BANKING LAW (R.A.
8791) equity structure of banks; Provided, That
General Banking Law:
Sec. 3 of the General Banking Law provides that:
"Banks" shall refer to entities engaged in the
lending of funds obtained in the form of deposits.
Sec. 8 of the General Banking Law provides that:
The Monetary Board may authorize the
organization of a bank or quasi-bank subject to the
following conditions:
8.1 That the entity is a stock corporation;
8.2 That its funds are obtained from the public,
which shall mean twenty (20) or more persons; and
8.3 That the minimum capital requirements
prescribed by the Monetary Board for each
category of banks are satisfied.
No new commercial bank shall be established
within three (3) years from the effectivity of this
Act. In the exercise of the authority granted
herein, the Monetary Board shall take into
consideration their capability in terms of their
financial resources and technical expertise and
integrity. The bank licensing process shall
incorporate an assessment of the banks ownership
structure, directors and senior management, its
operating plan and internal controls as well as its
projected financial condition and capital base.
*To be registered as bank, it must be a stock
corporation.
*Banks must obtain funds from the public.
Minimum number of depositor is 20 persons.
Nature of Business:
Sec. 2 of the General Banking Law states that:
The State recognizes the vital role of banks
providing an environment conducive to the
sustained development of the national economy
and the fiduciary nature of banking that requires
high standards of integrity and performance. In
furtherance thereof, the State shall promote and
maintain a stable and efficient banking and
financial system that is globally competitive,
dynamic and responsive to the demands of a
developing economy.
Consequences:
1. Sec. 9 of the General Banking Law
provides that: The Monetary Board may
prescribe rules and regulations on the types
of stock a bank may issue, including the
terms thereof and rights appurtenant
thereto to determine compliance with laws
and regulations governing capital and
banks shall issue par value stocks only.
2. Bank must be an open corporation
Reason: Vital to industry
3. The word bank cannot be used if such
person or entity is not engaged in banking
business.
4. It is subject to heavy and close supervision
and/or regulation by the Bangko Sentral ng
Pilipinas.
5. Banks must observe highest degree of
diligence.
6. Sec. 22 of the General Banking Law
states that: The banking industry is hereby
declared as indispensable to the national
interest and, notwithstanding the
provisions of any law to the contrary, any
strike or lockout involving banks, if
unsettled after seven (7) calendar days shall
be reported by the Bangko Sentral to the
Secretary of Labor who may assume
jurisdiction over the dispute or decide it or
certify the same to the National Labor
Relations Commission 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.
*In DBP v CA, the SC held that while an
innocent mortgagee is not expected to conduct
an exhaustive investigation on the history of
the mortgagors title, in case of a banking
institution, it must exercise due diligence
before entering into said contract, and cannot
rely upon on what is or is not annotated on the
title.
Cases: China Banking v Lagon; Citibank v
Cabangongan
Authority to incorporate and operate:
Sec. 14 of the General Banking Law states that:
The Securities and Exchange Commission shall
not register the articles of incorporation of any
bank, or any amendment thereto, unless
accompanied by a certificate of authority issued by
the Monetary Board, under its seal. Such
certificate shall not be issued unless the Monetary
Board is satisfied from the evidence submitted to
it:
14.1. That all requirements of existing laws and
regulations to engage in the business for which the
applicant is proposed to be incorporated have been
complied with;
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14.2. That the public interest and economic
conditions, both general and local, justify the
authorization; and
14.3. That the amount of capital, the financing,
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.
The Securities and Exchange Commission shall not
register the by-laws of any bank, or any
amendment thereto, unless accompanied by a
certificate of authority from the Bangko Sentral.
*The articles of incorporation must be
accompanied by the favorable recommendation of
the BSP.
Sec. 6 of the General Banking Law provides that:
No person or entity shall engage in banking
operations or quasi-banking functions without
authority from the Bangko Sentral: Provided,
however, That an entity authorized by the Bangko
Sentral to perform universal or commercial
banking functions shall likewise have the authority
to engage in quasi-banking functions.
The determination of whether a person or entity is
performing banking or quasi-banking functions
without Bangko Sentral authority shall be decided
by the Monetary Board. To resolve such issue, the
Monetary Board may; through the appropriate
supervising and examining department of the
Bangko Sentral, examine, inspect or investigate the
books and records of such person or entity. Upon
issuance of this authority, such person or entity
may commence to engage in banking operations or
quasi-banking function and shall continue to do so
unless such authority is sooner surrendered,
revoked, suspended or annulled by the Bangko
Sentral in accordance with this Act or other special
laws.
The department head and the examiners of the
appropriate supervising and examining department
are hereby authorized to administer oaths to any
such person, employee, officer, or director of any
such entity and to compel the presentation or
production of such books, documents, papers or
records that are reasonably necessary to ascertain
the facts relative to the true functions and
operations of such person or entity. Failure or
refusal to comply with the required presentation or
production of such books, documents, papers or
records within a reasonable time shall subject the
persons responsible therefore to the penal
sanctions provided under the New Central Bank
Act.
Persons or entities found to be performing banking
or quasi-banking functions without authority from
the Bangko Sentral shall be subject to appropriate
sanctions under the New Central Bank Act and
other applicable laws.
Classification of banks:
Sec. 3.2 of the General Banking Law provides
that: Banks shall be classified into:
(a) Universal banks;
(b) Commercial banks;
(c) Thrift banks, composed of:
(i) Savings and mortgage banks;
(ii) Stock savings and loan associations;
and
(iii) Private development banks, as defined
in the Republic Act No. 7906 (hereafter the
Thrift Banks Act);
(d) Rural banks, as defined in Republic Act
No. 73S3 (hereafter the "Rural Banks Act");
(e) Cooperative banks, as defined in Republic
Act No 6938 (hereafter the "Cooperative Code");
(f) Islamic banks as defined in Republic Act
No. 6848, otherwise known as the Charter of Al
Amanah Islamic Investment Bank of the
Philippines; and
(g) Other classifications of banks as
determined by the Monetary Board of the
Bangko Sentral ng Pilipinas.
Distinctions between different kinds of banks:
a. As to Capitalization: They have different
minimum capitalization requirements.
b. As to Purpose: Some of the banks have
specific purposes and social functions.
c. As to Powers or Functions: There are
functions and powers that are not exercised
by one that are exercised by others. Some
banks may exercise certain powers only
upon prior approval of the Monetary Board.
*Universal banks can engage into non-allied
enterprises. It can also act as an
investment house, thus, it can enter into
underwriting commitments and do
underwriting securities.
d. As to who can be directors: Public officers
can be directors of Rural Banks while such
officers are prohibited from being directors
or officers of other types of banks.
e. As to Incorporators: General Rule:
Incorporators must be natural persons.
Exception: In rural banks, it can be
organized or established by cooperatives
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 and corporations primarily organized to
hold equities in rural banks.
f. As to Foreign Equity: A rural bank must
be wholly owned by Filipinos while other
banks require only 40% Filipino ownership
of their voting stocks.
*In RA 6938, majority of the shares must be
owned by cooperatives.
g. As to necessity of public offering: Public
offering of shares is necessary for domestic
banks seeking authority to act as universal
bank while there is no such requirement for
other banks.
Functions of the bank:
1. Deposit Functions
2. Loan Functions
Deposit Function:
*The relationship created is one of creditor-debtor
relation.
*There is passing of ownership to the bank.
*The bank can appropriate the deposits without
the consent of the depositor.
*Legal compensation can take place because they
are mutually creditor-debtor of each other.
*Prior to incorporation, the deposits can be named
to corporate treasurer. He will held it in trust for
the corporation.
Depositors:
1. Minors:
- They can open bank accounts in their own
right provided that they are at least 7 years
of age; they are able to read and write and
have sufficient discretion; they are not
otherwise disqualified by any other
incapacity; and it should only be savings or
time deposits.
