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OCTOBER - DECEMBER 2004 VOL. 6, ISSUE NO. 22

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I. LI. LI. LI. LI. LECTURESECTURESECTURESECTURESECTURES

II. RII. RII. RII. RII. REFERENCESEFERENCESEFERENCESEFERENCESEFERENCES

OCTOBER-DECEMBER 2004 VOL. 6, ISSUE NO. 22

TheTheTheTheThe

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TTTTThe PHILJhe PHILJhe PHILJhe PHILJhe PHILJA JA JA JA JA Judicial Judicial Judicial Judicial Judicial Jourourourourournal.nal.nal.nal.nal.

The PHILJA Judicial Journal is published four times a year, everyquarter, January through December, by the Research and LinkagesOffice of the Philippine Judicial Academy (PHILJA). The Journalcontains articles and contributions of interest to members of theJudiciary, particularly judges, as well as law students and practitioners.The views expressed by the contributors do not necessarily reflectthe views of either the Academy or its editorial board.

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v

SUPREME COURT OF THE PHILIPPINES

CHIEF JUSTICE

Hon. HILARIO G. DAVIDE, Jr.

ASSOCIATE JUSTICES

Hon. REYNATO S. PUNOHon. ARTEMIO V. PANGANIBAN

Hon. LEONARDO A. QUISUMBINGHon. CONSUELO YÑARES-SANTIAGO

Hon. ANGELINA SANDOVAL-GUTIERREZHon. ANTONIO T. CARPIO

Hon. MA. ALICIA AUSTRIA MARTINEZHon. RENATO C. CORONA

Hon. CONCHITA CARPIO MORALESHon. ROMEO J. CALLEJO, Sr.

Hon. ADOLFO S. AZCUNAHon. DANTE O. TINGA

Hon. MINITA V. CHICO-NAZARIOHon. CANCIO C. GARCIA

COURT ADMINISTRATOR

Hon. PRESBITERO J. VELASCO, Jr.

DEPUTY COURT ADMINISTRATORSHon. ZENAIDA N. ELEPAÑO

Hon. JOSE P. PEREZHon. CHRISTOPHER O. LOCK

CLERK OF COURT

Attorney LUZVIMINDA D. PUNO

ASST. COURT ADMINISTRATORS

Attorney ANTONIO H. DUJUAAttorney ISMAEL G. KHAN, Jr.

ASST. CLERK OF COURT

Attorney MA. LUISA D. VILLARAMA

DIVISION CLERKS OF COURT

Attorney ENRIQUETA ESGUERRA VIDAL

Attorney LUDICHI Y. NUNAGAttorney JULIETA Y. CARREON

vi

PHILIPPINE JUDICIAL ACADEMY

Board of Trustees

Hon. HILARIO G. DAVIDE Jr.Chief Justice

Chairman

Hon. REYNATO S. PUNOSenior Associate Justice, Supreme Court

Vice Chairman

Members

Executive Officials

Hon. PRESBITERO J. VELASCO, Jr.Court Administrator

Hon. EDILBERTO G. SANDOVALActing Presiding Justice, Sandiganbayan

Dean ANDRES D. BAUTISTAPresident, Philippine Association of Law Schools

Hon. AMEURFINA A. MELENCIO HERRERAChancellor

Hon. EUBOLO G. VERZOLAActing Presiding Justice, Court of Appeals

Hon. ROMEO F. BARZAPresident, Philippine Judges Association

Dr. PACIFICO A. AGABINConstitutional Law

Hon. OSCAR M. HERRERA, Sr.Remedial Law

Hon. PRESBITERO J. VELASCO, Jr.Court Management

Professor CESAR L. VILLANUEVACommercial Law

Fr. RANHILIO C. AQUINOJurisprudence and Legal Philosophy

Professor SEDFREY M. CANDELARIASpecial Areas of Concern

Hon. RICARDO C. PUNOCivil Law

Hon. EDILBERTO G. SANDOVALCriminal Law

Hon. HILARION L. AQUINOEthics and Judicial Conduct

Dr. PURIFICACION V. QUISUMBINGInternational and Human Rights Law

Professor MYRNA S. FELICIANOLegal Method and Research

Atty. IVAN JOHN E. UYCourt Technology

Hon. AMEURFINA A. MELENCIO HERRERAChair

Hon. AMEURFINA A. MELENCIO HERRERAChancellor

Hon. ANTONIO M. MARTINEZVice Chancellor

Hon. PRISCILA S. AGANAExecutive Secretary

Academic Council

Fr. RANHILIO C. AQUINOAcademic Affairs Office

Hon. BERNARDO T. PONFERRADAJudicial Reforms Office

Heads of OfficesHon. ANTONIO M. MARTINEZ

Administrative Office

Professor SEDFREY M. CANDELARIAResearch and Linkages Office

Judicial Reforms GroupsHon. AMEURFINA A. MELENCIO HERRERA

Presiding Officer

Hon. RALPH S. LEEExecutive Judge, Presiding Judge, MeTC, Br. 38, Quezon City

vii

Justice Ameurfina A. Melencio HerreraChancellor

Professor Sedfrey M. CandelariaEditor-in-Chief

Editorial Staff

Copy Editing Queency S. Cortez

Editorial AssistanceArmida M. SalazarJocelyn D. Bondoc

Layout and DesignCharmaine C. SaltivanSarah Jane S. Salazar

CirculationJeniffer P. Sison

Christine A. Ferrer

Printing ServicesEdmundo M. Moredo

THE PHILJTHE PHILJTHE PHILJTHE PHILJTHE PHILJA JUDICIAL JOURNA JUDICIAL JOURNA JUDICIAL JOURNA JUDICIAL JOURNA JUDICIAL JOURNALALALALAL

CONTENTSCONTENTSCONTENTSCONTENTSCONTENTS

OFFICIALS OF THE SUPREME COURT OF THE PHILIPPINES .......... vOFFICIALS OF THE PHILIPPINE JUDICIAL ACADEMY ...................... vi

I. LECTURESI. LECTURESI. LECTURESI. LECTURESI. LECTURES

THE PHILIPPINE E-COMMERCE LAW (REPUBLIC ACT NO. 8792):A LEGISLATIVE RESPONSE TO ELECTRONIC

COMMERCE ISSUES

Attorney Rodolfo Noel S. Quimbo ............................................ 1

DEVELOPMENTS IN COMMERCIAL LAW

Dean Cesar L. Villanueva ............................................................. 23

CROSS-BORDER INSOLVENCY AND PRIVATIZATION

Judge Sixto C. Marella, Jr. ......................................................... 107

DEVELOPMENTS TO EXPAND JURISDICTION OF

SPECIAL COMMERCIAL COURTS AND

LEADING DEVELOPMENTS IN COMMERCIAL LAW

Dr. Cheselden George V. Carmona ........................................ 116

COMPARATIVE DISCUSSION ON THE

PROPOSED CONSOLIDATED INTERIM RULES OF PROCEDURE

ON CORPORATE LIQUIDATION IN INSOLVENCY AND THE

URGENT RULES ON CORPORATE INSOLVENCY

Attorney Manuel D. Yngson, Jr. .................................................. 161

VOLUME 6 ISSUE NO. 22 OCTOBER - DECEMBER 2004


II. REFERENCESII. REFERENCESII. REFERENCESII. REFERENCESII. REFERENCES

REPUBLIC ACT NO. 8762RETAIL TRADE LIBERALIZATION ACT OF 2000 ................. 198

REPUBLIC ACT NO. 8792ELECTRONIC COMMERCE ACT OF 2000 .............................. 205

REPUBLIC ACT NO. 9160ANTI-MONEY LAUNDERING ACT OF 2001 ........................ 236

REPUBLIC ACT NO. 9194AN ACT AMENDING REPUBLIC ACT NO. 9160,OTHERWISE KNOWN AS THE “ANTI-MONEY

LAUNDERING ACT OF 2001” .................................................. 256RULES AND REGULATIONS IMPLEMENTING

REPUBLIC ACT NO. 8762 .......................................................... 266

IMPLEMENTING RULES AND REGULATIONS OF THE

ELECTRONIC COMMERCE ACT ................................................ 283

RULES AND REGULATIONS IMPLEMENTING THE

ANTI-MONEY LAUNDERING ACT OF 2001(REPUBLIC ACT NO. 9160) ...................................................... 328

REVISED IMPLEMENTING RULES AND REGULATIONS

REPUBLIC ACT NO. 9160, AS AMENDED BY

REPUBLIC ACT NO. 9194 .......................................................... 368


I. I. I. I. I. LECTURESLECTURESLECTURESLECTURESLECTURES

THE PHILIPPINE E-COMMERCE LAW (REPUBLIC ACT NO. 8792):A LEGISLATIVE RESPONSE TO ELECTRONIC

COMMERCE ISSUES

Attorney Rodolfo Noel S. QuimboI. INTRODUCTION ...................................................................... 2II. TOWARDS THE INFORMATION ECONOMY..................... 3III. LEGAL RECOGNITION OF

ELECTRONIC DOCUMENTS ................................................ 4IV. INTEGRITY OF ELECTRONIC DOCUMENTS .................. 8V. FROM FILE CABINETS TO ELECTRONIC FILES ......... 11VI. ELECTRONIC CONTRACTS ............................................... 12VII. TOWARDS E-GOVERNMENT .......................................... 18VIII. DEVELOPING TRUST .......................................................... 20IX. A GLOBAL LEGAL FRAMEWORK .................................. 22

DEVELOPMENTS IN COMMERCIAL LAW

Dean Cesar L. VillanuevaI. INTRODUCTION ................................................................... 25II. THE RETAIL TRADE

LIBERALIZATION LAW OF 2000 ..................................... 25III. THE ELECTRONIC COMMERCE ACT ........................... 38IV. THE GENERAL BANKING LAW OF 2000 .................... 46V. THE SECURITIES REGULATION CODE ........................ 58VI. REGIONAL TRIAL COURT’S (RTC’S)

CORPORATE JURISDICTION ............................................. 66


CROSS-BORDER INSOLVENCY AND PRIVATIZATION

Judge Sixto C. Marella, JrI. CROSS-BORDER INSOLVENCY ....................................... 108II. PRIVATIZATION ................................................................... 112

DEVELOPMENTS TO EXPAND JURISDICTION OF

SPECIAL COMMERCIAL COURTS AND


Dr. Cheselden George V. CarmonaI. INTRODUCTION .................................................................. 117II. CONSOLIDATION OF INTELLECTUAL PROPERTY (IP)

COURTS WITH COMMERCIAL COURTS ....................... 121III. INCLUSION OF VIOLATION OF ANTI-MONEY

LAUNDERING ACT IN THE

SPECIAL COMMERCIAL COURTS’ JURISDICTION ...... 125IV. PROPOSAL TO EXPAND JURISDICTION OF

COMMERCIAL COURTS .................................................... 127V. SPECIALIZATION .................................................................. 130VI. LEADING DEVELOPMENTS IN COMMERCIAL LAW .... 136VII. CONCLUSION ....................................................................... 157

COMPARATIVE DISCUSSION ON THE

PROPOSED CONSOLIDATED INTERIM RULES OF PROCEDURE

ON CORPORATE LIQUIDATION IN INSOLVENCY AND THE

URGENT RULES ON CORPORATE INSOLVENCY

Attorney Manuel D. Yngson, Jr.I. BACKGROUND ...................................................................... 162II. SUMMARY OF RULES PROPOSED .................................. 193


II. REFERENCESII. REFERENCESII. REFERENCESII. REFERENCESII. REFERENCES

REPUBLIC ACT NO. 8762RETAIL TRADE LIBERALIZATION ACT OF 2000 ................. 198

REPUBLIC ACT NO. 8792ELECTRONIC COMMERCE ACT OF 2000 .............................. 205

REPUBLIC ACT NO. 9160ANTI-MONEY LAUNDERING ACT OF 2001 ........................ 236

REPUBLIC ACT NO. 9194AN ACT AMENDING REPUBLIC ACT NO. 9160,OTHERWISE KNOWN AS THE “ANTI-MONEY

LAUNDERING ACT OF 2001” .................................................. 256RULES AND REGULATIONS IMPLEMENTING

REPUBLIC ACT NO. 8762 .......................................................... 266

IMPLEMENTING RULES AND REGULATIONS OF THE

ELECTRONIC COMMERCE ACT ................................................ 283

RULES AND REGULATIONS IMPLEMENTING THE

ANTI-MONEY LAUNDERING ACT OF 2001(REPUBLIC ACT NO. 9160) ...................................................... 328

REVISED IMPLEMENTING RULES AND REGULATIONS

REPUBLIC ACT NO. 9160, AS AMENDED BY

REPUBLIC ACT NO. 9194 .......................................................... 368

TTTTThe Philippine E-Commerhe Philippine E-Commerhe Philippine E-Commerhe Philippine E-Commerhe Philippine E-Commerce Lace Lace Lace Lace Lawwwww(R(R(R(R(Reeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 8792):. 8792):. 8792):. 8792):. 8792):A LeA LeA LeA LeA Legislatigislatigislatigislatigislativvvvve Re Re Re Re Response toesponse toesponse toesponse toesponse to

Electronic Commerce IssuesElectronic Commerce IssuesElectronic Commerce IssuesElectronic Commerce IssuesElectronic Commerce Issues∗

Attorney Rodolfo Noel S. Quimbo∗∗

I. INTRODUCTION.................................................................................. 2II. TOWARDS THE INFORMATION ECONOMY............................... 3III. LEGAL RECOGNITION OF ELECTRONIC DOCUMENTS ..... 4IV. INTEGRITY OF ELECTRONIC DOCUMENTS ............................. 8V. FROM FILE CABINETS TO ELECTRONIC FILES ..................... 11VI. ELECTRONIC CONTRACTS ......................................................... 12VII. TOWARDS E- GOVERNMENT......................................................... 18VIII. DEVELOPING TRUST.......................................................................... 20IX. A GLOBAL LEGAL FRAMEWORK?................................................ 22

∗ Delivered at the Roundtable Discussion with Corps ofProfessors, on July 21, 2000, at the Conference Room, Officeof the Court Administrator (OCA), Supreme Court, Manila.

∗∗ Attorney Rodolfo Noel S. Quimbo is currently the Chief ofStaff of Senate President Pro Tempore Juan M. Flavier. Priorto that, he was the Head Executive Assistant of Secretary NievesR. Confesor of the Department of Labor and Employment(DOLE) in 1995. His career with the Philippine Senate startedin 1992 when he became Senator Orlando S. Mercado’s Chiefof Staff until 1994. He has also been an Associate in BautistaPicazo and Fider Law Offices in 1992.

He has done numerous information technology (IT)consultancies in projects here and abroad and likewise authoredand co-authored books and publications on IT and the E-

2 [VOL. 6:22THE PHILJA JUDICIAL JOURNAL

I. II. II. II. II. INTRNTRNTRNTRNTRODUCTIONODUCTIONODUCTIONODUCTIONODUCTION

When President Joseph Ejercito Estrada signed the E-CommerceLaw, the Philippines became the third country in ASEAN – afterSingapore and Malaysia – with legislation to promote and protectelectronic transactions. It culminated a long and tedious processthat started on July 1, 1998, when Senator Juan M. Flavier filedSenate Bill No. 10, “An Act Promoting the Use of ElectronicData Interchange in Trade Transactions and for Other Purposes,”the first of many bills that eventually led to the PhilippineElectronic Commerce Act (Republic Act No. 8792, An ActProviding for the Recognition and Use of Electronic Commercialand Non-Commercial Transactions, Penalties for the UnlawfulUse Thereof, and for Other Purposes).

The E-Commerce Law addresses the significant legal challengesfacing Filipinos who wish to participate in this wealth-creatingglobal phenomenon. First, it gives validity and legal recognitionto electronic documents, electronic signatures and electronictransactions. Second, it facilitates the admission of electronicdocuments and electronic signatures as evidence in cases ofdisputes. Third, it outlaws and penalizes unauthorized access toinformation and interference in communications systems (e.g.,hacking, introduction of viruses). Finally, it calls upon governmentto formulate and institute programs that are not only supportiveof e-commerce but would actually get the government online.

Commerce Law. He has delivered speeches and papers on thesame topics in various seminars and fora within and outside thecountry.

Attorney Quimbo, who has also been a member of several civicand professional organizations, obtained his Bachelor’s degreein English in 1988 and Laws in 1991 from the University ofthe Philippines where he had actively participated in collegeactivities.

32004] THE PHILIPPINE E-COMMERCE LAW:A LEGISLATIVE RESPONSE TO ELECTRONIC COMMERCE ISSUES

This paper attempts to provide some answers to questions onwhat the law intends. This will also discuss the provisions of thelaw in the order of their appearance in the law itself.

II. II. II. II. II. TTTTTOOOOOWWWWWARDSARDSARDSARDSARDS THETHETHETHETHE I I I I INFORMANFORMANFORMANFORMANFORMATIONTIONTIONTIONTION E E E E ECONOMYCONOMYCONOMYCONOMYCONOMY

In the E-Commerce Law, the Philippine government explicitlyrecognizes the vital role of information and communicationstechnology (ICT) in nation-building. The need to create aninformation-friendly environment that would ensure theavailability, diversity, and affordability of ICT products andservices is recognized as an important component of governmentpolicy. It recognizes the need for policies and programs to develophuman resources for the information age. The law also recognizesthe need to marshal, organize, and deploy a national informationinfrastructure. Towards achieving these goals, the primaryresponsibility of the private sector in contributing investmentsand services in ICT is acknowledged.1

This law is meant to facilitate the use of electronic dealings,transactions, arrangements, agreements, contracts, and exchangesand storage of information, domestically and internationally,through electronic, optical, and similar media. It recognizes theauthenticity and reliability of electronic data messages, as well aspromotes the universal use of electronic transactions.2 Whilemany believe that the law is intended to apply only to commercialtransactions between and among private persons, the law is meantas well to cover government in its dealings with the public. Interms of coverage, this law is to apply to any kind of electronicdata message or electronic document used in commercial and non-

1. Republic Act No. 8792, § 1.

2. Id. § 3.


commercial activities.3 It is important to underscore that non-commercial electronic documents, such as wills and affidavits,could fall under the purview of this law, if the intent as statedduring the interpellations is allowed to govern. (Senator Jaworskiasked, during interpellations, whether the bill was intended toapply to will-making and donations. In reply, Senator Magsaysaysaid “yes x x x, wills will also be covered because there will bedocuments there.”)

III. LIII. LIII. LIII. LIII. LEGALEGALEGALEGALEGAL R R R R RECOGNITIONECOGNITIONECOGNITIONECOGNITIONECOGNITION OFOFOFOFOF

EEEEELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DOCUMENTSOCUMENTSOCUMENTSOCUMENTSOCUMENTS

Electronic documents are now provided the same legal protectionas paper-based documents. Philippine courts will be duty-boundto accept electronic documents as evidence. But this is not to saythat courts can accept any type of electronically-generateddocument for certain standards have been set for a document’sacceptability.

Information shall not be denied validity or enforceability solelyon the ground that it is in the form of an electronic data messageor that it is merely incorporated by reference in that electronicmessage.4

This provision’s last phrase may be better understood throughthis example: A sends an e-mail to B offering to sell his car, thepicture and specifications of which are contained in, say, a webpage. Although the web page is merely referred to in the e-mailmessage, it becomes part of the whole communication. The lawsays that neither the web page nor the e-mail can be denied legaleffect. This creates, among other things, convenience, because the

3. Id. § 4.

4. Id. § 6.


primary messages do not have to be too bulky as they are allowedto be incorporated by reference in that e-mail message.

This could be considered the heart of the law: removing theprevious discrimination against electronic data messages/documents in favor of paper-based/real-world counterparts.

Section 7 assuages whatever doubts Section 6 might still leaveby explicitly saying that electronic documents shall have the legaleffect, validity, or enforceability as any other document or legalwriting. Further it states that where the law requires a documentto be in writing, that requirement is met by an electronic documentif the said electronic document maintains its integrity andreliability and can be authenticated so as to be usable forsubsequent reference. This applies whether the requirement in thelaw is in the form of an obligation or whether the law simplyprovides consequences for the document not being presented orretained in its original form. For evidentiary purposes, theelectronic document is now deemed to be the functional equivalentof a written document under existing laws. Limits are set, however,where the provision states that this Act is not intended to modifyany statutory rule relating to the admissibility of electronic datamessages, except the rules relating to authentication and bestevidence.

The phrase “functional equivalent” recognizes that electronicdocuments can never be the same as paper-based ones, but thatelectronic documents can achieve the same purposes or functions:

1. To provide that a document will be legible to all;

2. To provide that a document will remain unaltered overtime;

3. To allow for the reproduction of a document so that eachparty will hold a copy of the same data;


4. To allow for the authentication of data by means of asignature; and

5. To provide that a document will be in a form acceptableto public authorities and courts.

Most important in this provision is a final proviso that states:

(P)rovided That no provision of this Act shall apply tovary any and all requirements of existing laws on theformalities required in the execution of documents for theirvalidity.

This is meant to highlight the fact that the E-Commerce Lawwas intended to be least intrusive insofar as other laws wereconcerned. Thus, formal requirements remain, but, when the lawrefers to “documents” and “signatures,” they will now includeelectronic documents as well as electronic/digital signatures.

Legal recognition of Electronic Signatures is provided for inSection 8. An electronic signature on the electronic document isnow recognized as equivalent to the signature of a person on awritten document. However, certain conditions are imposed foran electronic signature to be recognized: a prescribed proceduremust be followed, which identifies the party sought to be bound,and affords him the access necessary to obtain his consent andapproval through the electronic signature.

The legal recognition of electronic signatures willunambiguously allow contracts subject to the Statute of Frauds5

to be rendered in electronic form. The Statute makes unenforceablecertain contracts – e.g., contracts that have for their object goodsexceeding Php500.00 in value – unless they are written andsubscribed. In this situation, the requirement for a memorandum

5. CIVIL CODE, art. 1404.


is now met by the legal validity of the electronic document, andthe subscription part is now answered by the declared equivalencebetween manual and digital signatures. Again, it must be statedthat when the issue to a controversy refers to the need for writtenform in order to make valid an act or contract, such may now berendered in electronic forms as well.

Insofar as those agreements which require specific forms tobe rendered as absolute necessities for validity, that requirementremains absolute and indispensable,6 inter alia, donations of realproperty which must be made and adopted in public instrumentsto be valid, even as between the parties,7 contracts of partnershipswhere immovable property is contributed and thus, must be madein a public instrument.8

The law also says that:

(T)he Supreme Court may adopt such other authenticationprocedures, including the use of electronic notarizationelectronic notarizationelectronic notarizationelectronic notarizationelectronic notarizationsystems systems systems systems systems as necessary and advisable as well as the certificatesof authentication on printed or hard copies of theelectronic documents or electronic data messages byelectrelectrelectrelectrelectronic notariesonic notariesonic notariesonic notariesonic notaries, service providers, and other duly-recognized or appointed certification authorities.9

The Notarial Law (Section 231, et. seq. of the RevisedAdministrative Code), set forth the qualifications of notariespublic at Section 233 when it says:

(T)o be eligible for appointment as notary public, a personmust be a citizen x x x.

6. Id. art. 1356.

7. Id. art. 749.

8. Id. arts. 1771 and 1773.

9. Republic Act No. 8792, § 11 (b).


It clearly contemplates a person. May then a machineprogrammed to work on behalf of a notary public be allowed toperform the functions of a notary public? And if the answer isyes, may the notarial functions be done online or electronically?What about the witnesses, who will perform that function ofwitnessing the execution of the documents? What about theprocess of affixing documentary stamps? I am an optimist,however, and I will end this by saying the problem in the long runcan and must be solved technologically rather than legally.

IVIVIVIVIV. . . . . IIIIINTEGRITYNTEGRITYNTEGRITYNTEGRITYNTEGRITY OFOFOFOFOF E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DOCUMENTSOCUMENTSOCUMENTSOCUMENTSOCUMENTS

The integrity of electronic documents provides for prima faciepresumptions relating to electronic signatures:

that the electronic signature is that of the person to whomit correlates, and that the signature was affixed with theintention of signing or approving the electronic documentx x x.10

This means that when A’s signature is attached to a document,one may presume that it is A’s signature and that he was the onewho signed it with the intention of signing or approving thesame, unless the party relying on the signature knows or has noticeof defects in or unreliability of the signature. The presumptionis, of course, merely prima facie and it may be rebutted with,perhaps, better evidence to the contrary.

What constitutes “Original Documents” is also discussed inthe law at Section 10. This is important as it impacts on rules ofevidence or court procedures where the concept of original ismost vital to whether or not one’s piece of evidence is admitted,

10. Id. § 9.


or whether or not sufficient weight is given to it. Currently, wherethe law requires information to be presented or retained in itsoriginal form, that requirement would be deemed met by anelectronic data message or document if the integrity of theinformation is shown by evidence aliunde or otherwise and thatit is capable of being displayed to the person to whom it is to bepresented. This provision of law will be of great help to thosewho go to court presenting electronic evidence. While the oldparadigms could only conceive of original document as just beinggenerally singular, this paves the way for the existence of many“originals” as long as the provision’s criteria of integrity andreliability are met – unless, of course, new technologies will pavethe way for the production of “unique” copies. The developmentof technologies that could produce “unique” copies is importantespecially in transactions requiring the surrender or presentmentof a document, e.g., the original of the bill of lading, or ofnegotiable instruments.

The authentication of electronic data messages and electronicdocuments, covered in Section 11, amends the rules on evidence.Given the different nature of electronic data messages vis-à-vispaper or other objects, authentication procedures necessarily willhave to be different too. This law calls for electronic data messagesto be authenticated by demonstrating, substantiating, andvalidating a claimed identity of a user, device, or another entityin an information system. Electronic signatures are to beauthenticated by proof that a symbol or character representingthe person named therein or attached thereto, or that appropriatetechnology or security, was used with the intention ofauthenticating or approving the electronic document. Theelectronic data message shall be authenticated with the use of anappropriate security procedure, when applicable, to verify theoriginator, or detect errors. This section contains the provision


on electronic notarization, which, if allowed, will facilitate themaking into “public documents” of many e-commerce-relateddocuments.

TTTTThe lahe lahe lahe lahe law also prw also prw also prw also prw also prooooovides a guide fvides a guide fvides a guide fvides a guide fvides a guide for admission intoor admission intoor admission intoor admission intoor admission intoeeeeevidence ofvidence ofvidence ofvidence ofvidence of electr electr electr electr electronic data messagonic data messagonic data messagonic data messagonic data messages and to hoes and to hoes and to hoes and to hoes and to how mucw mucw mucw mucw muchhhhhwwwwweight is to be gieight is to be gieight is to be gieight is to be gieight is to be givvvvven them.en them.en them.en them.en them.1111111111 TTTTThe prhe prhe prhe prhe prooooovision states thatvision states thatvision states thatvision states thatvision states thatno rule shall render the data message inadmissible onno rule shall render the data message inadmissible onno rule shall render the data message inadmissible onno rule shall render the data message inadmissible onno rule shall render the data message inadmissible onthe sole gthe sole gthe sole gthe sole gthe sole grrrrround that it is in electround that it is in electround that it is in electround that it is in electround that it is in electronic fonic fonic fonic fonic forororororm or on them or on them or on them or on them or on thegggggrrrrround that it is not in the standaround that it is not in the standaround that it is not in the standaround that it is not in the standaround that it is not in the standard written fd written fd written fd written fd written forororororm. m. m. m. m. TTTTTheheheheheprprprprproper eoper eoper eoper eoper evidential wvidential wvidential wvidential wvidential weight is to be gieight is to be gieight is to be gieight is to be gieight is to be givvvvven sucen sucen sucen sucen such electrh electrh electrh electrh electroniconiconiconiconicdocument after assessing the fdocument after assessing the fdocument after assessing the fdocument after assessing the fdocument after assessing the folloolloolloolloollowing: the rwing: the rwing: the rwing: the rwing: the reliabilityeliabilityeliabilityeliabilityeliabilityof the manner in which the electronic document wasof the manner in which the electronic document wasof the manner in which the electronic document wasof the manner in which the electronic document wasof the manner in which the electronic document wasgenerated, stored, or communicated; the reliability bygenerated, stored, or communicated; the reliability bygenerated, stored, or communicated; the reliability bygenerated, stored, or communicated; the reliability bygenerated, stored, or communicated; the reliability bywwwwwhichichichichich its originator wh its originator wh its originator wh its originator wh its originator was identifas identifas identifas identifas identified; as wied; as wied; as wied; as wied; as well as after otherell as after otherell as after otherell as after otherell as after otherrelevant factors have been given due regard.relevant factors have been given due regard.relevant factors have been given due regard.relevant factors have been given due regard.relevant factors have been given due regard.

It has been said, as a criticism, that this provision provides toosimple a guide and grants the judge too much latitude in theappreciation and determination of the weight of evidencepresented. However, Congress deemed it better to rely on thecourts and their judgments and experience rather than on hardand fast legislative enactments that have, many times, proved tobe inflexible later on. We know how difficult and time-consumingit is to make laws, or amendments to laws.

The above provision is one of the most, if not the most,debated provisions in the bill. There were positions stated, duringthe interpellations, that Congress is not in possession of the powerto change or amend the Rules, as such is within the sole prerogativeof the Supreme Court.12 Another posited that Congress may also

11. Id. § 12.

12. PHIL. CONST. art. VIII, § 5(5).


promulgate rules on procedures as well, citing as examples theCivil Code rule that when a relative sues another, there must firstbe a showing that efforts towards an amicable settlement wereexerted but failed; and the Speedy Trial Law containing severalprovisions delineating procedure. It was also posited further thatthe power to promulgate rules is not one under the rubric of“irreducible powers” of the Court, but merely auxiliary and onewhich the legislature may validly co-share. In the end, a compromisewas reached by agreeing to a formula designed or intended tofunction in the interim, i.e., pending the promulgation by theSupreme Court of its own relevant rules.

VVVVV. . . . . FFFFFRRRRROMOMOMOMOM F F F F FILEILEILEILEILE C C C C CABINETSABINETSABINETSABINETSABINETS TTTTTOOOOO E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC F F F F FILESILESILESILESILES

Nothing represents the modern office more than filing cabinets.Offices have rooms full of filing cabinets largely because there isno other way of keeping files that are required by government orby law. This Act may yet make filing cabinets obsolete.

A document may now be considered to be original even if itis in the form of an electronic data message or electronic documentas long as the criteria of accessibility, integrity, accuracy andidentification of persons, and time of transmission and receiptare met.13 The person required to retain the forms may also do soby using the services of a third party. This may be applied wherethe government, say: the Bureau of Internal Revenue (BIR),requires the retention of receipts for at least three (3) years, foraudit purposes. This can free corporations from having to keepthe required documents in paper form. This could also pave theway for growth in data management businesses.



Affidavits are dealt with under Sections 14 and 15. Therequirements in Section 9 on integrity, and Section 12 onadmissibility, may be established by affidavit. This is meant tosimplify the procedure of proving electronic data messages asevidence in courts. This is useful as the requirements in Sections9 and 12 may prove to be too stringent or cumbersome. Of course,as in any statement contained in affidavits and presented in courts,such are subject to the right of the person against whom theaffidavit is executed, to test the accuracy and truth of the affidavitby cross-examination. It has been said that the requirement forcross- examination may be an obstacle to expeditious resolutionby courts of controversies involving electronic evidence, whatwith affidavits not subjected to cross examination being regardedas hearsay. We submit that Section 15 is a useful provision. Theperson against whom the affidavit has been presented has the rightto test it. Of course, one’s failure to cross-examine may be deemedas waiver of that right.

VI. EVI. EVI. EVI. EVI. ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC C C C C CONTRAONTRAONTRAONTRAONTRACTSCTSCTSCTSCTS

The Formation and Validity of Electronic Contracts is tackled inSection 16 of the law. Despite the provisions of the Civil Code,which says that a contract is a meeting of the minds and generallycould take whatever shape or form, many still feared that contractsentered into electronically would encounter some problems. Herethe law states that:

an offer, the acceptance of an offer and such other elementsrequired under existing laws for the formation of contracts,may be expressed in, demonstrated and proved by meansof electronic documents.


The law further stipulates that no contract shall be deniedvalidity or enforceability on the sole ground that it is in the formof an electronic document.

The requisites for contract in the Philippines are consent freelygiven, object certain, and cause of the obligation.14 While theprevious drafts during the process of legislation dealt only with“offer and acceptance” or the question of consent being allowedto be manifested in electronic forms, the scope of this provision,as finalized, was expanded with the inclusion of the passage:

and such other elements required under existing laws forthe formation of contracts may be expressed in,demonstrated and proved by means of electronic datamessages xxx and no contract shall be denied validity onthe sole ground that it is in the form of an electronic datamessage xxx or that any or all of the elements requiredunder existing law for the formation of contracts isexpressed, demonstrated, and proved by means of electronicdata messages.

Section 17 is entitled Recognition by Parties of ElectronicData Messages. This was felt to be necessary since the previoussection dealt basically only with conclusion of contracts but notthe performance of contractual obligations (e.g., notice of defectivegoods; an offer to pay; notice of place where a contract would beperformed, or recognition of debt). This provision is not intendedto impose the use of electronic data messages but to validate theiruse. This section should not then be used as a basis to impose onthe addressee the legal consequence of the message, if the use ofa non-paper-based method for its transmission comes as a surpriseto the addressee.



The question “From whom does the message come?” isanswered in Section 18. A message is that of the originator if theoriginator him/herself (or his/her authorized representative) sentit, or if it was sent by an authorized person for him/her, or sentby an information system programmed by or on behalf of theoriginator to operate automatically. The last phrase recognizes thesituation whereby one programs a computer to look for bargainsor, on the other hand, by another to look for buyers. When thesetwo (2) systems meet, even without the direct intervention ofthe parties at that particular and exact time, the messages sent willbe deemed as having come from both the originators. As betweenthe originator and the addressee, the latter is also entitled to regarda message as having come from the originator and to act on suchan assumption if the addressee properly applies a procedure agreedupon, or if the message as received by the addressee resulted fromthe acts of a person related to the originator or his agent in sucha way as to have gained lawful access to the method used by theoriginator to identify the message as his own.

The above provision does not apply, however, where theaddressee knew or should have known, had he exercised sufficientcare, that the message received was not that of the originator.Neither will it apply in the situation where the addressee is entitledto assume that what was received by him/her is the exact messagesent if he/she knew or should have known, with the exercise ofreasonable care, that the message was not what it was purportingto be. To allow otherwise, would be to reward bad faith andcarelessness.

Section 19 on errors on electronic messages is, in a sense, arestatement of Section 18(5) whereby the addressee is entitled toregard the message received as being the exact one sent unless theaddressee knew or should have known, with the exercise of proper


care, that the message contains errors or that it was sent to aninformation system not so designated.

Section 20 lays down the rules insofar as acknowledgment ofreceipt of electronic data messages is concerned, i.e., where theparties have agreed beforehand that an acknowledgment be made.Where no method is agreed upon, any mode of acknowledgment– automated or otherwise – is allowed; where the originator hasstated that the effects or significance of the message is conditionalon the receipt of acknowledgment, the message is deemed notsent until receipt of acknowledgment; and where the originatorhas not stated that the significance of the data message isconditional on the receipt of acknowledgment and theacknowledgment has not been received within the time specified,he may inform the addressee that the acknowledgment has notbeen received, specifying a reasonable time with which to makethe acknowledgment, and if no acknowledgment is still notreceived, to so inform the addressee of that fact and to treat themessage as not having at all been sent or exercise other rights hemay have. The purpose of paragraph (c) of this provision is todeal with the most common situation where an acknowledgmentis requested, without any statement being made by the originatorthat the data message is of no effect until an acknowledgment hasbeen received.

Such a provision is needed to establish the time that theoriginator of a data message who has requested an acknowledgmentof receipt is relieved from any legal implication of sending thatdata message if an acknowledgment has not been received. Anexample of where a provision along the lines of paragraph (c)would be particularly useful is if the originator of an offer to acontract who has not received the requested acknowledgment fromthe addressee of the offer may need to know the point in time


after which he is freed to transfer the offer to another party. Itmay be noted that the provision does not create any obligationbinding on the originator, but merely establishes means by whichthe originator, if he so wishes can clarify its status in cases wherehe has not received the requested acknowledgement.

Time of dispatch of electronic data messages is treated inSection 21, which provides that the dispatch of a message occursat the time the message enters an information system outside ofthe originator or his agent’s control. This is but logical as onlywhen one does not possess absolute control over one’s dispatchedmessage may the message be deemed as having been really sent.

Time of receipt is in Section 22, where receipt is deemed tohave occurred: when the message enters an information systemagreed upon, or if both originator and addressee are parts of thesame information system, or if the message enters a system not sodesignated at the time of retrieval. This rule does apply even ifthe places of the addressee and the information are different. Torule otherwise would create great impracticability as ISPs, (or theinformation system) are invariably in places different from theirsubscriber/addressees.

Place of dispatch and receipt of data messages are dealt within Section 23. Dispatch and receipt are always – as a default mode– deemed to be the places of business of both originator andaddressee. This is so even if the parties use a laptop or otherportable device in the transmission and receipt of messages. Inthe absence of a place of business, habitual residence is deemedthe place of dispatch and receipt. This rule acquires greatsignificance most especially when it says that the tax situs ofparticular transactions will be determined using these rules.

The autonomy of “parties-to-a-transaction” choice of typeor level of security for their own purposes is explicitly recognized


in Section 24. However, this is subject to rules and guidelineswhich government may promulgate regarding e-commercetransactions security. This is important as no one should be forcedto use a particular security system when his needs require otherwise.There may be transactions which require little or less securitycompared with others.

The law is designed also to apply to actions on contracts relatedto carriage of goods.15 What is envisioned is that airway bills,bills of lading, receipts, sales, transfers of ownership, and otherdocuments or papers related to carriage of goods by land, sea, orair may now be executed electronically; this also includes givingnotices in connection with the performance of the contract;undertaking to deliver goods; granting, acquiring, renouncing,surrendering, transftransftransftransftransferererererring or nering or nering or nering or nering or negggggotiatingotiatingotiatingotiatingotiating rights in goods, andacquiring or transferring rights and obligations under the contract.Given the scores of copies of documents necessary for importsand exports, and even domestic trade, this will be of great help inreducing inefficiency and making transactions move faster.

Section 26 refers to transport documents in saying:

when the law requires that any act referred to in Section25 (Acts Related to Contracts on Carriage of Goods) becarried out in writing or in a paper document, thatrequirement is met if the act is carried out by using one ormore electronic data messages.

Further, it says that:

if a right is to be granted to, or an obligation is to beacquired, by one person and no other person, and ifby one person and no other person, and ifby one person and no other person, and ifby one person and no other person, and ifby one person and no other person, and ifthe law requires thatthe law requires thatthe law requires thatthe law requires thatthe law requires that x x x the right or obligation mustbe conveyed to that person by the transfer, or use of, a



paper document, that requirement is met if the right orobligation is conveyed by using one or more electronic datamessages x x x. 16

and,

where one or more electronic data messages or electronicdocuments are used to effect any action, no paper documentused to effect any such action is valid unless the use ofelectronic data messages or electronic documents has beenterminated and replaced by the use of paper documents.17

Some view this as too much of a restriction on the parties’right to choose the medium of communication. We view this asan encouragement in the further use of electronic data messagesin trade transactions.

