BSP Regulates Banking Industry to Protect Depositors

LEGAL
AND REGULATORY FRAMEWORK

OF BANKING BUSINESS
Prof. Maria Lulu G. Reyes, Llb, LlM
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The Bangko Sentral ng Pilipinas
(ra 7653)
 Article 12, s. 20 of the 1987 Philippine constitution -
The Congress shall establish an independent central
monetary authority, the members of whose governing
board must be natural-born Filipino citizens, of
known probity, integrity, and patriotism, the majority
of whom shall come from the private sector. They
shall also be subject to such other qualifications and
disabilities as may be prescribed by law.
The authority shall provide policy direction in the areas
of money, banking, and credit. It shall have supervision
over the operations of banks and exercise such
regulatory powers as may be provided by law over
the operations of finance companies and other
institutions performing similar functions.
4
Bangko Sentral ng Pilipinas:
policy making body on matters
of money, credit and banking;
regulates financial sector
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STRUCTURE OF THE BSP
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THE MONETARY BOARD
 composed of seven (7) members appointed
by the President of the Philippines for a term
of six (6) years:
 (a) The Governor, as Chairman;
 (b) A member of the Cabinet designated by
the President of the Philippines;
 (c) Five (5) members who shall come from
the private sector, all of whom shall serve
full time.
 No member of the Board may be
reappointed more than once.
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Qualifications of Members of
Monetary Board
 Must be natural-born citizens of the
Philippines
 At least 35 years of age, with the
exception of the Governor, who should at
least be 40 years of age
 Of good moral character, of
unquestionable integrity, of known probity
and patriotism
 With recognized competence in social
and economic disciplines
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Bangko Sentral ng Pilipinas
 The BSP's primary
objective is to
maintain price stability
conducive to a
balanced and
sustainable economic
growth.
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Bangko Sentral ng Pilipinas
 The BSP also aims topromote . and
preserve monetary stability and the
convertibility of the national currency.
 Exclusive power to issue currency
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Philippine Currency
 all Philippine notes and coins issued or
circulating in accordance with RA 7653
 The Peso. — The unit of monetary value
in the Philippines is the "peso," which is
represented by the sign "P."
 The peso is divided into one hundred
(100) equal parts called "centavos," which
are represented by the sign "c."
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Legal Tender Power
 All notes and coins issued by the Bangko
Sentral shall be fully guaranteed by the
Government of the Republic of the
Philippines and shall be legal tender in the
Philippines for all debts, both public and
private:
 Coins shall be legal tender in amounts not
exceeding Fifty pesos (P50.00) for
denominations of Twenty-five centavos and
above, and in amounts not exceeding Twenty
pesos (P20.00) for denominations of Ten
centavos or less.
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BSP as Regulator of Banks
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Importance of Banks to Economy
“The banking system is an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized
nation. Whether as mere passive entities for the safekeeping and saving
of money or as active instruments of business and commerce, banks
have become an ubiquitous presence among the people, who have
come to regard them with respect and even gratitude and, most of all,
confidence. Thus, even the humble wage-earner has not hesitated to
entrust his life's savings to the bank of his choice, knowing that they
will be safe in its custody and will even earn some interest for him.”
Simex International (Manila), Inc. vs. CA 183 SCRA 360 (1990)
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Importance of Banks to
Economy
• As of November 2016, our financial system is
dominated by banks:
• P 13.2 trillion combined assets;

• P7.4 trillion consolidated bank loans;
• P10.1 trillion total deposits
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Importance of Banks to
Economy
 Facilitation and promotion of capital
formation
 Investment in new enterprises
 Promotion of trade and industry, including
export
 Development of agriculture
 Distribution of development across regions
 Fuel economic activity
 Implementation of economic and monetary
policy
 Monetization of the economy
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BANKS
• Entities engaged in the lending of funds

obtained in the form of deposits.
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deposit
 unpaid balance of money or its equivalent
received by a bank in the usual course of
business and for which it has given or is
obliged to give credit to a commercial,
checking, savings, time or thrift account or
which is evidenced by its certificate of
deposit, and trust funds held by such bank
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QUASI-BANKS
• Entities engaged in the borrowing of

funds through the issuance, endorsement
or assignment with recourse or
acceptance of deposit substitutes for
purposes of relending or purchasing of
receivables and other obligations.
19
Deposit substitutes
 as an alternative form of obtaining funds from the public, other
than deposits, through the issuance, endorsement, or acceptance of
debt instruments for the borrower's own account, for the purpose
of relending or purchasing of receivables and other obligations.
These instruments may include, but need not be limited to, bankers
acceptances, promissory notes, participations, certificates of
assignment and similar instruments with recourse, and repurchase
agreements.
20
Classes of Banks
Banks
Universal Commercial Thrift Cooperative Islamic

Rural Banks
Banks Banks Banks Banks Banks
General General Thrift Banks Rural Banking Cooperative Charter of Al

Banking Law Banking Law Act Act Act Amanah
(RA 8791) (RA 8791) (RA 7906) (RA 7353) (RA 6938) Islamic
Investment
Bank of the
Philippines
(RA 6848)
Savings and Stock Savings Private
Mortgage And Loan Development
Banks Associations Banks
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THE CASE OF PALUGI
BANK
PALUGI Bank started operations in 2000. After

almost 15 years of operations, it appeared to be
one of the success stories in the banking
industry. From one branch, it was able to put up
12 branches by 2015, attracting almost 300,000
depositors and an estimated P50 billion in
deposits contained in about 125,000 accounts.
Much of its success is attributed to Mr. Jose Kita,
a minority stockholder on record but is said to
be the real owner. He is the current President
of the bank.
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THE CASE OF PALUGI
BANK
By 2014, however, the regulators started to

receive complaints about its business practices,
which seemed to be unsafe and might
compromise the interest of depositors. It was
also found out that the bank has not been
submitting reports or had been delayed in
submitting the same.
It initially refused requests for examination of its
operations and even threatened the filing of
cases against the BSP and PDIC.
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THE CASE OF PALUGI
BANK
When the Monetary Board eventually ordered

it to institute some measures to address
complaints of depositors, PALUGI Bank initially
refused but eventually submitted falsified
reports to MB to cover up its non-compliance.
What is legal and regulatory framework
governing similarly situated banks?
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Regulation of the Banking
Industry
Importance of
Banks to Economy Protection of
Depositors
25
Regulation of the Banking Industry
• Law seeks to ensure the protection of the public from
potential abuses of banks and their owners.
• Rule is no person or entity shall engage in banking
operations or quasi-banking functions without authority
from the BSP.
• There are instances of abuse by the banks and their
owners in the past.
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Industry
Prudential Measures
1. Capitalization
◦ Minimum capitalization
◦ Risk-based capital
2. Fit and Proper Rule

◦ Rules to govern directors and officers
3. Reserves
◦ Reserve requirements
◦ Provision for losses and write offs
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Industry
Prudential Measures
4. Investments
◦ Restriction on equity investments in allied
undertakings
◦ Restrictions on direct investments
5. Loan Restrictions
◦ Single Borrower’s Limit
◦ Rules on DOSRI Loans
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Industry: PRUDENTIAL
MEASURES
Required Minimum Capital
Type Bank Minimum
Capitalization
Universal Commercial Banks P 5.4 Billion
Regular Commercial Banks P 2.8 Billion
Thrift Bank with head office in Metro Manila P 650 Million
Thrift Bank with head office outside Metro Manila P 64 Million
Rural Bank P 2.6-20 Million
Cooperative Bank P 2.6-20 Million
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:Prudential Measures
2. Investments
◦ Restriction on equity investments in allied undertakings
◦ Restrictions on direct investments
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UNIVERSAL BANK =commercial
bank + investment house
A universal bank can:
 Underwrite securities
 Act as a securities dealer
Either directly (as a department within the bank) or indirectly

( by owning up to 100% of the equity in such entity)
This is absolutely prohibited for an ordinary commercial

bank
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Equity Investments of Banks
- a bank may, with prior approval of the MB, invest its funds
Area of investment by Universal Bank by Commercial Bank
A thrift or rural bank Up to 100% of the equity Up to 100% of the equity

