Anti-Dummy Law (CA 108 as amended by PD 715)

- An act to punish evasion of the laws on the nationalization of certain rights, franchises, or privileges
- Purpose is to prevent circumvention of the nationalization laws of the country
Nationalization or Filipinization law – one which limits a certain economic activity, or the exercise or enjoyment of a certain
right, privilege, property, or business only to Filipino citizens, or to corporations or associations at least a certain percentage of
the capital of which is owned by Filipino citizens
e.g. constitutional provision on operation of public utilities

• The law bans employment of aliens in all entities engaged in nationalized activities and the ban includes even minor or
clerical or non-control positions
• In King v. Hernaez (1962), the SC held that the employment of Chinese nationals as purchaser and salesman in a
grocery business, which is required by the then Retail Trade Nationalization Law to be wholly Filipino owned, was a
violation of the Anti-Dummy Law
• “The reason is obvious: to plug any loophole or close any avenue that an unscrupulous alien may resort to flout the law
or defeat its purpose, for no one can deny that while one may be employed in a non-control position who apparently is
harmless, he may later turn out to be a mere tool to further the evil designs of the employer.”
• Under Sec. 2a of the law, the prohibition against employment by any person, corporation, or association, of an alien,
who shall intervene in the management, operation, administration, or control thereof, whether as officer, employee or
laborer, applies where the exercise or employment of the property or of the franchise, privilege, or business engaged in
by such person, corporation, or association “is expressly reserved by the Constitution or by law to citizens of the
Philippines or corporations or associations at least 60% of the capital of which is owned by such citizen.”
• In Luzon Stevedoring v. Anti-Dummy Board (1972), the SC held that Sec. 2a applies to a public utility the capital of
which by law, may be owned by aliens up to 40%
Completely nationalized activities – those the exercise and enjoyment of which are expressly reserved by the Constitution
and/or laws to citizens of RP or to corporations or associations wholly owned by such citizens.
Partially nationalized activities – if the enjoyment of exercise of the undertaking or activity is limited by the Constitution or
law to corporations or associations at least 60% of the capital of which is Filipino owned

To what extent may foreign investors participate in the governing body of a partially nationalized business or industry?
As amended by PD 715, the Anti-Dummy Law now allows the election of aliens as members of the board of directors or
governing body of corporations or associations engaged in partially nationalized activities, in proportion to their allowable
participation or share in the capital of such entities. This is in line with Art. 14, Sec. 5 of the Constitution which provides
that “participation of foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in the capital thereof.”

Exceptions to the ban on alien employment:

1) Where the Secretary of Justice specifically authorizes the employment of the alien as technical personnel;
2) The election of aliens as members of the board of directors engaged in partially nationalized activities in proportion to
their allowable participation in the capital of such entities
May an alien stockholder in a real estate firm who is elected as director, pursuant to PD 715, hold any other position like
president, vice-president, or treasurer in such entity?
No. PD 715 was merely intended to give alien stockholders limited representation in the governing board in proportion to
their equity. Thus, alien directors may not hold any other position in said entity. (Op. of Sec. of Justice, No. 36, s. 1976)

Anti-Dummy Law
Is the authority to approve the employment of aliens, as technical personnel in a nationalized trade, business, or industry,
exclusively vested in the Sec. of Justice?
No. When there are special laws authorizing the entry and employment of foreign nationals in certain nationalized areas of
investment, this should be deemed exceptions to Sec. 2a of the Anti-Dummy Law, in that prior authority from the Sec. of Justice
need not be obtained. “When there is a special law empowering another govt office…, the authority of the Sec. of Justice need
not be secured because the special law is deemed to prevail over the general provisions of the Anti-Dummy Law (Ops. No.s 82 &
94 s. 1976)
Ex. Omnibus Investments Code

Technical personnel – includes any person who has special, extraordinary, or practical knowledge, especially of a mechanical or
scientific occupation
Note: The designation that a position is technical, for example, of a “technical consultant,” is not controlling. An evaluation has
to be made as to whether the duties require expertise of a technical nature.

SEC Opinion no. 08-06, January 23, 2008

Facts: X Co. is a PEZA-registered corporation engaged in wholesale and retail trading. It has an authorized capital stock of P20
million, 60% of its outstanding capital stock is owned by a foreign national who is reported in X Co.’s general information sheet
for 2007 as holding the positions of chairman of the board, assistant corporate secretary, and treasurer.
Issue: May the foreign shareholder of such entity concurrently act as chairman of the board, assistant corporate secretary, and
treasurer?
Ruling: A foreign national cannot act as corp sec. The RP Corp Code requires that the corp sec must be a Filipino citizen. On
concurrently acting as chairman and treasurer, the Anti-Dummy Law prohibits foreigners from being elected or appointed to
mgmt positions where there is a constitutional provision imposing a specific nationality reqt for the exercise or enjoyment of a
right.

