of every money laundering offense under
Section 4 of the AMLA must be proved by evidence
beyond reasonable doubt, including the element of
knowledge that the monetary instrument or property
represents, involves or relates to the proceeds of any
unlawful activity. No element of the unlawful activity,
however, including the identity of the perpetrators and
the details of the actual commission of the unlawful
activity need be established by proof beyond reasonable
doubt. The elements of the offense of money laundering
are separate and distinct from the elements of the felony
or offense constituting the unlawful activity.
(e) No case for money laundering may be filed to the
prejudice of a candidate for an electoral office during an
election period. However, this prohibition shall not
constitute a bar to the prosecution of any money
laundering case filed in court before the election period.
(f) The AMLC may apply, in the course of the criminal
proceedings, for provisional remedies to prevent the
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monetary instrument or property subject thereof from
being removed, concealed, converted, commingled with
other property or otherwise to prevent its being found or
taken by the applicant or otherwise placed or taken beyond
the jurisdiction of the court. However, no assets shall be
attached to the prejudice of a candidate for an electoral
office during an election period.
(g) Where there is conviction for money laundering under
Section 4 of the AMLA, the court shall issue a judgment
of forfeiture in favor of the Government of the
Philippines with respect to the monetary instrument or
property found to be proceeds of one or more unlawful
activities. However, no assets shall be forfeited to the
prejudice of a candidate for an electoral office during an
election period.
(h) Restitution for any aggrieved party shall be governed by
the provisions of the New Civil Code.
P REVENTION
R ULE 5
OF M ONEY L AUNDERING
S ECTION 1. Customer Identif
ication R
equir
ements. –
Identification
Requir
equirements.
(a) True Identity of Individuals as Clients. – Covered
institutions shall establish appropriate systems and
methods based on internationally compliant standards
and adequate internal controls for verifying and recording
the true and full identity of their customers.
For this purpose, they shall develop clear customer
acceptance policies and procedures when conducting
business relations or specific transactions, such as, but not
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limited to, opening of deposit accounts, accepting deposit
substitutes, entering into trust and other fiduciary
transactions, renting of safety deposit boxes, performing
remittances and other large cash transactions.
When dealing with customers who are acting as
trustee, nominee, agent or in any capacity for and on behalf
of another, covered institutions shall verify and record
the true and full identity of the person(s) on whose behalf
a transaction is being conducted. Covered institutions shall
also establish and record the true and full identity of such
trustees, nominees, agents and other persons and the nature
of their capacity and duties. In case a covered institution
has doubts as to whether such persons are being used as
dummies in circumvention of existing laws, it shall
immediately make the necessary inquiries to verify the
status of the business relationship between the parties.
(b) Minimum Information/Documents required for
Individual Customers. – Covered institutions shall require
customers to produce original documents of identity
issued by an official authority, preferably bearing a
photograph of the customer. Examples of such
documents are identity cards and passports. Where
practicable, file copies of documents of identity are to be
kept. Alternatively, the identity card or passport number
and/or other relevant details are to be recorded. The
following minimum information/documents shall be
obtained from individual customers:
(1) Name;
(2) Present address;
(3) Permanent address;
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(4) Date and place of birth;
(5) Nationality;
(6) Nature of work and name of employer or nature
of self-employment/business;
(7) Contact numbers;
(8) Tax identification number, Social Security System
number or Government Service and Insurance
System number;
(9) Specimen signature;
(10) Source of fund(s); and
(11) Names of beneficiaries in case of insurance contracts
and whenever applicable.
(c) Minimum Information/Documents Required for
Corporate and Juridical Entities. – Before establishing
business relationships, covered institutions shall endeavor
to ensure that the customer that is a corporate or juridical
entity has not been or is not in the process of being,
dissolved, wound up or voided, or that its business or
operations has not been or is not in the process of being,
closed, shut down, phased out, or terminated. Dealings
with shell companies and corporations, being legal entities
which have no business substance in their own right but
through which financial transactions may be conducted,
should be undertaken with extreme caution. The following
minimum information/documents shall be obtained
from customers that are corporate or juridical entities,
including shell companies and corporations:
(1) Articles of Incorporation/Partnership;
(2) By-laws;
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(3) Official address or principal business address;
(4) List of directors/partners;
(5) List of principal stockholders owning at least two
percent (2%) of the capital stock;
(6) Contact numbers;
(7) Beneficial owners, if any; and
(8) Verification of the authority and identification of
the person purporting to act on behalf of the client.
(d) Verification without Face-to-Face Contact. – To the
extent and through such means allowed under existing
laws and applicable rules and regulations of the BSP, the
SEC and the IC, covered institutions may create new
accounts without face-to-face contact. However, such new
accounts shall not be valid and effective unless the
customer complies with the requirements under the two
(2) immediately preceding subsections and such other
requirements that have been or will be imposed by the
BSP, the SEC and the IC, as the case may be, pursuant to
Rule 5 of these Rules and/or their respective charters,
within ten (10) days from the creation of the new
accounts. Unless such requirements have been fully
complied with, no transaction shall be honored by any
covered institution respecting an account created without
face-to-face contact.
(e) Acquisition of Another Covered Institution. – When a
covered institution acquires the business of another
covered institution, either in whole or as a product
portfolio, it is not necessary for the identity of all existing
customers to be re-established: Provided, That all customer
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359
account records are acquired with the business and due
diligence inquiries do not raise any doubt as to whether
or not the acquired business has fully complied with all
the requirements under the AMLA and these Rules.
(f) Risk-monitoring and Review. – Covered institutions shall
adopt programs for on-going monitoring of high-risk
accounts and risk management, subject to such rules and
regulations as may be prescribed by the appropriate
Supervising Authority. Regular reviews of customer base
should be undertaken to ensure that the nature of accounts
and potential risks are properly identified, monitored and
controlled.
(g) Prohibition against Certain Accounts . – Covered
institutions shall maintain accounts only in the true name
of the account owner or holder. The provisions of existing
laws to the contrary notwithstanding, anonymous
accounts, accounts under fictitious names, incorrect name
accounts and all other similar accounts shall be absolutely
prohibited.
(h) Numbered Accounts. – Peso and foreign currency nonchecking numbered accounts shall be allowed: Provided,
That the true identity of the customer is satisfactorily
established based on official and other reliable documents
and records, and that the information and documents
required under Section 1 (b) and (c) of Rule 5 of these
Rules are obtained and recorded by the covered institution.
The BSP may conduct annual testing for the purpose of
determining the existence and true identity of the owners
of such accounts.
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SEC. 2. Recor
dk
ee
ping R
equir
ements. – Covered transactions
ecordk
dkee
eeping
Requir
equirements.
shall prepare and maintain documentation on their customer
accounts, relationships and transactions such that any account,
relationship or transaction can be so reconstructed as to enable
the AMLC, the law enforcement and prosecutorial authorities,
and/or the courts to establish an audit trail for money laundering.
(a) Existing and New Accounts and New Transactions. – All
records of existing and new accounts and of new
transactions shall be maintained and safely stored for five
(5) years from October 17, 2001 or from the dates of
the accounts or transactions, whichever is later.
(b) Closed Accounts. – With respect to closed accounts, the
records on customer identification, account files and
business correspondence shall be preserved and safely
stored for at least five (5) years from the dates when they
were closed.
(c) Retention of Records in Case a Money Laundering Case
Has Been Filed in Court. – If a money laundering case
based on any record kept by the covered institution
concerned has been filed in court, said file must be retained
beyond the period stipulated in the two (2) immediately
preceding subsections, as the case may be, until it is
confirmed that the case has been finally resolved or
terminated by the court.
(d) Form of Records. – Records shall be retained as originals
or certified true copies on paper, microfilm or electronic
form: Provided, That such forms are admissible in court
pursuant to existing laws and the applicable rules
promulgated by the Supreme Court.
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(e) Penalties for Failure to Keep Records. – The penalty of
imprisonment from six (6) months to one (1) year or a
fine of not less than One hundred thousand Philippine
pesos (Php100,000.00) but not more than Five hundred
thousand Philippine pesos (Php500,000.00), or both,
shall be imposed on a person convicted for a violation of
Section 9 (b) of the AMLA.
S EC . 3. Money Laundering Prevention Programs. –
Covered institutions shall formulate their respective money
laundering prevention programs in accordance with Section 9 and
other pertinent provisions of the AMLA and Sections 1 and 2
of Rules 3 and 4 and other pertinent provisions of these Rules,
subject to such guidelines as may be prescribed by the Supervising
Authority and approved by the AMLC. Every covered institution
shall submit its own money laundering program to the Supervising
Authority concerned within a non-extendible period of sixty (60)
days from the date of effectivity of these Rules.
Every money laundering program shall establish detailed
procedures implementing a comprehensive, institution-wide
“know-your-client” policy, set-up an effective dissemination of
information on money laundering activities and their prevention,
detection and reporting, adopt internal policies, procedures and
controls, designate compliance officers at management level,
institute adequate screening and recruitment procedures, and setup an audit function to test the system.
Covered institutions shall adopt, as part of their money
laundering programs, a system of flagging and monitoring
transactions that qualify as covered transactions except that they
involve amounts below the threshold to facilitate the process of
aggregating them for purposes of future reporting of such
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transactions to the AMLC when their aggregated amounts breach
the threshold. Covered institutions not subject to account secrecy
laws shall incorporate in their money laundering programs the
provisions of Section 1, Rule 3 of these Rules and such other
guidelines for the voluntary reporting to the AMLC of all
transactions that engender the reasonable belief that a money
laundering offense is about to be, is being, or has been committed.
SEC. 4. Training of P
ersonnel. – Covered institutions shall
Personnel.
provide all their responsible officers and personnel with efficient
and effective training and continuing education programs to enable
them to fully comply with all their obligations under the AMLA
and these Rules.
R ULE 6
F ORFEITURE
S ECTION 1. Ci
vil FForf
orf
eitur
e. – When there is a covered
Civil
orfeitur
eiture.
transaction report made, and the court has, in a petition filed for
the purpose ordered seizure of any monetary instrument or
property, in whole or in part, directly or indirectly, related to said
report, the Revised Rules of Court on civil forfeiture shall apply.
However, no assets shall be forfeited to the prejudice of a candidate
for an electoral office during an election period.
SEC. 2. Claim on FForf
orf
eited Assets. – Where the court has
orfeited
issued an order of forfeiture of the monetary instrument or
property in a criminal prosecution for any money laundering
offense under Section 4 of the AMLA, the offender or any other
person claiming an interest therein may apply, by verified petition,
for a declaration that the same legitimately belongs to him and
for segregation or exclusion of the monetary instrument or property
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corresponding thereto. The verified petition shall be filed with
the court which rendered the judgment of conviction and order
of forfeiture, within fifteen (15) days from the date of the order
of forfeiture, in default of which the said order shall become
final and executory. This provision shall apply in both civil and
criminal forfeiture.