Only one other universal/commercial Up to 100% of the voting stock Up to 100% of the voting stock
bank (if investing bank is publicly listed) (if investing bank is publicly listed, otherwise,
must remain a minority shareholder in
another commercial bank)
Quasi-bank Up to 40% of the equity Up to 40% of the equity
Allied Enterprises
*Financial (e.g. credit card, leasing, Up to 100% of the equity must remain a minority shareholder
insurance companies)
*Non-Financial (e.g. warehousing, safety Up to 100% of the equity must remain a minority shareholder
deposit boxes, computer services
companies)
Non-Allied Enterprises (e.g. mining, land Up to 35% of total equity or 35% of voting prohibited
development companies) stock
total investment 1) in allied and non-allied total investment 1) in allied enterprises

enterprises shall not exceed fifty percent shall not exceed thirty-five percent (35%) of
(50%) of the net worth of the bank, and 2) the the net worth of the bank; and 2) the
equity investment in any one enterprise, equity investment in any one enterprise
whether allied or non-allied, shall not exceed shall not exceed twenty-five percent (25%)
twenty-five percent (25%) of the net worth of of the net worth of the bank.
the bank.
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:Prudential Measures
3. Fit and Proper Rule

◦ MB to pass upon and review qualifications of bank directors and officers
◦ MB can, upon prior notice, remove, suspend and disqualify a bank director or
officer
4. Reserves
◦ Reserve requirements
◦ Provision for losses and write offs
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Regulation of the Banking Industry:
Prudential Measures
5.Loan Restrictions
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5.Loan Restrictions: SBL
Single Borrower’s Limit
(SBL)
◦
 bank’s exposure to a single client must not
exceed 25 percent of the bank’s net worth. The
rule is meant to prevent banks from risks, such as
losses due to loan defaults, arising from heavy
exposure to one entity.
 “exposure” comes in the form of loans extended
to a client, bonds bought by banks from the same
client, as well as securities issued by the client and
being underwritten by the bank.
35
THE 25% SBL CEILING INCLUDES:
(a) the direct liability of the maker or acceptor of paper discounted with or
sold to such bank and the liability of a general indorser, drawer
orguarantor who obtains a loan or other credit accommodation from or
discounts paper with or sells papers to such bank;
(b) in the case of an individual who owns or controls a majority interest in a
corporation, partnership, association or any other entity, the liabilities of
said entities to such bank;
(c) in the case of a corporation, all liabilities to such bank of all subsidiaries in
which such corporation owns or controls a majority interest; and
(d) in the case of a partnership, association or other entity, the liabilities of
the members thereof to such bank.
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THE 25% SBL CEILING INCLUDES:
Even if a parent corporation, partnership, association, entity or

an individual who owns or controls a majority interest in
such entities has no liability to the bank, the Monetary Board
may prescribe the combination of the liabilities of subsidiary
corporations or members of the partnership, association,
entity or such individual under certain circumstances,
including but not limited to any of the following situations:
(a) the parent corporation, partnership, association, entity or
individual guarantees the repayment of the liabilities;
(b) the liabilities were incurred for the accommodation of the
parent corporation or another subsidiary or of the
partnership or association or entity or such individual; or
(c) the subsidiaries though separate entities operate merely as
departments or divisions of a single entity.
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5.Loan Restrictions:
DOSRI
Loans, other credit accommodations and
guarantees shall refer to transactions of the bank
which involve the grant of any loan, advance or
other credit accommodation in any form
whatsoever, whether renewal, extension or
increase, to:
Its own directors;
Its own officers;
Its own shareholders; 38
5.Loan Restrictions:
DOSRI
 (1) Spouse or relative within the first degree of consanguinity
or affinity, or relative by legal adoption, of a director, officer
or stockholder of the bank;
 (2) Partnership of which a director, officer, or stockholder
of a bank or his spouse or relative within the first degree of
consanguinity or affinity, or relative by legal adoption, is a
general partner;
 (3) Co-owner with the director, officer, stockholder or his
spouse or relative within the first degree of consanguinity or
affinity, or relative by legal adoption, of the property or
interest or right mortgaged, pledged or assigned to secure
the loans or other credit accommodations, except when the
mortgage, pledge or assignment covers only said co-owner's
undivided interest;
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DOSRI LOANS
 (4) Corporation, association, or firm of which a director or officer of the bank, or his spouse is also a director or officer of
such corporation, association or firm, except (a) where the securities of such corporation, association or firm are listed and
traded in the big board or commercial and industrial board of domestic stock exchanges and less than fifty percent (50%) of
the voting stock thereof is owned by any one person or by persons related to each other within the first degree of
consanguinity or affinity; or (b) where the director, officer or stockholder of the bank sits as a representative of the bank in
the board of directors of such corporation: Provided, That the bank representative shall not have any equity interest in the
borrower corporation except for the minimum shares required by law, rules and regulations, or by the by-laws of the
corporation: Provided, further, that the borrowing corporation is not among those mentioned in items e(5), e(6), e(7) and
e(8) of this Section;
 (5) Corporation, association or firm of which any or a group of directors, officers, stockholders of the lending bank and/or
their spouses or relatives within the first degree of consanguinity or affinity, or relative by legal adoption, hold or own at
least twenty percent (20%) of the subscribed capital of such corporation, or of the equity of such association or firm;
 (6) Corporation, association or firm wholly or majority-owned or controlled by any related entity or a group of related
entities mentioned in Items e(2), e(4) and e(5) of this Section.
 (7) Corporation, association or firm which owns or controls directly or indirectly whether singly or as part of a group of
related interest at least twenty percent (20%) of the subscribed capital of a substantial stockholder of the lending bank or
which controls majority interest of the bank pursuant to Subsection X303.1 of the MOR.
 (8) Corporation, association or firm in which the lending bank and/or its parent/subsidiary holds or owns at least twenty
percent (20%) of the subscribed capital of such corporation, or in the equity of such association or firm, or has an existing
management contract or any similar arrangement with the lending bank or its parent/subsidiary.
 Subsidiary shall refer to a corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is
directly or indirectly owned, controlled or held with power to vote by its parent corporation.
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Conditions for grant of DOSRI
LOANS
1. Must be approved by a majority vote of the members of the
board, without the vote of the DOSRI, regardless of amount
2. Written waiver of the secrecy of bank deposits
3. Amount cannot exceed total unencumbered deposit of the
DOSRI
4. Secured by non-risk assets, such as:
 Cash;
 Debt securities issued by the BSP or the Philippine government;
 Deposits maintained in the lending bank and held in the Philippines;
 Debt securities issued by the U.S. government;
 Debt securities issued by central governments, central banks of foreign countries and
multilateral financial institutions such as International Finance Corporation, Asian
Development Bank and World Bank, with the highest credit quality given by any two
internationally accepted rating agencies;
 Such other assets considered as non-risk by the Monetary Board.

41
Industry:criminal acts
Criminal/Administrative violations committed by
banks/quasi-bank:
• Conducting business in an unsafe or
unsound manner
• Willful violation of the charter or
bylaws
• Willful delay in submission of
required reports or publications
• Refusal to permit examination into
the affairs of the institution 42
Industry: criminal acts
Administrative violations committed by
banks/quasi-banks
• Willful making of false or
misleading statement to board or
BSP
• Commission of irregularities
• Willful non-compliance with, or
violation of, any banking law or any
MB order, instruction or regulation
by the MB or the BSP 43
How should the mounting complaints against
PALUGI Bank be addressed?
THE CASE OF PALUGI