* They cannot open checking account nor
demand deposits.
2. Married Women:
- They are allowed to open bank accounts
without the assistance of their
husbands.
Reason: equality in capacity
*Bank account may be opened by one individual or
two or more persons. Whenever two or more
persons open an account, the same may be an
and/or account or an and account.
General Rule: Fictitious accounts or anonymous
accounts are prohibited.
Exception: Foreign currency deposits which may
be a numbered account.
*The law requires that necessary measures are
undertaken by the bank to record and establish
the true identity of the depositor.
*Joint accounts may be the subject of survivorship
agreement whereby the co-depositors agree to
permit either of them to withdraw the whole
deposit during their lifetime and transferring the
balance to the survivor upon the death of one of
them.
Basis: Trust and Confidence
*What is prohibited under the Family Code is
donation inter vivos and not donation mortis
causa.
Secrecy of Bank Deposits:
Peso deposits:
General Rule: Sec. 2 of Republic Act No. 1405
provides that: All deposits of whatever nature with
banks or banking institutions in the Philippines
including investments in bonds issued by the
Government of the Philippines, its political
subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature
and may not be examined, inquired or looked into
by any person, governmental official, bureau or
office.
Exceptions:
1. When there is written permission of the
depositor or investor;
2. Impeachment cases;
3. Upon the order of a competent court in
cases of bribery or dereliction of duty of
public officials;
4. Upon the order of a competent court in
cases where the money deposited or
invested is the subject of litigation;
5. Upon order of the competent court or
tribunal in cases involving unexplained
wealth under Sec. 8 of the Anti-Graft and
Corrupt Practices Act (R.A. 3019);
6. Upon inquiry by the Commissioner of
Internal Revenue for the purpose of
determining the net estate of a deceased
depositor;
*In case the taxpayer compromised his tax
liability by reason of financial incapacity.
7. General Rule: Upon the order of a
competent court or in proper cases by the
Anti-Money Laundering Council where
there is probable cause of money
laundering.
Exception: In some instances even without
court order.
8. Disclosure of the Treasurer of the
Philippines for dormant deposits for at least
10 years under the Unclaimed Balances Act
(R.A. 3936)
*Escheat proceedings
Foreign Currency deposits:
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*Subsequent to secrecy law.
Under the Foreign Currency Deposit Act, there is
only one exception and that is: When there is a
written consent of depositor.
Secrecy of Deposits under the Anti-Money
Laundering Law:
General Rule: The Anti-Money Laundering Council
may inquire into deposits upon order of the court
when there is probable cause that the deposits are
related to the crime of unlawful activities defined in
Sec. 3(1) and Sec. 4 of R.A. 9160 as amended by
R.A. 9194.
Exception: A court order is not even necessary
when the offense or unlawful activity involved is
any of the following: 1. Kidnapping for ransom
under Article 267 of the Revised Penal Code; 2.
Sections 4, 5, 7, 8, 9, 10, 12, 13, 14, 15, and 16 of
the Comprehensive Dangerous Drugs Act of 2002;
and Hi-jacking and other violations under R.A.
6235; destructive arson and murder, as defined
under the Revised Penal Code, as amended,
including those perpetrated by terrorists against
non-combatant persons and similar targets.
Garnishment:
General Rule: Bank accounts may be garnished by
the creditors of the depositor.
Reason: Not deposits for investment, thus, law on
secrecy is not applicable.
Exceptions:
1. Foreign Currency Deposits
*In Salvacion v Central Bank of the
Philippines, the SC held that foreign
currency deposits of an American tourist
who was found guilty of repeatedly raping a
twelve years old child is subject to
garnishment.
2. Those exempt under the Rules of Civil
Procedure like provision for the family for
four months
Deposit Insurance:
*All deposits of any bank are insured with the
PDIC.
*Obligation to pay the premium lies on the bank.
Risk insured against: closure of banks due to
liquidity problems.
*Insured deposit under the law means the net
amount due to any depositor for deposits in an
insured bank but should not exceed P250,000. If
the depositor has two or more accounts with the
same bank, the maximum coverage of P250,000
pertains to the sum of all such accounts
maintained in the same right and capacity.
*A joint account shall be insured separately from
any individual-owned account.
*A joint account held by a juridical person or entity
jointly with natural person/s shall be presumed to
belong to the juridical person.
*The aggregate share in all joint accounts is
subject to P250,000 threshold.
Loan Function of the Banks:
*A bank shall grant loans and other credit
accommodations only in amounts and for the
periods of time essential for the effective
completion of the operations to be financed.
Single Borrowers Limit:
Sec. 35.1 of the General Banking Law provides
that: Except as the Monetary Board may
otherwise prescribe for reasons of national
interest, the total amount of loans, credit
accommodations and guarantees as may be
defined by the Monetary Board that may be
extended by a bank to any person,
partnership, association, corporation or other
entity shall at no time exceed twenty-five percent
(25%) of the net worth of such bank. The
basis for determining compliance with single
borrower limit is the total credit commitment of
the bank to the borrower.
Sec. 35.2 of the General Banking Law states
that: Unless the Monetary Board prescribes
otherwise, the total amount of loans, credit
accommodations and guarantees prescribed in the
preceding paragraph may be increased by an
additional ten percent (10%) of the net worth of
such bank provided the additional liabilities of
any borrower are adequately secured by trust
receipts, shipping documents, warehouse receipts
or other similar documents transferring or
securing title covering readily marketable, non-
perishable goods which must be fully covered by
insurance.
DOSRI ACCOUNTS:
Sec. 36 of the General Banking Law states that:
No director or officer of any bank shall, directly
or indirectly, for himself or as the
representative or agent of others, borrow from such
bank nor 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 except with the written
approval of the majority of all the directors of the
bank, excluding the director concerned:
Provided, That such written approval shall not be
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required for loans, other credit accommodations
and advances granted to officers under a
fringe benefit plan approved by the Bangko
Sentral. The required approval shall be entered
upon the records of the bank and a copy of
such entry shall be transmitted forthwith to the
appropriate supervising and examining department
of the Bangko Sentral.
Dealings of a bank with any of its directors,
officers or stockholders and their related interests
shall be upon terms not less favorable to the bank
than those offered to others.
After due notice to the board of directors of the
bank, the office of any bank director or officer
who violates the provisions of this Section may
be declared vacant and the director or officer
shall be
subject to the penal provisions of the New Central
Bank Act.
The Monetary Board may regulate the amount of
loans, credit accommodations and guarantees
that may be extended, directly or indirectly, by
a bank to its directors, officers, stockholders
and their related interests, as well as investments
of such bank in enterprises owned or controlled by
said directors, officers, stockholders and their
related interests. However, the outstanding loans,
credit accommodations and guarantees which a
bank may extend to each of its stockholders,
directors, or officers and their related interests,
shall be limited to an amount equivalent to
their respective unencumbered deposits and
book value of their paid-in capital contribution
in the bank: Provided, however, That loans,
credit accommodations and guarantees secured
by assets considered as non-risk by the
Monetary Board shall be excluded from such
limit: Provided, further, That loans, credit
accommodations and advances to officers in the
form of fringe benefits granted in accordance
with rules as may be prescribed by the
Monetary Board shall not be subject to the
individual limit.
The Monetary Board shall define the term related
interests.
The limit on loans, credit accommodations and
guarantees prescribed herein shall not apply to
loans, credit accommodations and guarantees
extended by a cooperative bank to its
cooperative shareholders.
Purpose: To protect the general public from the
abuse of the directors, officers, stockholders and
related interests of the bank.
