7/31/2019 Special Commercial Laws - Finals http://slidepdf.com/reader/full/special-commercial-laws-finals 1/70 Special Commercial Laws - FinalsEH 403 [2011 – 2012]1General Banking • Secrecy of Bank Deposits • PDIC • Truth in Lending •Anti -Money Laundering • Foreign Investments • Warehouse Receipts• WhewGENERAL BANKING ACT (R.A. 8791) The General Banking Law applies PRIMARILY to Universal and Commercial Banks and SUPPLETORILY to Thrift Banks, Rural Banks, Cooperative Banks and Islamic Banks. PURPOSE AND SCOPE OF APPLICATION (Section 2)Section 2. Declaration Of Policy. - The State recognizes the vital role of banks in providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy. 1. The State recognizes the vital role of banks in providing an environment conducive to the sustained development of the National Economy. -The bank plays either a passive or an active role: Passive – as a depositary of your millions. Active – it conducts not only banking and lending activities but more importantly it helps in the conduct of day to day transactions of several businesses. Banks are considered as trusted partners of business entities. -Banks play a vital role in the economic life of the country and for the sustained development of the country. Imagine if there are no banks, how would we facilitate our transactions as individuals, as business entities and as a country in general? 2.The State also recognizes the fiduciary nature of banks. -Banks are impressed with public interest. -Because of the said fiduciary nature, banks are expected to exercise the highest standards of integrity and performance as compared to other entities. -The bank must not only exercise “high standards of integrity and performance,” it must also ensure that its employees do likewise, because this is the only way to ensure that the bank will comply with its fiduciary duty. The standard of diligence required of banks (i.e. HIGHEST STANDARDS OF INTEGRITY AND PERFORMANCE) is exemplified in the following cases: PCI BANK V. COURT OF APPEALS – Fiduciary Obligation of Bank Employees Banks are liable for the wrongful and tortuous acts of their employees so long as those acts were done in the course of the latter’s employment. The bank’s liability is not merely vicarious but PRIMARY, and so, the defense of due diligence in the selection and supervision of its employees is NOT A VALID DEFENSE. CAST: Citibank – Drawee Bank PCI Bank – Collecting Bank; Authorized Agent Bank Commissioner of Internal Revenue – Payee FACTS: Ford was assessed of percentage taxes. It drew an account with Citibank, the drawee bank, and deposited the check to PCI Bank, the authorized agent bank [In taxation, we are allowed pay our taxes directly to authorized agent banks (AABs). In this case, the AAB is PCI Bank.]. Ford was surprised when it received a letter of demand for the payment of the taxes. Apparently, the CIR did not receive any payment at all. And so Ford was compelled to pay the CIR. An investigation was conducted and it was found out that there was a syndicate involving employees of Ford, PCI Bank and Citibank. There was also an employee of BIR who made it possible for the issuance of spurious receipts. Who should be held liable? SC: Both PCI Bank and Citibank – they are equally at fault. PCI Bank imputed fault to Ford because according to PCI Bank, its (Ford’s) employee Wilfredo Rivera, is involved in the syndicate. BIR’s defense was that it was Ford’s fault because it failed to exercise supervision over its own employees because it authorized its employee to make the call. SC: it was not the fault of Ford because it was not part of the ordinary course of its business and the Court determined that Rivera acted on his own. Ultimately, the Court decided against PCI Bank because as a bank, PCI Bank is expected to exercise the highest degree of diligence and should not have allowed itself to easily fall for the machinations of the Ford employee
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GENERAL BANKING ACT
(R.A. 8791)
The General Banking Law applies PRIMARILY to Universal and Commercial Banks
and SUPPLETORILY to Thrift Banks, Rural Banks, Cooperative Banks and Islamic
Banks.
PURPOSE AND SCOPE OF APPLICATION
(Section 2)
Section 2. Declaration Of Policy. - The State recognizes the vital role of banks in
providing an environment conducive to the sustained development of the national
economy and the fiduciary nature of banking that requires high standards of
integrity and performance. In furtherance thereof, the State shall promote and
maintain a stable and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a developing economy.
1. The State recognizes the vital role of banks in providing an environmentconducive to the sustained development of the National Economy.
- The bank plays either a passive or an active role:
Passive – as a depositary of your millions.
Active – it conducts not only banking and lending activities but
more importantly it helps in the conduct of day to day
transactions of several businesses. Banks are considered as
trusted partners of business entities.
- Banks play a vital role in the economic life of the country and for the
sustained development of the country.
Imagine if there are no banks, how would we facilitate our
transactions as individuals, as business entities and as a country ingeneral?
2. The State also recognizes the fiduciary nature of banks.
- Banks are impressed with public interest.
- Because of the said fiduciary nature, banks are expected to exercise
the highest standards of integrity and performance as compared to
other entities.
- The bank must not only exercise “high standards of integrity and
performance,” it must also ensure that its employees do likewise,
because this is the only way to ensure that the bank will comply with
its fiduciary duty.
The standard of diligence required of banks (i.e. HIGHEST STANDARDS OF
INTEGRITY AND PERFORMANCE) is exemplified in the following cases:
PCI BANK V. COURT OF APPEALS – Fiduciary Obligation of Bank Employees
Banks are liable for the wrongful and tortuous acts of their employees so long as
those acts were done in the course of the latter’s employment. The bank’s liability
is not merely vicarious but PRIMARY, and so, the defense of due diligence in the
selection and supervision of its employees is NOT A VALID DEFENSE.
CAST:
Citibank – Drawee Bank
PCI Bank – Collecting Bank; Authorized Agent Bank
Commissioner of Internal Revenue – Payee
FACTS:
Ford was assessed of percentage taxes. It drew an account with Citibank, thedrawee bank, and deposited the check to PCI Bank, the authorized agent bank [In
taxation, we are allowed pay our taxes directly to authorized agent banks (AABs). In
this case, the AAB is PCI Bank.]. Ford was surprised when it received a letter of
demand for the payment of the taxes. Apparently, the CIR did not receive any
payment at all. And so Ford was compelled to pay the CIR. An investigation was
conducted and it was found out that there was a syndicate involving employees of
Ford, PCI Bank and Citibank. There was also an employee of BIR who made it
possible for the issuance of spurious receipts.
Who should be held liable?
SC: Both PCI Bank and Citibank – they are equally at fault.
PCI Bank imputed fault to Ford because according to PCI Bank, its (Ford’s)
employee Wilfredo Rivera, is involved in the syndicate. BIR’s defense was that
it was Ford’s fault because it failed to exercise supervision over its own
employees because it authorized its employee to make the call.
SC: it was not the fault of Ford because it was not part of the ordinary
course of its business and the Court determined that Rivera acted on his
own. Ultimately, the Court decided against PCI Bank because as a bank, PCI
Bank is expected to exercise the highest degree of diligence and should not
have allowed itself to easily fall for the machinations of the Ford employee
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BPI V. CA
ISSUE:
Who is at fault here? Is it the depositor who signed a blank withdrawal slip or is it
the bank who allowed the withdrawal?
The contention of the bank was that the depositor was partly at fault because he
issued a blank withdrawal slip without even indicating the amount and the name of
the payee.
SC: The Bank.
To be able to withdraw from the savings account deposit under the Philippine
foreign currency deposit system, two requisites must be presented to petitioner
bank by the person withdrawing an amount: (a) a duly filled-up withdrawal slip, and
(b) the depositor's passbook. In this case, the bank allowed the withdrawal even
without the presentation of the passbook. If it is made thru a representative, there
should be an attachment of the authority given. Normally, it’s in the back of theform. Usually, if you do not withdraw yourself, you indicate who the authorized
person is. Nevertheless, it must always be accompanied by a passbook.
There is another reason, the main reason actually, why we can say that the bank
here is really at fault or negligent. That it did not exercise the required diligence, the
highest degree of care. The bank allowed the withdrawal of $2,500 even before the
check was cleared. It is SOP for most banks that it will not allow withdrawals unless
the check has already cleared. In this case, when the bank allowed the withdrawal,
the balance was only 750. But here, the bank allowed the $2,500 withdrawal
without waiting for the check to be cleared. Had the bank waited for the check to
be cleared, then, this thing would not have happened.
So these are the lapses of the bank which indicated that the bank failed to exercise
that degree of care. It failed to exercise ordinary diligence, much less the highest
degree of care.
Was the depositor’s signing of a blank withdrawal slip the proximate cause?
While it is true that private respondent's having signed a blank withdrawal
slip set in motion the events that resulted in the withdrawal and
encashment of the counterfeit check, the negligence of the bank’s
personnel in allowing the withdrawal of $2,500 without the check not
having been cleared yet was the proximate cause of the loss.
SIMEX INT’L (MANILA) V. CA
ISSUE:
WON the TRB is liable.
The defense was there was no malice, bad faith on the part of Traders Royal Bank. It
was just an honest mistake.
SC: The SC held that the TRB is liable for moral damages and exemplary damages.
As to moral damages: although there was no evident bad faith on the part of the
bank, it failed to give the funds when Simex Int’l would have withdrawn the check.
It failed to explain why such checks bounced. While corporations do not have
feelings like natural persons, it is still entitled to moral damages because the
corporation has a good reputation to protect.
As to the exemplary damages: it is to set an example to the public.
REYES V. CA – High Degree of Diligence Does Not Cover Transactions Outside of
Bank Deposits; There must be a Depositor-Bank Relationship (Fiduciary
Relationship)
FACTS:
The Reyeses wanted to purchase a foreign exchange demand draft to be used as
payment for the registration fee in the conference in Australia. At first it was denied
because FEBTC did not have an Australian dollar account in any bank in Sydney.
They asked for another way. The arrangement would be that the foreign bank in
Australia would honor the demand draft and the foreign bank in Australia will debit
the account of FEBTC here in the Philippines. So, that was the arrangement. In that
way, the demand drafts presented by the spouses in Australia would be honored.
But what happened was, when the Reyeses were in Australia and tried to register in
this conference, they were surprised that the foreign exchange demand drafts were
dishonored. The reason given by the bank was there was no such account. So after
the dishonor, the Reyeses informed FEBTC inquiring why the demand drafts were
dishonored. They said that they were embarrassed. The registration table had so
many delegates.
FEBTC sent again a notice or reconfirmation to Westpac New York. Because FEBTC
thought at first that the reason for the dishonor was that there was no account but
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FEBTC learned that its account was already debited by Westpac Bank New York. So
meaning, it has been deducted already and that the demand draft should have
been honored. Again, FEBTC sent a reconfirmation to Westpac New York of its
authority to honor the demand draft. And that Westpac New Yorks is entitled to
reimbursement. But then again, despite the reconfirmation and recommunication
done by FEBTC to Westpac New York, the bank in Sydney, the demand draft was
still dishonored. The reason there was an erroneous decoding of the cable message.
Instead of Number 7, the decoder in Sydney read it as Number 1. 7 refers to
demand drafts and 1 refers to letters of credit. But there was no application of
letters of credit. That is why the Bank in Sydney dishonored the demand draft. So,
what happened? The Reyeses went back to the Philippines and sued FEBTC due to
the dishonor of the foreign exchange draft because according to them, they were
exposed to unnecessary shock, social humiliation, deep mental anguish in a foreign
country in the presence of international audience.
ISSUE:
WON FEBTC is liable under the circumstances.
SC: FEBTC is not liable because of the nature of the transaction.
What is the relationship of the bank with respect to the Reyeses?
In this case, the Court said that the relationship is NOT fiduciary in nature
meaning the sale of draft is just an ordinary commercial transaction
involving a seller and a buyer. The seller here is the bank and the Reyeses
are the buyers of the demand draft. So, there is no relationship of bank
and depositor. There is no depositor and depositary. In that case, the
relationship is not fiduciary. Thus, if the relationship is not fiduciary, the
bank is not expected to exercise the highest degree of care. The exercise ofdiligence of a good father of a family is enough. In this case, such diligence
has already been exercised by FEBTC as shown by them reconfirming the
Westpac Bank by sending them a letter.
Do you agree with the SC’s ruling? So, are we saying that the highest degree of
care is only expected in fiduciary transactions? Or should it apply to all
transactions of the bank?
Atty. Larrobis: We should not distinguish. The law says that banks play a
vital role. We should not distinguish that the transactions of banks are
limited only to the depositor and depositary. FEBTC should have done
more. It’s difficult if you make a distinction because after all if you deal
with the bank, if the bank commits an error or mistake, it will undermine
the stability and confidence of the people in the banks. But that is the
ruling of the court.
So:
- If bank is acting in a fiduciary capacity: HIGHEST DEGREE OF CARE
- Ordinary transactions only: ORDINARY DILIGENCE
What about when you apply for a loan from the bank? What is the nature of
the transaction? Is that fiduciary in nature? Or if you apply a letter of credit? If
you go with the ruling of this court you have to distinguish whether it is
fiduciary or not. When can we say then that the transaction of the bank is
fiduciary or not?
In one case, the case of DBP, the Court said that in mortgages, as mortgagees, the
bank should also be a mortgagee in good faith. So meaning, the bank is also
expected to exercise the highest degree of care. It is saying that it is still fiduciary in
nature.
DBP V. CA – Degree of Diligence Required of Banks as Lenders-Mortgagers
The principle here is that the bank as a mortgagee, must be a mortgagee in good
faith. So the Court is saying that before the bank accepts the property used as
collateral, it must first conduct an examination. In this case, what was mortgaged
was a parcel of land. It turned out that the parcel of land was already owned and
possessed by another which DBP failed to discover. DBP accepted the collateral
even without conducting an inspection. Normally, the bank conducts inspection.
Aside from examining the title, you inspect the place. In this case, the bank failed to
do that. The Court said that it is not a mortgagee in good faith.
