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REVIEWER IN COMMERCIAL LAW Table of Contents
BANKING LAWS
CHAPTER I. GENERAL BANKING
LAW OF 2000 (RA 8791)
I. General Concepts
A.Defnition
B.Nature of Business
II.Classifcation of Banks
III.Authority of the BSP over
Banks
A.Regulatory Powers
B.Supervisory Powers
C.Policy Direction
IV.Organization of Banks
A.Conditions for Organization
B.Ownership of Banks
C.Directors and Ofcers
V.Operation of Banks
A.Core Banking
B.Operations of a KB and UB
C.Prudential Measures
D.Other Functions
E.Prohibited Functions
F.Some Requirements for the
Operation of Banks
VI.Foreign Banks
132
132
132
132
133
133
133
133
133
134
134
134
135
137
137
139
139
142
145
146
147
CHAPTER II. THE NEW CENTRAL
BANK ACT (RA 7653)
I. General Provision
II.Organization of the BSP
A.Monetary Board
B.Governor/Deputy Governor
III.Operation of the BSP
A.Supervision and Examination
B.Handling of Banks in Distress
C.Monetary Administration
D.As Banker and Financial
Adviser of the Government
E.Other Operations
F.Prohibited Operations
149
149
149
149
150
150
150
150
152
156
157
157
CHAPTER III. LAW ON SECRECY
OF BANK DEPOSITS (RA 1405)
I. Purposes
II.Coverage
III.Prohibited Acts
IV.Exceptions
V.Penalty
159
159
159
159
159
160
CHAPTER IV. TRUTH IN LENDING
ACT (RA 3765)
I. Policy
II.Disclosure Statement
III.Coverage
IV.Sanctions
161
161
161
161
161
CHAPTER V. ANTI-MONEY
LAUNDERING ACT (RA 9160 as
amended by RA 9194)
I. Policies
II.Coverage
III.Obligations of Covered
Institutions
A.Customer Identifcation
B.Record Keeping
C.Reporting of Covered and
Suspicious Transactions
IV.Freeze Order
V.Forfeiture Provisions
VI.Anti-Money Laundering Council
162
162
162
163
163
163
163
164
164
165
CHAPTER VI. FOREIGN
CURRENCY DEPOSIT ACT (RA
6426)
I. Confdentiality
II.Privileges
167
167
167
REVIEWER IN COMMERCIAL LAW Chapter I. General Banking Law of 2000
Banking Laws
FACULTY-STUDENT EDITORIAL BOARD AND LECTURES COMMITTEE
Prof. Gwen Grecia-de Vera
FACULTY EDITOR
ACADEMICS COMMITTEE
Samantha Poblacion
DIRECTOR FOR ACADEMICS
EDITOR-IN-CHIEF
Rania Joya
DEPUTY DIRECTOR FOR ACADEMICS
LAYOUT HEAD
--------
Kae Guerrero
PRINTING AND DISTRIBUTION
COMMERCIAL LAW
Krizelle Poblacion
Christina Ortua
SUBJECT EDITORS
CORPORATION LAW
Rency Corrige
LEAD WRITER
Ben Evangelista
Raissa Villanueva
WRITERS
LECTURES
Edel Cruz
HEAD
Jason Mendoza
DEPUTY HEAD
Malds Menzon
LOGISTICS, HR
--------
Leo Zulueta
LOGO, COVER AND TEMPLATE DESIGN
Chapter I. General Banking Law of
2000 (RA 8791)
I. GENERAL CONCEPTS
A. DEFINITION
B.NATURE OF BUSINESS
II.CLASSIFICATION OF BANKS
III.AUTHORITY OF THE BSP OVER BANKS
A. REGULATORY POWERS
B.SUPERVISORY POWERS
C.POLICY DIRECTION
IV.ORGANIZATION OF BANKS
A. CONDITIONS FOR ORGANIZATION
B.OWNERSHIP OF BANKS
C.DIRECTORS AND OFFICERS
V. OPERATION OF BANKS
A. CORE BANKING
B.OPERATIONS OF A KB AND UB
C.PRUDENTIAL MEASURES
D.OTHER FUNCTIONS
E.PROHIBITED FUNCTIONS
F. SOME REQUIREMENTS FOR THE
OPERATION OF BANKS
VI.FOREIGN BANKS
Policy of the Law: To promote and
maintain a stable and efcient banking and
fnancial system that is globally competitive,
dynamic and responsive to the demands of
a developing economy. (Sec. 2)
I.General Concepts
A.Defnition
Banks shall refer to entities engaged in the
lending of funds obtained in the form of
deposits. (Sec. 3.1)
As opposed to Quasi-banks:
Quasi-banks (QB) refer to entities engaged
in the borrowing of funds through the
issuance, endorsement or assignment with
recourse or acceptance of deposit
substitutes for purposes of relending or
purchasing of receivables and other
obligations. (last paragraph of Sec. 4)
B.Nature of Business
Imbued with Public Interest:
The banking industry is declared as
indispensable to the national interest. (Sec.
22)
Fiduciary Nature of Banks
Failure on the part of the bank to
satisfy the degree of diligence
required of banks may warrant the
award of damages
Under Sec. 2, the degree of diligence
is high standards of integrity and
performance, however, SC decisions
has not been uniform as to the type
of diligence required
Highest degree of care (BPI vs.
CA and Napiza 2000)
Higher than diligence of a good
father of a family (CBTC vs. CA
2003)
Highest degree of care and
diligence (Samsung Construction
vs FEBTC 2004)
notwithstanding the amount of
diligence required, a bank is not
expected to be infallible (Prudential
Bank vs. CA 2000)
Simex International vs. CA
183 SCRA 360 (1990):
As a business afected with public interest and
because of the nature of its functions, the bank
is under obligation to treat the accounts of its
deposits with meticulous care, always having in
mind the fduciary nature of their relationship.
II.Classifcation of Banks (Sec. 3.2)
Universal Banks. (UB)
These are those that used to be called
expanded commercial banks and whose
operations are now primarily governed by
the GBL. They can exercise the powers of
an investment house and invest in non-
allied enterprises. They have the highest
capitalization requirement.
Commercial Banks. (KB)
These are ordinary or regular commercial
banks, as distinguished from a universal
bank. They have a lower capitalization
requirement than a UB and cannot exercise
the powers of an investment house and
invest in non-allied enterprises.
Thrift Banks.
These are
a.savings and mortgage banks,
b.stock savings and loan associations,
and
c.private development banks
Cooperative Banks.
These are banks organized primarily to
make fnancial and credit services available
to cooperative banks.
Islamic Banks.
These are banks whose business dealings
and activities are subject to the basic
principles and rulings of Islamic Sharia,
such as the Al Amanah Islamic Investment
Bank of the Philippines which was created
by RA 6848
Other classifcations of banks
as determined by the Monetary Board.
III.Authority of the BSP Over Banks
A. Supervision over operations and
activities
a. Issuance of rules of conduct or standards
of operation for uniform application to all
institutions or functions covered;
b. Conduct of examination to determine
compliance with laws and regulations;
c. Overseeing compliance with laws and
regulations;
d. Regular investigation (not oftener than
once a year) to determine whether an
institution is conducting its business on
safe or sound basis;
e. Inquiring into solvency and liquidity of
the institution
f. Enforcing prompt corrective action. (Sec.
4)
B. Examination by BSP
-The BSB shall, when examining a bank,
have the authority to examine an enterprise
which is wholly or majority-owned or
controlled bank (Sec. 7)
C. Authority over Quasi-Banks and Trust
Entities
-BSP shall have supervision over operations
of and exercise regulatory powers over quasi
banks, trust entities and other fnancial
institutions which under special laws are
subject to BSP Supervision.
D. BSP Powers on Policy, Direction;
Ratios, Ceilings and Limitations
1. BSP shall provide policy direction in the
areas of money, banking and credit
-the MB may prescribe rations, ceilings,
limitations, or other forms of regulation on
the diferent types of accounts and
practices of banks and quasi-banks
-this should conform to internationally
accepted standards
2. MB may exempt particular categories of
transactions from such ratios, ceilings and
limitations, but not limited to exceptional
cases, or to enable a bank or quasi-bank
under rehabilitation or during a merger or
consolidation, to continue in business with
safety to its creditors, depositors and
general public. (Sec. 5)
IV.Organization of Banks
A. Conditions for Organization
Conditions for organization:
1.Entity must be a stock corporation and
must only issue par value stocks;
2.Its funds must be obtained from the
public, (20 or more persons); and
3.Minimum capital requirements
prescribed by the MB for each category
of banks must be satisfed (Sec. 8, Sec.
9)
RULE: Prohibition on Treasury Stocks,
unless:
1.Authorized by the MB
2.The stock so purchased or acquired
shall within 6 months from the time the
of its purchase or acquisition, be sold or
disposed of at a public or private sale.
(Sec. 10)
Shares of the parent bank held by a
subsidiary fnancial allied undertaking in a
consolidated statement of condition are
considered treasury shares. (BSP Circular
No. 280 dated March 29, 2001, as
amended)
No BSP certifcate of authority, no SEC
registration of any bank (Sec. 14)
Requirements for issuance of certifcate
of authority:
1.All requirements of existing laws and
regulations have been complied with
2.The public interest and economic
conditions justify the authorization
3.The amount of capital, the fnancing,
organization, direction and
administration, as well as the integrity
and responsibility of the organizers and
administrators reasonably assure the
safety of deposits and the public
interest (Sec. 14.1 to 14.3)
B.Ownership of Banks
Stockholdings restriction:
a.Filipinos and domestic non-bank
corporation, individually, may own up to
40% of the voting stock of a domestic
bank
b.Foreign individuals and non-bank
corporations, aggregately, may own or
control up to 40% of the voting stock of
a domestic bank. (Sec. 11; BSP
Circular No. 256, dated August 15,
2000)
However, under Sec. 8 of RA 7721,
Philippine corporations whose shares of
stock are listed in the PSE or are of long
standing for at least 10 years shall have the
right to acquire, purchase or own up to
60% of the voting stock of a domestic bank.
Grandfather rule:
The citizenship of the corporation which is
a stockholder in a bank shall follow the
citizenship of the controlling stockholders of
the corporation, irrespective of the place of
incorporation. (Sec. 11)
Controlling stockholders mean individuals
holding more than 50% of the voting stock
of the corporate stockholder of the bank.
(BSP Circular No. 256)
Full disclosure of stockholdings of family
groups or related interests:
Family group means individuals related to
each other within the fourth degree of
consanguinity or afnity, legitimate or
common-law (Sec. 12)
Related interest means two or more
corporations owned or controlled by the
same family group or same group of
persons. (Sec. 13)
Board of Directors: At least 5, and a
maximum of 15 members of the board of
directors of bank, 2 of whom shall be
independent directors. (Sec. 15)
Independent Director: shall mean a
person other than an ofcer or employee of
the bank, its subsidiaries or afliates or
related interests. (Sec. 15)
In the case of a bank merger or
consolidation, the number of directors shall
not exceed 21. (Sec. 17)
C.Fit and Proper Rule
To maintain the quality of bank
management and to aford better protection
to depositors and the public in general, the
Monetary Board may
a.Prescribe, pass upon and review the
qualifcations and disqualifcations of
individuals elected or appointed bank
directors or ofcers
b.Disqualify, suspend or remove any bank
director or ofcer who commits or omits
an act which render him unft for the
position. (Sec. 16)
Prohibition on Public Ofcials as ofcers
of banks:
RULE: No appointive or elective ofcial
whether full-time or part-time shall at the
same time serve as ofcer of any private
bank.
EXCEPTIONS:
a.otherwise provided in the Rural Banks
Act,
b.in cases where such service is incident
to fnancial assistance provided by the
government or a government-owned or
-controlled corporation to the bank
c.otherwise provided under existing laws
(Sec.19)
Responsibility of directors for corporate
governance:
The board of directors is primarily
responsible for the corporate governance of
the bank/quasibank/trust entity. To ensure
good governance of the bank/quasi-
bank/trust entity, the board of directors
should establish strategic objectives,
policies and procedures that will guide and
direct the activities of the bank/quasi-
bank/ trust entity and the means to attain
the same as well as the mechanism for
monitoring managements performance.
(BSP Circular 283)
PCI Bank vs. CA, 2001
As a general rule, a banking corporation is liable
for the wrongful or tortuous acts and
declarations of its ofcers or agents within the
course and scope of their employment. A bank
holding out its ofcers and agents as worthy of
confdence will not be permitted to proft by the
frauds these ofcers or agents were enabled to
perpetrate in the apparent course of their
employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no
beneft may accrue to the bank therefrom.
When Monetary Board may regulate the
compensation and other benefts of
directors and ofcers:
Only in exceptional cases and when the
circumstances warrant, such as but not
limited to:
1.when a bank is under comptrollership
or conservatorship
2.when a bank is found by the Monetary
Board to be conducting business in an
unsafe or unsound manner
3.when a bank is found by the Monetary
Board to be in an unsatisfactory
fnancial condition. (Sec. 18)
V.Operation of Banks
Banking Days and Hours:
All banks including their branches and
ofces shall transact business on all
working days (Mondays to Fridays, except
holidays) for at least 6 hours a day. (Sec.
