GALICIA_finals

DE LA SALLE UNIVERSITY - COLLEGE OF LAW

Law 805M/ G01 & G02
 
Final Exams
Tuesday, May 24, 2022
6-8pm

 
Reminders:
 Place your answer after each question. You may use a different font for your answers.
Deductions for failure to strictly follow instructions. 
 The header contains the naming protocol for this exam: fill in your family name. Use the
same as your document file name: FAMILY NAME_finals. Family name in CAPITAL
LETTERS. Deductions for failure to strictly follow instructions. 
 Email your finished exam in Word format to mggclasses@gmail.com. Subject: Block -
FAMILY NAME_finals. Please wait for the acknowledgment of your submission before
leaving the classroom.

Part 1. Application of principles

I. AMLA

1. Briefly describe the three main obligations of covered institutions under the Anti-Money
Laundering Act. 3 points

The three main obligations of a covered institution under the AMLA would be:
a. Customer identification
i. The covered institutions should see to it that they have a record of the
true identities of their clients evidenced by official documents, and
anonymous accounts are strictly prohibited
b. Record keeping
i. This means that all covered institutions should be able to keep and store
all their records for 5 years from the date of the transaction
c. Reporting of covered transactions
i. The covered institutions must report to the AMLC all the transactions
that would fall under “covered transactions”, within 5 days from the
occurrence of the transaction, except if the supervisor would need a
longer period not exceeding 10 days

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2. What are the newly covered entities included in the most recent amendment to the AMLA?
3 points

The newly covered entities under the recent amendments to AMLA are:
a. Real estate developer
b. Real estate broker
c. Offshore gaming operators and their service provider

3. Distinguish a "covered transaction report" from a "suspicious transaction report" under the
Anti-Money Laundering Act. 5 points

Under the AMLA, a covered transaction is where reports are made wherein there is a
transaction in cash or its equivalent involving Php500,000.00 in one banking day, or when the
transactions involve jewelry in the amount excess of Php5,000,000.00, or real estate developers
and brokers have a single cash transaction in excess of Php7,500,000.00

A suspicious transaction is when there is a transaction by a person with a covered institution,

and such transactions involve suspicious circumstances such as when a client is not properly
identified, or when there is no legal cause or economic justification for the transaction, or
transactions similar to those given.

4. Jerry, the Congressman of the 2nd district of Muntinlupa, has substantial cash assets which
he placed with BancOne Savings under his name. He also has a joint checking account with
his wife Queenie, still others in the name of his two children and daughter-in-law Reena.

On an anonymous tip from the Office of Congressman Jerry, the AMLC sent an order to
BancOne Savings to confirm the outstanding amount in all the accounts of “Congressman
Jerry and all his family members by affinity or consanguinity” without specifying the bank
accounts and their account holders. The General Counsel of BancOne Savings objected to
the release of the details of the bank account, arguing that a written permission from Jerry
and his family members must be sought before the Bank can release the details of the
accounts.

(a) Is there basis for the position of the General Counsel? Or is he wrong? Explain. 3 points

The General Counsel of BancOne Savings is wrong. AMLA is a valid exception to the bank secrecy law.
According to Section 11 of the AMLA, the AMLC may examine any particular deposit with any banking

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institution upon order of the competent court in cases of violations of the law. However, it must be
established that there is probable cause that the deposits are involved in money laundering offenses.

In this case, there is no need for the written permission from Jerry and his family members should the
AMLC want to inquire on his deposits upon a written order by a court and with probable cause that such
deposit is involved in money laundering.

(b) Not having the patience to argue with BancOne Savings, the AMLC considered freezing
the accounts of Congressman Jerry. What is the nature and purpose of a freeze order,
who can issue it and what are the requirements for its issuance? 5 points

The action to freeze the accounts is in the nature of extraordinary and interim reliefs that may be
granted by the Court of Appeals. The purpose is to immediately stop the usage of money in unlawful
transactions provided in the law.

Such freeze order may be issued by the Court of Appeals when it finds that such facts and circumstances
would lead a prudent man to believe that there is an unlawful activity or a money laundering offense
that is about to be, is being, or has been committed.

II. Loans, investments

5. Wigbert is a member of the Board of Directors of Asia Commercial Bank (ACB) and at the
same time holds the position of Senior Vice President – Digital Business Unit. His wife Marla
is an interior designer and together with a friend-partner, builds or renovates houses and
(re)sells them for a profit.

Marla’s company applied for a PhP10million loan with ACB. When her loan application was
taken up during the meeting of the nine-member Board, there were five Directors present,
including Wigbert himself. All five Directors present voted in favor of approving the loan.

During the course of the BSP examination of the ACB loan portfolio, the BSP considered the
grant of the loan to Marla as a “compliance issue” on DOSRI rules.