VII. VII. VII. VII. VII. TTTTTOOOOOWWWWWARDSARDSARDSARDSARDS E-G E-G E-G E-G E-GOOOOOVERNMENTVERNMENTVERNMENTVERNMENTVERNMENT

The law will move us closer to e-government, or, at least, to theelectronic delivery of government services. It mandates thatgovernment as well as government-owned and controlledcorporations use electronic transactions in all their processes:creation, filing, and retention of documents; issuance of permits,licenses, or certificates of registration; or the payment or settlementof fees and other obligations to government,18 including the useof electronic or digital signatures where a signature will be necessaryor required. The law also mandates government to undertake theseinitiatives within two (2) years.

16. Id. § 26 (3).

17. Id. § 26 (5).

18. Id. § 27.


In order to facilitate the abovementioned goal, Section 28 ofthe law calls for the installation of a government-wide electroniconline network that will facilitate the open, speedy, and efficientonline transmission between and among all government agencies,down to the regional and provincial offices. Included in Section28 is a provision which says:

(T)he physical infrastructure of cable and wireless systemsfor cable TV and broadcast eeeeexxxxxcccccluding prluding prluding prluding prluding progogogogogrammingrammingrammingrammingrammingand contentand contentand contentand contentand content and the management thereof shall beconsidered as within the activity of telecommunicationsfor the purpose of electronic commerce and to maximizethe convergence of ICT in the installation of the GII.

This is one provision that was not discussed well. It was a lastminute amendment in the House, and was included in thebicameral report as there was no conflicting provision from theSenate. While the philosophy contained in the provision is alsothe same as that contained in the Cable Bill pending in the Senate– i.e., the creation of a distinction between content and networkfacilities in order not to violate the Constitutional requirementsof one hundred percent (100%) Filipino ownership of mediaentities – I must admit that this has not been sufficiently debatedupon. How this will affect existing cable and broadcast entitiesremains to be seen.

Section 29 empowers the Department of Trade and Industry(DTI) to promote and develop electronic commerce as well as topromulgate rules and regulations within sixty (60) days fromeffectivity of the Act, which was signed on the 14th of June thisyear; provide quality standards, or issue certifications in pursuanceof this Act’s intentions. Also, Section 34 states that:

(F)ailure to issue rules and regulations shall not in any manneraffect the executory nature of the provisions of this Act.


This was intentionally placed in order to speed up the processand also in order not to hold the implementation of this Acthostage to what is sometimes a very slow executive departmentprocess.

By 2003, we should expect government agencies to do mostof their licensing functions, acceptance of payments, or the issuanceof receipts online. To make this a reality, the executive agenciesshould immediately develop a strategic plan to deal with the publiconline. An important effect of this provision of the law is that itwill create a huge market for private sector activities in this area.This law clearly shows that aside from creating a favorableenvironment for electronic commerce, government is interestedin stimulating e-commerce growth by itself becoming a leading-edge user.

VIII. VIII. VIII. VIII. VIII. DDDDDEVELEVELEVELEVELEVELOPINGOPINGOPINGOPINGOPING TTTTTRRRRRUSTUSTUSTUSTUST

Section 30 deals with the liability of service providers. Serviceproviders are not deemed liable for things where they merely actedas access providers. Neither are they liable for acts of infringementprovided they were not aware of it; they did not knowingly receivefinancial benefit from criminal or infringing acts; or they did notdirectly or indirectly commit the infringement act themselves.Service providers who have no knowledge that materials passingthrough them are unlawful, and those who do not financiallybenefit directly from unlawful activity, or do not commit anunlawful act, need not be penalized. This refers to materials thatpass through a provider that may either be libelous, seditious,pirated, etc. The service provider is not tasked with monitoringevery material that passes through its facilities as that may eitherbe impossible or an undue invasion of the privacy of others.


An important goal of any e-commerce legislation is also toensure that electronic transactions are safe and that data collectedelectronically are kept private and confidential.

Privacy issues are addressed in Sections 31 and 32 of the law.Section 31 says that access to an electronic file, signature, ordocument shall be limited only to those who are authorized topossess and use it. An electronic key used for identity and integritymay only be made available to another upon consent of theindividual in lawful possession of the key. Section 32 bars thosewho obtain access to an electronic key, signature, or documentfrom conveying or sharing the same with another.

These two (2) sections are important in that they recognizethat these files are the property of an individual and can bepossessed only by another upon the consent of their owner. Theyfurther recognize the privacy and personal nature of the key byprohibiting those who gain possession of it from sharing it withothers. It is our opinion that a violation of these two (2) sectionsmay be punishable by the catch-all provision in Section 33,paragraph (d).

Security issues are addressed in Section 33. While this sectiondeals with penalties, its net effect is to help create a more secureenvironment for electronic transactions. This law specificallypunishes hacking or cracking, which has been defined as eitherunauthorized access or interference in a computer system or anyother type of access – authorized or not – with the intention todestroy, corrupt, alter, or steal data. Included in this definition isthe introduction of viruses. Penalty is a minimum fine ofPhp100,000.00 and mandatory imprisonment of six (6) monthsto three (3) years.

Piracy or the unauthorized copying, reproduction,dissemination, distribution, importation, as well as broadcast of


protected works is also punishable by penalties ranging from aminimum fine of Php100,000.00 and mandatory imprisonmentof six (6) months to three (3) years.

IX. IX. IX. IX. IX. A GA GA GA GA GLOBALLOBALLOBALLOBALLOBAL L L L L LEGALEGALEGALEGALEGAL F F F F FRAMEWORKRAMEWORKRAMEWORKRAMEWORKRAMEWORK?????

The Philippine E-Commerce Act is based on the United NationsCommission on International Trade Law (UNCITRAL) ModelLaw on Electronic Commerce. The UNCITRAL is that UNorgan tasked to draft model laws which its member nations mayadopt in order to have harmonized legal regimes insofar as businessand trade are concerned. Under Section 37, it is stipulated that inthe interpretation of this law, regard must be given to itsinternational origin. Section 39 states that if the other party to atransaction comes from a country that does not grant the Filipinosimilar rights, he in turn will not be allowed to enjoy the benefitsof this law.

In recognizing the international character of electroniccommerce, this law is not merely bowing to reality. It is committingthe country to a mode of action that will move us closer to auniversal set of rules for e-commerce. This is important since thereal benefits for us of electronic commerce will be experiencednot when we are able to electronically transact among ourselves,but when Filipinos outside the country are able to buy goodsfrom Filipinos in the Philippines, and when Filipinos in thePhilippines are able to sell their goods internationally as easily asthey would sell them to fellow Filipinos.

DeDeDeDeDevvvvvelopments in Commerelopments in Commerelopments in Commerelopments in Commerelopments in Commercial Lacial Lacial Lacial Lacial Lawwwww∗

Dean Cesar L. Villanueva∗∗

I. INTRODUCTION ................................................................................. 25II. THE RETAIL TRADE LIBERATION LAW OF 2000 ................. 25

A. Liberal Policy under the ActB. Definition and Coverage of “Retail Trade”C. Exempted TransactionsD. Categories of Retail Trade EnterprisesE. Rules on Who May Engage in Retail TradeF. Issue on When Business Medium is “Foreign Owned;”

Application of the Grandfather RuleG. Requirements of Foreign InvestorsH. Qualifications of Foreign Retailers

∗ Delivered at the Judicial Career Enhancement Program forRegional Trial Court Judges (Basic Course) , on August 30, 2000,at the PHILJA Development Center, Tagaytay City.

∗∗ Dean Cesar L. Villanueva obtained his Bachelor of Laws degreefrom the Ateneo de Manila University in 1981 graduating CumLaude and Class Valedictorian. In the bar examinations giventhat year, he placed 2nd. Shortly thereafter, he took the CertifiedPublic Accountant (CPA) Board Examinations, where he alsoranked 6th. He pursued further studies in law at HarvardUniversity where he conferred his Masters of Law. He authoredseveral books, namely: Philippine Corporate Law, Law on Sales,and Commercial Law Review. He is presently the Dean of theAteneo Law School, Chair of the Department of CommercialLaw of the Philippine Judicial Academy, and Governor of theMandatory Continuing Legal Education (MCLE) Committee.He is also a member of the Legal Education Panel of theCommission on Higher Education (CHED), and is also a SeniorPartner of Villanueva Gabionza and de Santos.


I. Foreign Investors Acquiring Share of Stock of LocalRetailers

J. Requirements of Foreign RetailersIII. THE ELECTRONIC COMMERCE ACT............................................ 38

A. Sales Effected as Electronic CommerceIV. THE GENERAL BANKING LAW OF 2000 ................................. 46

A. Bank Ownership and Corporate StructuresB. Bank Powers, Requirements, and ProhibitionsC. Deposits-Taking ActivitiesD. Loans and Investments Functions of BanksE. Penalties ApplicableF. Supervision, Processes, and Actions Against Banks

V. THE SECURITIES REGULATION CODE ...................................... 58A. Tender Offer RulesB. Proxy SolicitationsC. Broker-Directorship RuleD. ExchangesE. Broker-Dealer RuleF. Independent DirectorsG. Self Regulating Organizations (SRO)

VI. REGIONAL TRIAL COURT’S (RTC’S)“CORPORATE” JURISDICTION ....................................................... 66A. The Significant Provision of Section 5 of Presidential

Decree No. 902-AB. The “Absolute Jurisdiction” Provisions of

Section 3 of Presidential Decree No. 902-AC. The Powers Under Section 6 of P.D. No. 902-A

252004] DEVELOPMENTS IN COMMERCIAL LAW


At this point in time, there are actually four (4) majordevelopments in the field of Commercial Law that fall withinthe judicial competence and jurisdiction of the Regional TrialCourts, namely:

a. The Retail Trade Liberalization Act of 2000;1

b. The Electronic Commerce Act;2

c. The General Banking Law of 2000;3 and

d. The Securities Regulation Code.4

The Securities Regulation Code actually has the greatest impacton the Regional Trial Courts since it has effectively transferredthe quasi-judicial powers and jurisdiction of the Securities andExchange Commission (SEC) under Sec. 5 of Presidential Decree(P.D.) No. 902-A to the regular courts.

II. II. II. II. II. TTTTTHEHEHEHEHE R R R R RETETETETETAILAILAILAILAIL TTTTTRADERADERADERADERADE L L L L LIBERALIZAIBERALIZAIBERALIZAIBERALIZAIBERALIZATIONTIONTIONTIONTION

LLLLLAAAAAWWWWW OFOFOFOFOF 2000 2000 2000 2000 2000

Republic Act No. 8762, entitled as the “Retail Trade LiberalizationAct of 2000,” was enacted in 07 March 2000, which specificallytook the place of and repealed Republic Act No. 1180, otherwiseknown as the “Retail Trade Nationalization Law.” The difference

1. Republic Act No. 8762 (March, 2000).

2. Republic Act No. 8792 (June, 2000).

3. Republic Act No. 8791 (May, 2000).

4. Republic Act No. 8799 (July, 2000).


in nomenclature used (“liberalization” versus “nationalization”),indicates the impetus to open the Philippine economy to worldtrade, and encourage foreign investments.

A. Liberal PA. Liberal PA. Liberal PA. Liberal PA. Liberal Policolicolicolicolicy under the Acty under the Acty under the Acty under the Acty under the Act

Essentially, the Act liberalized the Philippine retail industry toencourage Filipino and foreign investors to forge an efficient andcompetitive retail trade sector in the interest of empowering theFilipino consumer through lower prices, higher quality goods,better services and wider choices.5

B. DefB. DefB. DefB. DefB. Definition and Coinition and Coinition and Coinition and Coinition and Covvvvverageragerageragerage ofe ofe ofe ofe of “R“R“R“R“Retail etail etail etail etail TTTTTrade”rade”rade”rade”rade”

The Act retained the same definition of “retail trade” to coverany act, occupation or calling of habitually selling direct to thegeneral public merchandise, “commodities or goods forconsumption.”6 It provides for criminal penalties for those whounlawfully engage in retail trade.7


6. Ibid, § 3(1).

7. Ibid, § 12 provides:

Any person who shall be found guilty of violation of anyprovision of the Act shall be punished by: (a) Imprisonmentof not less than six (6) years and one (1) day but not morethan eight (8) years; and (b) Fine of not less than One millionpesos (Php1,000,000.00), but not more than Twenty millionpesos (Php20,000,000.00).

In the case of associations, partnerships or corporations,the penalty shall be imposed upon its partners, president,directors, manager and other officers responsible for theviolation. If the offender is not a citizen of the Philippines, heshall be deported immediately after service of sentence.


The Act uses the same phrase “merchandise, commodities orgoods for consumption” in defining retail trade as found in R. A.No. 1180, which the Supreme Court had interpreted to excludefrom its coverage merchandise and goods which are not “consumergoods.”

Balmaceda vBalmaceda vBalmaceda vBalmaceda vBalmaceda v. Union Carbide Philippines, Inc.. Union Carbide Philippines, Inc.. Union Carbide Philippines, Inc.. Union Carbide Philippines, Inc.. Union Carbide Philippines, Inc.,8 heldthat the term “retail” should be associated with and limited togoods for personal, family or household use, consumption andutilization. It construed the Law to refer to “consumption goods”or “consumer goods” which directly satisfy human wants anddesires and are needed for home and daily life. Accordingly, itexcluded from the coverage of retail trade goods which areconsidered generally raw materials used in the manufacture ofother goods, or if not, as one of the component raw material, orat least as elements utilized in the process of production andmanufacturing.

GoodGoodGoodGoodGoodyyyyyear ear ear ear ear TTTTTiririririre and Re and Re and Re and Re and Rubububububber Cober Cober Cober Cober Co. v. v. v. v. v. R. R. R. R. Reyeyeyeyeyeseseseses,9 held that amanufacturer which sells rubber products to the government,public utilities, agricultural enterprises, logging, mining, and otherentities and persons engaged in the exploitation of naturalresources, automotive assembly plants, industrial and commercialenterprises engaged in manufacturing and sale of essentialcommodities, is not engaged in retail business within the purviewof the law; but its sales to its own officers and employees wouldbe considered retail trade.

If the Filipino offender is a public officer or employee,he shall, in addition to the penalty prescribed herein, sufferdismissal and permanent disqualification from public office.

8. 124 SCRA 893 (1983).

9. 123 SCRA 273 (1983).


In Marsman & CoMarsman & CoMarsman & CoMarsman & CoMarsman & Co., Inc. v., Inc. v., Inc. v., Inc. v., Inc. v. First Coconut Central. First Coconut Central. First Coconut Central. First Coconut Central. First Coconut CentralCoCoCoCoCo., Inc.., Inc.., Inc.., Inc.., Inc.,10 the Supreme Court defined “producer goods,” whichare not within the coverage of the Law, as:

goods (as tools and raw material) that are factors in theproduction of other goods and that satisfy wants onlyindirectly – called also auxiliary goods, instrumental goods,intermediate goods.

It held that since a diesel generating unit is not a consumeritem, it necessarily did not come within the ambit of retail businessas defined by R. A. No. 1180.

By way of comparison, the Consumer Act of the Philippinesdefines “consumer products” as:

goods x x x which are primarily for personal, family,household or agricultural purposes, which shall include butnot limited to, food, drugs, cosmetics, and devices.11

Consequently, the Retail Trade Liberalization Act of 2000 isdeemed not to include within its coverage “producer goods,” whichcan be sold at retail even by foreigners.

C. ExC. ExC. ExC. ExC. Exempted empted empted empted empted TTTTTransactionsransactionsransactionsransactionsransactions

The Act basically maintained the same exceptions under the RetailTrade Nationalization Act, as follows:

1. Sales by a manufacturer, processor, laborer, or worker, tothe general public of the products manufactured, processed,or produced by him if his capital does not exceed Onehundred thousand pesos (Php100,000.00);

10. 162 SCRA 206 (1988).

11. CONSUMER ACT OF THE PHILIPPINES, art. 4(q).


2. Sales by a farmer or agriculturist selling the products ofhis farm;

3. Sales in restaurant operations by a hotel owner orinn-keeper irrespective of the amount of capital: Provided,that the restaurant is incidental to the hotel business; and

4. Sales which are limited only to products manufactured,processed or assembled by a manufacturer through a singleoutlet, irrespective of capitalization.

The Act maintained the same exceptions under repealed Law,except that:

a. It increased the capital ceiling of sales by manufacturers,and processors from then Five thousand pesos(Php5,000.00) to now One hundred thousand pesos(Php100,000.00); and

b. Removed exemption introduced under P.D. No. 714,which exempted sales of manufacturers or processorsselling to industrial or commercial users or consumers whouse the produce to render service to the general public orto produce or manufacture goods, which are sold by themto the public. However, as seen in the existing case-law onthe matter, such transactions would still be considerednot within the definition of retail trade law since theywould not be considered as sale of “consumer goods.”

In addition, the Act did not incorporate the exemption grantedunder the Revised Rules and Regulations Implementing R. A.No. 1180, issued by the Department of Trade and Industry (DTI),covering sales by a manufacturer or processor to the Governmentor its agencies, including government-owned and controlledcorporations.


DDDDD..... CateCateCateCateCategggggories ofories ofories ofories ofories of R R R R Retail etail etail etail etail TTTTTrade Enterrade Enterrade Enterrade Enterrade Enterprisesprisesprisesprisesprises

Unlike the repealed Law, for purposes of determining who arequalified to engage in retail trade in the Philippines, the presentAct provides for four (4) categories of retail trade activities basedon capital infusion into the trade, namely: 12

1. Category ACategory ACategory ACategory ACategory A – Enterprises with paid-up capital of theequivalent in Philippine pesos of less than Two millionfive hundred thousand US dollars (US$2,500,000.00);

2. Category BCategory BCategory BCategory BCategory B – Enterprises with a minimum paid-upcapital of the equivalent in Philippine pesos of Twomillion five hundred thousand US dollars(US$2,500,000.00), but less than Seven million fivehundred thousand US dollars (US$7,500,000.00),provided that in no case shall the investments forestablishing a store be less than the equivalent in PhilippinePesos of Thirty thousand US dollars (US$30,000.00);

3. Category CCategory CCategory CCategory CCategory C – Enterprises with a paid-up capital of theequivalent in Philippine pesos of Seven million fivehundred thousand US dollars (US$7,500,000.00) ormore, provided that in no case shall the investments forestablishing a store be less than the equivalent inPhilippine pesos of Thirty thousand US dollars(US$30,000.00); and

4. Category DCategory DCategory DCategory DCategory D – Enterprises specializing in high-end orluxury products13 with a paid-up capital of the equivalent


13. Ibid, § 3(2).

“High-end or luxury goods” refers to goods which are notnecessary for life maintenance and whose demand isgenerated in large part by the higher income groups. Luxury


in Philippine pesos of Two hundred fifty thousand USdollars (US$250,000.00) per store.

The four (4) categories would only have relevance if thetransactions would involve consumer goods; and would have noapplication to non-consumer goods since the retail of such itemis opened to all aliens and foreign corporations.

E. RE. RE. RE. RE. Rules on ules on ules on ules on ules on WWWWWho Maho Maho Maho Maho May Engy Engy Engy Engy Engagagagagage in Re in Re in Re in Re in Retail etail etail etail etail TTTTTraderaderaderaderade

Based on the Categories, by way of summary, it is clear that theAct provides for the following rules on who may engage in retailtrade in the Philippines, wwwwwhen they cohen they cohen they cohen they cohen they covvvvver consumer ger consumer ger consumer ger consumer ger consumer goodsoodsoodsoodsoods,thus:

1. Citizens of the Philippines, natural-born citizens of thePhilippines who have lost their Philippine citizenship butwho reside in the Philippines, and partnership, associations,and corporation for or organized under the laws of thePhilippines, which are wholly-owned by Filipino citizens,may engage in all forms of retail trade in the Philippinesand in all the categories provided for under the Act;

2. Other than in the Exempted Transactions, partnerships,associations, and corporations organized under foreignlaws, irrespective of the Filipino ownership in their equity,cannot engage in any form of retail trade in the Philippines.

3. Other than in the Exempted Transactions, alien individuals,foreign partnerships, associations and corporationsorganized under foreign laws, and foreign-owned

goods shall include, but are not limited to, products suchas: jewelry, branded or designer clothing and footwear,wearing apparel, leisure and sporting goods, electronics andother personal effects.


partnership, associations, and corporations formed andorganized under Philippine laws, may not engage in retailtrade under Category ACategory ACategory ACategory ACategory A (enterprises with paid-up capitalof the equivalent in Philippine Pesos of less than Twomillion five hundred thousand US dollars(US$2,500,000.00) which are reserved exclusively forFilipino citizens, natural-born citizens of the Philippineswho have lost their Philippine citizenship but who residein the Philippines, and corporations wholly owned byFilipino citizens.

4. Foreign-owned partnership, associations and corporationsformed and organized under the laws of the Philippinesmay, upon registration with the SEC and the DTI, or incase of foreign-owned single proprietorships, with theDTI, may engage or invest in the retail trade business, asfollows:

a. Under Category BCategory BCategory BCategory BCategory B (enterprises with a minimum paid-up capital of the equivalent in Philippine Pesos ofTwo million five hundred thousand US dollars(US$2,500,000.00), but less than Seven million fivehundred thousand US dollars (US$7,500,000.00),as follows:

i. Limited to not more than sixty percent (60%)of the total equity of such retail enterprise withinthe first two (2) years after the effectivity of theAct (or up to March, 2002); and

ii. May wholly own such retail enterprises two (2)years after the effectivity of the Act (i.e.,beginning April, 2002)


b. May wholly own retail enterprises under CateCateCateCateCategggggorororororyyyyyCCCCC (enterprises with a paid-up capital of the equivalentin Philippine pesos of Seven million five hundredthousand US dollars (US$7,500,000.00) or more);and

iii. May wholly own retail enterprises under CateCateCateCateCategggggorororororyyyyyDDDDD (enterprises specializing in high-end or luxuryproducts with a paid-up capital of the equivalent inPhilippine pesos of Two hundred fifty thousand U.S.dollars (US$250,000.00 per store).

5. Foreign-owned partnership, associations and corporationsformed and organized under Philippine laws, may notengage in retail trade in:

a. CateCateCateCateCategggggororororory By By By By B, the investments for establishing a storeis less than the equivalent in Philippine pesos ofThirty thousand US dollars (US$30,000.00);

b. CateCateCateCateCategggggororororory Cy Cy Cy Cy C, the investments for establishing a storeis less than the equivalent in Philippine pesos ofThirty thousand US dollars (US$30,000.00); and

c. CateCateCateCateCategggggororororory Dy Dy Dy Dy D, when the paid-up capital is less thanthe equivalent in Philippine pesos of Two hundredfifty thousand US dollars (US$250,000.00) per store.

FFFFF..... Issue on Issue on Issue on Issue on Issue on WWWWWhen Business Medium is hen Business Medium is hen Business Medium is hen Business Medium is hen Business Medium is “F“F“F“F“ForororororeigneigneigneigneignOwned;”Owned;”Owned;”Owned;”Owned;” A A A A Application ofpplication ofpplication ofpplication ofpplication of the Grandf the Grandf the Grandf the Grandf the Grandfather Rather Rather Rather Rather Ruleuleuleuleule

The Act does not define when a domestic partnership, associationor corporation is deemed “foreign-owned,” to qualify to engagein retail activities under Categories B, C, and D.

Since the old Retail Trade Nationalization Law prohibitedcorporations whose shares of stock are not one hundred percent


(100%) owned by Filipino citizens from engaging in retail trade,the question arose as to how to determine the citizenship of theshares of the selling corporation when they are not held directlyby individuals, but in turn held by another entity.

Both the SEC and the DTI have applied the so-called“grandfather rule” which is a process of characterizing thecitizenship of shares in one corporation held by anothercorporation by attributing the controlling interest of the secondlayer of corporate ownership.

For purposes of inininininvvvvvestmentsestmentsestmentsestmentsestments, the SEC had adopted the rulethat shares belonging to corporations or partnerships of which atleast sixty percent (60%) of the capital is owned by Filipinocitizens shall be considered as of Philippine nationality, but ifthe percentage of Filipino ownership in the corporation orpartnership is less than sixty percent (60%), only the number ofshares corresponding to such percentage shall be counted as ofPhilippine nationality.14

In a meeting en banc of the SEC on 2 November 1989,15 theSEC formally adopted the method of determining corporatenationality on the basis of the Opinion of the Department ofJustice No. 18, s. 1989, dated 19 January 1989, which read asfollows:

Shares belonging to corporations or partnerships at least60% of the capital of which is owned by Filipino citizensshall be considered as of Philippine nationality, but if thepercentage of Filipino ownership in the corporation orpartnership is less than 60% only the number of sharescorresponding to such percentage shall be counted as of

14. SEC Opinion, dated 20 March 1972.

15. SEC Quarterly Bulletin, Vol. XXIV, No.1 (March 1990).


Philippine nationality. Thus, if 100,000 shares are registeredin the name of a corporation or partnership at least 60%of the capital stock or capital respectively, of which belongto Filipino citizens, all of the said shares shall be recordedas owned by Filipinos. But if less than 60% or, say, only50% of the capital stock or capital of the corporation orpartnership, respectively belongs to Filipino citizens, only50,000 shares shall be counted as owned by Filipinos andthe other 50,000 shares shall be recorded as belonging toaliens.

However, the SEC Opinion clarified that “while a corporationwith sixty percent (60%) Filipino and forty percent (40%) foreignequity ownership is considered a Philippine national for purposesof investment, it is not qualified to invest in or enter into a jointventure agreement with corporations or partnerships, of which,capital or ownership under the Constitution or other special laws,are limited to Filipino citizens only.”16

For purposes of the repealed Law, whatever the percentageof Filipino ownership in the owning corporation, the foreignownership therein would always render a portion of its holdingin the selling company as foreign equity and would disqualify theselling corporation to engage in retail trade.17

16. Reiterated in SEC Opinion dated 14 December 1989, SECQuarterly Bulletin, Vol. XXIV, No. 2 (June 1990).

17. SEC Opinion dated 21 November 1972, Securities andExchange Commission FOLIO 1960-1976, p. 581, publishedby Media Systems, Inc.; SEC Opinion dated 22 February 1973;ibid, p. 598; SEC Opinion dated 21 November 1972, Securitiesand Exchange Commission FOLIO 1960-1976, p. 581,published by Media Systems, Inc.; SEC Opinion dated 22February 1973, ibid, p. 598.


It would appear therefore that under the Act, which providesfor a more liberal policy towards foreign investments and foreignparticipation in retail trade activities, the definition of when apartnership, association or corporation is “foreign-owned” can beexpected to follow a more liberal application of the grandfatherrule under the DOJ-SEC formula, and would be interpreted tomean foreign ownership that exceeds forty percent (40%) of theequity of a partnership, association, or corporation organizedunder Philippine laws.

GGGGG. R. R. R. R. Requirequirequirequirequirements ofements ofements ofements ofements of F F F F Forororororeign Ineign Ineign Ineign Ineign Invvvvvestorsestorsestorsestorsestors

1. The foreign investor shall be required to maintain in thePhilippines the full amount of the prescribed minimumcapital, unless the foreign investor has notified the SECand the DTI of its intention to repatriate its capital andcease operation in the Philippines.18

2. Failure to maintain the full amount of the prescribedminimum capital prior to notification of the SEC andthe DTI, shall subject the foreign investor to penalties orrestrictions on any future trading activities and businessin the Philippines.19

H. QualifH. QualifH. QualifH. QualifH. Qualifications ofications ofications ofications ofications of F F F F Forororororeign Reign Reign Reign Reign Retailers etailers etailers etailers etailers 2020202020

No foreign retailer shall be allowed to engage in retail trade in thePhilippines unless all the following qualifications are met:

1. A minimum of Two hundred million US dollars(US$200,000,000.00) net worth in its parent corporation


19. Ibid, § 5.

20. Ibid, § 8.


for Categories B and C, and Fifty million US dollars(US$50,000,000.00) net worth in its parent corporationfor Category D;

2. Five (5) retailing branches or franchises in operationanywhere around the world unless such retailer has, at leastone (1) store capitalized at a minimum of Twenty-fivemillion US dollars (US$25,000,000.00);

3. Five (5) years track record in retailing; and

4. Only nationals from, or juridical entities formed orincorporated in countries which allow the entry ofFilipino retailers shall be allowed to engage in retail tradein the Philippines.

I. FI. FI. FI. FI. Forororororeign Ineign Ineign Ineign Ineign Invvvvvestors Acquiring Sharestors Acquiring Sharestors Acquiring Sharestors Acquiring Sharestors Acquiring Share ofe ofe ofe ofe of Stoc Stoc Stoc Stoc Stock ofk ofk ofk ofk ofLocal RLocal RLocal RLocal RLocal Retailersetailersetailersetailersetailers

Foreign investors acquiring shares from existing retail storeswhether or not publicly listed whose net worth is in excess of thepeso equivalent of Two million five hundred thousand U.S. dollars(US$2,500,000.00), may purchase only up to a maximum ofsixty percent (60%) of the equity thereof within the first two(2) years from the effectivity of the Act and thereafter, they mayacquire the remaining percentage consistent with the allowableforeign participation.21

JJJJJ..... RRRRRequirequirequirequirequirements ofements ofements ofements ofements of F F F F Forororororeign Reign Reign Reign Reign Retailersetailersetailersetailersetailers

Under the Act, the following are required of qualified foreignretailers, namely:

1. Public Offering of Shares of Stock Public Offering of Shares of Stock Public Offering of Shares of Stock Public Offering of Shares of Stock Public Offering of Shares of Stock – All retailtrade enterprises under Categories B and C in which

21. Ibid, § 6.


foreign ownership exceeds eighty percent (80%) of equityshall offer a minimum of thirty percent (30%) of theirequity to the public through any stock exchange in thePhilippines within eight (8) years from their start ofoperations;22

2. Promotion of Locally Manufactured ProductsPromotion of Locally Manufactured ProductsPromotion of Locally Manufactured ProductsPromotion of Locally Manufactured ProductsPromotion of Locally Manufactured Products –For ten (10) years after the effectivity of the Act, at leastthirty percent (30%) of the aggregate cost of the stockinventory of foreign retailers falling under Categories Band C and ten percent (10%) for Category D shall bemade in the Philippines;23 and

3. Prohibited Activities of Qualified ForeignProhibited Activities of Qualified ForeignProhibited Activities of Qualified ForeignProhibited Activities of Qualified ForeignProhibited Activities of Qualified ForeignRRRRRetailersetailersetailersetailersetailers – Qualified foreign retailers shall not be allowedto engage in certain retailing activities outside theiraccredited stores through the use of mobile or rollingstores or carts, the use of sales representatives, door-to-door selling, restaurants and sari- sari stores, and such othersimilar retailing activities.24

III. III. III. III. III. TTTTTHEHEHEHEHE E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC C C C C COMMEROMMEROMMEROMMEROMMERCECECECECE A A A A ACTCTCTCTCT

The Electronic Commerce Act provides for the following salientfeatures:

a. Legal recognition, admissibility, and evidential weight ofelectronic data messages, and electronic documents;

22. Ibid, § 7.

23. Ibid, § 9.

24. Ibid, § 10.


b. Recognition of electronic signatures;

c. Recognition that an electronic data message or an electronicdocument suffices as an original document;

d. Mandates that within two (2) years for all governmentagencies to use and accept electronic data messages,electronic signatures in their transactions;

e. Installation within two (2) years of an electronic onlinenetwork otherwise known as RPWEB to promote theuse of electronic documents and electronic data messagesto the government and to the general public;

f. Authorizes the DTI to direct and supervise the promotionof e-commerce in the country in coordination with othergovernment and private agencies;

g. Penalizes hacking or cracking which is the unauthorizedaccess to intrusion or interference in a computer or acomputer network by means of a computer, device orgadget, including the introduction of viruses; and

h. Penalizes piracy of copyrighted works, including legallyprotected sound recordings or information materialsthrough the use of telecommunications networks in amanner that infringes intellectual property rights.

A .A.A.A.A. Sales Effected as Electronic CommerceSales Effected as Electronic CommerceSales Effected as Electronic CommerceSales Effected as Electronic CommerceSales Effected as Electronic Commerce

1.1.1.1.1. LeLeLeLeLegggggal Ral Ral Ral Ral Recognition ofecognition ofecognition ofecognition ofecognition of Electr Electr Electr Electr Electronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Messageeeee

Under Section 6 of the Electronic Commerce Act, informationshall not be denied validity or enforceability solely on the groundthat it is in the form of an electronic data message purporting togive rise to such legal effect, or that it is merely incorporated byreference in that electronic data message.


The Act defines an “electronic document” as that referringto information or the representation of information, data, figures,symbols or other modes of written expression, described orhowever represented, by which a right is established or an obligationextinguished, or by which a fact may be proved and affirmed,which is received, recorded, transmitted, stored, processed, retrieved,or produced electronically.25

It defines an “electronic signature” as that referring to anydistinctive mark, characteristic and/or sound in electronic form,representing the identity of a person and attached to or logicallyassociated with the electronic data message or electronic documentor any methodology or procedures employed or adopted by aperson and executed or adopted by such person with the intentionof authenticating or approving an electronic data message orelectronic document. 26

2.2.2.2.2. LeLeLeLeLegggggal Ral Ral Ral Ral Recognition ofecognition ofecognition ofecognition ofecognition of Electr Electr Electr Electr Electronic Documentsonic Documentsonic Documentsonic Documentsonic Documents

Under Section 7 of the Act, electronic documents shall have thelegal effect, validity or enforceability as any other document orlegal writing, and:

a. Where the law requires a document to be in writing, thatrequirement is met by an electronic document if the saidelectronic document maintains its integrity and reliabilityand can be authenticated so as to be usable for subsequentreference, in that:

i. The electronic document has remained complete andunaltered, apart from the addition of any endorsementand any authorized change, or any change which arises

25. ELECTRONIC COMMERCE ACT, § 5(f).

26. Ibid., § 5(e).


in the normal course of communication, storage, anddisplay; and

ii. The electronic document is reliable in the light ofthe purpose for which it was generated and in thelight of all relevant circumstances.

b. Paragraph (a) applies whether the requirement therein isin the form of an obligation or whether the law simplyprovides consequences for the document not beingpresented or retained in its original form.

c. Where the law requires that a document be presented orretained in its original form, that requirement is met byan electronic document if:

i. There exists a reliable assurance as to the integrity ofthe document from the time when it was firstgenerated in its final form; and

ii. That document is capable of being displayed to theperson to whom it is to be presented: Provided, thatno provision of this Act shall apply to vary any andall requirements of existing laws on formalitiesrequired in the execution of documents for theirvalidity.

For evidentiary purposes, an electronic document shall bethe functional equivalent of a written document under existinglaws.27

This Act does not modify any statutory rule relating to theadmissibility of electronic data messages or electronic documents,except the rules relating to authentication and best evidence.28

27. Ibid, § 7.

28. Ibid, § 7.


Under Section 12 of the Act, in any legal proceedings, nothingin the application of the rules on evidence shall deny theadmissibility of an electronic data message or electronic documentin evidence:

a. On the sole ground that it is in electronic form; or

b. On the ground that it is not in the standard written form,and the electronic data message or electronic documentmeeting, and complying with the requirements underSection 6 or 7 hereof shall be the best evidence of theagreement and transaction contained therein.

In assessing the evidential weight of an electronic data messageor electronic document, the reliability of the manner in which itwas generated, stored or communicated, the reliability of themanner in which its originator was identified, and other relevantfactors shall be given due regard. 29

Under Section 16(1) of the Act, except as otherwise agreedby the parties, an offer, the acceptance of an offer and such otherelements required under existing laws for the formation ofcontracts may be expressed in, demonstrated and proved by meansof electronic data messages or electronic documents and nocontract shall be denied validity or enforceability on the sole groundthat it is in the form of an electronic data message or electronicdocuments, or that any or all of the elements required underexisting laws for the formation of the contracts is expressed,demonstrated and proved by means of electronic data messagesor electronic documents.

3.3.3.3.3. LeLeLeLeLegggggal Ral Ral Ral Ral Recognition ofecognition ofecognition ofecognition ofecognition of Electr Electr Electr Electr Electronic Signaturonic Signaturonic Signaturonic Signaturonic Signatureseseseses

Under Section 8 of the Act, an electronic signature on theelectronic document shall be equivalent to the signature of a person

29. Ibid, § 12.


on a written document if the electronic signature is proved byshowing that a prescribed procedure, not alterable by the partiesinterested in the electronic document, existed under which:

a. A method is used to identify the party sought to be boundand to indicate said party’s access to the electronicdocument necessary for his consent or approval throughthe electronic signature;

b. Said method is reliable and appropriate for the purposeof which the electronic document was generated orcommunicated, in the light of all circumstances, includingany relevant agreement;

c. It is necessary for the party sought to be bound, in orderto proceed further with the transaction, to have executedor provided the electronic signature; and

d. The other party is authorized and enabled to verify theelectronic signature and to make the decision to proceedwith the transaction authenticated by the same.

4.4.4.4.4. PrPrPrPrPresumption Resumption Resumption Resumption Resumption Relating to Electrelating to Electrelating to Electrelating to Electrelating to Electronic Signaturonic Signaturonic Signaturonic Signaturonic Signatureseseseses

Section 9 of the Act specifically provides that in any proceedingsinvolving an electronic signature, it shall be presumed that:

a. The electronic signature is the signature of the person towhom it correlates; and

b. The electronic signature was affixed by that person withthe intention of signing or approving the electronicdocument unless the person relying on the electronicallysigned electronic document knows or has notice of defectsin or unreliability of the signature or reliance on theelectronic signature is not reasonable under thecircumstances.


5.5.5.5.5. Consummation ofConsummation ofConsummation ofConsummation ofConsummation of Electr Electr Electr Electr Electronic onic onic onic onic TTTTTransactionsransactionsransactionsransactionsransactions

Under Section 16(2) of the Act, electronic transactions madethrough networking among banks, or linkages, thereof, with otherentities or networks, and vice versa, shall be deemed consummatedupon the actual dispensing of cash or the debit of one accountand the corresponding credit to another, whether such transactionis initiated by the depositor or by an authorized collecting party:Provided, that the obligation of one bank, entity, or personsimilarly situated to another arising therefrom shall be consideredabsolute and shall not be subjected to the process of preferenceof credits.