21)
Banks or any of their branches or ofces
may open for business on Saturdays,
Sundays or holidays for at least 3 hours a
day; Provided that banks which opt to open
on days other than working days shall
report to the BSP the additional days
during which they or their branches or
ofces shall transact business. (Sec. 21)
Bank Branches:
UBs or KBs may open branches or other
ofces within or outside the Philippines
upon prior approval of the BSP. (Sec. 20)
A bank and its branches and ofces shall
be treated as one unit. (Sec. 20)
Strikes and Lockouts:
Notwithstanding the provisions of any law
to the contrary, any strike or lockout
involving banks, if unsettled after 7
calendar days shall be reported by the BSP
to the Secretary of Labor who may assume
jurisdiction over the dispute or decide it or
certify the same to the NLRC 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. (Sec. 22)
A. Core Banking
1.Deposit Function
Only a UB or KB can accept demand
deposits
Exception: Banks other than a UB or KB
with prior approval of, and subject to such
conditions and rules as may be prescribed
by the Monetary Board (Sec. 33)
Types of Deposits:
1. Time Deposit - Interest rate stipulated
depending on the number of days.
During this period, the money deposited
cannot be withdrawn. High interest
rates.
2. Savings Deposit - Bank pays an
interest rate, but not as high as time
deposits.
3. Demand Deposits/Current Accounts -
No interest is paid by the bank because
the depositor can take out his funds
any time. It is called demand deposit
because the depositor can withdraw the
money he deposited on the very same
day when he deposited it. (Villanueva,
Commercial Law Review, opinion)
Presumption of ownership of deposits:
It is presumed that money deposited in a
bank account belongs to the person in
whose name the deposit account is opened.
BPI v. CA (1994)
A bank is under no duty or obligation to make
an application or set-of against the deposit
accounts of a borrower. To apply the deposit to
the payment of a loan is a privilege, a right of
set-of which the bank has the option to
exercise, but not the obligation.
CA Agro-industrial Dev. Corp. v. CA (1983)
The rent of safety deposit boxes is a special kind
of deposit and cannot be characterized as an
ordinary contract of lease because the full and
absolute possession and control of the deposit
box is not given to the renters. The prevailing
rule is that the relation between the bank
renting out and the renter is that of bailer and
bailee the bailment being for hire and mutual
beneft.
2.Loan Function
Know your customer rule:
Before granting a loan or other credit
accommodation, a bank must ascertain
that the debtor is capable of fulflling its
commitments to the bank. (Sec. 40)
The bank may demand from its credit
applicants a statement of their assets and
liabilities and of their income and
expenditure and such information as may
be prescribed by law or by rules and
regulations of MB to enable the bank to
properly evaluate the credit application
which includes the corresponding fnancial
statements submitted for taxation purposes
to the BIR. (Sec. 40)
Credit enhancement
If the borrower is less than creditworthy,
third persons may enhance his credit by
providing guarantees and other security
devices in favor of the bank. (Morales, The
Philippine General Banking Law, opinion)
If there is material misrepresentation,
the bank may:
a. Terminate any loan or other credit
accommodation granted on the basis of
said statements; and
b.Shall have the right to demand
immediate repayment or liquidation of
the obligation (Sec. 40)
Limit on Loans, Credit Accommodations
and Guarantees:
Real Estate Shall not exceed 75% of the
appraised value of the respective
reas estate security, plus 60% of
the appraised value of the
insured improvements, and
such loans may be made to the
owner of the real estate or to his
assignees
EXC: the Monetary Board
otherwise prescribes (Sec. 37)
Security of
chattels and
intagible
properties
(patents,
trademarks,
tade names,
and
copyrights)
Shall not exceed 75% of the
appraised value of the security,
and such loans and other credit
accommodations may be made
to the title-holder of the chattels
and intangible properties or his
assignees
EXC: the Monetary Board
Grant of Loans:
a.Only in amounts and for the periods of
time essential for the efective
completion of the operations to be
fnanced (Sec. 39)
b.Consistent with safe and sound banking
practices (Sec. 39)
Purpose of Loans:
Purpose must be stated in the application
and in the contract between the bank and
the borrower. (Sec. 39)
Efect of lack of banks prior approval:
The bank shall have the right to terminate
the loan or other credit accommodation and
demand immediate repayment of the
obligation. (Sec. 39)
Amortization on Loans and Other Credit
Accommodations:
a. In case of loans and other credit
accommodations with maturities of more
than 5 years, provisions must be made
for periodic amortization payments, but
such payments must be made at least
annually:
Provided, however, That when the
borrowed funds are to be used for
purposes which do not initially produce
revenues adequate for regular
amortization payments therefrom, the
bank may permit the initial
amortization payment to be deferred
until such time as said revenues are
sufcient for such purpose, but in no
case shall the initial amortization date
be later than 5 years from the date on
which the loan or other credit
accommodation is granted.
b. In case of loans and other credit
accommodations to microfnance sectors,
the schedule of loan amortization shall
take into consideration the projected
cash fow of the borrower and adopt this
into the terms and conditions
formulated by banks.(Sec. 44)
Prepayment of Loans by Borrower:
A borrower may prepay the unpaid balance
of any bank loan and other credit
accommodation:
a.At any time prior to the agreed
maturity date
b.In whole or in part
c.Subject to such reasonable terms and
conditions as may be agreed upon
between the bank and its borrower.
(Sec. 45)
Development Assistance Incentives:
The BSP shall provide incentives to banks
which, without government guarantee,
extend loans to fnance educational
institutions, cooperatives, hospitals and
other medical services, socialized or low
cost housing, local government units and
other activities with social content. (Sec. 46)
B.Operations of a KB and UB
KB UB
Powers a.gen. powers
incident to
corporations
b.all such
powers as
may be
necessary to
carry on the
business of
commercial
banking
(Sec. 29)
a.gen. powers
incident to
corporations
b.all such
powers as
may be
necessary to
carry on the
business of
commercial
banking
c.powers of an
investment
house
d.power to
invest in
non-allied
enterprises
(Sec. 23)
Equity
investments
allied
enterprises
fnancial or
non-fnancial
(Sec. 30)
Allied and non-
allied
enterprises
fnancial or
non-fnancial
(Sec. 24)
Necessary powers of a KB:
a. Accepting drafts
b. Issuing letters of credit
c. Discounting and negotiating promissory
notes, drafts, bills of exchange, and
other evidence of debt
d. Accepting or creating demand deposits
e. Receiving other types of deposits and
deposit substitutes
f. Buying and selling foreign exchange and
gold or silver bullion
g. Acquiring marketable bonds and other
debt securities
h. Extending credit
All are subject to such rules as the
Monetary Board may promulgate. (Sec. 29)
Equity investments of KB:
1.The total investment in equities of allied
enterprises shall not exceed 35% of the
net worth of the bank
2.The equity investment in any one
enterprise shall not exceed 25% of the
net worth of the bank
Equity investments of a KB in fnancial
allied enterprises:
1.A KB may own up to 100% of the equity
of a thrift bank or a rural bank
2.For other fnancial allied enterprises,
including another bank, such
investment shall remain a minority
holding in that enterprise. (Sec. 31)
Equity investments of a KB in non-
fnancial allied enterprises:
A KB may own up to 100% of the equity in
a non-fnancial allied enterprise. (Sec. 32)
Equity investments of UB:
1.The total investment in equities of allied
and non-allied enterprises shall not
exceed 50% of the net worth of the bank
2.The equity investment in any one
enterprise, whether allied or non-allied,
shall not exceed 25% of the net worth of
the bank
EXCEPTTION: the Monetary Board
Equity investments of a UB in fnancial
allied enterprises:
1.A UB may own up to 100% of the equity
of a thrift bank, a rural bank, or a
fnancial allied enterprise.
2. A publicly-listed UB or KB may own up
to 100% of the voting stock of only one
other UB or KB (SEC. 25)
Equity investments of a UB in non-
fnancial allied enterprises:
A UB may own up to 100% of the equity in
a non-fnancial allied enterprise. (Sec. 26)
Equity investments of a UB in non-allied
enterprises:
The equity investment of a UB, or of its
wholly or majority-owned subsidiaries,
in a single non-allied enterprise shall
not exceed 35% of the total equity in
that enterprise nor shall it exceed 35%
of the voting stock in that enterprise.
(Sec. 27)
Equity investments in quasi-banks:
40% equity investment for both UB and
KB (Sec. 28)
UB KB
Allied Enterprises
-Total equity investment
-investment in 1 enterprise
-max 50%
of networth
-max 25%
of networth
(Sec.24)
-max 35%
of networth
-max 25%
of networth
(Sec. 30)
Financial Allied
- Thrift/rural banks
-other fnancial allied
-publicly listed KB/UB
-100%
equity
-100%
equity
-100%
voting
stock of
only 1
other
KB/UB
(Sec. 25)
-100%
equity
-minority
holding
(Sec. 31)
Quasi-Banks May be limited by MB to
40% to promote
competitive conditions in
fnancial markets (Sec.28)
NonFinancial Allied 100%
equity
(Sec. 26)
100%
equity
(Sec.32)
Non-Allied Enterprises Max 35% of
total equity
in a single
enterprise,
max 35%
of voting
stock in
that
enterprise
(Sec. 27)
Not allowed
to invest in
non-allied
enterprise
C.Prudential Measures
1.Capital Adequacy
A bank must conform to the risk-based
capital ratio prescribed by the MB
EXCEPT:
a.In case of a bank merger or
consolidation,
b.When a bank is under rehabilitation
under a program approved by the BSP
(Sec. 34)
c.The MB may alter or suspend
compliance with such ratio whenever
necessary for a maximum period of 1
year
Risk-based capital ratio:
The minimum ratio which the net worth of
a bank must bear to its total risk assets
which may include contingent accounts [i.e.
net worth : total risk assets] (Sec. 34)
Purpose:
A bank must not be allowed to expand the
volume of its loans and investments in a
manner that is disproportionate to its net
worth. (Morales, The Philippine General
Banking Law, opinion)
Efect of non-compliance:
1.The MB may limit or prohibit the
distribution of net profts by such bank
and may require that part or all of the
net profts be used to increase the
capital accounts of the bank until the
minimum requirement has been met.
2.The MB may 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 RP and the BSP
and any other evidences of
indebtedness or obligations the
servicing and repayment of which are
fully guaranteed by the RP, until the
minimum required capital ratio has
been restored. (Sec. 33)
2.Single Borrowers Limit
The total loans, credit accommodations and
guarantees that may be extended by a bank
to any person, partnership, association, or
corporation or other entity shall at no time
exceed 20% of the net worth of such bank.
(Sec. 35.1)
EXCEPTIONS:
1.The Monetary Board otherwise
prescribes for reasons of national
interest (Sec. 35.1)
2.Wholesale lending activities of
government banks to particiapting
institutions for relending to end-user
borrowers: separate limit of 35% net
worth. (BSP Circular No. 425 dated
Mach 25, 2004)
Increase of limit:
The Monetary Board may increase the limit
prescribed by an additional 10% of the net
worth, when:
a.The additional liabilities of any borrower
are adequately secured by trust
receipts, shipping documents,
warehouse receipts or other similar
documents transferring or securing title
b.Covering readily marketable, non-
perishable goods
c.Which must be fully covered by
insurance (Sec. 35.2)
Purpose:
To prevent the bank from making excessive
loans and other credit accommodations to a
single borrower or corporate group,
including guarantees for the account of
such borrower or group. Tha bank is
prohibited from placing many eggs in the
basket of one client. [It] is a damage-control
mechanism [and] a device for risk
amelioration. (Morales, The Philippine
General Banking Law, opinion)
Basis for determining compliance:
The basis for determining compliance with
the SBL is the total credit commitment of
the bank to the borrower. (Sec. 35.1)
Inclusions in the ceiling:
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 or guarantor
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. (35.3)
Guidelines on the wholesale lending of
government banks:
a.it shall apply only to loans granted by
participating fnancial institutions (PFIs)
on a wholesale bases for on lending to
end-user borrowers
b.it shall apply only to loan programs
funded by multilateral, international, or
local development agencies,
organizations, or institutions, especially
designed for wholesale lending activities
of government banks
c.the end-user borrowers of the PFIs shall
be subject to the 25% SBL, not the
increased ceiling of 35%; and
d.government banks shall observe
appropriate criteria for accrediting PFIs
and for the grant/renewal of credit lines
to accredited PFIs BSP Circular No. 425
dated Mach 25, 2004)
Exclusions from the ceiling:
Loans and other credit accommodations
a.secured by obligations of the BSP or of
the Philippine Government
b.fully guaranteed by the government as
to the payment of principal and interest
c.covered by assignment of deposits
maintained in the lending bank and
held in the Philippines
d.under letters of credits to the extent
covered by margin deposits
e.specifed by the Monetary Board as
non-risk items (Sec. 35.5)
Combination of liabilities:
The MB may prescribe the combination of
the liabilities of subsidiary corporations or
members of the partnership, association,
entity or such individual under certain
circumstances, including but not limited to
any of the following situations:
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. (35.4)
Loans and other credit
accommodations, deposits maintained
with, and usual guaranteed by a bank
to any other bank or non-bank entity,
whether locally or abroad, shall be
subject to the limits as herein
prescribed. (35.6)
3.DOSRI (Directors, Ofcers,
Stockholders and their Related
Interests)
No director or ofcer of any bank
a.shall, directly or indirectly, for himself
or as the representative or agent of
others, borrow from such bank nor
b.shall he become a guarantor, endorser
or surety for loans from such bank to
others, or in any manner be an obligor
or incur any contractual liability to the
bank
EXCEPTIONS:
1.valid insider lending (Sec. 36)
2.loans, credit accommodations and
guarantees extended by a cooperative
bank to its cooperative shareholders
(Sec. 36)
Requirements for valid insider lending:
a.in the regular course of business
b.upon terms not less favorable to the
bank than those ofered to others (Sec.