SEC. 3. Payment in lieu of FForf
orf
orfeitur
eituree. – Where the court
eitur
has issued an order of forfeiture of the monetary instrument or
property subject of a money laundering offense under Section 4
of the AMLA, and said order cannot be enforced because any
particular monetary instrument or property cannot, with due
diligence, be located, or it has been substantially altered, destroyed,
diminished in value or otherwise rendered worthless by any act or
omission, directly or indirectly, attributable to the offender, or it
has been concealed, removed, converted or otherwise transferred
to prevent the same from being found or to avoid forfeiture
thereof, or it is located outside the Philippines or has been placed
or brought outside the jurisdiction of the court, or it has been
commingled with other monetary instruments or property
belonging to either the offender himself or a third person or entity,
thereby rendering the same difficult to identify or be segregated
for purposes of forfeiture, the court may, instead of enforcing
the order of forfeiture of the monetary instrument or property
or part thereof or interest therein, accordingly order the convicted
offender to pay an amount equal to the value of said monetary
instrument or property. This provision shall apply in both civil
and criminal forfeiture.
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R ULE 7
A SSIST
ANCE A MONG S TATES
SSISTANCE
SECTION 1. Request ffor
or Assistance fr
om a FFor
or
eign State.
from
oreign
– Where a foreign state makes a request for assistance in the
investigation or prosecution of a money laundering offense, the
AMLC may execute the request or refuse to execute the same and
inform the foreign state of any valid reason for not executing the
request or for delaying the execution thereof. The principles of
mutuality and reciprocity shall, for this purpose, be at all times
recognized.
S EC. 2. Powers of the AML
C to Act on a R
equest ffor
or
AMLC
Request
Assistance fr
om a FFor
or
eign State. – The AMLC may execute
from
oreign
a request for assistance from a foreign state by: (a) tracking down,
freezing, restraining and seizing assets alleged to be proceeds of
any unlawful activity under the procedures laid down in the
AMLA and in these Rules; (b) giving information needed by the
foreign state within the procedures laid down in the AMLA and
in these Rules; and (c) applying for an order of forfeiture of any
monetary instrument or property in the court: Provided, That
the court shall not issue such an order unless the application is
accompanied by an authenticated copy of the order of a court in
the requesting state ordering the forfeiture of said monetary
instrument or property of a person who has been convicted of a
money laundering offense in the requesting state, and a certification
or an affidavit of a competent officer of the requesting state stating
that the conviction and the order of forfeiture are final and that
no further appeal lies in respect of either.
SEC. 3. Obtaining Assistance FFrrom FFor
or
eign States. – The
oreign
AMLC may make a request to any foreign state for assistance in
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(a) tracking down, freezing, restraining and seizing assets alleged
to be proceeds of any unlawful activity; (b) obtaining information
that it needs relating to any covered transaction, money laundering
offense or any other matter directly or indirectly related thereto;
(c) to the extent allowed by the law of the foreign state, applying
with the proper court therein for an order to enter any premises
belonging to or in the possession or control of, any or all of the
persons named in said request, and/or search any or all such persons
named therein and/or remove any document, material or object
named in said request: Provided, That the documents accompanying
the request in support of the application have been duly
authenticated in accordance with the applicable law or regulation
of the foreign state; and (d) applying for an order of forfeiture
of any monetary instrument or property in the proper court in
the foreign state: Provided, That the request is accompanied by an
authenticated copy of the order of the Regional Trial Court
ordering the forfeiture of said monetary instrument or property
of a convicted offender and an affidavit of the clerk of court
stating that the conviction and the order of forfeiture are final
and that no further appeal lies in respect of either.
S EC. 4. Limitations on R
equests ffor
or Mutual Assistance.
Requests
– The AMLC may refuse to comply with any request for assistance
where the action sought by the request contravenes any provision
of the Constitution or the execution of a request is likely to
prejudice the national interest of the Philippines, unless there is a
treaty between the Philippines and the requesting state relating to
the provision of assistance in relation to money laundering offenses.
SEC. 5. Requir
ements ffor
or R
equests ffor
or Mutual Assistance
equirements
Requests
from Foreign States. – A request for mutual assistance from a
foreign state must (a) confirm that an investigation or prosecution
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is being conducted in respect of a money launderer named therein
or that he has been convicted of any money laundering offense;
(b) state the grounds on which any person is being investigated
or prosecuted for money laundering or the details of his
conviction; (c) give sufficient particulars as to the identity of
said person; (d) give particulars sufficient to identify any covered
institution believed to have any information, document, material
or object which may be of assistance to the investigation or
prosecution; (e) ask from the covered institution concerned any
information, document, material or object which may be of
assistance to the investigation or prosecution; (f) specify the
manner in which and to whom said information, document,
material or object obtained pursuant to said request, is to be
produced; (g) give all the particulars necessary for the issuance by
the court in the requested state of the writs, orders or processes
needed by the requesting state; and (8) contain such other
information as may assist in the execution of the request.
SEC. 6. Authentication of Documents. – For purposes of
Section 13 of the AMLA and Rule 7 of these Rules, a document
is authenticated if the same is signed or certified by a judge,
magistrate or equivalent officer in or of the requesting state, and
authenticated by the oath or affirmation of a witness or sealed
with an official or public seal of a minister, secretary of state, or
officer in or of, the government of the requesting state, or of the
person administering the government or a department of the
requesting territory, protectorate or colony. The certificate of
authentication may also be made by a secretary of the embassy or
legation, consul general, consul, vice consul, consular agent or any
officer in the foreign service of the Philippines stationed in the
foreign state in which the record is kept, and authenticated by the
seal of his office.
2004]
RULES AND REGULATIONS IMPLEMENTING THE
ANTI-MONEY LAUNDERING ACT OF 2001
(REPUBLIC ACT NO. 9160)
367
SEC. 7. Extradition. – The Philippines shall negotiate for the
inclusion of money laundering offenses as defined under Section
4 of the AMLA among the extraditable offenses in all future
treaties.
R ULE 8
A MENDMENTS AND E FFECTIVITY
S ECTION 1. Amendments. – These Rules or any portion
thereof may be amended by unanimous vote of the members of
the AMLC and approved by the Congressional Oversight
Committee as provided for under Section 19 of the AMLA.
SEC. 2. Ef
vity. – These Rules shall take effect after its
Efffecti
ectivity
approval by the Congressional Oversight Committee and fifteen
(15) days after the completion of its publication in the Official
Gazette or in a newspaper of general circulation.
Revised Implementing R
ules
Rules
and R
Ree gulations
R.A. No
No.. 9160, as amended bbyy
R.A. No
No.. 9194
R ULE 1
T ITLE
RULE 1.A. Title. – These Rules shall be known and cited as the
“Revised Rules and Regulations Implementing Republic Act No.
9160" (the Anti-Money Laundering Act of 2001 [AMLA], as
amended bbyy R
lic Act No
Ree pub
public
No.. 9194
9194.
RULE 1.B. Pur
pose
Purpose
pose. – These Rules are promulgated to prescribe
the procedures and guidelines for the implementation of the
lic Act No
AMLA, as amended bbyy R
Reepub
public
No.. 9194
9194.
R ULE 2
D ECLARA
TION
ECLARATION
OF
P OLICY
RULE 2. Dec
laration of P
olic
Declaration
Polic
olicyy. – It is hereby declared the
policy of the State to protect the integrity and confidentiality of
bank accounts and to ensure that the Philippines shall not be
used as money laundering site for the proceeds of any unlawful
activity. Consistent with its foreign policy, the Philippines shall
extend cooperation in transnational investigations and prosecutions
of persons involved in money laundering activities wherever
committed.
2004]
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AS AMENDED BY REPUBLIC ACT NO. 9194
369
R ULE 3
D EFINITIONS
RULE 3. Def
initions. – For purposes of this Act, the following
Definitions.
terms are hereby defined as follows:
RULE 3. A. “Covered Institution” refers to:
RULE 3.A.1. Banks, offshore banking units, quasi-banks, trust
entities, nonstock 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).
(a) A subsidiary means an entity more than fifty percent
(50%) of the outstanding voting stock of which is owned
by a bank, quasi-bank, trust entity or any other institution
supervised or regulated by the BSP.
(b) An affiliate means an entity at least twenty percent (20%)
but not exceeding fifty percent (50%) of the voting stock
of which is owned by a bank, quasi-bank, trust entity, or
any other institution supervised and/or regulated by the
BSP.
RULE 3.A.2. Insurance companies, insurance agents, insurance
brokers, professional reinsurers, reinsurance brokers, holding
companies, holding company systems, and all other persons and
entities supervised and/or regulated by the Insurance Commission
(IC).
(a) An insurance company includes those entities authorized
to transact insurance business in the Philippines, whether
life or non- life and whether domestic, domestically
incorporated, or branch of a foreign entity. A contract of
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insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event.
Transacting insurance business includes making or
proposing to make, as insurer, any insurance contract, or
as surety, any contract of suretyship as a vocation and not
as merely incidental to any other legitimate business or
activity of the surety, doing any kind of business
specifically recognized as constituting the doing of an
insurance business within the meaning of Presidential
Decree (P.D.) No. 612, as amended, including a reinsurance
business and doing or proposing to do any business in
substance equivalent to any of the foregoing in a manner
designed to evade the provisions of P.D. No. 612, as
amended.
(b) An insurance agent includes any person who solicits or
obtains insurance on behalf of any insurance company
or transmits for a person other than himself an application
for a policy or contract of insurance to or from such
company or offers or assumes to act in the negotiation of
such insurance.
(c) An insurance broker includes any person who acts or aids
in any manner in soliciting, negotiating or procuring the
making of any insurance contract or in placing risk or
taking out insurance, on behalf of an insured other than
himself.
(d) A professional reinsurer includes any person, partnership,
association or corporation that transacts solely and
exclusively reinsurance business in the Philippines, whether
domestic, domestically incorporated or a branch of a
foreign entity. A contract of reinsurance is one by which
2004]
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AS AMENDED BY REPUBLIC ACT NO. 9194
371
an insurer procures a third person to insure him against
loss or liability by reason of such original insurance.
(e) A reinsurance broker includes any person who, not being
a duly authorized agent, employee or officer of an insurer
in which any reinsurance is effected, acts or aids in any
manner in negotiating contracts of reinsurance or placing
risks of effecting reinsurance for any insurance company
authorized to do business in the Philippines.
(f) A holding company includes any person who directly or
indirectly controls any authorized insurer. A holding
company system includes a holding company together
with its controlled insurers and controlled persons.
R ULE 3. A .3.
(i) Securities dealers, brokers, salesmen, associated persons of
brokers or dealers, investment houses, investment agents
and consultants, trading advisors, and other entities
managing securities or rendering similar services;
(ii) mutual funds or open-end investment companies, closeend investment companies, common trust funds, pre-need
companies or issuers and other similar entities;
(iii) foreign exchange corporations, money changers, money
payment, remittance, and transfer companies and other
similar entities; and
(iv) other entities administering or otherwise dealing in
currency, commodities or financial derivatives based
thereon, valuable objects, cash substitutes, and other
similar monetary instruments or property supervised
and/or regulated by the Securities and Exchange
Commission (SEC).
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(a) A securities broker includes a person engaged in the
business of buying and selling securities for the
account of others.
(b) A securities dealer includes any person who buys and
sells securities for his/her account in the ordinary
course of business.
(c) A securities salesman includes a natural person,
employed as such-or as an agent, by a dealer, issuer or
broker to buy and sell securities.
(d) An associated person of a broker or dealer includes
an employee thereof who directly exercises control or
supervisory authority, but does not include a salesman,
or an agent or a person whose functions are solely
clerical or ministerial.
(e) An investment house includes an enterprise which
engages or purports to engage, whether regularly or
on an isolated basis, in the underwriting of securities
of another person or enterprise, including securities
of the Government and its instrumentalities.