(a) What are the three-fold requirements for a DOSRI loan? 5 points

The three-fold requirement for a DOSRI loans are, a) that there should be a written approval of the
majority of all the directors of the bank; 2) that the written approval should be entered upon the records
of the bank; 3) a copy of the approval should also be transmitted to the appropriate department of the
Bangko Sentral ng Pilipinas

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(b) In the Report of Examination, the BSP cited ACB for releasing a loan to Marla without
appropriate Board approval. Why? 3 points

BSP is correct in citing ACB on the grounds of lack of board approval. Under the law, a written approval
of the majority of all board of directs, excluding the director concerned, should be had before a DOSRI
may loan. In this case, there are 9 Board of Directors, and the majority needed for the approval is 5
directors. However, there was no majority because Wigbert was among the 5 directors who approved of
the loan.

(c) Frozen Dinners Company obtained a PhP7million loan from Orient Bank, evidenced by a
promissory note signed by Frozen Dinners represented by its President Gigo (as
authorized by a Board resolution). Being the 51% stockholder of Frozen Dinners, Gigo
also signed the promissory note for the second time as co-borrower of Frozen Dinners.

Twelve months later, Frozen Dinners was struggling with cash flows and missed two
consecutive monthly amortizations on its loan. Orient Bank declared Frozen Dinners in
default and demanded payment from Gigo in his personal capacity. Gigo argued that he
signed in his capacity as authorized representative of Frozen Dinners pursuant to a
Board resolution and cannot be held personally liable for the loan, and granting for the
sake of argument that he is personally liable, he enjoys the benefit of excussion. Is Gigo
correct? Briefly explain why. 4 points

Gigo is correct, and he is entitled to the benefit of excussion. When Gigo signed tbe promissory note, he
was acting on behalf of Frozen Dinners, and not in his personal capacity. As such, it is the company
Frozen Dinners who was the party to the promissory note and not Gigo.

Gigo, however, is a guarantor. Being such, he is entitled to the benefit of excussion. This means that the
creditor Orient Bank must proceeded against the properties of the principal debtor Frozen Dinners first,
and if the debt remains unsatisfied, it is only when a guarantor can be held liable to answer for any
unpaid amount

(d) Standard Security Bank consults you on how best to expand its investments: it is a
commercial bank and has existing investments in a credit card company. Which of these
companies will you approve as potential investees? Explain why. 5 points
(i) leasing of stalls and spaces in a commercial establishment
(ii) courier company that delivers bank statements
(iii) armored car and security guards
(iv) building management
(v) stock brokerage

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I will approve the company that has a business of leasing of stalls and spaces in a commercial
establishment. A commercial bank may invest in a financial allied corporation. Being an allied enterprise,
it should enhance or complement banking, and it also involved money matters.

The business of leasing is considered a financial allied equity. Thus, it may give more profit to Standard
Security Bank, being a commercial bank.

III. Secrecy of Bank Deposits

6. Mayor Ranil is fighting legal battles in many fronts: his kumpare Kokoy filed a collection suit
to recover the PhP10million he borrowed to augment his campaign funds. At the same time,
he is facing a criminal case for bribery in relation to a road construction project which is
alleged to be subject to his getting a “kick-back” or commission in exchange for the speedy
award.

Mayor Ranil maintains two bank accounts with Global Bank: a Peso checking account and a
US Dollar account.

(a) If the court ruled favorably in favor of Kokoy in the civil (collection) case, can Mayor
Ranil’s Peso and Dollar accounts with Global Bank be garnished? 5 points

The peso account of Mayor Ranil with Global Bank may not be garnished. His account does not fall
under the exceptions provided for in the Bank Secrecy Law. On the other hand, the dollar accounts with
Global Bank may also not be garnished because such does not fall under the exception of the Foreign
Deposits Act.

The bank secrecy law provides the general rule for all domestic bank deposits, in that such deposits
should be absolutely confidential in nature. However, there are exceptions and these are: 1) the written
consent of the depositor; 2) in cases of impeachment; 3) upon the order of the competent court in cases
of bribery and dereliction of duty. In foreign Deposit Act, the only exception that the account may be
inquired into is the written consent of the depositor. Additionally, jurisprudence provides that such
foreign accounts may be looked into to prevent injustice and for equitable grounds.

(b) The prosecution in the criminal case sought an order from the court for an inquiry into
all of the accounts of Mayor Ranil with Global Bank. If you are the sitting judge, will you
issue that Order? 5 points

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I will grant toe order. In the case of Salvacion v. Central Bank, the court discussed that even though bank
deposits are absolutely confidential in nature, they can be looked into to prevent injustice and for
equitable grounds.

Mayor Ranil’s account should be looked into because he is a public officer, and he betrayed public trust
when he used the money of the public for his own benefit. This is injustice, and so it is an exception to
the absolute confidentiality rule.