URSAL V. CA – Dealings with Registered Land
Banks cannot merely rely on certificates of title in ascertaining the status of
mortgaged properties. As their business is impressed with public interest, they are
expected to exercise more care and prudence in their dealings than private
individuals. Indeed, the rule that persons dealing with registered land can rely solely
on the certificate of title does not apply to banks.
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“Banks” refer to entities engaged in the lending of funds obtained in the form of
deposits, and are classified as follows:
1. Universal Banks;
2. Commercial Banks;
3. Thrift Banks (3):
- Savings and Mortgage Banks
- Stock Savings and Loan Associations
- Private Development Banks
4. Rural Banks (as defined in “Rural bank Act”);
- Basically, rural banks cater to those in the countryside, in the rural
areas.
- Their primary function is to extend loans or credits to farmers, fisher
folks etc.
5. Cooperative Banks (as defined in “Cooperative Code”);
- These banks cater to cooperatives. They extend loans and assistance
to cooperatives.
6. Islamic Banks (as defined in “Charter of Al Amanah Islamic Investment
Bank of the Philippines”). - These banks cater to our Muslim brothers and sisters.
7. Other classifications of banks as determined by the Monetary Board of the
BSP.
Under the General Banking Law, you are a bank if you lend funds and these funds
are obtained from the public by way of deposits. That definition under the law
describes what classical or core banking is: deposit taking and lending of funds. But
in reality, banks do more than deposit taking and lending of funds. As will be
discussed later under Section 29 on the operations of commercial banks and
Section 53 on other banking services, it is more than just deposit taking and lending
of funds.
Note that aside from deposit taking and lending of funds, universal banks and
commercial banks are also allowed to have investments in certain enterprises. In
case of universal banks, it is allowed to invest in allied and non-allied enterprises
but in case of commercial banks, only in allied enterprises. Also a universal bank can
also act as an investment house.
AUTHORITY OF BSP
(Sections 4-7)
Section 4. Supervisory Powers. The operations and activities of banks shall be
subject to supervision of the Bangko Sentral. "Supervision" shall include the
following:
4.1. The issuance of rules of, conduct or the establishment standards of
operation for uniform application to all institutions or functions covered, taking
into consideration the distinctive character of the operations of institutions and
the substantive similarities of specific functions to which such rules, modes or
standards are to be applied;
4.2 The conduct of examination to determine compliance with laws and
regulations if the circumstances so warrant as determined by the Monetary
Board;
4.3 Overseeing to ascertain that laws and regulations are complied with;
4.4 Regular investigation which shall not be oftener than once a year from the
last date of examination to determine whether an institution is conducting its
business on a safe or sound basis: Provided, That the deficiencies/irregularities
found by or discovered by an audit shall be immediately addressed;
4.5 Inquiring into the solvency and liquidity of the institution (2-D); or
4.6 Enforcing prompt corrective action. (n)
The Bangko Sentral shall also have supervision over the operations of and exercise
regulatory powers over quasi-banks, trust entities and other financial institutionswhich under special laws are subject to Bangko Sentral supervision. (2-Ca)
For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the
borrowing of funds through the issuance, endorsement or assignment with
recourse or acceptance of deposit substitutes as defined in Section 95 of Republic
Act No. 7653 (hereafter the "New Central Bank Act") for purposes of re-lending or
purchasing of receivables and other obligations. (2-Da)
We have discussed the authority of the BSP when we discussed the New
Central Bank Act.
This authority of the BSP is reiterated in the General Banking Law.
BSP has supervisory and regulatory authority over banks.
- The BSP issues rules and regulations.
- It also conducts examinations and REGULAR INVESTIGATIONS over banks,
not more than once a year.
- By way of exception, the BSP can examine a bank more than once a year if
by vote of 5 of the members of the Monetary Board. Just like when there
are cases of reported irregularities, it can conduct SPECIAL EXAMINATIONS.
BSP also has authority over quasi-banks, which are still considered financial
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ISSUE: WON the activity of the corporation is considered as banking? If yes, a
banking license would be necessary.
SC: The activity is banking. It is classical banking actually, obtaining funds from the
public and lend it out to the public. Since you are into banking activities without the
necessary banking franchise, then, you can be held liable. Under the law, no person
or entity can engage in banking operations or quasi-banking functions without
authority (banking franchise) from the BSP.
What are the sanctions for entities and corporations engaging into banking
without the necessary banking franchise?
- It will be subjected to penalties and a quo warranto proceeding can be
filed by the Solicitor General.
- A quo warranto proceeding is a special civil action to question the
authority, in this case, to engage into banking.
- If you do not have a banking franchise, the court can order the dissolution.
Further, take note, that in Section 64, if you are not a bank, you are not allowed
to use the words as part of your corporate name, “bank”, “banking”, “trustcompany”, “banker”, “quasi-banking” etc. The reason of course is you are not
registered to engage into these activities.
The word “quasi-banking” is included because the same is mostly engaged in by
banks. There are entities, however, which are not banks but are engaged in
quasi-banking functions. That is why I said that the term is inappropriate. Some
financial institutions perform quasi-banking functions because they issue debt
instruments, they issue promissory notes. But they must have an authority
from the Central Bank.
Section 7. Examination by the Bangko Sentral. - The Bangko Sentral shall, whenexamining a bank, have the authority to examine an enterprise which is wholly or
majority-owned or controlled by the bank. (2-Ba)
What is the extent of the authority?
- It can examine not only the banks but even, as we have discussed before
under the New Central Bank Act, the subsidiaries and affiliates of the bank.
- But the only difference, under the New Central Bank Act, it has limited
authority to examine to examine the subsidiary and affiliate of a bank
provided that such subsidiary and affiliate is engaged in allied enterprise.
- But here, under Sec. 7 of the General Banking Law, the power of the BSP is
much broader in the sense that it does not distinguish whether the
subsidiary or affiliate is into allied enterprise or not. The fact that you are
a subsidiary or majority owned by the bank, you can be subject to
examination by the BSP.
- The only requirement for the examination of the subsidiary or the affiliate
is that must be in connection with the examination of the bank, it must be
in the course of the examination of the bank (controlling bank). The BSP
could not directly examine the subsidiary.
CAPITAL STRUCTURE OF BANKS AND QUASI-BANKS
(Sections 8-19)
Section 8. Organization. - The Monetary Board may authorize the organization of a
bank or quasi-bank subject to the following conditions:
8.1 That the entity is a stock corporation (7);
8.2 That its funds are obtained from the public, which shall mean twenty (20)
or more persons (2-Da); and
8.3 That the minimum capital requirements prescribed by the Monetary Board
for each category of banks are satisfied. (n)
No new commercial bank shall be established within three (3) years from theeffectivity of this Act. In the exercise of the authority granted herein, the Monetary
Board shall take into consideration their capability in terms of their financial
resources and technical expertise and integrity. The bank licensing process shall
incorporate an assessment of the bank's ownership structure, directors and senior
management, its operating plan and internal controls as well as its projected
financial condition and capital base.
Can a partnership or sole proprietorship organize a bank?
- No, it cannot because of the conditions provided for under the law.
What are those conditions? (3)
1. The entity is a stock corporation
- The bank cannot be a partnership or sole proprietorship. There reason
is the capital requirement for banks.
- The law requires that the bank must be a stock corporation. There is
no non-stock, non-profit bank.
- It must also issue stocks with par value. It is not authorized to issue
stocks with no par value.
o Under the Corporation Code, there are entities which must issue
par value shares and one of them is the bank. Others include
insurance companies, public utilities etc. If you look at these
corporations, these are entities vested with public interest.
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Foreign Banks Liberalization Act and the Thrift Banks Act, to further
acquire voting shares of such bank to the extent necessary for it to own
one hundred percent (100%) of the voting stock thereof.
- Additionally, under a different law, An Act Liberalizing the Entry of Foreign
Banks, if you are a FOREIGN OWNED CORPORATION and:
1) you are listed, OR
2) you are not listed but you existed here in the Philippines for at least
10 years already
you can acquire 100% voting stock of a domestic bank. So, Section 11 has
been amended, it is possible for A FOREIGN OWNED CORPORATION to
acquire more than 40%.
- Apparently, it would seem that a domestic bank can now be owned 100%
by foreigners. If you also look at the Foreign Investment Negative List,
there is no limitation on ownership of banks because that is regulated by
the General Banking Law.
Can Foreign Corporations own 100% of the shares of a domestic bank?- Yes, it is possible. Under:
o (1) Section 73 of the General Banking Law, but only 1 existing bank
o (2) RA 7721 – An Act Liberalizing Entry of Foreign Banks
In Section 11, only up to 40%
So, what did we learn?
- For Filipinos: the individual limit is 40%, but it can be owned by 100%
- For foreigners:
o individuals, the limit is 40%
o foreign owned corporation, it can own up to 100%.
- So, in short, a domestic bank can now be owned by 100% by foreigners.
Section 12. Stockholdings of Family Groups of Related Interests. - Stockholdings of
individuals related to each other within the fourth degree of consanguinity or
affinity, legitimate or common-law, shall be considered family groups or related
interests and must be fully disclosed in all transactions by such corporations or
related groups of persons with the bank. (12-Ba)
Section 13. Corporate Stockholdings. - Two or more corporations owned or
controlled by the same family group or same group of persons shall be considered
related interests and must be fully disclosed in all transactions by such corporations
or related group of persons with the bank. (12-Ba)
Sections 12 and 13 talk about stockholdings of family groups or related
interests. Take note that the law does not provide a limit that one family can
only own 40%. There is actually NO LIMIT. The only requirement by law is
DISCLOSURE.
So, it is possible that a family group can acquire 100% of a domestic bank for as
long as the INDIVIDUAL OWNERSHIP (of the members of the family group)
DOES NOT EXCEED 40% (Section 11)
You remember when we discussed the organizational structure of banks under
Section 8, that banks should obtain funds from the public, numbering 20
persons or more. Is it possible that these 20 persons belong to one family
group? Yes, it is possible.
The law does not provide for restrictions on ownership of family or related
interests. The only requirement is full disclosure.
Section 14. Certificate of Authority to Register. - The Securities and ExchangeCommission shall not register the articles of incorporation of any bank, or any
amendment thereto, unless accompanied by a certificate of authority issued by the
Monetary Board, under it seal. Such certificate shall not be issued unless the
Monetary Board is satisfied from the evidence submitted to it:
14.1 That all requirements of existing laws and regulations to engage in the
business for which the applicant is proposed to be incorporated have been
complied with;
14.2 That the public interest and economic conditions, both general and local,
justify the authorization; and
14.3 That the amount of capital, the financing, organization, direction and
administration, as well as the integrity and responsibility of the organizers andadministrators reasonably assure the safety of deposits and the public interest.
(9)
The Securities and Exchange Commission shall not register the by-laws of any
bank, or any amendment thereto, unless accompanied by a certificate of
authority from the Bangko Sentral. (10)
Section 15. Board of Directors. - The provisions of the Corporation Code to the
contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen
(15) members of the board or directors of a bank, two (2) of whom shall be
independent directors. An "independent director" shall mean a person other than
an officer or employee of the bank, its subsidiaries or affiliates or related interests.
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(n) Non-Filipino citizens may become members of the board of directors of a bank
to the extent of the foreign participation in the equity of said bank. (Sec. 7, RA
7721) The meetings of the board of directors may be conducted through modern
technologies such as, but not limited to, teleconferencing and video-conferencing.
(n)
Number of directors in a bank?
- The number of directors must be at least 5 and a maximum of 15. Same as
that of an ordinary corporation.
- But at least 2 of them must be independent directors.
o Who is considered an independent director?
» An "independent director" shall mean a person other than an
officer or employee of the bank, its subsidiaries or affiliates or
related interests.
» Additionally, to be considered as an independent director, you
must also not be related by consanguinity or by affinity within the
4th
civil degree of any of the majority of the stockholder of the
bank or any of its subsidiaries.
» You must also not be a consultant, lawyer, agent etc. of the bankor any subsidiaries or any of its majority stockholders.
» You must be totally independent. That you do not have any
connection whatsoever with the bank, its subsidiaries, its officers
or its stockholders, whether you are related by consanguinity or
affinity, or you acted as a lawyer, consultant, adviser, etc.
Can a foreign individual be a director of a bank?
- Yes. Non-Filipino citizens may become members of the BOD of a bank to
the extent of the foreign participation in the equity of said bank.
- For example, 40% of the bank is owned by foreigners. So, in the seat of the
BOD, they can only occupy up to the extent of 40%. If you have 5 seats,40% of the 5 seats is 2. And of course if it is 100%, then 5 seats.
- Under the GBL, it is possible for a bank to be 100% foreign owned (see
discussion under Section 11).
- Thus, the BOD may be 100% foreign nationals. But a majority of them have
to be residents of the Philippines.
Meetings of board of directors can be conducted thru the use of modern
technologies. This is the same rule for ordinary corporations. It is not necessary
to hold meetings in person. It can be done thru teleconferencing. Of course,
there are rules prescribed by SEC in conducting teleconferencing and
videoconferencing.
Section 16. Fit and Proper Rule. - To maintain the quality of bank management and
afford better protection to depositors and the public in general the Monetary Board
shall prescribe, pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and disqualify those
found unfit. After due notice to the board of directors of the bank, the Monetary
Board may disqualify, suspend or remove any bank director or officer who commits
or omits an act which render him unfit for the position. In determining whether anindividual is fit and proper to hold the position of a director or officer of a bank,
regard shall be given to his integrity, experience, education, training, and
competence. (9-Aa)
FIT AND PROPER RULE
The monetary board may provide for additional qualifications for BOD members in
the bank, which has something to do with integrity, experience, education, training,
and competence.
- These qualifications set by the Monetary Board are in addition to those
prescribed in the Corporation Code on qualifications of the directors.