(f) A mutual fund or an open-end investment company
includes an investment company which is offering
for sale or has outstanding, any redeemable security
of which it is the issuer.
(g) A closed-end investment company includes an
investment company other than open-end investment
company.
(h) A common trust fund includes a fund maintained by
an entity authorized to perform trust functions under
a written and formally established plan, exclusively
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REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
373
for the collective investment and reinvestment of
certain money representing participation in the plan
received by it in its capacity as trustee, for the purpose
of administration, holding or management of such
funds and/or properties for the use, benefit, or
advantage of the trustor or of others known as
beneficiaries.
(i) A pre-need company or issuer includes any corporation
supervised and/or regulated by the SEC and is
authorized or licensed to sell or offer for sale preneed plans. Pre-need plans are contracts which provide
for the performance of future service(s) or payment
of future monetary consideration at the time of actual
need, payable either in cash or installment by the plan
holder at prices stated in the contract with or without
interest or insurance coverage and includes life, pension,
education, internment and other plans, which the
Commission may, from time to time, approve.
(j) A foreign exchange corporation includes any enterprise
which engages or purports to engage, whether
regularly or on isolated basis, in the sale and purchase
of foreign currency notes and such other foreign
currency denominated non-bank deposit transactions
as may be authorized under its articles of
incorporation.
(k) Investment Advisor/Agent/Consultant shall refer to
any person:
(1) who for an advisory fee is engaged in the business
of advising others, either directly or through
circulars, reports, publications or writings, as to
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the value of any security and as to the advisability
of trading in any security; or
(2) who for compensation and as part of a regular
business, issues or promulgates, analyzes reports
concerning the capital market, except:
(a) any bank or trust company;
(b) any journalist, reporter, columnist, editor,
lawyer, accountant, teacher;
(c) the publisher of any bonafide newspaper,
news, business or financial publication of
general and regular circulation, including their
employees;
(d) any contract market;
(e) such other person not within the intent of
this definition, provided that the furnishing
of such service by the foregoing persons is
solely incidental to the conduct of their
business or profession.
(3) any person who undertakes the management of
portfolio securities of investment companies,
including the arrangement of purchases, sales or
exchanges of securities.
(l) A moneychanger includes any person in the business
of buying or selling foreign currency notes.
(m)A money payment, remittance and transfer company
includes any person offering to pay, remit or transfer
or transmit money on behalf of any person to another
person.
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
375
(n) “Customer” refers to any person or entity that keeps
an account, or otherwise transacts business, with a
covered institution and any person or entity on whose
behalf an account is maintained or a transaction is
conducted, as well as the beneficiary of said
transactions. A customer also includes the beneficiary
of a trust, an investment fund, a pension fund or a
company or person whose assets are managed by an
asset manager, or a grantor of a trust. It includes any
insurance policy holder, whether actual or prospective.
(o) “Property” includes any thing or item of value, real
or personal, tangible or intangible, or any interest
therein or any benefit, privilege, claim or right with
respect thereto.
RULE 3.B. “Covered Transanction” is a transaction in cash or
other equivalent monetary instrument involving a total amount
in excess of Five hundred thousand pesos (Php500,000.00),
within one (1) banking day.
RULE 3.B.1. Suspicious transactions are transactions regardless
of amount, where any of the following circumstances exists:
1. There is no underlying legal or trade obligation,
purpose or economic justification;
2. The client is not properly identified;
3. The amount involved is not comensurate with the
business or financial capacity of the client;
4. 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;
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5. 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;
6. The transaction is in any way related to an unlawful
activity or any money laundering activity or ofense
under this Act that is about to be, is being or has
been committed; or
7. Any transaction that is similar, analogous or identical
to any of the foregoing.
RULE 3.C. “Monetary Instrument” refers to:
(1) Coins or currency of legal tender of the Philippines, or
of any other country;
(2) Drafts, checks and notes;
(3) Securities or negotiable instruments, bonds, commercial
papers, deposit certificates, trust certificates, custodial
receipts or deposit substitute instruments, trading orders,
transaction tickets and confirmations of sale or
investments and money market instruments;
(4) Contracts or policies of insurance, life or non-life, and
contracts of suretyship; and
(5) Other similar instruments where title thereto passes to
another by endorsement, assignment or delivery.
RULE 3.D. “Offender” refers to any person who commits a money
laundering offense.
RULE 3.E. “Person” refers to any natural or juridical person.
RULE 3.F “Proceeds” refers to an amount derived or realized
from an unlawful activity. It includes:
2004]
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REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
377
(1) All material results, profits, effects and any amount realized
from any unlawful activity;
(2) All monetary, financial or economic means, devices,
documents, papers or things used in or having any relation
to any unlawful activity; and
(3) All moneys, expenditures, payments, disbursements, costs,
outlays, charges, accounts, refunds and other similar items
for the financing, operations, and maintenance of any
unlawful activity.
RULE 3.G. “Supervising Authority” refers to the BSP, the SEC
and the IC. Where the BSP, SEC or IC supervision applies only
to the registration of the covered institution – the BSP, the SEC
or the IC, within the limits of the AMLA, shall have the authority
to require and ask assistance from the government agency having
regulatory power and/or licensing authority over said covered
institution for the implementation and enforcement of the AMLA
and these Rules.
RULE 3.H. “Transaction” refers to any act establishing any right
or obligation or giving rise to any contractual or legal relationship
between the parties thereto. It also includes any movement of
funds by any means with a covered institution.
RULE 3.I. “Unlawful activity” refers to any act or omission or
series or combination thereof involving or having relation, to the
following:
(A) Kidnapping for ransom under Article 267 of Act No.
3815, otherwise known as the Revised Penal Code, as
amended;
(14) Kidnapping for ransom
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(B) Sections 4, 5, 6, 8, 9, 10, 12,13, 14, 15 and 16 of Republic
Act No. 9165, otherwise known as the Comprehensive
Dangerous Drugs Act of 2002;
(14) Importation of prohibited drugs;
(15) Sale of prohibited drugs;
(16) Administration of prohibited drugs;
(17) Delivery of prohibited drugs;
(18) Distribution of prohibited drugs;
(19) Transportation of prohibited drugs;
(20) Maintenance of a Den, Dive or Resort for
prohibited users;
(21) Manufacture of prohibited drugs;
(22) Possession of prohibited drugs;
(23) Use of prohibited drugs;
(24) Cultivation of plants which are sources of
prohibited drugs;
(25) Culture of plants which are sources of prohibited
drugs
(C) 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;
(14) Directly or indirectly requesting or receiving any
gift, present, share, percentage or benefit for himself
or for any other person in connection with any
contract or transaction between the Government
and any party, wherein the public officer in his
official capacity has to intervene under the law;
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(15) Directly or indirectly requesting or receiving any
gift, present or other pecuniary or material benefit,
for himself or for another, from any person for
whom the public officer, in any manner or capacity,
has secured or obtained, or will secure or obtain,
any government permit or license, in consideration
for the help given or to be given, without prejudice
to Section 13 of R.A. 3019;
(16) Causing any undue injury to any party, including
the government, or giving any private party any
unwarranted benefits, advantage or preference in
the discharge of his official, administrative or
judicial functions through manifest partiality,
evident bad faith or gross inexcusable negligence;
(17) Entering, on behalf of the government, into any
contract or transaction manifestly and grossly
disadvantageous to the same, whether or not the
public officer profited or will profit thereby;
(18) Directly or indirectly having financial or pecuniary
interest in any business contract or transaction in
connection with which he intervenes or takes part
in his official capacity, or in which he is prohibited
by the Constitution or by any law from having any
interest;
(19) Directly or indirectly becoming interested, for
personal gain, or having material interest in any
transaction or act requiring the approval of a board,
panel or group of which he is a member, and which
exercise of discretion in such approval, even if he
votes against the same or he does not participate in
the action of the board, committee, panel or group.
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(D) Plunder under Republic Act No. 7080, as amended;
(20) Plunder through misappropriation, conversion,
misuse or malversation of public funds or raids
upon the public treasury;
(21) Plunder by receiving, directly or indirectly, any
commission, gift, share, percentage, kickbacks or any
other form of pecuniary benefit from any person
and/or entity in connection with any government
contract or project or by reason of the office or
position of the public officer concerned;
(22) Plunder by the illegal or fraudulent conveyance or
disposition of assets belonging to the National
Government or any of its subdivisions, agencies,
instrumentalities or government-owned or
controlled corporations or their subsidiaries;
(23) Plunder by obtaining, receiving or accepting,
directly or indirectly, any shares of stock, equity or
any other form of interest or participation including
the promise of future employment in any business
enterprise or undertaking;
(24) Plunder by establishing agricultural, industrial or
commercial monopolies or other combinations
and/or implementation of decrees and orders
intended to benefit particular persons or special
interests;
(25) Plunder by taking undue advantage of official
position, authority, relationship, connection or
influence to unjustly enrich himself or themselves
at the expense and to the damage and prejudice of
the Filipino people and the Republic of the
Philippines.
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(E) Robbery and extortion under Articles 294, 295, 296, 299,
300, 301 and 302 of the Revised Penal Code, as amended;
(26) Robbery with violence or intimidation of persons;
(27) Robbery with physical injuries, committed in an
uninhabited place and by a band, or with use of
firearms on a street, road or alley;
(28) Robbery in an uninhabited house or public building
or edifice devoted to worship.
(F) Jueteng and Masiao punished as illegal gambling under
Presidential Decree No. 1602;
(29) Jueteng;
(30) Masiao.
(G)Piracy on the high seas under the Revised Penal Code, as
amended, and Presidential Decree No. 532;
(31) Piracy on the high seas;
(32) Piracy in inland Philippine waters;
(33) Aiding and abetting pirates and brigands.
(H) Qualified theft under Article 310 of the Revised Penal
Code, as amended;
(34) Qualified theft.
(I) Swindling under Article 315 of the Revised Penal Code,
as amended;
(35) Estafa with unfaithfulness or abuse of confidence
by altering the substance, quality or quantity of
anything of value which the offender shall deliver
by virtue of an obligation to do so, even though
such obligation be based on an immoral or illegal
consideration;
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(36) Estafa with unfaithfulness or abuse of confidence
by misappropriating or converting, to the prejudice
of another, money, goods or any other personal
property received by the offender in trust or on
commission, or for administration, or under any
other obligation involving the duty to make delivery
or to return the same, even though such obligation
be totally or partially guaranteed by a bond; or by
denying having received such money, goods, or other
property;
(37) Estafa with unfaithfulness or abuse of confidence
by taking undue advantage of the signature of the
offended party in blank, and by writing any
document above such signature in blank, to the
prejudice of the offended party or any third person;
(38) Estafa by using a fictitious name, or falsely
pretending to possess power, influence,
qualifications, property, credit, agency, business or
imaginary transactions, or by means of other similar
deceits;
(39) Estafa by altering the quality, fineness or weight of
anything pertaining to his art or business;
(40) Estafa by pretending to have bribed any
government employee;
(41) Estafa by postdating a check, or issuing a check in
payment of an obligation when the offender has
no funds in the bank, or his funds deposited therein
were not sufficient to cover the amount of the
check;
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383
(42) Estafa by inducing another, by means of deceit, to
sign any document;
(43) Estafa by resorting to some fraudulent practice to
ensure success in a gambling game;
(44) Estafa by removing, concealing or destroying, in
whole or in part, any court record, office files,
document or any other papers.