36)
c.there is a written approval of the
majority of all the directors of the bank,
excluding the director concerned.
(Except: granted to ofcers under a
fringe beneft plan approved by the BSP
(Sec. 36))
d.the required approval shall be entered
upon the record of the bank and a copy
of such entry shall be transmitted
forthwith to the appropriate
supervising and examining department
of the BSP (Sec. 36)
e.limited to an amount equivalent to the
DOSRI borrowers respective
unencumbered deposits and book value
of their paid-in capital contribution in
the bank
EXC:
1.non-risk items
2.loans in the form of fringe benefts
(Sec. 36)
A DOSRI borrower is required to waive
the secrecy of his deposits of whatever
nature in all banks in the Philippines.
(Sec. 26, New Central Bank Act)
Purpose:
To prevent the bank from becoming a
captive source of fnance for DOSRI.
(Morales, The Philippine General Banking
Law, opinion)
4.Loan-Loss Provisioning
The following are subject to regulation by
the Monetary Board
a.the amount of reserves for bad debts or
doubtful accounts or other
contingencies.
b.the writing of of loans, other credit
accommodations, advances and other
assets (Sec. 49)
Purpose:
For efective banking supervision. There is
a problem of mismatch when a loan
becomes non-performing. The bank is
paying interest on the money it borrowed
from the depositors or other placers of
funds, but is not recouping that interest
from the loan it made. Eventually, the
bank may have to write of loan losses
against profts. To cushion this eventuality,
the bank is required to set aside reserved
for bad debts and other doubtful accounts
or contingencies. (Morales, The Philippine
5.Reserves
Purposes:
a.To control the volume of money created
by the credit operations of the banking
system, the BSP requires all banks to
maintain reserves against their deposit
and deposit-substitute liabilities.
b.As a ready source of funds that will
respond to unusually large number of
withdrawals or preterminations of
deposits or deposit-substitutes, taking
in the shape of a bank run. (Morales,
The Philippine General Banking Law,
opinion)
Two types of reserves:
a.Statutory legal reserve
Now at 11% (BSP Circular No. 491
dated July 12, 2005)
For deposit-substitutes: 2% (BSP
Circular No. 444 dated August 18,
2004)
For foreign currency deposit units:
100% (BSP Circular No. 1389 dated
April 13, 1993, as amended); 30% of
this cover must be in the form of liquid
assets (BSP Circular-Letter dated June
6, 1997, as cited in Morales)
b.Liquidity reserve
Now deposits should be placed in the
Reserve Deposit Account of the BSP for
at least 3 months (BSP Circular No. 539
dated August 9, 2006)
The BSP shall not pay interest on the
reserves maintained with it unless the
Monetary Board decides otherwise as
warranted by circumstances. (Sec. 94, New
Central Bank Act)
6.PDIC Insurance
Banks are required to insure their deposit
liabilities with the PDIC.
Partial Insurance:
Each depositor is a benefciary of the
insurance for a maximum amount of
P500,000, or its foreign currency equivalent
in the case of an FCDU deposit. (RA 9576,
2009)
Note: PDIC only insures deposit liabilities
of a bank or banking institution which is
engaged in the business of receiving
deposits, or in the business of receiving
deposits (Sec.5, RA 3591, as amended)
Purpose:
Full insurance might encourage risky
banking activities = to limit moral hazard
D.Other Functions
1.Ownership of Real Property and
Foreclosure of Real Estate
Mortgage
A bank may acquire real estate as shall be
necessary for its own use in the conduct of
its business
Conditions:
a.The total investment in such real estate
and improvements thereof including
bank equipment shall not exceed 50% of
combined capital accounts
b.The equity investment of a bank in
another corporation engaged primarily
in real estate shall be considered as
part of the banks total investment in
real estate, unless otherwise provided
by the Monetary Board (Sec. 51)
Exception:
1.Such as shall be mortgaged to it in good
faith by way of security for debts;
2.Such as shall be conveyed to it in
satisfaction of debts previously
contracted in the course of its dealings;
or
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. (Sec.
52)
Any real property acquired or held under
these circumstances shall be disposed of by
the bank within a period of 5 years or as
may be prescribed by the MB. (Sec. 52)
Foreclosure of REM:
A bank may foreclose, whether judicially or
extrajudicially, any mortgage on real estate
which is security for any loan or other
credit accommodation granted (Sec. 47)
Right of redemption of mortgagor:
The mortgagor or debtor whose real
property has been sold for the full or partial
payment of his obligation shall have the
right to redeem the property:
within 1 year after the sale of the real
estate
by paying the amount due under the
mortgage deed, with interest thereon at
the rate specifed 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. (Sec. 47)
Right of redemption of mortgagor who is
a juridical person in an extrajudicial
foreclosure:
Redeem the property not after, the
registration of the certifcate of foreclosure
sale with the applicable Register of Deeds
which in no case shall be more than 3
months after foreclosure, whichever is
earlier. (Sec. 47)
Owners of property that has been sold in a
foreclosure sale prior to the efectivity of the
GBL shall retain their redemption rights
until their expiration. (Sec. 47)
The purchaser shall have the right to enter
upon and take possession of such property
immediately after the date of the
confrmation of the auction sale and
administer the same in accordance with
law. (Sec. 47)
Any petition in court to enjoin or
restrain the conduct of foreclosure
proceedings shall be given due course
only upon the fling by the petitioner of
a bond in an amount fxed by the court
conditioned that he will pay all the
damages which the bank may sufer by
the enjoining or the restraint of the
foreclosure proceeding.
2.Trust Operations
Only a trust entity shall act as a trustee or
administer any trust or hold property in
trust or on deposit for the use, beneft, or
on behoof of others. (Sec. 79)
Trust Entity:
A stock corporation or a person duly
authorized by the Monetary Board to
engage in trust business. (Sec. 79)
Prudent Man Rule:
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 enteprise of a
like character and with similar aims. (Sec.
80)
Rule on Self-Dealing:
No trust entity shall engage in self-dealing
except when:
a.The transaction is specifcally
authorized by the trustor, and
b.The relationship of the trustee and the
other party involved is fully disclosed to
the trustor or benefciary of the trust
prior to the transaction (Sec. 80)
Self Dealing:
Purchase or acquire property from
Sell, transfer, assign, or lend money or
property to
Purchase debt instruments of,
any of the departments, directors, ofcers,
stockholders, or employees of the trust
entity, relatives within the 1
st
degree of
consanguinity or afnity, or the related
interests, of such directors, ofcers and
stockholders. (Sec. 80)
Trust Business Requirements:
1.Registration of AOI and By-Laws of a
Trust Entity:
The SEC shall not register the AOI and By-
Laws or any amendment thereto, of any
trust entity, unless accompanied by a
certifcate of authority issued by the BSP.
(Sec. 81)
2.Minimum Capitalization: (Sec. 82)
Min. paid-in capital:
a. if non-bank: combined capital accounts
of not less than P250,000,000 (Subsec.
440Q.1 of the Manual of Regulations for
Non-Bank Financial Institutions)
b. if domestic bank: combined capital
accounts must not be less than the
min. capital prescribed by the Monetary
Board for such bank but in no case be
less than P250,000,000 (Subsec.
404.1.a of the Manual of Regulations for
Banks)
c. if stand-alone trust company (not
afliated to a bank): P300,000 (Morales,
The Philippine General Banking Law)
Combined capital accounts: the total of
capital stock, retained earnings and proft
and loss summary, net of (a) such
unbooked valuation reserves and other
capital adjustments as may be required by
the BSP, and (b) total outstanding
unsecured credit accommodations, both
direct and indirect, to DOSRI
Powers of a Trust Entity:
a.Trust Business any activity resulting
from trusteeship involving the
appointment of a trustee by a trustor for
the administration, holding,
management of funds and/or properties
of the trustor by the trustee for the use,
beneft or advantage of the trustor or of
benefciaries
b.Other fduciary business any activity
of a licensed trust bank resulting from a
contract or agreement whereby the
bank binds itself to render services or to
act in a representative capacity such as
in agency, guardianship,
administratorship of wills, properties
and estates, executorship, receivership,
and other similar services which do not
create or result in a trusteeship.
c.Investment management activity
any activity resulting from a contract or
agreement primarily for fnancial return
whereby the bank (the investment
manager) binds itself to handle or
manage investible funds or any
investment portfolio in a representative
capacity as fnancial or managing agent,
adviser, consultant or administrator of
fnancial or investment management,
advisory, consultancy or any similar
arrangement which does not create or
result in a trusteeship. (Morales, The
Philippine General Banking Law,
opinion)
Deposit requirement:
Before transacting trust business, every
trust entity shall deposit with the BSP, as
security for the faithful performance of its
trust duties, cash or securities
cash or securities approved by the
Monetary Board
in an amount equal to or not less than
P500,000 or such higher amount as
may be fxed by the Monetary Board
(Sec. 84)
A trust entity so long as it shall continue to
be solvent and comply with laws or
regulations shall have the right:
a.to collect the interest earned on such
securities deposited with the BSP
b.to exchange the securities for others,
from time to time, with the approval of
the BSP (Sec. 84)
If the trust entity fails to comply with
any law or regulation, the BSP shall
retain such interest on the securities
deposited with it for the beneft of
rightful claimants. (Sec. 84)
All claims rising out of the trust business of
a trust entity shall have priority over all
other claims as regards the deposit. (Sec.
84)
Bond requirement:
No bond or other security shall be required
by the court from a trust entry for the
faithful performance of its duties as court-
appointed trustee, executor, administrator,
guardian, receiver, or depositary.
However, the court may, upon proper
application with it showing special cause
therefore, require the trust entity to post a
bond or other security for the protection of
funds or property confded to such entity.
(Sec. 86)
Separation of Trust Business from
General Business:
The following must be kept separate and
distinct:
a. the trust business and all funds,
properties or securities received by any
trust entity as executor, administrator,
guardian, trustee, receiver, or
depositary from the general business
including all other funds, properties,
and assets of such trust entity
b. the accounts of all such funds,
properties, or securities from the
accounts of the general business of the
trust entity (Sec. 87)
The separation of assets is warranted
because the trust department is not the
benefcial owner of the assets held in trust.
Law, opinion)
Investments of a Trust Entity
Limitations:
The lending and investment of funds and
other assets acquired by a trust entity as
executor, administrator, guardian, trustee,
receiver or depositary of the estate of any
minor or other incompetent person shall be
limited to loans or investments as may be
prescribed by law, the Monetary Board or
any court of competent jurisdiction,
EXCEPT:
Otherwise directed by the instrument
creating the trust (Sec. 88)
Investments of a Trust Entity Real
Estate Acquisition:
Governed by Sec. 52. (Sec. 89) may
acquire real estate which are:
1.mortgage to in good faith by way of
security for debts
2.conveyed to it in satisfaction of debts
previously contracted in the course of
its dealings
3.purchased at sales under judgments,
decrees, mortgages, or trust deeds held
by it and purchased to secure debts due
to it
But such real property shall be disposed of
within 5 years
Investments of a Trust Entity
Investment of Non-Trust Funds:
The investment of funds other than trust
funds of a trust entity which is a bank,
fnancing company or an investment house
shall be governed by the relevant provisions
of the GBL and other applicable laws. (Sec.
90)
Sanctions and Penalties:
A trust entity or any of its ofcers and
directors found to have willfully violated any
pertinent provisions of the GBL shall be
subject to the sanction and penalties
provided under Sec. 66 of the GBL and Sec.
36 and 37 of the New Central Bank Act.
(Sec.91)
under the GBL: suspension for the
ofcers and directors and dissolution
for the corporation
under the NCBA: fnes of P50,000 to
P200,000, or imprisonment of 2 10
years, or both; and administrative
sanctions, which include fnes,
suspension of certain privileges,
revocation of license, etc.
Exemption of Trust Assets from Claims:
No assets held by a trust entity in its
capacity as trustee shall be subject to any
claims other than those of the parties
interested in the specifc trust. (Sec. 92)
3. Other Banking Services
Other Banking Services
1.Receive in custody funds, documents
and valuable objects;
2.Act as fnancial agent and buy and sell,
by order of and for the account of their
customers, shares, evidences of
indebtedness and all types of securities;
3.Make collections and payments for the
account of others and perform such
other services for their customers as are
not incompatible with banking
business;
4.Upon prior approval of MB, act as
managing agent, adviser, consultant or
administrator of investment
management/advisory/consultancy
accounts; and
5.Rent out safety deposit boxes. (Sec. 53)
E.Prohibited Functions
Prohibition to act as insurer:
A bank shall not directly engage in
insurance business as the insurer. (Sec. 54)
NOTE: But a bank may be said to be
allowed to act as a guarantor, as may be
implied from the following provisions of the
General Banking Law:
a.Guarantees are now included in the
computation of SBL
b.No restatement of Sec.74 of GBA
prohibiting the issuance of guarantees
c.The recognition of the validity of
guarantees by a bank to another
bank.