6.6.6.6.6. ElectrElectrElectrElectrElectronic Commeronic Commeronic Commeronic Commeronic Commerce in Carce in Carce in Carce in Carce in Carriagriagriagriagriage ofe ofe ofe ofe of Goods Goods Goods Goods Goods

The Electronic Commerce Acts is expressly applicable to any actionin connection with, or in pursuance of, a contract of carriage ofgoods, including but not limited to:

a. Furnishing the marks, number, quantity or weight ofgoods; stating or declaring the nature or value of goods;issuing a receipt for goods; and confirming that goodshave been loaded;

b. Notifying a person of the terms and conditions of thecontract; and giving instructions to a carrier;

c. Claiming delivery of goods; authorizing release of goods;and giving notice of loss of, or damage to goods;

d. Giving any other notice or statement in connection withthe performance of the contract;

e. Undertaking to deliver goods to a named person or aperson authorized to claim delivery;

f. Granting, acquiring, renouncing, surrendering, transferringor negotiating rights in goods;


g. Acquiring or transferring rights and obligations underthe contract. 30

RRRRRule on ule on ule on ule on ule on TTTTTransporransporransporransporransport Documents t Documents t Documents t Documents t Documents 3131313131 – The Act provides for thefollowing rules when it covers the transport documents for carriageof goods effected through electronic commerce, thus:

a. Subject to paragraph (c) below, where the law requiresthat any action referred to in Sec. 25 be carried out inwriting or by using a paper document, that requirementis met if the action is carried out by using one or moreelectronic data messages or electronic documents.

b. Paragraph (a) above applies whether the requirementtherein is in the form of an obligation or whether the lawsimply provides consequences for failing either to carryout the action in writing or to use a paper document.

c. If a right is to be granted to, or an obligation is to beacquired by, one person and no other person, and if thelaw requires that, in order to effect this, the right orobligation must be conveyed to that person by the transferor use of a paper document, that requirement is met ifthe right or obligation is conveyed by using one or moreelectronic data messages or electronic documents:Provided, that a reliable method is used to render suchelectronic data messages or electronic documents unique.

For the purposes of paragraph (c) immediately above, thestandard of reliability required shall be assessed in the light of thepurpose for which the right or obligation was conveyed and inthe light of all the circumstances, including any relevant agreement.

30. Ibid, § 25.

31. Ibid, § 26.


Where one or more electronic data messages or electronicdocuments are used to effect any action in subparagraphs (f) and(g) of Section 25, no paper document used to effect any suchaction is valid unless the use of electronic data message or electronicdocument has been terminated and replaced by the use of paperdocuments.32

A paper document issued in these circumstances shall containa statement of such termination. The replacement of electronicdata messages or electronic documents by paper documents shallnot affect the rights or obligations of the parties involved.33

If a rule of law is compulsorily applicable to a contract ofcarriage of goods which is in, or is evidenced by, a paper document,that rule shall not be inapplicable to such a contract of carriageof goods which is evidenced by one or more electronic datamessages or electronic documents by reason of the fact that thecontract is evidenced by such electronic data messages or electronicdocuments instead of by a paper document.34

IVIVIVIVIV. . . . . TTTTTHEHEHEHEHE G G G G GENERALENERALENERALENERALENERAL B B B B BANKINGANKINGANKINGANKINGANKING L L L L LAAAAAWWWWW OFOFOFOFOF 2000 2000 2000 2000 20003535353535

The General Banking Law of 2000, basically applies to universalbanks36 and commercial banks.37 It only has suppletory application

32. Ibid, § 26(5).

33. Ibid, § 26(5).

34. Ibid, § 26(6).

35. Based on and reconfigured from the paper prepared by Atty.Jose Salvador Y. Mirasol.

36. GENERAL BANKING LAW OF 2000, §§ 3.2, 28-28.

37. Ibid, §§ 3.2, 29-32.


to thrift banks, rural banks, and other banks, of which theorganization, ownership, capital, powers, supervision, and generalconduct of business continue to be primarily governed by theThrift Banks Act, Rural Banks Act and other special laws.38

The Law provides that no new commercial bank will beestablished within three (3) years from the Law’s effectivity (13June 2000).39

Entry of foreign banks is governed by the Foreign BanksLiberalization Act in connection with the proper special lawapplicable to the type of bank invested in by the foreign bank.40

The following are the salient features of the Law, as regroupedin relevant areas of consideration, thus:

A. Bank Ownership and Corporate StructuresA. Bank Ownership and Corporate StructuresA. Bank Ownership and Corporate StructuresA. Bank Ownership and Corporate StructuresA. Bank Ownership and Corporate Structures

1. FFFFForororororeign Bank Ownershipeign Bank Ownershipeign Bank Ownershipeign Bank Ownershipeign Bank Ownership – Within seven (7) yearsfrom effectivity of the Law, foreign banks may be allowedto own up to one hundred percent (100%) equity ofonly one (1) domestic bank as a mode of entry. 41

2. Other Foreign Ownership Other Foreign Ownership Other Foreign Ownership Other Foreign Ownership Other Foreign Ownership – Other foreignindividuals and non-bank corporation may only own upto forty percent (40%) of the voting stock of a domesticbank. The nationality of the controlling shareholders ofthe non-bank corporations will be traced (grandfather rule)to determine the foreign ownership of the domestic

38. Ibid, § 71.

39. Ibid, § 8.

40. Ibid, § 72.

41. Ibid, § 73.


bank.42 However, at least sixty percent (60%) of thevoting stock of thrift banks may be foreign-owned.43

3. Local Banks Owning BanksLocal Banks Owning BanksLocal Banks Owning BanksLocal Banks Owning BanksLocal Banks Owning Banks – A publicly-listeduniversal bank or commercial bank may own up to onehundred percent (100%) of the voting stock of onlyone other universal or commercial bank.44

4. Limits to FLimits to FLimits to FLimits to FLimits to Familamilamilamilamily Holdingsy Holdingsy Holdingsy Holdingsy Holdings – There is no more limitto the stockholdings of individuals related within the 4th

degree of consanguinity or affinity, whether legitimate orcommon-law,45 or by the corporations that they own orcontrol,46 so long as the stockholdings are fully disclosedin all transactions with the bank.

5. Disclosure of OwnershipDisclosure of OwnershipDisclosure of OwnershipDisclosure of OwnershipDisclosure of Ownership – Any person who acquiresdirectly or indirectly the beneficial ownership of morethan five percent (5%) of a listed bank shall disclose hisownership and proposed plans to the bank, the PhilippineStock Exchange and the SEC.47

6. DirDirDirDirDirectorsectorsectorsectorsectors – At least two (2) directors of a bank must be“independent,” that is, not an officer or employee of thebank, its subsidiaries or affiliates or related interests.48

Meetings of the board may now be conducted throughteleconferencing and video-conferencing.49

42. Ibid, § 11.

43. THRIFT BANK ACT OF 1995, § 8.

44. GENERAL BANKING LAW OF 2000, § 25.

45. Ibid, § 12.

46. Ibid, § 13.

47. SECURITIES REGULATION CODE, § 18.


49. Ibid, § 15.


7. RRRRRequirequirequirequirequirements ofements ofements ofements ofements of Listed Banks Listed Banks Listed Banks Listed Banks Listed Banks – All listed banksshall disclose to the SEC, PSE and all shareholders anAnnual Report [17, SRC]. While transfer of banksecurities traded in the PSE may be validly made by bookentries, banks and their shareholders shall comply withthe applicable ceilings on shareholdings prescribed by law.50

8. Fit and PrFit and PrFit and PrFit and PrFit and Proper Roper Roper Roper Roper Rule ule ule ule ule – To protect depositors, theMonetary Board shall review the competence, integrity,training, experience and education (CITEE) of a directoror officer of a bank and disqualify, suspend or removethose found unfit.51

9. CompensationCompensationCompensationCompensationCompensation – To protect the funds of depositors,the compensation package of directors and officers maybe regulated in exceptional cases, such as when a bank isunder comptrollership or conservatorship, is conductingbusiness in an unsafe or unsound manner, or is in anunsatisfactory financial condition.52

B. Bank PB. Bank PB. Bank PB. Bank PB. Bank Pooooowwwwwers, Rers, Rers, Rers, Rers, Requirequirequirequirequirements, and Prements, and Prements, and Prements, and Prements, and Prohibitionsohibitionsohibitionsohibitionsohibitions

1. AlloAlloAlloAlloAllowwwwwed Allied Undered Allied Undered Allied Undered Allied Undered Allied Undertakings takings takings takings takings – A bank may use itsbranches as outlets for the presentation and/or sale ofthe financial products of its allied undertakings orinvestment house units.53

2. ElectrElectrElectrElectrElectronic Bankingonic Bankingonic Bankingonic Bankingonic Banking – The use of electronic devices,such as computers, and processes for recording, storing

50. SECURITIES REGULATION CODE, § 43.3.


52. Ibid, § 18.

53. Ibid, § 20.


and transmitting information or data in connection withthe operations of bank, quasi-bank or trust entity,including the delivery of services and products tocustomers, is now recognized and made subject toregulation by the Bangko Sentral.54

3. Bank ofBank ofBank ofBank ofBank of Inter Inter Inter Inter International Settlementsnational Settlementsnational Settlementsnational Settlementsnational Settlements – The MonetaryBoard shall prescribe risk-based capital,55 as well as ratios,ceilings, limitations, or other forms of regulation on thedifferent types of accounts and practices,56 which conformto the internationally accepted standards, including thoseof the Bank for International Settlements.

4. UnsafUnsafUnsafUnsafUnsafe and Unsound Banking e and Unsound Banking e and Unsound Banking e and Unsound Banking e and Unsound Banking – The Monetary Boardshall determine if a bank is deemed as conducting businessin an unsafe or unsound manner by considering if the actor omission may result in material loss or damage orabnormal risk or danger to the safety, stability, liquidityor solvency of the institution, or its depositors, creditors,investors, stockholders or the public, or has caused undueinjury or unwarranted benefit, or is grossly and manifestlydisadvantageous to the bank, even if the act or omissionis not otherwise prohibited by law or regulation.57

Consequences are (i) fines of up to Thirty thousand pesos(Php30,000.00) daily, (ii) suspension of rediscountingprivileges or access to Bangko Sentral ng Pilipinas (BSP)credit facilities, (iii) suspension of lending or forex

54. Ibid, § 59.

55. Ibid, § 34.

56. Ibid, § 5.

57. Ibid, § 56.


operations, (iv) suspension of authority to accept newdeposits or make new investments, (v) suspension ofinterbank clearing privileges, (vi) revocation of Quasi-Banking (QB) license, (vii) preventive suspension ofdirector or officer, (viii) cease and desist order,58 and (ix)receivership and liquidation.

5. OutsourcingOutsourcingOutsourcingOutsourcingOutsourcing – No bank shall outsource inherentbanking functions.59

C. DeC. DeC. DeC. DeC. Deposits-Tposits-Tposits-Tposits-Tposits-Taking Actiaking Actiaking Actiaking Actiaking Activitiesvitiesvitiesvitiesvities

1. Demand DepositsDemand DepositsDemand DepositsDemand DepositsDemand Deposits – A bank other than a universal orcommercial bank cannot accept or create demand depositsexcept upon prior approval of, and subject to conditionsand rules set by the Monetary Board.60

2. Casuals and NonrCasuals and NonrCasuals and NonrCasuals and NonrCasuals and Nonreeeeegular Pgular Pgular Pgular Pgular Personnelersonnelersonnelersonnelersonnel – No bank shallemploy casual or nonregular personnel or too lengthyprobationary personnel in the conduct of its businessinvolving bank deposits.61

3. Financial StatementsFinancial StatementsFinancial StatementsFinancial StatementsFinancial Statements – A bank must publish astatement of its true financial condition in termsunderstandable to the layman at least once quarterly.62

4. Bank HolidaysBank HolidaysBank HolidaysBank HolidaysBank Holidays – If a bank or quasi-bank declares abank holidays or in any manner suspends the payment of

58. NEW CENTRAL BANK ACT OF 1993, § 37.

59. GENERAL BANKING LAW OF 2000, § 55.1(e).

60. Ibid, § 33.

61. Ibid, § 55.4.

62. Ibid, § 61.


its deposit liabilities continuously for more than thirty(30) days, the Monetary Board may summarily andwithout need for prior hearing close the bank and place itunder receivership of the Philippine Deposit InsuranceCorporation (PDIC).63

DDDDD..... Loans and InLoans and InLoans and InLoans and InLoans and Invvvvvestments Functions ofestments Functions ofestments Functions ofestments Functions ofestments Functions of Banks Banks Banks Banks Banks

1. SingSingSingSingSingle Borle Borle Borle Borle Borrrrrrooooowwwwwers Limitsers Limitsers Limitsers Limitsers Limits – The total loans, creditaccommodations and guarantees (except those secured bynon-risk items) extended to any person or entity shallnot exceed twenty percent (20%) (from 25%) of the networth of the bank.64

2. Bank GuaranteesBank GuaranteesBank GuaranteesBank GuaranteesBank Guarantees – Banks are now impliedly allowed toissue guarantees.65

3. DOSRI LoansDOSRI LoansDOSRI LoansDOSRI LoansDOSRI Loans – No DDDDDirector, OOOOOfficer, SSSSStockholder,or their RRRRRelated IIIIInterest shall borrow from or become aguarantor or obligor of the bank, unless approved inwriting by majority of the other members of the board,on terms not less favorable to the bank. Not only directborrowing, by the Director, Officer or Stockholder buteven indirect borrowing by their Related Interest shouldnot exceed the respective unencumbered deposits and bookvalue of the paid-in capital.66

4. Security CoSecurity CoSecurity CoSecurity CoSecurity Covvvvvererererer – Loans and other creditaccommodations against real estate shall not exceed

63. Ibid, § 53.

64. Ibid, § 35.

65. Ibid, §§ 35 and 36 in connection with § 55.

66. Ibid, § 36.


seventy-five percent (75%) of the appraised value ofthe estate and sixty percent (60% ) (previously at 70%)of the appraised value of the insured improvements.67

Those made against chattels and intangibles shall notexceed seventy-five percent (75%) (previously at 50%)of the appraised value of the security.68 However, theMonetary Board may otherwise prescribe another ratio.69

5. Loan ApplicationsLoan ApplicationsLoan ApplicationsLoan ApplicationsLoan Applications – Among the documents whichmay be required of the credit applicant aside from hisstatement of assets and liabilities and income andexpenditure can be his income tax return.70 Not onlyfraudulent overvaluation of security, falsemisrepresentation, bribery, or attempt to defraud, but evensuppression of material facts in a loan application, renewalor increase, shall constitute a crime.71

6. Loan AmorLoan AmorLoan AmorLoan AmorLoan Amortizationstizationstizationstizationstizations – Loans with maturities of morethan five (5) years must have an initial amortization nolater than the five (5) years (previously three [3] years)from grant of the loan.72

7. MicrMicrMicrMicrMicrofofofofofinancinginancinginancinginancinginancing – The peculiar characteristics ofmicrofinance and cash flow-based lending not covered bytraditional collaterals must be considered in the

67. Ibid, § 37.

68. Ibid, § 38.

69. Ibid, §§ 37 and 38.

70. Ibid, § 40.

71. Ibid, § 55.2.

72. Ibid, § 44.


formulation of rules regarding (i) the qualifications andfinancial capacities of borrowers in the grant of loans andother credit accommodations;73 (ii) the interest rates,especially unconscionable rates, that may be imposedespecially by lending investors and similar lenders of salaryloans and similar credit accommodations;74 and (iii) theschedule of loan amortization.75

8. Social-Content LoansSocial-Content LoansSocial-Content LoansSocial-Content LoansSocial-Content Loans – Loans to finance educationalinstitutions, cooperatives, hospitals and other medicalservices, socialized or low-cost housing, local governmentunits, and other activities with social content, if grantedwithout government guarantee, will be given incentives.76

9. FFFFForororororecececececlosurlosurlosurlosurlosure ofe ofe ofe ofe of Mor Mor Mor Mor Mortgtgtgtgtgagagagagageeeee – While the right ofredemption of one (1) year is retained for both judicialand extrajudicial foreclosure, an exception is now createdin the case of extrajudicial foreclosures where themortgagor is a juridical person. After the effectivity ofthe Law, redemption is available only until the registrationof the certificate of foreclosure sale, which shall be nomore than three (3) months after foreclosure, “whicheveris earlier.”77

E .E .E .E .E . PPPPPenalties Aenalties Aenalties Aenalties Aenalties Applicabpplicabpplicabpplicabpplicablelelelele

1. PPPPPenalty in Connection with Bank Examinationenalty in Connection with Bank Examinationenalty in Connection with Bank Examinationenalty in Connection with Bank Examinationenalty in Connection with Bank Examination –Refusal to file required report, to permit any lawful

73. Ibid, § 40.

74. Ibid, § 43.

75. Ibid, § 44.

76. Ibid, § 46.

77. Ibid, § 47.


examination of the bank,78 or to comply with requiredpresentation or production of records within a reasonabletime:79 Fine of Fifty thousand (Php50,000.00) pesos toOne hundred thousand (Php100,000.00) pesos, orimprisonment of one (1) to five (5) years, or both.80

2. PPPPPenalty in Connection with Bank Renalty in Connection with Bank Renalty in Connection with Bank Renalty in Connection with Bank Renalty in Connection with Bank Reeeeeporporporporportingtingtingtingting –False Statement: Willful making of a false or misleadingstatement on a material fact,81 or making of false report:82

Fine of One hundred thousand (Php100,000.00) pesosto Two hundred thousand (Php200,000.00)pesos, orimprisonment of up to five (5) years, or both.83

3. PPPPPenalty fenalty fenalty fenalty fenalty for or or or or WWWWWillful illful illful illful illful VVVVViolations iolations iolations iolations iolations – Willful violationof the law or order or regulation, or carrying business inan unlawful or unsafe manner,84 including willful violationof DOSRI loan limitations,85 violations after a bank hasbeen declared insolvent or placed under receivership,86andviolations in connection with the trust functions:87 Fineof Fifty thousand (Php50,000.00) pesos to Two hundred


79. Ibid, § 6.

80. Ibid, § 34.

81. Ibid, § 35.

82. GENERAL BANKING LAW OF 2000, § 55.3.


84. Ibid, § 36.


86. Ibid, § 70.

87. Ibid, § 91.


thousand (Php200,000.00) pesos, or imprisonment oftwo (2) years to ten (10) years, or both.88

FFFFF..... Supervision, Processes, and Actions Against BanksSupervision, Processes, and Actions Against BanksSupervision, Processes, and Actions Against BanksSupervision, Processes, and Actions Against BanksSupervision, Processes, and Actions Against Banks

1. BSP SuperBSP SuperBSP SuperBSP SuperBSP Supervision ovision ovision ovision ovision ovvvvver Subsidiarieser Subsidiarieser Subsidiarieser Subsidiarieser Subsidiaries – The BangkoSentral shall, when examining a bank, have authority toexamine wholly or majority owned or controlledsubsidiaries of the bank.89 To enhance bank supervision,the Monetary Board shall establish criteria for reviewingmajor acquisitions or investments by a bank includingcorporate affiliates or structures that may expose the bankto undue risks or hinder effective supervision.90

2. Philippine Deposit Insurance Corporation (PDIC)Philippine Deposit Insurance Corporation (PDIC)Philippine Deposit Insurance Corporation (PDIC)Philippine Deposit Insurance Corporation (PDIC)Philippine Deposit Insurance Corporation (PDIC)AAAAAudit ofudit ofudit ofudit ofudit of Banks Banks Banks Banks Banks – The power of the PDIC to auditbanks whose deposits it is mandated to insure up to Onehundred thousand pesos (Php100,000.00) per depositorhas been discontinued.91

3. ConservatorshipConservatorshipConservatorshipConservatorshipConservatorship – If the Monetary Board finds a bankin a state of continuing inability or unwillingness tomaintain a condition of liquidity deemed adequate toprotect depositors and creditors, it may appoint aconservator to take charge of the assets, liabilities andmanagement to restore the bank’s viability. In one (1)

88. NEW CENTRAL BANK AACT OF 1993, § 36.

89. GENERAL BANKING LAW OF 2000, §§ 4 and 7.

90. Ibid, § 50.

91. Ibid., § 95. This was effected through the repeal of par. 8, § 8of R.A. No. 3591, as amended by R.A. No. 7400.


year, the conservator shall recommend restoration ofmanagement or receivership.92

4. RRRRReceieceieceieceieceivvvvvership and Inership and Inership and Inership and Inership and Invvvvvoluntaroluntaroluntaroluntaroluntary Liquidationy Liquidationy Liquidationy Liquidationy Liquidation – If theMonetary Board finds that a bank:

(i) is unable to pay its liabilities as they become due inthe ordinary course of business (excluding financialpanic);

(ii) has insufficient realizable assets to meet its liabilities;

(iii) cannot continue in business without involvingprobable losses to depositors and creditors; or

(iv) has willfully violated a final cease and desist orderinvolving acts of fraud or dissipation of assets;

the Monetary Board may summarily and without needfor prior hearing, forbid the bank from doing businessand designate the PDIC as receiver.

The PDIC shall take charge of all assets and liabilitiesand act as a receiver, without the power to dispose ofassets. Within ninety (90) days, the receiver shalldetermine if the bank may be rehabilitated without riskto depositors and creditors; otherwise, it will recommendliquidation by filing an ex parte petition for assistance inliquidation with the Regional Trial Court (RTC), in whichcase the RTC will adjudicate dispute claims, enforceliabilities, and decide on other issues. It will then liquifythe assets (which assets are exempt from attachment anddeemed in custodia legis) and pay the debts according tothe rules on concurrence and preference of credits.

5. RRRRReeeeeview ofview ofview ofview ofview of BSP Action BSP Action BSP Action BSP Action BSP Action – Action of the MonetaryBoard with respect to conservatorship, receivership or



liquidation shall be final and executory and may not berestrained or set aside by the court except on petition forcertiorari on jurisdictional grounds filed by the majorityof shareholders within ten (10) days from receipt of orderdirecting receivership.93

6. Settlement ofSettlement ofSettlement ofSettlement ofSettlement of Disputes Disputes Disputes Disputes Disputes – The Bangko Sentral shallbe consulted by other government agencies orinstrumentalities in actions involving controversies inbanks, their directors, officers or stockholders.94

VVVVV. . . . . TTTTTHEHEHEHEHE S S S S SECURITIESECURITIESECURITIESECURITIESECURITIES R R R R REGULAEGULAEGULAEGULAEGULATIONTIONTIONTIONTION C C C C CODEODEODEODEODE

The salient changes brought about under The Securities RegulationCode, in contrast to the Revised Securities Act, are as follows:

a. The Code took away the quasi-judicial powers of the SECunder Section 5 of P. D. No. 902-A, and transferred suchcontroversies within the original and exclusive jurisdictionof the RTC (Sec. 5.2);

b. Its greater “stockholders protection” under the “Tender-Offer” Rules (Sec. 19) and “Proxy Solicitation” Rules(Sec. 20);

c. Expressly disqualified Brokers from being directors orfrom occupying similar positions in issuer corporationswhose securities are listed in the Exchange (Sec. 30);

d. Demutualized Exchanges to rid them of “old boysnetwork” (Sec. 33.2);

93. NEW CENTRAL BANK ACT OF 1993, §§30, 31 and 32; GENERAL

BANKING LAW of 2000, §§ 67 and 69.



e. Prohibition of brokers from acting as dealers and fromdealing in securities for their own account (Sec. 34);

f. It provided for “Independent Directors” for Listed orLarge Corporations (Sec. 38);

g. Defined and provided rules for “Self RegulatoryOrganizations” (Sec. 39);

The first item on the transfer of the quasi-judicial powers ofthe SEC over “corporate” cases is thoroughly discussed in SectionII since, it is the more important issue insofar as the audience isconcerned.

A.A.A.A.A. TTTTTender Ofender Ofender Ofender Ofender Offffffer Rer Rer Rer Rer Rulesulesulesulesules

1.1.1.1.1. Obligations of the OfferorObligations of the OfferorObligations of the OfferorObligations of the OfferorObligations of the Offeror

Any person or group of persons who intends:

a. To acquire at least fifteen percent (15%) of:

i. Any class of any equity security of a listedcorporation; or

ii. Any class of any equity security of a corporation withassets of at least Fifty million pesos (Php50 Million)and having two hundred (200) or more stockholderswith at least one hundred (100) shares each;

b. To acquire at least thirty percent (30%) of such equityover a period of twelve (12) months;

shall comply with the following requirements:

i. Make a tender offer to stockholders by filing with theSEC a declaration to that effect;


ii. Furnish the issuer a statement containing the prescribedinformation under Notice of General Safeguard Measuresin Sec. 17 of the Code;

iii. Publish all requests or invitations for tender, materialsmaking a tender offer and requesting or inviting lettersof such a security;

iv. File with the SEC additional material soliciting orrequesting such tender offers subsequent to the initialsolicitation; and

v. Send such additional materials to the issuer not later thanthe time copies of such materials are first published , sentor given to security holders. (Sec. 19.1a)

2. Right of Stockholders on Deposited Securities2. Right of Stockholders on Deposited Securities2. Right of Stockholders on Deposited Securities2. Right of Stockholders on Deposited Securities2. Right of Stockholders on Deposited Securities

Securities deposited pursuant to a tender offer or request orinvitation for tenders may be withdrawn by the depositor at anytime throughout the period that the tender offer remains openand if the securities deposited have not been previously acceptedfor payment, and at any time after sixty (60) days from the dateof the original tender offer or request or invitation, except as theSEC may otherwise prescribe. (Sec. 19.1c)

3. R3. R3. R3. R3. Rule ule ule ule ule WWWWWhen Securities hen Securities hen Securities hen Securities hen Securities TTTTTenderenderenderenderendered Exed Exed Exed Exed Exceed Ofceed Ofceed Ofceed Ofceed Offffffererererer

Where the securities offered exceed that which a person or groupof persons is bound or willing to take and pay, the securities thatare subject of the tender offer shall be taken up as nearly as maybe pro rata, disregarding fractions, according to the number ofsecurities deposited by each depositor. This shall also apply tosecurities deposited within ten (10) days after notice of an increasein the consideration offered to security holders is first publishedor sent or given to security holders. (Sec. 19.1d)


4. 4. 4. 4. 4. VVVVVarararararying ofying ofying ofying ofying of TTTTTerererererm ofm ofm ofm ofm of TTTTTender Ofender Ofender Ofender Ofender Offffffererererer

Where any person varies the terms of a tender offer or request orinvitation for tenders before the expiration thereof by increasingthe consideration offered to holders of such securities, such personshall pay the increased consideration to each security holder whosesecurities are taken up and paid for whether or not such securitieshave been taken up by such person before the variation of thetender offer or request or invitation. (Sec. 19.1e)

5. Unla5. Unla5. Unla5. Unla5. Unlawful Acts in wful Acts in wful Acts in wful Acts in wful Acts in TTTTTender Ofender Ofender Ofender Ofender Offffffersersersersers

It shall be unlawful for any person to make any untrue statementof a material fact or omit to state any material fact necessary inorder to make the statements, in the light of the circumstancesunder which they are made, not misleading; or to engage in anyfraudulent, deceptive, or manipulative acts or practices, inconnection with any tender offer or request or invitation fortenders, or any solicitation of security holders in opposition to orin favor of any such offer, request, or invitation. The Commissionshall, for the purposes of this subsection, define and prescribemeans reasonably designed to prevent such acts and practices asfraudulent, deceptive, or manipulative. (Sec. 19.2)

B. PrB. PrB. PrB. PrB. Proooooxy Solicitationsxy Solicitationsxy Solicitationsxy Solicitationsxy Solicitations

Proxies must be issued and proxy solicitation must be made inaccordance with rules and regulations to be issued by the SEC(Sec. 20.1), consistent with the following rules:

1. Proxies must be in writing, signed by the stockholder orhis duly authorized representative and filed before thescheduled meeting with the corporate secretary. (Sec. 20.2)

2. Unless otherwise provided in the proxy, it shall be validonly for the meeting for which it is intended. No proxy


shall be valid and effective for a period longer than five(5) years at one time. (Sec. 20.3)

3. No broker or dealer shall give any proxy consent orauthorization, in respect of any security carried for theaccount of a customer, to a person other than thecustomer, without the express written authorization ofsuch customer. (Sec. 20.4)

4. A broker or dealer who holds or acquires the proxy for atleast ten per centum (10%) or such percentage as theSEC may prescribe of the outstanding share of the issuer,shall submit a report identifying the beneficial ownerwithin ten (10) days after such acquisition, for its ownaccount or that of the customer, to the issuer of thesecurity, to the Exchange where the security is traded andto the SEC. (Sec. 20.5)

C.C.C.C.C. BrBrBrBrBrokokokokokererererer-Dir-Dir-Dir-Dir-Directorship Rectorship Rectorship Rectorship Rectorship Ruleuleuleuleule

No broker or dealer shall deal in or otherwise buy or sell, for itsown account or for the account of its customers, listed securitiesissued by a corporation, where:

1. Any of its stockholder, director, associated person orsalesman, or authorized clerk of said broker or dealer;

2. All the relatives of the foregoing within the fourth civildecree of consanguinity or affinity;

is at the time holding office in said issuer corporation, as a director,president, vice-president, manager, treasurer, comptroller, secretaryor any office of trust and responsibility, or is a controlling personof the issuer. (Sec. 30).


DDDDD. Ex. Ex. Ex. Ex. Exccccchanghanghanghanghangeseseseses

The Code provides for the following changes when it comes tothe stock exchanges, which would affect the Philippine StockExchange, the more salient ones of which are as follows (Sec.33.2):

1. Stock Exchange must be organized as a stock corporation;

2. It shall engage solely in the business of operating anexchange;

3. No person may beneficially own or control, directly orindirectly, more than five percent (5%) of the votingrights of the Exchange;

4. No industry or business group may beneficially own orcontrol, directly or indirectly, more than twenty percent(20%) of the voting rights of the exchange;

• But the SEC may adopt rules, regulations or issue anorder, upon application, exempting an applicant fromthis prohibition where it finds that such ownershipor control will not negatively impact the exchange’sability to effectively operate in the public interest.

5. A fair procedure for disciplining members and associatedpersons, including denial of membership, expulsion,suspension;

6. The brokers in the board of the Exchange shall compriseof not more than forty-nine percent (49%) of such boardand shall proportionately represent the Exchangemembership in terms of volume/value of trade and paid-up capital, and that any natural person associated with ajuridical entity that is a member shall himself be deemedto be a member for this purpose;


7. For the board of the Exchange to include in itscomposition:

• The President of the Exchange;

• Not less than fifty-one percent (51%) of theremaining members of the Board to be comprised ofthree (3) independent directors and persons whorepresent the interests of issuers, investors, and othermarket participants, who are not associated with anybroker or dealer or member of the Exchange for aperiod of two (2) years prior to his/her appointment.

8. The president and other management of the Exchangeshall consist only of persons who are not members andare not associated in any capacity, directly or indirectlywith any broker or dealer or member or listed companyof the Exchange.

E .E .E .E .E . BrBrBrBrBrokokokokokererererer-Dealer R-Dealer R-Dealer R-Dealer R-Dealer Ruleuleuleuleule

The Code defines a “Broker” as a person engaged in the businessof buying and selling securities for the account of others. (Sec.3.3); while a “Dealer” is any person who buys and sells securitiesfor his/her own account in the ordinary course of business. (Sec.3.4)

Under the Code, it shall be unlawful for any member-brokerof an Exchange to effect any transaction on such Exchange for itsown account, the account of an associated person, or an accountwith respect to which it or an associated person thereof exercisesinvestment discretion; except with respect to the following:

1. Any transaction by a member-broker acting in the capacityof a market maker;


2. Any transaction reasonably necessary to carry on anodd-lot transaction;

3. Any transaction to offset a transaction made in error;and

4. Any transaction of a similar nature as may be defined bythe SEC. (Sec. 34)

FFFFF..... Independent DirectorsIndependent DirectorsIndependent DirectorsIndependent DirectorsIndependent Directors

At least two (2) independent directors, or such independentdirectors constituting at least twenty percent (20%) of the memberof the Board, whichever is lesser, shall be required of:

1. Every corporation with a class of equity securities listedfor trading on an Exchange; or

2. Every corporation having two hundred (200) or moreholders of equity securities, of which at least two hundred(200) are holding at least one hundred (100) shares of aclass of its equity securities or which has sold a class ofequity securities to the public pursuant to an effectiveregistration statement. (Sec. 38)

An “independent director” shall mean a person other than anofficer or employee of the corporation, its parent or subsidiaries,or any other individual having a relationship with the corporation,which would interfere with the exercise of independent judgmentin carrying out the responsibilities of a director. (Sec. 38)

G.G.G.G.G. SelfSelfSelfSelfSelf R R R R Reeeeegulating Orgulating Orgulating Orgulating Orgulating Orggggganizations (SRanizations (SRanizations (SRanizations (SRanizations (SRO)O)O)O)O)

The Code now expressly provides for the power of the SEC toregister and to issue license to self-regulatory organizations relatingto the securities market, which would include: Associations ofbrokers, dealers, transfer agents, custodians, fiscal and paying agents,


computer services, news dissemination services, proxy solicitor,statistical agencies, securities rating agencies, and securitiesinformation processors. (Sec. 39)

VI. RVI. RVI. RVI. RVI. REGIONEGIONEGIONEGIONEGIONALALALALAL TTTTTRIALRIALRIALRIALRIAL C C C C COUROUROUROUROURTTTTT’’’’’SSSSS (R (R (R (R (RTTTTTC’C’C’C’C’SSSSS)))))“C“C“C“C“CORPORAORPORAORPORAORPORAORPORATETETETETE””””” J J J J JURISDICTIONURISDICTIONURISDICTIONURISDICTIONURISDICTION

A.A.A.A.A. TTTTThe Most Signifhe Most Signifhe Most Signifhe Most Signifhe Most Significant Pricant Pricant Pricant Pricant Prooooovision ofvision ofvision ofvision ofvision of Section 5 of Section 5 of Section 5 of Section 5 of Section 5 ofPresidential Decree No. 902-APresidential Decree No. 902-APresidential Decree No. 902-APresidential Decree No. 902-APresidential Decree No. 902-A

The most significant provision of The Securities Regulation Codeinsofar as the Regional Trial Courts (RTC) are concerned wouldbe Section 5.2 thereof which effectively transferred the quasi-judicial jurisdiction of the SEC under Section 5 of P. D. No.902-A to the regular courts, thus:

5.2 The Commission’s jurisdiction over all casesenumerated under Section 5 of Presidential Decree No.902-A is hereby transferred to the Courts of generaljurisdiction or the appropriate Regional Trial Court;Provided, That the Supreme Court in the exercise ofits authority may designate the Regional Trial Courtbranches that shall exercise jurisdiction over these cases.The Commission shall retain jurisdiction over pendingcases involving intra-corporate disputes submitted forfinal resolution which should be resolved within one(1) year from the enactment of this Code. TheCommission shall retain jurisdiction over pendingsuspension of payments/rehabilitation cases filed as of30 June 2000 until finally disposed.

The exclusive and original jurisdiction of the SEC, in theexercise of its quasi-judicial power under Section 5 of P. D. No.902-A, covered four (4) main areas, namely:


1. Fraud schemes;

2. Intra-corporate disputes;

3. Election cases; and

4. Petitions for suspension of payments and/orrehabilitation.

These same cases now would fall within the original andexclusive jurisdiction of the RTC and, consequently, some of thecase-law that has evolved pertaining thereto while still under theSEC, would now apply and be relevant to the RTC as they hearand resolve such “corporate” cases. Those items are discussedhereunder.

The second significant provision would be Section 63 of theCode, which provides that all suits to recover damages under thespecified provisions of The Securities Regulation Code “shall bebrought before the Regional Trial Court, which shall have exclusivejurisdiction to hear and decide such suits. . . [and] authorized toaward damages in an amount not exceeding triple the amount ofthe transaction plus actual damages.” The same section authorizesthe RTC to award exemplary damages “in cases of bad faith, fraudmalevolence or wantonness in the violation of this Code or therules and regulations promulgated thereunder;” as well as attorney’sfees not exceeding thirty percent (30%) of the award. (Sec. 63)

On the other hand, Section 64 of The Securities RegulationCode provides for the “juridical review” of the orders of theSEC to be with the Court of Appeals, thus:

SSSSSECECECECEC..... 70. 70. 70. 70. 70. JJJJJudicial Rudicial Rudicial Rudicial Rudicial Reeeeeview ofview ofview ofview ofview of Commission Or Commission Or Commission Or Commission Or Commission Orderderderderder..... –Any person aggrieved by an order of the Commission mayappeal the order to the Court of Appeals by petition forreview in accordance with the pertinent provisions of theRules of Court.


Section 5.2 of The Securities Regulation Code did not statethat the SEC no longer has quasi-judicial powers, since it limitedits effect only to the cases covered by Section 5 of P. D. No. 902-A, although that may seem to be the intention. Consequently,there are three (3) significant areas that are not clearly covered bythe afore-quoted provisions, namely:

1. The proper disposition of cases that were already pendingwith SEC en banc which are not yet submitted for finalresolution;

2. Jurisdiction over cases that fell within the SEC’squasi-judicial powers, but not within the coverage ofSection 5 of P. D. No. 902-A;

3. Whether or not the coercive powers under Section 6 ofP. D. No. 902-A, can be availed of by the RTC in theexercise of their “corporate” jurisdiction under Section 5of the Decree.

The SEC, recently issued the “Guidelines on Intra-CorporateCases Pending Before the Securities Investigation and ClearingDepartment (SICD) and the Commission En Banc of theSecurities and Exchange Commission;” 95 but unfortunately, theguidelines still did not provide a settlement for the first issue,since they resolved only the issue on what happens for cases decidedby the SICD which were ready for appeal, thus:

Sec. 5.Sec. 5.Sec. 5.Sec. 5.Sec. 5. All cases already decided by the SICD may beelevated to the Commission en banc on appeal providedthat the appeal is perfected on or before August 8, 2000.

No appeal shall be accepted by the Commission thereafter.

95. Isssued on 1 August 2000.


In fact, the inference that one gets from the afore-quotedprovision is that the SEC en banc does not consider itself boundby the provision in Section 5.2 of The Securities Regulation Code,which allows retention of pending cases only when they havebeen submitted for resolution.

We will now consider the second and third issues, which aremost significant to RTC judges.

B .B .B .B .B . TTTTThe he he he he “““““Absolute JAbsolute JAbsolute JAbsolute JAbsolute Jurisdiction”urisdiction”urisdiction”urisdiction”urisdiction” Pr Pr Pr Pr Prooooovisions ofvisions ofvisions ofvisions ofvisions of Sec. 3 of Sec. 3 of Sec. 3 of Sec. 3 of Sec. 3 ofPPPPP.D.D.D.D.D. No. No. No. No. No. 902-A. 902-A. 902-A. 902-A. 902-A

There is no express provision under The Securities RegulationCode which divested the SEC of its quasi-judicial powers,although it may be clear that such was the intention when it cameto “corporate” cases. What Section 5.2 of the Code does is merelyto transfer the quasi-judicial jurisdiction of the SEC under Section5 of P.D. No. 902-A to the RTC, but it did not amend norabrogate Section 3 of the Decree, thus:

The Commission shall have absolute jurisdiction, supervision,and control over all corporations, partnerships, orassociations, who are the grantees of primary franchises and/or a license or permit issued by the government to operatein the Philippines x x x 96

Even prior to the passage of The Securities Regulation Code,while it would seem that reliance upon the “absolute jurisdiction”language of Section 3 would be sufficient to vest jurisdictionwith the SEC on practically all controversies involvingcorporations and partnerships, the Supreme Court in several cases,starting with DMRDMRDMRDMRDMRC EnterC EnterC EnterC EnterC Enterprises vprises vprises vprises vprises v. Este Del Sol Mountain. Este Del Sol Mountain. Este Del Sol Mountain. Este Del Sol Mountain. Este Del Sol MountainRRRRReseresereseresereservvvvve, Inc.e, Inc.e, Inc.e, Inc.e, Inc.,97 has held that is not the case, thus:96. Emphasis supplied.