(J) Smuggling under Republic Act Nos. 455 and 1937;
(45) Fraudulent importation of any vehicle;
(46) Fraudulent exportation of any vehicle;
(47) Assisting in any fraudulent importation;
(48) Assisting in any fraudulent exportation;
(49) Receiving smuggled article after fraudulent
importation;
(50) Concealing smuggled article after fraudulent
importation;
(51) Buying smuggled article after fraudulent
importation;
(52) Selling smuggled article after fraudulent
importation;
(53) Transportation of smuggled article after fraudulent
importation;
(54) Fraudulent practices against customs revenue.
(K)Violations under Republic Act No. 8792, otherwise known
as the Electronic Commerce Act of 2000;
K.1. Hacking or cracking, which refers to:
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(55) unauthorized access into or interference in a
computer system/server or information and
communication system; or
(56) any access in order to corrupt, alter, steal, or destroy
using a computer or other similar information and
communication devices, without the knowledge and
consent of the owner of the computer or
information and communications system, including
(57) the introduction of computer viruses and the like,
resulting in the corruption, destruction, alteration,
theft or loss of electronic data messages or electronic
document;
K.2. Piracy, which refers to:
(58) the unauthorized copying, reproduction,
(59) the unauthorized dissemination, distribution,
(60) the unauthorized importation,
(61) the unauthorized use, removal, alteration,
substitution, modification,
(62) the unauthorized storage, uploading, downloading,
communication, making available to the public, or
(63) the unauthorized broadcasting, of protected
material, electronic signature or copyrighted works
including legally protected sound recordings or
phonograms or information material on protected
works, through the use of telecommunication
networks, such but not limited to, the internet, in a
manner that infringes intellectual property rights;
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K.3.Violations of the Consumer Act or Republic Act No.
7394 and other relevant or pertinent laws through
transactions covered by or using electronic data messages
or electronic documents:
(64) Sale of any consumer product that is not in
conformity with standards under the Consumer Act;
(65) Sale of any product that has been banned by a rule
under the Consumer Act; ,
(66) Sale of any adulterated or mislabeled product using
electronic documents;
(67) Adulteration or misbranding of any consumer
product;
(68) Forging, counterfeiting or simulating any mark,
stamp, tag, label or other identification device;
(69) Revealing trade secrets;
(70) Alteration or removal of the labeling of any drug
or device held for sale;
(71) Sale of any drug or device not registered in
accordance with the provisions of the E-Commerce
Act;
(72) Sale of any drug or device by any person not licensed
in accordance with the provisions of the ECommerce Act;
(73) Sale of any drug or device beyond its expiration
date;
(74) Introduction into commerce of any mislabeled or
banned hazardous substance;
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(75) Alteration or removal of the labeling of a hazardous
substance;
(76) Deceptive sales acts and practices;
(77) Unfair or unconscionable sales acts and practices;
(78) Fraudulent practices relative to weights and
measures;
(79) False representations in advertisements as the
existence of a warranty or guarantee;
(80) Violation of price tag requirements;
(81) Mislabeling consumer products;
(82) False, deceptive or misleading advertisements;
(83) Violation of required disclosures on consumer
loans;
(84) Other violations of the provisions of the ECommerce Act;
(L) 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;
(85) Hijacking;
(86) Destructive arson;
(87) Murder;
(88) Hijacking, destructive arson or murder perpetrated
by terrorists against non-combatant persons and
similar targets;
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
387
(M) Fraudulent practices and other violations under Republic
Act No. 8799, otherwise known as the Securities
Regulation Code of 2000;
(89) Sale, offer or distribution of securities within the
Philippines without a registration statement duly
filed with and approved by the SEC;
(90) Sale or offer to the public of any pre-need plan not
in accordance with the rules and regulations which
the SEC shall prescribe;
(91) Violation of reportorial requirements imposed
upon issuers of securities;
(92) Manipulation of security prices by creating a false
or misleading appearance of active trading in any
listed security traded in an Exchange or any other
trading market;
(93) Manipulation of security prices by effecting, alone
or with others, a series of transactions in securities
that raises their prices to induce the purchase of a
security, whether of the same or different class, of
the same issuer or of a controlling, controlled or
commonly controlled company by others;
(94) Manipulation of security prices by effecting, alone
or with others, series of transactions in securities
that depresses their price to induce the sale of a
security, whether of the same or different class, of
the same issuer or of a controlling, controlled or
commonly controlled company by others;
(95) Manipulation of security prices by effecting, alone
or with others, a series of transactions in securities
that creates active trading to induce such a purchase
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or sale though manipulative devices such as
marking the close, painting the tape, squeezing the
float, hype and dump, boiler room operations and
such other similar devices;
(96) Manipulation of security prices by circulating or
disseminating information that the price of any
security listed in an Exchange will or is likely to rise
or fall because of manipulative market operations
of anyone or more persons conducted for the
purpose of raising or depressing the price of the
security for the purpose of inducing the purchase
or sale of such security;
(97) Manipulation of security prices by making false or
misleading statements with respect to any material
fact; which he knew or had reasonable ground to
believe, was so false and misleading, for the purpose
of inducing the purchase or sale of any security
listed or traded in an Exchange;
(98) Manipulation of security prices by effecting, alone
or with others, any series of transactions for the
purchase and/or sale of any security traded in an
Exchange for the purpose of pegging, fixing or
stabilizing the price of such security, unless
otherwise allowed by the Securities Regulation
Code or by the rules of the SEC;
(99) Sale or purchase of any security using any
manipulative deceptive device or contrivance;
(100) Execution of short sales or stop-loss order in
connection with the purchase or sale of any security
not in accordance with such rules and regulations
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
389
as the SEC may prescribe as necessary and
appropriate in the public interest or the protection
of the investors;
(101) Employment of any device, scheme or artifice to
defraud in connection with the purchase and sale
of any securities;
(102) Obtaining money or property in connection with
the purchase and sale of any security by means of
any untrue statement of a material fact or any
omission to state a material fact necessary in order
to make the statements made, in the light of the
circumstances under which they were made, not
misleading;
(103) Engaging in any act, transaction, practice or course
of action in the sale and purchase of any security
which operates or would operate as a fraud or deceit
upon any person;
(104) Insider trading;
(105) Engaging in the business of buying and selling
securities in the Philippines as a broker or dealer,
or acting as a salesman, or an associated person of
any broker or dealer without any registration from
the Commission;
(106) Employment by a broker or dealer of any salesman
or associated person or by an issuer of any salesman,
not registered with the SEC; ,
(107) Effecting any transaction in any security, or
reporting such transaction, in an Exchange or using
the facility of an Exchange which is not registered
with the SEC;
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(108) Making use of the facility of a clearing agency
which is not registered with the SEC;
(109) Violations of margin requirements;
(110) Violations on the restrictions on borrowings by
members, brokers and dealers;
(111) Aiding and Abetting in any violations of the
Securities Regulation Code;
(112) Hindering, obstructing or delaying the filing of
any document required under the Securities
Regulation Code or the rules and regulations of
the SEC;
(113) Violations of any of the provisions of the
implementing rules and regulations of the SEC;
(114) Any other violations of any of the provisions of
the Securities Regulation Code.
(N) Felonies or offenses of a similar nature to the aforementioned unlawful activities that are punishable under
the penal laws of other countries.
In determining whether or not a felony or offense
punishable under the penal laws of other countries, is
“of a similar nature,” as to constitute the same as an
unlawful activity under the AMLA, the nomenclature
of said felony or offense need not be identical to any of
the predicate crimes listed under Rule 3.i.
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
391
R ULE 4
M ONEY L AUNDERING O FFENSE
RULE 4.1. Money Laundering Offense – Money laundering
is a crime whereby the proceeds of an unlawful activity as herein
defined are transacted, thereby making them appear to have
originated from legitimate sources. It is committed by the following:
a) Any person knowing that any monetary instrument or
property represents, involves, or relates to, the proceeds
of any unlawful activity, transacts or attempts to transact
said monetary instrument or property.
b) Any person knowing that any monetary instrument or
property involves the proceeds of any unlawful activity,
performs or fails to perform any act as a result of which
he facilitates the offense of money laundering referred to
in paragraph (a) above.
c) Any person knowing that any monetary instrument or
property is required under this Act to be disclosed and
filed with the Anti-Money Laundering Council
(AMLC), fails to do so.
R ULE 5
J URISDICTION OF M ONEY L AUNDERING C ASES AND
M ONEY L AUNDERING I NVESTIGA
TION P ROCEDURES
NVESTIGATION
R ULE 5.1. Jurisdiction of Money Laundering Cases. –
The Regional Trial Courts shall have the jurisdiction to try all
cases on money laundering. Those committed by public officers
and private persons who are in conspiracy with such public officers
shall be under the jurisdiction of the Sandiganbayan.
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RULE 5.2. In
ation of Money Laundering Of
Invvestig
estigation
Offfenses.
– The AMLC shall investigate:
(a) suspicious transactions;
(b) covered transactions deemed suspicious after an
investigation conducted by the AMLC;
(c) money laundering activities; and
(d) other violations of this Act.
RULE 5.3. Attempts at Transactions. – Section 4 (a) and
(b) of the AMLA provides that any person who attempts to
transact any monetary instrument or property representing,
involving or relating to the proceeds of any unlawful activity
shall be prosecuted for a money laundering offense. Accordingly,
the reports required under Rule 9.3 (a) and (b) of these Rules
shall include those pertaining to any attempt by any person to
transact any monetary instrument or property representing,
involving or relating to the proceeds of any unlawful activity.
P ROSECUTION
OF
R ULE 6
M ONEY L AUNDERING R ULE
RULE 6.1. Prosecution of Money Laundering. –
(a) Any person may be charged with and convicted of both
the offense of money laundering and the unlawful activity
as defined under Rule 3 (i) of the AMLA.
(b) Any proceeding relating to the unlawful activity shall be
given precedence over the prosecution of any offense or
violation under the AMLA without prejudice to the
application ex-parte by the AMLC to the Court of
Appeals for a freeze order with respect to the monetary
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
393
instrument or property involved therein and resort to
other remedies provided under the AMLA, the Rules of
Court and other pertinent laws and rules.
RULE 6.2. When the AMLC finds, after investigation, that there
is probable cause to charge any person with a money laundering
offense under Section 4 of the AMLA, it shall cause a complaint
to be filed, pursuant to Section 7 (4) of the AMLA, before the
Department of Justice or the Ombudsman, which shall then
conduct the preliminary investigation of the case.
RULE 6.3. After due notice and hearing in the preliminary
investigation proceedings before the Department of Justice, or
the Ombudsman, as the case may be, and the latter should find
probable cause of a money laundering offense, it shall file the
necessary information before the Regional Trial Courts or the
Sandiganbayan.
RULE 6.4. Trial for the money laundering offense shall proceed
in accordance with the Code of Criminal Procedure or the Rules
of Procedure of the Sandiganbanyan, as the case may be.
RULE 6.5. Knowledge of the offender that any monetary
instrument or property represents, involves, or relates to the
proceeds of an unlawful activity or that any monetary instrument
or property is required under the AMLA to be disclosed and
filed with the AMLC, may be established by direct evidence or
inferred from the attendant circumstances.
RULE 6.6. All the elements of every money laundering offense
under Section 4 of the AMLA must be proved by evidence
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beyond reasonable doubt, including the element of knowledge
that the monetary instrument or property represents, involves or
relates to the proceeds of any unlawful activity.