Law, opinion)
Prohibited Transactions of Directors,
Ofcers, Employees, or Agents of Any
Bank:
1.Making false entries in any bank report
or statement or participating in any
fraudulent transaction, thereby
afecting the fnancial interest of, or
causing damage to, the bank or any
person;
2.Without order of a court of competent
jurisdiction, disclosing 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;
3.Accepting gifts, fees or commissions or
any other form of remuneration in
connection with the approval of a loan
or other credit accommodation from
said bank;
4.Overvaluing or aiding the overvaluing of
any security for the purpose of
infuencing in any way the actions of
the bank or any bank; or
5.Outsourcing inherent banking
functions. (SubSec. 55.1)
Prohibited transactions of borrowers of
bank
1.Fraudulently overvaluing property
ofered as security for a loan or other
credit accommodation from the bank;
2.Furnishing false or misrepresenting or
suppressing material facts for the
purpose of obtaining, renewing, or
increasing a loan or other credit
accommodation or extending the period
thereof;
3.Attempting to defraud the said bank in
the event of a court action to recover a
loan or other credit accommodation; or
4.Ofering any director, ofcer, employee
or agent of a bank any gift, fee,
commission, or any other form of
compensation in order to infuence such
persons into approving a loan or other
credit accommodation application.
(SubSec. 55.2)
Prohibition on conduct of business in an
unsafe or unsound manner:
A bank must not conduct business in an
unsafe or unsound manner. (Sec. 56)
EFFECT OF VIOLATION:
The MB may, without prejudice to the
administrative sanctions provided in Sec.
37 of the NCBA,
a.take action under Sec. 30 of the same
Act
b.and/or immediately exclude the erring
bank from clearing, the provisions of
law to the contrary notwithstanding.
(Sec. 56)
Prohibition on Dividend Declaration:
No bank or QB shall declare dividends, if at
the time of declaration:
1.Its clearing account with the BSP is
overdrawn; or
2.It is defcient in the required liquidity
foor for government deposits for 5 or
more consecutive days; or
3.It does not comply with the liquidity
standards/ratios prescribed by the BSP
for purposes of determining funds
available for dividend declaration; or
4.It has committed a major violation as
may be determined by the BSP. (Sec. 57)
F. Some Requirements for the
Operation of Banks
Independent Auditor:
The MB may require a bank, QB or trust
entity to engage the services of an
independent auditor to be chosen by the
bank, QB or trust entity concerned from a
list of CPAs acceptable to the MB.
The MB may also direct the board of
directors of a bank, QB, 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, QB or
trust entity to review the internal audit and
control system of the bank, QB or trust
entity and to submit a report of such audit.
(Sec. 58)
Financial Statements:
Every bank, QB or trust entity shall submit
to the appropriate supervising and
examining department of the BSP fnancial
statements in such form and frequency as
may be prescribed by the BSP. (Sec. 60)
Publication of Capital Stock:
A bank, QB or trust entity incorporated
under the laws of the Phils. 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. (Sec. 62)
Electronic Transactions:
The BSP shall have full authority to
regulate the use of electronic devices, such
as computers, and processes for recording,
storing and transmitting information or
data in connection with the operations of a
bank, QB or trust entity, including the
delivery of services and products to
customers by such entity. (Sec. 59)
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 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, quasi-banking, quasi-
banker, savings and loan association,
trust corporation, trust company, or
words of similar import or transact in any
manner the business of any such bank,
corporation or association. (Sec. 64)
Penalties for Violation:
Unless otherwise provided, the violation of
any of the provisions of this Act shall be
subject to Secs 34, 35, 36 and 37 of the
NCBA. If the ofender is a director or ofcer
of a bank, quasi-bank or trust entity, the
MB may also suspend or remove such
director or ofcer. If the violation is
committed by a corporation, such
corporation may be dissolved by quo
warranto proceedings instituted by the
Sol.Gen.. (Sec. 66)
Settlement of Disputes:
The provisions of any law to the contrary
notwithstanding, the BSP shall be
consulted by other government agencies or
instrumentalities in actions or proceedings
initiated by or brought before them
involving controversies in banks, QBs or
trust entities arising out of and involving
relations between and among their
directors, ofcers or stockholders, as well
as disputes between any or all of them and
the bank, QBs or trust entity of which they
are directors, ofcers or stockholders. (Sec.
63)
Conservatorship:
The grounds and procedure for placing a
bank and quasi-bank under
conservatorship as well as, the powers and
duties of the conservator appointed for the
bank shall be governed by the provisions of
the New Central Bank Act. (Sec. 67)
Voluntary Liquidation:
In case of voluntary liquidation of any bank
organized under the laws of the Philippines,
or of any branch or ofce in the Philippines
of a foreign bank, written notice of such
liquidation shall be sent to the Monetary
Board before such liquidation is
undertaken (Sec. 68)
Receivership and Involuntary
Liquidation:
The grounds and procedures for placing a
bank and quasi-bank under receivership or
liquidation, as well as the powers and
duties of the receiver or liquidator
appointed for the bank shall be governed by
the New Central Bank Act. Provided, that
the petitioner or plaintif fles with the clerk
or judge of the court in which the action is
pending a bond, executed in favor of the
BSP, in an amount to be fxed by the court.
(Sec. 69)
VI.Foreign Banks
Transacting Business in the Philippines -
Ways:
1.through the establishment of local
branches
2.through the conduct of ofshore banking
3.through the acquisition of voting stock in
a domestic bank
If there are more than 1 local branches, all
such branches shall be treated as 1 unit for
the purpose of the GBL and all references
to the Philippine branches of foreign banks
shall be held to refer to such units (Sec. 74)
The head ofce of such local branches shall
fully guarantee the prompt payment of all
liabilities of its Philippine branch in order to
provide efective protection of the interests
of the depositors and other creditors of the
local branches. (Sec. 75)
Residents and citizens of the Philippines
who are creditors of the local branch shall
have preferential rights to the assets of
such branch in accordance with existing
laws. (Sec. 75)
The MB shall adopt measures as may be
necessary to ensure that at all times the
control of 70% of the resources or assets of
the entire banking system is held by banks
which are at least majority-owned by
Filipinos. (Sec. 73)
Any right, privilege or incentive granted
to a foreign bank shall be equally
enjoyed by and extended under the
same conditions to banks organized
under the Philippine laws. (Sec. 73)
Summons and Legal Process:
Service may be made upon:
a. the Philippine agent or head of any foreign
bank designated to accept such service
b.the Philippine agent or head authorized
by the bank to accept such service
c. the BSP Deputy Governor In-Charge of
the supervising and examining
departments
Laws Applicable:
In all matters not specifcally covered by
special provisions applicable only to a
foreign bank or its branches and other
ofces in the Philippines any foreign bank
licensed to do business in the Philippines
shall be bound by the provisions of the
GBL, all other laws, rules and regulations
applicable to banks organized under the
laws of the Philippines of the same class,
except those that provide for the creation,
formation, organization or dissolution of
corporations or for the fxing of the
relations, liabilities, responsibilities, or
duties of stockholders, members, directors
or ofcers of corporations to each other or
to the corporation. (Sec. 77)
Revocation of License of a Foreign Bank:
The Monetary Board may revoke the license
to transact business in the Philippines of
any foreign bank, if it fnds that the foreign
bank
a. is insolvent
b.is in imminent danger of being insolvent
c. if it continues to do business, will involve
probable loss to those transacting
business in the Philippines. (Sec. 78)
After the revocation of its license,
a. It shall be unlawful for any such foreign
banks to transact business in the
Philippines unless its license is renewed
or reissued
b.The BSP shall take the necessary action
to protect the creditors of such foreign
bank and the public (Sec. 78)
REVIEWER IN COMMERCIAL LAW Chapter II. The New Central Bank Act (RA 7653)
Chapter II. The New Central Bank
Act (RA 7653)
I. CHANGES BROUGHT BY THE NEW
CENTRAL BANK ACT
II.GENERAL PROVISION
III.ORGANIZATION OF THE BSP
A. MONETARY BOARD
B.GOVERNOR/DEPUTY GOVERNOR
IV.OPERATION OF THE BSP
A. SUPERVISION AND EXAMINATION
B.HANDLING OF BANKS IN DISTRESS
C.MONETARY ADMINISTRATION
D.AS BANKER AND FINANCIAL ADVISER
OF THE GOVERNMENT
E.OTHER OPERATIONS
F. PROHIBITED OPERATIONS
I.Changes Brought by the New
Central Bank Act
Salient features
1. Assurance of BSP independence by
providing for the majority of the
members of the Monetary Board to
come from the private sector (Sec. 6)
2. The BSP may now concentrate on
monetary policy, and will shed itself of
fscal responsibilities which in the past,
had distacted it from its primary
function (Sec. 3, 129, 130)
3. Provides safeguards to ensure that
unlike the old Central Bank which
sustained huge losses, the BSP would
have a positive net income position by
the following provisions:
a. Capitalization of P50B of which
P10B will be paid upon efectivity of
the Act (Sec.2)
b.Maintenance of positive net foreign
asset position (Sec.71)
c.charging interests on all loans and
advances to banks (Sec. 85)
d. authority to collect interests on
loans and advances to closed fnancial
institutions; and
e. BSP cant acquire any shares in
banking enterprise, in development
banking and fnancing (Sec. 128)
4.MB will also
II.General Provision
BSP Nature:
A.A central monetary authority
B.An independent and accountable body
C.A government-owned corporation but
enjoys fscal and administrative
autonomy. (Sec. 1 and Sec. 2)
BSP Objectives:
A.To maintain price stability conducive to
a balanced and sustainable growth of
the economy (primary objective)
B.To promote and maintain monetary
stability and the convertibility of the
peso (Sec. 3)
BSP Responsibilities:
A.To provide policy directions in the areas
of money, banking, and credit
B.To supervise operations of banks (Sec.
3)
All powers, duties and functions vested
by law int eh Central Bank of the
Philippines not inconsistent with the
NCBA shall be deemed transferred to
the BSP. All references to the Central
Bank of the Philippines in any law or
special charters shall be deemed to refer
to the BSP. (Sec. 136)
III.Organization of the BSP
A.Monetary Board
Composition: 7 members with 6-year
terms (Sec. 6)
Members:
1.The BSP Governor or his designated
alternate (a deputy governor)
2.A Cabinet member to be designated by
the President or his designated
alternate (an Undersecretary in his
department)
3.5 members from the private sector (Sec.
6)
No member of the MB may be
reappointed more than once. (Sec. 6)
Qualifcations:
1.Natural-born citizens of the Philippines
2.At least 35 years old (the Governor must
be at least 40 years old)
3.Of good moral character
4.Of unquestionable integrity
5.Of known probity and patriotism
6.With recognized competence in social
and economic disciplines (Sec. 8)
Disqualifcations:
1.Direct connection with any multilateral
banking or fnancial institution
2.Substantial interest in any private bank
in the Philippines, within 1 year prior to
his appointment (Sec. 9)
Prohibitions on the members:
1.To be a director, ofcer, employee,
consultant, lawyer, agent or stockholder
of any bank, quasi-bank, or any other
institution which is subject to
supervision or examination by the BSP
2.To hold any other public ofce or public
employment during their tenure
3.To be employed in any multilateral
banking or fnancial institution within 2
years after the expiration of his term
EXCEPTION: when he serves as an
ofcial representative of the government
to such institution (Sec. 9)
Removal of any member of the MB:
1.If the member is subsequently
disqualifed under Sec. 8
2.If he is physically or mentally
incapacitated that he cannot properly
discharge his duties and responsibilities
and such incapacity has lasted for more
than 6 months
3.If he is guilty of acts or operations
which are of fraudulent or illegal
character or which are manifestly
opposed to the aims and interests of the
BSP
4.If he no longer possesses the
qualifcations under Sec. 8 (Sec. 10)
Vacancies:
Cause: death, resignation, or removal of
any member
Efect: a new member will be appointed to
complete the unexpired period of the term
of the member concerned (Sec. 7)
Salaries: Fixed by the Phil. President at a
sum commensurate to the importance and
responsibility attached (Sec. 13)
Meetings:
1.held at least once a week
2.called by the Governor or by 2 MB
members
3.the complete records of the proeedings
and deliberations of the MB including
the tapes and transcripts of
stenographic notes are to be maintained
and preserved (Sec. 11)
4.deputy governors may attend (Sec. 12)
5.any member with personal or pecuniary
interest in any matter in the agenda
shall disclose his interest and shall
retire from the meeting when the matter
is taken up (Sec. 14)
Quorum: Presence of 4 members
constitute a quorum (Sec. 11)
Decisions: Concurrence of at least 4
members, except as otherwise provided in
the NCBA (Sec. 11)
B.Governor/Deputy Governor
Governor:
The Governor shall be the chief executive
ofcer of the BSP
Deputy Governor(s):
1.to be appointed by the Governor, with
the approval of the MB
2.not more than 3 (Sec. 21)
IV. Operation of the BSP
A.Supervision and Examination
Coverage:
Banking institutions and quasi-banks,
including their subsidiaries and
afliates engaged in allied activities.