97. 132 SCRA 293 (1984).


The purpose and the wording of the law escapes therespondent. Nowhere in said decree do we find even somuch as an intimidation (sic) that absolute jurisdiction andcontrol is vested in the Securities and Exchange Commissionin all matters affecting corporations. To uphold therespondent’s argument would remove, without legalimprimatur from the regular courts, all conflicts over mattersinvolving or affecting corporations, regardless of the natureof the transactions which give rise to such disputes. Thecourts would then be divested of jurisdiction not by reasonof the nature of the dispute submitted to them foradjudication, but solely for the reason that the disputeinvolves a corporation. This cannot be done. To do so wouldnot only be to encroach on the legislative prerogative togrant and revoke jurisdiction of the courts but suchsweeping interpretation may suffer constitutional infirmity.Neither can we reduce jurisdiction of the courts by judicialfiat.98

PPPPPeneyra veneyra veneyra veneyra veneyra v. Inter. Inter. Inter. Inter. Intermediate Amediate Amediate Amediate Amediate Appellate Courppellate Courppellate Courppellate Courppellate Courttttt,99 struckeddown the absolute language of Section 3 as follows:

Under Section 3 of Presidential Decree No. 902-A, thejurisdiction of the SEC is limited to matters intrinsicallyconnected with the regulation of corporations, partnershipsand associations and those dealing with the internal affairsof such entities. P.D. 902-A does not confer in the SECabsolute jurisdiction and control over all matters affectingcorporations. To uphold the appellate court’s ruling wouldremove, without legal imprimatur from the regular courts,all controversies over matters involving or affectingcorporations regardless of the nature of the transactionswhich give rise to such disputes.100

98. Ibid, at pp. 299-300; emphasis supplied.

99. 181 SCRA 244 (1990).

100. Ibid, at p. 249; emphasis supplied.


OrOrOrOrOrosa, Jrosa, Jrosa, Jrosa, Jrosa, Jr. v. v. v. v. v. Cour. Cour. Cour. Cour. Court oft oft oft oft of A A A A Appealsppealsppealsppealsppeals 101 clarified that “Section3 of P.D. No. 902-A should also be read in conjunction withSection 5” of the same law, and would seem clear therefore thatthe enumerative language of Section 5 was the primary source ofdetermining the jurisdiction of the SEC in the exercise of itsquasi-judicial powers.

Nevertheless, Section 3 served a very important role indetermining the jurisdiction of the SEC in the exercise of itsquasi-judicial functions apart from Section 5 of the Decree. The“absolute jurisdiction” language of Section 3 actually covers thejurisdiction of the SEC to hear and render judgment involving asundry of matters not covered by Section 5, simply because ofthe administrative jurisdiction of the SEC over corporations,partnerships and associations, and the enforcement of lawsapplicable to them.

An example of the second type would be in cases involvingcorporations who seek to establish a better right to corporate namesthat are confusingly similar. Such cases were being resolved bythe SEC pursuant to the mandate under Section 18 of theCorporation Code which provides that:

No corporate name may be allowed by the Securities andExchange Commission if the proposed name is identicalor deceptively or confusingly similar to that of any existingcorporation or to any other name already protected bylaw or is patently deceptive, confusing, or contrary to existinglaws.

And yet such issues clearly did not fall within the enumeratedcases under Section 5 of the Decree, but there was no doubt thenthat the SEC was proper forum to resolve such issues.

101. 193 SCRA 391 (1991).


The third area of controversies are those that fell under theRevised Securities Act, such as claims made by investors againstbrokers. Such cases where being decided by the SEC in the exerciseof quasi-judicial powers, when there was no provision under theRevised Securities Act that granted or recognized quasi-judicialpower in the SEC, and such cases did not fall under any of theenumerated cases of Section 5 of P.D. No. 902-A.

1.1.1.1.1. Identifying the PIdentifying the PIdentifying the PIdentifying the PIdentifying the Pooooowwwwwers and Functions ofers and Functions ofers and Functions ofers and Functions ofers and Functions of the SEC the SEC the SEC the SEC the SEC –Section 5.1 of the Code expressly provides that the SEC:

shall have the powers and functions provided by x x xPresidential Decree No. 902-A, [and] the CorporationCode x x x

In fact, in defining the powers and functions of the SEC,Section 5.1 (a) of the Code follows the language (without theword “absolute”) of Section 3 of P. D. No. 902-A when it providesthat SEC shall:

[h]ave jurisdiction and supervision over all corporations,partnerships or associations who are grantees of primaryfranchises and/or license or permit issued by thegovernment;

Finally, Section 5.1 (m) provides that the SEC has power to:

[s]uspend, or revoke, after proper notice and hearing thefranchise or certificate of registration of corporations,partnerships or associations, upon any of the groundsprovided by law.

C .C.C.C.C. TTTTThe Phe Phe Phe Phe Pooooowwwwwers Under Section 6 ofers Under Section 6 ofers Under Section 6 ofers Under Section 6 ofers Under Section 6 of P P P P P.D.D.D.D.D. No. No. No. No. No. 902-A. 902-A. 902-A. 902-A. 902-A

Nothing in the Code deals with what happens with the provisionsof Section 6 of P.D. No. 902-A. In fact, by the language of Section5.1 of the Code which provides that the SEC “shall have the


powers and functions provided [in] x x x Presidential Decree No.902-A, there would be clear basis to say that SEC’s powers underSection 6 still pertain to it in the exercise of its regulatory powers.

Section 6 provides that:

In order to effectively exercise such [i.e., Section 5]jurisdiction, the Commission shall possess the followingpowers,

which, among other things, authorized the SEC to appoint amanagement or rehabilitation committee which effectivelytriggered the suspension of all pending actions against thecorporation, and to order the dissolution of corporations. In fact,many of the controversies that abound the SEC’s exercise of quasi-judicial powers were actually resolved by referring to the provisionsof Section 6 of the Decree. Do RTC now have the powers grantedunder Section 6 of the Decree which are given expressly to allowthe effective exercise of jurisdiction under Section 5?

The answer does not seem clear at the present time, but itsresolution is important because of the application of doctrine ofprimary jurisdiction or the doctrine of prior resort, which callsfor the determination of administrative questions, which areordinarily questions of fact, by administrative agencies rather thancourts of justice.102 The application of the doctrine would requirethe referral to an administrative body of an issue involved in asuit over which a regular court has, and had actually acquired,jurisdiction,103 thus:

102. Cruz, PHILIPPINE ADMINISTRATIVE LAW (1993 ed.), pp. 86-87.

103. Industrial Enterprises, Inc. v. Court of Appeals, 184 SCRA426 (1990).


In recent years, it has been the jurisprudential trend to applythe doctrine of primary jurisdiction in many cases involvingmatters that demand the special competence ofadministrative agencies. It may occur that the Court hasjurisdiction to take cognizance of a particular case, whichmeans that the matter involved is judicial in character.However, if the case is such that its determination requiresthe expertise, specialized skills and knowledge of the properadministrative bodies because technical matters or intricatequestions of facts are involved, then relief must first beobtained in an administrative proceeding before a remedywill be supplied by the courts even though the matter iswithin the property jurisdiction of a court. This is thedoctrine of primary jurisdiction. It applies “where a claimis originally cognizable in the courts, and resolution ofissues which, under a regulatory scheme, have been placedwithin the special competence of an administrative body,in such case the judicial process is suspended pending referralof such issues to the administrative body for its view.”

In the case of the SEC, its expertise of corporate matters haslong-been recognized in Abejo vAbejo vAbejo vAbejo vAbejo v. De la Cr. De la Cr. De la Cr. De la Cr. De la Cruzuzuzuzuz,104 thus:

In this era of clogged court dockets, the need forspecialized administrative boards or commissions with thespecial knowledge, experience and capability to hear anddetermine promptly disputes on technical matters oressentially factual matters, subject to judicial review in caseof grave abuse of discretion, has become well nighindispensable x x x Between the power lodged in theadministrative body and a court, the unmistakable trendhas been to refer it to the former.

Even when controversies and cases are, by law, within theoriginal and exclusive jurisdiction of the regular courts of law,104. 149 SCRA 654, 670 (1987).


jurisprudence provides that there would be no cause of action onsuch cases to allow the proper exercise by the courts of theirjurisdiction, unless it can be shown that the administrative remediesafforded by law have been exhausted.

Since the SEC retains regulatory power over all corporationsunder Section 3 of P.D. No. 902-A, Sub-section 5(a) of TheSecurities Regulatory Code, and under the provisions of theCorporation Code, then controversies arising from corporatedisputes, essentially those that have to do with the franchises issuedto corporations, must first be resolved within the administrativeregulatory powers of the SEC, whenever the same are recognizedunder applicable laws, before the parties may resort to the civiljurisdiction of the RTC. But then the order of the SEC, whichclearly would be in the exercise of its regulatory functions, wouldactually be appealable to the Court of Appeals, and perhaps allthe way to the Supreme Court, which would warrant to judicialproceedings covering the same set of parties. These matters shouldbe threshed out properly in the implementing rules and regulationsto be issued for The Securities Regulation Code.

The paper will now deal with case-law developments as theypertained to Sections 5 and 6 of P. D. No. 902-A, which wouldstill seem relevant under Section 5.2 of The Securities RegulationCode as it transferred jurisdiction over “corporate cases” fromthe SEC to the RTC.

1.1.1.1.1. Fraud SchemesFraud SchemesFraud SchemesFraud SchemesFraud Schemes

Under Section 5.2 of The Securities Regulation Code, in relationto Section 5(a) of the Decree, RTC shall have original andexclusive jurisdiction to hear and decide cases involving:

(a)(a)(a)(a)(a) DeDeDeDeDevices or scvices or scvices or scvices or scvices or schemes emplohemes emplohemes emplohemes emplohemes employyyyyed bed bed bed bed by or any or any or any or any or any acts, ofy acts, ofy acts, ofy acts, ofy acts, ofthe board of directors, business associates, itsthe board of directors, business associates, itsthe board of directors, business associates, itsthe board of directors, business associates, itsthe board of directors, business associates, its


ofofofofofffffficers or paricers or paricers or paricers or paricers or partners, amounting to fraud andtners, amounting to fraud andtners, amounting to fraud andtners, amounting to fraud andtners, amounting to fraud andmisrepresentation which may be detrimental tomisrepresentation which may be detrimental tomisrepresentation which may be detrimental tomisrepresentation which may be detrimental tomisrepresentation which may be detrimental tothe interest of the public and/or of thethe interest of the public and/or of thethe interest of the public and/or of thethe interest of the public and/or of thethe interest of the public and/or of thestocstocstocstocstockholders, parkholders, parkholders, parkholders, parkholders, partners, members oftners, members oftners, members oftners, members oftners, members of associations associations associations associations associationsor organizations registered with the Commission.or organizations registered with the Commission.or organizations registered with the Commission.or organizations registered with the Commission.or organizations registered with the Commission.

Before the passage of the Code, the rule was that Section 5(a)vested the SEC with the original and exclusive jurisdiction overdevices and schemes employed by directors or officers ofcorporations “amounting to fraud or misrepresentation,” and areading of the decisions of the Supreme Court on the matterwould reveal that the test for determining the jurisdiction of theSEC over these types of cases was three-fold, namely:

a. The covered transactions must be characterized by fraudor misrepresentation;

b. The actors must be corporate directors, business associates,or officers; and

c. The covered transaction may be offered to the public, ormay be a private transaction with a stockholder or member.

The old controversy on whether a fraud case was a “corporate”fraud within the jurisdiction the SEC, or a “non-corporate” fraudwithin the jurisdiction of the regular courts, should now be whollyirrelevant because of the merger of jurisdiction over both typesof cases with the RTC.

The more significant area of controversy is that if the fraudupon which an action is based is considered to be “corporate”fraud, then must remedy first be obtained with the SEC in theexercise of the regulatory power and jurisdiction over corporations,or can the aggrieved party go directly to the RTC?


2.2.2.2.2. Intra-Corporate DisputesIntra-Corporate DisputesIntra-Corporate DisputesIntra-Corporate DisputesIntra-Corporate Disputes

Under Section 5(b) of the Decree, the RTC shall now have originaland exclusive jurisdiction to hear and decide cases involving:

(b)(b)(b)(b)(b) ContrContrContrContrControoooovvvvversies arising out ofersies arising out ofersies arising out ofersies arising out ofersies arising out of intra-cor intra-cor intra-cor intra-cor intra-corporate orporate orporate orporate orporate orparparparparpar tnership rtnership rtnership rtnership rtnership relations, betwelations, betwelations, betwelations, betwelations, between and amongeen and amongeen and amongeen and amongeen and amongstockholders, members or associates; betweenstockholders, members or associates; betweenstockholders, members or associates; betweenstockholders, members or associates; betweenstockholders, members or associates; betweenany or all of them and the corporation,any or all of them and the corporation,any or all of them and the corporation,any or all of them and the corporation,any or all of them and the corporation,parparparparpar tnership or association oftnership or association oftnership or association oftnership or association oftnership or association of w w w w whichichichichich they arh they arh they arh they arh they areeeeestockholders, members or associates,stockholders, members or associates,stockholders, members or associates,stockholders, members or associates,stockholders, members or associates,respectively; and between such corporation,respectively; and between such corporation,respectively; and between such corporation,respectively; and between such corporation,respectively; and between such corporation,parparparparpartnership or association and the State insoftnership or association and the State insoftnership or association and the State insoftnership or association and the State insoftnership or association and the State insofarararararas it conceras it conceras it conceras it conceras it concerns their indins their indins their indins their indins their individual francvidual francvidual francvidual francvidual franchise or righthise or righthise or righthise or righthise or rightto eto eto eto eto exist as sucxist as sucxist as sucxist as sucxist as such entityh entityh entityh entityh entity.....”””””

In Union Glass and Container CorUnion Glass and Container CorUnion Glass and Container CorUnion Glass and Container CorUnion Glass and Container Corporation vporation vporation vporation vporation v.....Securities and ExSecurities and ExSecurities and ExSecurities and ExSecurities and Exccccchanghanghanghanghange Commissione Commissione Commissione Commissione Commission,105 the Supreme Courtidentified the relationships that fall within “intra-corporate”disputes under Section 5(b) of the Decree, as covering thefollowing:

Otherwise stated, in order that the SEC can take cognizanceof a case, the controversy must pertain to any of thefollowing relationships:

[a] between the corporation, partnership or associationand the public;

[b] between the corporation, partnership or associationand its stockholders, partners, members, or officers;

[c] between the corporation, partnership or associationand the state in so far as its franchise, permit or licenseto operate is concerned; and

105. 126 SCRA 31 (1983).


[d] among the stockholders, partners or associatesthemselves.106

Within the definition of “intra-corporate” relationship underSection 5(b) would fall the relationship “between the corporationand the State insofar as its franchise, permit, or license to operateis concerned.” This would lead to the conclusion that allcontroversies involving the relationship between the corporationand the State would fall within the original and exclusivejurisdiction of the regular courts. These would include matterswhich, under the Corporation Code, would have been within thequasi-judicial jurisdiction of the SEC.

For example, under Section 118 of the Corporation Code,voluntary petitions for dissolution of corporations where nocreditors are involved are within the competence of the SEC, andthe matter is treated purely as an administrative matter.Nevertheless, if there are stockholders or members who areopposed to the proceedings and they must file an action, are we tosay that the case may be filed directly with the regular courts andcannot be decided upon by the SEC?

More in point, under Section 119 of the Corporation Code,in voluntary dissolutions of corporation where the rights ofcreditors are prejudiced, the filing of a petition with the SEC,which will hold a hearing on the matter is required, after duenotice to the creditors. Although the Corporation Code makesno reference to P.D. No. 902-A, the proceeding would fall withinthe “intra-corporate” cases defined under Section 5(b) of theDecree. Although no provision in The Securities Regulation Codedivest powers of the SEC under the Corporation Code, wouldsuch proceedings now fall within the original and exclusivejurisdiction of the RTC?



Finally, under Section 121 of the Corporation Code,involuntary dissolution of corporations can be proceeded by “theSecurities and Exchange Commission upon filing of a verifiedcomplaint and after proper notice and hearing on grounds providedby existing laws, rules and regulations.” Are cases for involuntaryproceedings now within the competence of regular courts, simplybecause they fall within the intra-corporate cases under Section5(b) of P.D. No. 902-A?

The resolution of this issue is not that simple because Section5.1 of The Securities Regulation Code itself expressly providesthat the SEC “shall have the powers and functions provided bythis Code, P. D. No. 902-A, the Corporation Code x x x”

In addition, Section 6(1) of the Decree itself, grants to theSEC the powers to:

To suspend, or revoke, after proper notice and hearing, thefranchise or certificate of registration of corporations,partnerships or associations, upon any of the groundsprovided by law, including the following:

1. Fraud in procuring its certificate of registration;

2. Serious misrepresentation as to what thecorporation can do or is doing to the greatprejudice of or damage to the general public;

3. Refusal to comply or defiance of any lawful orderof the Commission restraining commission of actswhich would amount to a grave violation of itsfranchise;

4. Continuous inoperation for a period of at leastfive (5) years;

5. Failure to file by-laws within the required period;


6. Failure to file required reports in appropriateforms as determined by the Commission withinthe prescribed period.

This power of the SEC is actually reiterated in Section 5.1(m) of The Securities Regulation Code which empowers the SECto:

[s]uspend, or revoke, after proper notice and hearing thefranchise or certificate of registration of corporations,partnerships or associations, upon any of the groundsprovided by law.

In the same manner, under Section 6(d) of the Decree, theSEC may, on the basis of the findings and recommendation ofthe management committee, rehabilitation receiver, or board ofbody; or in its own findings, determine that the continuance inbusiness of such corporation or entity would not be feasible orprofitable nor work to the best interest of the stockholders, parties-litigants, creditors, or the general public, and order the dissolutionof such corporation or entity and its remaining assets liquidatedaccordingly.

Are we therefore to see the Supreme Court rulings in thefuture that when there is the specific law, such as the CorporationCode, granting the SEC power to hear and decide upon certaintypes of cases, the same fall within SEC jurisdiction and will notbe construed to fall within the “intra-corporate” cases underSection 5(b) of P.D. No. 902-A and therefore not within theoriginal and exclusive jurisdiction of the RTC?

Even if we take the sensible position that the SEC no longerhas quasi-judicial powers as to such cases under the CorporationCode, by virtue of the provisions of Section 5.2 of The SecuritiesRegulation Code, it would still mean that the SEC retainsregulatory powers over issues and controversies involving


corporations and their franchises, and consequently, the doctrineof exhaustion of administrative remedies requires that the samebe first resolved by the SEC before any judicial action can becommenced with the RTC.

3.3.3.3.3. Election CasesElection CasesElection CasesElection CasesElection Cases

Under Section 5(c) of the Decree, the RTC now have originaland exclusive jurisdiction to hear and decide cases involving:

(c)(c)(c)(c)(c) ContrContrContrContrControoooovvvvversies in the election or appointmentsersies in the election or appointmentsersies in the election or appointmentsersies in the election or appointmentsersies in the election or appointmentsof directors, trustees, officers or managers ofof directors, trustees, officers or managers ofof directors, trustees, officers or managers ofof directors, trustees, officers or managers ofof directors, trustees, officers or managers ofsucsucsucsucsuch corh corh corh corh corporations, parporations, parporations, parporations, parporations, partnerships or associations.tnerships or associations.tnerships or associations.tnerships or associations.tnerships or associations.

Since the issue of appointment of directors and officers waswithin the exclusive and original jurisdiction of the SEC, thennecessarily, the extension issue, thereof, which involves termination,should also be within the jurisdiction of the SEC. Consequently,more often than not, the issues and controversies on such casesrun along the line of “Who are corporate ‘officers’?” and whowould have proper jurisdiction over the matter, whether it wouldbe the SEC or the NLRC.

Today, the case-law that has evolved with corporate electioncontests when the same were still within SEC jurisdiction would,to a great extent, still be relevant, even as such matters now fallwithin the jurisdiction of the RTC, mainly because of the conflictof jurisdiction between the RTC and the NLRC on election andtermination cases involving corporate officers.

a. Theory of the Power of the Board Over Corporate Officers

The prevailing theory in Corporate Law is that officers ofthe corporation are within the competence of the board ofdirectors to terminate in the absence of a specific period ofemployment provided in their contracts or in the by-laws.


In the case of Mita PMita PMita PMita PMita Pararararardo de do de do de do de do de TTTTTaaaaavvvvvera vera vera vera vera v. Philippine. Philippine. Philippine. Philippine. PhilippineTTTTTuberuberuberuberuberculosis Societyculosis Societyculosis Societyculosis Societyculosis Society, Inc., Inc., Inc., Inc., Inc.,107 it was held that since theletter of appointment as Executive Secretary to the Board ofthe officer did not contain a fixed term, the implication isthat appointee held an appointment at the pleasure of theappointing power, which in essence is temporary in nature; itis co-extensive with the desire of the Board of Directors. Whenthe Board opted to replace the incumbent, technically, therewas no removal but only an expiration of the term and in anexpiration of term, there is no need of prior notice, duehearing, or sufficient grounds before the incumbent can beseparated from office.

It must be noted that in De De De De De TTTTTaaaaavvvvveraeraeraeraera case, the disputedposition of Executive Secretary was also provided for in theCode of By-Laws of the Philippine Tuberculosis Society, Inc.

In Corporate Law, there are two (2) levels of discussionswhen it comes to the coverage of “officers.” The first level,relates to the power of the board of directors to hire andterminate officers in the exercise of business judgment, ascontrasted from non-officers who are protected by the securityof tenure policy under Labor Law, a policy embodied in theConstitution.

On the other hand, the second level of determination ofwho are corporate officers deals on the distinction of corporateofficers from non-officers to determine who are bound bythe duties of loyalty and diligence. Thus, under Section 31 ofthe Corporation Code, both directors and officers are jointlyand severally liable for assenting to patently unlawful acts ofthe corporation or who are guilty of gross negligence or bad

107. 112 SCRA 243 (1982).


faith in directing the affairs of the corporation or acquire anypersonal or pecuniary interest in conflict with their duty assuch directors or officers. Non-officers therefore are notgenerally imposed any duty of loyalty or diligence. Thedifferentiation of such “officers” from non-officers mustnecessarily lie on the nature of the office held by them.

b. Two (2) Disciplines Diverging in Corporate Officership Issues

In strict Corporate Law sense, the terms of corporate officersare coterminous with that of the Board. It can even be saidthat corporate officers serve at the pleasure of the Board. Thisis a fundamental doctrine in Corporate Law because the abilityof the Board to hire and terminate officers lies at the veryheart of the operations of the corporation; it is part of theexercise of the business judgment of the Board.

On the other, under Labor Laws, corporate officers arealso looked upon as employees, and the corporation as theemployer. Consequently, the protective policies of the LaborCode, as well as the Constitution (e.g., due process and securityof tenure) are also made to apply to corporate officers.

It is the divergence of policies and principles in CorporateLaw and Labor Law that creates jurisprudential tension andhas spun several doctrines on the matter.

c. Tests of Who are Officers

GurGurGurGurGurrrrrrea vea vea vea vea v. Le. Le. Le. Le. Lezamazamazamazamazama,108 held that the term “corporate officer”refers only to officers of a corporation who are given thatcharacter either by the then Corporation Law, or by thecorporation’s by-laws. Since the then Corporation Law didnot mention the general manager as an officer, and the by-

108. 103 Phil. 553 (1958).


laws did not give him that character, he is not an officer ofthe corporation, but a mere employee or subordinate official.109

The SEC itself in its opinions has held that even whenthe intention of the board of a corporation is to make the“General Financial Secretary” an officer thereof, he cannot beclassified as such where the by-laws of the corporation disclosesthat the position is not one of the offices provided therein.110

In another opinion, the Commission opined that if the by-laws enumerate the officers to be elected by the board, theprovision is conclusive and the board is without power tocreate new offices without amending the by-laws.111

Under Section 25 of the Corporation Code, the President,Secretary, and Treasurer are specifically mentioned as officersof the corporation. In addition, the same section providesthat the board of directors may elect “such other officers asmay be provided for in the by-laws.” The Code therefore hascontinued the principle that corporate officers shall include,in addition, only such positions as are provided for in the by-laws of the corporation. The Corporation Code does notrequire that the one elected or appointed as vice-president ofa corporation should be the owner of shares of stock of thecorporation.112

In the case of Mita PMita PMita PMita PMita Pararararardo de do de do de do de do de TTTTTaaaaavvvvvera vera vera vera vera v. Philippine. Philippine. Philippine. Philippine. PhilippineTTTTTuberuberuberuberuberculosis Societyculosis Societyculosis Societyculosis Societyculosis Society, Inc., Inc., Inc., Inc., Inc.,113 it was held that since theletter of appointment of Pardo de Tavera as Executive Secretary

109. Ibid. at pp. 555-556.

110. SEC Opinion, 15 May 1969.

111. SEC Opinion, 19 October 1971.

112. Baguio v. Court of Appeals, 226 SCRA 366 (1993).

113. 112 SCRA 243 (1982).


to the Board did not contain a fixed term, the implication isthat appointee held an appointment at the pleasure of theappointing power and was in essence temporary in nature, co-extensive with the desire of the Board of Directors. TheSupreme Court took note in Tavera that the disputed positionof Executive Secretary was also provided for in the Code ofBy-Laws of the Philippine Tuberculosis Society, Inc.

In Philippine School of Business AdministrationPhilippine School of Business AdministrationPhilippine School of Business AdministrationPhilippine School of Business AdministrationPhilippine School of Business Administrationvvvvv. Leano. Leano. Leano. Leano. Leano,114 the Court, in holding that the Commission hasjurisdiction over the ouster of the Executive Vice-President,noted that said position was provided for in the corporateby-laws.

In Philippine School of Business AdministrationPhilippine School of Business AdministrationPhilippine School of Business AdministrationPhilippine School of Business AdministrationPhilippine School of Business Administration,Justice Melencio Herrera concluded her ratiocination withthe cryptic denouement:

The matter of whom to elect is a prerogative thatbelongs to the Board, and involves the exercise ofdeliberate choice and the faculty of discriminativeselection. Generally speaking, the relationship of aperson to a corporation, whether as officer or as agentor employee, is not determined by the nature of theservices performed, but by the incidents of therelationship as they actually exist. 115

The ponente cites the American case of BrBrBrBrBruce vuce vuce vuce vuce v.....TTTTTrararararavvvvvelers Ins. Coelers Ins. Coelers Ins. Coelers Ins. Coelers Ins. Co.....,116 which reiterated the doctrine incommon law jurisdiction that the distinction between an agentor employee and an officer is not determined by the nature

114. 127 SCRA 778, 781 (1984).


116. 266 F2d 781.


of the work performed, but by the nature of the relationshipof the particular individual to the corporation:

x x x One distinction between officers and agents oremployees of a corporation lies in the manner of theircreation. An Office is created usually by the charter orby-laws of the corporation, while an agency oremployment is created usually by the officers. A furtherdistinction may thus be drawn between an officer andan employee of a private corporation in that the latteris subordinate to the officers and under their controland direction x x x It is clear that the two terms officersand agents are by no means interchangeable x x x 117

It should be reiterated therefore that in Corporate Law,in determining the power of the Board to hire and terminatecorporate officers, the nature of the position, its accompanyingduties and responsibilities, are not essential in classifying suchposition.

The evolving test of the Supreme Court in determiningwho are corporate officers therefore follows closely theAmerican doctrine on the matter. Clearly, the President,Secretary and Treasurer are officers of the corporation andspecifically mentioned by the Corporation Code. Thus, underSection 25 of the Code, it provides that immediately afterthe election of the directors, they must be formally organized“by the election of a president who shall be a director, atreasurer who may or may not be a director, and a secretarywho shall be a resident and citizen of the Philippines.”

But in addition, the same Section 25 of the CorporationCode provides that the board of directors may elect “such

117. 266 F2d 781, at pp. 784-785.


other officers as may be provided for in the by-laws.”Therefore, the terms “officers” includes such positions as areprovided for also in the by-laws of the corporation.

Therefore, the proper “officers” of a corporation are thosewho are given that character either (a) by the CorporationCode, or (b) by its by-laws.118 The directors, trustees, president,vice-presidents, treasurer, and secretary or assistant secretary,may be considered as officers mentioned under corporationlaw.119

d. Special Branching of Officership Test Determining Forum

In Dy vDy vDy vDy vDy v. National Labor R. National Labor R. National Labor R. National Labor R. National Labor Relations Commissionelations Commissionelations Commissionelations Commissionelations Commission,120

where the board of directors were ousted by non-election ofthe bank manager, the Supreme Court took note that theposition is an elective position provided for in the by-laws ofthe corporation. However, the Supreme Court in sustainingthat the Commission had jurisdiction over the controversyheld that:

x x x The question of remuneration, involving as itdoes, a person who is not a mere employee but astockholder and officer, an integral part, it might besaid, of the corporation, is not a simple labor problembut a matter that comes within the area of corporateaffairs and management, and is in fact a corporatecontroversy in contemplation of the CorporationCode.121

The aforequoted portion of the decision in DyDyDyDyDy seems toimply that if the controversy is intertwined with management

118. Gurrea v. Lezama, 103 Phil. 553 (1958).

119. 14-A C.J., §§ 1858-1861.

120. 145 SCRA 211 (1986).

121. Ibid, at p. 222.


matters by persons who have special relations to thecorporation, such as being a stockholder, the controversy isessentially corporate, by virtue of Section 3 or Section 5(b)on intra-corporate disputes. This therefore seems to create two(2) branches of RTC’s corporate jurisdiction when it comesto corporate officers. The first are those who are strictly“officers” because their positions are provided for either bylaw or in the by-laws of the corporation. Any controversyarising from such relationship is within the original andexclusive jurisdiction of the RTC by virtue of Section 5(c).

The other corporate “officers” whose positions are notprovided for in the by-laws, who therefore are strictly mereemployees of the corporation, when they are at the same timestockholders or members of the corporation, and seem tooccupy such employment positions by virtue of suchrelationship to the corporation, the controversies arisingtherefrom are within the jurisdiction of the SEC (now theRTC) by virtue of the expanded coverage of Section 5(b) inUnion GlassUnion GlassUnion GlassUnion GlassUnion Glass. In both instances, the emphasis of the SupremeCourt has always been that the controversies involved primarilya corporate matter, with the right and power of a board toterminate corporate officers.

In GrGrGrGrGreeeeegggggorio Araneta Uniorio Araneta Uniorio Araneta Uniorio Araneta Uniorio Araneta Univvvvversity Fersity Fersity Fersity Fersity Foundation voundation voundation voundation voundation v.....TTTTTeodoreodoreodoreodoreodorooooo,122 although the respondent interposed illegaldismissal and sought recovery of separation pay, retirementbenefits and other monetary claims with the NLRC arisingfrom the “non-extension” of his appointment as Vice Presidentand concurrently, as Treasurer of the corporation, the Courtdenied the contention of the petitioning corporation thatjurisdiction over the case should be with the Commission

122. 167 SCRA 79 (1988).


since respondent was undoubtedly a corporate officer. Indenying the petitioner’s contention and distinguishing it fromPSBPSBPSBPSBPSBAAAAA and DyDyDyDyDy, the Court held that the complaint was filedby the respondent with the NLRC not questioning thevalidity of the board of directors’ meetings wherein thecorporate officers involved were not reelected, resulting inthe termination of their services. Therefore, no issue whichwas intra-corporate in nature was necessary to be resolved whichwould necessitate the vesting of the controversy with thejurisdiction of the Commission.

The RTC, rather than the NLRC, should have jurisdictionto hear matters relating to the appointment and removal ofcorporate officers. As held in FFFFFororororortune Cement Cortune Cement Cortune Cement Cortune Cement Cortune Cement Corppppp. v. v. v. v. v.....NLRNLRNLRNLRNLRCCCCC, 123 “a corporate officer’s dismissal is always a corporateact and/or intra-corporate controversy and that nature is notaltered by the reason or wisdom which the Board of Directorsmay have in taking such action.”124

e. The Issue of Jurisdiction Between SEC and NLRC

In the particular issue of whether it was the SEC, now theRTC, or the NLRC which has jurisdiction over the disputeof termination or dismissal, the Supreme Court seemed tohave narrowed down the coverage of “officers” to includeonly those provided for in the by-laws.

In Philippine School of Business AdministrationPhilippine School of Business AdministrationPhilippine School of Business AdministrationPhilippine School of Business AdministrationPhilippine School of Business Administrationvvvvv. Leano. Leano. Leano. Leano. Leano,125 the Supreme Court, in holding that the SEC

123. 193 SCRA 258 (1991).

124. Also Lozon v. NLRC, 240 SCRA 1 (1995); Espino v.NLRC, 240 SCRA 52 (1995).

125. 127 SCRA 778, 781 (1984).


(now the RTC) has jurisdiction over the ouster of theExecutive Vice-President, took note that said position wasprovided for in the corporate by-laws.

However, it is interesting to note that in LeanoLeanoLeanoLeanoLeano theSupreme Court affirmed the principle that:

Generally speaking, the relationship of a person to acorporation xwhether as officer or as agent or employee,is not determined by the nature of the servicesperformed, but by the incidents of the relationship asthey actually exists.126

Also in the case of Dy vDy vDy vDy vDy v. National Labor R. National Labor R. National Labor R. National Labor R. National Labor RelationselationselationselationselationsCommissionCommissionCommissionCommissionCommission,127 where the Supreme Court in ruling on theouster by non-election of the bank manager, noted that theposition in an elective position is provided for in the by-lawsof the corporation.

Again, however, the Supreme Court in DyDyDyDyDy, in sustainingthat the SEC (now, the RTC) had jurisdiction over thecontroversy held that:

x x x It is of no moment that Vailoces, in his amendedcomplaint, seeks other relief which would seeminglyfall under the jurisdiction of the Labor Arbiter, becausea closer look at these – underpayment of salary andnon-payment of living allowance – shows that theyare actually part of the prerequisites of his electiveposition, hence, intimately linked with his relations withthe corporation. The question of remuneration,involving as it does, a person who is not a mere employeebut a stockholder and officer, an integral part, it might

126. Ibid, citing Bruce v. Travelers Ins. Co., 266 F2d 781, cited in19 Am. Jur2d 526.

127. 145 SCRA 211 (1986).


be said, of the corporation, is not a simple laborproblem but a matter that comes within the area ofcorporate affairs and management, and is in fact acorporate controversy in contemplation of theCorporation Code.128

The aforequoted provision implies that if the controversyis intertwined in management matters by persons who havespecial relations to the corporation, such as being astockholder, the controversy is essentially corporate and withinthe jurisdiction of the RTC.

The implication of the foregoing is that the RTC judgeswould also necessitate having competent knowledge on LaborLaws applicable to situations that fall within their jurisdictionwhere, strictly speaking, the “officer” involved does not fallwithin the “corporate officer” definition, and therefore wouldbe entitled to protection of security of tenure mandated bothunder the Constitution and the Labor Code.

4.4.4.4.4. Suspension ofSuspension ofSuspension ofSuspension ofSuspension of P P P P Paaaaayments and Ryments and Ryments and Ryments and Ryments and RehabilitationehabilitationehabilitationehabilitationehabilitationProceedingsProceedingsProceedingsProceedingsProceedings

Under Section 5(d) of the Decree, the RTC would now haveoriginal and exclusive jurisdiction to hear and decide casesinvolving:

d )d )d )d )d ) PPPPPetitions ofetitions ofetitions ofetitions ofetitions of cor cor cor cor corporations, parporations, parporations, parporations, parporations, par tnerships ortnerships ortnerships ortnerships ortnerships orassociations to be declared in the state of suspensionassociations to be declared in the state of suspensionassociations to be declared in the state of suspensionassociations to be declared in the state of suspensionassociations to be declared in the state of suspensionof payments in cases where the corporation,of payments in cases where the corporation,of payments in cases where the corporation,of payments in cases where the corporation,of payments in cases where the corporation,parparparparpar tnership or association possesses suftnership or association possesses suftnership or association possesses suftnership or association possesses suftnership or association possesses sufffffficienticienticienticienticientprprprprproperoperoperoperoper ty to coty to coty to coty to coty to covvvvver all its deer all its deer all its deer all its deer all its debts bbts bbts bbts bbts but fut fut fut fut forororororesees theesees theesees theesees theesees theimpossibility of meeting them when theyimpossibility of meeting them when theyimpossibility of meeting them when theyimpossibility of meeting them when theyimpossibility of meeting them when theyrespectively fall due or in cases where therespectively fall due or in cases where therespectively fall due or in cases where therespectively fall due or in cases where therespectively fall due or in cases where the

128. Ibid, at p. 213.


corcorcorcorcorporation, parporation, parporation, parporation, parporation, par tnership or association has notnership or association has notnership or association has notnership or association has notnership or association has nosufsufsufsufsufffffficient assets to coicient assets to coicient assets to coicient assets to coicient assets to covvvvver liabilities, ber liabilities, ber liabilities, ber liabilities, ber liabilities, but is underut is underut is underut is underut is underthe management of a rehabilitation receiver orthe management of a rehabilitation receiver orthe management of a rehabilitation receiver orthe management of a rehabilitation receiver orthe management of a rehabilitation receiver ormanagement committee created pursuant to thismanagement committee created pursuant to thismanagement committee created pursuant to thismanagement committee created pursuant to thismanagement committee created pursuant to thisDecree.Decree.Decree.Decree.Decree.

The old controversy as to who would have jurisdiction oversuspension of payments proceedings/rehabilitation proceedingsover a corporate debtor and whether an individual surety of thecorporation may be included as proper party to the proceedings,129

no longer matter since the RTC would now have original andexclusive jurisdiction over such cases and parties.

Although rehabilitation proceedings over corporations are nowwithin the jurisdiction of RTC, there exists no substantive lawby which to allow RTC to decide upon rehabilitation proceedings.The Insolvency Law provides for remedial and substantive rulesfor suspension of payments and insolvency proceedings, but nonefor rehabilitation proceedings.

Unlike the SEC, which being an administrative agency, hadmuch leeway to formulate rules governing matters within itsjurisdiction, regular courts and even the Supreme Court cannotformulate rules that go into substantive matters, especially thosethat would undermine the proprietary and contractual rights ofthe various parties involved, namely the corporate debtor itself,the creditors and the stockholders. Apart from Section 6, there isnothing in P.D. No. 902-A that could be used as the basis forpursuing rehabilitation proceedings. And can the RTC rely uponand apply the provisions of The Insolvency Law for rehabilitationproceedings?

