ANTI DUMMY LAW

Philippines is vastly covered by foreign businesses, foreign investors, and foreign products.
These embody that our country is progressing in terms of economic stability. However, our law makers
want to ensure the superiority of the Filipinos in certain kind of business being operated here, namely
the “nationalized or partially nationalized economic activities,” which concerns the operations of
transport, communications, energy, banking and natural resources.
Under Republic Act No. 7042 or the Foreign Investments Act of 1991, as a general rule, there
are no restrictions on extent of foreign ownership of export enterprises. In domestic market enterprises,
foreigners can invest as much as one hundred percent (100%) equity except in areas included in the
negative list.
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 ownership is limited to a
maximum of forty percent (40%) of the equity capital of the enterprise engaged therein.
Thus, Commonwealth Act No. 108 (as amended) otherwise known as the Anti-Dummy Law,
seeks to penalize persons and even juridical entities who violates the equity restrictions set forth by the
law.
This prohibits:

a. ‘Dummy arrangement’ between a foreigner and a Filipino to evade nationality restrictions. An

example of which is the designation of a Filipino as an owner of a certain business engaged in
nationalized or partly nationalized economic activities, however it is the foreigner who acts as
the real owner using the formers name, showing that the Filipino is only acting as a ‘dummy’.

b. Simulation of minimum capital stock, this is present when the documents submitted to prove
the percentage of shares owned by Filipino citizens in the corporation are compliant with
nationality restrictions, is false and in fact, such percentage is actually below the required 60%.

c. Appointment or election of foreigners in management positions except technical personnel

whose employment may be specifically authorized by the Secretary of Justice.

d. The exercise, possession or control by a Filipino citizen having a common-law relationship with
an alien of a right, privilege, property or business, the exercise or enjoyment of which is expressly
reserved by the Constitution or the laws to citizens of the Philippines, shall constitute a prima
facie evidence of violation of the provisions of Section 2-A hereof. (Section 2-C)

However, it must be noted that, the participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate share in its capital, and all the executive
and managing officers of such corporation or association must be citizens of the Philippine. (Section 11,
Article XII, 1987 Constitution)
If caught violating the said law (even a Filipino citizen or the alien), will be punished by
imprisonment for 5 to 15 years, and by a fine of not less than the value of the right franchise or privilege,
which is enjoyed or acquired in violation of the provisions hereof but in no case less than P5, 000. If
the offender is a spouse of any public official, if both live together, shall be cause for the dismissal of
such public official. (Section 2-B)