Requisites:
1. The borrower is a director, officer or any
stockholder of a bank;
2. He contract a loan or any form of financial
accommodation;
3. The loan or financial accommodation is
from: a. his bank, or b. a bank that is a
subsidiary of a bank holding company of
which both his bank and lending bank are
subsidiaries, c. a bank in which a
controlling proportion of the shares is
owned by the same interest that owns a
controlling proportion of the shares of his
bank; and
4. The loan or financial accommodation of the
director, officer or stockholder, singly or
with that of his related interest, is in excess
of 5% of the capital and surplus of the
lending bank or in the maximum amount
permitted by law, whichever is lower.
Examples:
1. If there is interlocking directors subject to
DOSRI restrictions
2. General partner is either a director, officer,
stockholder or related interest of a lending
bank subject to DOSRI restrictions
3. Stranger applied for a loan and a property
was collateral: a. if the property is owned by
stranger alone not subject to DOSRI
restrictions; b. if the property is co-owned
by a director, officer, stockholder or related
interest of the bank subject to DOSRI
restrictions
4. A director, officer, stockholder, or related
interests owned more than 20% share in a
corporation (borrower) subject to DOSRI
restriction.
Restrictions:
1. Procedural requirement: The account
should be upon written approval of all the
director of the lending bank excluding the
director concerned.
2. Arms Length Rule: The account should be
upon terms not less favorable to the bank
than those offered to others.
3. Reportorial requirement: The resolution
approving the loan shall be entered in the
records of the bank and a copy of the entry
shall be transmitted forthwith to the
Supervising and Examination Sector of the
BSP.
Foreclosure of Mortgage
Sec. 47 of the General Banking Law provides
that: In the event of foreclosure, whether judicially
or extra-judicially, of any mortgage on real estate
which is security for any loan or other credit
accommodation granted, the mortgagor or debtor
whose real property
has been sold for the full or partial payment
of his obligation shall have the right within
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one year after the sale of the real estate, to
redeem the property by paying the amount due
under the mortgage deed, with interest thereon at
rate specified 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 there from.
However, the purchaser at the auction sale
concerned whether in a judicial or extra-judicial
foreclosure shall have the right to enter upon and
take possession of such property immediately
after the date of the confirmation of the
auction sale and administer the same in
accordance with law. Any petition in court to
enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this
provision shall be given due course only upon
the filing by the petitioner of a bond in an
amount fixed by the court conditioned that he will
pay all the damages which the bank may
suffer by the enjoining or the restraint of the
foreclosure proceeding.
Notwithstanding Act 3135,juridical persons
whose property is being sold pursuant to an
extra judicial foreclosure, shall have the right
to redeem the property in accordance with this
provision until, but not after, the registration of
the certificate of foreclosure sale with the
applicable Register of Deeds which in no case shall
be more than three (3) months after foreclosure,
whichever is earlier. Owners of property that has
been sold in a foreclosure sale prior to the
effectivity of this Act shall retain their
redemption rights until their expiration.
Prohibited acts of Borrowers:
Sec. 55.2 of the General Banking Law states
that: No borrower of a bank shall -
(a) Fraudulently overvalue property offered as
security for a loan or other credit accommodation
from the bank;
(b) Furnish false or make misrepresentation or
suppression of material facts for the purpose of
obtaining, renewing, or increasing a loan or other
credit accommodation or extending the period
thereof;
(c) Attempt to defraud the said bank in the event
of a court action to recover a loan or other credit
accommodation; or
(d) Offer any director, officer, employee or agent
of a bank any gift, fee, commission, or any other
form of compensation in order to influence such
persons into approving a loan or other credit
accommodation application.
Ownership of Banks:
Sec. 11 of the General Banking Law provides
that: Foreign individuals and non-bank
corporations may own or control up to forty
percent (40%) of the voting stock of a domestic
bank. This rule shall apply to Filipinos and
domestic non-bank corporations.
The percentage of foreign-owned voting stocks in a
bank shall be determined by the citizenship of the
individual stockholders in that bank. 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.
General Rule: Banks are partly nationalized
*The 60% minimum threshold must be satisfied by
the bank.
*Filipino ownership voting stocks owned by
Filipinos
Examples:
X bank has 1M voting stocks: 600,000 owned by
Filipinos and 400,000 owned by foreigners. The
bank complied with the 60% requirement.
X bank has 1M voting shares: 400,000 owned by
Filipinos; 400,000 owned by foreigners and
200,000 owned by Y Corporation.
Q: Does the 60% requirement satisfied?
A: IT DEPENDS. Depending on the citizenship of Y
Corporation. If the majority controlling
stockholders are Filipino thus Y Corporation is a
Filipino citizen hence the 60% is complied with. If
Y corporation is controlled by a foreigners there is
non-compliance of the 60% requirement.
*The 40% requirement is applicable not only to
foreigners but also to individual Filipino
shareholders and domestic non-bank corporation.
*If the corporation acquiring is a bank the 40%
threshold is not applicable.
Examples:
600,000 owned by Filipinos; 400,000 owned by
foreigners
A owned 500,000 shares
*A single Filipino stockholders can only own upto
40% of the voting stock of the bank.
A Corporation which is not a banking institution
500,000 shares
*A domestic non-bank corporation can only own
upto 40% of the voting stock of the bank.
800,000 owned by Filipinos; 200,000 owned by
foreigners
In the 800,000 owned by Filipinos; 400,000 of
which is owned by A and the 200,000 is owned by
A Corporation
In A Corporation, A is a stockholder owning 50% of
the controlling stock of A Corporation.
Q: Is this allowed?
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A: NO. 50% of 200,000 is indirectly owned by a
Filipino individual, the 40% threshold is violated.
*The 40% threshold includes both direct and
indirect ownership of shares of the bank.
Act Liberalizing Entry of Foreign Banks:
Sec. 2 of Republic Act No. 7721 provides that:
The Monetary Board may authorize foreign banks
to operate in the Philippine banking system
through any of the following modes of entry: (i) by
acquiring, purchasing or owning up to sixty
percent (60%) of the voting stock of an existing
bank; (ii) by investing in up to sixty percent (60%)
of the voting stock of a new banking subsidiary
incorporated under the laws of the Philippines; or
(iii) by establishing branches with full banking
authority: Provided, That a foreign bank may avail
itself of only one (1) mode of entry: Provided,
further, That a foreign bank or a Philippine
corporation may own up to a sixty percent (60%) of
the voting stock of only one (1) domestic bank or
new banking subsidiary.
Sec. 3 of Republic Act No. 7721 states that: In
approving entry applications of foreign banks, the
Monetary Board shall: (i) ensure geographic
representation and complementation; (ii) consider
strategic trade and investment relationships
between the Philippines and the country of
incorporation of the foreign bank; (iii) study the
demonstrated capacity, global reputation for
financial innovations and stability in a competitive
environment of the applicant; (iv) see to it that
reciprocity rights are enjoyed by Philippine banks
in the applicant's country; and (v) consider
willingness to fully share their technology.
Only those among the top one hundred fifty (150)
foreign banks in the world or the top five (5) banks
in their country of origin as of the date of
application shall be allowed entry in accordance
with Section 2 (ii) and (iii) hereof.
In the exercise of this authority, the Monetary
Board shall adopt such measures as may be
necessary to: (i) ensure that at all times the control
of seventy percent (70%) of the resources or assets
of the entire banking system is held by domestic
banks which are at least majority-owned by
Filipinos; (ii) prevent a dominant market position
by one bank or the concentration of economic
power in one or more financial institutions, or in
corporations, participations, partnerships, groups
or individuals with related interests; and (iii)
secure the listing in the Philippine Stock Exchange
of the shares of stocks of banking corporations
established under Section 2(i) and (ii) of this Act:
Provided, That said banking corporations shall
establish stock option plans for their officers and
employees as the resources or assets of these
corporations may allow in the best business
judgment of their respective boards of directors,
pursuant to the Corporation Code of the
Philippines.