129. Traders Royal Bank v. Court of Appeals, 177 SCRA 788(1989); Union Bank of the Phils. v. Court of Appeals, 290SCRA 198 (1998).


In fact, the Supreme Court has held in Ching vChing vChing vChing vChing v. Land Bank. Land Bank. Land Bank. Land Bank. Land Bankof the Philippinesof the Philippinesof the Philippinesof the Philippinesof the Philippines,130 that to the extent not otherwise amendedunder the terms of P.D. No. 902-A, the terms and provisions ofThe Insolvency Law were binding on the SEC in simple suspensionof payments and insolvency proceedings, thus:

The SEC, like any other administrative body, is a tribunalof limited jurisdiction and as such, could wield only suchpowers as are specifically granted to it by its enabling statute.Its jurisdiction should be interpreted in strictissimi juris.”131

More importantly, in resolving the issue on whether Section6 of P.D. No. 902-A is deemed to have repealed the provisionsof The Insolvency Law, ChingChingChingChingChing held that:

A well-recognized rule in statutory construction is thatrepeals by implication are not favored and will not be sodeclared unless it manifest that the legislature so intended.When statutes are in pari materia they should be construedtogether. In construing them the old statutes relating tothe same subject matter should be compared with the newprovisions and if possible by reasonable construction, bothshould be construed that effect may be given to everyprovision of each.132

The implication from the above-quoted ruling is clear, thatsince P.D. No. 902-A has not expressly repealed the provisions ofThe Insolvency Law as they apply to corporations and otherjuridical entities, they must be construed as still binding on theSEC, now on the RTCs, on suspension of payments andinsolvency proceedings validly filed, insofar as they have not been

130. 201 SCRA 190 (1991).

131. Ibid, at p. 198.

132. Ibid, at p. 202.


amended or supplanted by specific provisions of the Decree. Ifthe provisions of The Insolvency Law were binding on the SECin the exercise of its jurisdiction under Section 5(d) of P.D. No.902-A, then the policies, thrusts and substantive requirementsshould also be binding upon the RTC as guiding principles inpursuing rehabilitation proceedings on corporations and otherjuridical entities.

Nevertheless, the following issues pertaining to rehabilitationproceedings remain outstanding, namely:

a. In effecting the automatic stay or suspension of actionprovisions for rehabilitation cases, do the RTC apply theprovisions of The Insolvency Law which applies only tonon-secured creditors, or the provisions of Section 6 ofP.D. No. 902-A, which comes into effect only upon theappointment of a rehabilitation or managementcommittee and applies to all creditors, both secured andunsecured?

b. Do the RTC have the power to appoint a management orrehabilitation committee pursuant to the powers vestedunder Section 6 of P.D. No. 902-A?

c. When it comes to the adoption of the rehabilitationplan, may the RTC rely upon the voting requirementsunder The Insolvency Law when it comes to creditors’action, or can the RTC, as in the case of the SEC underSection 6 of P. D. No. 902-A, have a right to approve therehabilitation plan that it deems to be for the benefit ofall concerned even against the wishes of the securedcreditors and/or unsecured creditors?

In order to see the first issue in proper perspective, we shouldenumerate the basic differences between two (2) types of


suspension of payments (one without rehabilitation, and the otherpursuant to a rehabilitation proceeding) involving corporatedebtors, under the Insolvency Law and under P.D. No. 902-A,prior to enactment of The Securities Regulations Code, thus:

(a) The appointment of a management committee or arehabilitation receiver automatically takes the case outof the provisions of the ordinary courts and wouldmake the provisions of P.D. No. 902-A applicable asto confer exclusive jurisdiction upon the SEC;

(b) Under the Insolvency Law, the suspensive effect of theorder issued pursuant to the petition for suspension ofpayment does not cover secured creditors, while thesuspensive effect under P.D. No. 902-A uponappointment of the management committee orrehabilitation receiver, would cover all corporatecreditors, both secured and unsecured;

(c) Under the Insolvency Law, in the absence of anyagreement among the corporate creditors, the automaticstay would expire after three (3) months; whereas, underP.D. No. 902-A, the suspensive effect has no time limitand would prevail for so long as the corporate debtoris under a management committee or rehabilitationreceiver and there is no directive to have its assetsliquidated;

(d) The effectiveness of final agreement on the manner ofpayment of the obligations of the corporate debtor issubject to the qualifying majority votes required underThe Insolvency Law; whereas, under P.D. No. 902-A,the management committee or the rehabilitationreceiver is granted sufficient powers to take such measuresas are necessary to bring back to financial health thedistressed company without need to obtain approvalof the corporate creditors.


Under Section 6 (c) and (d) of P.D. No. 902-A, in order toeffectively exercise its jurisdictions, the SEC was empowered:

(a) To appoint one or more receivers of the property, realor personal, which is the subject of action pendingbefore the Commission in accordance with thepertinent provisions of the Rules of Court;

(b) In appropriate cases, appoint a rehabilitation receiverof corporations not supervised or regulated by othergovernment agencies who shall have, in addition to thepowers of a regular receiver under the provisions ofthe Rules of Court, such functions and powers asprovided in the Decree; and

(c) Upon petition or motu proprio, to appoint amanagement committee, board, or body to undertakethe management of corporations not supervised orregulated by other government agencies in appropriatecases when there is imminent danger of dissipation, loss,wastage or destruction of assets or other properties orparalyzation of business operations of suchcorporations which may be prejudicial to the interestof minority stockholders, parties-litigants or the generalpublic.

It should be noted that the powers granted to the SEC underSection 6 of the Decree were “intended to effectively exercisesuch jurisdiction” enumerated under Section 5 of the Decree.The enumerated jurisdictions do not only cover proceedings forsuspension of payments, but also in intra-corporate disputes, fraudscheme proceedings, and election of officers and directors.133

133. See Ching v. Land Bank of the Philippines, 301 SCRA 190,201-202 (191).


Section 6 may have to be construed as being applicable alsoto the RTC, otherwise, its judicial power in corporate rehabilitationproceedings would be meaningless. There is no doubt that Section5.2 of The Securities Regulation Code intended to afford RTCeffective jurisdiction and power over corporation rehabilitationproceedings as it sets out the interim provisions on transfer ofsuch cases from the SEC to the RTC.

If such position is accepted, then the issues that would nowconfront the RTC is whether a proceeding for suspension ofpayments is one purely governed by The Insolvency Law or thatpursuant to P.D. No. 902-A, which would afford different remediesto the parties involved.

a. Legal Effect of Appointment of Management Committeeor Rehabilitation Receiver; The Automatic Stay

The Decree provides that:

upon appointment of a management committee,rehabilitation receiver, board or body, x x x all actionsfor claims against corporations x x x under managementor receivership pending before any court, tribunal,board or body shall be suspended accordingly,134

which is known in American bankruptcy parlance as the“automatic stay.”

The Decree does not provide for any duration of thesuspension, and therefore is deemed to apply during the entireperiod that the corporate debtor is under the managementcommittee or the rehabilitation receiver.135

134. Presidential Decree No. 902-A, § 6(c).

135. See BF Homes, Inc. v. Court of Appeals, 190 SCRA 262(1990), at p. 268.


It has been ruled that the suspensive effect, such as theprohibition against foreclosure:

attaches as soon as a petition for rehabilitation is filed.Were it otherwise, what is to prevent the petitionerfrom delaying the creation of the ManagementCommittee and in the meantime dissipate all its assets.The sooner the SEC takes over and imposes a free onall the assets, the better for all concerned.136

Nevertheless, in a subsequent decision, it was ruled thatthe appointment of a management committee or rehabilitationreceiver may only take place after the filing with theCommission of an appropriate petition for suspension ofpayments. The conclusion is inevitable that pursuant to Section6(c), taken together with Sections 5(d) and (d), a court actionis ipso jure suspended only upon the appointment of amanagement committee or a rehabilitation receiver.137

Unlike the provisions in The Insolvency Law, whichexempt secured creditors from the suspensive effect of theorder issued by the court in an ordinary suspension ofpayments proceedings, the provisions of P.D. No. 902-A, whenit comes to the appointment of a management committee ora rehabilitation receiver, do not contain an exemption forsecured creditor from the suspensive effect provided in theDecree.

Originally, in the early case of Philippine CommerPhilippine CommerPhilippine CommerPhilippine CommerPhilippine CommercialcialcialcialcialInterInterInterInterInternational Bank vnational Bank vnational Bank vnational Bank vnational Bank v. Cour. Cour. Cour. Cour. Court oft oft oft oft of A A A A Appealsppealsppealsppealsppeals,138 the Supreme

136. RCBC v. Intermediate Appellate Court, 213 SCRA 830,838 (1992).

137. Barotac Sugar Mills, Inc. v. Court of Appeals, 275 SCRA497 (1997).

138. 172 SCRA 436 (1989).


Court, relying on jurisprudential rule pre-P.D. No. 902-A,held that the SEC’s order for suspension of payments of acorporation, as well as for all actions of claims against thecorporation, could only be applied to claims of unsecuredcreditors and that:

[s]uch orders can not extend to creditors holding amortgage, pledge or any lien on the property unlessthey give up the property, security or lien in favor ofall the creditors. 139

The PCIBPCIBPCIBPCIBPCIB ruling has since been abrogated in subsequentdecisions of the Supreme Court140 interpreting the propercoverage of the suspensive effect upon the SEC’s appointmentof a management committee or rehabilitation receiver. It hasheld rule that whenever a distressed corporation has asked theCommission for rehabilitation and suspension of payments,preferred creditors may no longer assert such preference, butshall stand on equal footing with other creditors.

Alemar’Alemar’Alemar’Alemar’Alemar’s Sibal and Sons, Inc. vs Sibal and Sons, Inc. vs Sibal and Sons, Inc. vs Sibal and Sons, Inc. vs Sibal and Sons, Inc. v. Elbinias. Elbinias. Elbinias. Elbinias. Elbinias,141 heldthat during rehabilitation receivership, the assets are held intrust for the equal benefit of all creditors to preclude onefrom obtaining an advantage or preference over another by

139. Ibid, at p. 440, citing Chartered Bank v. Imperial and NationalBank, 48 Phil. 931.

140. Alemar’s Sibal and Sons v. Elbinias, 186 SCRA 94 (1990);BF Homes, Inc. v. Court of Appeals, 190 SCRA 262 (1990);Araneta v. Court of Appeals, 211 SCRA 390 (1992); RCBCv. Intermediate Appellate Court, 213 SCRA 830 (1992);and State Investment House, Inc. v. Court of Appeals, G.RNo. 123240, February 5, 1996.

141. 186 SCRA 94 (1990).


the expediency of attachment, execution or otherwise. TheCourt held:

x x x For what would prevent an alert creditor, uponlearning of the receivership, from rushing posthaste tothe courts to secure judgments for the satisfaction ofits claims to the prejudice of the less alert creditors.

As between creditors, the key phrase is “equality isequity.” When a corporation threatened by bankruptcyis taken over by a receiver, all the creditors should standon an equal footing. Not anyone of them should begiven any preference by paying one or some of themahead of the others. This is precisely the reason for thesuspension of all pending claims against the corporationunder receivership. Instead of creditors vexing thecourts with suits against the distressed firm, they aredirected to file their claims with the receiver who is aduly appointed officer of the SEC.142

BF Homes, Inc. vBF Homes, Inc. vBF Homes, Inc. vBF Homes, Inc. vBF Homes, Inc. v. Cour. Cour. Cour. Cour. Cour t oft oft oft oft of A A A A Appealsppealsppealsppealsppeals,143 alsoexplained that the reason for suspending actions for claimsagainst a corporation is to enable the management committeeor rehabilitation receiver to effectively exercise its/his powersfree from any judicial or extra-judicial interference that mightunduly hinder the “rescue” of the debtor company.144

Bank ofBank ofBank ofBank ofBank of the Philippine Islands v the Philippine Islands v the Philippine Islands v the Philippine Islands v the Philippine Islands v. Cour. Cour. Cour. Cour. Cour t oft oft oft oft ofAAAAAppealsppealsppealsppealsppeals,145 held that even foreclosure of mortgage shall bedisallowed so as not to prejudice other creditors or cause

142. Ibid, at pp. 99-100.

143. 190 SCRA 262 (1990).

144. Ibid, at p. 269.

145. 229 SCRA 223 (1994).


discrimination among them. If foreclosure is undertakendespite the fact that a petition for rehabilitation has been filed,the certificate of sale shall not be delivered pendingrehabilitation. If that has already been done, no transfercertificate of title shall likewise be effected within the periodof rehabilitation. The Court held that the rationale behindP.D. No. 902-A, is to effect a feasible and viable rehabilitation,which cannot be achieved if one creditor is preferred over theothers.146

In RRRRRubububububy Industrial Cory Industrial Cory Industrial Cory Industrial Cory Industrial Corppppp. v. v. v. v. v. Cour. Cour. Cour. Cour. Court oft oft oft oft of A A A A Appealsppealsppealsppealsppeals,147

the Court held that when a distressed company is placed underrehabilitation, the appointment of a management committeefollows to avoid collusion between the previous managementand creditors it might favor, to the prejudice of the othercreditors:

All assets of a corporation under rehabilitationreceivership are held in trust for the equal benefit ofall creditors to preclude one from obtaining anadvantage or preference over another by the expediencyof attachment, execution or otherwise. As between thecreditors, the key phrase is equality in equity. Once thecorporation threatened by bankruptcy is taken over bya receiver, all the creditors ought to stand in equalfooting. Not anyone of them should be paid aheadof the others. This is precisely the reason for suspendingall pending claims against the corporation underreceivership.

146. RCBC v. Intermediate Appellate Court, 213 SCRA 830,838; State Investment House, Inc. v. Court of Appeals, G.R.No. 123240, February 5, 1996 (unpublished).

147. 284 SCRA 445 (1998).


Although the ruling in Philippine CommercialPhilippine CommercialPhilippine CommercialPhilippine CommercialPhilippine CommercialInterInterInterInterInternational Bank vnational Bank vnational Bank vnational Bank vnational Bank v. Cour. Cour. Cour. Cour. Cour t oft oft oft oft of A A A A Appealsppealsppealsppealsppeals,148 thatsuspension of actions provided for under P.D. No. 902-Acovers all corporate creditors, whether secured or non-secured,has been abrogated by the Supreme Court, nevertheless, PCIBPCIBPCIBPCIBPCIBis still relevant when it decreed that:

We take judicial notice of the fact that the SEC orderfor the dissolution and liquidation of Philfinance hasalready been upheld by this Court x x x In view ofthis development, it appears that the RehabilitationReceiver has no more right to enjoin the auction salesince its prayer for injunctive relief was based on theorder for suspension of payments x x x 149

Clearly when rehabilitation is no longer pursued in thecase of a corporate debtor, the suspensive effect provided forby P.D. No. 902-A upon the appointment of the managementcommittee or rehabilitation receiver, ceased to have anyfurther hold, and the corporate creditors are then at liberty topursue their claims in different fora against the corporatedebtor.

b. Addressing the Other Issues Raised

The foregoing discussions on the issues and controversiesinvolved in the RTC’s jurisdiction in corporate rehabilitationare in fact merely the “tip of the iceberg.” There are othermore fundamental issues that have to be tackled, simply becausethere is no existing substantive corporate rehabilitation orcorporate reorganization law in the Philippines today.

148. 172 SCRA 436 (1989).

149. Ibid, at p. 441.


Perhaps to a great extent, the RTC would have to relyupon case-law applicable to corporate rehabilitationproceedings when they fell within SEC’s jurisdiction. Likewise,we anticipate RTC applying relevant provisions of TheInsolvency Act.

Under such scenario, RTC should, in order to properlyexercise such jurisdiction and not to allow their actions to bevulnerable to legal attack, recognize constitutional right ofthe parties involved in corporate recovery to the followingprecepts: due process and protection of property rights andthe constitutional recognition of the sanctity of contracts inthe following areas of corporate rehabilitation, thus:

Secured Creditors have property rights under existingsecurity arrangements with the debtors that cannot beput asunder without their consent or in exchange forvaluable consideration that preserves at least the valueof their property rights.

Since the 1935 Constitution, our society hasconstitutionally sanctified the binding effects of contractsbetween the parties and prohibits the passage of any law, ruleor regulation impairing the obligation of contracts, nowembodied in Section 10, Article III of the 1987 Constitution.The sanctity of contractual commitments is likewiseemblazoned in basic provisions of the Civil Code, whichrequires that contracts shall:

bind both contracting parties; its validity or compliancecannot be left to the will of one of them150

and from the moment of their perfection,



the parties are bound not only to the fulfillment ofwhat has been expressly stipulated but also to all theconsequences which, according to their nature, may bein keeping with good faith, usage and law.151

Contracts

shall be obligatory, in whatever form they may havebeen entered into, provided all the essential requisitesfor their validity are present.152

By way of comparison and illustration, in First Phil.First Phil.First Phil.First Phil.First Phil.InterInterInterInterInternational Bank vnational Bank vnational Bank vnational Bank vnational Bank v. Cour. Cour. Cour. Cour. Cour t oft oft oft oft of A A A A Appealsppealsppealsppealsppeals,153 theconservator appointed by the Central Bank over an insolventbank who repudiated the contract entered into by the bank’sofficer on the ground that the contract was entered intowithout proper authority. On the issue of whether theconservator had the power to revoke or overrule actions ofthe management or the board of directors of a bank, pursuantto then Section 28-A of the Central Bank Act. The Courtruled that:

While admittedly the Central Bank Law gives vast andfar-reaching powers to the conservator of a bank, itmust be pointed out that such powers must be relatedto the “preservation of the assets of the bank, (thereorganization of) the management thereof and (therestoration of) its viability.” Such powers, enormousand extensive as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwisethey would infringe against the non-impairment clauseof the Constitution. If the legislature itself cannot

151. Ibid, art. 1315.

152. Ibid, art. 1356.

153. 254 SCRA (1996).


revoke an existing valid contract, how can it delegatesuch non-existent powers to the conservator underSection 28-A of said law?

Obviously, therefore, Section 28-A merely givesthe conservator power to revoke contracts that are,under existing law, deemed to be defective – i.e., void,voidable, unenforceable or rescissible. Hence, theconservator merely takes the place of a bank’s boardof directors. What the said board cannot do – such asrepudiating a contract validly entered into under thedoctrine of implied authority – the conservator cannotdo either. Ineluctably, his power is not unilateral andhe cannot simply repudiate valid obligations of theBank. His authority would be only to bring courtactions to assail such contract – as he has already do soin the instant case. A contrary understanding of thelaw would simply not be permitted by the Constitution.Neither by common sense. To rule otherwise, wouldbe to enable a failing bank to become solvent, at theexpense of third parties, by simply getting theconservator to unilaterally revoke dealings which hadone way or another come to be considered unfavorableto the Bank, yielding nothing to perfected contractualrights nor vested interests of the third parties who haddealt with the Bank.

The provisions of the Central Bank Act construed bythe Supreme Court in First Philippine InterFirst Philippine InterFirst Philippine InterFirst Philippine InterFirst Philippine InternationalnationalnationalnationalnationalBankBankBankBankBank used the same language of Section 6(d) of P.D. No.902-A. Despite the fact that the banking industry isacknowledged to be vested with public interest,154

154. Philippine Commercial and Industrial Bank v. Court ofAppeals, 269 SCRA 695 (1997).


rehabilitation proceedings for any banking institution cannotauthorize the highly specialized Central Bank or MonetaryBoard from amending contractual obligations owed by thebank with third parties, specially creditors of the bank.Consequently, the same principles would have to apply toRTC in deciding rehabilitation proceedings under Section5(d) of the P.D. No. 902-A, especially when corporate businessin general is not really vested with public interests.

The doctrine would be relevant in RTC deciding on thefollowing issues:

a. Can a rehabilitation plan, that impinges upon thecontractual rights of creditors, be adopted withoutthe approval of the creditors?

b. Can a rehabilitation plan be adopted even with theapproval of the unsecured creditors, without theapproval of the secured creditors who actually are theonly stakeholders who continue to have real valuefor their claims covered by their security contracts?

c. What would be the qualifying vote of secured andunsecured creditor to effectively allow the enforcementof a rehabilitation plan?

d. Under what law can the adverse terms of arehabilitation plan be enforced and effected againstthe contractual rights of secured creditors who havevoted against said plan?

These serious issues, fraught with constitutional, contractlaw and property law implications, were in fact confrontingthe SEC at the time The Securities Regulation Code waspromulgated and would remain the same serious issues thatnow confront the RTC as they exercise their powers overcorporate rehabilitation proceedings.

Cr Cr Cr Cr Cross-Boross-Boross-Boross-Boross-Border Insolvder Insolvder Insolvder Insolvder Insolvencencencencency andy andy andy andy andPriPriPriPriPrivvvvvatizationatizationatizationatizationatization∗

Judge Sixto C. Marella, Jr.∗∗

I. CROSS-BORDER INSOLVENCY...................................................... 108A. Relevance of Cross-Border Insolvency (Expansion

of Coverage to Include All Debt Relief Proceedings)B. Developments in the ASEAN RegionC. Extra Territorial Effect of a Decree of Insolvency

II. PRIVATIZATION.................................................................................... 112A. Schemes RecognizedB. Common Provisions

∗ Delivered at the Seminar-Workshop for Commercial CourtJudges, on September 15 to 17, 2004, at the Eugenio LopezCenter, Sumulong Highway, Antipolo City.

∗∗ Judge Sixto C. Marella, Jr. is presently the Executive Judge ofthe Regional Trial Court of Makati City and the PresidingJudge of Regional Trial Court, Branch 138 of Makati City, adesignated commercial court. He earned his Foreign Servicedegree in 1967 and his law degree in 1971 from the Universityof the Philippines, and subsequently passed the bar examinationgiven that same year. He also undertook postgraduate studiesat the Academy of American and International Laws in Dallas,Texas and the Harvard Law School. He was the recipient ofthe Chief Justice Cayetano Arellano Award for Best Decision,Second Level Courts for the 2004 Judicial Excellence Awards.


I. CI. CI. CI. CI. CRRRRROSSOSSOSSOSSOSS-B-B-B-B-BORDERORDERORDERORDERORDER I I I I INSOLNSOLNSOLNSOLNSOLVENCYVENCYVENCYVENCYVENCY

A.A.A.A.A. RRRRReleeleeleeleelevvvvvance ofance ofance ofance ofance of Cr Cr Cr Cr Cross-Boross-Boross-Boross-Boross-Border Insolvder Insolvder Insolvder Insolvder Insolvencencencencency (Expansiony (Expansiony (Expansiony (Expansiony (Expansionofofofofof Co Co Co Co Covvvvverageragerageragerage to Ince to Ince to Ince to Ince to Include All Delude All Delude All Delude All Delude All Debt Rbt Rbt Rbt Rbt Reliefeliefeliefeliefelief Pr Pr Pr Pr Proceedings)oceedings)oceedings)oceedings)oceedings)

Recent developments in International Law practice expanded thecoverage of the term insolvency to include the broad range ofproceedings intended to protect the interests of creditors to enablethem to, at least, secure a partial satisfaction of claims. It is deemedto include all interferences in the ownership rights of a person orentity under supervision of state power as a consequence ofinability to honor obligations to pay sums of money aimed atsatisfying creditors’ claims by way of liquidation or conversioninto cash of the debtor’s estate. The inability may be the result ofoverindebtedness, market conditions, bad investments, or evencompany mismanagement. Other jurisdictions refer to them ascompulsory court settlement, winding up by the Court,administration of the insolvent estate, administration by a judicialfactor and voluntary arrangements under insolvency.

Thus, the proceedings under the Interim Rules of Procedureon Corporate Rehabilitation as well as the pending legislation,the Corporate Recovery Act, may now fall under the terminsolvency proceedings.

B .B .B .B .B . DeDeDeDeDevvvvvelopments in the ASEAN Relopments in the ASEAN Relopments in the ASEAN Relopments in the ASEAN Relopments in the ASEAN Reeeeegiongiongiongiongion

In the recently concluded ASEAN Finance Ministers meeting inJakarta, it has been agreed by member countries including thePhilippines to take an aggressive stance towards economicintegration. Priority areas identified were automobile, textile andelectronics. Governments were called upon to provide legalframework to include improvement of domestic laws.

1092004] CROSS-BORDER INSOLVENCYAND PRIVATIZATION

Cross-border insolvency is one area, which would requirelegislation if economic integration is to be pushed through.

C. Extra C. Extra C. Extra C. Extra C. Extra TTTTTerererererritorial Efritorial Efritorial Efritorial Efritorial Effffffect ofect ofect ofect ofect of a Decr a Decr a Decr a Decr a Decree ofee ofee ofee ofee of Insolv Insolv Insolv Insolv Insolvencencencencencyyyyy

Under the present law, insolvency and other similar proceedingsopened and conducted abroad have no effect on hearings before adomestic court involving a foreign person or entity regardingwhose assets the insolvency proceedings are being conductedabroad. Insolvency proceedings commenced abroad therefore arenot obstacles to domestic proceedings.

The following operates to limit the foregoing:

1. ComityComityComityComityComity..... A common law tradition to give recognition byone nation within its territory to the legislative, executive orjudicial acts of another nation having due regard tointernational duty and convenience and to the rights of itsown citizens or others who are under the protection of itslaws. This can be applied even in the absence of a treaty ordomestic legislation and a court can tailor the level and extentof recognition and assistance according to the specificcircumstance.

2. ExExExExExequaturequaturequaturequaturequatur..... A tradition in civil law countries wherebyrecognition of foreign insolvency cases may be made byutilizing local law to obtain an “enabling order.” In effect,this is like a recognition of a foreign judgments.

3. RRRRReciprecipreciprecipreciprocity ofocity ofocity ofocity ofocity of J J J J Judgments Leudgments Leudgments Leudgments Leudgments Legislation.gislation.gislation.gislation.gislation. Where laws areenacted providing for the recognition of foreign judgments.

4. Unilateral DiscrUnilateral DiscrUnilateral DiscrUnilateral DiscrUnilateral Discretionaretionaretionaretionaretionary Ley Ley Ley Ley Legislation. gislation. gislation. gislation. gislation. This is the mostpredominant means of providing assistance in relation to cases


of cross-border insolvency. There are various forms butgenerally common provisions are:

a. Authority is provided for a court to recognize judgmentand provide assistance in respect of foreign insolvencyproceeding originating in any jurisdiction;

b. Set out certain conditions or tests that may be fulfilledbefore recognition must be granted;

c. Provide for the procedure to be followed in making anapplication for recognition; and

d. Prescribe the nature and extent of assistance that can beprovided.

5. Unilateral MandatorUnilateral MandatorUnilateral MandatorUnilateral MandatorUnilateral Mandatory Ley Ley Ley Ley Legislationgislationgislationgislationgislation. The situation wherethe law requires mandatory recognition and assistance forinsolvency proceedings initiated abroad. This is not, however,universal because mandatory recognition is required of cross-border cases originating in certain prescribed countries.

6. Bilateral LeBilateral LeBilateral LeBilateral LeBilateral Legislationgislationgislationgislationgislation. These are treaty arrangementsproviding for mutual recognition and assistance in cases ofinsolvency.

7. Multilateral or RMultilateral or RMultilateral or RMultilateral or RMultilateral or Reeeeegional gional gional gional gional TTTTTrrrrreaty Leeaty Leeaty Leeaty Leeaty Legislationgislationgislationgislationgislation. Legislationfor a limited group of countries having mutual group relationsand a confidence in court’s legal system.

8. Economic Union LegislationEconomic Union LegislationEconomic Union LegislationEconomic Union LegislationEconomic Union Legislation. Similar to multilateral orregional legislation.

9. Global Model LaGlobal Model LaGlobal Model LaGlobal Model LaGlobal Model Law Lew Lew Lew Lew Legislation.gislation.gislation.gislation.gislation. The United NationsCommission on International Trade Law (UNCITRAL)conducted work from 1994 to 1997 on cross-borderinsolvency which resulted in UNCITRAL Model Law on


Cross-Border Insolvency, approved by a general resolutionof the General Assembly of the Umbel Nation in 1997.

The broad scheme of the basis on which the UNCITRALModel Law is intended to operate is as follows:

a. It applies to an insolvency proceeding in which the debtoris subject to the control or supervision of a foreign courtfor the purposes of reorganization or liquidation;

b. It applies to both “inbound” and “outbound” requestsfor recognition and assistance, but obviously concentrateson “inbound” applications;

c. It provides access to the courts (or other relevantinstitutions) of an enacting state for a “foreignrepresentative” (a person or body who is authorized in aforeign proceeding to administer the reorganization orliquidation of a debtor) to apply for recognition andassistance;

d. An application for recognition and assistance may be madewithout unnecessary formality or procedure;

e. A decision on recognition should, in most cases, be quicklydecided and amount to not much more than a mereformality;

f. Depending on the nature of the foreign proceeding andthe extent of assistance that is required, automatic,immediate relief and assistance will follow fromrecognition. The main relief is in the form of a stay orsuspension of actions and proceedings against the propertyof the debtor located in the enacting state;

g. The UNCITRAL Model Law provides for the possibilityof cooperation between office holders, courts and judgesin the various jurisdictions that might be involved.


The UNCITRAL Model Law on Cross-Border Insolvencyis not a treaty or convention. This will become effective only if ajurisdiction legislate it as part of its domestic legislation. Further,it will not, by itself, result in reciprocity.

II. PII. PII. PII. PII. PRIVRIVRIVRIVRIVAAAAATIZATIZATIZATIZATIZATIONTIONTIONTIONTION

The applicable laws are RRRRReeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 6957. 6957. 6957. 6957. 6957 entitled “AnAct Authorizing the Financing, Construction, Operation andMaintenance of Infrastructure Projects by the Private Sector andfor Other Purpose” and R R R R Reeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 7718. 7718. 7718. 7718. 7718 entitled“An Act Amending Certain Sections of R.A. No. 6957.” Bothwere enacted to implement the policy of state:

a. To recognize the indispensable role of the private sectoras the main engine for national growth; and

b. To develop and provide the most appropriate favorableincentives to mobilize private resources for the purpose.

In R.A. No. 7758, the coverage and applicability of the Build,Operate and Transfer (BOT) law was expanded to includegovernment development projects in addition to governmentinfrastructure projects.

A. ScA. ScA. ScA. ScA. Schemes Rhemes Rhemes Rhemes Rhemes Recognizedecognizedecognizedecognizedecognized

The law recognizes the following:

1.1.1.1.1. Build, Operate and Build, Operate and Build, Operate and Build, Operate and Build, Operate and TTTTTransfransfransfransfransfererererer

A contractual arrangement whereby a private entity undertakesthe construction including financing of an infrastructure, operatesand maintains it, and at the end of the the contracted period,transfers it to the government unit concerned thereof.


2.2.2.2.2. Build and Build and Build and Build and Build and TTTTTransfransfransfransfransfererererer

A contractual arrangement whereby the private companyundertakes the construction of an infrastructure, turns it over,after completion, to the government unit concerned, and shallpay the private company its total investment plus a reasonablerate of return.

These are normally employed in the construction of anyinfrastructure projects considered as critical for security or strategicreasons.

3.3.3.3.3. Build, Own, OperateBuild, Own, OperateBuild, Own, OperateBuild, Own, OperateBuild, Own, Operate

A private entity will construct and then own, operate, and maintainthe infrastructure from which it will recover its investment,operating, and maintenance costs by collecting tolls, fees, rentals,and other charges. Assignment of right to operate and maintainto a facility operator allowed.

4.4.4.4.4. Build, Lease, Build, Lease, Build, Lease, Build, Lease, Build, Lease, TTTTTransfransfransfransfransfererererer

An arrangement where a private group will construct aninfrastructure and upon its completion turns it over to thegovernment on a lease arrangement for a fixed period after whichownership is automatically transferred to the government agency.

5. Build, 5. Build, 5. Build, 5. Build, 5. Build, TTTTTransfransfransfransfransfer and Operateer and Operateer and Operateer and Operateer and Operate

A private group builds the facility on a turn key basis assumingcost overrun, delay, and specified performance risk and oncecompleted, title is transferred to the implementing agency. Theprivate agency operates the facility in behalf of the implementingagency.


6.6.6.6.6. Contract-Add and OperateContract-Add and OperateContract-Add and OperateContract-Add and OperateContract-Add and Operate

A contractual arrangement whereby a private entity adds to anexisting facility, which it is renting from the government, andoperates it over an agreed franchise period.

7.7.7.7.7. DeDeDeDeDevvvvvelopelopelopelopelop, Operate and , Operate and , Operate and , Operate and , Operate and TTTTTransfransfransfransfransfererererer

An arrangement whereby favorable conditions are external to anew infrastructure project, which is to be built by a private companyor integrated into the arrangement by giving that entity the rightto develop adjoining property and enjoy some of the benefitssuch as higher property or rent values.

8.8.8.8.8. RRRRRehabilitate, Operate and ehabilitate, Operate and ehabilitate, Operate and ehabilitate, Operate and ehabilitate, Operate and TTTTTransfransfransfransfransfererererer

A contractual arrangement whereby an existing facility is to berefurbished and then operated and maintained for a franchise periodand of which at the expiration, the legal title is to be turned overto the government.

9.9.9.9.9. RRRRRehabilitate, Own and Operateehabilitate, Own and Operateehabilitate, Own and Operateehabilitate, Own and Operateehabilitate, Own and Operate

Arrangement whereby an existing facility is turned over to theprivate sector to refurbish and operate with no time limitationimposed on ownership so long as the operation is not in violationof its franchise.

B .B .B .B .B . Common PrCommon PrCommon PrCommon PrCommon Prooooovisionsvisionsvisionsvisionsvisions

In all of the foregoing schemes, the common provisions are:

a. If the infrastructure facility requires a public utilityfranchise, sixty (60%) percent Filipino ownership isrequired;


b. Adequacy of financial base to implement the projectswhich shall consist of equity and firm commitment fromreputable financial institutions;

c. The return on investment must be at “reasonable rate”defined by R.A. No. 7718 as the rate that reflects theprevailing cost of capital in the domestic and internationalmarkets. In case of negotiated contracts, the rate of returnshall be determined by the National EconomicDevelopment Authority (NEDA) prior to thenegotiation and/or call for proposals;

d. The contractor transfers the facility to the governmentconcerned at the end of the fixed term, which shall notexceed fifty (50) years;

e. Financing may be provided from foreign and domesticsources; and

f. In case of foreign contractors, Filipino labor shall beemployed or hired in the different phases of theconstruction where Filipino skills are available.

Awarding of project is through public bidding but in casethere is only one complying bidder, direct negotiation is allowed.For the disqualified bidders, they have the right to appeal thedecision of the implementing agency or the pre-qualification bidsand awards committee of the local government unit to the headof the agency or to the Department of the Interior and LocalGovernment (DILG) in case of local government projects.

DeDeDeDeDevvvvvelopments to Expand Jelopments to Expand Jelopments to Expand Jelopments to Expand Jelopments to Expand Jurisdictionurisdictionurisdictionurisdictionurisdictionofofofofof Special Commer Special Commer Special Commer Special Commer Special Commercial Courcial Courcial Courcial Courcial Courtststststs

and Leading Deand Leading Deand Leading Deand Leading Deand Leading Devvvvvelopmentselopmentselopmentselopmentselopmentsin Commercial Lawin Commercial Lawin Commercial Lawin Commercial Lawin Commercial Law∗∗∗∗∗

Dr. Cheselden George V. Carmona∗∗

∗ Delivered at the Seminar Workshop for Commercial CourtJudges, on September 15 to 17, 2004, at the Eugenio LopezCenter, Sumulong Highway, Antipolo City.

∗∗ Dr. Cheselden George V. Carmona has a law degree and a PhDin public administration. He is currently a professorial lecturerat the Philippine Judicial Academy, Ateneo De ManilaUniversity School of Law, and the Graduate School of UPNational College of Public Administration and Governance.He is likewise a faculty of the Canadian InternationalDevelopment Agency – Justice Reforms Initiative Support(CIDA – JURIS) mediation project. He taught at the De LaSalle University, University of the Philippines and San SebastianCollege of Law, and lectured at the Institute of JudicialAdministration.

I. INTRODUCTION .................................................................................. 117II. CONSOLIDATION OF INTELLECTUAL PROPERTY (IP)

COURTS WITH COMMERCIAL COURTS ........................................ 121III. INCLUSION OF VIOLATION OF

ANTI-MONEY LAUNDERING ACT IN THE

SPECIAL COMMERCIAL COURTS’ JURISDICTION ...................... 125IV. PROPOSAL TO EXPAND JURISDICTION OF

COMMERCIAL COURTS .................................................................. 127V. SPECIALIZATION ............................................................................... 130VI. LEADING DEVELOPMENTS IN COMMERCIAL LAW ............ 136

117DEVELOPMENTS TO EXPAND JURISDICTION OFSPECIAL COMMERCIAL COURTS AND


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A. The Anti-Money Laundering ActB. The Intellectual Property CodeC. The E-Commerce LawD. The General Banking LawE. The Special Purpose Vehicle ActF. The Securitization Act of 2004

VII. CONCLUSION .................................................................................... 157


It has been more than four (4) years now since the SecuritiesRegulation Code (SRC) mandated the transfer of certain casesunder the exclusive and original jurisdiction of the Securities andExchange Commission (SEC) to the regional trial courts. Section5.2 thereof provides that the:

Commission’s jurisdiction over all cases enumerated underSection 5 of Presidential Decree No. 902-A is hereby

He finished his Bachelor of Arts from De La Salle University,Bachelor of Laws from the University of the Philippines Collegeof Law in 1993 and masters (with distinction) and doctoratedegree from the UP National College of Public Administrationand Governance (NCPAG) in 2000 and 2003, respectively. Hisdoctoral dissertation examines the impact of court decisionson economic policy making and implementation.

Atty. Carmona is currently the task manager on Legal and JudicialReform Program of the United States Agency for InternationalDevelopment – Economic Governance Technical Assistance(USAID – EGTA) project. He was part of a team thatundertook a Governance Assessment of the Philippines in theareas of Legal and Judicial Reform for the Asian DevelopmentBank. From 1994 to 1999, he was a senior partner of thePangilinan Carmona Santo Law Office before he went intodevelopment and consulting work.


transferred to the Courts of general jurisdiction or theappropriate Regional Trial Court: Provided, that theSupreme Court in the exercise of its authority may designatethe Regional Trial Court branches that shall exercisejurisdiction over these cases. x x x.1

The law’s directive was almost a surprise to the legal andbusiness community because the original version of the SRC didnot contain this provision. There was a separate bill then thatproposed the creation of special commercial courts, but it wasstill in the committee level and the transfer was still being studiedby a technical working group.2 The law’s intent, nevertheless, isclear. It wants SEC to concentrate on its regulatory and corporateregistrar functions and the regional trial courts to assume its quasi-judicial powers.

The transfer was probably accelerated by the inability of theSEC to rationalize and resolve debt relief petitions in the country.From 1997 to 2000, a large number of corporations went bankruptor had financial liquidity problems and had petitioned the SECfor rehabilitation or suspension of payment. Many of these casesremained unresolved for a long period of time and have affectedthe image of the country as an investment destination.