(Sec. 25)
The supervising and examining
department head, personally or by
deputy, shall examine the books of
every banking institution once in every
12 months, and at such other times as
the MB by an afrmative vote of 5
members, may deem expedient (there
must be an interval of at least 12
months between annual examinations)
(Sec. 28)
The bank concerned shall aford the head
of the appropriate supervising and
examining departments and his authorized
deputies full opportunity to examine its
books, cash and available assets and
general condition at any time during
banking hours when requested to do so by
the BSP. (Sec. 28)
Non-disclosure of papers:
RULE: None of the reports and other
papers relative to such examinations shall
be open to inspection by the public
EXCEPTION: if the publicity is incidental
to the proceedings authorized or is
necessary for the prosecution of violations
in connection with the business of such
institutions. (Sec. 28)
No Restraining Order or Injunction on
the BSP:
RULE: No restraining order or injunction
shall be issued by the court enjoining the
BSP from examining any institution subject
to supervision or examination by the BSP
EXCEPTION: existence of a convincing
proof that the action of the BSP is plainly
arbitrary and made in bad faith and the
petitioner or plaintif fles with the clerk or
judge of the court in which the action is
pending a bond executed in favor of the BSP
(Sec. 25)
B.Handling of Banks in Distress
1.Conservatorship
Applicability:
when a bank or a quasi-bank is in a
state of continuing inability or
unwillingness to maintain a condition of
liquidity deemed adequate to protect
the interest of depositors and creditors
(Sec. 29)
determination is to be made by the
Monetary on the basis of a report
submitted by the appropriate
supervising or examining department
(Sec. 29)
Period and Termination:
Period: shall not exceed 1 year (Sec. 29)
The expenses attendant to the
conservatorship shall be borne by the
bank or quasi-bank concerned (Sec. 29)
Grounds for termination of
conservatorship by MB:
a.When it is satisfed that the
institution can continue to operate
on its own and the conservatorship
is no longer necessary
b.When, on the basis of the report of
the conservator or of its own
fndings, the MB determines that
the continuance in business of the
institution would involve probable
loss to its depositors or creditors
(the bank or quasi-bank would then
be placed under receivership) (Sec.
29)
Qualifcations of a Conservator:
The conservator should be competent and
knowledgeable in bank operations and
management. (Sec. 29)
The appointment of a conservator shall
be vested exclusively with the MB. (Sec.
30)
Powers and Duties of a Conservator:
a.To take charge of the assets, liabilities,
and the management thereof
b.To reorganize the management
c.To collect all monies and debts due said
institution, and
d.To exercise all powers necessary to
restore its viability
e.To report and be responsible to the MB
f. To overrule or revoke the actions of the
previous management and board of
directors of the bank or quasi-bank.
(Sec. 29)
First Philippine International Bank vs CA
(1996)
While the Central Bank law gives vast and far
reaching powers to the conservator of a bank,
such powers must be related to the preservation
of the assets of the bank, the reorganization of
the management and the restoration of viability.
Such powers cannot extend to the post-facto
repudiation of perfected transactions, otherwise
they would infringe against the non-impairment
clause of the Constitution.
Remunerations:
The conservator shall receive remuneration
in an amount not to exceed 2/3 of the
salary of the president of the institution in
1 year, payable in 12 equal monthly
payments
EXC: a conservator connected with the
BSP, in which case said conservator shall
not be entitled to receive any remuneration
or emolument. (Sec. 29)
2.Receivership
Grounds:
Whenever the MB fnds that a bank or
quasi-bank:
a.Is unable to pay its liabilities as they
become due in the ordinary course of
business: Provided, That this shall not
include inability to pay caused by
extraordinary demands induced by
fnancial panic in the banking
community;
b.Has insufcient realizable assets, as
determined by the BSP, to meet its
liabilities; or
c.Cannot continue in business without
involving probable losses to its
depositors or creditors; or
d.Has willfully violated a cease and desist
order under Sec. 37 that has become
fnal, involving acts or transactions
which amount to fraud or a dissipation
of the assets of the institution
Receiver:
a.if a banking institution: the PDIC
b.if a quasi-bank: any person of
recognized competence in banking or
fnance (Sec. 30)
The appointment of a receiver shall be
vested exclusively with the MB. And the
designation of a conservator is not a
precondition to the designation of a
receiver. (Sec. 30)
Powers and Duties of a Receiver:
a.Immediately gather and take charge of
all the assets and liabilities of the
institution
b.Administer the assets for the beneft of
the creditors
c.Exercise the general powers of a receiver
under the Revised Rules of Court
d. Not to pay or commit any act that will
involve the transfer or disposition of any
asset of the institution, except:
1.administrative expenditures
2.receiver may deposit or place funds
in non-speculative investments
e.Subject to prior approval of the MB,
determine, as soon as possible, but not
later than 90 days from take over,
whether the institution may be
rehabilitated or otherwise placed in
such a condition so that it may be
permitted to resume business with
safety to its depositors and creditors
and the general public
The assets of the institution under
receivership and liquidation shall be
deemed in custodia legis and shall be
exempt from any order of garnishment, levy,
attachment, or execution. (Sec. 30)
3.Liquidation
Should the determination be that the
institution cannot be rehabilitated or
permitted to resume business, the MB shall
notify in writing the board of directors of
the institution of its fndings and direct the
receiver to proceed with the liquidation of
the institution. (Sec. 30)
Procedure:
1.The receiver shall fle ex parte with the
proper RTC, and without requirement of
prior notice or any other action, a
petition for assistance in the liquidation
of the institution pursuant to the
liquidation plan adopted by the PDIC (if
quasi-bank, liquidation plan adopted by
the MB)
2.Upon acquiring jurisdiction, the court
shall, upon motion by the receiver after
due notice,
a.adjudicate disputed claims against
the institution,
b.assist the enforcement of individual
liabilities of the stockholders,
directors, and ofcers, and
c.decide on other issues as may be
material to implement the
liquidation plan
3.The receiver shall convert the assets of
the institutions to money, dispose of
the same to creditors and other
parties, for the purpose of paying the
debts of such institution in accordance
with the rules on concurrence and
preference of credit under the Civil
Code
The assets of the institution under
receivership and liquidation shall be deemed
in custodia legis and shall be exempt from
any order of garnishment, levy, attachment,
or execution. (Sec. 30)
Dispositions:
In case of a liquidation of a bank or quasi-
bank, after payment of the cost of
proceedings, including reasonable expenses
and fees of the receiver to be allowed by the
court, the receiver shall pay the debts of
such institution, under order of the court,
in accordance with the rules on
concurrence and preference of credit in the
Civil Code. (Sec. 31)
All revenues and earnings realized by the
receiver in winding up the afairs and
administering the assets of any bank or
quasi-bank shall be used to pay the costs of
proceedings, salaries of such personnel
whose employment is rendered necessary in
the discharge of the liquidation together
with other additional expenses caused
thereby. The balance of revenues and
earnings, after the payment of all said
expenses, shall form part of the assets
available to creditors. (Sec. 32)
No restraining order:
The actions of the MB shall be fnal and
executory and may not be restrained or set
aside by the court (for both receivership
and liquidation)
EXCEPTION: petition for certiorari on the
following grounds:
a.the action was taken in excess of
jurisdiction
b.the action was taken with grave abuse
of discretion as to amount to lack or
excess of jurisdiction
CONDITIONS:
a.may only be fled by the stockholders of
record representing the majority of the
capital stock
b.may only be fled within 10 days from
receipt by the board of directors of the
institution of the order directing
receivership, liquidation or
conservatorship. (Sec. 30)
C.Monetary Administration
Peso
The unit of monetary value in the
Philippines is the "peso," which is
represented by the sign "P." The peso is
divided into 100 equal parts called
"centavos," which are represented by the
sign "c." (Sec. 48)
Means of Payment Currency:
Currency: all Philippine notes and coins
issued or circulating in accordance with the
provisions of this Act. (Sec. 49)
Issuance: The BSP shall have the sole power
and authority to issue currency, within the
territory of the Philippines. (Sec. 50)
Liability for Notes and Coins:
Notes and coins issued by the BSP shall
be liabilities of the BSP and may be
issued only against, and in amounts not
exceeding, the assets of the BSP. Said
notes and coins shall be a frst and
paramount lien on all assets of the BSP.
The BSP's holdings of its own notes and
coins shall not be considered as part of
its currency issue and, accordingly,
shall not form part of the assets or
liabilities of the BSP. (Sec. 51)
Legal Tender Power (Asked in 2000 Bar
Exams)
All notes and coins issued by the BSP 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: Provided, however,
That, unless otherwise fxed by the MB,
coins shall be legal tender in amounts not
exceeding P50 for denominations of 25
centavos and above, and in amounts not
exceeding P20 for denominations of 10
centavos or less. (Sec. 52)
Monetary Administration Domestic
Monetary Stabilization:
The MB shall endeavor to control any
expansion or contraction in monetary
aggregates which is prejudicial to the
attainment or maintenance of price
stability. (Sec. 61)
Monetary Administration International
Monetary Stabilization:
The BSP shall exercise its powers to
preserve the international value of the peso
and to maintain its convertibility into other
freely convertible currencies, primarily for,
although not necessarily limited to, current
payments for foreign trade and invisibles.
(Sec. 64)
In order to maintain the international
stability and convertibility of the Philippine
peso, the BSP shall maintain international
reserves adequate to meet any foreseeable
net demands on the BSP for foreign
currencies.
Purchases in Gold:
The BSP may buy and sell gold in any form,
subject to such regulations as the MB may
issue. The purchases and sales of gold
authorized by this section shall be made in
the national currency at the prevailing
international market price as determined by
the MB. (Sec. 69)
Purchases in Gold and Foreign Exchange:
The BSP may buy and sell foreign notes and
coins, and documents and instruments of
types customarily employed for the
international transfer of funds. The BSP
may engage in future exchange operations.
The BSP may engage in foreign exchange
transactions with the following entities or
persons only:
1.Banking institutions operating in the
Philippines;
2.The Government, its political
subdivisions and instrumentalities;
3.Foreign or international fnancial
institutions;
4.Foreign governments and their
instrumentalities; and
5.Other entities or persons which the MB
is hereby empowered to authorize as
foreign exchange dealers, subject to
such rules and regulations as the MB
shall prescribe. (Sec. 70)
Operations with Foreign Entities:
The MB may authorize the BSP to grant
loans to and receive loans from foreign
banks and other foreign or international
entities, both public and private, and may
engage in such other operations with these
entities as are in the national interest and
are appropriate to its character as a central
bank. The BSP may also act as agent or
correspondent for such entities. Upon
authority of the MB, the BSP may pledge
any gold or other assets which it possesses
as security against loans which it receives
from foreign or international entities. (Sec.
75)
Loans to Banking And Other Financial
Institutions:
Credit Policy: The rediscounts, discounts,
loans and advances which the BSP is
authorized to extend to banking institutions
shall be used to infuence the volume of
credit consistent with the objective of price
stability. (Sec. 81)
Normal Credit Operations:
The BSP may normally and regularly carry
on the following credit operations with
banking institutions operating in the
Philippines:
1.Commercial credits. The BSP may
rediscount, discount, buy and sell bills,
acceptances, promissory notes and
other credit instruments with
maturities of not more than 180 days
from the date of their rediscount,
discount or acquisition by the BSP and
resulting from transactions related to:
a.the importation, exportation,
purchase or sale of readily saleable
goods and products, or their
transportation within the
Philippines;
b.the storing of non-perishable goods
and products which are duly
insured and deposited, under
conditions assuring their
preservation, in authorized bonded
warehouses or in other places
approved by the MB.
2.Production credits. The BSP may
rediscount, discount, buy and sell bills,
acceptances, promissory notes and
other credit instruments having
maturities of not more than 360 days
from the date of their rediscount,
discount or acquisition by the BSP and
resulting from transactions related to
the production or processing of
agricultural, animal, mineral, or
industrial products. Documents or
instruments acquired in accordance
with this subsection shall be secured by
a pledge of the respective crops or
products: Provided, however, That the
crops or products need not be pledged
to secure the documents if the original
loan granted by the BSP is secured by a
lien or mortgage on real estate property
70% of the appraised value of which
equals or exceeds the amount of the
loan granted.
3.Other credits. Special credit
instruments not otherwise
rediscountable under 1 and 2 may be
eligible for rediscounting in accordance
with rules and regulations which the
BSP shall prescribe. Whenever
necessary, the BSP shall provide funds
from non-infationary sources: Provided,
however, That the MB shall prescribe
additional safeguards for disbursing
these funds.
4.Advances. The BSP may grant
advances against the following kinds of
collaterals for fxed periods which, with
the exception of advances against
collateral named in clause (4) of the
present subsection, shall not exceed
180 days:
i. gold coins or bullion;
ii. securities representing obligations of
the BSP or of other domestic
institutions of recognized solvency;
iii. the credit instruments to which
reference is made in 1;
iv. the credit instruments to which
reference is made 2, for periods
which shall not exceed 360 days;
v. utilized portions of advances in
current amount covered by regular
overdraft agreements related to
operations included under 1 and 2,
and certifed as to amount and
liquidity by the institution soliciting
the advance;
vi. negotiable treasury bills, certifcates
of indebtedness, notes and other
negotiable obligations of the
Government maturing within 3
years from the date of the advance;
and
vii. negotiable bonds issued by the
Government of the Philippines, by
Philippine provincial, city or
municipal governments, or by any
Philippine Government
instrumentality, and having
maturities of not more than 10
years from the date of advance.
Advances made against the collateral
named in clauses (f) and (g) may not
exceed 80% of the current market value
of the collateral.
Special Credit Operation:
The BSP may extend loans and advances to
banking institutions
for a period of not more than 7 days
without any collateral
for the purpose of providing liquidity to
the banking system in times of need.