RULE 6.7. No element of the unlawful activity, however,
including the identity of the perpetrators and the details of the
actual commission of the unlawful activity need be established
by proof beyond reasonable doubt. The elements of the offense
of money laundering are separate and distinct from the elements
of the felony or offense constituting the unlawful activity.
R ULE 7
C REA
TION OF A NTI -M ONEY
REATION
L AUNDERING C OUNCIL (AML
C)
(AMLC)
RULE 7.1.A. Composition – The Anti-Money Laundering
Council is hereby created and shall be composed of the Governor
of the Bangko Sentral ng Pilipinas as Chairman, the
Commissioner of the Insurance Commission and the Chairman
of the Securities and Exchange Commission as members.
RULE 7.1.B. Unanimous Decision – The AMLC shall act
unanimously in discharging its functions as defined in the AMLA
and in these Rules. However, in the case of the incapacity, absence,
or disability of any members to discharge his functions, the officer
duly designated or authorized to discharge the functions of the
Governor of the BSP, the Chairman of the SEC, or the Insurance
Commissioner, as the case may be, shall act in his stead in the
AMLC.
RULE 7.2. Functions. – The functions of the AMLC are
defined hereunder:
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
395
(1) to require and receive covered or suspicious transaction
reports from covered institutions;
(2) to issue orders addressed to the appropriate Supervising
Authority or the covered institution to determine the
true identity of the owner of any monetary instrument
or property subject of a covered or suspicious transaction
report, or request for assistance from a foreign State, or
believed by the Council, on the basis of substantial
evidence, to be, in whole or in part, wherever located,
representing, involving, or related to, directly or indirectly,
in any manner or by any means, the proceeds of an
unlawful activity;
(3) to institute civil forfeiture proceedings and all other
remedial proceedings through the Office of the Solicitor
General;
(4) to cause the filing of complaints with the Department of
Justice or the Ombudsman for the prosecution of money
laundering offenses;
(5) to investigate suspicious transactions and covered
transactions deemed suspicious after an investigation by
the AMLC, money laundering activities and other
violations of this Act;
(6) to apply before the Court of Appeals, ex-parte, for the
freezing of any monetary instrument or property alleged
to be proceeds of any unlawful activity as defined under
Section 3 (i) hereof;
(7) to implement such measures as may be inherent, necessary,
implied, incidental and justified under the AMLA to
counteract money laundering. Subject to such limitations
as provided for by law, the AMLC is authorized under
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Rule 7 (7) of the AMLA to establish an information
sharing system that will enable the AMLC to store, track
and analyze money laundering transactions for the resolute
prevention, detection and investigation of money
laundering offenses. For this purpose, the AMLC shall
install a computerized system that will be used in the
creation and maintenance of an information database;
(8) to receive and take action in respect of any request from
foreign states for assistance in their own anti-money
laundering operations as provided in the AMLA. The
AMLC is authorized under Sections 7 (8) and 13 (b)
and (d) of the AMLA to receive and take action in respect
of any request of foreign states for assistance in their own
anti-money laundering operations, in respect of
conventions, resolutions and other directives of the United
Nations (UN), the UN Security Council, and other
international organizations of which the Philippines is a
member. However, the AMLC may refuse to comply with
any such request, convention, resolution or directive where
the action sought therein contravenes the provisions of
the Constitution, or the execution thereof is likely to
prejudice the national interest of the Philippines.
(9) to develop educational programs on the pernicious effects
of money laundering, the methods and techniques used
in money laundering, the viable means of preventing
money laundering and the effective ways of prosecuting
and punishing offenders.
(10) to enlist the assistance of any branch, department, bureau,
office, agency or instrumentality of the government,
including government-owned and controlled corporations,
in undertaking any and all anti-money laundering
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
397
operations, which may include the use of its personnel,
facilities and resources for the more resolute prevention,
detection and investigation of money laundering offenses
and prosecution of offenders. The AMLC may require
the intelligence units of the Armed Forces of the
Philippines, the Philippine National Police, the
Department of Finance, the Department of Justice, as
well as their attached agencies, and other domestic or
transnational governmental or non-governmental
organizations or groups to divulge to the AMLC all
information that may, in any way, facilitate the resolute
prevention, investigation and prosecution of money
laundering offenses and other violations of the AMLA.
(11) to impose administrative sanctions for the violation of
laws, rules, regulations and orders and resolutions issued
pursuant thereto.
RULE 7.3. Meetings. – The AMLC shall meet every first
Monday of the month, or as often as may be necessary at the call
of the Chairman.
C REA
TION
REATION
R ULE 8
OF A S ECRET
ARIA
T
ECRETARIA
ARIAT
RULE 8.1. The Ex
ecuti
ector
Executi
ecutivve Dir
Director
ector.. – The Secretariat shall
be headed by an Executive Director who shall be appointed by
the AMLC for a term of five (5) years. He must be a member of
the Philippine Bar, at least thirty-five (35) years of age, must
have served at least five (5) years either at the BSP, the SEC or
the IC and of good moral character, unquestionable integrity and
known probity. He shall be considered a full-time permanent
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employee of the BSP with the rank of Assistant Governor, and
shall be entitled to such benefits and subject to rules and
regulations, as well as prohibitions, as are applicable to officers of
similar rank.
RULE 8.2. Composition. – In organizing the Secretariat, the
AMLC may choose from those who have served, continuously
or cumulatively, for at least five (5) years in the BSP, the SEC or
the IC. All members of the Secretariat shall be considered regular
employees of the BSP and shall be entitled to such benefits and
subject to such rules and regulations as are applicable to BSP
employees of similar rank.
R ULE 8.3. Detail and Secondment. – The AMLC is
authorized under Section 7(10) of the AMLA to enlist the
assistance of the BSP, the SEC or the IC, or any other branch,
department, bureau, office, agency or instrumentality of the
government, including government-owned and controlled
corporations, in undertaking any and all anti-money laundering
operations. This includes the use of any member of their personnel
who may be detailed or seconded to the AMLC, subject to existing
laws and Civil Service Rules and Regulations. Detailed personnel
shall continue to receive their salaries, benefits and emoluments
from their respective mother units. Seconded personnel shall
receive, in lieu of their respective compensation packages from
their respective mother units, the salaries, emoluments and all other
benefits to which their AMLC Secretariat positions are entitled
to.
RULE 8.4. Conf
identiality Pr
Confidentiality
Proovisions. – The members of
the AMLC, the Executive Director, and all the members of the
Secretariat, whether permanent, on detail or on secondment, shall
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
399
not reveal, in any manner, any information known to them by
reason of their office. This prohibition shall apply even after their
separation from the AMLC. In case of violation of this provision,
the person shall be punished in accordance with the pertinent
provisions of the Central Bank.
R ULE 9
P REVENTION OF M ONEY L AUNDERING ;
C UST
OMER I DENTIFICA
TION
USTOMER
DENTIFICATION
R EQUIREMENTS AND R ECORD K EEPING
R ULE 9.1. Customer Identif
ication R
equir
ements.
Identification
Requir
equirements.
R ULE 9.1. A . Customer Identif
ication. – Covered
Identification.
institutions shall establish and record the true identity of its
clients based on official documents. They shall maintain a
system of verifying the true identity of their clients and, in
case of corporate clients, require a system of verifying their
legal existence and organizational structure, as well as the
authority and identification of all persons purporting to act
on their behalf. Covered institutions shall establish appropriate
systems and methods based on internationally compliant
standards and adequate internal controls for verifying and
recording the true and full identity of their customers.
RULE 9.1.B . Tr ustee, Nominee and Ag
ent Accounts.
Agent
– When dealing with customers who are acting as trustee,
nominee, agent or in any capacity for and on behalf of another,
covered institutions shall verify and record the true and full
identity of the person(s) on whose behalf a transaction is
being conducted. Covered institutions shall also establish and
record the true and full identity of such trustees, nominees,
agents and other persons and the nature of their capacity and
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duties. In case a covered institution has doubts as to whether
such persons are being used as dummies in circumvention of
existing laws, it shall immediately make the necessary inquiries
to verify the status of the business relationship between the
parties.
R ULE 9.1. C . Minimum Inf
Infor
or mation/Documents
vidual Customers. – Covered
Requir
ed ffor
or Indi
equired
Individual
institutions shall require customers to produce original
documents of identity issued by an official authority, bearing
a photograph of the customer. Examples of such documents
are identity cards and passports. The following minimum
information/documents shall be obtained from individual
customers:
(1) Name;
(2) Present address;
(3) Permanent address;
(4) Date and place of birth;
(5) Nationality;
(6) Nature of work and name of employer or nature of
selfemployment/business;
(7) Contact numbers;
(8) Tax identification number, Social Security System
number or Government Service and Insurance System
number;
(9) Specimen signature;
(10) Source of fund(s); and
(11) Names of beneficiaries in case of insurance contracts
and whenever applicable.
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
401
R ULE 9.1. D . Minimum Inf
or mation/Documents
Infor
Requir
ed ffor
or Cor
porate and JJuridical
uridical Entities. – Before
equired
Corporate
establishing business relationships, covered institutions shall
endeavor to ensure that the customer is a corporate or juridical
entity which has not been or is not in the process of being
dissolved, wound up or voided, or that its business or
operations has not been or is not in the process of being
closed, shut down, phased out, or terminated. Dealings with
shell companies and corporations, being legal entities which
have no business substance in their own right but through
which financial transactions may be conducted, should be
undertaken with extreme caution. The following minimum
information/documents shall be obtained from customers
that are corporate or juridical entities, including shell
companies and corporations:
(1) Articles of Incorporation/Partnership;
(2) By-laws;
(3) Official address or principal business address;
(4) List of directors/partners;
(5) List of principal stockholders owning at least two
percent (2%) of the capital stock;
(6) Contact numbers;
(7) Beneficial owners, if any; and
(8) Verification of the authority and identification of
the person purporting to act on behalf of the client.
RULE 9.1.E. Pr
ohibition ag
ainst Cer
Prohibition
against
Certain
tain Accounts. –
Covered institutions shall maintain accounts only in the true
and full name of the account owner or holder. The provisions
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of existing laws to the contrary notwithstanding, anonymous
accounts, accounts under fictitious names, and all other similar
accounts shall be absolutely prohibited.
RULE 9.1.F. Pr
ohibition ag
ainst opening of Accounts
Prohibition
against
Contact. – No new accounts shall
without Face-to- face Contact
be opened and created without face-to-face contact and full
compliance with the requirements under Rule 9.1.c of these
Rules.
RULE 9.1.G. Number
ed Accounts. – Peso and foreign
Numbered
currency non-checking numbered accounts shall be allowed:
Provided, That the true identity of the customers of all peso
and foreign currency non-checking numbered accounts are
satisfactorily established based on official and other reliable
documents and records, and that the information and
documents required under the provisions of these Rules are
obtained and recorded by the covered institution. No peso
and foreign currency non-checking accounts shall be allowed
without the establishment of such identity and in the manner
herein provided. The BSP may conduct annual testing for the
purpose of determining the existence and true identity of
the owners of such accounts.The SEC and the IC may conduct
similar testing more often than once a year and covering such
other related purposes as may be allowed under their respective
charters.
RULE 9.2. R
ecor
ee
ping R
equir
ements.
Recor
ecordd K
Kee
eeping
Requir
equirements.