Still reeling from the effects of the regional financial crisisthat started in 1997, the policymakers wanted to put in orderdebt relief and intra-corporate proceedings in the country in orderto lure back the investors. There was a need for a crediblecommercial tribunal and the regional trial courts were the most

1. Republic Act No. 8799, Securities Regulation Code.

2. House Bill No. 9933 entitled “An Act to Strengthen theRegulatory Powers of the SEC by Transferring its Quasi-JudicialFunctions to Specialized Commercial Courts.”



2004]

logical choice. The Explanatory Note of the original version ofthe bill was to the point:

In recent years, however, the retirement of more experiencedand competent hearing officers in the Commission has forcedthe Commission to hire younger and inexperienced hearingofficers who promulgate decisions which more often thannot, are reversed on appeal by the Commission en banc.Thus, a significant amount of the Commissioner’s time isspent on correcting decisions of its subordinates, which itcould have devoted instead to regulating the securitiesmarket, encouraging the inflow of foreign and domesticinvestments and in increasing public awareness of the roleof capital market in the country’s economic development.

Immediately after the passage of the Securities RegulationCode, the Supreme Court laid down the procedures for the transferof these cases and the designation of certain branches of theregional trial court for this purpose. Sixty (60) regional trial courtsall over the country were appointed as special commercial courtson November 21, 2000. The Court likewise promulgated theInterim Rules on Corporate Rehabilitation and the Interim Rulesof Procedure on Intra-Corporate Controversies.

The Philippine Judicial Academy (PHILJA) conducted a seriesof training seminars to update the commercial court judges onthe developments in corporate rehabilitation and intra-corporatedisputes. For a long time, or since 1976, these types of cases werebeing heard by the SEC and both the judges and the Academyrealized the need for rigorous trainings in this field.

At least four (4) seminars were immediately conducted in thePhilippine Judicial Academy campus and DAP Training Facilityboth in Tagaytay City, in Holiday Inn in Clark, Pampanga, and inMarriot Hotel in Cebu City. The seminars were productive as


they reintroduced the judges to the world of corporaterehabilitation and intra-corporate dynamics. The first two (2)seminars in Tagaytay City focused on the newly promulgated rules,while the other two (2) deepened the discussion on technicalmatters like finance and business issues. Professors of the AsianInstitute of Management (AIM) partnered with PHILJAprofessors in the conduct of the lectures.

The seminar held in Cebu City also discussed securitiesregulation, and a mock trial was held wherein prosecutors of theDepartment of Justice (DOJ) and lawyers of the Securities andExchange Commission (SEC) participated. The then CebuRegional Trial Court (RTC) Judge, now Court of Appeals (CA)Justice, Isaias P. Dicdican, presided over the trial. It was a goodexercise, which exposed the commercial court judges on conceptslike insider trading and other fraudulent or manipulative devicesand practices that distort the securities market.

During the open forum with the Chief Justice, one commercialcourt judge pointed out that cases arising out of violations ofthe Securities Regulation Code do not automatically fall underthe jurisdiction of the commercial courts. Because they are notamong those SEC cases that were transferred to commercial courts,any regional trial court can hear cases on violations of the SecuritiesRegulation Code. It is thus possible that a judge who has notreceived any training on securities regulation may have to decideon fraudulent securities transaction. It probably triggered theproposal to increase the jurisdiction of commercial courts toinclude other business related cases.



2004]

II. CII. CII. CII. CII. CONSOLIDONSOLIDONSOLIDONSOLIDONSOLIDAAAAATIONTIONTIONTIONTION OFOFOFOFOF I I I I INTELLECTUNTELLECTUNTELLECTUNTELLECTUNTELLECTUALALALALAL P P P P PRRRRROPEROPEROPEROPEROPERTYTYTYTYTY

(IP) C(IP) C(IP) C(IP) C(IP) COUROUROUROUROURTSTSTSTSTS WITHWITHWITHWITHWITH C C C C COMMEROMMEROMMEROMMEROMMERCIALCIALCIALCIALCIAL C C C C COUROUROUROUROURTSTSTSTSTS

On June 17, 2003, the Supreme Court issued AdministrativeCircular A.M. No. 03- 03-03-SC, which consolidated IntellectualProperty Courts with Commercial Courts. The Court pointedout that since their establishment, fifteen (15) designated IP courtsin Regions 1, 2, 3, 4, 5, 6, 7, 8, 9 and 12 have zero IP cases and,hence, their continued designation as special IP courts is no longerwarranted. Noting that intellectual property cases are commercialin nature, the Court decided to consolidate the two (2) courts inorder to streamline the court structure and to promote expediencyand efficiency in handling such special cases. With theconsolidation, the regional trial courts previously as SEC Courts:

are hereby DESIGNATED and shall be CALLED asSpecial Commercial Court to try and decide cases involvingviolations of Intellectual Property Rights which fall withintheir jurisdiction and those cases formerly cognizable bythe Securities and Exchange Commission.3

With the passage of new legislations that seek to protectintellectual property rights in the Philippines, it is expected thatmore cases will be filed with the Special Commercial Courts. Asidefrom the 1987 Constitution,4 there are least five (5) major lawsnow that call for the protection of intellectual property rights:5

3. Paragraph 1, SC A.M. No. 03-03-03, June 17, 2003.

4. The State shall protect and secure the exclusive rights of scientists,inventors, artists, and other gifted citizens to their intellectualproperty and creations, particularly when beneficial to thepeople, for such period as may be provided by law.

5. Avenido, Administrative Remedies for the Enforcement ofintellectual Property Rights – The Philippine Experience.WIPO, Geneva, June 28 - 30, 2004.


• RRRRReeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 8293. 8293. 8293. 8293. 8293, or the IntellectualIntellectualIntellectualIntellectualIntellectualPrPrPrPrProperoperoperoperoperty Codety Codety Codety Codety Code of the Philippines. The Code took effectin January 1998 and provides for the fundamental legalbasis for the protection of intellectual property rights inthe country and for IP enforcement actions.

• RRRRReeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 8792. 8792. 8792. 8792. 8792, the ElectrElectrElectrElectrElectronic Commeronic Commeronic Commeronic Commeronic CommercececececeActActActActAct, which took effect in June 2000, brings IP protectionto the digital environment. Section 33, thereof, is anencompassing provision which penalizes, among otheractions, “hacking” and “piracy” or the unauthorizedcopying, reproduction, dissemination, distribution,importation, use, removal, alteration, substitution,modification, storage, uploading, downloading,communication, making available to the public orbroadcasting of protected material, electronic signaturesor copyrighted works including legally protected soundrecordings or phonograms or information material onprotected works through the use of telecommunicationnetworks, such as, but not limited to the internet. The E-Commerce Act, therefore, is considered a potent weaponto combat on-line piracy.

• RRRRReeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 9150. 9150. 9150. 9150. 9150, the LaLaLaLaLaw Prw Prw Prw Prw ProtectingotectingotectingotectingotectingLayout-Designs of Integrated CircuitsLayout-Designs of Integrated CircuitsLayout-Designs of Integrated CircuitsLayout-Designs of Integrated CircuitsLayout-Designs of Integrated Circuits was signedon August 6, 2001. Under this law, protection of layoutdesigns follows after registration.

• RRRRReeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 9168. 9168. 9168. 9168. 9168 or the New Plants New Plants New Plants New Plants New Plants VVVVVarietiesarietiesarietiesarietiesarietiesPrPrPrPrProtection Actotection Actotection Actotection Actotection Act took effect on July 20, 2002. Thislegislation provides a sui generis protection for new plantvarieties and is administered by the Department ofAgriculture.



2004]

• To further enhance and update copyright and related rightsprotection in the country, the Philippine senate ratifiedPhilippine membership to the W1PO CopyrightTreatyand the W1PO Performance and Phonograms Treaty in2002. The treaties took effect in October 2002.

• RRRRReeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 9239. 9239. 9239. 9239. 9239, or the Optical Media ActOptical Media ActOptical Media ActOptical Media ActOptical Media Act,was signed into law on 11 February 2004. The law isintended to address the problem of optical disc piracy bygetting to the source – the manufacturers of piratedoptical media and equipment used in the productionthereof.

Statistics provided by organizations looking into violationsof IP rights in the Philippines are indicative of the type of casesthat the special commercial courts will have to hear and resolve.As of 2003, there are 543 cases involving motion pictures andtwelve (12) cases involving business software – four (4) are inthe Regional Trial Courts and eight (8) are on appeal either withthe Department of Justice, Court of Appeals or the SupremeCourt. The following statistics on the Philippine criminal andcivil copyright enforcement for the year 2003 provide a generaloverview of IP cases.6

6. 2004 Special 310 Report, Philippines, International IntellectualProperty Alliance.


Because of these numbers, there is an increasing concern thatthe Philippines may soon become a manufacturing hub of opticaldiscs in the DVD format, both for local consumption and export.However, there have been positive developments in the fightagainst IP violations. The year 2003 saw the convictions of majorpirates in two (2) cases. The Bulacan Regional Trial Court foundseven (7) Indonesian nationals and five (5) Chinese nationalsguilty of illegal production of DVDs and music CDs underSections 6 and 7 of Presidential Decree 1987 (An Act Creating



2004]

the Videogram Regulatory Board). According to the VideogramRegulatory Board (VRB), the case was the first successfulconviction for video piracy by the VRB since its creation in 1985.The twelve (12) defendants (all foreigners) were each sentencedto jail terms ranging from three (3) months and one (1) day toone (1) year in prison and were ordered to pay fines totalingPhp1.2 million (approximately US$23,000). They were or willbe deported after serving their sentences. The case took seven (7)months to complete.7

In another case, a Legaspi City court convicted a couple, alsounder Sections 6 and 7 of Presidential Decree (P.D.) 1987, forillegal production of CDs and DVDs, resulting in sentences ofthree (3) months and a day to one (1) year of imprisonmenteach, without probation, and fines of Php50,000 each for eachoffense. 8

III. IIII. IIII. IIII. IIII. INCLNCLNCLNCLNCLUSIONUSIONUSIONUSIONUSION OFOFOFOFOF VVVVVIOLAIOLAIOLAIOLAIOLATIONTIONTIONTIONTION OFOFOFOFOF

AAAAANTINTINTINTINTI-M-M-M-M-MONEYONEYONEYONEYONEY L L L L LAAAAAUNDERINGUNDERINGUNDERINGUNDERINGUNDERING A A A A ACTCTCTCTCT INININININ THETHETHETHETHE

SSSSSPECIALPECIALPECIALPECIALPECIAL C C C C COMMEROMMEROMMEROMMEROMMERCIALCIALCIALCIALCIAL C C C C COUROUROUROUROURTSTSTSTSTS’’’’’ J J J J JURISDICTIONURISDICTIONURISDICTIONURISDICTIONURISDICTION

In June 1, 2004, the Supreme Court En Banc issued a Resolutionexpanding further the jurisdiction of special commercial courts.The court resolved to designate the special commercial courts totry and decide violations of Republic Act No. 9160 or Anti-Money Laundering Act of 2001, provided that if accused is apublic officer or a private person who is in conspiracy with suchpublic officer, the case shall be tried by the proper court vestedby law to try the said case. 9

7. Two More Video ‘Pirates’ Convicted, Philippine Daily Inquirer,May 3, 2003, cited in 2004 Special 310 Report.

8. Ibid.

9. A.M. No. 04-4-197-RTC.


Republic Act No. 9160 criminalized anti-money launderingactivities to ensure that the Philippines shall not be used as amoney laundering site for the proceeds of any unlawful activity.At the same time, however, the law declares it a policy of the stateto protect and preserve the integrity and confidentiality of bankaccounts by penalizing unlawful opening of bank accounts inviolation of the bank secrecy law. 10

HoHoHoHoHow is money laundering carw is money laundering carw is money laundering carw is money laundering carw is money laundering car ried out?ried out?ried out?ried out?ried out?

Money laundering involves entering into a single transaction or aseries of transactions in order to disguise the illegal origin of assets.These transactions normally fall under three stages. (Appendix A)

1. Placement - In this stage, the launderer places money or propertyderived from criminal activity into financialinstitutions through deposits, money orders, wiretransfers or other means. The money or propertywill then be mixed with legitimate deposits. Largeamounts of cash are broken up into smaller sumsthat are either deposited on several bank accountsor used to buy monetary instruments, which are thencollected and deposited in another location.

2. Layering - In this stage, the launderer separates the proceeds ofcriminal activity from their illicit origin throughcomplex and multiple financial transactions. Thisstage is characterized by a series of conversions andmoney movements. This can be done through thepurchase and sale of investment securities, the wiringof funds through series of accounts worldwide, orthe disguised transfer of payments for non-existentgoods and services.

3. Integration - In this stage, the launderer re-infuses the funds intolegitimate circulation in the economy bytransforming the illegal proceeds into funds thatappear to have a legal source. The launderer can dothis by investing in real estate, money marketsecurities, or other business undertakings.

10. Republic Act No. 9160, § 1 .



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The designation of the special commercial courts to handleanti-money laundering cases was hailed by various quartersincluding the Anti-Money Laundering Council (AMLC), whichsaid that:

this development should boost the country’s chances ofbeing taken out of an international blacklist of dirty moneyhavens.

The AMLC had asked the Supreme Court to designate thosespecial courts to show the international anti-money-launderingwatchdog, the Financial Action Task Force (FATF), that thePhilippine government was serious in curbing money laundering.Vicente Aquino, the AMLC Executive Director, was quoted assaying that:

only in the Philippines that such move was made.11

IVIVIVIVIV. P. P. P. P. PRRRRROPOSALOPOSALOPOSALOPOSALOPOSAL TTTTTOOOOO E E E E EXPXPXPXPXPANDANDANDANDAND J J J J JURISDICTIONURISDICTIONURISDICTIONURISDICTIONURISDICTION OFOFOFOFOF

CCCCCOMMEROMMEROMMEROMMEROMMERCIALCIALCIALCIALCIAL C C C C COUROUROUROUROURTSTSTSTSTS

The Philippine Judicial Academy (PHILJA) is the leadingproponent of the move to expand the jurisdiction of commercialcourts. Since early 2002, PHILJA, through its Consultants’ Group,has been looking into the proposal to expand the jurisdiction ofcommercial courts to include, not only cases arising out of theSecurities Regulation Code, but other commercial disputes as well.The Consultants’ Group held a series of meeting and roundtablediscussions to consider the proposal. The Group invited resourcepersons that included National Capital Region (NCR)commercial court judges to participate in its meeting. A

11. 60 Special Courts to Handle Money Laundering Cases,Philippine Daily Inquirer, July 14, 2004.


seminar-workshop involving all commercial court judges of MetroManila was also conducted for this purpose.

During the consultation, it was also pointed out that not verymany cases involving violation of the Intellectual Property Codehave been filed with the Regional Trial Courts designated as SpecialIntellectual Property Courts.

The Consultants’ Group passed two (2) Resolutions:

1. Recommending to the Supreme Court the consolidationof Intellectual Property Courts with Commercial Courts;and

2. Expanding the jurisdiction of special commercial courtsto include business-related cases.

In the latter proposal, the Group proposed that the specialcommercial courts shall have exclusive jurisdiction to try and decidethe following cases:12

a. Insolvency, whether voluntary or involuntary, under ActNo. 1956, otherwise known as The Insolvency Act;

b. Suspension of payments under the Insolvency Act;

c. Corporate Rehabilitation under Presidential Decree No.902-A, as amended, and the Interim Rules of Procedureon Corporate Rehabilitation;

d. Controversies under Presidential Decree No. 902-A, asamended, and the Interim Rules of Procedure GoverningIntra-Corporate Controversies;

e. Receivership and liquidation of banks, insurancecompanies, quasi-banks and cooperatives under therespective laws governing them;

12. Recommendation No. C-21, Judicial Reforms Office,Consultants’ Group, March 25, 2003.



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f. Enforcement of arbitral agreements and recognition andenforcement of arbitral awards, including vacation,annulment, or setting aside of arbitral awards;

g. Enforcement of foreign commercial judgments;

h. Cases under Presidential Decree (P.D.) No. 87, otherwiseknown as An Act Creating the Videogram RegulatoryBoard;

i. Cases involving credit and security transactions of banksand licensed quasi-banks where the principal amount ofthe demand or value of the property involved is Php50million or more, such as, but not limited to mortgage totrust indentures, real estate mortgage, chattel mortgage,and pledge;

j. Cases under Republic Act No. 8799, otherwise known asThe Securities Regulation Code;

k. Cases under Batas Pambansa BIg. 68, otherwise known asThe Corporation Code of the Philippines;

l. Cases under Republic Act No. 9160, otherwise known asThe Anti-Money Laundering Act of 2001;

m. Cases under Republic Act No. 7653, otherwise known asThe New Central Bank Act;

n. Cases under Republic Act No. 8971, otherwise known asThe General Banking Law of 2000;

o. Cases under Republic Act No. 8972, otherwise known asThe Electronic Commerce Act;

p. Cases under Executive Order No. 226, otherwise knownas The Omnibus Investments Code of 1987, RepublicAct No. 7042, as amended, otherwise known as The


Foreign Investments Act of 1991, and Republic Act No.6597, as amended, otherwise known as The Build-Operate-Transfer Law; and

q. Insurance cases where the amount of the claim isPhp200 million or more.

TTTTThe Consultant’he Consultant’he Consultant’he Consultant’he Consultant’s Grs Grs Grs Grs Groupoupoupoupoup

Justice Ameurfina A. Herrera Justice Jose Y. FeriaJustice Emilio A. Gancayco Justice Carolina C. AquinoJustice Camilo D. Quiason Justice Presbitero J. VelascoDean Pacifico A. Agabin Dean Cesar L. VillanuevaDean Eduardo D. De Los Angeles Justice Antonio M. MartinezFr. Ranhilio C. Aquino DCA Bernardo T. PonferradaDean Reynaldo L. Suarez

Resource PersonsJudge Sixto C. Marella Judge Artemio S. TiponJudge Antonio Eugenio, Jr. Atty. Francis Ed Lim

VVVVV. S. S. S. S. SPECIALIZAPECIALIZAPECIALIZAPECIALIZAPECIALIZATIONTIONTIONTIONTION

One issue that has to be seriously considered in pursuing thisproposal to consolidate to the special commercial courts all theseso-called business cases is the merit of specialization. Isspecialization worth pursuing? There are arguments for and againstspecialization. The following can be considered as the advantagesof having specialized courts:13

JJJJJudicial System Efudicial System Efudicial System Efudicial System Efudicial System Efffffficiencicienciciencicienciciencyyyyy..... With specialized courts, judgesin the general jurisdiction courts no longer have to wrestlewith, or spend the effort to remain current on, the issues inthat field of the law. With responsibility for fewer fields of

13. The Amer. Bar Assoc. Central and East European Law Initiative(CEELI), Concept Paper on Specialized Courts, June 25, 1996.

Dr. George V. Carmona Atty. Manuel Yngson



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the law, their efficiency is increased. By contrast, judges in thespecialized courts who deal with those issues with much greaterfrequency, develop the expertise to adjudicate disputes thatinvolve those issues much more efficiently and expeditiously.Overall, the efficiency of the court system is enhanced.

LeLeLeLeLegggggal System Efal System Efal System Efal System Efal System Efffffficiencicienciciencicienciciencyyyyy. . . . . Lawyers who appear before ageneralist judge, particularly in unusually complex cases wherethe generalist judge may be only marginally familiar, typicallydetail to an excess all conceivably relevant and usefulinformation on the record. They do both educate the judgeand lay the groundwork for an appeal if the judge’s decisionfails to grasp the nature of the dispute. Specialized court judges,by contrast, do not need to be educated by the bar and, giventheir expertise, are much more capable of reducing the scopeof the legal framework to the vital issues on which theresolution of the case depends. The cost and delay arecommensurately reduced.

UnifUnifUnifUnifUnifororororormitymitymitymitymity. . . . . The specialty judges, given their expertise,familiarity and fewer numbers, will produce decisions that aremuch more uniform than a substantially larger number ofless-expert generalist judges who populate the regional trialand appellate courts. Uniformity in decision-making lead topredictability, and a principal benefit of predictability is thatit reduces the need for litigation.

ExperExperExperExperExpertise. tise. tise. tise. tise. Generalist judges sometimes are referred to asnovices at everything and experts at nothing. Generalist judgesmust continually immerse themselves into the diverse areasof the law and sometimes technically difficult factual disputesthat their caseloads reflect, touching all but mastering none,and producing decisions that, because they do not reflectexpertise, run the risk of being lower in quality and more


prone to generate appeals. Specialized courts, by contrast, aremore likely to produce high-quality decisions from which noappeal need be taken.

ImprImprImprImprImprooooovvvvved Case Managed Case Managed Case Managed Case Managed Case Management. ement. ement. ement. ement. Because the cases tend tobe similar, the procedural rules and requirements can bespecifically designed to facilitate effective case management.

Elimination of Conflicts and Forum Shopping.Elimination of Conflicts and Forum Shopping.Elimination of Conflicts and Forum Shopping.Elimination of Conflicts and Forum Shopping.Elimination of Conflicts and Forum Shopping.Specialized courts serve to reduce and even eliminate conflictsin the interpretation and application of the law in their fieldor fields of jurisdiction. A consistent national body of lawcan dramatically reduce or even eliminate conflicts and theforum shopping that follows from them.

IncrIncrIncrIncrIncreased System Fleeased System Fleeased System Fleeased System Fleeased System Flexibilityxibilityxibilityxibilityxibility. . . . . Court systems typically haveto deal with significant variations in caseload over time inparticular fields of the law. They may experience, for example,an unexpected rash of administrative agency case filings thatcontinue to grow over a multi-year period then, equallyunexpectedly, begins to slow and finally diminishes to a trickle.Tasking generalist courts with such fluctuating caseloads hasthe potential to wreak havoc on the timely and systematicresolution of their ongoing caseloads. Specialized courts canplay a significant role in helping court systems cope with suchvariations by handling those volatile areas.

AdministratiAdministratiAdministratiAdministratiAdministrativvvvve Age Age Age Age Agencencencencency Ry Ry Ry Ry Reeeeeview Mecview Mecview Mecview Mecview Mechanism. hanism. hanism. hanism. hanism. When thepower to review decisions of administrative agencies restswithin the institutional structure of the agencies themselves,there may be cause for concern. The agencies are open to thecriticism that their own self-interest militates against their dutyto ensure that such fora are impartial. To that extent, theinterests of justice may dictate that there should be an



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independent tribunal with the authority, to review agencyactions and decisions.

ConsistencConsistencConsistencConsistencConsistency ofy ofy ofy ofy of Administrati Administrati Administrati Administrati Administrativvvvve Age Age Age Age Agencencencencency Lay Lay Lay Lay Lawwwww. . . . . Whereagency decisions are subject to an independent dispute reviewforum, such reviews should be conducted by a singlespecialized forum rather than by a number of generalistregional trial courts that are much more prone to issue varyingand conflicting interpretations of the relevant statutes andwhose case processing efficiency is likely to be congested andobstructed by the addition of narrowly focused and sometimescomplex litigation.

There are equally compelling arguments against specializationof courts. The following are arguments in opposition to specializedcourts: 14

InefInefInefInefInefffffficiencicienciciencicienciciencyyyyy..... Inefficiency could result when thespecialized tribunal focuses too narrowly on particularissues in a case, and the litigants have to pursue furtherlitigation in other tribunals to seek resolution on broaderissues in the case that the specialized court did not orwould not consider. A case in point is Union GlassUnion GlassUnion GlassUnion GlassUnion Glass vvvvv.....SECSECSECSECSEC,15 where the Supreme Court ordered that UnionGlass be dropped as a party defendant in the SEC casefor the reason that it was not involved in any intra-corporate dispute. The effect of the decision was that thecomplainant in the SEC had to file a separate suit in theregular courts against Union Glass to adjudicate basicallythe same issues in the SEC.

14. Ibid.

15. G.R. No, L-64013, Nov. 28, 1983.


Isolation. Isolation. Isolation. Isolation. Isolation. Specialized court judges, by having to focuson particular legal issues at the cost of all others, areremoved from the mainstream of legal thought. They riskdeveloping a one-sided view of the issues, losing theirobjectivity, and evolving a jargon, thought patterns,litigation biases, and internal policies that are unique andmay be at odds with those of the law in general. Thenarrowness of the work and the doctrinal isolation maymake it difficult to attract the most talented and qualifiedjurists to judicial careers. The desirable expertise andexperience of a seasoned judge is adjudication that is basedon broad rather than narrow exposure to the law.

Furthermore, a judge’s familiarity with an area of lawreaches a point of diminishing returns. For litigantspresenting garden-variety appeals, the temptation for thejudge who sees little else is to decide the case on autopilot.The bored judge does not give each case individualizedattention, and instead enforces blanket rules of thumbthat only the most extreme variation from standard factpatterns can outweigh.

CapturCapturCapturCapturCapture.e.e.e.e. With a largely one-dimensional docket of casesand a core group of highly experienced and expert-levelattorneys who litigate them, judges run the risk ofdeveloping a bias towards that core and, thereby,compromising the court’s neutrality. In effect, over timethe court might slowly but inexorably be captured by itsown specialized bar, the equivalent of legal lobbyists,resulting in the loss of public confidence in its objectivityand its decisions.

Access.Access.Access.Access.Access. Specialized courts handle all cases in a relativelynarrow area of the law. The amount of litigation may



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necessitate no more than a single court for the entirecountry. By holding court only where the court isphysically located, say Manila, the expense of going tothe place may have the potential to create a bias that favorslarger and wealthier litigants or those litigants who areresidents of the area and need not travel. Where the courtfunctions as a traveling tribunal, the administrativeefficiency and quality of court operations may suffer. Anappeals court, however, does not share the same concernon access as a trial court does as, generally, the litigants donot have to appear and be physically present in theappellate tribunal.

Due PrDue PrDue PrDue PrDue Process.ocess.ocess.ocess.ocess. Where a court’s jurisdiction is specializedand narrow, the appeal to a well-heeled specialized interestgroup in having candidates friendly to its interestsappointed to the court is much greater and may lead tointense lobbying on behalf of those candidates. Suchlobbying is undertaken in the interest of a potentialpayback through favorable decisions in future cases. Wheresuch specialized interest groups repeatedly appear beforejudges of the specialized court, they gain an advantageover litigants who may appear with much less frequency.

Quality ofQuality ofQuality ofQuality ofQuality of J J J J Judgudgudgudgudges.es.es.es.es. It is a perception that specializedjudges are accorded less prestige and status than judgeswho are generalists. One primary reason is that generalistjudges must demonstrate the dexterity and intellect toresolve disputes in a broad range of fields of the law. Tothat extent, specialized courts are less likely to draw thebest possible applicants for judgeships because service onsuch courts is considered to offer less professional staturethan in other tribunals with broader jurisdiction.


VI. LVI. LVI. LVI. LVI. LEADINGEADINGEADINGEADINGEADING D D D D DEVELOPMENTSEVELOPMENTSEVELOPMENTSEVELOPMENTSEVELOPMENTS

INININININ C C C C COMMEROMMEROMMEROMMEROMMERCIALCIALCIALCIALCIAL L L L L LAAAAAWWWWW

In the past four (4) years alone, or since the designation ofcommercial courts, major commercial laws have been passed thatseek to improve business climate in the country. Most of thedisputes arising from these laws are unarguably commercial innature and should be under the jurisdiction of the specialcommercial courts. However, given their still limited jurisdictionmost of these are outside the reach of special commercial courts.

Introductory discussions are provided below on recentcommercial laws that have been enacted. Two of these laws - theAnti-Money Laundering Act and Intellectual Property Code -are already part of the special commercial courts jurisdiction, whilethe rest are being proposed to be included.

A. A. A. A. A. TTTTThe Anti-Money Laundering Acthe Anti-Money Laundering Acthe Anti-Money Laundering Acthe Anti-Money Laundering Acthe Anti-Money Laundering Act

On September 29, 2001, the Philippines passed Republic ActNo. 9160 also known as the Anti-Money Laundering Act. Thelaw was passed to ensure that the Philippines shall not be used asa money laundering site for the proceeds of any unlawful activity.At the same time, however, the law declares it a policy of the stateto protect and preserve the integrity and confidentiality of bankaccounts by penalizing unlawful opening of bank accounts inviolation of the bank secrecy law.16

16. Republic Act No. 9160, § I.



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Main Features of theMain Features of theMain Features of theMain Features of theMain Features of theAnti-Money Laundering ActAnti-Money Laundering ActAnti-Money Laundering ActAnti-Money Laundering ActAnti-Money Laundering Act

a. It criminalizes money laundering.

b. It provides for the prosecution of money launderingactivities involving money or property derived from ceratincrimes and offenses punishable under Philippine laws andthe laws of other countries.

c . It establishes the administrative process and procedural rulesfor the prevention, detection, and prosecution of moneylaundering activities.

d. It requires covered institutions to report suspicioustransactions and cooperate with the government inprosecuting offenders.

e. It imposes a heavy penalty for money laundering offenses,including both imprisonment and a fine.

f. It provides for the forfeiture of laundered money orproperty.

g. It authorizes access to deposit and investment accounts forthe investigation and prosecution of money launderingcases.

h. It creates an Anti-Money Laundering Council that willoversee the implemenation of the law and primarily act asa centralized financial agency to receive and analyze coveredtransaction reports.

i. It establishes clear procedures for international cooperationand assistance in the apprehension and prosecution ofsuspended money launderers.

Under the law, there are three (3) kinds of money launderingoffenses. The first is the Money Laundering PrMoney Laundering PrMoney Laundering PrMoney Laundering PrMoney Laundering Properoperoperoperoper, which isthe act of transacting or attempting to transact monetaryinstruments or property that he knows are derived from one or


more unlawful activities. The penalty for this offense isimprisonment for seven (7) to fourteen (14) years and a fine ofnot less than Php3 Million but not more than twice the value ofthe monetary instruments or property involved in the transaction.

The second offense punished by the AMLA is the act ofFFFFFacilitating Money Launderingacilitating Money Launderingacilitating Money Launderingacilitating Money Launderingacilitating Money Laundering. This is committed when aperson performs or fails to perform an act, as a result of which heis able to facilitate the commission of the money launderingtransaction described above. This however requires that the personmust know that the monetary instruments or property are derivedfrom one or more unlawful activities. The penalty for facilitatingmoney laundering is imprisonment for four (4) to seven (7) yearsand fine of not less than Php 1 Million but not more than Php3Million.

The last act is the FFFFFailurailurailurailurailure to Re to Re to Re to Re to Reeeeeporporporporporttttt. This offense iscommitted by any person who fails to comply with his obligationunder the AMLA to report suspicious transactions to the AMLC.The law prescribes a penalty of six (6) months to four (4) yearsor a fine not less than Php100,000.00 or both for this offense.

Aside from the penalties set forth above, conviction underthe law will result to the forfeiture of monetary instruments orproperty involved in favor of the Philippine government.Administrative sanctions may also be imposed upon corporationsor other juridical person by either suspension or revocation of itscorporate franchise. If the offender is an alien, he will beimmediately deported from the Philippines after he serves thepenalties imposed upon him. In the case of public official oremployee found liable under this act, an additional penalty ofperpetual or temporary absolute disqualification from office maybe imposed.



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Predicate Crimes to Money LaunderingPredicate Crimes to Money LaunderingPredicate Crimes to Money LaunderingPredicate Crimes to Money LaunderingPredicate Crimes to Money Laundering

I. Kidnapping for ransom 8. Drug offenses

2. Graft and corruption 9. Plunderpractices

3. Robbery and extortion 10. Jueteng and masiao

4. Piracy on the high seas 11. Qualified theft

5. Swindling 12. Smuggling

6. E-commerce crimes 13. Securities fraud

7. Felonies/offenses of a similar 14. Hijacking, destructivenature punishable under arson and murder,penal laws of other countries including those

perpetrated againstpersons andsimilar targets

While the law listed only fourteen (14) categories of unlawfulactivities, there are actually over 114 felonies, crimes and offensesthat are punishable under the Revised Penal Code (RPC) andvarious special laws. These felonies are enumerated in theImplementing Rules and Regulations (IRR) of the AMLA.

The Anti-Money Laundering Council (AMLC) was alsocreated by the law. It is the government agency tasked toimplement the AMLA. It is composed of the Bangko Sentral ngPilipinas (BSP) Governor, who will serve as Chairman, the SECChairman and the IC Commissioner. Its powers include thefollowing:

1. To require and receive covered transaction reports fromcovered institutions;

2. To file money laundering complaints with the Departmentof Justice and the Ombudsman;


3. To receive and take action in respect of requests fromforeign states for assistance in their own money launderingoperations;

4. To develop educational programs on the methods,techniques and effects of money laundering;

5. To enlist the assistance of any branch, department, bureau,office, agency or instrumentality of the government,including use of its personnel, facilities and resources forthe prevention, detection and investigation of moneylaundering offenses and prosecution of offenders;

6. To freeze any account when there is probable cause that itis related to any unlawful activity for a period not overfifteen (15) days; and

7. To inquire into or examine deposits or investments uponorder of a competent court in cases of violation of R.A.No. 9160.

Among the different powers of the AMLC, the power tofreeze accounts may probably be the most controversial, as thiscan be subject to abuse to the prejudice of legitimate accountholders. Under the law, the AMLC has the authority to freezeany money or property for a period of fifteen (15) days once it isdetermined that probable cause exists that such money or propertyis related to an unlawful activity. During the 15-day period, itmay also apply to the courts for an extension of the freeze orderand while the court has not decided on the extension, the 15-dayperiod is deemed suspended and the freeze order will remaineffective unless it is lifted by the court.

The law, however, provides safeguards to thwart the possibilityof abuse. Simultaneous with freezing an account, the AMLCmust serve notice upon the account-owner that his account has



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been frozen. He will then have seventy-two (72) hours uponreceipt of such notice to explain why the freeze order must belifted. If the AMLC fails to act on the account-owner’s explanationwithin the 72-hour period, the freeze order will automatically bedissolved.

A depositor whose account has been frozen can also obtaina temporary restraining order or writ of injunction fromthe Court of Appeals or the Supreme Court. Note,however, Under the AMLA, no other court can issue atemporary restraining order or writ of injunction againstany freeze order issued by the AMLC except the SupremeCourt and the Court of Appeals. The reason for this is toprevent the proliferation of unfounded suits filed againstthe AMLC.

Another potent power of the AMLC is the power to openbank accounts. It provides that the AMLC may open a bankaccount after it has applied with the court for an order allowing itto do so. In order to obtain such court order, it must prove to thecourt that there exists probable cause that the deposits orinvestments invoked in the account are in any way related to amoney laundering offense.

This brings us to the question of whether or not our BankSecrecy Law was repealed by the AMLA. It was not. The onlyeffect of the AMLA upon bank secrecy laws is to provide anadditional exception to the operation of the rule on bank secrecy.In total, there are now five (5) exceptions, to wit:

1. Upon written permission of the depositor;

2. In cases of impeachment;

3. Upon order of a competent court in cases or bribery ordereliction of duty of public officials;


4. In cases where the money deposited or invested is thesubject matter of the litigation; and

5. In connection with an investigation of a money launderingoffense.

B .B .B .B .B . TTTTThe Intellectual Prhe Intellectual Prhe Intellectual Prhe Intellectual Prhe Intellectual Properoperoperoperoperty Codety Codety Codety Codety Code

Republic Act No. 8293, or the Intellectual Property Code, is thebasic legal framework that governs IP protection in the Philippines.There are at least three (3) IP rights that are protected under thelaw:1.1.1.1.1. PPPPPatents. atents. atents. atents. atents. The Code grants the patent owner the exclusive rightto make, use, sell offer for sale, and import his patented product,subject to limitations on patent rights, prior user, and use ofinvention by the government. If the subject matter of a patent isa process, the protection extends to the use of the process and toproducts obtained directly or indirectly from such process. Anyof the following acts are considered violation of the IP code ifdone without prior authorization of the owner:

a. Make, use, sell or offer for sale, or import a patentedproduct or a product obtained directly or indirectly froma patented process; and

b. Use a patented process.

Any violations of the above give the right to the patent ownersto bring civil actions for infringement before the courts to recoverdamages. The court may issue an injunction and in its discretion,order the infringing goods, materials and implements used in theinfringement be disposed of outside the channels of commerce,or destroyed without compensation (Section 76.5). It should beemphasized that under Section 76.6, those who actively inducethe infringement of a patent or provide the infringer with



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components of a patented product or products produced frompatented process knowing that such will be used to infringe on apatented invention and not suitable for substantial non-infringinguse shall likewise be liable as contributory infringers and shall bejointly and severally liable with the infringer.

While patent infringement suits are predominantly civilactions, if the infringement is repeated by the infringer or byanyone in connivance with him after finality of judgment, theviolators shall, without prejudice to the institution of a civil actionfor damages, be criminally liable therefore and, upon conviction,shall suffer imprisonment for a period of not less than six (6)months but not more than three (3) years and/or fine of not lessthan One hundred thousand pesos (PhpI00,000) but not morethan Three hundred thousand pesos (Php300,000), at thediscretion of the court.

2.2.2.2.2. TTTTTrademarks.rademarks.rademarks.rademarks.rademarks. A trademark infringement is committed by aperson who, without the consent of the owner of a registeredmark shall:

a. Use in commerce any reproduction, counterfeit, copy, orcolorable imitation of registered mark or the samecontainer or a dominant feature thereof in connectionwith the sale, offering for sale, distribution, advertisingof any goods or services including preparatory stepsnecessary to carry out the sale of any goods or serviceswhere such is likely to cause confusion, or mistake, ordeception; or

b. Reproduce, counterfeit, copy, or colorably imitate aregistered mark or a dominant feature thereof and applysuch reproduction, counterfeit, copy, or reproduction tolabels, signs, prints, packages, wrappers, receptacles or


advertisements intended to be used in commerce inconnection with sale, offering for sale, distribution,advertising any goods or services where such use is likelyto cause confusion, or mistake, or deception.

A trademark registration with the Intellectual Property Officeis an essential requirement in a suit for trademark infringement.Damages can only be claimed in any suit for infringement, wherethe infringer has the knowledge that the imitation is likely tocause confusion, or mistake, or deception. Such knowledge ispresumed, however, if the trademark owner gives notice that itsmark is registered by displaying with the mark the words“Registered Mark” or the letter “R” within a circle, or the infringerhad actual notice of the registration.

The law similarly gives the injured party the right to recoverdamages. Where actual intent to mislead the public or to defraudthe injured party is proven, the courts may double the amount ofdamages. The court may also grant injunction and during thependency of the action may also impound documents evidencingsales. Once the cases are decided with finality, the courts can furtherauthorize the disposal of the infringing goods outside the channelsof commerce, or to order their destruction without compensation.

Independent of the foregoing sanctions, a criminal penaltyof imprisonment from two (2) years to five (5) years and a fineranging from Fifty thousand pesos (Php50,000) to Two hundredthousand pesos (Php200,000) shall be further imposed on personsfound guilty of committing any of the acts mentioned in Section155 and Section 168.