(Sec. 83)
Emergency Credit Operation:
The MB may, by a vote of at least 5 of its
members, authorize the BSP to grant
extraordinary loans or advances to banking
institutions secured by assets as defned
hereunder
a.Periods of national and/or local
emergency
b.Periods of imminent fnancial panic
which directly threaten monetary and
banking stability,
c.Normal periods for the purpose of
assisting a bank in a precarious
fnancial condition or under serious
fnancial pressures brought by
unforeseen events, or events which,
though foreseeable, could not be
prevented by the bank concerned (Sec.
84)
Condition for a and b: while such loans or
advances are outstanding, the debtor
institution shall not, except upon prior
authorization by the MB, expand the total
volume of its loans or investments. (Sec. 84)
Conditions for c: the MB has ascertained
that the bank is not insolvent and has the
assets defned hereunder to secure the
advances (Sec. 84)
Credit Terms
RULE: The BSP shall collect interest and
other appropriate charges on all loans and
advances it extends, the closure,
receivership or liquidations of the debtor-
institution notwithstanding. (Sec. 85)
Open Market Operations for the BSPs
Account:
The open market purchases and sales of
securities by the BSP shall be made
exclusively in accordance with its primary
objective of achieving price stability. (Sec.
90)
How:
1.Purchase and sales in the open market
government securities (Sec. 91)
2.Issuance and negotiation of freely
negotiable evidences of indebtedness of
the BSP
Only in cases of extraordinary
movement in price levels (Sec. 92)
and may be acquired by the BSP
before their maturity (Sec. 92)
BSP Portfolio:
At least once every month the MB shall
review the portfolio of the BSP in relation to
its future credit policy. In reviewing the
BSP's portfolio, the MB shall especially
consider whether a sufciently large part of
the portfolio consists of assets with early
maturities, in order that a contraction in
BSP credit may be efected promptly
whenever the national monetary policy so
requires. (Sec. 93)
Bank Reserves
All banks operating in the Philippines shall
be required to maintain reserves against
their deposit liabilities (uniform application)
The MB may, at its discretion, also require
all banks and/or quasibanks to maintain
reserves against funds held in trust and
liabilities for deposit substitutes
EXC: deposits and deposit substitutes with
remaining maturities of 2 years or more, as
well as interbank borrowings (Sec. 94)
Deposits maintained by banks with the
BSP as part of their reserve
requirements shall be exempt from
attachment, garnishments, or any other
order or process of any court,
government agency or any other
administrative body issued to satisfy the
claim of a party other than the
Government, or its political subdivisions
or instrumentalities. (Sec. 103)
Required Reserves:
1. Against Peso Deposits. The MB may fx
and, when it deems necessary, alter the
minimum reserve ratios to peso
deposits, as well as to deposit
substitutes, which each bank and/or
quasi-bank may maintain, and such
ratio shall be applied uniformly to all
banks of the same category as well as to
quasi-banks. (Sec. 96)
2. Against Foreign Currency Deposits.
The MB is similarly authorized to
prescribe and modify the minimum
reserve ratios applicable to deposits
denominated in foreign currencies. (Sec.
97)
3. Against Unused Balances of Overdraft
Lines. In order to facilitate BSP control
over the volume of bank credit, the MB
may establish minimum reserve
requirements for unused balances of
overdraft lines. The powers of the MB to
prescribe and modify reserve
requirements against unused balances
of overdraft lines shall be the same as
its powers with respect to reserve
requirements against demand deposits.
(Sec. 98)
Selective Regulation Of Bank Operations:
Guiding Principle: The MB shall use the
powers granted to it to ensure that the
supply, availability and cost of money are in
accord with the needs of the Philippine
economy and that bank credit is not
granted for speculative purposes prejudicial
to the national interests. (Sec. 104)
Regulations:
1. Margin Requirements Against Letters
of Credit the MB may at any time
prescribe minimum cash margins for
the opening of letters of credit, and may
relate the size of the required margin to
the nature of the transaction to be
fnanced. (Sec. 105)
2. Required Security Against Bank
Loans in order to promote liquidity
and solvency of the banking system, the
MB may issue such regulations as it
may deem necessary with respect to the
maximum permissible maturities of the
loans and investments which the banks
may make, and the kind and amount of
security to be required against the
various types of credit operations of the
banks. (Sec. 106)
3. Portfolio Ceilings whenever the MB
considers it advisable to prevent or
check an expansion of bank credit, it
may place an upper limit on the amount
of loans and investments which the
banks may hold, or may place a limit on
the rate of increase of such assets
within specifed periods of time. The MB
may apply such limits to the loans and
investments of each bank or to specifc
categories thereof. In no case shall the
MB establish limits which are below the
value of the loans or investments of the
banks on the date on which they are
notifed of such restrictions. The
restrictions shall be applied to all banks
uniformly and without discrimination.
(Sec. 107)
4. Minimum Capital Ratios the MB may
prescribe minimum ratios which the
capital and surplus of the banks must
bear to the volume of their assets, or to
specifc categories thereof, and may
alter said ratios whenever it deems
necessary. (Sec. 108)
Coordination of Credit Policies By
Government Institutions:
GOCCs which perform banking or credit
functions shall coordinate their general
credit policies with those of the MB.
The MB may, whenever it deems it
expedient, make suggestions or
recommendations to such corporations for
the more efective coordination of their
policies with those of the BSP. (Sec. 109)
D.As Banker and Financial Adviser
of the Government
BSP as Banker of the Government:
The BSP shall act as a banker of the
government, its political subdivisions and
instrumentalities. (Sec. 110)
Remuneration:
The BSP may charge equitable rates,
commissions or fees for services which it
renders to the government, its political
subdivisions and instrumentalities. (Sec.
116)
BSP as Financial Advisor of the
Government:
1.Render opinion, as shall be requested
by the Government, in the following
a.credit operation of the government
abroad based on the gold and
foreign exchange resources and
obligations of the antion and on the
efects of the proposed operation on
the balance of payments and on
monetary aggregates
b.borrowing within the Philipines on
the probable efects of the proposed
operation on monetary aggregates,
the price level, and the balance of
payments (Sec. 123)
2.The Deputy Governor designated by the
Governor shall be an ex-ofcio member
of the NEDA in order to assure
efective communication betweent eh
economic, fnancial and fscal policies of
the government and the monetary,
credit and exchange policies of the BSP
(Sec. 124)
BSP Support of the Government
Securities Market:
Securities Stabilization Fund
1.shall be administered by the BSP for the
account of the Government
2.the operations of the SSF shall consist
of purchases and sales, in the open
market, of bonds and other evidences of
indebtedness issued or fully guaranteed
by the Government. The purpose of
these operations shall be to increase the
liquidity and stabilize the value of said
securities in order thereby to promote
investment in government obligations.
The MB shall use the resources of the
SSF to prevent, or moderate, sharp
fuctuations in the quotations of said
government obligations, but shall not
endeavor to alter movements of the
market resulting from basic changes in
the pattern or level of interest rates.
(Sec. 120)
3.The SSF shall retain net profts which it
may make on its operations, regardless
of whether said profts arise from
capital gains or from interest earnings.
The SSF shall correspondingly bear any
net losses which it may incur. (Sec. 122)
E. Other Operations
1.Conduct of Research and
Statistics
Purpose:
For the guidance of the MB in the
formulation and implementation of its
policies (Sec. 22)
Data:
Forecasts of the balance of payment of the
Philippines, statistics on the monthly
movement of the monetary aggregates and
of prices and other statistical series and
economic studies useful for the formulation
and analysis of monetary, banking, credit
and exchange policies. (Se. 22)
Authority of BSP to obtain data and
information:
a.through a request
b.from government ofces and
instrumentalities, or government-owned
or controlled corporations
c.any data which it may require for the
proper discharge of its functions and
responsibilities
d.can be enforced through the issuance of
a subpoena for the production of the
books and records (refusal of the
subpoena without justifable cause =
contempt) (Sec. 23)
2.Training of Technical Personnel
The BSP shall promote and sponsor the
training of technical personnel in the feld
of money and banking and shall defray the
costs of study, at home or abroad, of:
a.qualifed BSP employees
b.promising university graduates
c.any other qualifed persons determined
by proper competitive examinations
(Sec. 24)
3.Reportorial Requirements
a.general balance sheet showing the
volume and composition of the BSPs
assets and liabilities as of the last
working day of the month within 60
days after the end of each month except
for December which shall be submitted
within 90 days after the end hereof
b.analysis of economic and fnancial
developments, including the condition
of net international reserves and
monetary aggregates not later than 90
days after the end of each quarter
c.the preceding years budget and proft
and loss statement of the BSP
showing in reasonable detail the result
of its operations
d.a review of the state of the fnancial
system 120 days after the end of each
semester
e.abnormal movements in monetary
aggregates and the general price level
as soon as practicalbe and not later
than 72 hours after they are taken,
remedial measures in response to such
abnormal movements (Sec. 39)
f. annual report on the condition of the
BSP including a review of the policies
and measures adopted by the MB
during the past year and an analysis of
the economic and fnancial
circumstances which gave rise to said
policies and measures (Sec. 40)
Efect of failure to comply with the
annual report:
Failure to comply with the reportorial
requirement without justifable reason as
may be determined by the MB shall cause
the withholding of the salary of the
personnel concerned until the requirements
are complied with. (Sec. 40)
Signatures on Statements:
The balance sheets and other fnancial
statements of the BSP shall be signed by
a.the ofcers responsible for their
preparation
b.the Governor
c.the auditor of the BSP. (Sec. 41)
F. Prohibited Operations
Prohibitions on BSP Personnel:
In addition to the prohibitions found in RA
3019 and 6713, personnel of the BSP are
hereby prohibited from:
1. being an ofcer, director, lawyer or
agent, employee, consultant or
stockholder, directly or indirectly, of
any institution subject to supervision or
examination by the BSP, except:
a.non-stock savings and loan
associations and provident funds
organized exclusively for employees
of the BSP, and
b.as otherwise provided in the NCBA
2.directly or indirectly requesting or
receiving any gift, present or pecuniary
or material beneft for himself or
another, from any institution subject to
supervision or examination by the BSP;
3.revealing in any manner, except under
orders of the court, the Congress or any
government ofce or agency authorized
by law, or under such conditions as may
be prescribed by the MB, information
relating to the condition or business of
any institution. This prohibition shall
not be held to apply to the giving of
information to the MB or the Governor
of the BSP, or to any person authorized
by either of them, in writing, to receive
such information; and
4.borrowing from any institution subject
to supervision or examination by the
BSP shall be prohibited unless said
borrowings are adequately secured, fully
disclosed to the MB, and shall be
subject to such further rules and
regulations as the MB may prescribe:
Provided, however, That personnel of the
supervising and examining departments
are prohibited from borrowing from a
bank under their supervision or
examination. (Sec. 27)
Prohibitions on the BSP:
1.acquisition of shares of any kind or
accept them as collateral
2.participation in the ownership or
management of any enterprise, either
directly or indirectly
3.being engaged in development banking
EXCEPTION: outstanding loans
obtained or extended for development
fnancing (Sec. 128)
REVIEWER IN COMMERCIAL LAW Chapter III. Law on Secrecy of Bank Deposits (RA 1405)
Chapter III. Law on Secrecy of
Bank Deposits (RA 1405)
I. PURPOSES
II.COVERAGE
III.PROHIBITED ACTS
IV.EXCEPTIONS
V. PENALTY
I.Purposes
A.To give encouragement to the people to
deposit their money in banking
institutions and to discourage private
hoarding
B.So that the peoples money may be
properly utilized by banks in authorized
loans to assist in the economic
development of the country. (Sec. 1)
II.Coverage
All deposits of whatever nature with banks
or banking institutions in the Philippines
are hereby considered as of an absolutely
confdential nature and may not be
examined. (Sec. 2)
Includes investments in bonds issued by
the Philippine Government, its political
subdivisions and its instrumentalities. (Sec.
2)
III.Prohibited Acts
1.No person, government ofcial, bureau
or ofce may examine, inquire into or
look into such deposits; and
2.No ofcial or employee of any banking
institution may disclosure to any
unauthorized person any information
concerning said deposits (Sec. 3).
IV.Exceptions
A.Upon written permission of the
depositor
B.In cases of impeachment
C.Upon order of a competent court in
cases of:
a.bribery
b.dereliction of duty of public ofcials,
or
c.where the money deposited or
invested is the subject matter of the
litigation. (Sec. 2)
Banco Filipino vs Purisima (1988)
The exception applies to cases of concealment of
illegally acquired property in anti-graft cases.
The inquiry into illegally acquired property or
property NOT "legitimately acquired" extends to
cases where such property is concealed by being
held by or recorded in the name of other
persons.
Mellon Bank, N.A. vs. Magsino, (1990)
The exception extends to cases of concealment of
illegally acquired property not involving anti-
graft cases.
Other exceptions:
1.upon order of a competent court in
cases of unexplained wealth under RA
3019 or the Anti-Graft and Corrupt
Practices Act (PNB v. Gancayco, 1965;
Banco Filipino v. Purisima, 1988;
Marquez v. Desierto, 2001)
2.when inquiry is conducted under the
authority of the Commissioner of
Internal Revenue into the bank
accounts of the following:
a.a decedent in order to determine his
gross estate
b.any taxpayer who has fled an
application for compromise of his
tax liability, which application shall
include a written waiver of his
privilege under RA 1405 or under
other general or special laws. (Sec.