BANK
44
Conservatorship is an exercise of police power
Banks are affected with public interest
because they receive funds from the general
public in the form of deposits, creating a
fiduciary relationship with their depositors.
Thus, banks are obligated to treat with
meticulous care and utmost fidelity the
accounts of those who have reposed their
trust and confidence in them.
Central Bank v. CA ((G.R. No. 76118 March 30, 1993)
45
Banks in Distress
How do we know that a bank is in
distress?
Examination of live bank by BSP or PDIC
(Sec. Sec. 25, RA 7653, “The New Central Bank Act;” Sec. 8 (eighth), RA
3591, as amended, “PDIC Charter”)
Declaration of bank holiday or suspension
of payment of deposits continuously for 30
days (Sec. 53, RA 8791, “The General Banking Law of 2000”)
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Options of Monetary Board over
distressed bank
Order the placement Order the

of bank under placement of bank
conservatorship (Sec. under receivership
29, RA 7653)
(Sec. 30, RA 7653)
47
Addressing Bank Distress
Conservatorship
Receivership Resumption
of Business
Rehabilitation
Liquidation
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The Remedy of
Conservatorship
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The Remedy of
Conservatorship
Ground for conservatorship
• State of continuing inability or unwillingness of
bank/QB to maintain a condition of liquidity adequate
to protect the interest of depositors and creditors, as
found by the Supervising and Examination Department
(SED). (Sec. 29, R.A. 7653)
Basic effect of conservatorship

• Bank/QB continues to operate as such, but the
conservator takes over the board and management.
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The Remedy of
Conservatorship
Mandate of conservator
1. Preserve the assets of the bank/QB

• Take charge of assets
• Collect all monies and debts
• Foreclose mortgages
2. Reorganize management
• Take over management
• Overrule or revoke actions of previous board and
officers.
• Conservator cannot repudiate perfected transactions post
facto
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THE CASE OF PALUGI
BANK
Let us assume MB issued an Order placing PALUGI

Bank under conservatorship and a conservator was
appointed.
Within 15 days and before conservator could
assume, the Bank’s President, Jose KITA, with
authority from Board of Directors, filed a case with
the CA against MB alleging grave abuse of
discretion, illegal taking of private property and
violations of his right to due process.
52
THE CASE OF PALUGI
BANK
Case should be dismissed

•only stockholders of record representing majority of the
capital stock may bring petition for certiorari to question
MB order of conservatorship. The bank president, by
himself, cannot file petition.
•petition must be filed within 10 days from receipt by the
board of the institution of the order.
•Actions of the MB placing a bank under conservatorship
are final and executory and thus cannot be restrained or
set aside by courts except on jurisdictional grounds by
way of a petition for certiorari.
53
The Remedy of
Conservatorship
Conservatorship is an exercise of police ower
The government cannot simply cross its arms while the
assets of a bank are being depleted through
mismanagement or irregularities. It is the duty of the BSP
to step in and salvage the remaining resources of the bank
so that they may not continue to be dissipated or
plundered by those entrusted with their management.
- PVB Employees Union v. PVB G.R. No. 76118 March 30, 1993.
54
The Remedy of Conservatorship
Termination of Conservatorship
When MB is satisfied When MB determines that

that the institution can the continuance in
continue to operate on business of the bank would
its own and the involve probable loss to its
conservator-ship is no depositors or creditors. In
longer necessary. (Sec. which case, bank will be
29, R.A. 7653) placed under receivership.
(Sec. 29, R.A. 7653)
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THE CASE OF PALUGI
BANK
Twelve months have lapsed and PALUGI

continues to be hounded by liquidity problems
forcing it to declare bank holiday for 2 months.
Suppose MB finds that continuance in business
of the bank/QB would involve probable loss to
depositors or creditors, what will now be the
remedy of the regulators?
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The Remedy of Receivership
57
 The placement of a bank under
conservatorship is not a precondition to its
placement under receivership. (Sec. 30, R.A.
7653)
58
Grounds for Receivership
1. Insolvency
 Illiquidity: Bank/QB is unable to pay its liabilities as they fall
due in the ordinary course of business, except if due to bank
runs induced by financial panic in the banking community.
 Insolvency: Bank/QB has insufficient realizable assets to meet
its liabilities
2. Probable Loss to Depositors
• Bank/QB cannot continue in business without involving
probable losses to depositors or creditors
59
Grounds for Receivership
3. Dissipation of Assets
 Bank/QB willfully violated a final cease-and-desist
order for a violation involving fraud or dissipation
of assets.
4. Prolonged Bank Holiday
 Declaration of bank holiday or suspension of
payment of deposits for 30 days.
60
THE CASE OF PALUGI
BANK
Suppose MB summarily placed PALUGI

Bank under receivership.
61
THE CASE OF PALUGI
BANK
Immediately upon receipt of Order of

receivership, Jose KITA, together with the
majority stockholder on record, filed a
certiorari petition alleging grave abuse of
discretion on the part of the MB since his
side was not properly heard and merely
relied on the SED Report. He prays that he
be given his day in court to explain the
findings of the SED.
62
MB resolution is summary in nature
• Prior hearing will defeat the purpose and efficacy of
receivership.
• Prior hearing will result in bank runs, panic and hysteria.
(Rural Bank of Buhi v. CA, G.R. No. L-61689 June 20, 1988)
63
 Procedural rights of the bank should not take precedence over the substantive
interests of depositors, creditors, and stockholders over the assets of the bank,
as well as interest of the public and even the bank itself. (Central Bank v. CA and Triumph
Savings Bank, G.R. No. 76118 March 30, 1993)
64
Rationale
The mere filing of a case for receivership can
trigger a bank run.
“One can just imagine the dire consequences of a

prior hearing; bank runs would be the order of the day,
resulting in panic and hysteria. In the process, fortunes
may be wiped out and disillusionment will run gamut of
the entire banking community.” (Republic Bank of Buhi v. CA)
G.R. No. L-61689 June 20, 1988)
65
MB receivership order is “final and executory”
•thus cannot be restrained or set aside by the courts
except on jurisdictional grounds by way of a petition for
certiorari
•Can only be set aside if there is convincing proof that the
action is plainly arbitrary and made in bad faith or is capricious,
discriminatory, whimsical, unjust, or a denial of due process and
equal protection.
66
Effect of Receivership
Monetary Board will Summarily forbid bank
from doing business in the Philippines
67
Forbidding a bank from“doing Fomeaning:
• it cannot accept new deposits
• it cannot grant new loans
68
 Receivership is equivalent to an injunction to restrain the
bank officers from intermeddling with the property of the
bank in any way.” (Villanueva vs. CA, 244 SCRA 396)
 Articles of Incorporation/By-Laws of bank are suspended.

(Sec. 10 [b], RA 3591, as amended)
 The powers, functions and duties, as well as all allowances,

remunerations and perquisites of the directors, officers
and stockholders are suspended. (Sec. 10 [b], ibid)
69
What can the majority stockholders assail?

• Receivership, being admittedly a harsh remedy,
should be granted with extreme caution. Sound
reasons for receivership must appear of record,
and there should be a clear showing of necessity.
The court must consider the consequences or
effects in order to avoid irreparable injustice or
injury.
70
THE CASE OF PALUGI
BANK
Because of the inability of PALUGI Bank to serve its depositors, a

petition for receivership is filed praying to put the bank under
receivership and appoint a well-respected member of the community as
Receiver in order to protect the depositors from its management 71
• Only the MB can place a bank under

receivership and appoint receiver.
• for Banks: PDIC
• for QBs: One who has recognized
competence in banking or finance
• Receivership is for 90 days from take over of
the bank or QB.
72
Specific powers of PDIC as bank receiver
1. Bring suits to enforce liabilities or recoveries
2. Hire experts as deputies and assistants
3. Suspend or terminate officers and employees
4. Pay accrued, utilities, rental and salaries for 3 months
73
Specific powers of PDIC as bank receiver
5. Collect or restructure loans and claims
6. Reduce unusually high interest rates for
unpaid interest
7. Retain private counsel
8. Borrow money and encumber asset to
prevent dissipation, redeem foreclosed
assets, or minimize losses to depositors
and creditors
74
Limitation to powers of PDIC as bank receiver
• Receiver cannot pay, transfer, or dispose of any asset of
bank/QB, except
• place the funds in non-speculative investments
• pay for administrative expenses of liquidation
• pay accrued utilities, rentals and salaries of closed
bank from available funds for up to 3 months
75
Effect of receivership on bank’s directors and officers
The authority of the bank and its directors and officers
over its property and effects is suspended, such authority
being reposed in the receiver. Allowances and
remunerations are also suspended.
In this respect, the receivership is equivalent to an
injunction to restrain the bank officers from meddling
with the property of the bank in any way.
76
EFFECTS of Receivership
On unpaid time deposit in the bank
•An unpaid time deposit in a bank is not a preferred claim

against the bank. Central Bank v. Morfe, (G.R. No. L-20119 June 30, 1967.
On bank’s deposit liabilities to depositors