For trademark owners who do not have the benefit oftrademark registration, or for those whose applications forregistration are still pending, they are still protected under the lawagainst acts constituting unfair competition, to wit:



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a. The employment of deception or any other meanscontrary to good faith by which one shall pass off thegoods manufactured by him or in which he deals, or hisbusiness or services for those of the one having establishedgoodwill, or acts calculated to produce the same result;

b. The sale of one’s good and giving them the generalappearance of the goods of another, either as to the goodsthemselves or in the wrapping of the packages in whichthey are contained, or the devices or words thereon, or inany other feature of their appearance, which would belikely to influence purchasers to believe that the goodsoffered are those of a manufacturer or dealer, other thanthe actual manufacturer of dealer; and

c. The use of any artificial device, or employing other meanscalculated to induce the false belief that one is offeringthe services of another who has identified such servicesin the mind of the public.

Relief against unfair competition is based on the theory thatone who has built up goodwill for his goods or services is entitledto be protected from those who, by the employment of deceit orfraudulent means, pass off their goods and services for that ofanother in order to ride on such goodwill.

3.3.3.3.3. CopCopCopCopCopyright.yright.yright.yright.yright. Subject to limitations on fair use, the Code alsogrants copyright protection to authors – by vesting him withexclusive rights to prevent:

a. Reproduction of original artistic or literary works orsubstantial portions of such works;

b. Dramatization, translation, adaptation, abridgment,arrangement or transformation of any work;


c. The first public distribution of the original and each copyof any work by sale or other forms of transfer ofownership;

d. Rental of the original or a copy of audiovisual orcinematographic works, any work embodied in a soundrecording, computer programs, compilations of data andother materials or musical works in graphic form;

e. Public display of the original or a copy of any work;

f. Public performance; and

g. Other communications to the public of the original or acopy of any work.

Related rights owners such as performers, producers ofphonograms and broadcasting organizations are also conferredwith certain exclusive rights under the Code, subject to theprovisions on fair use.

Violations of the right of a copyright holder entitles the holderthe right to recover damages, including profits that may have beenmade; impounding of documents evidencing sales, infringingarticles and implements for making them during the pendency ofthe action; destruction without any compensation of all infringingcopies, devices or other means for making infringing copies; andmoral and exemplary damages as determined by the court, evenin the event of acquittal in a criminal case. He may also seekinjunction to restrain such infringement.

Anyone infringing or aiding and abetting infringement shallbe guilty of a crime punishable by:

First offense – Imprisonment of one (1) year to three (3)years plus a fine ranging from Fifty thousand pesos (Php50,000)to One hundred fifty thousand pesos (Php150,000);



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Second offense – Imprisonment of three (3) years and one(1) day to six (6) years plus a fine ranging from One hundredfifty thousand pesos (Php150,000) to Five hundred thousandpesos (Php500,000); and

Third and subsequent offenses – Imprisonment of six (6)years and one (1) day to nine (9) years plus a fine ranging fromFive hundred thousand pesos (Php500,000) to One million fivehundred thousand pesos (Php1,500,000).

In all cases, there is a corresponding subsidiary imprisonment.

C .C.C.C.C. The E-Commerce LawThe E-Commerce LawThe E-Commerce LawThe E-Commerce LawThe E-Commerce Law

On June 14, 2000, the E-Commerce Act, R.A. No. 8792 of thePhilippines (An Act Providing for the Recognition and Use ofElectronic Commercial and Non-Commercial Transactions,Penalties for the Unlawful Use thereof, and for Other Purposes)was signed into law, making the Philippines the third country inSoutheast Asia with legislation to promote and protect electronictransactions. Its salient features can be summarized as follows: 17

First, it gives validity and legal recognition to electronicdocuments, electronic signatures, and electronic transactions.

Second, the law makes electronic documents legally equivalentto written documents. With proper authentication of authorshipand integrity of the data – that is, proof that the electronicdocument has not been modified or altered without the knowledgeor consent of the author, the law provides for the admissibilityof electronic documents as evidence in the Philippine courts. Thus,contracts expressed electronically are made legally binding. Thispaves the way for the legal acceptance of electronic documents tofacilitate contract processing and to enable international businesses

I7. Legislative Briefing Notes (2002).


to pursue business ventures by engaging in contractual agreementsover electronic mail or the Internet.

Third, the law recognizes electronic signatures as equivalentto a hand-written one by a person. The intent is to enable Internettransactions and credit card purchases without the use of writtensignatures. With the passage of the Rules on Electronic Evidence,the Philippines will be able to allow local purchases since the lawnow recognizes electronic signatures.

Fourth, the law penalizes hacking or other unauthorized accessto, or intrusion or interference in, a computer or a computernetwork by means of a computer device or gadget, including theintroduction of viruses.

Finally, the e-commerce law explicitly recognizes the vital roleof information and communications technology (ICT) in nation-building. It mandates the government to conduct its businesselectronically within two (2) years. It orders that government aswell as government-owned and controlled corporations to useelectronic transactions in all its processes. In order to facilitate theabovementioned goal, the law calls for the installation of agovernment-wide electronic online network that would facilitatethe open, speedy, and efficient online transmission amongst allgovernment agencies, down to the regional and provincial offices(including government departments, bureaus, offices, agencies,government-owned and controlled corporations, local governmentunits, other public instrumentalities, universities, colleges and otherschools). It likewise empowers the Department of Trade andIndustry (DTI) to promote and develop electronic commerce aswell as to promulgate rules and regulations, and to provide qualitystandards or issue certifications in the pursuance of this Act’sintentions.



2004]

Government bureaus, officers, and agencies are mandated to:

1. Accept documents in the form of electronic documents;

2. Accept payments and issue receipts through systems usingelectronic documents;

3. Issue permits, licenses or approval in the form of electronicdocuments; and

4. Transact government business or perform its functionsthrough the use of electronic documents.

This feature will facilitate the processing of documents andavoid the redundancy of tasks prevalent in Philippine bureaucracy.

Because of this mandate, it was foreseen that the law will moveus closer to e-government, or, at least, to the electronic deliveryof government services. The projection was that by 2003, weshould expect government agencies to do most of their licensingfunctions, acceptance of payments, or the issuance of receiptsonline.

DDDDD..... The General Banking LawThe General Banking LawThe General Banking LawThe General Banking LawThe General Banking Law

The financial crisis in Asia in 1997 has compelled several countriesto review their financial policies to determine how to preventanother crisis. The Philippines responded to the crisis by passinglegislation that seeks to lay the groundwork for faster economicrecovery. The new General Banking Law (GBL), which amendsthe 52-year-old General Banking Act of 1948, provides for theregulation of the organization and operations of banks and quasi-banks and trust entities.

The GBL also enhances the supervisory capability andenforcement powers of the Bangko Sentral ng Pilipinas (BSP),raises prudential standards to international norms, and fosters


greater competition in the banking system. It also provides theMonetary Board more teeth in the exercise of its regulatory powers.Other important features of the law include: 18

Under the law, foreign banks are allowed to acquire votingstocks in a domestic bank. From a previous limit of 60%, foreignbanks have been allowed to acquire up to 100% of the votingstock of a single domestic bank. The law nevertheless directs theMonetary Board to adopt measures to ensure that 70% of thetotal resources of the banking system is still held by banksmajority-owned by Filipinos. This privilege expires after seven(7) years of the effectivity of the Act. On the other hand, foreignindividuals and non-bank corporations may now acquire up to40% of the voting stock of the domestic bank. This provisionwas meant to cater to investors who want to gain access to thebanking system and to diversify the ownership structure of thebank.

It also grants additional supervisory powers to the BSP. Thesupplementary power granted by the law to BSP which is the powerto conduct examinations as the “circumstances so warrant asdetermined by the Monetary Board,” significantly enhances theoversight authority of the BSP. Regular yearly examinations canbe supplemented by special examinations to ensure promptcorrective action on erring banks. Furthermore, the BSP is givenfull authority to regulate electronic devices in the operations of abank. The law seeks to keep the BSP up to date with the emergingtrend of information technology and mandates the supervisionof all banks looking to engage in electronic banking.

Measures of capital adequacy is also made to conform tointernationally accepted standards of risk-based capital insteadof the previous nominal capital requirements. A commensurate18. EGTA Legislative Briefing Notes (2002).



2004]

capital provisioning is to be prescribed by the Monetary Board inaccordance with the total risk assets of the bank. This prescribesthat banks put in place their own risk management policies andprocedures. As an additional safeguard, all transactions ofindividuals related to each other and considered as a family groupmust now be fully disclosed by such individuals with the bank.

The GBA adopts the Fit and Proper Rule. The rule restoresto the Monetary Board the authority to disqualify directors andofficers of a bank found to be unfit for the position while banksare to report to the BSP all proposed directors and officers of thebank for proper review. Moreover, the law provides for stricterrules on bank exposure to director/officer/stockholder/relatedinterests (DOSRI). Bank officials are now barred from borrowingfrom the banks and serving as guarantors without the writtenapproval of majority of the bank’s board. The Monetary Board isalso empowered to regulate the amount of loans, creditaccommodations, and guarantees extended to DOSRI, includingbank investments in the firms owned or controlled by the bankofficers.

E .E .E .E .E . TTTTThe Special Purhe Special Purhe Special Purhe Special Purhe Special Purpose pose pose pose pose VVVVVehicehicehicehicehicle Actle Actle Actle Actle Act

Republic Act No. 9182 is a law that grants tax exemptions andfee privileges to special purpose vehicles (SPV) which may acquireor invest in non-performing assets. The law, therefore, seeks to,among others, address the non-performing assets problems ofthe financial sector.

The law specifies how SPVs shall be organized. It providesthat SPV shall be organized as stock corporations in accordancewith the Corporation Code and must have the following minimumcapitalization:


• Minimum authorized capital stock – Php500 Million

• Minimum subscribed capital stock – Php250 Million

• Minimum paid-up capital – Php31.25 Million

If the SPV will acquire land, then at least 60% of itsoutstanding capital stocks should be owned by Filipino citizensin accordance with the provisions of the Foreign InvestmentsAct.

The law gives SPVs tax exemption privileges. Transfers ofnon-performing assets from financial institutions to SPVs, andfrom SPV to a third party or dacion en pago by the borrower orthird party in favor of a financial institution or SPV are madeexempt by the law from the following taxes:

a. Documentary stamp tax (DST) on the transfer of NPAsand dation in payment.

b. Capital gains tax on the transfer of lands and/or otherassets treated as capital assets.

c. Creditable withholding income taxes on the transfer ofland and/or buildings treated as ordinary assets.

d. Value-added tax on the transfer of NPAs or gross receiptstax, whichever is applicable.

The SPV shall likewise be exempt from income tax on netinterest income, DST, and mortgage registration fees on new loansin excess of existing loans extended to borrowers with non-performing loans (NPLs) acquired by the SPV. In case of capitalinfusion by the SPV to borrowers with NPLs, the SPV shall alsobe exempt from DST. The tax exemptions and fee privileges givento FIs and SPVs can also be extended to any individual providedthat:



2004]

a. The transaction is limited to a single family’s residentialunit, Real and Other Properties Owned or Acquired(ROPOA), or NPL secured by real estate mortgage on aresidential unit;

b. There shall only be one transaction consisting of oneresidential unit per individual; and

c. The two-year transfer and the five-year entitlement periodgranted to NPA shall also apply to said single familyresidential unit.

In addition to the tax exemption privileges, there are also feeprivileges granted to SPVs. In lieu of the usual fees providedunder applicable laws, SPVs pay much lower registration and/orfiling fees, to wit:

a. Fifty percent (50%) of the applicable mortgageregistration and transfer fees on the transfer of real estatemortgage and chattel mortgage registrations to and fromthe SPV;

b. Fifty percent (50%) of the filing fees for any foreclosureinitiated by the SPV in relation to any Non-PerformingAsset (NPA) acquired from a financial institution (FI);

c. Fifty percent (50%) of the land registration fees.

However, these are time-bound incentives. In order to availof these fee privileges and tax exemptions, applications forestablishment of SPV must be filed within eighteen (18) monthsfrom effectivity of implementing rules and regulations.Considering that the IRR took effect on April I2, 2003,prospective SPVs still have until April I2, 2005 within which toregister.


During the same period,

(a) all sales or transfers of NPAs from a financial institutionto an SPV, and

(b) all transfers by way of dation in payments by the borroweror by a third party to the financial institution must becompleted.

Transfer from SPV to third parties, on the other hand, mustbe made within five (5) years from acquisition of NPA by theSPV from the financial institution.

FFFFF..... The Securitization Act of 2004The Securitization Act of 2004The Securitization Act of 2004The Securitization Act of 2004The Securitization Act of 2004

Republic Act No. 9267 seeks to promote the development ofcapital market by:

(a) supporting securitization,

(b) providing a legal and regulatory framework forsecuritization and

(c) creating a favorable market environment for a range ofasset-backed securities.

The law rationalizes the rules, regulations and laws that impactupon the securitization process, particularly on matters of taxationand sale of real estate on installment. With the SecuritizationAct, it is envisioned that the secondary market, particularly onresidential mortgage-backed securities and other housing-relatedfinancial instruments, can be developed, thus, generatinginvestment and accelerating the growth of the housing financesector.

The theory behind securitization is to allow a relatively smallerand less well-known entity to sell its securities to the general public.According to the Lotilla, the usual barrier to the sale of securities



2004]

to the public is the size and the financial strength of the issuer. Itis for this reason that our capital markets today have only bigPhilippine companies as regular issuers of securities. 19 Smallercompanies find it difficult to raise fund from the capital market.Securitization Act sought to address this problem by providingthe regulatory framework for securitization and granting certainprivileges.

The process of securitization allows an improvement of theability of an originator or seller to tap the capital markets forfunding. Lotilla explains the process of securitization under thelaw:20

The Securitization Law allows financial assets to be soldon a without recourse basis by an originator or seller to theSPE. The assets contemplated in the law are loans, receivables,or other similar financial assets with an expected cashpayment stream. There are several entities involved insecuritization. These are the originator or seller, the SPE,the servicer, the rating agency, the underwriter, and theSEC. The originator or seller creates the financial assets orreceivables. These are the banks, the financing companies,the leasing companies, the telephone companies, the publicutility companies, and all other entities which in the courseof their doing business, either provide a service or sell aproduct resulting in the creation of a receivable. The salehas to be on a “true sale” basis to the SPE to transfer titleover the financial asset to the SPE.

19. Lotilla, Jose Perpetuo. Securitize, Philippine BusinessMagazine: Volume II No. 4-Capital Markets, http://www.phil ippinebusiness .com.ph/magazines/capitalmarkets.htm.

20. Ibid.


The SPE then issues ABS for investment by the public. Inorder to sell such ABS to the public, the SPE has to registerthe same in accordance with the law. The SEC is the entitywhich approves registration. In order that the registrationmay be approved, there is a requirement that the SPE mustsubmit a securitization plan to the SEC. The plan shallinclude, among others, a description of the nature and themechanics of the sale of the assets from the seller to theSPE, any credit enhancement or liquidity support, theidentities of the originator, seller, servicer and underwriterand describing their compensation, the identity,qualifications and compensation of the trustee, the aggregateprincipal amount of the ABS to be issued, and the ratingagency which will rate the issue.

After complying with the registration requirements andthe approval of the plan by the SEC, the SPE may proceedto sell the ABS to investors. Although the main regulatoryentity for securitization is the SEC, in cases when theoriginator of the assets is a bank or any other financialintermediary subject to the supervision of the BangkoSentral ng Pilipinas (BSP) or in the event that the SPE isconstituted in the form of a special purpose trust, theendorsement by the BSP of the securitization plan shall berequired before its approval by the SEC.

The law provides tax incentives to persuade companies tosecuritize. The transfer or sale of assets, if made in accordancewith the law, is exempt from value added tax and documentarystamp taxes. Registration fees are reduced by fifty percent (50%)and dacion en pago is not subject to capital gains tax. Furthermore,the issuance of ABS and other forms of credit enhancement areexempt from value added tax and the secondary trading of ABSis also exempt from documentary stamp tax and value added tax.Unlike the SPV law, tax incentives under this law are not time-bound. Thus, the Securitization Act, aside from laying down the



2004]

framework for securitization, also reduces the cost ofsecuritization.21

VII. CVII. CVII. CVII. CVII. CONCLUSIONONCLUSIONONCLUSIONONCLUSIONONCLUSION

There is an increasing recognition that the judiciary plays a vitalrole in economic development. Studies and literatures abound insupport of the theory that judicial actions have implications oneconomic development. In a study of “The Role of Law andLegal Institutions in Asian Economic Development from 1960-1995,”22 the importance of commercial dispute resolution ineconomic development was highlighted. A modernizing nation’seconomic prosperity, according to another study, requires at leasta model legal infrastructure centered on the protection of propertyand contract rights.23 It has been argued that the absence of low-cost means of enforcing contracts is “the most important sourceof both historical stagnation and contemporary underdevelopmentin the Third World.”24 A “high-performance economy,” on theother hand, is one that is characterized by a significant number oflong-term contracts – just the type of business relationship that

21. Ibid.

22. Pistor, Katharina, et al. Asian Development Bank (2000).

23. Posner, Richard, Creating a Legal Framework for EconomicDevelopment.

24. North. Douglass C. 1990. Institutions, Institutional Change,and Economic Performance: Cambridge, U.K.: CambridgeUniversity Press.


is unlikely to thrive in the absence of a well-functioning judicialsystem.25

Take the case of IP protection. It has been shown that economicdevelopment may be promoted or hindered by an effective systemof intellectual property rights (IPRS). IPRS can play a positiverole in encouraging new business development, rationalizationof inefficient industry, and inducing technology acquisition andcreation.

This relationship is especially true for special commercialcourts, which have been tasked to hear important commercialdisputes. As noted earlier, economic development was one of themajor reasons for the transfer of SEC cases to the regional trialcourts. Policymakers wanted a more efficient and effectiveresolution of commercial cases because of the complaints of thebusiness sector regarding the manner by which the SEC was thenhandling corporate rehabilitation and intra-corporate disputes.

This is also a main consideration for the proposal to expandthe jurisdiction of commercial courts. In the draft Resolutionsubmitted by PHILJA to the Supreme Court, it was also notedthat “the slow pace in the handling of commercial cases is adisincentive to business, especially on the part of foreign investors.”

But should the judiciary play an active role in economicdevelopment? Apparently, the Supreme Court thinks so. In thetwo (2) vital documents detailing its reform agenda, the SupremeCourt has recognized the vital task it plays in economic

25. Williamson, Oliver E. 1995. “The Institutions and Governanceof Economic Development and Reform.” In Michael Brunoand Boris Pleskovic, eds., Proceedings of the Annual WorldBank Conference on Development Economics 1994.Washington, D.C.: World Bank.



2004]

development. In its Blueprint of Action for Judicial Reform, theCourt took note of the impact of its actions to the economy.The Blueprint states:

Impact ofImpact ofImpact ofImpact ofImpact of J J J J Judicial Decisions on the Economudicial Decisions on the Economudicial Decisions on the Economudicial Decisions on the Economudicial Decisions on the Economyyyyy..... Asworld affairs, international relations, security and stabilityare increasingly defined by economic issues and nationalcompetitiveness, court decisions are now being subjectedto far closer analysis to determine what effects, if any, theywill have on the economy.26

Likewise, in the Action Program for Judicial Reform (APJR)the Court recognized the important role of the Philippinejudiciary in shaping economic and business policies as indicatedby cases brought to court relating to trade liberalization,privatization, regulation/deregulation, intellectual property rights,and environment, among other cases.”27

The need for an effective and efficient commercial disputeresolution in the Philippines has never been more urgent. A privatesector assessment of the Philippines listed the inadequate disputeresolution mechanism as a major disincentive to doing businessin the country. The cost of dispute resolution in the Philippinesis reportedly one of the highest in the world.28

Likewise, recent disputes concerning private contracts in thepower, water and airport sectors have highlighted the weakness ofthe legal and regulatory framework, the limited recourse availableto resolve disputes, and the high level of political intervention inthe commercial sector. Adding to this, the high cost of power and

26. Blueprint of Action for the Judiciary, p. 34.

27. APJR, p.96.

28. World Bank, Doing Business Database.


labor and the costs of doing business in the Philippines becomecomparatively higher than in alternate regional destinations.29

Because of the perceived risks of doing business in thePhilippines, foreign investors seek alternative investmentdestinations such as China, Thailand and Korea. We cannot affordthis at this time. Restoring investor confidence to fuel investmentneeds and economic growth is a must, as the country teeters onthe brink of a financial crisis.

The expansion of the jurisdiction of special commercial courtscan lessen regulatory risk and may bring about stability incommercial transactions. Having a set of efficient and effectivespecial commercial courts can lead to uniformity in decision-making which will also give way to predictability.

29. Private Sector Assessment: Philippines, Asian Development Bank(2004).

Comparati Comparati Comparati Comparati Comparativvvvve Discussion on thee Discussion on thee Discussion on thee Discussion on thee Discussion on thePrPrPrPrProposed Consolidated Interim Roposed Consolidated Interim Roposed Consolidated Interim Roposed Consolidated Interim Roposed Consolidated Interim Rulesulesulesulesules

ofofofofof Pr Pr Pr Pr Procedurocedurocedurocedurocedure on Core on Core on Core on Core on Corporate Liquidationporate Liquidationporate Liquidationporate Liquidationporate Liquidationin Insolvin Insolvin Insolvin Insolvin Insolvencencencencency and the Ury and the Ury and the Ury and the Ury and the Urgggggent Rent Rent Rent Rent Rules onules onules onules onules on

CorCorCorCorCorporate Insolvporate Insolvporate Insolvporate Insolvporate Insolvencencencencencyyyyy∗

Attorney Manuel D. Yngson, Jr.∗∗

I. BACKGROUND.................................................................................... 162A. Quick Review of Insolvency ConceptsB. Sources of Insolvency Laws in the PhilippinesC. Remedies Available in Case of InsolvencyD. Mechanics of Liquidation Proceedings

∗ Delivered at the Seminar-Workshop for Commercial CourtJudges, on September 17, 2004, at the Eugenio Lopez Center,Sumulong Highway, Antipolo City.

∗∗ Attorney Manuel D. Yngson, Jr., is a member of the Consultants’Group of the Philippine Judicial Academy (PHILJA) and hasbeen an insolvency law practitioner since 1984 when he wasappointed as the first external counsel of the then Central Bankof the Philippines to represent a number of banks closed bythe Central Bank for insolvency. Prior to that, he specializedon litigation, taxation, labor, and corporate services for seventeen(17) years. He is the Founding President of both the TaxManagement Association of the Philippines (TMAP), and theCorporate Recovery and Insolvency Practitioners Associationof the Philippines, Inc.(INSOLPHIL). He obtained hisAssociate in Arts, with honors, in 1960; Bachelor of Arts degree,Cum Laude, in 1962; Bachelor of Laws degree, in 1966; andMaster in Business Administration, in 1981 from the Universityof the Philippines.


E. Laws on DissolutionF. Rules of Procedure on Corporate RehabilitationG. Rules of Procedure on Corporate Liquidation in

InsolvencyII. SUMMARY OF RULES PROPOSED................................................. 193

I. BI. BI. BI. BI. BAAAAACKCKCKCKCKGRGRGRGRGROUNDOUNDOUNDOUNDOUND

What happens when insolvency sets in is a major concern ofinvestors because from recent experience in most parts of theworld, if the rules on insolvency (which cover both corporaterehabilitation and liquidation) are vague or obsolete, investorstend to lose more and recovery of their investment almost becomesnil. On the other hand, if the rules are clear, updated and favorableto corporate recovery (or if such recovery is not possible, to aquick resort to liquidation and distribution of assets of theinsolvent company), the “frozen” assets of the insolvent debtorare brought back to mainstream business sooner, the prevalenceof non-performing assets is minimized, and correspondingly,investment losses tend to be limited and become tolerable businessrisks.

A. QuicA. QuicA. QuicA. QuicA. Quick Rk Rk Rk Rk Reeeeeview ofview ofview ofview ofview of Insolv Insolv Insolv Insolv Insolvencencencencency Concey Concey Concey Concey Conceptsptsptsptspts

1.1.1.1.1. Insolvency Insolvency Insolvency Insolvency Insolvency of a corporation is its state, status or conditionof being unable to pay its obligations as they fall due in theordinary or usual course of trade or business.1

22222. Bankruptcy Bankruptcy Bankruptcy Bankruptcy Bankruptcy occurs when the realizable assets of a corporationare less than its liabilities.

3.3.3.3.3. TTTTTececececechnical Insolvhnical Insolvhnical Insolvhnical Insolvhnical Insolvencencencencencyyyyy or Illiquidity Illiquidity Illiquidity Illiquidity Illiquidity is a situation in whicha firm is unable to meet its current obligations as they come

1. Black’s Law Dictionary.

1632004] COMPARATIVE DISCUSSION

due, even though the value of its assets may exceed itsliabilities.2 When a corporation becomes insolvent, it is like anatural person who is sick.

4.4.4.4.4. RRRRRehabilitationehabilitationehabilitationehabilitationehabilitation of a corporation means restoring it to itsformer capacity as such corporation, clothing it again with itsright, authority or dignity.3 It also includes the totality of theefforts to cure the sickness of the corporation and such effortscould be compared to the hospitalization of a natural person.

5.5.5.5.5. Liquidation Liquidation Liquidation Liquidation Liquidation of a corporation is the process of reducing orconversion of its assets to cash and the distribution thereofto its creditors, discharging liabilities and dividing surplus orloss in the process.4 The proceedings involved in liquidationcan be compared to the burial ceremonies of a natural person.

6.6.6.6.6. Dissolution Dissolution Dissolution Dissolution Dissolution of a corporation is the termination of the legalexistence of the juridical corporate entity arising from eitherthe expiration of its term or withdrawal of its certificate ofregistration. Thus, dissolution is akin to the death of acorporation.

B.B.B.B.B. Sources of Insolvency Laws in the PhilippinesSources of Insolvency Laws in the PhilippinesSources of Insolvency Laws in the PhilippinesSources of Insolvency Laws in the PhilippinesSources of Insolvency Laws in the Philippines

1.1.1.1.1. In the Case of Individuals.In the Case of Individuals.In the Case of Individuals.In the Case of Individuals.In the Case of Individuals. Act No. 1956 (20 May 1909)

2.2.2.2.2. In the Case of Banks and Quasi-banks.In the Case of Banks and Quasi-banks.In the Case of Banks and Quasi-banks.In the Case of Banks and Quasi-banks.In the Case of Banks and Quasi-banks.

a. The General Banking Law of 2000 (R.A. No. 8791)particularly Section 68 on Voluntary Liquidation and Sec.69 on Receivership and Involuntary Liquidation.

2. Ibid.

3. Ibid.

4. Ibid.


Section 68. Voluntary Liquidation, provides:

Sec. 68. In case of the voluntary liquidation ofany bank organized under the laws of thePhilippines, or of any branch or office in thePhilippines of a foreign bank, written noticewritten noticewritten noticewritten noticewritten noticeof such liquidation shall be sent to theof such liquidation shall be sent to theof such liquidation shall be sent to theof such liquidation shall be sent to theof such liquidation shall be sent to theMonetary Board before such liquidation isMonetary Board before such liquidation isMonetary Board before such liquidation isMonetary Board before such liquidation isMonetary Board before such liquidation isunderunderunderunderundertaktaktaktaktaken, en, en, en, en, and the Monetary Board shall havethe right to intervene and take such steps asright to intervene and take such steps asright to intervene and take such steps asright to intervene and take such steps asright to intervene and take such steps asmay be necessary to protect the interestsmay be necessary to protect the interestsmay be necessary to protect the interestsmay be necessary to protect the interestsmay be necessary to protect the interestsof creditors.of creditors.of creditors.of creditors.of creditors. [Underscoring added for emphasis]

SSSSSECTIONECTIONECTIONECTIONECTION 69 69 69 69 69. RRRRReceieceieceieceieceivvvvvership and Inership and Inership and Inership and Inership and InvvvvvoluntaroluntaroluntaroluntaroluntaryyyyyLiquidationLiquidationLiquidationLiquidationLiquidation, provides:

SSSSSECECECECEC. 69. 69. 69. 69. 69. The grounds and procedures for placinga bank under receivership or liquidation, as well asthe powers and duties of the receiver or liquidatorappointed for the bank shall be governed by theprovisions of Sections 30, 31, 32 and 33 Sections 30, 31, 32 and 33 Sections 30, 31, 32 and 33 Sections 30, 31, 32 and 33 Sections 30, 31, 32 and 33 ofthe New Central Bank Act: Provided, That thepetitioner or plaintiff files with the clerk or judgeof the court in which the action is pending aaaaabond, bond, bond, bond, bond, executed in favor of the Bangko Sentral, inan amount to be fixed by the Court. TTTTThis sectionhis sectionhis sectionhis sectionhis sectionshall also apply to the extent possible toshall also apply to the extent possible toshall also apply to the extent possible toshall also apply to the extent possible toshall also apply to the extent possible tothe receivership and liquidation proceedingsthe receivership and liquidation proceedingsthe receivership and liquidation proceedingsthe receivership and liquidation proceedingsthe receivership and liquidation proceedingsof quasi-banks.of quasi-banks.of quasi-banks.of quasi-banks.of quasi-banks. [Underscoring added foremphasis]

b. The New Central Bank Act (R.A. No. 7653) particularlySections 30, 31, 32 and 33 on Proceedings in Receivershipand Liquidation; Distribution of Assets; Disposition ofRevenues and Earnings; and Disposition of BankingFranchise, respectively;


c. The charter of the Philippine Deposit InsuranceCorporation (R.A. No. 3591, as amended); and

d. Administrative rehabilitation and judicial liquidation. Thereceivership (or process of corporate rehabilitation) ofbanks and quasi-banks is an administrative proceedingadministrative proceedingadministrative proceedingadministrative proceedingadministrative proceeding,with the Monetary Board of the Bangko Sentral ngPilipinas (BSP) as the administrative authority and thePhilippine Deposit Insurance Corporation (PDIC) as thedesignated statutory receiver (or rehabilitation receiver).However, once liquidation is oronce liquidation is oronce liquidation is oronce liquidation is oronce liquidation is orderderderderdered bed bed bed bed by they they they they theMonetary Board, the insolvency proceedingsMonetary Board, the insolvency proceedingsMonetary Board, the insolvency proceedingsMonetary Board, the insolvency proceedingsMonetary Board, the insolvency proceedingsbecome judicial in nature,become judicial in nature,become judicial in nature,become judicial in nature,become judicial in nature, with the PDIC specificallyrequired to seek the assistance of a liquidation court to:

x x x adjudicate disputed claims against theinstitution, assist in the enforcement of individualliabilities of the stockholders, directors andofficers, and decide on other issues as may bematerial to implement the liquidation planadopted x x x.

In implementing administrative receivershipproceedings, PDIC is primarily governed by theprovisions of its charter, R.A. No. 3591, as amended byR.A. No. 7400, particularly Sections 6 to 16 thereof.

3.3.3.3.3. In the Case ofIn the Case ofIn the Case ofIn the Case ofIn the Case of Insurance Companies. Insurance Companies. Insurance Companies. Insurance Companies. Insurance Companies. The governinglaw is Presidential Decree No. 612 (The Insurance Code, asamended by P.D. No. 1141), particularly Section 249, Title15 on Proceedings Upon Insolvency. As in the case of banksand quasi-banks, the proceedings for the corporaterehabilitation of insurance companies in financial distress areadministrative in natureadministrative in natureadministrative in natureadministrative in natureadministrative in nature, with the Insurance Commissioneras the administrative authority. However, if liquidation


becomes necessary because the insurance company is insolventor cannot resume business with safety to its policy holdersand creditors, the Commissioner is tasked just like the PDIC,to seek the assistance of the liquidation court:

to adjudicate disputed claims against the stockholdersand do all that is necessary to preserve the assets of theinsurance company and to implement the liquidationplan approved by the Commissioner.

Ergo, the proceedings for the liquidation of insolventthe proceedings for the liquidation of insolventthe proceedings for the liquidation of insolventthe proceedings for the liquidation of insolventthe proceedings for the liquidation of insolventinsurance companies are also judicial in natureinsurance companies are also judicial in natureinsurance companies are also judicial in natureinsurance companies are also judicial in natureinsurance companies are also judicial in nature.

4.4.4.4.4. In the Case ofIn the Case ofIn the Case ofIn the Case ofIn the Case of Cooperati Cooperati Cooperati Cooperati Cooperativvvvve Core Core Core Core Corporations. porations. porations. porations. porations. Thegoverning law is the Cooperative Code of the Philippines(R.A. No. 6938) particularly Article 64 on Proceedings UponInsolvency. Under this article, an insolvent cooperative:

x x x may apply for such remedies as it may deem fitunder the provisions of the Insolvency Law (Act. No.1956 as amended). xxx Nothing in this article,however, precludes creditors from seeking protectionfrom said Insolvency Law.

a. CooperatiCooperatiCooperatiCooperatiCooperativvvvve Liquidation.e Liquidation.e Liquidation.e Liquidation.e Liquidation. Aside from resort tovoluntary or involuntary insolvency thru the courts underthe Insolvency Law, cooperatives may likewise undergoliquidation by the Cooperative Development Authority(CDA) as a consequence of dissolution.

Cooperative LiquidationCooperative LiquidationCooperative LiquidationCooperative LiquidationCooperative Liquidation..... Every cooperative,whose charter expires by its own limitation orwhose cooperative existence is terminated byvoluntary dissolution or is terminated byappropriate judicial proceedings shall neverthelessbe continued as a body cooperative for three (3)years after the time when it would have been so


dissolved, for the purpose of prosecuting andfor the purpose of prosecuting andfor the purpose of prosecuting andfor the purpose of prosecuting andfor the purpose of prosecuting anddefending suits by or against it and enablingdefending suits by or against it and enablingdefending suits by or against it and enablingdefending suits by or against it and enablingdefending suits by or against it and enablingit to settle and close its affairs, to disposeit to settle and close its affairs, to disposeit to settle and close its affairs, to disposeit to settle and close its affairs, to disposeit to settle and close its affairs, to disposeofofofofof and con and con and con and con and convvvvvey its prey its prey its prey its prey its properoperoperoperoperty and to distribty and to distribty and to distribty and to distribty and to distributeuteuteuteuteits assets,its assets,its assets,its assets,its assets, but not for the purpose of continuingthe business for which it was established. xxx5

[Underscoring added for emphasis]

Like corporations, in general, under the Corporation Code(B.P. Blg. 68), cooperatives may undergo dissolutioninvoluntarily or voluntarily and in the case of the latter,whether creditors may be affected or not (Articles 67, 66,and 65 of R.A. No. 6938, respectively). Unlike in theCorporation Code, however, “insolvency” is one of thegrounds for involuntary dissolution, to wit:

InInInInInvvvvvoluntaroluntaroluntaroluntaroluntary Dissolution.y Dissolution.y Dissolution.y Dissolution.y Dissolution. A cooperative maybe dissolved by order of competent court afterdue hearing on the grounds of: (1) violation ofany law, regulation, or provisions of its by laws; or(2) insolvinsolvinsolvinsolvinsolvencencencencencyyyyy.6 [ Underscoring added foremphasis]

Also, Article 71 of R.A. No. 6938 requires the CDAto issue rules and regulations on liquidation, hence, theCDA issued the corresponding rules and regulations foradministrative liquidation in dissolution.

Consequently, under existing laws, liquidation ofcooperatives may either be administrative or judicialadministrative or judicialadministrative or judicialadministrative or judicialadministrative or judicialdepending on whether dissolution precedes liquidationor vice-versa.

5. Republic Act No. 6938 (1994), art. 70 (1).

6. Ibid. art. 67.


5.5.5.5.5. In the Case ofIn the Case ofIn the Case ofIn the Case ofIn the Case of Cor Cor Cor Cor Corporations in General porations in General porations in General porations in General porations in General (excludingbanks, quasi-banks and insurance companies). The principallaw applicable is also Act No. 1956. The Insolvency Lawprimarily applies to individual debtors who are dischargedfrom their obligation upon their availment of the benefits ofthe law. However, under Sec. 52 of said law:

the prthe prthe prthe prthe prooooovisions ofvisions ofvisions ofvisions ofvisions of this Act shall (also) applthis Act shall (also) applthis Act shall (also) applthis Act shall (also) applthis Act shall (also) apply toy toy toy toy tocorporations and sociadades anónimas x x xcorporations and sociadades anónimas x x xcorporations and sociadades anónimas x x xcorporations and sociadades anónimas x x xcorporations and sociadades anónimas x x xbut no discharge shall be granted to anybut no discharge shall be granted to anybut no discharge shall be granted to anybut no discharge shall be granted to anybut no discharge shall be granted to anycorporation x x xcorporation x x xcorporation x x xcorporation x x xcorporation x x x (Underscoring added for emphasis)

6.6.6.6.6. GoGoGoGoGovvvvverererererning Laning Laning Laning Laning Law on Corw on Corw on Corw on Corw on Corporate Rporate Rporate Rporate Rporate Rehabilitation. ehabilitation. ehabilitation. ehabilitation. ehabilitation. Exceptfor banks, quasi-banks, and insurance companies, therehabilitation of an insolvent corporation is governed by P.D.No. 902-A. This law also allows suspension of payment thruthe stay order, as well as liquidation in case of dissolutionafter a failed attempt to rehabilitate the insolvent corporation.

Under Section 5.2 of the Securities Regulation Code (R.A.No. 8799), the jurisdiction of the Securities and ExchangeCommission (SEC) under Section 5 of P.D. No. 902-A wastransferred to the regular courts.

7.7.7.7.7. Common RCommon RCommon RCommon RCommon Rules in the Distribules in the Distribules in the Distribules in the Distribules in the Distribution ofution ofution ofution ofution of the Pr the Pr the Pr the Pr the Proceedsoceedsoceedsoceedsoceedsofofofofof Liquidation in Insolv Liquidation in Insolv Liquidation in Insolv Liquidation in Insolv Liquidation in Insolvencencencencencyyyyy..... Regardless of the type ofcorporation, only one law applies when it comes to distributionof the proceeds of liquidation the Civil Code of thePhilippines (R.A. No. 386) particularly Title XIX onConcurrence and Preference of Credits covering Articles 2236to 2251.

a. For All Corporations.For All Corporations.For All Corporations.For All Corporations.For All Corporations. For all types of corporations,the distribution of the “liquidating dividend” or theproceeds of liquidation in insolvency is done in accordancewith Articles 2236 to 2251 of the Civil Code.


b. Labor Claims.Labor Claims.Labor Claims.Labor Claims.Labor Claims. Article 110 of The Labor Code of thePhilippines (P.D. No. 442), as amended by R.A. No. 6715on “Workers’ preference in case of bankruptcy,” hasamended Article 2244 of the Civil Code by givingworkmen’s claims against a bankrupt corporation, numberone preference in the order of preferences under saidarticle.