What are the qualifications provided in the Corporation Code?
- Must own at least 1 share of stock
- Majority must be residents of the Philippines (it does not require
citizenship; only residency)
- Must be a natural person
- Must not be convicted of a crime punishable by 6 years or the violations of
the Corporation Code committed within 1 year
Additional Qualifications for Directors based on the circular issued by the BSP
- Age: at least 25 years old- Education: College Graduate
- Work Experience: 5 years experience in banking and other related
activiites
Qualifications for Officers
- Age: at least 21 years old
- Education: College Graduate
- Work Experience: 5 years experience in banking and other related
activiites
What is the liability of bank for the torts committed by its officers?
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- We have discussed this in the case of PCI Bank vs. CA
- Take note that the bank is liable even for wrongful and tortuous acts of its
employees.
Section 17. Directors of Merged or Consolidated Banks. - In the case of a bank
merger or consolidation, the number of directors shall not exceed twenty-one (21).
(l3a)
The only exception where the Board of Directors can exceed 15 is when there is
merger or consolidation. If a bank consolidates or merges, then, it is possible
that its Board will reach the number of 21, but not exceeding 21.
Section 18. Compensation and Other Benefits of Directors and Officers. - To
protect the finds of depositors and creditors the Monetary Board may regulate the
payment by the bark to its directors and officers of compensation, allowance, fees,
bonuses, stock options, profit sharing and fringe benefits only in exceptional cases
and when the circumstances warrant, such as but not limited to the following:
18.1. When a bank is under comptrollership or conservatorship; or
18.2. When a bank is found by the Monetary Board to be conducting businessin an unsafe or unsound manner; or
18.3. When a bank is found by the Monetary Board to be in an unsatisfactory
financial condition. (n)
What about compensation by its officers? Is there a limit?
- If you read the provision, the Monetary Board may regulate the payment
by the bank to its directors and officers of compensation xxx only in
exceptional cases and when the circumstances warrant.
- But if you look at these exceptional cases, that’s the only time when the
Monetary Board would regulate. By the time it does, it is already too late.The regulation may prove to be too late.
- But in any case, there is a limitation provided under the Corporation Code
as far as compensation of directors is concerned. If the Monetary Board
does not provide for a limit, the Corporation Code does. After all, banks
are still considered corporations. The limit is it should not exceed 10% of
the net income before tax of the preceding year. Somehow, this will serve
as the limit.
o If the bank is not doing so good, then the directors do not deserve to
receive compensation.
o Probably, this is the reason why the compensation is based on the net
income. If the corporation is doing well, then most likely the BODs are
doing their job also. If you’re saying that there is no net income, then,
they also do not have compensation. It cannot exceed 10%.
Section 19. Prohibition on Public Officials. - Except as otherwise provided in the
Rural Banks Act, no appointive or elective public official whether full-time or part-
time shall at the same time serve as of ficer of any private bank, save in cases wheresuch service is incident to financial assistance provided by the government or a
government owned or controlled corporation to the bank or unless otherwise
provided under existing laws.
GENERAL RULE: No appointive or elective official can serve as an officer of the
bank.
EXCEPTION: When the government extends financial assistance to the Bank.
Example is when the BSP or DBP (GOCC) grants financial loans or assistance to
banks. That is the only time that a public official can sit in as an officer of the
bank. The purpose is to protect the interest of the government because in this
case the government extends financial assistance.
BANK OPERATIONS
(Sections 20 – 22)
Section 20. Bank Branches. - Universal or commercial banks may open branches or
other offices within or outside the Philippines upon prior approval of the Bangko
Sentral. Branching by all other banks shall be governed by pertinent laws.
A bank may, subject to prior approval of the Monetary Board, use any or all of its
branches as outlets for the presentation and/or sale of the financial products of its
allied undertaking or of its investment house units. A bank authorized to establishbranches or other offices shall be responsible for all business conducted in such
branches and offices to the same extent and in the same manner as though such
business had all been conducted in the head office. A bank and its branches and
offices shall be treated as one unit.
Universal Banks and Commercial Banks are, as a rule, allowed to open
branches within and outside of the Philippines but this with prior approval of
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The operations of the branch shall be subject to the control or supervision or
responsibility of the head office. So, meaning, the branches and the head office
shall be considered or treated as one entity or one unit.
Additionally, the bank may use its branch or any of its branches as outlet for
the sale of financial products of its allied enterprises.
Example: When you go to the bank, some banks would offer sale of insurance,
right? In case of Metrobank, there is a separate table selling AXA Insurance or
another table offering to sell you credit cards. That is allowed because banks
are allowed to use their branches as outlet for the sale of financial products of
their allied enterprises.
Insurance Companies and Credit Card Companies are considered as allied
enterprises.
Section 21. Banking Days and Hours. - Unless otherwise authorized by the Bangko
Sentral in the interest of the banking public, all banks including their branches and
offices shall transact business on all working days for at least six (6) hours a day. Inaddition, banks or any of their branches or offices may open for business on
Saturdays, Sundays or holidays for at least three (3) hours a day : Provided, That
banks which opt to open on days other than working days shall report to the
Bangko Sentral the additional days during which they or their branches or offices
shall transact business. For purposes of this Section, working days shall mean
Mondays to Fridays, except if such days are holidays.
It used to be that banks operate for 6 hours only – that is from 9am to 3pm. But
right now, if the bank is located in the malls, they don’t follow the regular
banking hours. They are open until 7pm. (There’s even 24/7 )
The requirement is that they have to report their additional days and hours tothe BSP.
Section 22. Strikes and Lockouts. - The banking industry is hereby declared as
indispensable to the national interest and, notwithstanding the provisions of any
law to the contrary, any strike or lockout involving banks, if unsettled after seven
(7) calendar days shall be reported by the Bangko Sentral to the secretary of Labor
who may assume jurisdiction over the dispute or decide it or certify the sane to the
National Labor Relations Commission for compulsory arbitration. However, the
President of the Philippines may at any time intervene and assume jurisdiction over
such labor dispute in order to settle or terminate the same.
If there’s a strike or lockout involves a bank and the strike or lockout remains
unresolved for a period of 7 days, what is the effect?
- The BSP will report the same and the Secretary of Labor shall assume
jurisdiction and decide on the dispute OR be submitted to the NLRC for
compulsory arbitration. The reason for that is that banks are indispensable
to the national interest.
- So, this is triggered by a report submitted by a bank CEO (or any bank
officer) to the BSP, who will in turn report the same to the SOLE.
UNIVERSAL BANKS
Section 23. Powers of a Universal Bank - A universal bank shall have the authority
to exercise, in addition to the powers authorized for a commercial bank in Section
29, the powers of an investment house as provided in existing laws and the power
to invest in non-allied enterprises as provided in this Act.
POWERS OF A UNIVERSAL BANK
1. Powers authorized of a commercial bank (Section 29) – meaning, allpowers of commercial banks can be performed or can be done by universal
banks
2. Powers of an investment house – dealing, underwriting, or selling of
securities.
Now, if a universal bank performs powers of an investment house like
underwriting, or selling securities, do they need separate license from the
SEC to sell or acquire securities for that matter?
Yes. SEC will require a universal bank to register or secure license as far asunderwriting or selling securities. But it is still under the supervision of the
BSP.
3. Power to invest in non-allied enterprises
No problem with respect to universal banks because it can invest to both,
whether allied or non-allied.
But, you have to distinguish later on when we go to commercial banks
because a commercial bank can only invest in allied enterprises.
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EX. The universal bank acquired 100% of the capital stock (equity) of an
insurance company, and the value of the stock is 30M, can the universal bank
make this investment if its net worth is 100M?
- No. The bank is allowed to invest up to 100% of the equity but in no case
shall the investment in a single enterprise exceed 25%.
Under the first sentence, It mentions 100% of the equity in a thrift bank, rural
bank, or financial allied enterprise. So a universal bank can own up to 100% of
the equity of another universal bank because universal banks are financial
allied enterprises.
BUT that is qualified under second sentence. If you are to invest in a financial
allied enterprise and that financial allied enterprise happens to be a UNIVERSAL
BANK OR COMMERCIAL BANK, for you to acquire 100% equity of that universal
or commercial bank, the acquiring universal bank has to be publicly listed. So,
meaning, if you are not a publicly listed universal bank, you cannot acquire
100% equity of another universal bank or commercial bank.
IN SUM:- A UNIVERSAL BANK can own 100% of the equity in a (1) thrift bank, (2)
rural bank, or (3) financial allied enterprise [including universal banks]
- BUT, the acquiring universal bank or commercial bank must be PUBLICLY-
LISTED to acquire 100% of the equity of another universal or commercial
bank.
- IF acquiring universal or commercial bank is not publicly-listed, it can only
acquire minority interest, up to 49%.
Section 26. Equity Investments of a Universal Bank in Non-Financial Allied
Enterprises. - A universal bank may own up to one hundred percent (100%) of the
equity in a non-financial allied enterprise. (21-Ba)
Section 27. Equity Investments of a Universal Bank in Non-Allied Enterprises. - The
equity investment of a universal bank, or of its wholly or majority-owned
subsidiaries, in a single non-allied enterprise shall not exceed thirty-five percent
(35%) of the total equity in that enterprise nor shall it exceed thirty-five percent
(35%) of the voting stock in that enterprise. (21-B)
What about investment in NON-FINANCIAL ALLIED, to what extent can a
universal bank invest?
- Still, 100%.
But in case of a NON-ALLIED, what is the extent?
- It shall not exceed 35% in the total equity nor shall it exceed 35% of the
voting stock.
What is the difference between total equity and voting stock?
- Total equity refers to voting and non-voting. So, it should not exceed 35%
of the total equity or 35% of the voting stock. But take note of this, for
purposes of determining of whether or not the universal bank alreadyexceeds the 35% limit with respect to investments in a non-allied
enterprise, the 35% includes not only the investment of the universal bank
itself but also the investment of its wholly or majority owned subsidiaries.
Is there a difference of wholly or majority owned?
- When you say subsidiary, for that company to be considered as your
subsidiary, you must own at least majority or 51% of that enterprise. But it
can still be considered as subsidiary even if you own 100%. So, that ’s why,
wholly owned subsidiary or majority-owned subsidiary.
Ex. If I’m a universal bank, and then let’s say there’s non-allied enterprise, HotelUSC. The universal bank has a subsidiary company, Co. A. So I, universal bank,
invested in this hotel 20%. My subsidiary (majority or wholly owned) also
invested 20% in this non-allied enterprise. Is this investment allowed?
- No. Because it exceeds 35%.
For investments in NON-ALLIED ENTERPRISES, you also have to consider the
equity investment of the subsidiary (majority or wholly-owned).
So, equity investment of a UNIVERSAL BANK, plus the equity investment of the
SUBSIDIARY.
Note that the law does not say affiliate, only subsidiary. (Affiliate – minority
ownership, less than 51%) In the earlier example, if the universal bank owns only a minority interest in Co.
A, you don’t consider the equity investment of Co. A in computing for the 35%
limit since Co. A is not a subsidiary.
Section 28. Equity Investments in Quasi-Banks. - To promote competitive
conditions in financial markets, the Monetary Board may further limit to forty
percent (40%) equity investments of universal banks in quasi-banks. This rule shall
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Section 34. Risk-Based Capital. - The Monetary Board shall prescribe the minimum
ratio which the net worth of a bank must bear to its total risk assets which may
include contingent accounts. For purposes of this Section, the Monetary Board may
require such ratio be determined on the basis of the net worth and risk assets of a
bank and its subsidiaries, financial or otherwise, as well as prescribe the
composition and the manner of determining the net worth and total risk assets of
banks and their subsidiaries: Provided, That in the exercise of this authority, the
Monetary Board shall, to the extent feasible conform to internationally acceptedstandards, including those of the Bank for International Settlements(BIS), relating to
risk-based capital requirements: Provided further, That it may alter or suspend
compliance with such ratio whenever necessary for a maximum period of one (1)
year: Provided, finally, That such ratio shall be applied uniformly to banks of the
same category. In case a bank does not comply with the prescribed minimum ratio,
the Monetary Board may limit or prohibit the distribution of net profits by such
bank and may require that part or all of the net profits be used to increase the
capital accounts of the bank until the minimum requirement has been met The
Monetary Board may, furthermore, restrict or prohibit the acquisition of major
assets and the making of new investments by the bank, with the exception of
purchases of readily marketable evidences of indebtedness of the Republic of thePhilippines and of the Bangko Sentral and any other evidences of indebtedness or
obligations the servicing and repayment of which are fully guaranteed by the
Republic of the Philippines, until the minimum required capital ratio has been
restored. In case of a bank merger or consolidation, or when a bank is under
rehabilitation under a program approved by the Bangko Sentral, Monetary Board
may temporarily relieve the surviving bank, consolidated bank, or constituent bank
or corporations under rehabilitation from full compliance with the required capital
ratio under such conditions as it may prescribe. Before the effectivity of rules which
the Monetary Board is authorized to prescribe under this provision, Section 22 of
the General Banking Act, as amended, Section 9 of the Thrift Banks Act, and all
pertinent rules issued pursuant thereto, shall continue to be in force. (22a)
What do you understand by risk-based capital?
- Risk-based capital is the ratio of your net worth to your total risk assets.
- So, the BSP shall prescribe the minimum ratio which the net worth of a
bank must bear to its total risk assets which may include contingent
accounts.
- Take note of the equation [Net worth = Asset – liabilities] or [Assets =
Liabilities + Net worth]
- The BSP will determine whether the assets are risk assets or non-risk
assets, and will then assign risk weights to those assets.
What are risk assets?
- Loans – risk depends on the borrower
o If borrower is a corporation, perhaps 10% risk.
o If borrower is the government, there is 0% risk since the government
cannot become bankrupt.