•When a bank’s operations are suspended by the BSP,
the bank is not liable for interest accrued during the
period of suspension, and this should be deemed read into
every contract of deposit with a bank. Overseas Bank of Manila v. CA,
105 SCRA 49 (1981).
77
THE CASE OF PALUGI
BANK
When Jose KITA learned about the order of MB

placing PALUGI Bank under receivership, he
•Refused to turn over the bank’s records and
assets to the receivers
•tampered with the bank’s records
•Appropriated the bank’s assets for himself or
another party
•Destroyed the bank’s assets
78
THE CASE OF PALUGI
BANK
And he…
•Continued to receive deposits as well payments
from banks’ debtors
•Paid a favored supplier from funds of the bank
•Transferred to his son’s name title to a car
owned by the bank
•Asked an officer of the bank to perform any of
the foregoing acts
79
OUTCOME of Receivership
 Within 90 days from take-over of the
bank/QB, the receiver must determine and
recommend to the MB if
• the bank/QB may resume business
with safety to depositors, creditors,
and the general public.
• may be rehabilitated.
• cannot be rehabilitated or permitted
to resume business
 notify the board of the bank/QB in writing of
findings
 direct the receiver to proceed with
liquidation.
80
Possible Outcome of Receivership
Receiver Receiver
recommends to the recommends to
MB the the MB the
rehabilitation of the liquidation of the
bank. (Sec. 30, R.A. 7653) bank. (Sec. 30, R.A. 7653)
81
Rehabilitation remedy
Nature of rehabilitation
• Rehabilitation contemplates a continuance of corporate life and
activities in an effort to restore and reinstate the corporation to
its former position of successful operation and solvency.
 Not all enterprises which fail in a competitive market place should
necessarily be liquidated. A corporation with a reasonable prospect of
survival should be given the opportunity to rehabilitate.
 there is greater value and greater benefit for creditors in the long term
in keeping essential business and other component parts of such a
corporation together.
82
Rehabilitation remedy
 Effect on pending receivership or liquidation
 Rehabilitation suspends a pending liquidation. To allow

the liquidation proceedings to continue when
rehabilitation has already been mandated by RA 7169
would seriously hinder the rehabilitation of the subject
bank. Philippine Veterans Bank v.Vega, GR 105364, 28 June 2001)
83
THE CASE OF PALUGI
BANK
Upon examination of the books and records of

PALUGI Bank, PDIC immediately arrived at the
conclusion that the bank cannot be rehabilitated.
By then, the depositors of the bank have
camped outside its branches, creditors have
demanded payment of outstanding obligations,
suppliers threatened to discontinue provision of
supplies, etc.
84
The Remedy of Liquidation
 When a person, bank, partnership, association,
corporation or other legal entity can no
longer pay its debts as they come due and
when rehabilitation is not a feasible option
◦ Institution of insolvency proceeding
◦ Liquidation of its assets
◦ Settlement of claims
◦ Distribution of remaining assets
85
General Objectives and Features of
Insolvency Proceedings
First Overall Objective

 the allocation of risk among participants in a market
economy in a predictable, equitable, and transparent
manner.
Second Overall Objective

 to protect and maximize value for the benefit of all
interested parties and the economy in general
86
Economic Theory Behind Liquidation
 in a competitive market economy, an
enterprise that is unable to compete has
no place in and should be removed from
the market place.
 Insolvency is the principal identifying
mark of an uncompetitive enterprise.
87
Legal Theory Behind Liquidation
 Liquidation process can only function effectively if
it is regarded as a collective process, from the
time of its inception.
 Follows that an ordered, civilized administration is
necessary under which all creditors (of varying
ranks and classes) should be bound and treated
equally.
88
Role of Liquidator
• A liquidator assumes the role of the receiver. His task
is to dispose of all the assets of the bank and effect
partial payments of the bank's obligations in
accordance with legal priority, for the benefit of the
bank and its creditors. Larrobis v. Philippine Veterans Bank, G.R. No.
135706, October 1, 2004.
89
Nature of Liquidation Proceedings
• Not an ordinary civil action but a special proceeding

• Not an interpleader
• Akin to settlement of estate of a deceased person
• In rem in nature
• A single proceeding but admitting of multiple appeals
90
Liquidation Steps
Petition for Assistance in
Liquidation
Adjudication of “disputed
claims”
Approval of Project of
Distribution of Assets
Payment of claims and

distribution of assets
Termination of proceedings
91
1. Petition for Assistance in Liquidation
 The receiver is mandated to file an ex parte Petition for
Assistance in the Liquidation (PAL) of closed bank in
the proper RTC pursuant to a liquidation plan adopted
by PDIC. (Sec. 30, RA 7653)
 When the proper RTC gives due course to the PAL, it

is constituted as the Liquidation Court (LC) of the
closed bank. (Sec. 30, RA 7653)
92
Jurisdiction of Liquidation Court (LC)
 The court shall adjudicate disputed claims
against the closed bank.
 The court shall assist in the enforcement of
individual liabilities of the stockholders,
directors and officers of the bank.
 The court shall decide on issues as may be
material in the implementation of the
liquidation plan adopted. (Sec. 30, RA 7653)
93
2. Adjudication of “Disputed Claims”
• Disputed claims refer to all claims, whether against the
assets of the insolvent bank, for specific performance,
breach of contract, damages, or whatever.
A claim need not be initially disputed in a court or agency before it is

filed with the liquidation court. “Disputed claim” simply connotes
that in the course of liquidation, contentious cases might arise which
require a full-dress hearing where legal issues have to be resolved. Ong v.
CA, G.R. No. 112830. February 1, 1996.
94
2. Adjudication of “Disputed Claims”
A liquidation court has exclusive jurisdiction to resolve

all claims against an insolvent bank on considerations of
practicality and necessity, and to prevent multiplicity of
suits. Indeed, it will be burdensome on the liquidator to
appear before several courts to litigate claims against the
insolvent bank. Star Forwarders, Inc. v. Navarro; and Hernandez vs. Rural
Bank of Lucena , G.R. No. L-29791 January 10, 1978.
95
2
Disputed claims must be proven in court. Liquidation
requires the holding of hearings and presentation of
evidence of the parties concerned, i.e., creditors who
must prove and substantiate their claims, and the
liquidator disputing the same. Rural Bank of Bokod v. BIR, G.R. No.
158261, December 18, 2006.
96
3. Project of Distribution
• specify in detail all the assets available for distribution
• identify the creditors whose claims were earlier
allowed by the liquidation court
• specify the order of preference and concurrence of
credits under the Civil Code
• Rule on concurrence and preference of
credit applicable only if the assets of the bank
are not enough to pay all creditors.
97
3. Project of Distribution
• Assets available for distribution

• Includes all assets belonging to the bank or QB in its
own right
• But excludes assets held in trust, on which the bank
only holds legal (but not beneficial) title.
98
4. Payment of Claims (accdg to POD)
 All revenues and earnings realized in winding up the
affairs and administering the assets of the bank/QB
shall be used.
99
4. Payment of Claims
First to be paid: Administrative expenses

• Cost, fees, and expenses of liquidation proceedings
• Reasonable expenses and fees of the receiver
• Salaries of such personnel whose employment is
rendered necessary in discharge of the liquidation,
• and other additional expenses caused thereby
100
4. Payment of Claims
• Next for payment are claims of creditors according to
the rules on concurrence and preference of credit
under the Civil Code.
101
Republic vs. Peralta (G.R. No. L-56568, May 20, 1987)

 Arts. 2241 and 2242 jointly with Arts. 2246 to 2249
establish a two-tier order of preference.
 The first tier includes only taxes, duties and fees
due on specific movable or immovable property.
 All other special preferred credits stand on the
same second tier to be satisfied, pari passu and pro
rata, out of any residual value of the specific property
to which such other credits relate.
102