RULE 9.2. A. R
ecor
ee
ping: Kinds of Recor
ds and
Recor
ecordd K
Kee
eeping:
ecords
Period ffor
Retention.
or R
etention. – All records of all transactions of
covered institutions shall be maintained and safely stored for
five (5) years from the dates of transactions. Said records and
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
403
files shall contain the full and true identity of the owners or
holders of the accounts involved in the covered transactions
and all other customer identification documents. Covered
institutions shall undertake the necessary adequate security
measures to ensure the confidentiality of such file. Covered
institutions shall prepare and maintain documentation, in
accordance with the aforementioned 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.
R ULE 9.2. B . Existing and New Accounts and New
Transactions. – All records of existing and new accounts
and of new transactions shall be maintained and safely stored
for five (5) years from October 17, 2001 or from the dates
of the accounts or transactions, whichever is later.
RULE 9.2.C. Closed Accounts. – With respect to closed
accounts, the records on customer identification, account files
and business correspondence shall be preserved and safely
stored for at least five (5) years from the dates when they
were closed.
RULE 9.2.D. R
etention of Recor
ds in Case a Money
Retention
ecords
t. – If a money
Court.
Laundering Case has been Filed in Cour
laundering case based on any record kept by the covered
institution concerned has been filed in court, said file must
be retained beyond the period stipulated in the three (3)
immediately preceding sub-Rules as the case may be, until it
is confirmed that the case has been finally resolved or
terminated by the court.
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RULE 9.2.E. FFor
or
m of R
ecor
ds. – Records shall be retained
orm
Recor
ecords.
as originals in such forms as are admissible in court pursuant
to existing laws and the applicable rules promulgated by the
Supreme Court.
RULE 9.3. Re por
ting of Co
ed Transactions.
porting
Covver
ered
R ULE 9.3. A . Period of R
ed
Ree por ting Co
Covv er
ered
Transactions and Suspicious Transactions. – Covered
institutions shall report to the AMLC all covered transactions
and suspicious transactions within five (5) working days from
occurrence, thereof, unless the supervising authority concerned
prescribes a longer period not exceeding ten (10) working
days.
Should a transaction be determined to be both a covered and
a suspicious transaction, the covered institution shall report
the same as a suspicious transaction.
The reporting of covered transactions by covered institutions
shall be deferred for a period of sixty (60) days after the
effectivity of republic act no. 9194, or as may be determined
by the AMLC, in order to allow the covered institutions to
configure their respective computer systems; Provided That,
all covered transactions during said deferment period shall be
submitted thereafter.
R ULE 9.3. B . Co
ed and SuspiciousT
ransaction
Covv er
ered
SuspiciousTransaction
Repor
or
ms. – The Covered Transaction Report (CTR)
portt FFor
orms.
and the Suspicious Transaction Report (STR) shall be in the
forms prescribed by the AMLC.
RULE 9.3.B.1. – Covered institutions shall use the
existing forms for covered transaction reports and
suspicious transaction reports, until such time as the
AMLC has issued new sets of forms.
2004]
REVISED IMPLEMENTING RULES AND
405
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
RULE 9.3. B.2. – Covered transaction reports and
suspicious transaction reports shall be submitted in a
secured manner to the AMLC in electronic form, either
via diskettes, leased lines, or through internet facilities,
with the corresponding hard copy for suspicious
transactions. The final flow and procedures for such
reporting shall be mapped out in the manual of operations
to be issued by
the AMLC.
RULE 9.3.C. Ex
emption fr
om Bank Secr
ec
ws.
Exemption
from
Secrec
ecyy La
Laws.
– When reporting covered or suspicious transactions to
the AMLC, covered institutions and their officers and
employees, shall not be deemed to have violated R.A.
No. 1405, as amended, R.A. No. 6426, as amended, R.A.
No. 8791 and other similar laws, but are prohibited from
communicating, directly or indirectly, in any manner or
by any means, to any person the fact that a covered or
suspicious transaction report was made, the contents
thereof, or any other information in relation thereto. In
case of violation thereof, the concerned officer and
employee of the covered institution, shall be criminally
liable.
R ULE 9.3. D. Conf
identiality Pr
Confidentiality
Proovisions. – 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.
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In case of violation thereof, the concerned officer, and
employee, of the covered institution, or media shall be
held criminally liable.
R ULE 9.3. E . Saf
Safee Harbor Pr
Proovisions. – No
administrative, criminal or civil proceedings , shall lie
against any person for having made a covered transaction
report or a suspicious transaction report in the regular
performance of his duties and in good faith, whether or
not such reporting results in any criminal prosecution
under this Act or any other Philippine law.
R ULE 10
A PPLICA
TION FOR F REEZE O RDERS
PPLICATION
RULE 10.1. When the AML
C ma
or the fr
AMLC
mayy appl
applyy ffor
free
eezing
ee
zing
of an
ument or pr
oper
ty
monetaryy instr
instrument
proper
operty
ty.. –
anyy monetar
(a) After an investigation conducted by the AMLC and upon
determination that probable cause exists that a monetary
instrument or property is in any way related to any
unlawful activity as defined under section 3 (i), the AMLC
may file an ex-parte application before the court of appeals
for the issuance of a freeze order on any monetary
instrument or property subject thereof, prior to the
institution or in the course of, the criminal proceedings
involving the unlawful activity to which said monetary
instrument or property is any way related.
(b) Considering the intricate and diverse web of related and
interlocking accounts pertaining to the monetary
instrument (s) or property (ies) that any person may create
in the different covered institutions, their branches and/
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
407
or other units, the AMLC may apply to the court of
appeals for the freezing, not only of the monetary
instruments or properties in the names of the reported
owner(s)/holder(s), and monetary instruments or
properties named in the application of the AMLC but
also all other related web of accounts pertaining to other
monetary instruments and properties, the funds and
sources of which originated from or are related to the
monetary instrument(s) or property(ies) subject of the
freeze order(s).
(c) The freeze order shall be effective for twenty (20) days
unless extended by the court of appeals upon application
by the AMLC.
R ULE 10.2. Definition of Probable Cause. – Probable
cause includes such facts and circumstances which would lead a
reasonably discreet, prudent or cautious man to believe that an
unlawful activity and/or a money laundering offense is about to
be, is being or has been committed and that the account or any
monetary instrument or property subject thereof, sought to be
frozen is in any way related to said unlawful activity and/or money
laundering offense.
R ULE 10.3. Duty of co
ed institution upon rreceipt
eceipt
covver
ered
thereof. –
RULE 10.3.A. Upon receipt of the notice of the freeze order,
the covered institution concerned shall immediately freeze
the monetary instrument or property and related web of
accounts subject thereof.
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[VOL. 6:22
R ULE 10.3. B . The covered institution shall likewise
immediately furnish a copy of the notice of the freeze order
upon the owner or holder of the monetary instrument or
property or related web of accounts subject thereof.
RULE 10.3.C. Within twenty-four (24) hours from receipt
of the freeze order, the covered institution concerned shall
submit to the Court of Appeals and the AMLC, by personal
delivery, a detailed written return on the freeze order, specifying
all the pertinent and relevant information which shall include
the following:
1. The account number(s);
2. The name(s) of the account owner(s) or holder(s);
3. The amount of the monetary instrument, property
or related web of accounts as of the time they were
frozen;
4. All relevant information as to the nature of the
monetary instrument or property;
5. Any information on the related web of accounts
pertaining to the monetary instrument or property
subject of the freeze order; and
6. The time when the freeze thereon took effect.
RULE 10.4. Def
inition of R
elated Web of Accounts. –
Definition
Related
“Related web of accounts pertaining to the money instrument or
property subject of the freeze order” is defined as those accounts,
the funds and sources of which originated from and/or are
materially linked to the monetary instrument(s) or property(ies)
subject of the freeze order(s).
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
409
Upon receipt of the freeze order issued by the court of appeals
and upon verification by the covered institution that the related
web of accounts originated from and/or are materially linked to
the monetary instrument or property subject of the freeze order,
the covered institution shall freeze these related web of accounts
wherever these funds may be found.
The return of the covered institution as required under rule
10.3.c shall include the fact of such freezing and an explanation
as to the grounds for the identification of the related web of
accounts.
RULE 10.5. Extension of the Freeze Order. – Before the
twenty (20) day period of the freeze order issued by the court of
appeals expires, the AMLC may apply in the same court for an
extension of said period. Upon the timely filing of such
application and pending the decision of the court of appeals to
extend the period, said period shall be deemed suspended and the
freeze order shall remain effective.
However, the covered institution shall not lift the effects of
the freeze order without securing official confirmation from the
AMLC.
RULE 10.6. Prohibition against Issuance of Freeze Orders
against candidates for an electoral office during election
period. – No assets shall be frozen to the prejudice of a candidate
for an electoral office during an election period.
410
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R ULE 11
A UTHORITY
TO
I NQ
UIRE
NQUIRE
INT
O
INTO
B ANK D EPOSITS
R ULE 11.1. Authority to Inquire into Bank Deposits
with Cour
der
Courtt Or
Order
der.. – Notwithstanding the provisions of
Republic Act No. 1405, as amended; Republic Act No. 6426, as
amended; Republic Act No. 8791, and other laws, the AMLC
may inquire into or examine any particular deposit or investment
with any banking institution or non-bank financial institution
and their subsidiaries and affiliates upon order of any competent
court in cases of violation of this Act, when it has been established
that there is probable cause that the deposits or investments
involved are related to an unlawful activity as defined in Section
3 (i) hereof or a money laundering offense under Section 4 hereof;
except in cases as provided under Rule 11.2.
R ULE 11.2. Authority to Inquire into Bank Deposits
without Cour
der
Courtt Or
Order
der.. – The AMLC may inquire into or
examine deposit and investments with any banking institution or
non-bank financial institution and their subsidiaries and affiliates
without a court order where any of the following unlawful
activities are involved:
(a) Kidnapping for ransom under Article 267 of Act No.
3815, otherwise known as the Revised Penal Code, as
amended;
(b) Sections 4,5,6, 8, 9, 10, 12, 13, 14, 15 and 16 of Republic
Act No. 9165, otherwise known as the Comprehensive
Dangerous Drugs Act of 2002;
(c) Hijacking and other violations under Republic Act No.
6235; destructive arson and murder, as defined under the
Revised Penal Code, as amended, including those
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
411
perpetrated by terrorists against noncombatant persons
and similar targets.
R ULE 11.2. A . Pr
ocedur
or Examination Without
Procedur
oceduree ffor
Cour
der
Courtt Or
Order
der.. – Where any of the unlawful activities
enumerated under the immediately preceding Rule 11.2 are
involved, and there is probable cause that the deposits or
investments with any banking or non-banking financial
institution and their subsidiaries and affiliates are in anyway
related to these unlawful activities the AMLC shall issue a
resolution authorizing the inquiry into or examination of
any deposit or investment with such banking or non-banking
financial institution and their subsidiaries and affiliates
concerned.
R ULE 11.2. B . Duty of the Banking Institution or
Non-Banking Institution upon R
eceipt of the AML
C
Receipt
AMLC
Resolution. – The banking institution or the non-banking
financial institution and their subsidiaries and affiliates shall,
immediately upon receipt of the amlc resolution, allow the
AMLC and/or its authorized representative(s) full access to
all records pertaining to the deposit or investment account.