IV. Cessation of business

7. Distinguish between the role of a conservator and a receiver in at least 3 instances. 5 points

A conservator is appointed when the Monetary Board finds that a bank or.a quasi-bank is in a
state of continuing liability or they are having a harsd time to maintain the condition of liquidity
that is needed to protect their clients. Meanwhile, a receiver is appointed when a bank or a
quasi-bank has publicly announced their unilateral closure or has been dormant for at least 60
days or has suspended their daily business, or when the business cannot continue anymore
without involving probable losses to its depositors and creditors

A conservator may take charge of all the assets, liabilities, and management thereof and may
reorganize the management of the bank. A conservatorship may terminate if the MB, on the
basis of the report of the conservator or based on its own findings determine that the business
or institution cannot anymore continue without harming their depositors and creditors. After
the termination of the conservatorship, a receiver should be appointed. The main purpose of
the receiver is not to rehabilitate the bank but to liquidate its assets to be able to pay off their
depositors and creditors.

Lastly, a conservatorship should only last for 1 year. However, receivership and liquidation
should be for as long as the bank can repay their creditors and depositors.

8. What is the “close now-hear later” rule? 3 points

The “close now, hear later” rule, is a sanction that could be imposed by the BSP even without
notice or hearing based on the ground of practical and legal consideration to prevent
unwarranted dissipation of the assets of the bank. It is considered a valid exercise of police
power in order to protect the depositors, creditors, clients, and the general public.

This is not without recourse as judicial review may be had, but only after the Montetary board
has taken action.

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9. Pacific Banking Corp. (PacBank) was all poised for expansion and started construction of
their new 20-storey headquarters. But it was not meant to be: a bad investment led into a
massive bank run that led the Bangko Sentral to place PacBank under receivership.
Desperate to save the investment in the new building, the Board of Directors authorized the
PacBank President to enter into a joint venture and financing agreement with Parachute
Investment Group. Under the agreement, Parachute Investment Group will have a 20-year
lease over the building and have an option to buy-out PacBank.

(a) Is the joint venture and financing agreement with Parachute Investment Group valid and
enforceable? 3 points

The joint venture and financing agreement entered into by PacBank and Parachute Investment Group is
not valid and enforceable. When a bank is placed under receivership, the directors or officers must turn
over their control as well as their records to the designated receiver. The Board of Directors and the
President cannot act on their own anymore.

(b) The PacBank receiver finally determined that the bank can no longer be rehabilitated
and recommended liquidation to the Bangko Sentral. Liquidation proceedings were then
initiated. However, some of the stockholders disagreed with the the receiver’s
recommendation and together, they filed an action to assail the order of closure. Will
their action prosper? 3 points

Their action will not prosper, as the PacBank should undergo an involuntary liquidation This means that

Part 2. Computation – PDIC claim

10. Siblings Patricia and Perry and their family members maintain accounts with PacBank as set
out in the table below. How much can each of the account holders claim from PDIC, and
why? Use the table below for your summary. 20 points

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1 Patricia and/or Perry Joint checking PhP700,000

Head Office (HO)

2 Patricia Savings PhP300,000

Pasig Branch

3 Perry’s wife Candy doing business as Candy Flowers, a sole Time deposit PhP400,000
proprietorship engaged in decorative fondant flowers Alabang Branch

4 Perry and Candy ITF for minor daughter Krizzy Investment managed portfolio, invested in mutual funds PhP1,500,000
Trust Department, HO

5 Patricia and PPP Holding Corporation, a joint venture with friends for Joint savings account with ATM card PhP800,000
business opportunities where Patricia is the Chief Finance Officer Pasig Branch

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Share in the insured portion Share in the uninsured portion

Patricia Perry Candy Candy Krizzy PPP Patricia Perry Candy Candy Krizzy PPP
Flowers Holding Flowers Holding
1 Patricia and/or 250,000ph 250,000php 100,000php 100,000ph
Perry p p
PhP700,000
A joint
account
means that
the insured
portion
shall be
divided as
many as
there are
depositors
in the same
account
2 Patricia 300,000ph
PhP300,000 p

A single
proprietor
is also
entitled to
an

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insurance
worth oh
500,000ph
p

3 Candy/Candy 400,000php
Flowers, a sole
proprietorship A sole
proprietor
PhP400,000
is entitled
up to
500,000php
insurance.
It shall be
deemed
added to
the account
of Candy in
the same
right and
capacity.
4 Perry & Candy ITF 250,000php 250,000php 500,000 500,000
for child Krizzy
PhP1,500,000 Perry will Candy will
receive this receive this
amount amount
from the from the
ITF of their ITF of their
minor minor

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daughter daughter
Krizzy Krizzy
5 Patricia and PPP Patricial 500,000ph 300,000
Holding will not p
Corporation received an
PhP800,000 amount
here
despite
being a
joint owner
because it
is PPP
holdings
who
actually
own the
funds as it
is a distinct
and
separate
entitly from
the officers.

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I 19
II 17
Part 1
III 10
IV 14
Part 2 20
Total 80

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