 Ordinary Preferred Credits,Article 2244 CC
 Art. 2244 creates no liens on determinate property
which follow such property. What Article 2244
creates are simply rights in favor of certain creditors
to have the cash and other assets of the insolvent
applied in a certain sequence or order of priority.
103

 Ordinary Preferred Credits, Article
2244 CC
 Only in respect of the insolvent's "free
property" is an order of priority
established by Article 2244.
104
4. Payment of Claims (preference of taxes)
All payments by PDIC of insured deposits in closed
banks partake of the nature of public funds and, as such,
must be considered a preferred credit similar to taxes due
to the National Government in the order of preference
under Article 2244 of the Civil Code.
105
Duties, taxes, andfees due the Government enjoy priority only when
they are with reference to a specific movable property under Article
2241(1), or immovable property under Article 2242(1), of the Civil
Code. But with reference to the other real and personal property of
the debtor, sometimes referred to as “free property”, taxes and
assessment due the National Government, other than those in
Articles 2241(1) and 2242(1), will come only in ninth place in the
order of preference under Article 2244. Rural Bank of Bokod v. BIR, G.R.
No. 158261, December 18, 2006.
106

 Depositors are not considered preferred creditors
within the meaning of Article 2244. A general
depositor is merely a general creditor who does not
enjoy any preference over other general creditors.
Judgment for payment of time deposit only seeks to
fix the amount of debt and does not establish its
preference. Central Bank vs. Morfe (G.R. No. L-20119 June 30, 1967.
107
 PDIC, upon payment of any depositor, shall be subrogated to all
rights of the depositor against the closed bank to the extent of
such payment. Such subrogation shall include the right to receive
the same dividends and payments from the proceeds of the
assets of such closed bank and recoveries on account of
stockholders ’ liability as would have been payable to the
depositor on a claim for the insured deposits.
108

• Creditors have 3 years from date of last
notice to claim payment.
• After the lapse of the 3-year period,
unclaimed payments are escheated to the
Republic.
109
Mandate of PDIC
under R.A. 3591 as amended
by R.A. 9576
 Insurer of deposits
 Receiver of banks
110
Mandate of PDIC
as insurer of deposits
 SEC. 3. Section 4 (g) :
 "(g) The term’ ‘insured deposit’ means the
amount due to any bona fide depositor for
legitimate deposits in an insured bank net of
any obligation of the depositor to the
insured bank as of the date of closure, but
not to exceed Five hundred thousand pesos
(P500,000.00). Such net amount shall be
determined according to such regulations as
the Board of Directors may prescribe.
111
What cannot be insured?
The PDIC shall not pay deposit insurance for the following accounts
or transactions, whether denominated, documented, recorded or
booked as deposit by the bank:
 "(1) Investment products such as bonds and securities, trust
accounts, and other similar instruments;
 "(2) Deposit accounts or transactions which are unfunded, or that
are fictitious or fraudulent;
 "(3) Deposit accounts or transactions constituting, and/or
emanating from, unsafe and unsound banking practice/s, as
determined by the Corporation, in consultation with the BSP, after
due notice and hearing, and publication of a cease and desist order
issued by the Corporation against such deposit accounts or
transactions; and
 "(4) Deposits that are determined to be the proceeds of an
unlawful activity as defined under Republic Act No. 9160, as
amended.
112
SINGLE ACCOUNT
 In determining such amount due to any depositor, there shall be
added together all deposits in the bank maintained in the same
right and capacity for his benefit either in his own name or in the
name of others.
113
MULTIPLE SINGLE ACCOUNTS
o All the four deposit accounts (i.e., Account Nos. 1 to 4) are owned by the same person,
Juan Dela Cruz, and maintained in the same Bank (Head Office and all its Branches), thus, the
balance of the accounts will be added together, as they are maintained in the same right and
capacity, regardless of account type and banking unit/branch.
oTotal amount of insured deposit cannot exceed P 500,000.00, the Maximum Deposit
Insurance Coverage (MDIC).
oOf the total balance of P 900,000.00, the amount insured is P 500,000.00 and the uninsured
amount is P 400,000.00.
114
SINGLE ACCOUNT/SOLE PROPRIETORSHIP
The first three deposit accounts (i.e., Account Nos. 1 to 3) are owned by the same person,
Juan Dela Cruz, hence, the balance of the accounts will be added together.
 A sole proprietor is wholly owned by the owner, hence, the Dela Cruz Flower Shop
(Account No. 4) owned by Juan Dela Cruz will be added to his first three accounts as all of
them (Account Nos. 1 to 4) are maintained in the same right and capacity. The total amount
insured cannot exceed P500,000.00.
Of the total balance of P 900,000.00, the amount insured is P 500,000.00 and the
uninsured amount is P 400,000.00.
115
SINGLE /”ITF”/ “BY” ACCOUNTS
Juan Dela Cruz is the principal owner of three accounts (i.e., Account Nos. 1, 3 & 4). As these are maintained
in the same right and capacity, these accounts will be consolidated.
The single account (Account No. 1) is under his name alone and the other two are “By” accounts (Account
Nos. 3 and 4) which are owned by him as the PRINCIPAL DEPOSITOR or BENEFICIAL OWNER while Maria
Dela Cruz and Pedro Dela Cruz ACTED AS HIS AGENTS only. Thus, the total insured amount payable to Juan
Dela Cruz is P 500,000.00 and the uninsured amount is P700,000.00.
Antonio Dela Cruz on the other hand has only one account (Account No. 2), an “ITF” account in which
Antonio is the PRINCIPAL OR BENEFICIAL OWNER and Juan acted as AGENT. Thus, Antonio Dela Cruz is
entitled to a separate deposit insurance of P 400,000.00 for his savings deposit.
116
JOINT ACCOUNTS
 A joint account regardless of whether the conjunction ‘and,’ ‘or,’
‘and/or’ is used, shall be insured separately from any individually-
owned deposit account: Provided, That
(1) 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, and
(2) If the account is held by a juridical person or entity jointly
with one or more natural persons, the maximum insured deposit
shall be presumed to belong entirely to such juridical person or
entity: Provided, further, That the aggregate of the interests of each
co-owner over several joint accounts, whether owned by the same
or different combinations of individuals, juridical persons or entities,
shall likewise be subject to the maximum insured deposit of Five
hundred thousand pesos (P500,000.00):
117
JOSE, PILAR AND ANITA
as depositors of the closed PALUGI BANK
Deposit Deposit Maximum Jose’s Pilar’s Anita’s
Balanc Share Insurance Share in Share in Share in
Cover max. max. max.
e Insurance Insurance Insurance
cover cover cover
600 600 500 500 n/a n/a

1. Jose Individual
2. Jose Joint
Accounts
2.1 Jose and / or Pilar 500 250 500 250 250 0
2.2 Jose and Pilar 800 400 500 250 250 0
2.3 Jose or Anita 600 300 500 250 0 250
Total DEPOSIT 2,500 1,250 650 300
Total Insured deposit 1,750 1,000 500 250
Total Uninsured Deposit 750 250 150 50
118
Jose’s total share is P1,250,000 but his maximum insurance cover is only P1,000,000.00
--P500,000 for his individual account and another P500,000.00 for all his joint accounts.
The P250,000 excess of P500,000 is part of his uninsured deposit which must be
claimed during the liquidation proceedings of the bank.
 SUMMARY (IN THOUSANDS OF PESOS)
Total Share in Insured Uninsured