To qualify to establish a branch or a subsidiary,
the foreign bank applicant must be widely-owned
and publicly-listed in its country of origin, unless
the foreign bank applicant is owned by the
government of its country of origin.
General Rule: Foreigners must own only upto 40%
of the voting shares of a bank.
Exception: Foreign bank can own upto 60% of the
voting shares of a bank.
Directors and Officers:
Composition:
Sec. 15 of the General Banking Law states that:
The provisions of the Corporation Code to the
contrary notwithstanding, there shall be at least
five (5), and a maximum of fifteen (15) members of
the board or directors of a bank, two (2) of whom
shall be independent directors. An "independent
director" shall mean a person other than an officer
or employee of the bank, its subsidiaries or
affiliates or related interests.
Non-Filipino citizens may become members of
the board of directors of a bank to the extent
of the foreign participation in the equity of said
bank.
The meetings of the board of directors may be
conducted through modern technologies such as,
but not limited to, teleconferencing and video-
conferencing.
Sec. 19 of the General Banking Law states that:
Except as otherwise provided in the Rural
Banks Act, no appointive or elective public
official whether full-time or part-time shall at the
same time serve as officer of any private bank,
save in cases where such service is incident to
financial assistance provided by the government
or a government owned or controlled
corporation to the bank or unless otherwise
provided under existing laws.
General Rule: The Board of Directors is composed
of 5 to 15 members only.
Exception: In case of merger
Sec. 16 of the General Banking Law provides
that: To maintain the quality of bank management
and afford better protection to depositors and the
public in general the Monetary Board shall
prescribe, pass upon and review the qualifications
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and disqualifications of individuals elected or
appointed bank directors or officers and disqualify
those found unfit.
After due notice to the board of directors of
the bank, the Monetary Board may disqualify,
suspend or remove any bank director or officer
who commits or omits an act which render him
unfit for the position.
In determining whether an individual is fit and
proper to hold the position of a director or officer of
a bank, regard shall be given to his integrity,
experience, education, training, and competence.
Justification: Police power
Reason: Banking institution is imbued with public
interest.
Regulations to maintain liquidity and security:
1. Sec. 34 of the General Banking Law
provides that: The Monetary Board shall
prescribe the minimum ratio which the net
worth of a bank must bear to its total risk
assets which may include contingent
accounts.
For purposes of this Section, the Monetary
Board may require such ratio be
determined on the basis of the net worth
and risk assets of a bank and its
subsidiaries, financial or otherwise, as
well as prescribe the composition and
the manner of determining the net worth
and total risk assets of banks and their
subsidiaries: Provided, That in the exercise
of this authority, the Monetary Board shall,
to the extent feasible conform to
internationally accepted standards,
including those of the Bank for
International Settlements (BIS), relating
to risk-based capital requirements:
Provided further, That it may alter or
suspend compliance with such ratio
whenever necessary for a maximum
period of one (1) year: Provided, finally,
That such ratio shall be applied uniformly
to banks of the same category. In case a
bank does not comply with the prescribed
minimum ratio, the Monetary Board may
limit or prohibit the distribution of net
profits by such bank and may require that
part or all of the net profits be used to
increase the capital accounts of the
bank until the minimum requirement has
been met The Monetary Board may,
furthermore, 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 Republic of the Philippines and of the
Bangko Sentral and any other evidences of
indebtedness or obligations the servicing
and repayment of which are fully
guaranteed by the Republic of the
Philippines, until the minimum required
capital ratio has been restored. In case
of a bank merger or consolidation, or
when a bank is under rehabilitation under
a program approved by the Bangko Sentral,
Monetary Board may temporarily relieve the
surviving bank, consolidated bank, or
constituent bank or corporations under
rehabilitation from full compliance with the
required capital ratio under such
conditions as it may prescribe. Before the
effectivity of rules which the Monetary
Board is authorized to prescribe under
this provision, Section 22 of the General
Banking Act, as amended, Section 9 of the
Thrift Banks Act, and all pertinent rules
issued pursuant thereto, shall continue to
be in force.
2. The law imposes limits on loans, credit
accommodations and guarantees that may
be extended by banks.
3. Sec. 36 of the General Banking Law
states that: No director or officer of any
bank shall, directly or indirectly, for
himself or as the representative or agent
of others, borrow from such bank nor 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 except with
the written approval of the majority of all
the directors of the bank, excluding the
director concerned: Provided, That such
written approval shall not be required for
loans, other credit accommodations and
advances granted to officers under a
fringe benefit plan approved by the Bangko
Sentral. The required approval shall be
entered upon the records of the bank
and a copy of such entry shall be
transmitted forthwith to the appropriate
supervising and examining department of
the Bangko Sentral.
Dealings of a bank with any of its
directors, officers or stockholders and
their related interests shall be upon terms
not less favorable to the bank than those
offered to others.
After due notice to the board of directors of
the bank, the office of any bank director
or officer who violates the provisions of
this Section may be declared vacant and
the director or officer shall be subject to
8
 the penal provisions of the New Central
Bank Act.
The Monetary Board may regulate the
amount of loans, credit accommodations
and guarantees that may be extended,
directly or indirectly, by a bank to its
directors, officers, stockholders and their
related interests, as well as investments of
such bank in enterprises owned or
controlled by said directors, officers,
stockholders and their related interests.
However, the outstanding loans, credit
accommodations and guarantees which a
bank may extend to each of its
stockholders, directors, or officers and
their related interests, shall be limited to
an amount equivalent to their respective
unencumbered deposits and book value
of their paid-in capital contribution in
the bank: Provided, however, That loans,
credit accommodations and guarantees
secured by assets considered as non-risk
by the Monetary Board shall be
excluded from such limit: Provided,
further, That loans, credit accommodations
and advances to officers in the form of
fringe benefits granted in accordance
with rules as may be prescribed by the
Monetary Board shall not be subject to
the individual limit.
The Monetary Board shall define the term
related interests.
The limit on loans, credit
accommodations and guarantees
prescribed herein shall not apply to
loans, credit accommodations and
guarantees extended by a cooperative
bank to its cooperative shareholders.
4. The law imposes restrictions on the value of
collaterals on loans.
5. Sec. 41 of the General Banking Law
provides that: The Monetary Board is
hereby authorized to issue such regulations
as it may deem necessary with respect to
unsecured loans or other credit
accommodations that may be granted by
banks.
6. Sec. 43 of the General Banking Law
provides that: The Monetary Board, may,
similarly in accordance with the authority
granted to it in Section 106 of the New
Central Bank Act, and taking into
account the requirements of the economy
for the effective utilization of long-term
funds, prescribe the maturities, as well
as related terms and conditions for
various types of bank loans and other
credit accommodations. Any change by
the Board in the maximum maturities,
as well as related terms and conditions for
various types of bank loans and other
credit accommodations. Any change by
the Board in the maximum maturities shall
apply only to loans and other credit
accommodations made after the date of
such action. The Monetary Board shall
regulate the interest imposed on micro
finance borrowers by lending investors and
similar lenders such as, but not limited
to, the unconscionable rates of interest
collected on salary loans and similar credit
accommodations.
7. Sec. 57 of the General Banking Law
states that: No bank or quasi-bank shall
declare dividends, if at the time of
declaration:
57.1 Its clearing account with the Bangko
Sentral is overdrawn; or
57.2 It is deficient in the required
liquidity floor for government deposits for
five (5) or more consecutive days, or
57.3 It does not comply with the liquidity
standards/ratios prescribed by the Bangko
Sentral for purposes of determining funds
available for dividend declaration; or
57.4 It has committed a major violation as
may be determined by the Bangko Sentral.