- Investments – depends on the investment
o If investment in treasury bonds, 0% risk since the government cannot
become insolvent.o If investment in stocks, 20% risk.
What are non-risk assets? (0% risk)
- Cash because it is certain (0% risk)
- Loans or receivables but secured by Government issued securities like
treasury bonds because the Government cannot become insolvent
because of its inherent power of taxation.
For every risk asset that you acquire, you are required to put in additional
capital.
- If 0% risk, no need to put in additional capital.- If 10% risk, example, if you extend a loan of Php100, you have to put in
additional capital of Php10.
What is the purpose?
- The purpose of setting a ratio is to limit the amount of loans or
investments that a bank can lend, so as to prevent the bank from over-
expanding or over-extending loans which are disproportionate to its
capital.
- Where did you get the money which you extended as loans or investments
to others? Of course, from the capital first but if it’s only this much, you get
it from the deposits. So, some of the money which you extended as loansor investments were taken out from deposits which are considered as your
liabilities. So you over-extended, you used the deposits, and since those
loans are risky, the collectibility of those loans is uncertain.
- The result is that your liabilities would balloon to the prejudice of your
depositors and creditors. So it’s just like the Trust Fund Doctrine. The law is
trying to say is that for every investment or loan you grant, or every risk
asset which you acquire, there must be a counterpart capital that will be
put up.
- So, there must be a limit. For every asset which is considered as risk, you
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officers under a fringe benefit plan approved by the Bangko Sentral. The required
approval shall be entered upon the records of the bank and a copy of such entry
shall be transmitted forthwith to the appropriate supervising and examining
department of the Bangko Sentral. Dealings of a bank with any of its directors,
officers or stockholders and their related interests shall be upon terms not less
favorable to the bank than those offered to others. After due notice to the board of
directors of the bank, the office of any bank director or officer who violates the
provisions of this Section may be declared vacant and the director or officer shall besubject to the penal provisions of the New Central Bank Act. The Monetary Board
may regulate the amount of loans, credit accommodations and guarantees that
may be extended, directly or indirectly, by a bank to its directors, officers,
stockholders and their related interests, as well as investments of such bank in
enterprises owned or controlled by said directors, officers, stockholders and their
related interests. However, the outstanding loans, credit accommodations and
guarantees which a bank may extend to each of its stockholders, directors, or
officers and their related interests, shall be limited to an amount equivalent to their
respective unencumbered deposits and book value of their paid-in capital
contribution in the bank: Provided, however, That loans, credit accommodations
and guarantees secured by assets considered as non-risk by the Monetary Boardshall be excluded from such limit: Provided, further, That loans, credit
accommodations and advances to officers in the form of fringe benefits granted in
accordance with rules as may be prescribed by the Monetary Board shall not be
subject to the individual limit. The Monetary Board shall define the term "related
interests." The limit on loans, credit accommodations and guarantees prescribed
herein shall not apply to loans, credit accommodations and guarantees extended by
a cooperative bank to its cooperative shareholders. (83a)
Restriction on bank exposure to DOSRI (Directors, Officers, Stockholders, Related
Interest)
What is the rule?
- No direct or officer of a bank shall borrow from such bank, nor shall he
become a guarantor or surety for loans from such bank to others
- UNLESS there is a written approval of majority of the directors of the bank
but excluding the director concerned.
- So it’s not really prohibited. You just have to comply with the requirement.
What is the limit which you can lend to a DOSRI?
- It shall be equivalent to their respective unencumbered deposits and book
value of their paid-in capital contribution in the bank.
- So, if I am a director, I can borrow from the bank where I am a director
provided there is a written approval, etc. but it shall not exceed the
unencumbered deposit.
- So, if my deposit in that bank is 100K, I can borrow only up to the extent of
100K. In short, it is secured. If I don’t have a deposit, I cannot borrow.
- Or, plus the book value of your paid-in capital contribution which will apply
only if you are a stockholder. Because if you are not a stockholder, you
don’t have paid-in capital contribution.- Why unencumbered? Meaning free deposit, not held in escrow.
Do you remember the discussion we had with New Central Bank Act? There
was also a provision regarding DOSRI that if a DOSRI obtained a loan or credit
accommodation from his bank or other bank wherein a subsidiary has the same
parent with the lending bank and the bank in which he is a director, what is the
requirement under the act?
- There must be a WAIVER OF SECRECY OF BANK DEPOSITS.
- In addition to that, this is the requirement under the General Banking Law.
What is the penalty if a bank extends a loan to a DOSRI without following theserequirements?
- The position of the officer, director will be declared as vacant
- Additionally, the director, officer will be subject to the penal provisions of
the New Central Bank Act.
Take note, another principle, if a bank extends a loan to a DOSRI, the terms of
the loan should not be less favorable to the bank than those offered to others.
So, just because you are a DOSRI, the bank will grant you loan with a lower
interest. The prevailing interest rate applied to third parties must also be
applied to DOSRI. This is what you call insider lending (DOSRI borrows from
bank which he is a DOSRI).
EXCEPTIONS:
1. Fringe benefits, like when the DOSRI obtained cash advances, loans from
the bank by way of transportation allowance, travel allowance…that is not
included. So, meaning even if I have no cash deposit, I can obtain cash
advances or loans but those loans or cash advances are needed for my
travel representation allowance, under a fringe benefit plan approved by
the BSP like car loan, housing program…etc. Other than those items, those
not covered by the fringe benefit plan approved by BSP, you must comply
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2. Loans and credit accommodations which are secured by assets considered
again as non-risk.
- So, even if I am a director I can borrow but my loan must be secured
by non-risk assets (hold-out deposits, loans secured by government
secured securities or LC with margin deposit).
Related Interest? No definition under the law.
- What about a spouse or child of the director, are they covered by DOSRI?Yes. So, spouse, relative within the first degree of consanguinity or affinity
are considered as DOSRI.
- A corporation or association in which the director is also a director, or the
spouse or child - that is still related interest.
What is the purpose of DOSRI limitation?
- To prevent a substantial portion of the bank funds f rom being borrowed by
DOSRI.
- There is a danger that instead of making the funds available to legitimate
borrowers, those funds will all be borrowed by the DOSRI. This is what
happened to Legacy.
Take note of two things, (1) the requirements [written approval + waiver of
secrecy] and (2) the individual limit.
Section 37. Loans and Other Credit Accommodations Against Real Estate. - Except
as the Monetary Board may otherwise prescribe, loans and other credit
accommodations against real estate shall not exceed seventy-five percent (75%) of
the appraised value of the respective real estate security, plus sixty percent (60%)
of the appraised value of the insured improvements, and such loans may be made
to the owner of the real estate or to his assignees. (78a)
Section 38. Loans And Other Credit Accommodations on Security of Chattels and
Intangible Properties. - Except as the Monetary Board may otherwise prescribe,
loans and other credit accommodations on security of chattels and intangible
properties such as, but not limited to, patents, trademarks, trade names, and
copyrights shall not exceed seventy-five percent (75%) of the appraised value of the
security, an such loans and other credit accommodation may be made to the title-
holder of the chattels and intangible properties or his assignees.
Section 37 provides for a limitation on the amount of the loan that the bank may
extend if the collateral is a real property.
For how much or to what extent can the bank grant the loan?
- In case of a real estate – it shall not exceed 75% of the FMV or appraised
value of the property. Ex. land.
- In case of improvements – shall not exceed 60%.
- It could be lower but it could not be higher than those amounts.
That’s why if we have a collateral and it was appraised, not 100% of that will be the
loanable amount. It will only be to the extent of 75% or 60%.
Section 38.
What if secured by intangible properties?
- Now in case of intangibles, like patents, trademarks, trade names,
copyright…it shall not exceed 75% of the appraised value of the security.
SECTION 39. Grant and Purpose of Loans and Other Credit Accommodations. — A
bank shall grant loans and other credit accommodations only in amounts and for
the periods of time essential for the effective completion of the operations to be
financed. Such grant of loans and other credit accommodations shall be consistentwith safe and sound banking practices. (75a)
The purpose of all loans and other credit accommodations shall be stated in the
application and in the contract between the bank and the borrower. If the bank
finds that the proceeds of the loan or other credit accommodation have been
employed, without its approval, for purposes other than those agreed upon with
the bank, it shall have the right to terminate the loan or other credit
accommodation and demand immediate repayment of the obligation.
Every time you apply for a loan, the purpose of the loan or any credit
accommodation should be stated in the application form.
Why?
- The purpose shall be considered by the bank in determining the terms or
the conditions of loan, whether they would be consistent with the purpose
for obtaining the loan.
- Is the amount to be loaned reasonable…the
terms…conditions…maturity…are they reasonable…etc.
If the borrower uses the proceeds of the loan different from the intended
purpose, then the bank has the right to TERMINATE the loan and require
immediate repayment. So the payment will now be accelerated.
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- Why? Because that is a breach of your contract. The purpose is stated in
the loan application form and the application form forms part of the terms
and conditions of the contract.
SECTION 40. Requirement for Grant of Loans or Other Credit Accommodations. —
Before granting a loan or other credit accommodation, a bank must ascertain that
the debtor is capable of fulfilling his commitments to the bank.
Toward this end, a bank may demand f rom its credit applicants a statement of their
assets and liabilities and of their income and expenditures and such information as
may be prescribed by law or by rules and regulations of Monetary Board to enable
the bank to properly evaluate the credit application which includes the
corresponding financial statements submitted for taxation purposes to the Bureau
of Internal Revenue. Should such statements prove to be false or incorrect in any
material detail, the bank may terminate any loan or other credit accommodation
granted on the basis of said statements and shall have the right to demand
immediate repayment or liquidation of the obligation.
In formulating rules and regulations under this Section, the Monetary Board shallrecognize the peculiar characteristics of microfinancing, such as cash flow-based
lending to the basic sectors that are not covered by traditional collateral. (76a)
DOCUMENTARY REQUIREMENTS WHEN YOU APPLY FOR A LOAN FROM THE
BANK.
So the bank would require from you certain documents. Normally, these
documents would consist of income tax return, financial statements. If you are
an individual, a copy of your payslip or withholding tax certificate.
Aside from that, some banks, like especially if it’s a big loan, l ike a business
loan, would require you to submit a financial study or a feasibility study.
- How feasible is this project of yours? Are you sure that you can pay the
bank? What is the rate of return? What is the pay-back period? Etc.
So the bank would like to know its customer before it grants a loan.
Now, in relation to granting of loans, there are certain security measures,
applied by the bank to ensure that it can collect. We have what you call JSS
Practice in the banking industry, or the Joint and Solidary Signatories.
- It’s common in promissory notes. “I” jointly and severally promise to pay.
- What’s the reason for the JSS or the joint and solidary signatories?
o Especially corporations, normally in corporations, there is an
authorized representative who will sign, either the president or the
CEO. But aside from that the bank would usually require a major
stockholder of the corporation who is a borrower to sign a surety
statement or in a JSS capacity.
o The purpose of requiring joint and solidary signatories or requiring
security statements is that in the event the assets of the corporation
would not be sufficient to pay off the loan, the bank can still go afterthe other joint and several or solidary signatories. So when the assets
of the corporation are exhausted, the bank can go after the assets of
the major stockholders by virtue of the JSS or the suretyship
agreement.
SECTION 43. Authority to Prescribe Terms and Conditions of Loans and Other
Credit Accommodations. — The Monetary Board may, similarly, in accordance with
the authority granted to it in Section 106 of the New Central Bank Act, and taking
into account the requirements of the economy for the effective utilization of long-
term funds, prescribe the maturities, as well as related terms and conditions for
various types of bank loans and other credit accommodations. Any change by theBoard in the maximum maturities shall apply only to loans and other credit
accommodations made after the date of such action.
The Monetary Board shall regulate the interest imposed on microfinance borrowers
by lending investors and similar lenders, such as, but not limited to, the
unconscionable rates of interest collected on salary loans and similar credit
accommodations. (78a)
INTEREST RATES
As a rule, no interest is due unless it is stipulated in writing.
Now, is it valid, this common practice of some banks to stipulate in the
promissory note these what you call escalation clauses regarding interest – that
the bank has the right to increase during the period the term of the loan, the
right to increase the interest rates?
- NO. Read case below.
CASE:
There was a case involving PNB wherein in the loan agreement, there is a
stipulation or there is an escalation clause. Now pursuant to that escalation clause,
the PNB, without informing the borrower, unilaterally increased the interest rates.
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Let’s say at the time the loan was entered into was 10%. After 2 years, PNB
unilaterally increased it 12%. The justification of the PNB is that in the promissory
note there is already an escalation clause. So according to PNB, it is already agreed
between the parties. During the time that the promissory note was made, there
was already an escalation clause that from time to time, PNB may increase the
interest rates. So pursuant to that, without informing the borrower, it increased the
interest rate to 12%. The borrower now comes to court alleging that increase is notvalid.
Issue: whether or not PNB has the right to unilaterally increase the interest rate
pursuant to the escalation clause stated in the promissory note without informing
the borrower
SC: NO. What’s the reason?
An escalation clause per se is valid. Although there is an escalation clause, before
PNB can apply the increase, it must first inform the borrower. It must obtain the
consent of the borrower.
The SC said that the unilateral increase in the interest rates violates the principle on
mutuality of contracts – provisions in the contract cannot be left alone to the
discretion of one of the parties.
So although the escalation clause was valid, but every time you increase in interest
rates, the bank should at least inform, or obtain the consent of the borrower. Since
you did not obtain the consent of the borrower, the increase is not valid.
If the borrower does not consent with the increase, the hands of PNB will be tied.
But not necessarily that it cannot increase because you could not also say that you
could not increase because it’s in the escalation clause. What is only required is thatyou inform the borrower. Because you agreed that PNB has the right to increase the
interest rates.