Deposit Insurance Deposit Deposit
Share Cover
Jose 1550 1250 1000 250
Pilar 650 500 500 150
Anita 300 250 250 50
______ _____ ______
Total 2,500 1750 450
119
“Access Devices Regulation Act
of 1998”
Republic Act No. 8484
120
What is an “Access Device”?
 It is any card, plate, code, account number,

electronic serial number, personal
identification number, or other
telecommunications service, equipment, or
instrumental identifier, or other means of
account access that can be used to obtain
money, good, services, or any other thing of
value or to initiate a transfer of funds (other
than a transfer originated solely by paper
instrument). It includes a credit card.
121
What is a “credit card”?
 It is any card, plate, coupon book, or

other credit device existing for the
purpose of obtaining money, goods,
property, labor or services or any thing of
value on credit.
122
What are the information required to be declared in
credit card application and solicitation?
Any application to open a credit card account for any person

under an open-end credit plan or a solicitation to open such
an account, either by mail, telephone or other means, shall
disclose in writing or orally, as the case may be, the following
information:
(a) Annual Percentage Rate
 Each annual percentage rate of interest on the amount of
credit obtained by the credit card holder under such credit
plan. Where an extension of credit is subject to a variable
rate, the fact that the rate is variable, and the annual
percentage rate in effect at the time of the mailing.
 Where more than one rate applies, the range of balances to
which each rate applies.
123
What are the information required to be
declared in credit card application and
solicitation?
(b) Annual and other Fees
 Any annual fee, other periodic fee, or membership fee imposed for the
issuance or availability of a credit card, including any account
maintenance fee or any other charge imposed based on activity or
inactivity for the account during the billing cycle.
 Any minimum finance charge imposed for each period during which
any extension of credit which is subject to a finance charge is
outstanding (a “finance charge” represents the amount to be paid by
the debtor incident to the extension of credit such as interest or
discounts, collection fees, credit investigation fees, and other service
charges).
 Any transaction charge imposed in connection with use of the card to
purchase goods or services.
 Any fee, penalty or surcharge imposed for the delay in payment of an
account. (a “penalty charge” means such amount, in addition to
interest, imposed on the credit card holder for non-payment of an
account within a prescribed period).
124
What are the information required to be
declared in credit card application and
solicitation?
(c) Balance Calculation Method — the name or a detailed explanation of the
balance calculation method used in determining the balance upon which
the finance charge is computed.
(d) Cash Advance Fee — any fee imposed for an extension of credit in the
form of cash.
(e) Over-the-Limit-Fee — any fee imposed in connection with an extension of
credit in excess of the amount of credit authorized to be extended with
respect to such amount. In case the application or solicitation to open a
credit card account for any person under an open-end consumer credit
plan be made through catalogs, magazines, or other publications, the
following additional information shall be disclosed:
125
What are the information required to be declared in
credit card application and solicitation?
1) A statement, in a conspicuous and prominent location on the

application or solicitation, that,
 the information is accurate as of the date the application or
solicitation was printed;
 the information contained in the application or solicitation is
subject to change after such date;
 the applicant should contact the creditor for information on any
change in the information contained in the application or
solicitation since it was printed;
(2) The date the application or solicitation was printed; and
(3) In a conspicuous and prominent location on the application or
solicitation, a toll free telephone number or mailing address which
the applicant may contact to obtain any change in the information
provided in the application or solicitation since it was printed.
126
127
Overview of Anti-MONEY
LAUNDERING act
RA 9160 as amended by RA 9194, RA

10167 and most recently RA 10365 (signed
into law 15 February 2013)
128
129
Why the Law?
 The Philippines , while striving to sustain

economic development and poverty alleviation
through, among others, corporate governance and
public office transparency, must contribute its
share and play a vital role in the global fight
against money laundering. Hence, the compelling
need to enact responsive anti-money laundering
legislation in order to establish and strengthen an
anti-money laundering regime in the country
which will not only increase investor’s confidence
but also ensure that the Philippines is not used as
a site to launder proceeds of unlawful activities.
130
History of the Act
 Republic Act No. 9160 otherwise known as The Anti-

Money Laundering Act of 2001 was signed into law on
September 29, 2001 and took effect on October 17,
2001 . The Implementing Rules and Regulations took
effect on April 2, 2002 . On March 7, 2003 , R.A. No.
9194 (An Act Amending R.A. No. 9160) was signed
into law and took effect on March 23, 2003 . The
revised Implementing Rules and Regulations took
effect on September 7, 2003.
 Two additional amendatory laws have been enacted:
Republic Act No. 10167, RA 10365 and most recently,
Republic Act No. 10927. It is one of the most
dynamic statutes in Philippine history, constantly
reviewed and updated in order to cover emerging
trends and patterns in financial crimes.
131
Significant Amendments
to the Original Law
 Lowers the threshold amount for single covered transactions (cash
or other equivalent monetary instrument) from P4M to
P500,000.00 within one (1) banking day.
 Expands the reporting requirements to include the reporting of

suspicious transactions regardless of the amount involved
 Authorizes AMLC to inquire into or examine any particular deposit

or investment, with any banking institution or non-bank financial
institution and their subsidiaries and affiliates upon order of any
competent court in cases of violation of this Act, when it has been
established that there is probable cause that the deposits or
investments are related to an unlawful activity. However, no court
order is required in cases involving unlawful activities of kidnapping
for ransom, narcotics offenses and hijacking, destructive arson and
murder, including those perpetrated by terrorists against non-
combatant persons and similar targets.
132
Significant Amendments
to the Original Law
 Authorizes the Bangko Sentral ng Pilipinas to inquire into or examine any
deposit or investment with any banking institution or non-bank financial
institution and their subsidiaries and affiliates when the examination is
made in the course of a periodic or special examination, in accordance
with the rules of examination of the BSP to ensure compliance with R.A.
No. 9160, as amended.
 Transfers the authority to freeze any money/property from the AMLC to

the Court of Appeals.
133
Money Laundering Offenses
(amended under RA 10365)
134
Money Laundering Offenses (amended
under RA 10365)
 Under Section 4, Money laundering is committed by
any person, who, knowing that any monetary
instrument or property represents, involves, ore
relates to the proceeds of any unlawful activity:
◦ Transacts monetary Instrument or Property;
◦ Converts, transfers, disposes of, moves, acquires, possesses
or used said monetary instrument or property;
◦ Conceals or disguises the true nature, source, location,
disposition, movement or ownership of or rights with
respect to said monetary instrument or property;
◦ Attempts or conspires to commit money laundering
offenses referred to in Paragraphs (A), (B), or (C);
135
Money Laundering Offenses (amended
under RA 10365)
◦ Aids, abets, assists in or counsel the commission
of the money laundering offenses referred to in
paragraphs (A), (B) or (C) above; and
◦ Performs or facilitates to perform any act as a
result of which he facilitates money laundering as
referred to in paragraphs (A), (B), or (C) above.
◦ Money laundering is also committed by any
covered person, who, knowing that a suspicious
transaction is required under this Act to be
reported to the Anti-Money Laundering Council
(AMLC), fails to do so.
136
Predicate Crimes/Unlawful Activities (expanded
under RA 10365)
 Unlawful Activity is the offense which generates