6(F) NIRC)
3.in cases under the Anti-Money
Laundering Lact of 2001 (RA 9160), no
court order required if
a.funds or property involved consists
of investments
b.said investments are related to
i. kidnapping for ransom
ii.unlawful activities under
Comprehensive Drugs Act of 2002
iii.hijacking and other violations
under RA 6235
iv.destructive arson and murder,
including those perpetrated by
terrorists against non-combatants
and similar targets.
4.Under Sec. 26 of RA 7653 or the New
Central Bank Act of 1993, when the
examination is conducted pursuant to
the required waiver of the secrecy of
deposits (of whatever nature in all
banks in the Philippines) made by any
DOSRI
5.Disclosure of certain information about
bank deposits which have been dormant
for at least 10 years, to the Treasurer of
the Philippine in a sworn statement, a
copy of which is posted in the bank
premises. (Sec. 2, Unclaimed Balances
Law (Act No. 3926, as amended))
[NOT considered as EXCEPTIONS]:
a.In 1981, PD 1792 added the following
grounds when the bank can be
compelled to reveal the amount of a
depositor:
i. made in the course of a special or
general examination of a bank and
is specifcally authorized by the
Monetary Board after being satisfed
that there is reasonable ground to
believe that a bank fraud or serious
irregularity has been or is being
committed and that it is necessary
to look into the deposit to establish
such fraud or irregularity, or
ii. made by an independent auditor
hired by the bank to conduct its
regular audit provided that the
examination is for audit purposes
only and the results thereof shall be
for the exclusive use of the bank.
However, Sec. 135 of RA 7653 or the
New Central Bank Act reverted RA
1405 to its version prior to the
promulgation of the decree.
a) Thus Villanueva says that these
two instances as excluded from
the enumeration of exceptions to
the secrecy of bank deposits
(Villanueva, Commercial Law
Review, opinion).
b) Morales however notes that with
the Amendment of the Anti-
Money Laundering Act of 2001,
exception (1) has been
substantially resurrected. While
there is no similar development
of exception (2), the exclusion of
the BSP examiners and
independent auditors from the
coverage of the Secrecy of Bank
Deposits Law fnds basis in
Opinion No. 243 (s. 1975) of
then Secretary of Justice Pedro
Tuason. (Morales, The Philippine
b. It used to be believed that the RA 1405
did not apply to the Ombudsman, on
account of his authority under Sec.
15(8) of RA 6770 or the Ombudsman
Act of 1989 to examine and have
access to bank accounts and records.
However, the SC (Marquez v. Desierto,
2001) restricted the Ombudsmans
power as follows: before an in camera
inspection may be allowed, there must
be a pending case before a court of
competent jurisdiction. Further, the
account must be clearly identifed, the
inspection limited to the subject matter
of the pending case before the court of
competent jurisdiction. The bank
personnel and the account holder must
be notifed to be present during the
inspection, and such inspection may
cover only the account identifed in the
pending case. (Morales, The Philippine
General Banking Law)
c. Further, it is interesting to note that
the Secretary of Justice in his Opinion
No. 13 (s. 1987) concluded that the
Presidential Commission on Good
Government can compel banks to
disclose or produce bank records
without violating the bank secrecy
laws. (Morales, The Philippine General
Banking Law)
d. Moreover, under Sec. 1(d) of RA 6382
(1990), which created the Davide
Commission that conducted a fact
fnding investigation of the failed coup d
etat of December 1989, the commission
had the power to ask the Monetary
board to disclose information on and/or
grant authority to examine bank
deposits, trust fnds, or banking
transactions in the name of and/or
utilized by a person, natural or
juridical, under investigation by the
Commission, in any bank or banking
institution in the Philippines, when the
Commission has reasonable ground to
believe that said deposits, trust or
investment funds, or banking
transactions have been used in support
of furtherance of the objectives of the
coup d etat. (Morales, The Philippine
General Banking Law)
V.Penalty
Imprisonment of not more than 5 years or a
fne of not more than P20,000 or both, in
the discretion of the court (Sec. 5)
REVIEWER IN COMMERCIAL LAW Chapter IV. Truth in Lending Act (RA 3765)
Chapter IV. Truth in Lending Act
(RA 3765)
I. POLICY
II.DISCLOSURE STATEMENT
III.COVERAGE
IV.SANCTIONS
I.Policy
Protection of the 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 used
of credit to the detriment of the national
economy (Sec. 2)
II.Disclosure Statement
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
Monetary Board of the BSP, 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 diference between the amounts set
forth under 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 the
credit;
5.the total amount to be fnanced;
6.the fnance charge expressed in terms of
pesos and centavos; and
7.the percentage that the fance bears to the
total amount to be fnanced expressed as
a simple annual rate on the outstanding
unpaid balance of the obligation. (Sec. 4)
III.Coverage
a. any loan, mortgage, deeds of trust,
advance or discount;
b.any conditional sales contract;
c. 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;
d.any rental-purchase contract
e. any contract or arrangement for the hire,
bailment, or leasing of property
f. any option, demand, lien, pledge, or other
claim against or for the delivery of,
property or money;
g. 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
h.any transaction or series of transactions
having a similar purpose or efect (Sec. 3
(2))
Outside the coverage:
a. those that do not involve the payment of
any fnance charge by the debtor
b.those in which the debtor is the one
specifying a defnite and fxed set of credit
terms such as bank deposits, insurance
contracts, sales of bonds, etc. (Sec. 3 of
CB Circular No. 158)
IV.Sanctions
a. Any creditor who in connection with any
credit transaction fails to disclose to any
person any information in violation of this
Act or any regulation issued thereunder
shall be liable to such person in the
amount of P100 or in an amount equal to
twice the fnance charged required by
such creditor in connection with such
transaction, whichever is greater, except
that such liability shall not exceed P2,000
on any credit transaction. Action to
recover such penalty may be brought by
such person within one year from the date
of the occurrence of the violation, in any
court of competent jurisdiction. (Sec. 6 (a))
b.Any person who willfully violates any
provisions of this Act or any regulation
issued thereunder shall be fned not less
than P1,000 or more than P5,000 or
imprisonment for not less than 6 months,
nor more than 1 year or both (Sec. 6 (c))
RULE: The validity or enforceability of any
contract or transaction is not afected.
EXCEPTION: failure to disclose the required
information (Sec. 6)
Exemption:
No punishment or penalty provided by this
Act shall apply to the Philippine Government
or any agency or any political subdivision
thereof. (Sec. 6 (d))
Final judgment as prima facie evidence:
A fnal judgment hereafter rendered in any
criminal proceeding under this Act to the
efect that a defendant has willfully violated
this Act shall become prima facie evidence
against such defendant in an action or
proceeding brought by any other party against
such defendant under this Act as to all
matters respecting which said judgment
would be an estoppel as between the parties
thereto. (Sec. 6 (e))
Chapter V.
Anti-Money
Laundering
Act (RA 9160
as amended
by RA 9194)
I. POLICIES
II.COVERAGE
III.OBLIGATIONS OF COVERED
INSTITUTIONS
A. CUSTOMER IDENTIFICATION
B.RECORD KEEPING
C.REPORTING OF COVERED AND
SUSPICIOUS TRANSACTIONS
IV.FREEZE ORDER
V. FORFEITURE PROVISIONS
VI.ANTI-MONEY LAUNDERING COUNCIL
I.Policies
A.To protect and
preserve the
integrity and
confdentiality
of bank
accounts
B.To ensure that
the
Philippines
shall not be
used as a
money
laundering
site for the
proceeds of
any unlawful
activity
C.Consistent
with its
foreign policy,
to extend
cooperation in
transnational
investigations
and
prosecutions
of persons
involved in
money
laundering
activities
whenever
committed.
(Sec. 2 RA
9160)
Policy against
political
harassment:
A.AMLA shall
not be used
for political
prosecution or
harassment or
as an
instrument to
hamper
competition in
trade and
commerce
B.No case for
money
laundering
may be fled
against and
no assets
shall be
frozen,
attached or
forfeited to the
prejudice of a
candidate for
an electoral
ofce during
an election
period (Sec.
16)
II.Coverage
Money
Laundering is a
crime whereby
the proceeds of an
unlawful activity
are transacted,
thereby making
them appear to
have originated
from legitimate
sources. (Sec. 4)
Any person may
be charged with
and convicted of
both the ofense
of money
laundering and
the unlawful
activity. Any
proceeding
relating to the
unlawful activity
shall be given
precedence over
the prosecution of
any ofense or
violation under
RA 9160, as
amended, without
prejudice to
freezing and other
remedies provided
RA 9160. (Sec. 6)
Prohibited Acts
1.Transacting or
attempting to
transact with
monetary
instrument or
property,
knowing such
to represent,
involve, or
relate to the
proceeds of
any unlawful
activity
2.Facilitating
the ofense of
money
laundering
referred to in
1 by
knowingly
performing or
failing to
perform any
act
3.Knowingly
failing to
disclose and
fle a report
with the Anti-
Money
Laundering
Commission
(AMLC) of any
monetary
instrument or
property as
required (Sec.
4)
Covered
Transactions:
Transactions in
cash or other
equivalent
monetary
instrument
involving a total
amount in excess
of P500,000
within 1 banking
day (Sec. 3(b))
Suspicious
Transactions:
Transactions with
covered
institutions,
regardless of the
amounts involved,
where any of the
following
circumstances
exist:
1.There is no
underlying
legal or trade
obligation,
purpose or
economic
justifcation;
2.The client is
not properly
identifed;
3.The amount
involved is not
commensurat
e with the
business or
fnancial
capacity of the
client;
4.Taking into
account all
known
circumstances
, it may be
perceived that
the client's
transaction is
structured in
order to avoid
being the
subject of
reporting
requirements
under the Act;
5.Any
circumstances
relating to the
transaction
which is
observed to
deviate from
the profle of
the client
and/or the
client's past
transactions
with the
covered
institution;
6.The
transactions
is in a way
related to an
unlawful
activity or
ofense under
this Act that
is about to be,
is being or has
been
committed; or
7.Any
transactions
that is similar
or analogous
to any of the
foregoing.
(Sec. 3(b-1))
Covered
Institutions:
1.Banks, non-
banks, quasi-
banks, trust
entities, and
all other
institutions
and their
subsidiaries
and afliates
supervised or
regulated by
the BSP;
2.Insurance
companies
and all other
institutions
supervised or
regulated by
the PDIC; and
3.The following
entities
supervised or
regulated by
SEC:
a.securities
dealers,
brokers,
salesmen,
investment
houses
and other
similar
entities
managing
securities
or
rendering
services as
investment
agent,
advisor, or
consultant
b.mutual
funds,
close and
investment
companies
, common
trust
funds,
pre-need
companies
and other
similar
entities,
c.foreign
exchange
corporatio
ns, money
changers,
money
payment,
remittance
, and
transfer
companies
and other
similar
entities,
and
d.other
entities
administer
ing or
otherwise
dealing in
currency,
commoditi
es or
fnancial
derivatives
based
thereon,
valuable
objects,
cash
substitute
s and
other
similar
monetary
instrumen
ts or
property
(Sec. 3(a))
III.Obligations
of Covered
Institutions
(Asked in
2006)
A.Customer
Identifcatio
n
1.establish and
record the
true identity
of its clients
based on
ofcial
documents
2.maintain a
system of
verifying th
true identity
of their clients
3.in the case of
corporate
clients,
require a
system of
verifying their
legal existence
and
organizational
structure, as
well as the
authority and
identifcation
of all persons
purporting to
act on their
behalf (Sec. 9)
Anonymous
accounts,
accounts under
fctitious names,
and all other
similar accounts
shall be
absolutely
prohibited
EXC: peso and
foreign currency
non-checking
numbered
accounts (but the
BSP may conduct
annual testing
solely limited to
the determination
of the existence
and true identity
of the owners of
such accounts)
(Sec. 9(a))
B.Record
Keeping
1.maintain and
safely store all
records of all
transactions
of covered
institutions
for 5 years
from the date
of the
transactions
2.with respect
to closed
accounts, to
preserve and
safely store
the records on
customer
identifcation,
account fles
and business
correspondenc
e for at least 5
years from the
dates when
they were
closed (sec.
9(b))
C.Reporting of
Covered and
Suspicious
Transaction
s
a.report to the
AMLC all
covered
transactions
and
suspicious
transactions
within 5
working days
from
occurrences
thereof,
unless the
Supervising
Authority
prescribes a
longer period
not exceeding
10 working
days.
b.when
reporting
covered or
suspicious
transactions,
covered
institutions
and their
ofcers and
employees
shall not be
deemed to
have violated
the Secrecy of
Bank Deposits
Act (RA 1405),
the Foreign
Currency
Deposits Act
(RA 6426) and
the General
Banking Law
of 2000 (RA
8791) and
other similar
laws, but they
are prohibited
from
communicatin
g, directly or
indirectly, in
any manner or
by an means,
to any person,
the fact that a
covered or
suspicious
transaction
report was
made, the
contents
thereof, or any
other
information in
relation
thereto. In
case of
violation
thereof, the
concerned
ofcer and
employee of
the covered
institution
shall be
criminally
liable.
However, no
administrative
, criminal or
civil
proceedings,
shall lie
against any
person for
having made a
covered or
suspicious
transaction
report in the
regular
performance
of his duties
in good faith,
whether or not
such reporting
results in any
criminal
prosecution
under this Act
of any other
law.
c.when
reporting
covered or
suspicious
transactions
to the AMLC,
covered
institutions
and their
ofcers and
employees are
prohibited
from
communicatin
g directly or
indirectly, in
any manner or
by any means,
to any person
or entity, the
media, the
fact that a
covered or
suspicious
transaction
report was
made, the
contents
thereof, or any
other
information in
relation
thereto.