Other functions of the Bangko Sentral:
A. Emergency Loan
Sec. 84 of the New Central Bank Act
states that: In periods of national
and/or local emergency or of imminent
financial panic which directly threaten
monetary and banking stability, the
Monetary Board may, by a vote of at
least five (5) of its members, authorize
the Bangko Sentral to grant
extraordinary loans or advances to
banking institutions secured by assets
as defined hereunder: Provided, That
while such loans or advances are
outstanding, the debtor institution shall
not, except upon prior authorization by
the Monetary Board, expand the total
volume of its loans or investments.
The Monetary Board may, at its
discretion, likewise authorize the
Bangko Sentral to grant emergency
loans or advances to banking
institutions, even during normal
periods, for the purpose of assisting a
bank in a precarious financial condition
or under serious financial pressures
brought by unforeseen events, or events
9
which, though foreseeable, could not be
prevented by the bank concerned:
Provided, however, That the Monetary
Board has ascertained that the bank is
not insolvent and has the assets defined
hereunder to secure the advances:
Provided, further, That a concurrent vote
of at least five (5) members of the
Monetary Board is obtained.
The amount of any emergency loan or
advance shall not exceed the sum of
fifty percent (50%) of total deposits and
deposit substitutes of the banking
institution and shall be disbursed in
two (2) or more tranches. The amount of
the first tranche shall be limited to
twenty-five percent (25%) of the total
deposit and deposit substitutes of the
institution and shall be secured by
government securities to the extent of
their applicable loan values and other
unencumbered first class collaterals
which the Monetary Board may
approve: Provided, That if as determined
by the Monetary Board, the
circumstances surrounding the
emergency warrant a loan or advance
greater than the amount provided
hereinabove, the amount of the first
tranche may exceed twenty-five percent
(25%) of the bank's total deposit and
deposit substitutes if the same is
adequately secured by applicable loan
values of government securities and
unencumbered first class collaterals
approved by the Monetary Board, and
the principal stockholders of the
institution furnish an acceptable
undertaking to indemnify and hold
harmless from suit a conservator whose
appointment the Monetary Board may
find necessary at any time.
Prior to the release of the first tranche,
the banking institution shall submit to
the Bangko Sentral a resolution of its
board of directors authorizing the
Bangko Sentral to evaluate other assets
of the banking institution certified by its
external auditor to be good and
available for collateral purposes should
the release of the subsequent tranche
be thereafter applied for.
The Monetary Board may, by a vote of
at least five (5) of its members,
authorize the release of a subsequent
tranche on condition that the principal
stockholders of the institution:
(a) furnish an acceptable undertaking to
indemnify and hold harmless from suit
a conservator whose appointment the
Monetary Board may find necessary at
any time; and
(b) provide acceptable security which, in
the judgment of the Monetary Board,
would be adequate to supplement,
where necessary, the assets tendered by
the banking institution to collateralize
the subsequent tranche.
In connection with the exercise of these
powers, the prohibitions in Section 128
of this Act shall not apply insofar as it
refers to acceptance as collateral of
shares and their acquisition as a result
of foreclosure proceedings, including
the exercise of voting rights pertaining
to said shares: Provided, however, That
should the Bangko Sentral acquire any
of the shares it has accepted as
collateral as a result of foreclosure
proceedings, the Bangko Sentral shall
dispose of said shares by public bidding
within one (1) year from the date of
consolidation of title by the Bangko
Sentral.
Whenever a financial institution incurs
an overdraft in its account with the
Bangko Sentral, the same shall be
eliminated within the period prescribed
in Section 102 of this Act.
B. Appointment of Conservator
Sec. 29 of the New Central Bank Act
states that: Whenever, on the basis of a
report submitted by the appropriate
supervising or examining department,
the Monetary Board finds that 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, the Monetary
Board may appoint a conservator with
such powers as the Monetary Board
shall deem necessary to take charge of
the assets, liabilities, and the
management thereof, reorganize the
management, collect all monies and
debts due said institution, and exercise
all powers necessary to restore its
viability. The conservator shall report
and be responsible to the Monetary
Board and shall have the power to
overrule or revoke the actions of the
previous management and board of
directors of the bank or quasi-bank.
10
 The conservator should be competent
and knowledgeable in bank operations
and management. The conservatorship
shall not exceed one (1) year.
The conservator shall receive
remuneration to be fixed by the
Monetary Board in an amount not to
exceed two-thirds (2/3) of the salary of
the president of the institution in one
(1) year, payable in twelve (12) equal
monthly payments: Provided, That, if at
any time within one-year period, the
conservatorship is terminated on the
ground that the institution can operate
on its own, the conservator shall receive
the balance of the remuneration which
he would have received up to the end of
the year; but if the conservatorship is
terminated on other grounds, the
conservator shall not be entitled to such
remaining balance. The Monetary Board
may appoint a conservator connected
with the Bangko Sentral, in which case
he shall not be entitled to receive any
remuneration or emolument from the
Bangko Sentral during the
conservatorship. The expenses
attendant to the conservatorship shall
be borne by the bank or quasi-bank
concerned.
The Monetary Board shall terminate the
conservatorship when it is satisfied that
the institution can continue to operate
on its own and the conservatorship is
no longer necessary. The
conservatorship shall likewise be
terminated should the Monetary Board,
on the basis of the report of the
conservator or of its own findings,
determine that the continuance in
business of the institution would
involve probable loss to its depositors or
creditors, in which case the provisions
of Section 30 shall apply.
*Experiencing liquidity problems only.
Powers of Conservator:
1. To take charge of the assets,
liabilities, and the management
thereof;
2. To reorganize the management of
the subject bank;
3. To collect all monies and debts due
said institutions; and
4. To exercise all powers necessary to
restore its viability
Except: Those already perfected
C. Appointment of Receiver
Sec. 30 of the New Central Bank Act
provides that: Whenever, upon report
of the head of the supervising or
examining department, the Monetary
Board finds 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
financial panic in the banking
community;
(b) has insufficient realizable assets, as
determined by the Bangko Sentral, 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 Section 37 that has
become final, involving acts or
transactions which amount to fraud or
a dissipation of the assets of the
institution; in which cases, the
Monetary Board may summarily and
without need for prior hearing forbid the
institution from doing business in the
Philippines and designate the Philippine
Deposit Insurance Corporation as
receiver of the banking institution.
For a quasi-bank, any person of
recognized competence in banking or
finance may be designed as receiver.
The receiver shall immediately gather
and take charge of all the assets and
liabilities of the institution, administer
the same for the benefit of its creditors,
and exercise the general powers of a
receiver under the Revised Rules of
Court but shall not, with the exception
of administrative expenditures, pay or
commit any act that will involve the
transfer or disposition of any asset of
the institution: Provided, That the
receiver may deposit or place the funds
of the institution in non-speculative
investments. The receiver shall
determine as soon as possible, but not
later than ninety (90) days from
takeover, 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: Provided, That
any determination for the resumption of
business of the institution shall be
11
subject to prior approval of the
Monetary Board.
If the receiver determines that the
institution cannot be rehabilitated or
permitted to resume business in
accordance with the next preceding
paragraph, the Monetary Board shall
notify in writing the board of directors of
its findings and direct the receiver to
proceed with the liquidation of the
institution. The receiver shall:
(1) file ex parte with the proper regional
trial court, and without requirement of
prior notice or any other action, a
petition for assistance in the liquidation
of the institution pursuant to a
liquidation plan adopted by the
Philippine Deposit Insurance
Corporation for general application to
all closed banks. In case of quasi-
banks, the liquidation plan shall be
adopted by the Monetary Board. Upon
acquiring jurisdiction, the court shall,
upon motion by the receiver after due
notice, adjudicate disputed claims
against the institution, assist the
enforcement of individual liabilities of
the stockholders, directors and officers,
and decide on other issues as may be
material to implement the liquidation
plan adopted. The receiver shall pay the
cost of the proceedings from the assets
of the institution.