Now also, still on interest rates, like for example the promissory note provides
that the interest rate will be 20% per annum. If a case is filed court, is it valid
for the court to say that the interest rate should only be 12%, the legal
interest? Is it valid for the court to say that it should not be 20% but it should
be the legal rate 12%?
- There is no more usury law. So the courts said that the interest rates
agreed upon by the parties is valid and binding. The only time that it will be
stricken down is when the rates are already unconscionable or shocking to
the conscience of man.
- But as long as the interest rates are valid, that is binding between the
parties. The court cannot substitute the agreement of the parties with its
own.
- If there was no stipulation, apply the legal rate of 12%.
How about time deposits?- In time deposits, we agree on a certain period. Within a certain period, the
bank cannot increase or decrease. But after that period, of course the bank
can adjust the interest rates.
- So whatever that rate you agreed at the time you placed your time
deposit, that should be applied all throughout the 120 days. If after that
the interest rates will change, then it can.
SECTION 44. Amortization on Loans and Other Credit Accommodations. — The
amortization schedule of bank loans and other credit accommodations shall be
adapted to the nature of the operations to be financed.
In case of loans and other credit accommodations with maturities of more than five
(5) years, provisions must be made for periodic amortization payments, but such
payments must be made at least annually: Provided, however, That when the
borrowed funds are to be used for purposes which do not initially produce revenues
adequate for regular amortization payments therefrom, the bank may permit the
initial amortization payment to be deferred until such time as said revenues are
sufficient for such purpose, but in no case shall the initial amortization date be later
than five (5) years from the date on which the loan or other credit accommodation
is granted.
In case of loans and other credit accommodations to microfinance sectors, the
schedule of loan amortization shall take into consideration the projected cash flow
of the borrower and adopt this into the terms and conditions formulated by banks.
AMORTIZATION
For how long should the loan be amortized?
- It depends. The amortization schedule or the term of the loan should
depend on the nature of the operations to be financed. That’s why in your
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- So here, the mortgagee is the bank.
GENERAL RULE: in right of redemption (extrajudicial foreclosure), period to
redeems is 1 year from the registration of the certificate of sale.
EXCEPTION: if the mortgagor is a juridical person, then the period for the
mortgagor to exercise the right of redemption is shortened, that is, until, but
not after, the registration of the certificate of foreclosure sale with the
applicable Register of Deeds which in no case shall be more than three (3)months after foreclosure, whichever is earlier.
- So here, the mortgagor is a juridical person.
- If non-juridical person, like individual, we go back to 1 year.
- Reckoning point: 1 year from the REGISTRATION OF THE CERTIFICATE OF
SALE 3 months AFTER FORECLOSURE [SALE].
- 1 year from registration, not sale, because the court still has to confirm the
foreclosure sale. So it must be registration of the certificate of sale for the
general rule.
What is difference between the REGISTRATION of the certificate of sale and the
CONFIRMATION of the certificate of sale?- It is the court who confirms the sale. The point there is not from the sale
but from the confirmation of the sale. Because it is still possible that
although there is already a foreclosure, that the sale will be annulled
because there are grounds to annul the foreclosure sale, e.g. the
foreclosure sale was not valid, like there was no proper notice, the bidding
was not proper etc. So that’s why you need confirmation of sale.
- So from the time of confirmation of sale, that is also the time of
registration of sale or the issuance of the certificate of sale. So registration
of sale comes after the confirmation of sale.
TAKE NOTE: “whichever is earlier”
- the registration of the certificate of foreclosure sale with the applicable
Register of Deeds which in no case shall be more than three (3) months
after foreclosure, whichever is earlier
- You cannot redeem it after registration of f oreclosure sale
- If registration of the certificate is done 1 month after the foreclosure sale,
then you can no longer redeem. You must redeem it BEFORE the
registration, or in 3 months, whichever is earlier.
- So, if you are the buyer and the borrower is a juridical person, register
immediately so that you can consolidate your ownership.
SECTION 47. Foreclosure of Real Estate Mortgage. — xxx by paying the amount due
under the mortgage deed, with interest thereon at the rate specified in the
mortgage, and all the costs and expenses incurred by the bank or institution from
the sale and custody of said property less the income derived therefrom. xxx
REDEMPTION PRICE
As to the redemption price, what would govern is the general banking law if the
mortgagee again is a bank.
Under the GBL, the redemption price is equivalent to the amount due,
interests, costs and expenses from the sale and custody of said property less
the income derived therefrom
It says, interest thereon at the rate specified in the mortgage. If the mortgage
specifies for penalties and surcharge, then that is included.
SECTION 47. Foreclosure of Real Estate Mortgage. — xxx
However, the purchaser at the auction sale concerned whether in a judicial or
extrajudicial foreclosure shall have the right to enter upon and take possession ofsuch property immediately after the date of the confirmation of the auction sale
and administer the same in accordance with law. Any petition in court to enjoin or
restrain the conduct of foreclosure proceedings instituted pursuant to this provision
shall be given due course only upon the filing by the petitioner of a bond in an
amount fixed by the court conditioned that he will pay all the damages which the
bank may suffer by the enjoining or the restraint of the foreclosure proceeding.
Xxx
POSSESSION PRIOR TO REDEMPTION
Prior to redemption, who has possession?
- The provision states that the PURCHASER shall have the right to enter
upon and take possession of the property immediately after the date of
the confirmation of the auction sale and administer the same in
accordance with law.
- The point is the purchaser has the right to enter and take possession of the
property.
Is this different from your ordinary foreclosure?
- Yes. In ordinary foreclosure, the possession remains with the mortgagor.
- Here, the purchaser shall have the right to enter and take possession of
the property immediately after the confirmation of the auction sale. So
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that’s the difference. The purchaser has the right to take possession of the
property.
So what if it’s a bank? What’s so special with banks?
- The purchaser is given a better right compared to a purchaser in an
ordinary foreclosure not involving banks so as to encourage bidders in
foreclosures of properties from banks.
- If we apply GBL, the mortgagee will always be a bank.
SECTION 51. Ceiling on Investments in Certain Assets. — Any bank may acquire
real estate as shall be necessary for its own use in the conduct of its business:
Provided, however, That the total investment in such real estate and improvements
thereof, including bank equipment, shall not exceed fifty percent (50%) of
combined capital accounts: Provided, further, That the equity investment of a bank
in another corporation engaged primarily in real estate shall be considered as part
of the bank's total investment in real estate, unless otherwise provided by the
Monetary Board.
CEILING ON INVESTMENTS IN CERTAIN ASSETS
RULE: the bank can acquire real property which is necessary for the conduct of
its business.
- It can acquire land and building on which its operations are conducted.
BUT in no case shall the total investment in a bank in real estate exceed 50% of
the combined capital accounts.
- Combined capital accounts refer to your net worth: capital, equity,
retained earnings, etc.
Now take note in computing 50% limit, you also have to include the equity
investment of a bank in another corporation engaged primarily in real estate.
- So aside from his own ownership of real estate, if the bank also makes an
investment in another entity which is engaged primarily in real estate, that
should be considered in the computation of 50%.
SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims. —
Notwithstanding the limitations of the preceding Section, a bank may acquire, hold
or convey real property under the following circumstances:
52.1. Such as shall be mortgaged to it in good faith by way of security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts previously
contracted in the course of its dealings; or
52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or
trust deeds held by it and such as it shall purchase to secure debts due it. Any
real property acquired or held under the circumstances enumerated in the
above paragraph shall be disposed of by the bank within a period of five (5)
years or as may be prescribed by the Monetary Board: Provided, however, That
the bank may, after said period, continue to hold the property for its own use,
subject to the limitations of the preceding Section.
Under Section 52, these are the instances wherein the bank can acquire realproperty or real estate although this is not used in the conduct of its business.
a. When the property is mortgaged as a security of debts; or
b. When the property is conveyed in satisfaction of debts; or
c. In case of purchases at sales under judgment, decrees, mortgages or trust
deeds held by it.
For example in a foreclosure sale, there is no other bidder, only the bank. In that
way, the bank acquires the real property.
Now what is the requirement if a bank acquires real property under these
circumstances?1. The bank must, within a period of 5 years, dispose the same.
- If you go to a bank you can see there a list of acquired real properties.
These are properties acquired by the bank by way of foreclosure or in
payment of debt.
- They say if you want to buy real properties which are cheaper, you go
to the list of foreclosed properties of the bank because it is cheaper.
- But the bank MUST dispose these properties within a period of 5
years.
- If it cannot dispose it within 5 years, it can continue to hold the
property but it will now be subject to the limitation of the preceding
section.
- Meaning it is now included in the computation of the 50% limit (ceiling
on investments).
2. Another requirement is that the bank must post at all times in conspicuous
places a list of these acquired properties.
SECTION 53. Other Banking Services. — In addition to the operations specifically
authorized in this Act, a bank may perform the following services:
53.1. Receive in custody funds, documents and valuable objects;
53.2. Act as financial agent and buy and sell, by order of and for the account of
their customers, shares, evidences of indebtedness and all types of securities;
53.3. Make collections and payments for the account of others and perform
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(a) Make false entries in any bank report or statement or participate in any
fraudulent transaction, thereby affecting the financial interest of, or causing
damage to, the bank or any person;
(b) Without order of a court of competent jurisdiction, disclose to any unauthorized
person any information relative to the funds or properties in the custody of the
bank belonging to private individuals, corporations, or any other entity: Provided,
That with respect to bank deposits, the provisions of existing laws shall prevail;
(c) Accept gifts, fees or commissions or any other form of remuneration inconnection with the approval of a loan or other credit accommodation from said
bank;
(d) Overvalue or aid in overvaluing any security for the purpose of inf luencing in any
way the actions of the bank or any bank; or
(e) Outsource inherent banking functions.
PROHIBITED TRANSACTIONS
No director, officer, employee, or agent of any bank shall —
1.
Make false entries in any bank report or statement.- Of course, because that would distort the true financial condition of the
bank.
- Ex. Alteration of the figures to show that the loans are not past due.
2. Without court order of competent jurisdiction, disclose to any unauthorized
person any information relative to funds or properties.
- Now this refers now to secrecy of bank deposits.
- GR: you cannot disclose. EXCEPTION: when there is a court order.
o Of course there are more exceptions when we discuss later on law on
secrecy of bank deposits.
o So just an overview what are some of these exceptions?
a. There is consent
b. Impeachment
c. In case of public official being sued for bribery and dereliction.
d. When it is the subject matter of litigation
e. In case of violation of AMLA
f. Anti-graft and corrupt practices act
g. In the conduct of the BSP of examination of banks….disclose
h. In BIR cases, the commissioner of internal revenue can inquire in
these instances:
i. if you apply for compromise on the ground of financial
incapacity
ii. In estate tax, the commissioner can examine deposits to
determine gross estate
iii. In case of dormant accounts which has been dormant for at
least 10 years. The bank is required to report the same to the
treasurer of the RP.
Why? (escheat) If there are no heirs, in the order of intestate
succession, if it is dormant for 10 years meaning nobody is
interested, there are no heirs, it goes to the state.
3. A bank officer shall not accept gifts, fees or commissions in connection with
the approval of a loan.
- The reason is that the loan should be approved based on objective
considerations. To avoid conflict of interest.
4. A bank officer should not overvalue or aid in overvaluing any security.
5. A bank officer and the bank itself cannot outsource inherent banking functions.
- What are considered inherent banking functions that you cannot
outsource?o Tellering services, the handling of deposit transactions, those are what
we call inherent banking functions. So under the law these functions
cannot be outsourced.
- Can you outsource janitorial or security services?
o Yes. You can even outsource your IT system, printing of checks,
printing of bank documents.
o Those can be outsourced. Only those inherent banking functions
cannot be outsourced.
- What’s the purpose?
o To uphold the secrecy of bank deposits.
o Imagine your tellers are casual, every 5 months they are changed, so
there is a tendency that there is disclosure of bank deposits. You know Mr. so and so has large amount of deposit or Mr. so
and so always draw checks that will bounce.
Although we have the secrecy of bank deposits but have you tried
calling a bank and you ask about your bank account, they actually
answer you.
Ex: I would like to ask if my allowance was credited to my
account already? Or whether this check is already cleared?
So they entertain inquiries. How do we uphold secrecy of
bank deposits now?
As a rule, it is not among the exceptions. The only exception
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But why do some bank personnel entertain calls over the
phone? But before they do that they ask you some personal
information.
55.2. No borrower of a bank shall —
(a) Fraudulently overvalue property offered as security for a loan or other credit
accommodation from the bank;
(b) Furnish false or make misrepresentation or suppression of material facts for thepurpose of obtaining, renewing, or increasing a loan or other credit accommodation
or extending the period thereof;
(c) Attempt to defraud the said bank in the event of a court action to recover a loan
or other credit accommodation; or
(d) Offer any director, officer, employee or agent of a bank any gift, fee,
commission, or any other form of compensation in order to influence such persons
into approving a loan or other credit accommodation application.
We have Section 55.2, prohibited acts of borrowers this time.
If you will look at the prohibited acts basically the same on the prohibited acts
of directors and officers because they say it takes two to tango. So if the officer is prohibited, the borrower must be prohibited as well.
55.3. No examiner, officer or employee of the Bangko Sentral or of any department,
bureau, office, branch or agency of the Government that is assigned to supervise,
examine, assist or render technical assistance to any bank shall commit any of the
acts enumerated in this Section or aid in the commission of the same. (87-Aa)
The making of false reports or misrepresentation or suppression of material facts by
personnel of the Bangko Sentral ng Pilipinas shall constitute fraud and shall be
subject to the administrative and criminal sanctions provided under the New
Central Bank Act.