dirty money. It is commonly called the predicate
crime. Prosecution or conviction for a predicate
crime is not a condition precedent to
prosecution for the crime of money laundering.
The two are independent from one another.
Predicate crime/unlawful activity refers to any act
or omission or series or combination thereof
involving or having direct relation to the
following:
137
under RA 10365)
 Kidnapping for ransom
 Drug trafficking and related offenses
 Graft and corrupt practices
 Plunder
 Robbery and Extortion
 Jueteng and Masiao
 Piracy
 Qualified theft
 Swindling
 Smuggling
 Violations under the Electronic Commerce Act of 2000
138
under RA 10365)
 Hijacking; destructive arson; and murder, including those perpetrated by
terrorists against non-combatant persons and similar targets
 Fraudulent practices and other violations under the Securities Regulation
Code of 2000
 Terrorism and conspiracy to commit terrorism as defined and penalized
under sections 3 and 4 of Republic Act No. 9372;
 Financing of terrorism under section 4 and offenses punishable under
Sections 5, 6, 7 and 8 of Republic Act No. 10168, and otherwise known as
the Terrorism Financing Prevention and Suppression act. Of 2012;
 Bribery under articles 210, 211 and 211-A of the Revised Penal Code, as
amended, and corruption of public officers under article 212 of the
Revised Penal Code, as amended;
 Frauds and Illegal Exactions and Transactions under articles 213, 214, 215
and 216 of the Revised Penal Code, as amended;
 Malversation of Public Funds and Property under Articles 217 and 222 of
the Revised Penal Code, as amended;
 Forgeries and Counterfeiting under Articles 163, 166, 167, 168, 169 and
176 of the Revised Penal Code, as amended;
139
under RA 10365)
 Violations of Sections 4 to 6 of Republic Act No. 9208, otherwise
known as the anti-Trafficking in Persons act of 2003;
 Violations of Sections 78 to 79 of Chapter IV, of Presidential
Decree No. 705, otherwise known as the Revised Forestry Code of
the Philippines, as amended;
 Violations of Sections 86 to 106 of Chapter VI, of Republic Act No.
8550, otherwise known as the Philippine Fisheries Code of 1998;
 Violations of Sections 101 to 107 and 110 of Republic Act No.
7942, otherwise known as the Philippine Mining Act of 1995;
 Violations of Sections 27(c), (e), (f), (g) and (i) of Republic Act No.
9147, otherwise known as Wildlife Resources Conservation and
Preservation act;
 Violation of Section 7(b) of Republic Act No. 9072, otherwise
known as the National Caves and Cave Resources Management
Protection Act;
 Violation of Republic Act No. 6539, otherwise known as the Anti-
Carnapping of 2002, as amended;
140
under RA 10365)
 Violation of Presidential Decree No. 1612, otherwise known as the Anti-
Fencing Law;
 Violation of Section 6 of Republic Act No. 8042, otherwise known as the
Migrant Workers and Overseas Filipinos Act of 1995, as amended by
Republic Act No. 10022;
 Violation of Republic Act No. 8293, otherwise known as the Intellectual
Property Code of The Philippines;
Anti-Photo and Video Voyeurism Act of 2009;
Anti-Child Pornography Act of 2009;
 Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12, and 14 of Republic
Act No. 7610, otherwise known as the Special Protection of Children
Against, Abuse, Exploitation and Discrimination;
 Fraudulent practices and other violations under Republic act No. 8799,
otherwise known as the Securities Regulation Code of 2000; and
 Felonies or offenses of similar nature that are punishable under the penal
laws of other countries.
141
Other Offenses/Penalties
 Failure to keep records is committed by any responsible official or employee of a
covered institution who fails to maintain and safely store all records of all
transactions of said institution, including closed accounts, for five (5) years from the
date of the transaction/closure of the account. Penalty is 6 months to 1 year
imprisonment or a fine of not less than P100,000 but not more than P500,000, or
both.
 Malicious reporting is committed by any person who, with malice or in bad faith,
reports/files a completely unwarranted or false information relative to money
laundering transaction against any person. Penalty is 6 months to 4 years
imprisonment and a fine of not less than P100,000 but not more than P500,000, at
the discretion of the court. The offender is not entitled to avail the benefits of the
Probation Law.
◦ If the offender is a corporation, association, partnership or any juridical person,
the penalty shall be imposed upon the responsible officers, as the case may be,
who participated in, or allowed by their gross negligence, the commission of the
crime.
◦ If the offender is a juridical person, the court may suspend or revoke its license.
◦ If the offender is an alien, he shall, in addition to the penalties prescribed, be
deported without further proceedings after serving the penalties prescribed.
◦ If the offender is a public official or employee, he shall, in addition to the
penalties prescribed, suffer perpetual or temporary absolute disqualification from
office, as the case may be.
142
Breach of confidentiality.
 When reporting covered or suspicious transactions to the
AMLC, covered institutions and their officers/employees are
prohibited from communicating directly or indirectly, in any
manner or by any means, to any person/entity/media, the fact
that such report was made, the contents thereof, or any
other information in relation thereto. In case of violation
thereof, the concerned official and employee of the covered
institution shall be criminally liable. 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 a breach of confidentiality published or reported by
media, the responsible reporter, writer, president, publisher,
manager and editor-in-chief shall also be held criminally liable.
Penalty is 3 to 8 years imprisonment and a fine of not less
than P500,000 but not more than P1M.
143
Covered Persons (amended and expanded
under RA 10365)
Covered Institutions are those mandated by the AMLA
to submit covered and suspicious transaction reports
to the AMLC. These are:
 Banks and all other entities, including their subsidiaries
and affiliates, supervised and regulated by the Bangko
Sentral ng Pilipinas
 Insurance companies and all other institutions
supervised or regulated by the Insurance Commission
 Securities dealers, pre-need companies, foreign
exchange corporations and other entities supervised
or regulated by the Securities and Exchange
Commission
144
Covered Persons (amended and
expanded under RA 10365)
 Jewelry dealers in precious metals, who, as a business, trade in
precious metals, for transactions in excess of One million Pesos
(P1,000,000.00)
 Jewelry dealers in precious stones, who, as a business, trade in
precious stones, for transactions in excess of One million Pesos
(P1,000,000.00)
 Company service providers which, as a business, provide any of the
following services to third parties:
◦ Acting as a formation agent of juridical persons;
◦ Acting as (or arranging for another person to act as) a director or a
corporate secretary of a company, a partner of a partnership, or a
similar person in relation to other juridical persons;
◦ Providing a registered office, business address or accommodation,
correspondence or administrative address for a company, a partnership
or any other legal person or arrangement; and
 Acting as (or arranging for another person to act as) a nominee
shareholder for another person:
145
 Persons who provide any of the following services:
◦ Managing of client money, securities or other assets;
◦ Management of bank, savings or securities accounts;
◦ Organization of contributions for the creation, operation or
management of companies; and
◦ Creation, operation of juridical persons or arrangements and buying
and selling business entities.
 “Notwithstanding the foregoing, the term ‘covered persons’ shall

exclude lawyers and accountants acting as independent legal
professionals in relation to information concerning their clients or
where disclosure of information would compromise client
confidences or the attorney-client relationship: Provided, That these
lawyers and accountants are authorized to practice in the
Philippines and shall continue to be subject to the provisions of
their respective codes of conduct and/or professional responsibility
or any of it’s amendments.”
146
 Casinos
 Including internet and ship-based casinos
147
Covered Transactions (as amended by
RA 9194 & 10927)
 Covered transactions are single transactions
in cash or other equivalent monetary
instrument involving a total amount in excess
of Five Hundred Thousand (P500,000) Pesos
within one (1) banking day
 Casino cash transaction in the amount in
excess of Five Million Pesos (P5,000,000) or
equivalent in any other currency
148
Suspicious Transactions (as amended by RA 9194)
Suspicious transactions are transactions with covered institutions,

regardless of the amounts involved, where any of the following
circumstances exists:
 there is no underlying legal/trade obligation, purpose or economic
justification; the client is not properly identified;
 the amount involved is not commensurate with the business or
financial capacity of the client;
 the transaction is structured to avoid being the subject of reporting
requirements under the AMLA;
 there is a deviation from the client’s profile/past transactions;
 the transaction is related to an unlawful activity/offense under the
AMLA;
 and transactions similar or analogous to the above.
149
Freezing of Monetary Instrument or
Property (as amended by RA 10167 and
RA 10365)
The Court of Appeals, upon a verified application ex parte (without notice to
the other party) by the AMLC and after determination that probable cause
exists that any monetary instrument or property is in any way related to
an unlawful activity, may issue a freeze order which shall be effective
immediately. The freeze order shall be for a period of 20 days.
Within that 20 day-period, CA shall hear, with notice to parties,
propriety/necessity of lifting, modifying or extending the freeze order
If extended, total period shall not exceed six (6) months;
Ipso facto lifted if no case is filed within six (6) months against owner of
frozen account
Freeze order limited to the amount equal to proceeds of predicate crime
 Without prejudice to APA issued by RTC
150
Asset Preservation Order
 A.M. No. 05-11-04-SC~Rule of Procedure in Cases of Civil
Forfeiture, Asset Preservation, and Freezing or Monetary
Instrument, Property, or Proceeds Representing, Involving
Offense Under Republic Act No. 9160, As Amended
 Issued by RTC upon ex parte verified petition
 Forbids any transaction, withdrawal, deposit, transfer,
removal, conversion, concealment or other disposition of the
subject monetary instrument, property, or proceeds.
 APO shall be effective for a period of twenty (20) days from
the respective dates of service to respondent or any person
acting in his behalf, and upon each covered institution or
government agency
151
Authority to Inquire into Bank Deposits
(as amended by RA 10167)
Notwithstanding the provisions of R.A. No. 1405, as amended, R.A.
No. 6426, as amended, R.A. 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/investments are involved/related to an unlawful activity as
defined in Sec. 3(i) of the AMLA or a money laundering offense
under Sec. 4 thereof;
except that no court order shall be required in cases involving
kidnapping for ransom; drug trafficking and related offenses;
and hijacking, destructive arson and murder, including those
perpetrated by terrorists against non-combatant persons and
similar targets.
152
Civil Forfeiture in the Regional
Trial Court
 Who Files – The Republic of the Philippines, through the Anti-Money
Laundering Council, represented by the Office of the Solicitor
General, may institute actions for civil forfeiture and all other
remedial proceedings in favor of the State of any monetary
instrument, property, or proceeds representing, involving, or
relating to an unlawful activity or a money laundering offense.
 Where? – A petition for civil forfeiture shall be filed in any regional
trial court of the judicial region where the monetary instrument,
property, or proceeds representing, involving, or relating to an
unlawful activity or to a money laundering offense are located;
 If all or any portion of the monetary instrument, property, or
proceeds is located outside the Philippines, the petition may be
filed in the regiona1 trial court in Manila or of the judicial region
where any portion of the monetary instrument, property, or
proceeds is located, at the option of the petitioner.
153
LAW ON SECRECY OF BANK DEPOSITS
(Republic Act No. 1405 as amended, in rel. to R.A. 6426)
154
PURPOSES (Sec. 1)
 to encourage savings in banks