(2) 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 of the Philippines
and he may, in the name of the
institution, and with the assistance of
counsel as he may retain, institute such
actions as may be necessary to collect
and recover accounts and assets of, or
defend any action against, the
institution. The assets of an institution
under receivership or liquidation shall
be deemed in custodia legis in the hands
of the receiver and shall, from the
moment the institution was placed
under such receivership or liquidation,
be exempt from any order of
garnishment, levy, attachment, or
execution.
The actions of the Monetary Board
taken under this section or under
Section 29 of this Act shall be final and
executory, and may not be restrained or
set aside by the court except on petition
for certiorari on the ground that the
action taken was in excess of
jurisdiction or with such grave abuse of
discretion as to amount to lack or
excess of jurisdiction. The petition for
certiorari may only be filed by the
stockholders of record representing the
majority of the capital stock within ten
(10) days from receipt by the board of
directors of the institution of the order
directing receivership, liquidation or
conservatorship. The designation of a
conservator under Section 29 of this Act
or the appointment of a receiver under
this section shall be vested exclusively
with the Monetary Board. Furthermore,
the designation of a conservator is not a
precondition to the designation of a
receiver.
*There is a bank closure.
Close Now, Hear Later Scheme:
Sec. 29 of the New Central Bank Act states that:
Whenever, on the basis of a report submitted by
the appropriate supervising or examining
department, the Monetary Board finds that 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, the Monetary Board may
appoint a conservator with such powers as the
Monetary Board shall deem necessary to take
charge of the assets, liabilities, and the
management thereof, reorganize the management,
collect all monies and debts due said institution,
and exercise all powers necessary to restore its
viability. The conservator shall report and be
responsible to the Monetary Board and shall have
the power to overrule or revoke the actions of the
previous management and board of directors of the
bank or quasi-bank.
The conservator should be competent and
knowledgeable in bank operations and
management. The conservatorship shall not exceed
one (1) year.
The conservator shall receive remuneration to be
fixed by the Monetary Board in an amount not to
exceed two-thirds (2/3) of the salary of the
president of the institution in one (1) year, payable
in twelve (12) equal monthly payments: Provided,
That, if at any time within one-year period, the
conservatorship is terminated on the ground that
the institution can operate on its own, the
conservator shall receive the balance of the
remuneration which he would have received up to
the end of the year; but if the conservatorship is
12
terminated on other grounds, the conservator shall
not be entitled to such remaining balance. The
Monetary Board may appoint a conservator
connected with the Bangko Sentral, in which case
he shall not be entitled to receive any
remuneration or emolument from the Bangko
Sentral during the conservatorship. The expenses
attendant to the conservatorship shall be borne by
the bank or quasi-bank concerned.
The Monetary Board shall terminate the
conservatorship when it is satisfied that the
institution can continue to operate on its own and
the conservatorship is no longer necessary. The
conservatorship shall likewise be terminated
should the Monetary Board, on the basis of the
report of the conservator or of its own findings,
determine that the continuance in business of the
institution would involve probable loss to its
depositors or creditors, in which case the
provisions of Section 30 shall apply.
*No prior hearing is necessary in appointing a
receiver and in closing the bank. It is enough that
subsequent judicial review is provided for. Indeed,
to require such previous hearing would not only be
impractical but would tend to defeat the very
purpose of the law when it invested the Monetary
Board with such authority.
Purpose: To avoid creation of panic from the
depositors or public.
Reason: The government has responsibility to see
to it that the person dealing with the bank is
protected.
Effects of receivership and liquidation:
1. Suspension of operation
2. The assets under receivership or liquidation
shall be deemed in custodia legis in the
hands of the receiver and shall be exempt
from garnishment, levy, attachment or
execution
3. Bank is not liable to pay interest on
deposits during the period of suspension of
operation
Reason: There is no source of income
4. Banks under liquidation retain their legal
personality
*The bank can sue and be sued but any
case should be initiated and prosecuted
through the liquidator.
5. There will be no preference even if the
claimant-depositor obtained a writ of
preliminary attachment.
Supervision of Banks:
Sec. 4 of the General Banking Law states that:
The operations and activities of banks shall be
subject to supervision of the Bangko Sentral.
Supervision shall include the following:
4.1. The issuance of rules of, conduct or the
establishment standards of operation for uniform
application to all institutions or functions covered,
taking into consideration the distinctive character
of the operations of institutions and the
substantive similarities of specific functions to
which such rules, modes or standards are to be
applied;
4.2 The conduct of examination to determine
compliance with laws and regulations if the
circumstances so warrant as determined by the
Monetary Board;
4.3 Overseeing to ascertain that laws and
regulations are complied with;
4.4 Regular investigation which shall not be
oftener than once a year from the last date of
examination to determine whether an institution
is conducting its business on a safe or sound
basis: Provided, That the
deficiencies/irregularities found by or discovered
by an audit shall be immediately addressed;
4.5 Inquiring into the solvency and liquidity of
the institution; or
4.6 Enforcing prompt corrective action.
The Bangko Sentral shall also have supervision
over the operations of and exercise regulatory
powers over quasi-banks, trust entities and other
financial institutions which under special laws
are subject to Bangko Sentral supervision.
For the purposes of this Act, quasi-banks
shall refer to entities engaged in the borrowing
of funds through the issuance, endorsement or
assignment with recourse or acceptance of deposit
substitutes as defined in Section 95 of
Republic Act No. 7653 (hereafter the New
Central Bank Act) for purposes of re-lending or
purchasing of receivables and other obligations.
Money Function:
Sec. 50 of the New Central Bank Act states that:
The Bangko Sentral shall have the sole power and
authority to issue currency, within the territory of
the Philippines. No other person or entity, public or
private, may put into circulation notes, coins or
any other object or document which, in the opinion
of the Monetary Board, might circulate as
currency, nor reproduce or imitate the facsimiles of
Bangko Sentral notes without prior authority from
the Bangko Sentral.
The Monetary Board may issue such regulations as
it may deem advisable in order to prevent the
circulation of foreign currency or of currency
substitutes as well as to prevent the reproduction
of facsimiles of Bangko Sentral notes.
The Bangko Sentral shall have the authority to
investigate, make arrests, conduct searches and
13
seizures in accordance with law, for the purpose of
maintaining the integrity of the currency.
Violation of this provision or any regulation issued
by the Bangko Sentral pursuant thereto shall
constitute an offense punishable by imprisonment
of not less than five (5) years but not more than ten
(10) years. In case the Revised Penal Code provides
for a greater penalty, then that penalty shall be
imposed.
Anti-Money Laundering Act:
Sec. 4.1 of Republic Act 9160 states that:
Money laundering is a crime whereby the
proceeds of an unlawful activity AS HEREIN
DEFINED are transacted, thereby making them
appear to have originated from legitimate sources.
It is committed by the following:
a) Any person knowing that any monetary
instrument or property represents, involves, or
relates to, the proceeds of any unlawful activity,
transacts or attempts to transact said monetary
instrument or property.
b) Any person knowing that any monetary
instrument or property involves the proceeds of
any unlawful activity, performs or fails to perform
any act as a result of which he facilitates the
offense of money laundering referred to in
paragraph (a) above.
c) Any person knowing that any monetary
instrument or property is required under this Act
to be disclosed and filed with the Anti-Money
Laundering
Council (AMLC), fails to do so.
Definitions:
Covered Transaction is a transaction in cash or
other equivalent monetary instrument involving
total amount in excess of P500,000 within one
banking day.