Anti-Dummy Law

However, the Secretary of Justice has opined that when there is a special law allowing employment of foreigners in nationalized
activities, the special law supersedes the Anti-Dummy Law.
Sec. 1 of the PEZA Law IRR allows ecozone enterprises to employ foreign nationals in executive positions such as president,
vice-president, treasurer, and general manager, or their equivalents.
Sec. 2 provides that when majority of the capital stock of such ecozone enterprise is owned by foreign nationals, the positions of
president, treasurer, and general manager or their equivalents may be retained by foreign nationals.

Issue: Is a PEZA-registered entity engaged in retail trade and is majority-owned by a foreign national exempt from the provisions
of the Retail Trade Liberalization Act of 2000?
Ruling: No. RA 7916 or the PEZA Law and its IRR provide that any corporation may apply for registration as a PEZA enterprise,
provided that if the corporation seeking registration is engaged in a business covered by the negative list of the FIA, then the
nationality, ownership, or control requirements of the FIA must be observed.
- The RTLA and the 7th negative list of the FIA allows foreign participation in an enterprise engaged in retail trade if the paid-up
capital of said enterprise is $2.5M or more. Thus, X Co. will have to comply with the required minimum capital to be allowed to
engage in retail trade.

SEC Opinion No. 09-03 (Jan. 21, 2009)

Facts: Scanasia is a domestic corporation incorporated under RP laws. It is alleged that all of Scanasia’s issued and outstanding
capital (formerly 99.82% foreign and 0.18% Filipino) have been sold to Aboitiz One, a publicly listed domestic corporation,
99.13% of the issued and outstanding capital stock of which is owned by Philippine nationals.
The board of directors of Scanasia want to elect at least one foreign national to the board. After the election, the foreigner shall be
appointed as president. In addition, Aboitiz One wants to appoint a foreign national as its sales and marketing director compliant
with the visa, immigration and employment requirements of the Philippines.

Scanasia

Issues:
1) Are the restrictions in Sec. 2a of the Anti-Dummy Law inapplicable to Scanasia?
2) Can a foreign national who holds in his name one nominee share in a domestic corporation that is not engaged in a
nationalized activity be elected as one of its directors and as its president?
3) Can a foreign national be appointed as sales and marketing director of a domestic corporation that is not engaged in any
nationalized activity?
On the first issue:
Sec. 2a of the Anti-Dummy Law is inapplicable to Scanasia considering that: (1) it is engaged in the importation,
distribution and wholesale of food products which is neither a nationalized or partly nationalized industry; (2) it does not
own real estate in RP. The requirement under Sec. 2a specifically refers only to partially nationalized activities.
On the second issue:
The President must be a director. To qualify as a director of a domestic corporation, he should be a stockholder or should
own at least one share of the capital of the corporation.

On the third issue:

- In firms engaged in wholly or partially nationalized activities, aliens are banned from being appointed to mgt positions
of the same companies, although they can be elected directors in proportion to their allowable participation or share in
the capital. Thus, a foreigner cannot be elected as president of a domestic corporation engaged in nationalized or
partially nationalized activities.
- Considering that the business of the company is neither nationalized nor partially nationalized, such foreigner may be
elected president, subject to the qualification provided for under the Corporation Code. Being a non-resident, he cannot
be elected treasurer. (not a CC reqt but dictated by good corporate practice due to nature of function)

Anti-Dummy Law
Sec. 2-A.
1) Any person, corporation, or assn which, having in its name or under its control, a right, franchise, privilege, property,
or business the exercise of enjoyment of which is expressly reserved by the Constitution or the laws to citizens of RP or
of any other specific country, or to corporations or assns at least 60 per centum of the capital of which is owned by such
citizens.
2) Permits or allows the use, exploitation or enjoyment thereof by a person, corporation, or association not possessing the
requisites prescribed by the Constitution or the laws of the Philippines

3) Or leases, or in any other way, transfers or conveys said right, franchise, privilege, property or business to a person,
corporation or association not otherwise qualified under the Constitution, or the provisions of existing laws;

4) Or in any manner permits or allows any person, not possessing the qualifications required by the Constitution, or existing
laws to acquire, use, exploit, or enjoy a right, franchise, privilege, property or business, the exercise and enjoyment of which
are expressly served by the Constitution or existing laws to citizens of the Philippines or to any specific country, or
intervene in the management, operation, administration or control thereof, whether as an officer, employee or laborer therein
with or without renumeration, except technical personnel whose employment may be specifically authorized by the
Secretary of Justice.

5) And any person who knowingly aids, assists or abets in the planning, consummation or perpetration of any of the acts
enumerated shall be punished by imprisonment for not less than 5 nor more than 15 years and a fine of not less than the
value of the right, franchise or privilege enjoyed or acquired in violation of the provisions hereof but in no case less than
P5000.
- The president, manager, or persons in charge of corporations, assns or partnerships violating the provisions of this
section shall be criminally liable in lieu thereof.
- In addition, any person, corporation or assn shall forfeit such right, franchise, privilege or property or business enjoyed
or acquired in violation of this Act
5) … the election of aliens as members of the board of directors or governing body of corporations or associations engaging
in partially nationalized activities shall be allowed in proportion to their allowable participation or share in the capital of
such entities.