Neither may
such reporting
be published
or aired in any
manner or
form by the
mass media,
electronic
mail, or other
similar
devices. In
case of
violation
thereof, the
concerned
ofcer and
employee of
the covered
institution
and media
shall be held
criminally
liable. (Sec.
9(c))
IV.Freeze
Order
Procedure:
a.The Court of
Appeals may
issue a freeze
order which
shall be
efective
immediately
1.upon
applicatio
n ex parte
by the
AMLC and
2.after
determinat
ion that
probable
cause
exists that
any
monetary
instrumen
t or
property is
in any way
related to
an
unlawful
activity,
b.The freeze
order shall be
for a period of
20 days
unless
extended by
the court.
(Sec. 10)
Examination of
Accounts:
1.by the AMLC
a.notwithsta
nding the
provisions
of the
Secrecy of
Bank
Deposits
Act, the
Foreign
Currency
Deposits
Act, the
GBL and
other laws
b.upon
order of
any
competent
court in
cases of
violation of
the AMLA
when it
has been
establishe
d that
there is
probable
cause that
the
deposits or
investment
s are
related to
an
unlawful
activity or
a money-
laundering
ofense
EXC: (no
court
order
required)
1.Kidnap
ping
2.Drug
Trafc
king
3.Hijacki
ng,
destru
ctive
arson
and
murder
,
includi
ng
those
perpetr
ated by
terrori
sts
against
non-
comba
tant
person
s and
similar
targets
2.by the BSP
made in te
course of a
periodic or
special
examinatio
n, in
accordanc
e with the
rules of
examinatio
n of the
BSP(Sec.
11)
V.Forfeiture
Provisions
Civil Forfeiture:
When there is
a covered
transaction
report made,
and the court
has, in a
petition fled
for the
purpose
ordered the
seizure of any
monetary
instrument or
property, in
whole or in
part, directly
or indirectly,
related to said
report
the Revised
Rules of Court
on civil
forfeiture shall
apply
Claim on
Forfeited Assets:
a.Where the
court has
issued an
order of
forfeiture of
the monetary
instrument or
property in a
criminal
prosecution
for any money
laundering
ofense, the
ofender or
any other
person
claiming an
interest
therein may
apply, by
verifed
petition,
b.for a
declaration
that the same
legitimately
belongs to him
and
c.for segregation
or exclusion of
the monetary
instrument or
property
corresponding
thereto.
The verifed
petition shall be
fled with the
court which
rendered the
judgment of
conviction and
order of forfeiture,
within ffteen days
from the date of
the order or
forfeiture, in
default of which
the said order
shall become fnal
and executory.
This provision
shall apply in
both civil and
criminal
forfeiture.
Payment in Lieu
of Forfeiture:
Where the court
has issued an
order of forfeiture
of the monetary
instrument or
property subject
of a money
laundering
ofense, and said
order
a.cannot be
enforced
because any
particular
monetary
instrument or
property
b.cannot, with
due diligence,
be located, or
c.has been
substantially
altered,
destroyed,
diminished in
value or
otherwise
rendered
worthless by
any act or
omission,
directly or
indirectly,
attributable to
the ofender,
or
d.has been
concealed,
removed,
converted or
otherwise
transferred to
prevent the
same from
being found or
to avoid
forfeiture
thereof, or
e.is located
outside the
Philippines or
has been
placed or
brought
outside the
jurisdiction of
the court, or
f. has been
commingled
with other
monetary
instruments
or property
belonging to
either the
ofender
himself or a
third person
or entity,
thereby
rendering the
same difcult
to identify or
be segregated
for purposes
of forfeiture,
in an amount
equal to the
value of said
monetary
instrument or
property
This provision
shall apply in
both civil and
criminal
forfeiture.
(Sec. 12)
VI.Anti-Money
Laundering
Council
Composition:
1.BSP Governor
(chairman)
2.Insurance
Commissioner
3.SEC
Chairman
Functions:
1. To require and
receive
covered or
suspicious
transaction
reports from
covered
institutions;
2. To issue
orders
addressed to
the
appropriate
Supervising
Authority or
the covered
institutions or
to request for
assistance
from a foreign
State to
determine the
true identity
of the owner
of any
monetary
instrument or
property
subject of a
covered
transaction or
suspicious
transaction
report,
believed by
the Council,
on the basis
of substantial
evidence, to
be, in whole
or in part,
wherever
located,
representing,
involving, or
related to
directly or
indirectly, in
any manner
or by any
means, the
proceeds of
an unlawful
activity
3. To institute
civil forfeiture
proceedings
and all other
remedial
proceedings
through the
Ofce of the
Solicitor
General;
4. To cause the
fling of
complaints
with the DOJ
or the
Ombudsman
for the
prosecution of
money
laundering
ofenses;
5. To investigate
suspicious
transactions
and covered
transactions
deemed
suspicious
after an
investigation
by AMLC,
money
laundering
activities and
other
violations of
the AMLA;
6. To apply
before the
Court of
Appeals, ex
parte, for the
freezing of
any monetary
instrument or
property
alleged to be
the proceeds
of any
unlawful
activity;
7. To implement
such
measures as
may be
necessary and
justifed
under the
AMLA to
counteract
money
laundering;
8. To receive and
take action in
respect of,
any request
from foreign
states for
assistance in
their own
anti-money
laundering
operations
provided in
this Act;
9. To develop
educational
programs on
the pernicious
efects of
money
laundering,
the methods
and
techniques
used in the
money
laundering,
the viable
means of
preventing
money
laundering
and the
efective ways
of prosecuting
and
punishing
ofenders;
10.To enlist the
assistance of
any branch,
department,
bureau,
ofce, agency,
or
instrumentali
ty of the
government,
including
GOCCs, in
undertaking
any and all
anti-money
laundering
operations,
which may
include the
use of its
personnel,
facilities and
resources for
the more
resolute
prevention,
detection, and
investigation
of money
laundering
ofenses and
prosecution of
ofenders; and
11.To impose
administrative
sanctions for
the violation
of laws, rules,
regulations,
and orders
and
resolutions
issued
pursuant
thereto (Sec.
7)
Mutual
Assistance
Among States:
1. Request for
Assistance
from a
Foreign
State:
The AMLC may
execute the
request or refuse
to execute the
same and inform
the foreign State
of any valid
reason for not
executing the
request or for
delaying the
execution thereof.
The principles of
mutuality and
reciprocity shall,
for this purpose,
be at all times
recognized.
2.Power of the
AMLC to Act
on a Request
for
Assistance
from a
Foreign
State:
The AMLC may
execute a request
for assistance
from a foreign
State by:
a.tracking
down,
freezing,
restraining
and seizing
assets alleged
to be proceeds
of any
unlawful
activity under
the
procedures
laid down in
the AMLA;
b.giving
information
needed by the
foreign State
within the
procedures
laid down in
this Act; and
c.applying for
an order of
forfeiture of
any monetary
instrument or
property in
the court:
Provided,
That the court
shall not issue
such an order
unless the
application is
accompanied
by an
authenticated
copy of the
order of a
court in the
requesting
State ordering
the forfeiture
of said
monetary
instrument or
property of a
person who
has been
convicted of a
money
laundering
ofense in the
requesting
State, and a
certifcation of
an afdavit of
a competent
ofcer of the
requesting
State stating
that the
conviction and
the order of
forfeiture are
fnal and that
no further
appeal lies in
respect or
either.
3.Obtaining
Assistance
from Foreign
States:
The AMLC may
make a request to
any foreign State
for assistance in:
a.tracking
down,
freezing,
restraining
and seizing
assets alleged
to be proceeds
of any
unlawful
activity;
b.obtaining
information
that it needs
relating to any
covered
transaction,
money
laundering
ofense or any
other matter
directly or
indirectly,
related
thereto;
c.to the extent
allowed by the
law of the
Foreign State,
applying with
the proper
court therein
for an order to
enter any
premises
belonging to
or in the
possession or
control of, any
or all of the
persons
named in said
request,
and/or search
any or all
such persons
named therein
and/or
remove any
document,
material or
object named
in said
request:
Provided,
That the court
shall not issue
such an order
unless the
application is
accompanied
by an
authenticated
copy of the
order of a
court in the
requesting
State ordering
the forfeiture
of said
monetary
instrument or
property of a
person who
has been
convicted of a
money
laundering
ofense in the
requesting
State, and a
certifcation of
an afdavit of
a competent
ofcer of the
requesting
State stating
that the
conviction and
the order of
forfeiture are
fnal and that
no further
appeal lies in
respect or
either.
4.Limitations
on Request
for Mutual
Assistance
AMLC may
refuse to
comply:
a.Where the
action sought
by the request
contravenes
any provision
of the
Constitution
or
b.The execution
of a request is
likely to
prejudice the
national
interest of the
Philippines
EXC: there is a
treaty between
the Philippines
and the
requesting State
relating to the
provision of
assistance in
relation to money
laundering
ofenses.
5.Requirement
s for
Requests for
Mutual
Assistance
from Foreign
State:
A request for
mutual assistance
from a foreign
State must:
a.confrm that
an
investigation
or prosecution
is being
conducted in
respect of a
money
launderer
named therein
or that he has
been
convicted of
any money
laundering
ofense;
b.state the
grounds on
which any
person is
being
investigated or
prosecuted for
money
laundering or
the details of
his conviction;
c.gives
sufcient
particulars as
to the identity
of said person;
d.give
particulars
sufcient to
identity any
covered
institution
believed to
have any
information,
document,
material or
object which
may be of
assistance to
the
investigation
or
prosecution;
e.ask from the
covered
institution
concerned any
information,
document,
material or
object which
may be of
assistance to
the
investigation
or
prosecution;
f. specify the
manner in
which and to
whom said
information,
document,
material or
object
detained
pursuant to
said request,
is to be
produced;
g.give all the
particulars
necessary for
the issuance
by the court
in the
requested
State of the
writs, orders
or processes
needed by the
requesting
State; and
h.contain such
other
information as
may assist in
the execution
of the request.
Extradition:
The Philippines
shall negotiate for
the inclusion of
money laundering
ofenses as herein
defned among
extraditable
ofenses in all
future treaties
(Sec. 13)
Amendment:
One of the many
amendments
made by RA 9194
was the deletion
of the phrase that
provided that
The provisions of
this Act shall not
apply to deposits
and investments
made prior to its
efectivity.
Chapter VI.
Foreign
Currency
Deposit Act
(RA 6426)
I. CONFIDENTIALITY
II.PRIVILEGES
The FCDA
allowed any
person to
deposit, and
banks to
accept
deposit, any
foreign
currency
acceptable as
part of the
Philippines
international
reserve.
I.Confdential
ity
All foreign
currency deposits
authorized under
the Secrecy Law
as well as under
PD1034 are
declared and
considered of an
absolutely
confdential
nature and,
except upon the
written
permission of the
depositor, in no
instance shall be
examine, inquired
or looked into by
any person,
government
ofcial, bureau or
ofce, whether
judicial or
administrative, or
legislative of any
other entity
whether public or
private. (Sec. 8)
The foreign
currency deposits
shall be exempt
from attachment,
garnishment, or
any other order or
process of any
court, legislative
body, government
agency or any
administrative
body whatsoever.
(Sec. 8)
Exceptions
1.upon written
permission of
the depositor
(Sec. 8,
Foreign
Currency
Deposit Act ;
Intengan vs
CA ; 2002)
2.upon order of
a competent
court in cases
of violation of
the Anti-
Money
Laundering
Act of 2001
[as in the case
of peso
deposits,
supra]
3.during
Bangko
Sentrals
periodic or
special
examinations
[as in the case
of peso
deposits,
supra], and
4.disclosure ot
the Treasurer
of the
Philippines
when the
unclaimed
balances law
applies (Act
3936, as
amended by
PD 679)
5.In Salvacion
vs. CB (1997),
where a
Filipino child
was raped by
a foreigner,
the SC
allowed
garnishment
of foreign
currency
deposits
stating : We
rule that the
questioned
Section 113 of
CB Circular
No. 960 which
exempts from
attachment,
garnishment,
or any other
order or
process of any
court.
Legislative
body,
government
agency or any
administrative
body
whatsoever, is
applicable to a
foreign
transient,
injustice
would result
especially to a
citizen
aggrieved by a
foreign guest.
II.Privileges
1.Tax exemption
the FCD,
including
interests and
all other
income or
earnings of
such deposits,
are exempt
from any an
all taxes
whatsoever
irrespective of
whether or not
these deposits
are made by
residents or
non-residents
and, in the
latter case,
irrespective of
whether or not
the non-
residents are
engaged in
trade or
business in
the
Philippines
(Sec. 6)
2.Exemption
from
attachment,
garnishment
or any other
order or
process of any
court,
legislative or
administrative
body, or
government
agency
whatsoever
(Sec. 8)
EXC: the CA,
upon application
ex parte by the
AMLC and after
determination
that a probable
cause exists that
any monetary
instrument or
property is in any
way related to an
unlawful
activity, the
AMLC, may freeze
the account (Sec.
10, RA9160)
REVIEWER IN COMMERCIAL LAW Chapter VI. Foreign Currency Deposit Act (RA 6426)

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