*P500,000 is the threshold/controlling
Suspicious Transaction are transactions,
regardless of amount, where any of the following
circumstances exists:
1. There is no underlying legal or trade
obligation, purpose or economic
justification;
2. The client is not properly identified;
3. The amount involved is not commensurate
with the business or financial capacity of
the client;
4. Taking into account all known
circumstances, it may be perceived that the
clients transaction is structured in order to
avoid being the subject of reporting
requirements under the ACT;
5. Any circumstance relating to the
transaction which is observed to deviate
from the profile of the client and/or the
clients past transactions with the covered
institution;
6. The transaction is in any way related to an
unlawful activity or any money laundering
activity or offense under this ACT that is
about to be, is being or has been
committed; or
7. Any transaction that is similar, analogous
or identical to any of the foregoing.
Sec. 3.i. of Republic Act 9160 states that:
Unlawful activity" refers to any act or omission or
series or combination thereof involving or having
relation, to the following:
(A) Kidnapping for ransom under Article 267 of Act
No. 3815, otherwise known as the Revised Penal
Code, as amended; (14) Kidnapping for ransom
(B) Sections 4, 5, 6, 8, 9, 10, 12,13, 14, 15 and 16
of Republic Act No.9165, otherwise known as the
COMPREHENSIVE Dangerous Drugs Act of 2002;
(14) Importation of prohibited drugs;
(15) Sale of prohibited drugs;
(16) Administration of prohibited drugs;
(17) Delivery of prohibited drugs
(18) Distribution of prohibited drugs
(19) Transportation of prohibited drugs
(20) Maintenance of a Den, Dive or Resort for
prohibited users
(21) Manufacture of prohibited drugs
(22) Possession of prohibited drugs
(23) Use of prohibited drugs
(24) Cultivation of plants which are sources of
prohibited drugs
(25) Culture of plants which are sources of
prohibited drugs
(C) Section 3 paragraphs b, c, e, g, h and i of
Republic Act No. 3019, as amended, otherwise
known as the Anti-Graft and Corrupt Practices Act;
(14) Directly or indirectly requesting or receiving
any gift, present, share, percentage or benefit for
himself or for any other person in connection with
any contract or transaction between the
Government and any party, wherein the public
officer in his official capacity has to intervene
under the law;
(15) Directly or indirectly requesting or receiving
any gift, present or other pecuniary or material
benefit, for himself or for another, from any person
for whom the public officer, in any manner or
capacity, has secured or obtained, or will secure or
obtain, any government permit or license, in
consideration for the help given or to be given,
without prejudice to Section 13 of R.A. 3019;
(16) Causing any undue injury to any party,
including the government, or giving any private
party any unwarranted benefits, advantage or
14
preference in the discharge of his official,
administrative or judicial functions through
manifest partiality, evident bad faith or gross
inexcusable negligence;
(17) Entering, on behalf of the government, into
any contract or transaction manifestly and grossly
disadvantageous to the same, whether or not the
public officer profited or will profit thereby;
(18) Directly or indirectly having financial or
pecuniary interest in any business contract or
transaction in connection with which he intervenes
or takes part in his official capacity, or in which he
is prohibited by the Constitution or by any law
from having any interest;
(19) Directly or indirectly becoming interested, for
personal gain, or having material interest in any
transaction or act requiring the approval of a
board, panel or group of which he is a member,
and which exercise of discretion in such approval,
even if he votes against the same or he does not
participate in the action of the board, committee,
panel or group.
(D) Plunder under Republic Act No. 7080, as
amended;
(20) Plunder through misappropriation, conversion,
misuse or malversation of public funds or raids
upon the public treasury;
(21) Plunder by receiving, directly or indirectly, any
commission, gift, share, percentage, kickbacks or
any other form of pecuniary benefit from any
person and/or entity in connection with any
government contract or project or by reason of the
office or position of the public officer concerned;
(22) Plunder by the illegal or fraudulent
conveyance or disposition of assets belonging to
the National Government or any of its subdivisions,
agencies, instrumentalities or government-owned
or controlled corporations or their subsidiaries;
(23) Plunder by obtaining, receiving or accepting,
directly or indirectly, any shares of stock, equity or
any other form of interest or participation
including the promise of future employment in any
business enterprise or undertaking;
(24) Plunder by establishing agricultural, industrial
or commercial monopolies or other combinations
and/or implementation of decrees and orders
intended to benefit particular persons or special
interests;
(25) Plunder by taking undue advantage of official
position, authority, relationship, connection or
influence to unjustly enrich himself or themselves
at the expense and to the damage and prejudice of
the Filipino people and the Republic of the
Philippines
(E) Robbery and extortion under Articles 294, 295,
296, 299, 300, 301 and 302 of the Revised Penal
Code, as amended;
(26) Robbery with violence or intimidation of
persons;
(27) Robbery with physical injuries, committed in
an uninhabited place and by a band, or with use of
firearms on a street, road or alley;
(28) Robbery in an uninhabited house or public
building or edifice devoted to worship.
(F) Jueteng and Masiao punished as illegal
gambling under Presidential Decree No. 1602;
(29) Jueteng;
(30) Masiao.
(G) Piracy on the high seas under the Revised
Penal Code, as amended and Presidential Decree
No. 532;
(31) Piracy on the high seas;
(32) Piracy in inland Philippine waters;
(33) Aiding and abetting pirates and brigands.
(H) Qualified theft under Article 310 of the Revised
Penal Code, as amended;
(34) Qualified theft.
(I) Swindling 'under Article 315 of the Revised
Penal Code, as amended;
(35) Estafa with unfaithfulness or abuse of
confidence by altering the substance, quality or
quantity of anything of value which the offender
shall deliver by virtue of an obligation to do so,
even though such obligation be based on an
immoral or illegal consideration;
(36) Estafa with unfaithfulness or abuse of
confidence by misappropriating or converting, to
the prejudice of another, money, goods or any
other personal property received by the offender in
trust or on commission, or for administration, or
under any other obligation involving the duty to
make delivery or to return the same, even though
such obligation be totally or partially guaranteed
by a bond; or by denying having received such
money, goods, or other property;
(37) Estafa with unfaithfulness or abuse of
confidence by taking undue advantage of the
signature of the offended party in blank, and by
writing any document above such signature in
blank, to the prejudice of the offended party or any
third person;
(38) Estafa by using a fictitious name, or falsely
pretending to possess power, influence,
qualifications, property, credit, agency, business or
imaginary transactions, or by means of other
similar deceits;
(39) Estafa by altering the quality, fineness or
weight of anything pertaining to his art or
business;
(40) Estafa by pretending to have bribed any
government employee;
(41) Estafa by postdating a check, or issuing a
check in payment of an obligation when the
offender has no funds in the bank, or his funds
15
deposited therein were not sufficient to cover the
amount of the check;
(42) Estafa by inducing another, by means of
deceit, to sign any document;
(43) Estafa by resorting to some fraudulent
practice to ensure success in a gambling game;
(44) Estafa by removing, concealing or destroying,
in whole or in part, any court record, office files,
document or any other papers.
(J) Smuggling under Republic Act Nos. 455 and
1937;
(45) Fraudulent importation of any vehicle;
(46) Fraudulent exportation of any vehicle;
(47) Assisting in any fraudulent importation;
(48) Assisting in any fraudulent exportation;
(49) Receiving smuggled article after fraudulent
importation;
(50) Concealing smuggled article after fraudulent
importation;
(51) Buying smuggled article after fraudulent
importation;
(52) Selling smuggled article after fraudulent
importation;
(53) Transportation of smuggled article after
fraudulent importation;
(54) Fraudulent practices against customs revenue.