And of course, if the bank officers and borrowers are prohibited, the BSP
officers (the regulators) must also be prohibited.
55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as
the Banks Secrecy Law, no bank shall employ casual or nonregular personnel or too
lengthy probationary personnel in the conduct of its business involving bank
deposits.
Section 55.4, still in upholding the secrecy of bank deposits, the bank is
prohibited from employing casual or non-regular personnel, or too lengthy
probationary personnel in the conduct of its business involving bank deposits.
So again, same discussion in the inherent banking functions. Bank tellers must
be regular employees, not casual.
Reason? Regular employees are presumed to be more loyal and more trust
worthy than casual employees. If casual, there is a tendency that they would
disclose bank secrets.
SECTION 56. Conducting Business in an Unsafe or Unsound Manner. — In
determining whether a particular act or omission, which is not otherwise prohibited
by any law, rule or regulation affecting banks, quasi-banks or trust entities, may be
deemed as conducting business in an unsafe or unsound manner for purposes of
this Section, the Monetary Board shall consider any of the following circumstances:
56.1. The act or omission has resulted or may result in material loss or damage,
or abnormal risk or danger to the safety, stability, liquidity or solvency of the
institution;
56.2. The act or omission has resulted or may result in material loss or damage
or abnormal risk to the institution's depositors, creditors, investors,
stockholders or to the Bangko Sentral or to the public in general;56.3. The act or omission has caused any undue injury, or has given any
unwarranted benefits, advantage or preference to the bank or any party in the
discharge by the director or officer of his duties and responsibilities through
manifest partiality, evident bad faith or gross inexcusable negligence; or
56.4. The act or omission involves entering into any contract or transaction
manifestly and grossly disadvantageous to the bank, quasi-bank or trust entity,
whether or not the director or officer profited or will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in conducting its business in an
unsafe or unsound manner, the Monetary Board may, without prejudice to the
administrative sanctions provided in Section 37 of the New Central Bank Act, take
action under Section 30 of the same Act and/or immediately exclude the erring
bank from clearing, the provisions of law to the contrary notwithstanding.
CONDUCTING BUSINESS IN AN UNSAFE AND UNSOUND MANNER
So the bank must at all times conduct its business in a safe and sound manner.
So when will it be considered as an unsafe and unsound manner?
- If you violate any of the provisions of the GBL, it will result to a loss or
damage, etc. It will involve liquidity or solvency problems. It is very
general.
- Failing to maintain the ratio. Or exceeding the prescribed limits.
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SECTION 57. Prohibition on Dividend Declaration. — No bank or quasi-bank shall
declare dividends greater than its accumulated net profits then on hand, deducting
therefrom its losses and bad debts. Neither shall the bank nor quasi-bank declare
dividends, if at the time of declaration:
57.1 Its clearing account with the Bangko Sentral is overdrawn; or
57.2 It is deficient in the required liquidity floor for government deposits for five (5)
or more consecutive days; or
57.3 It does not comply with the liquidity standards/ratios prescribed by the BangkoSentral for purposes of determining funds available for dividend declaration; or
57.4 It has committed a major violation as may be determined by the Bangko
Sentral. (84a)
PROHIBITION ON DECLARATION OF DIVIDENDS
To what extent can a bank declare dividends?
- It shall not be greater than its accumulated net profits on hand after
deducting its losses and bad debts.
- Basically the same as that in the corporation code. The provision under
corporation code says it can only declare dividends to the extent of itsunrestricted retained earnings.
When we say accumulated net profits, we refer to the retained earnings. So
basically the same principle. You must have accumulated net profits.
And even if you have accumulated net profits, it cannot declare dividends if at
the time of the dividend declaration, the bank is violating or is under the
following circumstances:
1. Its clearing account with the Bangko Sentral is overdrawn; or
2. It is having deficiency in its liquidity requirements for 5 or more
consecutive days; or
3. It does not comply with the liquidity standards/ratios
- Those different ratios that we have discussed before, the percentages.
4. It has committed a major violation as determined by the BSP.
SECTION 58. Independent Auditor. — The Monetary Board may require a bank,
quasi-bank or trust entity to engage the services of an independent auditor to be
chosen by the bank, quasi-bank or trust entity concerned from a list of certified
public accountants acceptable to the Monetary Board. The term of the engagement
shall be as prescribed by the Monetary Board which may either be on a continuing
basis where the auditor shall act as resident examiner, or on the basis of special
engagements, but in any case, the independent auditor shall be responsible to the
bank's, quasi-bank's or trust entity's board of directors. A copy of the report shall be
furnished to the Monetary Board. The Monetary Board may also direct the board of
directors of a bank, quasi-bank, trusty entity and/or the individual members
thereof, to conduct, either personally or by a committee created by the board, an
annual balance sheet audit of the bank, quasi-bank or trust entity to review the
internal audit and control system of the bank, quasi-bank or trust entity and to
submit a report of such audit. (6-Da)
INDEPENDENT AUDITOR
This is the same requirement as that of an ordinary corporation that at the end of
the year you must hire an independent auditor.
What is the purpose of an independent auditor?
- Of course banks have internal auditors.
- These independent auditors are your external auditors.
- Every year a corporation has to hire an external auditor because you have
reportorial requirements to the BIR and to the SEC.
-
But in case of a bank, an independent auditor does more than that. He hasa wider scope of responsibility. Because an independent auditor hired by a
bank has to report to the BSP. He has to submit a report to the BSP any
matter adversely affecting the condition of the bank or soundness of the
bank.
- And take note, if that independent auditor fails to report to the BSP any
irregularities involving the bank, there is a possibility that that independent
auditor will be blacklisted by the BSP. BSP has a list of independent
auditors which can be hired by banks.
If a bank fails, the public normally blames the BSP. Since the BSP conducts
examinations only once a year, it’s not an assurance that the BSP would make a
timely discovery of the irregularities made by the bank. By the time the BSPdiscovers, it might already be too late. So to help BSP, they require the banks to
hire an independent auditor who is tasked to submit a report to the BSP if ever
he discovers irregularities.
So the BSP is trying to share the burden or the blame with the independent
auditor.
SECTION 60. Financial Statements. — Every bank, quasi-bank or trust entity shall
submit to the appropriate supervising and examining department of the Bangko
Sentral financial statements in such form and frequency as may be prescribed by
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the Bangko Sentral. Such statements, which shall be as of a specific date designated
by the Bangko Sentral, shall show the actual financial condition of the institution
submitting the statement, and of its branches, offices, subsidiaries and affiliates,
including the results of its operations, and shall contain such information as may be
required in Bangko Sentral regulations. (n)
SECTION 61. Publication of Financial Statements. — Every bank, quasi-bank or
trust entity, shall publish a statement of its financial condition, including those of itssubsidiaries and affiliates, in such terms understandable to the layman and in such
frequency as may be prescribed by the Bangko Sentral, in English or Filipino, at least
once every quarter in a newspaper of general circulation in the city or province
where the principal office, in the case of a domestic institution, or the principal
branch or office in the case of a foreign bank, is located, but if no newspaper is
published in the same province, then in a newspaper published in Metro Manila or
in the nearest city or province. The Bangko Sentral may by regulation prescribe the
newspaper where the statements prescribed herein shall be published.
The Monetary Board may allow the posting of the financial statements of a bank,
quasi-bank or trust entity in public places it may determine, in lieu of the
publication required in the preceding paragraph, when warranted by the
circumstances.
Additionally, banks shall make available to the public in such form and manner as
the Bangko Sentral may prescribe the complete set of its audited financial
statements as well as such other relevant information including those on
enterprises majority-owned or controlled by the bank, that will inform the public of
the true financial condition of a bank as of any given time.
In periods of national and/or local emergency or of imminent panic which directly
threaten monetary and banking stability, the Monetary Board, by a vote of at least
five (5) of its members, in special cases and upon application of the bank, quasi-
bank or trust entity, may allow such bank, quasibank or trust entity to defer for a
stated period of time the publication of the statement of financial condition
required herein. (n)
FINANCIAL STATEMENTS
Just like any other corporation, a bank or a quasi-bank must submit financial
statements to the BSP.
What’s the purpose of the financial statement?
- To show the actual financial condition of the institution, its offices,
subsidiaries and affiliates.
These financial statements also need to be published at least once every
quarter in a newspaper of general circulation in the city or province where the
principal office (in the case of a domestic institution) or the principal branch or
office (in the case of a foreign bank) i s located, but if no newspaper is published
in the same province, then in a newspaper published in Metro Manila or in the
nearest city or province
SECTION 62. Publication of Capital Stock. — A bank, quasi-bank or trust entityincorporated under the laws of the Philippines shall not publish the amount of its
authorized or subscribed capital stock without indicating at the same time and with
equal prominence, the amount of its capital actually paid up.
No branch of any foreign bank doing business in the Philippines shall in any way
announce the amount of the capital and surplus of its head office, or of the bank in
its entirety without indicating at the same time and with equal prominence the
amount of the capital, if any, definitely assigned to such branch. In case no capital
has been definitely assigned to such branch, such fact shall be stated in, and shall
form part of the publication. (82)
PUBLICATION OF CAPITAL STOCK – Just read
Sec. 63. Settlement of Disputes. – The provisions of any law to the contrary
notwithstanding, the Bangko Sentral shall be consulted by other government
agencies or instrumentalities in actions or proceedings initiated by or brought
before them involving controversies in banks, quasi-banks or trust entities arising
out of and involving relations between and among their directors, officers or
stockholders, as well as disputes between any or all of them and the bank, quasi-
bank or trust entity of which they are directors, officers or stockho lders.
SETTLEMENT OF DISPUTES
In the resolution of disputes, the BSP shall be consulted by other government
agencies or instrumentalities.
SECTION 64. Unauthorized Advertisement or Business Representation. — No
person, association, or corporation unless duly authorized to engage in the business
of a bank, quasi-bank, trust entity, or savings and loan association as defined in this
Act, or other banking laws, shall advertise or hold itself out as being engaged in the
business of such bank, quasi-bank, trust entity, or association, or use in connection
with its business title, the word or words "bank", "banking", "banker", "quasi-bank",
"quasibanking", "quasi-banker", "savings and loan association", "trust corporation",
"trust company" or words of similar import or transact in any manner the business
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of any such bank, corporation or association. (6)
As discussed earlier, if you are not a bank, you are not allowed to use the word
"bank", "banking", "banker", "quasi-bank".
Except if you are a blood bank or a sperm bank.
Sections 67, 68, 69, 70, talk about conservatorship, liquidation and receivership.
These are the same things that we have discussed under the New Central Bank Act.As you can see, these provisions make reference to the provisions of the New
Central Bank Act.
FOREIGN BANKS
(Sections 72 – 78)
SECTION 73. Acquisition of Voting Stock in a Domestic Bank. — Within seven (7)
years from the effectivity of this Act and subject to guidelines issued pursuant to
the Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign
bank to acquire up to one hundred percent (100%) of the voting stock of only one
(1) bank organized under the laws of the Republic of the Philippines.Within the same period, the Monetary Board may authorize any foreign bank,
which prior to the effectivity of this Act availed itself of the privilege to acquire up
to sixty percent (60%) of the voting stock of a bank under the Foreign Banks
Liberalization Act and the Thrift Banks Act, to further acquire voting shares of such
bank to the extent necessary for it to own one hundred percent (100%) of the
voting stock thereof.
In the exercise of this authority, the Monetary Board shall adopt measures as may
be necessary to ensure that at all times the control of seventy percent (70%) of the
resources or assets of the entire banking system is held by banks which are at least
majority-owned by Filipinos.
Any right, privilege or incentive granted to a foreign bank under this Section shall be
equally enjoyed by and extended under the same conditions to banks organized
under the laws of the Republic of the Philippines. (Secs. 2 and 3, RA 7721)
SECTION 74. Local Branches of Foreign Banks. — In the case of a foreign bank
which has more than one (1) branch in the Philippines, all such branches shall be
treated as one (1) unit for the purpose of this Act, and all references to the
Philippine branches of foreign banks shall be held to refer to such units. (68)
If a foreign bank, or any foreign corporation for that matter would like to
transact business in the Philippines, it must first obtain a license from SEC.
Aside from that, if you will open a bank, you need to obtain a license from the
Bangko Sentral.
So, license from the SEC and Bangko Sentral.
Now in case a foreign bank has more than 1 branch in the Philippines, all such
branches shall be treated as 1 unit. Of course we have this principle that the
branch and head office are treated as one. That principle is called the singleentity concept.
Acquisition of voting stock in a domestic bank
- This is what we discussed previously regarding foreign ownership of a
domestic bank. (See discussion under Section 11)
- So under Section 73, it is possible now for a foreign bank to acquire up to
100% of a voting stock of only 1 bank organized under the Philippines.
SECTION 75
Who guarantees the liabilities of a branch of a foreign bank in the Philippines?- The Head office
Residents and citizens of the Philippines who are creditors of a branch in the
Philippines of a foreign bank shall have preferential rights to the assets of such
branch in accordance with existing laws.
SECTION 76
If there is a branch here of a foreign bank, to whom shall you serve the
summons?
- To the designated resident agent. RFCs are required to have resident
agents.- The agent can be a Filipino or an alien for as long as he is a resident.
SECTION 78
When can you revoke the license of a foreign bank?
- If the bank is insolvent or in imminent danger thereof or that its
continuance in business will involve probable loss to those transacting
business with it.
TRUST OPERATIONS
(Sections 79 – 93)
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SECTION 80. Conduct of Trust Business. — A trust entity shall administer the funds
or property under its custody with the diligence that a prudent man would exercise
in the conduct of an enterprise of a like character and with similar aims.