R ULE 11.3. BSP Authority to Examine Deposits and
In
ce
ption to the Bank Secr
Invvestments; Additional Ex
Exce
ception
Secrec
ecyy
ec
Act. – To ensure compliance with this act, the Bangko Sentral
ng Pilipinas (BSP) may inquire into or examine any particular
deposit or investment with any banking institution or non-bank
financial institution and their subsidiaries and affiliates when the
examination is made in the course of a periodic or special
examination, in accordance with the rules of examination of the
BSP.
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RULE 11.3.A. BSP R
ules of Examination. – The BSP
Rules
shall promulgate its rules of examination for ensuring
compliance by banks and non-bank financial institutions and
their subsidiaries and affiliates with the AMLA and these rules.
Any findings of the BSP which may constitute a violation
of any provision of this act shall be transmitted to the AMLC
for appropriate action.
R ULE 12
F ORFEITURE P ROVISIONS
R ULE 12.1. Authority to Institute Civil Forfeiture
Pr
oceedings. – The AMLC is authorized under Section 7 (3)
Proceedings.
of the AMLA to institute civil forfeiture proceedings and all
other remedial proceedings through the Office of the Solicitor
General.
R ULE 12.2. W hen Ci
vil FForf
orf
eitur
Civil
orfeitur
eituree Ma
Mayy be Applied. –
When there is a suspicious transaction report or a covered
transaction report deemed suspicious after investigation by the
AMLC, and the court has, in a petition filed for the purpose,
ordered the seizure of any monetary instrument or property, in
whole or in part, directly or indirectly, related to said report, the
Revised Rules of Court on civil forfeiture shall apply.
RULE 12.3. Claim on Forf
eited Assets. – Where the court
orfeited
has issued an order of forfeiture of the monetary instrument or
property in a criminal prosecution for any money laundering
offense under Section 4 of the AMLA, the offender or any other
person claiming an interest therein may apply, by verified petition,
for a declaration that the same legitimately belongs to him, and
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
413
for segregation or exclusion of the monetary instrument or property
corresponding thereto. The verified petition shall be filed with
the court which rendered the judgment of conviction and order
of forfeiture within fifteen (15) days from the date of the order
of forfeiture, in default of which the said order shall become
final and executory. This provision shall apply in both civil and
criminal forfeiture.
RULE 12.4. Payment in lieu of FForf
orf
eitur
e. – Where the
orfeitur
eiture.
court has issued an order of forfeiture of the monetary instrument
or property subject of a money laundering offense under Section
4 of the AMLA, and, said order cannot be enforced because any
particular monetary instrument or property cannot, with due
diligence, be located, or it has been substantially altered, destroyed,
diminished in value or otherwise rendered worthless by any act or
omission, directly or indirectly, attributable to the offender, or it
has been concealed, removed, converted or otherwise transferred
to prevent the same from being found or to avoid forfeiture
thereof, or it is located outside the Philippines or has been placed
or brought outside the jurisdiction of the court, or it has been
commingled with other monetary instruments or property
belonging to either the offender himself or a third person or entity,
thereby rendering the same difficult to identify or be segregated
for purposes of forfeiture, the court may, instead of enforcing
the order of forfeiture of the monetary instrument or property
or part thereof or interest therein, accordingly order the convicted
offender to pay an amount equal to the value of said monetary
instrument or property. This provision shall apply in both civil
and criminal forfeiture.
414
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M UTU
AL
UTUAL
[VOL. 6:22
R ULE 13
A SSIST
ANCE A MONG S TATES
SSISTANCE
RULE 13.1. R
equest ffor
or Assistance fr
om a FFor
or
eign State.
Request
from
oreign
– Where a foreign state makes a request for assistance in the
investigation or prosecution of a money laundering offense, the
AMLC may execute the request or refuse to execute the same and
inform the foreign state of any valid reason for not executing the
request or for delaying the execution thereof. The principles of
mutuality and reciprocity shall, for this purpose, be at all times
recognized.
RULE 13.2. Powers of the AML
C to Act on a Request
AMLC
eign State. – The AMLC may
for Assistance fr
om a For
oreign
from
execute a request for assistance from a foreign state by:
(1) tracking down, freezing, restraining and seizing assets
alleged to be proceeds of any unlawful activity under the
procedures laid down in the AMLA and in these Rules;
(2) giving information needed by the foreign state within
the procedures laid down in the AMLA and in these Rules;
and
(3) applying for an order of forfeiture of any monetary
instrument or property in the court: Provided, That the
court shall not issue such an order unless the application
is accompanied by an authenticated copy of the order of
a court in the requesting state ordering the forfeiture of
said monetary instrument or property of a person who
has been convicted of a money laundering offense in the
requesting state, and a certification or an affidavit of a
competent officer of the requesting state stating that the
conviction and the order of forfeiture are final and that
no further appeal lies in respect of either.
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
415
R ULE 13.3. Obtaining Assistance from Foreign States.
– The AMLC may make a request to any foreign state for
assistance in
(1) tracking down, freezing, restraining, and seizing assets
alleged to be proceeds of any unlawful activity;
(2) obtaining information that it needs relating to any covered
transaction, money laundering offense or any other matter
directly or indirectly related thereto;
(3) to the extent allowed by the law of the foreign state,
applying with the proper court therein for an order to
enter any premises belonging to or in the possession or
control of, any or all of the persons named in said request,
and/or search any or all such persons named therein and/
or remove any document, material or object named in
said request: Provided, That the documents accompanying
the request in support of the application have been duly
authenticated in accordance with the applicable law or
regulation of the foreign state; and
(4) applying for an order of forfeiture of any monetary
instrument or property in the proper court in the foreign
state: Provided, That the request is accompanied by an
authenticated copy of the order of the Regional Trial
Court ordering the forfeiture of said monetary instrument
or property of a convicted offender and an affidavit of
the clerk of court stating that the conviction and the
order of forfeiture are final and that no further appeal
lies in respect of either.
R ULE 13.4. Limitations on Requests ffor
or Mutual
Assistance. – The AMLC may refuse to comply with any request
for assistance where the action sought by the request contravenes
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[VOL. 6:22
any provision of the Constitution or the execution of a request is
likely to prejudice the national interest of the Philippines, unless
there is a treaty between the Philippines and the requesting state
relating to the provision of assistance in relation to money
laundering offenses.
ements ffor
or R
equests ffor
or Mutual
R ULE 13.5. Requir
equirements
Requests
Assistance from Foreign States. – A request for mutual
assistance from a foreign state must:
(1) confirm that an investigation or prosecution is being
conducted in respect of a money launderer named therein
or that he has been convicted of any money laundering
offense;
(2) state the grounds on which any person is being investigated
or prosecuted for money laundering or the details of his
conviction;
(3) give sufficient particulars as to the identity of said person;
(4) give particulars sufficient to identify any covered
institution believed to have any information, document,
material or object which may be of assistance to the
investigation or prosecution;
(5) ask from the covered institution concerned any
information, document, material or object which may be
of assistance to the investigation or prosecution;
(6) specify the manner in which and to whom said
information, document, material or object obtained
pursuant to said request is to be produced,
(7) give all the particulars necessary for the issuance by the
court in the requested state of the writs, orders or processes
needed by the requesting state; and
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
417
(8) contain such other information as may assist in the
execution of the request.
RULE 13.6. Authentication of Documents. – For purposes
of Section 13 (f) of the AMLA and Section 7 of the AMLA, a
document is authenticated if the same is signed or certified by a
judge, magistrate or equivalent officer in or of, the requesting
state, and authenticated by the oath or affirmation of a witness or
sealed with an official or public seal of a minister, secretary of
state, or officer in or of, the government of the requesting state,
or of the person administering the government or a department
of the requesting territory, protectorate or colony. The certificate
of authentication may also be made by a secretary of the embassy
or legation, consul general, consul, vice consul, consular agent or
any officer in the foreign service of the Philippines stationed in
the foreign state in which the record is kept, and authenticated by
the seal of his office.
RULE 13.7. Suppletor
pplication of the R
ules
Suppletoryy A
Application
Reevised R
Rules
of Cour
t. –
Court.
RULE 13.7.1. For attachment of Philippine properties in the
name of persons convicted of any unlawful activity as defined in
Section 3 (i) of the AMLA, execution and satisfaction of final
judgments of forfeiture, application for examination of witnesses,
procuring search warrants, production of bank documents and
other materials and all other actions not specified in the AMLA
and these Rules, and assistance for any of the aforementioned
actions, which is subject of a request by a foreign state, resort may
be had to the proceedings pertinent thereto under the Revised
Rules of Court.
418
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[VOL. 6:22
R ULE 13.7.2. Authority to Assist the United Nations
and other Inter national Or
or
eign
Orgg anizations and FFor
oreign
States. – The AMLC is authorized under Section 7 (8) and 13
(b) and (d) of the AMLA to receive and take action in respect
of any request of foreign states for assistance in their own antimoney laundering operations. It is also authorized under Section
7 (7) of the AMLA to cooperate with the National Government
and/or take appropriate action in respect of conventions,
resolutions and other directives of the United Nations (UN),
the UN Security Council, and other international organizations
of which the Philippines is a member. However, the AMLC may
refuse to comply with any such request, convention, resolution or
directive where the action sought therein contravenes the provision
of the Constitution or the execution thereof is likely to prejudice
the national interest of the Philippines.
RULE 13.8. Extradition. –The Philippines shall negotiate for
the inclusion of money laundering offenses as defined under
Section 4 of the AMLA among the extraditable offenses in all
future treaties. With respect, however, to the state parties that are
signatories to the United Nations Convention Against
Transnational Organized Crime that was ratified by the Philippine
Senate on October 22, 2001, money laundering is deemed to be
included as an extraditable offense in any extradition treaty existing
between said state parties, and the Philippines shall include money
laundering as an extraditable offense in every extradition treaty
that may be concluded between the Philippines and any of said
state parties in the future.
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
419
R ULE 14
P EN
AL P ROVISIONS
ENAL
R ULE 14.1. Penalties ffor
or the Crime of Money
Laundering.
R ULE 14.1. A . P
enalties under Section 4 (a) of the
Penalties
AMLA. – The penalty of imprisonment ranging from seven
(7) to fourteen (14) years and a fine of not less than Three
million Philippine pesos (Php3,000,000.00) but not more
than twice the value of the monetary instrument or property
involved in the offense, shall be imposed upon a person
convicted under Section 4 (a) of the AMLA.
R ULE 14.1. B . Penalties under Section 4 (b) of the
AMLA. – The penalty of imprisonment from four (4) to
seven (7) years and a fine of not less than One million Five
hundred thousand Philippine pesos (Php1,500,000.00) but
not more than Three million Philippine pesos
(Php3,000,000.00), shall be imposed upon a person convicted
under Section 4 (b) of the AMLA.
R ULE 14.1. C . P
enalties under Section 4 (c) of the
Penalties
AMLA. – The penalty of imprisonment from six (6) months
to four (4) years or a fine of not less than One hundred
thousand Philippine pesos (Php100,000.00) but not more
than Five hundred thousand Philippine pesos
(Php500,000.00), or both, shall be imposed on a person
convicted under Section 4(c) of the AMLA.
RULE 14.1. D. Administrati
Administrativve Sanctions. – (1) After
due notice and hearing, the AMLC shall, at its discretion,
impose fines upon any covered institution, its officers and
employees, or any person who violates any of the provisions
420
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[VOL. 6:22
of Republic Act No. 9160, as amended by Republic Act No.