 to prevent private hoarding of money
155
SCOPE
 All deposits of whatever nature with
banks or banking institutions in the
Philippines including investments in bond
issued by the government of the
Philippines, its political subdivisions and its
instrumentalities, are considered
absolutely confidential and may not be
examined, inquired or look into by any
person, government official, bureau or
office (Sec. 2 R. A. No. 1405)
156
PROHIBITED ACTS (Secs. 2-3)
◦ The examination and inquiry or
looking into deposits
◦ The disclosure by any bank official

or employee to any unauthorized
person
157
E XCEPTIONS:
 When there is written permission of the
depositor or investor;
 Impeachment cases;
 Upon the order of competent court in cases of
bribery or dereliction of duty of public officials;
 Upon order of competent court in cases where
the money deposited or invested is the subject of
litigation;
 Upon the order of competent court or tribunal
in cases involving unexplained wealth under the
Anti-Graft and Corrupt Practices Act, R.A No.
3019
158
E XCEPTIONS:
 Upon inquiry by the Commissioner of Internal revenue for
the purpose of determining the net estate of a deceased
depositor;
 Upon the order of competent court or in proper cases by
the Anti-Money Laundering Council where there is probable
cause of money laundering and in some instances even
without the court order. (Sec. 11, R.A No. 9160);
 Disclosure to the treasurer of the Philippines for dormant
deposits for atleast (10) ten years under the ,Unclaimed
Balances Act(Sec.2 R.A. No. 3936);
 Report of banks to Anti-Money Laundering council of
covered and/or suspicious transactions ( Sec. 9 R.A No. 9160
as amended);
 Upon order of the Court of Appeals, examination by law
enforcers in terrorism cases under Human security Act of
2007 ( Sec. 27 and 28, R.A. No. 8372).
159
FOREIGN CURRENCY
DEPOSITS ACT
(Republic Act No. 6426, as amended)
160
161
GSIS V. CA, 8 June 2011
These two laws both support the confidentiality of bank deposits.
There is no conflict between them. Republic Act No. 1405 was
enacted for the purpose of giving encouragement to the people to
deposit their money in banking institutions and to discourage
private hoarding so that the same may be properly utilized by banks
in authorized loans to assist in the economic development of the
country.It covers all bank deposits in the Philippines and no
distinction was made between domestic and foreign deposits. Thus,
Republic Act No. 1405 is considered a law of general application.
On the other hand, Republic Act No. 6426 was intended to encourage
deposits from foreign lenders and investors. It is a special law
designed especially for foreign currency deposits in the Philippines.
A general law does not nullify a specific or special law. Generalia
specialibus non derogant. Therefore, it is beyond cavil that Republic
Act No. 6426 applies in this case.
162
PRIVILEGES
 ABSOLUTE CONFIDENTIALITY
◦ GSIS v. CA, 8 June 2011
◦ China Banking v. CA, 511 S 110
◦ Intengan v. CA, 377 S 63
 NUMBERED ACCOUNTS
 RATE OF INTEREST
 TAXES
 EXEMPTION FROM COURT ORDER OR
PROCESS
◦ Salvacion v. Central Bank, 278 S 27
◦ Benedicto v. CA, 4 September 2001
163
EXCEPTIONS TO ABSOLUTE
CONFIDENTIALITY
 When there is written consent of depositor

under Sec. 8 of the Foreign Currency deposit
Act, and:
 Under Sec. 11 of the Anti- Money Laundering
Act;
 Under sec. 27 and 28 of the Human Security
Act.
164
Thank you very much
and good luck!
165

BSP Regulates Banking Industry to Protect Depositors

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BSP Regulates Banking Industry to Protect Depositors

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LEGAL

AND REGULATORY FRAMEWORK

Prof. Maria Lulu G. Reyes, Llb, LlM

Simex International (Manila), Inc. vs. CA 183 SCRA 360 (1990)

• P 13.2 trillion combined assets;

• Entities engaged in the lending of funds

• Entities engaged in the borrowing of

Universal Commercial Thrift Cooperative Islamic

General General Thrift Banks Rural Banking Cooperative Charter of Al

PALUGI Bank started operations in 2000. After

By 2014, however, the regulators started to

When the Monetary Board eventually ordered

2. Fit and Proper Rule

Either directly (as a department within the bank) or indirectly

This is absolutely prohibited for an ordinary commercial

Area of investment by Universal Bank by Commercial Bank

A thrift or rural bank Up to 100% of the equity Up to 100% of the equity

Quasi-bank Up to 40% of the equity Up to 40% of the equity

total investment 1) in allied and non-allied total investment 1) in allied enterprises

3. Fit and Proper Rule

Even if a parent corporation, partnership, association, entity or

THE CASE OF PALUGI

Order the placement Order the

Basic effect of conservatorship

1. Preserve the assets of the bank/QB

Let us assume MB issued an Order placing PALUGI

Case should be dismissed

When MB is satisfied When MB determines that

Twelve months have lapsed and PALUGI

Grounds for Receivership

Suppose MB summarily placed PALUGI

Immediately upon receipt of Order of

“One can just imagine the dire consequences of a

 Articles of Incorporation/By-Laws of bank are suspended.

 The powers, functions and duties, as well as all allowances,

What can the majority stockholders assail?

Because of the inability of PALUGI Bank to serve its depositors, a

• Only the MB can place a bank under

•An unpaid time deposit in a bank is not a preferred claim

On bank’s deposit liabilities to depositors

When Jose KITA learned about the order of MB

 Rehabilitation suspends a pending liquidation. To allow

Upon examination of the books and records of

First Overall Objective

Second Overall Objective

Nature of Liquidation Proceedings

• Not an ordinary civil action but a special proceeding

Payment of claims and

 When the proper RTC gives due course to the PAL, it

A claim need not be initially disputed in a court or agency before it is

A liquidation court has exclusive jurisdiction to resolve

• Assets available for distribution

First to be paid: Administrative expenses

Republic vs. Peralta (G.R. No. L-56568, May 20, 1987)

Republic vs. Peralta (G.R. No. L-56568, May 20, 1987)

Republic vs. Peralta (G.R. No. L-56568, May 20, 1987)

4. Payment of Claims (preference of taxes)

4. Payment of Claims (preference of taxes)

600 600 500 500 n/a n/a

2.1 Jose and / or Pilar 500 250 500 250 250 0

2.2 Jose and Pilar 800 400 500 250 250 0

2.3 Jose or Anita 600 300 500 250 0 250

Total DEPOSIT 2,500 1,250 650 300

____ _ ____