No trust entity shall, for the account of the trustor or the beneficiary of the trust,
purchase or acquire property from, or sell, transfer, assign or lend money or
property to, or purchase debt instruments of, any of the departments, directors,
officers, stockholders, or employees of the trust entity, relatives within the firstdegree of consanguinity or affinity, or the related interests, of such directors,
officers and stockholders, unless the transaction is specifically authorized by the
trustor and the relationship of the trustee and the other party involved in the
transaction is fully disclosed to the trustor or beneficiary of the trust prior to the
transaction.
The Monetary Board shall promulgate such rules and regulations as may be
necessary to prevent circumvention of this prohibition or the evasion of the
responsibility herein imposed on a trust entity. (56)
Trust has something to do with the relationship between the trustor and the
trustee, wherein the trustee holds the funds or properties of the trustor for thebenefit of the latter.
- So, you invest, you put money to that trust and they would invest it,
manage it safely. Make it grow for the benefit of the beneficiary or of the
trustor.
- Example: retirement plan of corporations being managed by Trustee
Banks.
- There are banks engaged in trust operations.
Who is authorized to engage in trust business?
- It must be a stock corporation, not a sole proprietor nor a partnership.
What is the degree of care expected of those engaged in trust operations?- A trust entity shall administer the funds or property under its custody with
the diligence that a prudent man would exercise in the conduct of an
enterprise of a like character and with s imilar aims.
- This is similar to diligence of a good father of a family.
- This is the standard of care prescribed by law.
What are the prohibited transactions in case of trust operations?
- No trust entity shall, for the account of the trustor or the beneficiary of the
trust, purchase or acquire property from, or sell, transfer, assign or lend
money or property to, or purchase debt instruments of, any of the
departments, directors, officers, stockholders, or employees of the trust
entity, relatives within the first degree of consanguinity or aff inity, or the
related interests, of such directors, officers and stockholders
- Unless:
1. such transaction is specifically authorized by the trustor and
2. the relationship of the trustee and the other party involved in the
transaction is fully disclosed to the trustor or beneficiary of the trust
prior to the transaction.
- This is to avoid conflict of interest.
The bank cannot also commingle the funds from its banking business with the
funds from its trust operations.
Trust operations are not covered by PDIC.
SECTION 83. Powers of a Trust Entity. — A trust entity, in addition to the general
powers incident to corporations, shall have the power to:
83.1. Act as trustee on any mortgage or bond issued by any municipality,
corporation, or any body politic and to accept and execute any trust consistent with
law;83.2. Act under the order or appointment of any court as guardian, receiver,
trustee, or depositary of the estate of any minor or other incompetent person, and
as receiver and depositary of any moneys paid into court by parties to any legal
proceedings and of property of any kind which may be brought under the
jurisdiction of the court;
83.3. Act as the executor of any will when it is named the executor thereof;
83.4. Act as administrator of the estate of any deceased person, with the will
annexed, or as administrator of the estate of any deceased person when there is no
will;
83.5. Accept and execute any trust for the holding, management, and
administration of any estate, real or personal, and the rents, issues and profits
thereof; and83.6. Establish and manage common trust funds, subject to such rules and
regulations as may be prescribed by the Monetary Board. (58)
Just read.
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- It was not just a simple case for collection of money, but really to recover that
same money covered by the check that was issued by Sunlife to petitioner.
MARQUEZ V. DESIERTO
- Marquez was the branch manager of Union bank. Desierto was the
Ombudsman.
- The investigation was all about the violation of certain provisions under RA3019, specifically Sec. 3 (e) and (g) relative to a joint venture agreement, but
not about unexplained wealth.
- Bottomline: Marquez doesn’t want to disclose by invoking the provisions of RA
1405.
- Take note here, we have a case which is still pending with Ombudsman and not
with the court.
- The Office of the Ombudsman issued a subpoena.
ISSUE: Can the Ombudsman, in a pending case, compel the bank to make the
disclosure?
SC: NO. In the decision, the court enumerated the 4 exceptions under RA 1405. It
added 1 additional exception, which is Sec. 8 of RA 3019. This exception refers to
cases of unexplained wealth as decided in the case of PNB V. GANCAYCO.
This case according to the court does not fall under any of those exceptions
enumerated because there was no written consent, it was not a case for
impeachment, there was no pending case in court, it was only a pending
investigation. In fact, the court said that what the Ombudsman did was just a fishing
expedition. Therefore, since it does not fall under any of the exceptions, Marquez
cannot be compelled to make the disclosure.
So, there must be a pending case in court, not just an investigation.
BANCO FILIPINO V. PURISIMA
Disclosure in cases for unexplained wealth are not limited only to those properties
registered under the name of the public official but also to those properties
registered under the name of his spouse, children, relatives, etc.
Still, this is about an investigation for unexplained wealth. But this time, it involves
the Tanodbayan’s intention to subpoena duces tecum against the bank records or
transactions in the name of the wife, children, and friends. The public official was a
special agent of the BOC. He was charged for having allegedly acquired properties
manifestly out of proportion to his salary or lawful income.
ISSUE: WON the cases in unexplained wealth are limited only to those bank records
registered in the name of the public official.
SC: NO. It is not limited to the bank records registered in the name of the public
official. It covers properties in the name of the spouse, children, friends, etc.
NOTE that RA 3019 requires that there be a pending case in court. The point in this
case is that the disclosure is not just limited to the public official’s bank records, but
also extends to his wife’s, etc.
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Current Account 200k
Time Deposit 300k
Total (same bank) 900k (all under Mr. A’s name)
How much can Mr. A recover?
- 500k for all accounts. All deposits maintained in the same capacity and in
the same right. Although the total deposit is 900k, but the maximum that
Mr. A can recover from PDIC is only 500k. All the deposits shall be addedtogether so long as they are maintained in the same right and in the same
capacity.
2. Coverage is on a per bank basis. (not on a per branch basis)
Even if you made deposits in different branches but still with the same bank,
those deposits shall be added and shall be considered as under the same right
and same capacity.
Example: Mr. A had the following deposits in BDO:
Branch 1 300kBranch 2 1.5M
Branch 3 800k
Total 2.6M
How much can Mr. A recover?
- Still 500k. So each account will not be entitled to a separate coverage.
However, a subsidiary bank is different from the parent bank. Both have
different personalities.
- Example, you have a deposit in BPI and another deposit in BPI Savings
Bank, which is a thrift bank. Both banks are different and distinct entities.
3. Individual accounts shall be insured separately from joint accounts.
Example: Mr. A has an individual account, and Mr. A also has a joint account
with Mr. B (Mr. A and/or Mr. B).
Mr. A (individual account) Mr. A and/or Mr. B (joint
account)
Savings Account 200k 200k
Current Account 300k 300K
Time Deposit 400k 400K
Total 900k 900K
For Mr. A’s individual account, he can recover to the extent of 500k.
For Mr. A’s joint account with Mr. B, another 500k (Follow the rule under
number 4 – in the absence of a sharing scheme, the 500k shall be divided
equally between Mr. A&B, so 250k each).
What do you mean by capacity?- Either in an individual or in a joint capacity. So these are the 2 capacities –
individual or joint. For the joint account, regardless of the conjunction
used, whether it is [AND] or [OR] or [AND/OR] – they are all considered as
one joint account.
4. If the account is held jointly by two or more natural persons, or by two or
more juridical persons or entities, the maximum insured deposit shall be
divided into as many equal shares as there are individuals, juridical persons
or entities, unless a different sharing is stipulated in the document of deposit.
Mr. A and Mr. B – a joint account involving all individuals = 700Corp. A and Corp. B – a joint account involving all juridical persons = 800k
What is the maximum coverage?
For Mr. A & Mr. B’s joint account, 500k.
In the absence of stipulation, it is presumed to be equal. So 250k each for Mr. A
and Mr. B.
For Corp. A & Corp. B’s joint account, 500k.
In the absence of stipulation, Corp. A and Corp. B can recover 250k each.
5. If the account is held by a juridical person or entity jointly with one or morenatural persons, the maximum insured deposit shall be presumed to belong
entirely to such juridical person or entity.
If the joint account is between an individual and a corporation, the
presumption is that it belongs entirely to the juridical person. But this is only a
presumption. You can present evidence to the contrary.
Example: Mr. A has a joint account with Corporation A amounting to 700k. In
that case, it is presumed that it belongs entirely to Corporation A.
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- BUT, PDIC could terminate the coverage:
a. If the PDIC determines that the bank continues to conduct its business
in an unsafe and unsound manner
Of course, that’s a right of PDIC because if the bank is conducting
its business in an unsafe and unsound manner, the probability
that there would be a bank run or closure is great, so in effect
PDIC would be liable.
b. If the insured bank fails to pay what we call the “assessment fees”within 30 days after written notice was given to it, PDIC may also
discontinue such bank in the insurance coverage.
So the assessment fees refer to the premiums paid by the bank.
Bank rehabilitation – can the PDIC rehabilitate a bank?
- YES. The basis of this is that if the PDIC determines that it would be more
cost-efficient to rehabilitate the bank, to give financial assistance to the
bank, rather than to close the bank.
- It says in the law that if it is proven that it is less costly than closure.
- PDIC will determine WON a bank can still be rehabilitated within 90 days.
As receiver of a closed bank
- If the bank is placed under receivership, PDIC is designated as the statutory
receiver. Effective upon PDIC takeover as receiver, the powers, functions
and duties, as well as allowances, remunerations and perquisites of the
directors, officers and stockholders, as well as relevant provisions of the
articles and by-laws, are immediately suspended.
TRUTH IN LENDING ACT
(R.A. 3765)
Section 2. Declaration of Policy. It is hereby declared to be the policy of the State to
protect its citizens from a lack of awareness of the true cost of credit to the user by
assuring a full disclosure of such cost with a view of preventing the uninformed use
of credit to the detriment of the national economy.
What’s the purpose?
a. To protect the debtor from lack of awareness of the true cost of the credit;
and
b. To assure full disclosure
TILA applies to all credits.
(2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any
conditional sales contract; any contract to sell, or sale or contract of sale of
property or services, either for present or future delivery, under which part or all of
the price is payable subsequent to the making of such sale or contract; any rental-
purchase contract; any contract or arrangement for the hire, bailment, or leasing of
property; any option, demand, lien, pledge, or other claim against, or for the
delivery of, property or money; any purchase, or other acquisition of, or any credit
upon the security of, any obligation of claim arising out of any of the foregoing; and
any transaction or series of transactions having a similar purpose or effect.
There are 2 categories mentioned in the law:
1. Loans of money
2. Sale on installment of property and other allied transactions
Section 4. Any creditor shall furnish to each person to whom credit is extended,prior to the consummation of the transaction, a clear statement in writing setting
forth, to the extent applicable and in accordance with rules and regulations
prescribed by the Board, the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in
connection with the transaction but which are not incident to the extension of
credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
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etc.- So basically, entities under the BSP, Insurance Commission and SEC. These
are institutions which have the obligation monitor and report under the
AMLA any suspected money laundering activities.
OBLIGATIONS OF COVERED INSTITUTIONS
SEC. 9. Prevention of Money Laundering; Customer Identification Requirements
and Record Keeping.
(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 non-checking numbered accounts shall be allowed. The
BSP may conduct annual testing solely limited to the 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 reporting results in any criminal prosecution under
this Act or any other Philippine law.
When reporting covered transactions to the AMLC, covered institutions and theirofficers, 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.
1. Customer identification
- The covered institution must establish and maintain a record of the true
identity of its clients based on official documents.
- One way of laundering money is through false identities. So before they
would accept any transaction from any individual or entity for that matter,
they must establish the true identity of that person.
- If you open an account with a bank, the bank is very strict. They would
require you to submit 2 IDs, and not just any ID but government-issued ID.
Also in case of corporations or juridical entities, they require you to submit
your AOI or SEC registration papers. In addition to that, the bank would
require you to submit a resolution from the board designating the
authorized person or representative of the corporation. The purpose of all
these is to establish the true identity of the client.
- What are the prohibitions?o Opening anonymous accounts, accounts under fictitious names, and
all other similar accounts
As an EXCEPTION under the Anti-Alias Law, if you are a movie star,
you can use your screen name. You can open an account under
your screen name. What is important is that as far as the bank is
concerned, the identity of the person behind that screen name is
established.
Some banks also open an account under a numbered account.
Why numbered account? Maybe for confidentiality reasons.
Numbered accounts are allowed but only for savings or non-
checking accounts, because it is difficult for checking accounts.
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tolled pending the court’s decision to extend the period.
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.
The AMLA council upon EX PARTE APPLICATION can file with the COURT OF
APPEALS after determination of PROBABLE CAUSE for a freeze order.
- Freeze order – effective immediately and it shall be for a period of 20 days.- Effect – money cannot be withdrawn.
It is a provisional remedy because it does not require that there be a case filed
for violation of the anti-money laundering law. Even if it is still in the process of
investigation, for as long as the AMLC can establish probable cause, then it can
apply for a freeze order with the COURT OF APPEALS.
AUTHORITY TO INQUIRE INTO BANK DEPOSITS
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 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.
The AMLA council may inquire into any bank or banking institution as to the
bank deposits when there is a probable cause that the bank deposits is related
or are related to unlawful activities.
This is an exception to the law on secrecy of bank deposits.
Requirements:
1. AMLC must establish that there is PROBABLE CAUSE that the deposits
arose from the unlawful activity
2. There must be a COURT ORDER.
- EXC: AMLC by virtue of a resolution can immediately inquire into bank
deposits without need of court order, if they can establish that the
proceeds arose from certain predicate crimes such as:
a. KIDNAPPING,
b. VIOLATION of the COMPREHENSIVE DANGEROUS DRUGS ACT,
c. HIJACKING,
d. DESTRUCTIVE ARSON,
e. MURDER.
- In these instances, no need for a court order. Just a resolution from
the AMLC.