9194 and rules, regulations, orders and resolutions issued
pursuant thereto. The fines shall be in amounts as may be
determined by the Council, taking into consideration all the
attendant circumstances, such as the nature and gravity of the
violation or irregularity, but in no case shall such fines be less
than One hundred thousand pesos (Php100,000.00) but not
to exceed Five hundred thousand pesos (Php500,000.00).
The imposition of the administrative sanctions shall be
without prejudice to the filing of criminal charges against the
persons responsible for the violations.
RULE 14.2. P
enalties ffor
or FFailur
ailur
ee
ecor
ds. – The
Penalties
ailuree to K
Kee
eepp R
Recor
ecords.
penalty of imprisonment from six (6) months to one (1) year or
a fine of not less than One hundred thousand Philippine pesos
(Php100,000.00) but not more than Five hundred thousand
Philippine pesos (Php500,000.00), or both, shall be imposed on
a person convicted under Section 9 (b) of the AMLA.
R ULE 14.3. Penalties ffor
or Malicious R
ting
Ree por
porting
ting.. – Any
person who, with malice, or in bad faith, reports or files a
completely unwarranted or false information relative to money
laundering transaction against any person shall be subject to a
penalty of six (6) months to four (4) years imprisonment and
a fine of not less than One hundred thousand Philippine pesos
(Php100, 000.00) but not more than Five hundred thousand
Philippine pesos (Php500, 000.00), at the discretion of the court:
Provided, That the offender is not entitled to avail the benefits
of the Probation Law.
RULE 14.4. Wher
uridical P
erson. – If the
heree Of
Offfender is a JJuridical
Person.
offender is a corporation, association, partnership or any juridical
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
421
person, the penalty shall be imposed upon the responsible officers,
as the case may be, who participated in, or allowed by their gross
negligence the commission of the crime. If the offender is a
juridical person, the court may suspend or revoke its license. If
the offender is an alien, he shall, in addition to the penalties herein
prescribed, be deported without further proceedings after serving
the penalties herein prescribed. If the offender is a public official
or employee, he shall, in addition to the penalties prescribed herein,
suffer perpetual or temporary absolute disqualification from office,
as the case may be.
RULE 14.5. R
efusal bbyy a Pub
lic Of
Refusal
Public
Offficial or Emplo
Employyee to
Testify
estify.. – Any public official or employee who is called upon to
testify and refuses to do the same or purposely fails to testify shall
suffer the same penalties prescribed herein.
R ULE 14.6. Penalties ffor
or Br
eac
identiality
Breac
eachh of Conf
Confidentiality
identiality.. –
The punishment of imprisonment ranging from three (3) to eight
(8) years and a fine of not less than Five hundred thousand
Philippine pesos (Php500,000.00) but not more than One
Million Philippine Pesos (Php1,000,000.00), shall be imposed
on a person convicted for a violation under Section 9(c). In case
of a breach of confidentiality that is published or reported by
media, the responsible reporter, writer, president, publisher,
manager and editor-in-chief shall be liable under this Act.
P ROHIBITIONS
R ULE 15
A GAINST P OLITICAL H ARASSMENT
RULE 15.1. Pr
ohibition ag
ainst P
olitical P
ersecution. –
Prohibition
against
Political
Persecution.
The AMLA and these Rules shall not be used for political
persecution or harassment or as an instrument to hamper
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[VOL. 6:22
competition in trade and commerce. No case for money laundering
may be filed to the prejudice of a candidate for an electoral office
during an election period.
R ULE 15.2.
Ex
ce
ption. –
Exce
ception.
Pr
Proovisional
R
emedies
Remedies
A
pplication;
Application;
RULE 15.2.A. The AMLC may apply, in the course of the
criminal proceedings, for provisional remedies to prevent the
monetary instrument or property subject thereof from being
removed, concealed, converted, commingled with other
property or otherwise to prevent its being found or taken by
the applicant or otherwise placed or taken beyond the
jurisdiction of the court. However, no assets shall be attached
to the prejudice of a candidate for an electoral office during
an election period.
R ULE 15.2. B . Where there is conviction for money
laundering under Section 4 of the AMLA, the court shall
issue a judgment of forfeiture in favor of the Government
of the Philippines with respect to the monetary instrument
or property found to be proceeds of one or more unlawful
activities. However, no assets shall be forfeited to the prejudice
of a candidate for an electoral office during an election period.
R ULE 16
R ESTITUTION
RULE 16. R
estitution. – Restitution for any aggrieved party
Restitution.
shall be governed by the provisions of the New Civil Code.
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
423
R ULE 17
I MPLEMENTING R ULES AND R EGULA
TIONS AND
EGULATIONS
M ONEY L AUNDERING P REVENTION P ROGRAMS
RULE 17.1. Implementing R
ules and R
Rules
Ree gulations.
gulations.–
(a) Within thirty (30) days from the effectivity of Republic
Act No. 9160, as amended by Republic Act No. 9194,
the Bangko Sentral ng Pilipinas, the Insurance Commission
and the Securities and Exchange Commission shall
promulgate the Implementing Rules and Regulations of
the AMLA, which shall be submitted to the Congressional
Oversight Committee for approval.
(b) The Supervising Authorities, the BSP, the SEC and the
IC shall, under their own respective charters and regulatory
authority, issue their Guidelines and Circulars on antimoney laundering to effectively implement the provisions
of Republic Act No. 9160, as amended by Republic Act
No. 9194.
RULE 17.2. Money Laundering Prevention Programs. –
RULE 17.2.A. Covered institutions shall formulate their
respective money laundering prevention programs in
accordance with Section 9 and other pertinent provisions of
the AMLA and these Rules, including, but not limited to,
information dissemination on money laundering activities and
their prevention, detection and reporting, and the training of
responsible officers and personnel of covered institutions,
subject to such guidelines as may be prescribed by their
respective supervising authority. Every covered institution
shall submit its own money laundering program to the
supervising authority concerned within the non-extendible
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period that the supervising authority has imposed in the
exercise of its regulatory powers under its own charter.
RULE 17.2. B. Every money laundering program shall
establish detailed procedures implementing a comprehensive,
institution-wide “know-your-client” policy, set-up an effective
dissemination of information on money laundering activities
and their prevention, detection and reporting, adopt internal
policies, procedures and controls, designate compliance officers
at management level, institute adequate screening and
recruitment procedures, and set-up an audit function to test
the system.
RULE 17.2.C. Covered institutions shall adopt, as part of
their money laundering programs, a system of flagging and
monitoring transactions that qualify as suspicious transactions,
regardless of amount or covered transactions involving
amounts below the threshold to facilitate the process of
aggregating them for purposes of future reporting of such
transactions to the AMLC when their aggregated amounts
breach the threshold. All covered institutions, including banks
insofar as non-deposit and non-government bond investment
transactions are concerned, shall incorporate in their money
laundering programs the provisions of these Rules and such
other guidelines for reporting to the AMLC of all transactions
that engender the reasonable belief that a money laundering
offense is about to be, is being, or has been committed.
RULE 17.3. Training of P
ersonnel. – Covered institutions
Personnel.
shall provide all their responsible officers and personnel with
efficient and effective training and continuing education programs
to enable them to fully comply with all their obligations under
the AMLA and these Rules.
2004]
425
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
RULE 17.4. Amendments. – These Rules or any portion thereof
may be amended by unanimous vote of the members of the
AMLC and submitted to the Congressional Oversight Committee
as provided for under Section 19 of Republic Act No. 9160, as
amended by Republic Act No. 9194.
R ULE 18
C ONGRESSIONAL O VERSIGHT C OMMITTEE
R ULE 18.1. Composition of Congressional Oversight
Committee. – There is hereby created a Congressional Oversight
Committee composed of seven (7) members from the Senate
and seven (7) members from the House of Representatives. The
members from the Senate shall be appointed by the Senate
President based on the proportional representation of the parties
or coalitions therein with at least two (2) Senators representing
the minority. The members from the House of Representatives
shall be appointed by the Speaker also based on proportional
representation of the parties or coalitions therein with at least
two (2) members representing the minority.
R ULE 18.2. Powers of the Cong r essional Ov
Oversight
ersight
Committee. – The Oversight Committee shall have the power
to promulgate its own rules, to oversee the implementation of
this Act, and to review or revise the implementing rules issued by
the Anti-Money Laundering Council within thirty (30) days from
the promulgation of the said rules.
A PPR
OPRIA
TIONS
PPROPRIA
OPRIATIONS
R ULE 19
F OR AND B UDGET
OF THE
AML
C
AMLC
RULE 19.1. Budg
et. – The budget of Php25,000,000.00
Budget.
appropriated by Congress under the AMLA shall be used to defray
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[VOL. 6:22
the initial operational expenses of the AMLC. Appropriations
for succeeding years shall be included in the General Appropriations
Act.The BSP shall advance the funds necessary to defray the capital
outlay, maintenance and other operating expenses and personnel
services of the AMLC subject to reimbursement from the budget
of the AMLC as appropriated under the AMLA and subsequent
appropriations.
RULE 19.2. Costs and Expenses. – The budget shall answer
for indemnification for legal costs and expenses reasonably incurred
for the services of external counsel in connection with any civil,
criminal or administrative action, suit or proceedings to which
members of the AMLC and the Executive Director and other
members of the Secretariat may be made a party by reason of the
performance of their functions or duties. The costs and expenses
incurred in defending the aforementioned action, suit or proceeding
may be paid by the AMLC in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking
by or on behalf of the member to repay the amount advanced
should it be ultimately determined that said member is not entitled
to such indemnification.
R ULE 20
S EP
ARABILITY C LA
USE
EPARABILITY
LAUSE
RULE 20. Se
parability Clause. – If any provision of these
Separability
Rules or the application thereof to any person or circumstance is
held to be invalid, the other provisions of these Rules, and the
application of such provision or Rule to other persons or
circumstances, shall not be affected thereby.
2004]
REVISED IMPLEMENTING RULES AND
REGULATIONS REPUBLIC ACT NO. 9160,
AS AMENDED BY REPUBLIC ACT NO. 9194
427
R ULE 21
R EPEALING C LA
USE
LAUSE
RULE 21. Repealing Clause. – All laws, decrees, executive
orders, rules and regulations or parts thereof, including the relevant
provisions of Republic Act No. 1405, as amended; Republic Act
No. 6426, as amended; Republic Act No. 8791, as amended, and
other similar laws, as are inconsistent with the AMLA, are hereby
repealed, amended or modified accordingly.
R ULE 22
E FFECTIVITY OF T HE R ULES
RULE 22.1. Ef
vity
Efffecti
ectivity
vity.. – These Rules shall take effect after
approval by the Congressional Oversight Committee and fifteen
(15) days after complete publication in the Official Gazette or in
a newspaper of general circulation.
R ULE 23
T RANSIT
OR
Y P ROVISIONS
RANSITOR
ORY
RULE 23.1. Transitor
ransitoryy Pr
Proovisions. – Existing freeze orders
issued by the AMLC shall remain in force for a period of thirty
(30) days after effectivity of this Act, unless extended by the
Court of Appeals.
RULE 23.2. Ef
lic Act No
Efffect of R
Ree pub
public
No.. 9194 on Cases
ze Or
ders R
esolv
ed bbyy the Cour
eeze
Orders
Resolv
esolved
Courtt
for Extension of FFrree
of A
ppeals. – All existing freeze orders which the court of
Appeals.
appeals has extended shall remain effective, unless otherwise
dissolved by the same court.
APPROVED, this 6th day of August, 2003 in the City of Manila.