(K) Violations under Republic Act No. 8792,
otherwise known as the Electronic Commerce Act
of 2000;
K.1. Hacking or cracking, which refers to:
(55) unauthorized access into or interference in a
computer system/server or information and
communication system; or
(56) any access in order to corrupt, alter, steal, or
destroy using a computer or other similar
information and communication devices, without
the knowledge and consent of the owner of the
computer or information and communications
system, including
(57) the introduction of computer viruses and the
like, resulting in the corruption, destruction,
alteration, theft or loss of electronic data messages
or electronic document;
K.2. Piracy, which refers to:
(58) the unauthorized copying, reproduction,
(59) the unauthorized dissemination, distribution,
(60) the unauthorized importation,
(61) the unauthorized use, removal, alteration,
substitution, modification,
(62) the unauthorized storage, uploading,
downloading, communication, making available to
the public, or
(63) the unauthorized broadcasting, of protected
material, electronic signature or copyrighted works
including legally protected sound recordings or
phonograms or information material on protected
works, through the use of telecommunication
networks, such but not limited to, the internet, in
a manner that infringes intellectual property
rights;
K.3. Violations of the Consumer Act or Republic
Act No. 7394 and other relevant or pertinent laws
through transactions covered by or using
electronic data messages or electronic documents:
(64) Sale of any consumer product that is not in
conformity with standards under the Consumer
Act;
(65) Sale of any product that has been banned by a
rule under the Consumer Act; ,
(66) Sale of any adulterated or mislabeled product
using electronic documents;
(67) Adulteration or misbranding of any consumer
product;
(68) Forging, counterfeiting or simulating any
mark, stamp, tag, label or other identification
device;
(69) Revealing trade secrets;
(70) Alteration or removal of the labeling of any
drug or device held for sale;
(71) Sale of any drug or device not registered in
accordance with the provisions of the E-Commerce
Act;
(72) Sale of any drug or device by any person not
licensed in accordance with the provisions of the
E-Commerce Act;
(73) Sale of any drug or device beyond its
expiration date;
(74) Introduction into commerce of any mislabeled
or banned hazardous substance;
(75) Alteration or removal of the labeling of a
hazardous substance;
(76) Deceptive sales acts and practices;
(77) Unfair or unconscionable sales acts and
practices;
(78) Fraudulent practices relative to weights and
measures;
(79) False representations in advertisements as the
existence of a warranty or guarantee;
(80) Violation of price tag requirements;
(81) Mislabeling consumer products;
(82) False, deceptive or misleading advertisements;
(83) Violation of required disclosures on consumer
loans;
(84) Other violations of the provisions of the E-
Commerce Act;
(L) Hijacking and other violations under Republic
Act No. 6235; destructive arson and murder, as
defined under the Revised Penal Code, as
amended, including those perpetrated by terrorists
against non-combatant persons and similar
targets;
(85) Hijacking;
(86) Destructive arson;
(87) Murder;
16
(88) Hijacking, destructive arson or murder
perpetrated by terrorists against non-combatant
persons and similar targets;
(M) Fraudulent practices and other violations
under Republic Act No. 8799, otherwise known as
the Securities Regulation Code of 2000;
(89) Sale, offer or distribution of securities within
the Philippines without a registration statement
duly filed with and approved by the SEC;
(90) Sale or offer to the public of any pre-need plan
not in accordance with the rules and regulations
which the SEC shall prescribe;
(91) Violation of reportorial requirements imposed
upon issuers of securities;
(92) Manipulation of security prices by creating a
false or misleading appearance of active trading in
any listed security traded in an Exchange or any
other trading market;
(93) Manipulation of security prices by effecting,
alone or with others, a series of transactions in
securities that raises their prices to induce the
purchase of a security, whether of the same or
different class, of the same issuer or of a
controlling, controlled or commonly controlled
company by others;
(94) Manipulation of security prices by effecting,
alone or with others, series of transactions in
securities that depresses their price to induce the
sale of a security, whether of the same or different
class, of the same issuer or of a controlling,
controlled or commonly controlled company by
others;
(95) Manipulation of security prices by effecting,
alone or with others, a series of transactions in
securities that creates active trading to induce
such a purchase or sale though manipulative
devices such as marking the close, painting the
tape, squeezing the float, hype and dump, boiler
room operations and such other similar devices;
(96) Manipulation of security prices by circulating
or disseminating' information that the price of any
security listed in an Exchange will or is likely to
rise or fall because of manipulative market
operations of anyone or more persons conducted
for the purpose of raising or depressing the price of
the security for the purpose of inducing the
purchase or sale of such security;
(97) Manipulation of security prices by making
false or misleading statements with respect to any
material fact; which he knew or had reasonable
ground to believe was so false and misleading, for
the purpose of inducing the purchase or sale of
any security listed or traded in an Exchange;
(98) Manipulation of security prices by effecting,
alone or with others, any series of transactions for
the purchase and/or sale of any security traded in
an Exchange for the purpose of pegging, fixing or
stabilizing the price of such security, unless
otherwise allowed by the Securities Regulation
Code or by the rules of the SEC;
(99) Sale or purchase of any security using any
manipulative deceptive device or contrivance;
(100) Execution of short sales or stop-loss order in
connection with the purchase or sale of any
security not in accordance with such rules and
regulations as the SEC may prescribe as necessary
and appropriate in the public interest or the
protection of the investors;
(101) Employment of any device, scheme or artifice
to defraud in connection with the purchase and
sale of any securities;
(102) Obtaining money or property in connection
with the purchase and sale of any security by
means of any untrue statement of a material fact
or any omission to state a material fact necessary
in order to make the statements made, in the light
of the circumstances under which they were made,
not misleading;
(103) Engaging in any act, transaction, practice or
course of action in the sale and purchase of any
security which operates or would operate as a
fraud or deceit upon any person;
(104) Insider trading;
(105) Engaging in the business of buying and
selling securities in the Philippines as a broker or
dealer, or acting as a salesman, or an associated
person of any broker or dealer without any
registration from the Commission;
(106) Employment by a broker or dealer of any
salesman or associated person or by an issuer of
any salesman, not registered with the SEC; ,
(107) Effecting any transaction in any security, or
reporting such transaction, in an Exchange or
using the facility of an Exchange which is not
registered with the SEC;
(108) Making use of the facility of a clearing agency
which is not registered with the SEC;
(109) Violations of margin requirements;
(110) Violations on the restrictions on borrowings
by members, brokers and dealers;
(111) Aiding and Abetting in any violations of the
Securities Regulation Code;
(112) Hindering, obstructing or delaying the filing
of any document required under the Securities
Regulation Code or the rules and regulations of the
SEC;
(113) Violations of any of the provisions of the
implementing rules and regulations of the SEC;
(114) Any other violations of any of the provisions
of the Securities Regulation Code.
(N) Felonies or offenses of a similar nature to the
afore-mentioned unlawful activities that are
punishable under the penal laws of other
countries.
In determining whether or not a felony or offense
punishable under the penal laws of other
17
countries, is "of a similar nature", as to constitute
the same as an unlawful activity under the AMLA,
the nomenclature of said felony or offense need not
be identical to any of the predicate crimes listed
under Rule 3.i.

Safe Harbor Provisions:

Sec. 9.3.e of Republic Act 9160 states that: No

administrative, criminal or civil proceedings, shall
lie against any person for having made a covered
transaction report or a suspicious transaction
report in the regular performance of his duties and
in good faith, whether or not such reporting results
in any criminal prosecution under this Act or any
other Philippine law.

Truth in Lending Act:

Sec. 4 of Republic Act No. 3765 states that: 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
Board, 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 difference between the amounts set forth
under clauses (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 credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos
and centavos; and
(7) the percentage that the finance bears to the
total amount to be financed expressed as a simple
annual rate on the outstanding unpaid balance of
the obligation.
*Failure to comply with the Truth in Lending Act,
the contract of loan is still valid however, the bank
cannot recover finance charges.
Purpose: To avoid hidden charges; to know the
actual amount borrowed.

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