SEC. 5. Jurisdiction of Money Laundering Cases . – The regional trial courts shall
have jurisdiction to try all cases on money laundering. Those committed by publicofficers and private persons who are in conspiracy with such public officers shall be
under the jurisdiction of the Sandiganbayan.
JURISDICTION OVER MONEY LAUNDERING CASES
- GENERAL RULE: The RTC has jurisdiction to try all cases on money
laundering.
- EXCEPT: the SANDIGANBAYAN has jurisdiction of those committed by
public officers and private persons who are in conspiracy with such public
officers.
- Note that the CA has the right to issue freeze orders.
SEC. 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.
So you can be both charged and convicted of:
1. money laundering and
2. at the same time for the unlawful activity
- These are 2 separate offenses. Money laundering is NOT a continuing
offense of the unlawful activity. They have separate elements.
The proceeding relating to the unlawful activity shall be given precedence
over the prosecution of any offense or violation of this act.
Is it necessary that there must be a prior conviction of the unlawful activity or
the predicate crime before you can be charged for money laundering?
- No! Because the elements of money laundering are different from the
elements of the unlawful activity. If you look at also the implementing
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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 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 enterany 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 appeallies 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.
e. Requirements for Requests for Mutual Assistance from Foreign States. - A
request for mutual assistance from a foreign State must (1) confirm that aninvestigation 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 orequivalent 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.
g. Extradition. - The Philippines shall negotiate for the inclusion of moneylaundering offenses as herein defined among extraditable offenses in all
future treaties.
- Money laundering is not yet an extraditable offense
IMPORTANT TOPICS IN AMLA:
1. Covered transactions
2. Suspicious transactions
3. Predicate crimes
4. Manner by which you commit money laundering (3)
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FOREIGN INVESTMENTS ACT
(R.A. 7042)
POLICY OF THE LAW
SEC. 2. Declaration of Policy. - It is the policy of the State to attract, promote and
welcome productive investments from foreign individuals, partnerships,
corporations, and governments, including their political subdivisions, in activities
which significantly contribute to national industrialization and socio-economic
development to the extent that foreign investment is allowed in such activity by the
Constitution and relevant laws. Foreign investments shall be encouraged in
enterprises that significantly expand livelihood and employment opportunities for
Filipinos; enhance economic value of farm products; promote the welfare of Filipino
consumers; expand the scope, quality and volume of exports and their access to
foreign markets; and/or transfer relevant technologies in agriculture, industry and
support services. Foreign investments shall be welcome as a supplement to Filipino
capital and technology in those enterprises serving mainly the domestic market.
As a general rule, there are no restrictions on extent of foreign ownership of exportenterprises. In domestic market enterprises, foreigners can invest as much as one
hundred percent (100%) equity except in areas included in the negative list. Foreign
owned firms catering mainly to the domestic market shall be encouraged to
undertake measures that will gradually increase Filipino participation in their
businesses by taking in Filipino partners, electing Filipinos to the board of directors,
implementing transfer of technology to Filipinos, generating more employment for
the economy and enhancing skills of Filipino workers.
Basically the purpose is to encourage FOREIGN INVESTMENTS because that would
translate to the creation of jobs, etc. In other words, it has a multiplier effect.
DEFINITION OF TERMS
SEC. 3. Definitions. – As used in this Act:
a) the term “Philippine National” shall mean a citizen of the Philippines or a
domestic partnership or association wholly owned by citizens of the Philippines; or
a corporation organized under the laws of the Philippines of which at least sixty
percent (60%) of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines or a corporation organized abroad and registered
as doing business in the Philippines under the Corporation Code of which one
hundred percent (100%) of the capital stock outstanding and entitled to vote is
wholly owned by Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at
least sixty percent (60%) of the fund will accrue to the benefit of Philippine
nationals: Provided, That where a corporation and its non -Filipino stockholders own
stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least
sixty percent (60%) of the capital stock outstanding and entitled to vote of each of
both corporations must be owned and held by citizens of the Philippines and atleast sixty percent (60%) of the members of the Board of Directors of each of both
corporations must be citizens of the Philippines, in order that the corporation shall
be considered a Philippine national; (as amended by R.A. 8179).
b) the term “investment” shall mean equity participation in any enterprise
organized or existing under the laws of the Philippines;
c) the term “foreign investment” shall mean an equity investment made by a non-
Philippine national in the form of foreign exchange and/or other assets actually
transferred to the Philippines and duly registered with the Central Bank which shall
assess and appraise the value of such assets other than foreign exchange;
xxxxxxx
e) the term “export enterprise” shall mean an enterprise wherein a manufacturer,
processor or service (including tourism) enterprise exports sixty percent (60%) or
more of its output, or wherein a trader purchases products domestically and
exports sixty percent (60%) or more of such purchases;
f) the term “domestic market enterprise” shall mean an enterprise which products
goods for sale, or renders services to the domestic market entirely or if exporting a
portion of its output fails to consistency export at least sixty percent (60%) thereof;
and
g) the term “Foreign Investments Negative List” or “Negative List” shall mean a list
of areas of economic activity whose foreign ownership is limited to a maximum of
forty percent (40%) of the equity capital of the enterprises engaged therein.
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I. EXPORT ENTERPRISE: at least 60% of its production or output is exported
GENERAL RULE: There are no restrictions on extent of foreign ownership (can be
100% owned by foreigners)
- Regardless of the capitalization, for as long as you are into export, you can
be 100% owned by foreigners.
EXCEPTION: If they are engaged in activities wherein ownership is limited or
restricted in the negative list
II. DOMESTIC ENTERPRISE: less than 60% of its production or output is exported
GENERAL RULE: At least 60% Filipinos; at most 40% Foreigners. Cannot be 100%
foreign owned.
EXCEPTIONS: 100% foreign ownership if:
1. Paid-up capital of at least $200,000; or
2. Involved in advanced technology as certified by the DOST (capital must be
at least $100,000); or
3. Minimum of 50 employees (capital must be at least $100,000).
Examples:
1. 55% export. Paid-up capital is only $150k. 50 employees. Can I be 100%
foreign-owned?
- YES. Although you are a domestic enterprise, but you employ 50
people (and the capital is more than $100k). Exception #3.
2. 75% export. Paid-up capital of $50k. 30 employees. Can I be 100% foreign-
owned?
- YES. Because you are an export enterprise. Regardless of the
capitalization, an export enterprise can be 100% foreign owned for as
long as it is not engaged in activities where ownership limited in thenegative list.
TAKE NOTE of the items in the 8TH
FOREIGN INVESTMENT NEGATIVE LIST
So:
1. See if it is in the negative list.
2. If not, follow the rules on foreign ownership above
When is a corporation considered as a Philippine national?
- When at least 60% of the outstanding capital stock is owned by Filipinos.
- If the percentage of Filipino ownership in the corporation is less than 60%,
only the number of shares corresponding to such percentage shall be
considered as of Philippine nationality and the other shares shall be
recorded as belonging to aliens.
SEC. 3. Definitions. – As used in this Act:
xxxxxxx
d) the phrase “doing business” shall include soliciting orders, service contracts,opening offices, whether called “liaison” offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods totaling one hundred eighty (180)
days or more; participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and any other act
or acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the exercise of
some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization:
Provided, however, That the phrase “doing business” shall not be deemed to
include mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as suchinvestor; nor having a nominee director or officer to represent its interests in such
corporation; nor appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its own account;
What are the requirements if already doing business in the Philippines?
- You have to get a license from the SEC, appoint a resident agent etc.
What are the consequences if you’re doing business without the necessary
permit?
- GENERAL RULE: Cannot sue but can be sued.
- EXCEPTION: ESTOPPEL.o Merryl Lynche case: FC tried to sue DC. DC raised the defense that it
cannot be sued because FC is doing business without license.
o SC: DC already estopped from questioning the personality of FC.
Estoppel also applies to domestic corporations dealing with foreign
corporations without license.
Can a former natural born Filipino now a naturalized US citizen acquire land in
the Philippines?
- YES Under the FIA but limited only to a certain number of hectares (5,000
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LIST B: FOREIGN OWNERSHIP IS LIMITED FOR REASONS OF SECURITY, DEFENSE, RISK TO HEALTH AND MORALS AND PROTECTION OF SMALL- AND MEDIUMSCALE
ENTERPRISES
Up to Forty Percent (40 %) Foreign Equity
1. Manufacture, repair, storage, and/or distribution of products and/or ingredients
requiring Philippine National Police (PNP) clearance:
a)
Firearms (handguns to shotguns), parts of firearms and ammunitiontherefor, instruments or implements used or intended to be used in the
manufacture of firearms
b) Gunpowder
c) Dynamite
d) Blasting supplies
e) Ingredients used in making explosives:
i. Chlorates of potassium and sodium
ii. Nitrates of ammonium, potassium, sodium, barium, copper (11), lead
(11), calcium and cuprite
iii. Nitric acid
iv. Nitrocellulose
v. Perchlorates of ammonium, potassium and sodiumvi. Dinitrocellulose
vii. Glycerol
viii. Amorphous phosphorus
ix. Hydrogen peroxide
x. Strontium nitrate powder
xi. Toluene
f) Telescopic sights, sniper scope and other similar devices
However, the manufacture or repair of these items may be authorized by the Chief of
the PNP to non-Philippine nationals; Provided that a substantial percentage of output,
as determined by the said agency, is exported. Provided further that the extent offoreign equity ownership allowed shall be specified in the said authority/clearance
2. Manufacture, repair, storage and/or distribution of products requiring
Department of National Defense (DND) clearance:
a) Guns and ammunition for warfare
b)
Military ordnance and parts thereof (e.g., torpedoes, depth charges, bombs,grenades, missiles)
c) Gunnery, bombing and fire control systems and components
d) Guided missiles/missile systems and components
e) Tactical aircraft (fixed and rotary-winged), parts and components thereof
f) Space vehicles and component systems
g) Combat vessels (air, land and naval) and auxiliaries
h) Weapons repair and maintenance equipment
i) Military communications equipment
j) Night vision equipment
k) Stimulated coherent radiation devices, components and accessories
l) Armament training devices
m) Other as may be determined by the Secretary of the DND
However, the manufacture or repair of these items may be authorized by the Secretary
of the DND to non-Philippine nationals; Provided that a substantial percentage of
output, as determined by the said agency, is exported. Provided further that the
extent of foreign equity ownership allowed shall be specified in the said
authority/clearance
3. Manufacture and distribution of dangerous drugs
4. Sauna and steam bathhouses, massage clinics and other like activities regulated
by law because of risks posed to public health and morals
5. All forms of gambling, except those covered by investment agreements with
PAGCOR operating within special economic zones administered by the Philippine
Economic Zone Authority
6. Domestic market enterprises with paid-in equity capital of less than the
equivalent of US$200,000
- If 200k or more, 100%
7. Domestic market enterprises which involve advanced technology or employ at
least fifty (50) direct employees with paid-in-equity capital of less than the
equivalent of US$100,000
- If 100k or more, 100%
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THE WAREHOUSE RECEIPTS LAW
(ACT NO. 2137)
Applicable only to receipts issued by a warehouseman.
If the receipt is not issued by a warehouseman, then the warehouse receipts
law is not applicable but the pertinent provisions under the Civil Code
regarding documents of title.
Warehouse Receipt – it is written acknowledgement by a warehouseman that
he has received and holds certain goods therein described in his warehouse for
the person to whom it is issued.
Essentially a warehouse receipt is a document of title to goods, and it serves
two functions:
1. It is a CONTRACT – simple contract evidencing the underlying contract of
deposit or of carriage
2. Evidence of RECEIPT of goods.
The beauty of the warehouse receipt is that it can be negotiated or it can be
transferred, such that whoever is the purchaser, the indorsee or the transfereecould acquire title over the goods without the manual or physical delivery of
the good. Just by virtue of the warehouse receipt.
Under Section 1, only a warehouseman may issue a warehouse receipt.
Who is a warehouseman?
- A person lawfully engaged in the business of storing goods for profit.
What type of goods can be a subject of a warehouse receipt?
- Goods here refer to anything that can be traded, whether it is fungible or
non-fungible. So normally, rice, copra, corn, grains. It may also includecement, canned goods, cars, paints, oil, fuel, lubricant, etc.
- So, practically all goods which can be traded.
FORM OF RECEIPTS
The law does not require a specific form. So it could be printed, written, or
whatever.
Although the law under section 2 provides that a warehouse receipt should
contain essential terms.
What are the (9) essential terms that must be embodied in the warehouse
receipt?
a. The location of the warehouse where the goods are stored,
- So that the holder would know where the goods are stored. Especially
if the warehouseman has two or more warehouses.
b. The date of the issue of the receipt,
- The date is prima facie the date of the perfection of the contract of
deposit. It is also important to determine when the charges of the
deposit would begin to arise.
c. The consecutive number of the receipt,
- Again, for identification purposes. To distinguish one receipt from the
other.
d. A statement whether the goods received will be delivered to the bearer, to
a specified person or to a specified person or his order,
- This will now determine whether the warehouse receipt is negotiable
or not.
e. The rate of storage charges,
- The consideration of the warehouseman. If the rate is not indicated,
the warehouseman can still be paid reasonable fees.
f. A description of the goods or of the packages containing them,
- Again for identification purposes. So that whoever makes a deposit
has some form of assurance that he will get the same item back.
g. The signature of the warehouseman which may be made by his authorized
agent,- The signature is the best evidence that he has received the goods and
that he assumes the obligations in relation to the issuance of the
warehouse receipts.
h. If the receipt is issued for goods of which the warehouseman is owner,
either solely or jointly or in common with others, the fact of such
ownership, and
- If applicable. Not in all cases.
i. A statement of the amount of advances made and of liabilities incurred for
which the warehouseman claims a lien. If the precise amount of such
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