A distinction should be made between a preferenceof credit and a lien. A preference applies only toclaims which do not attach to specific properties.A lien creates a charge on a particular property.The right of first preference as regards unpaidwages recognized by Article 110 does notconstitute a lien on the property of the insolventdebtor in favor of workers. It is but a preferenceof credit in their favor, a preference in application.It is a method adopted to determine and specifythe order in which credits should be paid in thefinal distribution of the proceeds of the insolvent’sassets. It is a right to a first preference in thedischarge of the funds of the judgment debtor. Inthe words of Republic v. Peralta (150 SCRA 37,20 May 1987): Art. 110 of the Labor Code doesnot purport to create a lien in favor of workers oremployees for unpaid wages either upon all of theproperties or upon any particular property ownedby their employer. Claims fClaims fClaims fClaims fClaims for unpaid wor unpaid wor unpaid wor unpaid wor unpaid wagagagagagesesesesesdo not therefore fall at all within thedo not therefore fall at all within thedo not therefore fall at all within thedo not therefore fall at all within thedo not therefore fall at all within thecatecatecatecatecategggggororororory ofy ofy ofy ofy of speciall speciall speciall speciall specially pry pry pry pry prefefefefefererererer rrrrred ced ced ced ced claimslaimslaimslaimslaimsestabestabestabestabestablished under Arlished under Arlished under Arlished under Arlished under Articticticticticles 2241 and 2242les 2241 and 2242les 2241 and 2242les 2241 and 2242les 2241 and 2242of the Civil Code, of the Civil Code, of the Civil Code, of the Civil Code, of the Civil Code, except toexcept toexcept toexcept toexcept to the extentthe extentthe extentthe extentthe extentthat such claims for unpaid wages arethat such claims for unpaid wages arethat such claims for unpaid wages arethat such claims for unpaid wages arethat such claims for unpaid wages arealralralralralreadeadeadeadeady coy coy coy coy covvvvvererererered bed bed bed bed by Ary Ary Ary Ary Ar ticticticticticle le le le le 2241, 2241, 2241, 2241, 2241, numbernumbernumbernumbernumber6:” 6:” 6:” 6:” 6:” claims for laborers’ wages, on the goodsclaims for laborers’ wages, on the goodsclaims for laborers’ wages, on the goodsclaims for laborers’ wages, on the goodsclaims for laborers’ wages, on the goods


manufactured or the work done; manufactured or the work done; manufactured or the work done; manufactured or the work done; manufactured or the work done; or byor byor byor byor byArArArArArticticticticticle 2242le 2242le 2242le 2242le 2242, , , , , number 3; number 3; number 3; number 3; number 3; “““““ c c c c claims oflaims oflaims oflaims oflaims of labor labor labor labor laborersersersersersand otherand otherand otherand otherand other workers engaged in theworkers engaged in theworkers engaged in theworkers engaged in theworkers engaged in theconstruction, reconstruction or repair ofconstruction, reconstruction or repair ofconstruction, reconstruction or repair ofconstruction, reconstruction or repair ofconstruction, reconstruction or repair ofbuildings, canals and other works, upon saidbuildings, canals and other works, upon saidbuildings, canals and other works, upon saidbuildings, canals and other works, upon saidbuildings, canals and other works, upon saidbbbbbuildings, canals or other wuildings, canals or other wuildings, canals or other wuildings, canals or other wuildings, canals or other works. orks. orks. orks. orks. “To theextent that claims for unpaid wages fall outsidethe scope of Article 2241, number 6 and Article2242, number 3, they would come within theambit of the category of ordinary preferred creditsunder Article 2244.”7

c. Philippine Deposit Insurance Corporation (PDIC)Philippine Deposit Insurance Corporation (PDIC)Philippine Deposit Insurance Corporation (PDIC)Philippine Deposit Insurance Corporation (PDIC)Philippine Deposit Insurance Corporation (PDIC)Claims. Claims. Claims. Claims. Claims. Section 10 (d) of PDIC Charter (R.A. No.3591), as amended by R.A. No. 7400, likewise amendedArticle 2244 of the Civil Code by elevating the claim ofthe PDIC for subrogation (to the rights of the depositorsagainst a closed bank to the extent of its payment for theissuance of their insurance deposit), to “a preferred creditsimilar to taxes due to the National Government.”

C. RC. RC. RC. RC. Remedies Aemedies Aemedies Aemedies Aemedies Avvvvvailabailabailabailabailable in Case ofle in Case ofle in Case ofle in Case ofle in Case of Insolv Insolv Insolv Insolv Insolvencencencencencyyyyy

1.1.1.1.1. Under the InsolvUnder the InsolvUnder the InsolvUnder the InsolvUnder the Insolvencencencencency Lay Lay Lay Lay Law (IL). w (IL). w (IL). w (IL). w (IL). The remedies availableapply to both corporations and individuals.

a. Suspension of Payment for debtors with “sufficientproperty”

i. Quorum – Three-fifth (3/5) of Liabilities

ii. Decision Liabilities – Two-thirds (2/3) majorityrepresenting Three-fifth (3/5) liabilities

7. Development Bank of the Philippines v. NLRC, 186 SCRA841, 27 June 1990.


b. Liquidation (Word used in IL is “insolvency”)

i. Voluntary Liquidation (Secs. 14 to 19)

ii. Involuntary Liquidation (Secs. 20 to 28)

2.2.2.2.2. Under Presidential Decree No. 902-A, as amended.Under Presidential Decree No. 902-A, as amended.Under Presidential Decree No. 902-A, as amended.Under Presidential Decree No. 902-A, as amended.Under Presidential Decree No. 902-A, as amended.

a. Cora. Cora. Cora. Cora. Corporate Rporate Rporate Rporate Rporate Rehabilitation.ehabilitation.ehabilitation.ehabilitation.ehabilitation. In order to effectivelyexercise such jurisdiction, the Commission shall possessthe following powers:

x x x

Sec. 6 (c). To appoint one or more receivers ofthe property, real or personal, which is the subjectof the action pending before the Commission inaccordance with the pertinent provisions of theRules of Court in such other cases whenevernecessary in order to preserve the rights of theparties-litigants and/or protect the interest of theinvesting public and creditors: Provided, however,That the Commission may, in appropriate cases,appoint a rehabilitation receiver of corporations,partnerships or other associations not supervisedor regulated by other government agencies, whoshall have, in addition to the powers of a regularreceiver under the provisions of the Rules of Court,such functions and powers as are provided for inthe succeeding paragraph (d) hereof x x x.8

x x x

(d) To create and appoint a management committee,board or body upon petition or motu proprio toundertake the management of corporations,partnerships or other associations not supervised

8. Presidential Decree No. 902-A as amended, § 6(c).


or regulated by other government agencies inappropriate cases when there is imminent dangerof dissipation, loss, wastage or destruction of assetsor other properties or paralyzation of businessoperations of such corporations or entities whichmay be prejudicial to the interest of minoritystockholders, parties-litigants or the general publicx x x.

The management committee or rehabilitationreceiver board or body shall have the power totake custody of, and control over, all the existingassets and property of such entities undermanagement; to evaluate the existing assets andliabilities, earnings and operations of suchcorporations, partnerships or other association; todetermine the best way to salvage and protect theinterest of the investors and creditors; to study,review and evaluate the feasibility or continuingoperations and restructure and rehabilitate suchentities if determined to be feasible by theCommission. It shall report and be responsible tothe Commission until dissolved by the Commissionx x x.9

bbbbb..... Suspension ofSuspension ofSuspension ofSuspension ofSuspension of P P P P Paaaaayment.yment.yment.yment.yment.

x x x Provided, finally, That upon appointment ofa management committee, rehabilitation receiver,board or body, pursuant to this Decree, all actionsall actionsall actionsall actionsall actionsfffffor cor cor cor cor claims laims laims laims laims against corporations, partnerships orassociations under management or receivershippending before any court, tribunal, board or bodyshall be suspended accorshall be suspended accorshall be suspended accorshall be suspended accorshall be suspended accordingdingdingdingdinglllllyyyyy.....10


9. Ibid. § 6(d).

10. Ibid. § 6(c).


c.c.c.c.c. Liquidation in Dissolution.Liquidation in Dissolution.Liquidation in Dissolution.Liquidation in Dissolution.Liquidation in Dissolution.

x x x Provided, however, That if the commissionmay, on the basis of the findings andrecommendation of the management committee,or rehabilitation receiver, board or body, or on itsown findings, determine that the continuance inbusiness of such corporation or entity would notbe feasible or profitable nor work to the bestinterest of the stockholders, parties-litigants,creditors, or the general public, order theorder theorder theorder theorder thedissolution of such corporation entity anddissolution of such corporation entity anddissolution of such corporation entity anddissolution of such corporation entity anddissolution of such corporation entity andits remaining assets liquidated accordinglyits remaining assets liquidated accordinglyits remaining assets liquidated accordinglyits remaining assets liquidated accordinglyits remaining assets liquidated accordinglyxxx. xxx. xxx. xxx. xxx. 11 [Underscoring added for emphasis]

3.3.3.3.3. RRRRRemedies Aemedies Aemedies Aemedies Aemedies Avvvvvailabailabailabailabailable in Case ofle in Case ofle in Case ofle in Case ofle in Case of Banks, Quasi-banks, Banks, Quasi-banks, Banks, Quasi-banks, Banks, Quasi-banks, Banks, Quasi-banks,Insurance Companies and Cooperatives.Insurance Companies and Cooperatives.Insurance Companies and Cooperatives.Insurance Companies and Cooperatives.Insurance Companies and Cooperatives.

a. Receivership through administrative proceedings;

b. Judicial Liquidation; and

c. Conservatorship

AAAAAppointment ofppointment ofppointment ofppointment ofppointment of Conser Conser Conser Conser Conservvvvvatoratoratoratorator. . . . . Whenever, onthe basis of a report submitted by the appropriatesupervising or examining department, the MonetaryBoard finds that a bank or a quasi-bank is in a statestatestatestatestateof continuing inability or unwillingness toof continuing inability or unwillingness toof continuing inability or unwillingness toof continuing inability or unwillingness toof continuing inability or unwillingness tomaintain a condition of liquidity deemedmaintain a condition of liquidity deemedmaintain a condition of liquidity deemedmaintain a condition of liquidity deemedmaintain a condition of liquidity deemedadequate to protect the interest ofadequate to protect the interest ofadequate to protect the interest ofadequate to protect the interest ofadequate to protect the interest ofdepositors and creditors, the Monetarydepositors and creditors, the Monetarydepositors and creditors, the Monetarydepositors and creditors, the Monetarydepositors and creditors, the MonetaryBoard may appoint a conservator Board may appoint a conservator Board may appoint a conservator Board may appoint a conservator Board may appoint a conservator with suchpowers as the Monetary Board shall deem necessaryto take charge of the assets, liabilities, and the

11. Ibid. § 6(d), ¶ (2).


management thereof, reorganize the management,collect all monies and debts due said institution,and exercise all powers necessary to restore itsviability. The conservator shall report and beresponsible to the Monetary Board and shall havethe power to overrule or revoke the actions of theprevious management and board of directors ofthe bank or quasi-bank.12 [Underscoring added foremphasis]

x x x

Assistance to CooperatiAssistance to CooperatiAssistance to CooperatiAssistance to CooperatiAssistance to Cooperativvvvve Banke Banke Banke Banke Bank..... Whenever acooperative bank organized under this Code isdistressed or may need assistance in therehabilitation of its financial condition or to avoidbankruptcy, the Monetary Board of the CentralBank of the Philippines shall designate andesignate andesignate andesignate andesignate anofficial of the Central Bank or a person ofofficial of the Central Bank or a person ofofficial of the Central Bank or a person ofofficial of the Central Bank or a person ofofficial of the Central Bank or a person ofrecognized competence in banking orrecognized competence in banking orrecognized competence in banking orrecognized competence in banking orrecognized competence in banking orfinance as receiver or conservator finance as receiver or conservator finance as receiver or conservator finance as receiver or conservator finance as receiver or conservator of the saidbank pursuant to the provisions of Section 29 ofRepublic Act. No. 265, as amended.13


x x x

Title XIV Appointment of Conservator.

SSSSSEC. 248248248248248. If at any time before, or after, thesuspension or revocation of the certificate ofauthority of an insurance company as provided inthe preceding title, the Commissioner finds thatsuch company is in a state of continuingis in a state of continuingis in a state of continuingis in a state of continuingis in a state of continuing


13. Republic Act No. 6938, art. 109.


inability or unwillingness to maintain ainability or unwillingness to maintain ainability or unwillingness to maintain ainability or unwillingness to maintain ainability or unwillingness to maintain acondition of solvency or liquidity deemedcondition of solvency or liquidity deemedcondition of solvency or liquidity deemedcondition of solvency or liquidity deemedcondition of solvency or liquidity deemedadequate to protect the interest of policyadequate to protect the interest of policyadequate to protect the interest of policyadequate to protect the interest of policyadequate to protect the interest of policyholders and creditors, he may appoint aholders and creditors, he may appoint aholders and creditors, he may appoint aholders and creditors, he may appoint aholders and creditors, he may appoint aconservator conservator conservator conservator conservator to take charge the assets, liabilities,and the management of such company, collect allmoneys and debts due said company and exerciseall powers necessary to preserve the assets of saidcompany, reorganize the management thereof, andrestore its viability. The said conservator shall havethe power to overrule or revoke the actions of theprevious management and board of directors ofthe said company, any provision of law, or of thearticles of incorporation or by-laws of thecompany, to the contrary notwithstanding, and suchother powers as the Commissioner shall deemnecessary.14 [Underscoring added for emphasis]

DDDDD. Mec. Mec. Mec. Mec. Mechanics ofhanics ofhanics ofhanics ofhanics of Liquidation Pr Liquidation Pr Liquidation Pr Liquidation Pr Liquidation Proceedingsoceedingsoceedingsoceedingsoceedings

1. The stakeholders – the beneficiaries (hats).

a. Corporate Debtor

b. Creditors and Third Party Claimants

c. Directors, Officers, Stockholders

d. Employees

e. Government

f. General Public

2. The court – the brain.

3. The liquidator – the heart.

14. Presidential Decree No. 612, § 248, ¶ (1).


4. The objectives of the liquidation.

a. Maximize value of assets, minimize liabilities.

b. Distribute proceeds of liquidation soonest.

5. The tools of liquidation.

a. Liquidation Plan

b. Administrative expenses

6. Main Tasks of the Liquidator.

a. Inventory of Assets – Gather, collect, preserve, administer,store, guard.

b. Schedule of Liabilities – Record, verify, process, contestif necessary.

c. Nullification of fraudulent transactions.

d. Sale/conversion of assets to cash.

e. Representation of insolvent corporation in suits,contracts, etc.

f. Distribution of proceeds of liquidation.

E. Laws on DissolutionE. Laws on DissolutionE. Laws on DissolutionE. Laws on DissolutionE. Laws on Dissolution

A corporation whether solvent or otherwise may be dissolvedvoluntarily or involuntarily.

1.1.1.1.1. DifDifDifDifDifffffferererererence betwence betwence betwence betwence between demise ofeen demise ofeen demise ofeen demise ofeen demise of juridical person with juridical person with juridical person with juridical person with juridical person withthat ofthat ofthat ofthat ofthat of natural person natural person natural person natural person natural person. We stated above that the“liquidation of a corporation” may be likened to the burialceremonies of a deceased natural person, while “dissolution”is likened to the death of such person. Unlike in the case of anatural person, however, where burial must always followdeath, in the case of a corporation, liquidation may follow


dissolution and vice-versa. Liquidation may also arise eitherby virtue of dissolution or by insolvency.

2.2.2.2.2. Dissolution of Corporations. Dissolution of Corporations. Dissolution of Corporations. Dissolution of Corporations. Dissolution of Corporations. A corporation may bedissolved and liquidated administratively or quasi-judiciallyby the SEC in accordance with Sections 117 to 121 in relationto Section 122 of the Corporation Code (B.P. Blg. 68), orjudicialljudicialljudicialljudicialljudiciallyyyyy under Rule 104 of the Rules of Court in case ofvoluntary dissolution, to wit:

a. SSSSSEC. 117.117.117.117.117. Methods of dissolution.Methods of dissolution.Methods of dissolution.Methods of dissolution.Methods of dissolution. A corporationformed or organized under the provisions of this Codemay be dissolved voluntarily or involuntarily.15

x x x

b. SSSSSEC. 118.118.118.118.118. VVVVVoluntaroluntaroluntaroluntaroluntary dissolution wy dissolution wy dissolution wy dissolution wy dissolution wherherherherhere noe noe noe noe nocreditors are affected.creditors are affected.creditors are affected.creditors are affected.creditors are affected. If dissolution of acorporation does not prejudice the rights of anydoes not prejudice the rights of anydoes not prejudice the rights of anydoes not prejudice the rights of anydoes not prejudice the rights of anycreditorcreditorcreditorcreditorcreditor having a claim against such corporation, thensuch dissolution may be effected by majority vote ofthe board of directors or trustees, and by a resolutionduly adopted by the affirmative vote of thestockholders owning at least two-thirds (2/3) of theoutstanding capital stock or of at least two-thirds (2/3) of the members at a meeting to be held upon callof the directors or trustees after publication of thenotice of the time, place and object of the meetingfor three (3) consecutive weeks in a newspaper publishedin the place where the principal office of saidcorporation is located x x x.16 [Underscoring addedfor emphasis]

15. CORPORATION CODE.

16. Ibid.


x x x

c. SSSSSEC. 119. 119. 119. 119. 119. VVVVVoluntaroluntaroluntaroluntaroluntary dissolution wy dissolution wy dissolution wy dissolution wy dissolution wherherherherhere cre cre cre cre creditorseditorseditorseditorseditorsararararare afe afe afe afe affffffectedectedectedectedected. . . . . Where the dissolution of a corporationmay prejudice the rights of any creditor,may prejudice the rights of any creditor,may prejudice the rights of any creditor,may prejudice the rights of any creditor,may prejudice the rights of any creditor, thepetition for dissolution shall be filed with the Securitiesand Exchange Commission. The petition shall be signedby a majority of its board of directors or trustees orother officers having the management of its affairs,verified by its president or secretary or one of itsdirectors, or trustees, and shall set forth all claims anddemands against it, and that its dissolution was resolvedupon by the affirmative vote of the stockholdersrepresenting at least two-thirds (2/3) of theoutstanding capital stock or by at least two-thirds (2/3) of the members, at a meeting of its stockholders ormembers called for that purpose.

If the petition is sufficient in form and substance, theCommission shall, by an order reciting the purpose ofthe petition, fix a date on or before which objectionsthereto may be filed by any person, which date shallnot be less than thirty (30) days nor more than sixty(60) days after the entry of the order. Before suchdate, a copy of the order shall be published at leastonce a week for three (3) consecutive weeks in three(3) public places in such municipality or city.

Upon five (5) days’ notice, given after the date on whichthe right to file objections as fixed in the order hasexpired, the Commission shall proceed to hear thepetition and try any issue made by the objections filed;and if no such objection is sufficient, and the materialallegations of the petition are true, it shall renderjudgment dissolving the corporation and directingdirectingdirectingdirectingdirectingsuch disposition of its assets as justice requires,such disposition of its assets as justice requires,such disposition of its assets as justice requires,such disposition of its assets as justice requires,such disposition of its assets as justice requires,


and may appoint a receiver to collect such assets andpay the debts of the corporation.17 [Underscoring addedfor emphasis].

x x x

d. SSSSSEC. 120.120.120.120.120. Dissolution bDissolution bDissolution bDissolution bDissolution by shory shory shory shory shortening cortening cortening cortening cortening corporateporateporateporateporateterterterterterm.m.m.m.m. A vA vA vA vA voluntaroluntaroluntaroluntaroluntary dissolution may dissolution may dissolution may dissolution may dissolution may be efy be efy be efy be efy be effffffectedectedectedectedectedbbbbby amending the ary amending the ary amending the ary amending the ary amending the ar ticticticticticles ofles ofles ofles ofles of incor incor incor incor incorporation toporation toporation toporation toporation toshorshorshorshorshor ten the corten the corten the corten the corten the corporate terporate terporate terporate terporate term m m m m pursuant to theprovisions of this Code. A copy of the amendedarticles of incorporation shall be submitted to theSecurities and Exchange Commission in accordance withthis Code. Upon approval of the amended articles ofincorporation or the expiration of the shortened term,as the case may be, the corporation shall be deemeddissolved without any further proceedings, subject tothe provisions of this Code on liquidation.18


x x x

e. SSSSSEC. 121.121.121.121.121. InInInInInvvvvvoluntaroluntaroluntaroluntaroluntary dissolution.y dissolution.y dissolution.y dissolution.y dissolution. A corA corA corA corA corporationporationporationporationporationmay be dissolved by the Securities and Exchangemay be dissolved by the Securities and Exchangemay be dissolved by the Securities and Exchangemay be dissolved by the Securities and Exchangemay be dissolved by the Securities and ExchangeCommission upon filing of a verified complaintCommission upon filing of a verified complaintCommission upon filing of a verified complaintCommission upon filing of a verified complaintCommission upon filing of a verified complaintand after proper notice and hearing on grounds providedby existing laws, rules and regulations.19 [Underscoringadded for emphasis]

i. Grounds for dissolution under the CorporationCode.

17. Ibid.

18. Ibid.

19. Ibid.


• Under Sec. 144, in case of violations of theCorporation Code by the corporation, uponnotice and hearing at the SEC;

• Under Sec. 104, in case of deadlocks amongdirectors or stockholders of a close corporationand the SEC deems dissolution to be proper;

• Under Sec. 105, in case the acts of directors,officers or those in control of the closecorporation are illegal, fraudulent, dishonest,oppressive, unfairly prejudicial to thecorporation or any stockholder, or whenevercorporate assets are misapplied or wasted; and

• A corporation may likewise be dissolved thruquo warranto proceedings under Rule 66 ofthe Rules of Court filed by the Office of theSolicitor General contesting the right of thecorporation to continue existing as such.

ii. Grounds to revoke a certificate of registrationunder P.D. No. 902-A.

In order to effectively exercise suchjurisdiction, the Commission shall possessthe following powers:

x x x

SEC. 6.1. To suspend, or revoke, after propernotice and hearing, the franchise orcertificate of registration of corporations,partnerships or associations, upon any ofthe grounds provided by law, including thefollowing:

1. Fraud in procuring its certificate ofregistration;


2. Serious misrepresentation as to whatthe corporation can do or is doing tothe great prejudice of or damage tothe general public;

3. Refusal to comply or defiance of anylawful order of the Commissionrestraining commission of acts whichwould amount to a grave violation ofits franchise;

4. Continuous inoperation for a periodof at least five (5) years;.

5. Failure to file by-laws within therequired period;

6. Failure to file required reports inappropriate forms as determined bythe Commission within the prescribedperiod;20

x x x

f. SSSSSEC. 122. Corporate Liquidation.Corporate Liquidation.Corporate Liquidation.Corporate Liquidation.Corporate Liquidation. EveryEveryEveryEveryEverycorcorcorcorcorporation wporation wporation wporation wporation whose chose chose chose chose charharharharharter eter eter eter eter expirxpirxpirxpirxpires bes bes bes bes by its oy its oy its oy its oy its ownwnwnwnwnlimitation or is annulled by forfeiture orlimitation or is annulled by forfeiture orlimitation or is annulled by forfeiture orlimitation or is annulled by forfeiture orlimitation or is annulled by forfeiture orotherwise, or whose corporate existence forotherwise, or whose corporate existence forotherwise, or whose corporate existence forotherwise, or whose corporate existence forotherwise, or whose corporate existence forother purother purother purother purother purposes is terposes is terposes is terposes is terposes is terminated in anminated in anminated in anminated in anminated in any othery othery othery othery othermannermannermannermannermanner,,,,, shall nevertheless be continued as a bodycorporate for three (3) years after the time when itwould have been so dissolved, for the purpose ofprosecuting and defending suits by or against it andenabling it to settle and close its affairs, to dispose ofand convey its property and to distribute its assets, butnot for the purpose of continuing the business forwhich it was established.

20. Presidential Decree No. 902-A, § 6(l).


At any time during said three (3) years,At any time during said three (3) years,At any time during said three (3) years,At any time during said three (3) years,At any time during said three (3) years,said corsaid corsaid corsaid corsaid corporation is authorized and empoporation is authorized and empoporation is authorized and empoporation is authorized and empoporation is authorized and empowwwwwerererereredededededto conto conto conto conto convvvvvey all ofey all ofey all ofey all ofey all of its pr its pr its pr its pr its properoperoperoperoper ty to trty to trty to trty to trty to trustees fustees fustees fustees fustees forororororthe benefit of stockholders. members, creditors.the benefit of stockholders. members, creditors.the benefit of stockholders. members, creditors.the benefit of stockholders. members, creditors.the benefit of stockholders. members, creditors.and other persons in interest.and other persons in interest.and other persons in interest.and other persons in interest.and other persons in interest. From and after anysuch conveyance by the corporation of its property intrust for the benefit of its stockholders, members,creditors and others in interest, all interest which thecorporation had in the property terminates, the legalinterest vests in the trustees, and the beneficial interestin the stockholders, members, creditors or other personin interest.

Upon the winding up of the corporate affairs; anyasset distributable to any creditor or stockholder ormember who is unknown or cannot be found shall beescheated to the city or municipality where such assetsare located x x x.21 [Underscoring added for emphasis].

x x x

g. RRRRRULE 104. VVVVVoluntaroluntaroluntaroluntaroluntary Dissolution ofy Dissolution ofy Dissolution ofy Dissolution ofy Dissolution ofCorporations.Corporations.Corporations.Corporations.Corporations.

SSSSSEC. 1. WWWWWherherherherhere, be, be, be, be, by wy wy wy wy whom and on whom and on whom and on whom and on whom and on what shohat shohat shohat shohat showingwingwingwingwingapplication made.application made.application made.application made.application made. A petition for dissolution of acorporation shall be filed in the Regional Trial Courtof the province where the principal office of acorporation is situated. The petition shall be signed bya majority of its board of directors or other officershaving the management of its affairs, verified by itspresident or secretary or one of its directors, and shallset forth all claims and demands against it, and that itsdissolution was resolved upon by a majority of themembers, or, if a stock corporation, by the affirmative

21. CORPORATION CODE.


vote of the stockholders holding and representing two-thirds of all shares of stock issued or subscribed, at ameeting of its members or stockholders called for thatpurpose.

SSSSSEC. 2. Order there upon for filing objections.Order there upon for filing objections.Order there upon for filing objections.Order there upon for filing objections.Order there upon for filing objections.If the petition is sufficient in form and substance, thecourt, by an order reciting the purpose of the petition,shall fix a date on or before which objections theretomay be filed by any person, which date shall not beless than thirty (30) nor more than sixty (60) daysafter the entry of the order. Before such date a copyof the order shall be published at least once a week forfour (4) successive weeks in some newspaper of generalcirculation published in the municipality or city wherethe principal office of the corporation is situated or,if there be no such newspaper, then in some newspaperof general circulation in the Philippines, and a similarcopy shall be posted for four (4) weeks in three publicplaces in such municipality or city.

SEC. 3. Hearing, dissolution, and disposition ofHearing, dissolution, and disposition ofHearing, dissolution, and disposition ofHearing, dissolution, and disposition ofHearing, dissolution, and disposition ofassets. assets. assets. assets. assets. Receiver. Upon five (5) days’ notice given afterthe date on which the right to file objections as fixedin the order expired, the court shall proceed to hearthe petition and try any issue made by the objectionsfiled; and if no such objection is sufficient, and thematerial allegations of the petition are true, it shallrender judgment dissolving the corporation anddirecting such disposition of its assets as justicedirecting such disposition of its assets as justicedirecting such disposition of its assets as justicedirecting such disposition of its assets as justicedirecting such disposition of its assets as justicerequires, requires, requires, requires, requires, and may appoint a receiver to collect suchassets and pay the debts of the corporation. x x x22

22. RULES OF COURT.


x x x

h. ConfConfConfConfConflicting prlicting prlicting prlicting prlicting prooooovisions ofvisions ofvisions ofvisions ofvisions of Insolv Insolv Insolv Insolv Insolvencencencencency Lay Lay Lay Lay Lawwwww, Ci, Ci, Ci, Ci, CivilvilvilvilvilCode, CorCode, CorCode, CorCode, CorCode, Corporation Code and Rporation Code and Rporation Code and Rporation Code and Rporation Code and Rules ofules ofules ofules ofules of Cour Cour Cour Cour Court.t.t.t.t.We have already discussed the duplication ofprocedures for liquidation of cooperatives under theInsolvency Law and liquidation in insolvency arisingfrom involuntary dissolution under Arts. 67 and 70 ofthe Cooperative Code or R.A. No. 6938.

Additionally, applying altogether the provisionsof the Insolvency Law (Act No. 1956) especially thoseon Voluntary and Involuntary Insolvency (Sections 14to 28) on Assignees (Secs. 29 to 47), Proof of Debts(Secs. 53 to 62), Compositions (Chapter IX),Discharge (Chapter X), Fraudulent Preferences(Chapter XI) and Penal (Chapter XII) andMiscellaneous Provisions (Chapter XIII); the Civil Code(R.A. No. 386) on Concurrence and Preference ofCredits (Title XIX, Arts. 2236 to 2251) whichsuperseded Secs. 48 to 50 of the Insolvency Law onClassification and Preference of Creditors; theCorporation Code (B.P. Blg. 68) particularly Secs. 117to 122 discussed above; and Rule 104 of the Rules ofCourt, it would readily appear that there is indeedsome conflict in our laws when it comes toadministrative vis-à-vis judicial liquidation.

i .i .i .i .i . Meaning ofMeaning ofMeaning ofMeaning ofMeaning of “Insolv“Insolv“Insolv“Insolv“Insolvencencencencency and y and y and y and y and “““““Assignee”Assignee”Assignee”Assignee”Assignee”under the Insolvunder the Insolvunder the Insolvunder the Insolvunder the Insolvencencencencency Lay Lay Lay Lay Lawwwww..... A simple readingof the Insolvency Law would leave no doubt inanyone’s mind that the word “insolvency” used inthis law refers to no other than liquidationliquidationliquidationliquidationliquidation, whichis the process of converting assets to cash anddistributing such cash (or the unconverted assets)to its creditors; and that the word “assignee” amongwhose main tasks defined by this law are to gather


and recover all the assets of the debtor, sue for anddefend suits against the debtor, nullify fraudulenttransactions and settle all matters and accountsbetween the debtor and its creditors (Sec. 36, IL)refers to none but the LiquidatorLiquidatorLiquidatorLiquidatorLiquidator or Trustee.

Undoubtedly, under the Insolvency Law,liquidation of corporations to which the IL appliesthough without the privilege of discharge (Sec.51, IL), is a judicial process judicial process judicial process judicial process judicial process, which may beinitiated only thru either a voluntary (by thedebtor) or involuntary (by the creditors) petition.

Parenthetically, along the same vein, Title XV,Section 249 of the Insurance Code (P.D. No. 612),though entitled “Proceedings Upon Insolvency,”actually speaks of “liquidation” which shall beundertaken thru court action.

i i .i i .i i .i i .i i . Distribution of the proceeds of liquidationDistribution of the proceeds of liquidationDistribution of the proceeds of liquidationDistribution of the proceeds of liquidationDistribution of the proceeds of liquidationpursuant to the Cipursuant to the Cipursuant to the Cipursuant to the Cipursuant to the Civil Code.vil Code.vil Code.vil Code.vil Code. When the CivilCode was enacted in 1950, its provisions on“Concurrence and Preference of Credits”superseded the provisions on “Classification andPreference of Creditors” of the 1909 vintage IL.All other subsequent laws which provide fordistribution of assets in liquidation such as Sec. 31of the New Central Bank Act (R.A. No. 7653)and Sec. 9-B of the PDIC Charter (R.A. No.3591) make reference, as basis for such distribution,either to the “rules on concurrence and preferenceof credit as provided in the Civil Code” or to the“preference established by law” which of courserefers to the Civil Code. Under Sec. 250 of theInsurance Code (P.D. No. 612 as amended by P.D.No. 1460), the payment of claims in case of


liquidation of an insurance company is to be made“in accordance with their legal priority,” whichlikewise impliedly refers to the Civil Code. In fact,even the SEC Rules of Procedure on CorporateRecovery directs that the distribution of theproceeds of liquidation “shall be governed by theprovisions of the Civil Code on the concurrenceand preference of credits.” 23

i i i .i i i .i i i .i i i .i i i . Liquidation in solvency and insolvency underLiquidation in solvency and insolvency underLiquidation in solvency and insolvency underLiquidation in solvency and insolvency underLiquidation in solvency and insolvency underthe Corthe Corthe Corthe Corthe Corporation Code.poration Code.poration Code.poration Code.poration Code. Now comes theCorporation Code (B.P. Blg. 68) on the laws oncorporate dissolution and correspondingliquidation, specifically Secs. 117 to 122. The lawspeaks of both v v v v voluntaroluntaroluntaroluntaroluntary and iny and iny and iny and iny and invvvvvoluntaroluntaroluntaroluntaroluntaryyyyydissolutiondissolutiondissolutiondissolutiondissolution, followed by a three year-period ofliquidation in either case.

Involuntary dissolution on the other hand,requires a PPPPPetition to be fetition to be fetition to be fetition to be fetition to be filed with theiled with theiled with theiled with theiled with theSecurities and Exchange Commission (SEC)Securities and Exchange Commission (SEC)Securities and Exchange Commission (SEC)Securities and Exchange Commission (SEC)Securities and Exchange Commission (SEC)(Sec. 121). Again, such dissolution may or maynot affect creditors.

If creditors are “not afnot afnot afnot afnot af fffffectedectedectedectedected” by thedissolution defined as “does not prejudice therights of creditors” that means the dissolvedcorporation is solvent. On the other hand, ifcreditors are “af“af“af“af“affffffected,ected,ected,ected,ected,””””” understood as “mayprejudice the rights of any creditors” obviously itis insolvent, or more specifically, bankrupt, with itsrealizable assets being less than its liabilities.

Under Section 122, regardless of the mannerof initiating the dissolution (voluntary or

23. Securities and Exchange Commission Rules, Sec. 6-6m.


involuntary) or whether it affects creditors or not,there is a requirement for administrativeadministrativeadministrativeadministrativeadministrativeliquidationliquidationliquidationliquidationliquidation under the jurisdiction of the SEC.

Since the SEC will handle the administrativeor quasi-judicial liquidation of the dissolvedbankrupt corporation, what happens now to thejurisdiction of courts over liquidation under theInsolvency Law? Does this mean that the InsolvencyLaw has been totally repealed by the CorporationCode in so far as corporate liquidation isconcerned? Probably not, for implied repeal is notfavored. Or is there now an option to go eitherthru the court or the SEC when it comes to“corporate liquidation” concurrent jurisdiction? Yes,it would appear so. But then, what rules shall governthe distribution of the proceeds of liquidation?

iiiiivvvvv..... “Concur“Concur“Concur“Concur“Concur rrrrrence and Prence and Prence and Prence and Prence and Prefefefefeferererererence ofence ofence ofence ofence of Cr Cr Cr Cr Credits”edits”edits”edits”edits”vvvvv. . . . . “““““As JAs JAs JAs JAs Justice-Rustice-Rustice-Rustice-Rustice-Requirequirequirequirequires.es.es.es.es.””””” Obviously, it shouldbe the Civil Code rules on Concurrence andPreference of Credits. Notably, however, under Sec.119 on voluntary dissolution where creditors areaffected (i.e., insolvency situation) after thecorporation is dissolved, the SEC is empowered toissue an order “directing such disposition of itsassets as justice requires”as justice requires”as justice requires”as justice requires”as justice requires” even in case ofliquidation in insolvency.

vvvvv..... RRRRRule 104 ofule 104 ofule 104 ofule 104 ofule 104 of R R R R Rules ofules ofules ofules ofules of Cour Cour Cour Cour Court.t.t.t.t. As if the lawsare not muddled enough, we now have Rule 104of the Rules of Court, which apply to “VoluntaryDissolution of Corporations,” which in turn referto the same situations contemplated under Sections118, 119 and 120 of the Corporation Code, sincea corporation can only be dissolved by either


allowing its term to expire or by shortening it, orremoving the corporation from the SEC list ofregistered corporations. In fact, the provisions ofthis particular Rule have been lifted directly fromSection 119 of the Corporation Code the onlydifference being a 4-week publication and postingrequirement of the notice of hearing under Rule104 compared to only a 3-week publicationrequirement under Section 119.

Since the Rules of Court cannot possiblyamend the Corporation Code, in case ofvvvvvoluntaroluntaroluntaroluntaroluntary dissolutiony dissolutiony dissolutiony dissolutiony dissolution and correspondingliquidation, whether for solvent or insolventcorporations, the SEC continues to exerciseadministrative or quasi-judicial jurisdiction as itlikewise exercises jurisdiction over inininininvvvvvoluntaroluntaroluntaroluntaroluntaryyyyydissolutiondissolutiondissolutiondissolutiondissolution and consequential liquidation,whether in insolvency or not.

On the other hand, as far as courts areconcerned, Rule 104 of the Rules of Courtnevertheless continues to apply. Unfortunately,since this Rule was merely copied from Section119, the disposition of assets after dissolution isordered by the court, also “as justice ras justice ras justice ras justice ras justice requirequirequirequirequireseseseses”and not in accordance with the rules ofConcurrence and Preference of Credits in case ofliquidation in insolvency.

vi .vi .vi .vi .vi . Sec. 6(d) ofSec. 6(d) ofSec. 6(d) ofSec. 6(d) ofSec. 6(d) of P P P P P.D.D.D.D.D. No. No. No. No. No. 902-A.. 902-A.. 902-A.. 902-A.. 902-A. The transferof the SEC jurisdiction under P.D. No. 902-A incase of corporate rehabilitation did not help butinstead exacerbated the problem. For underSection 6(d) of P.D. No. 902-A the SEC had thepower to order the dissolution of a corporationin case of a failed attempt at rehabilitation.


Unfortunately, under Section 5.2 of the SecuritiesRegulation Code (R.A. No. 8799) only the SECjurisdiction under Section 5 of P.D. No. 902-Awas transferred to the regular courts. The law wassilent as regards Section 6.

vii .vi i .vi i .vi i .vi i . HarHarHarHarHarmonizing the lamonizing the lamonizing the lamonizing the lamonizing the laws.ws.ws.ws.ws. Since laws are to beinterpreted to give them effect and not to nullifythem, we contend that Rule 104 applies in all casesof voluntary dissolution of corporations andcorresponding liquidation which is not ininsolvency; the SEC jurisdiction in turn applies toinvoluntary dissolution of corporations andcorresponding liquidation which is likewise not ininsolvency; while the special commercial courtshave jurisdiction over all liquidation in insolvency,whether dissolution precedes the liquidation orvice-versa.

Pending formal amendment of the lawsinvolved, in case of involuntary dissolutioninvolving liquidation, the SEC shall, upon issuingan order of dissolution, endorse the liquidation ininsolvency to the special commercial court. Or, theSEC can immediately endorse the corporateliquidation to the special commercial court, withcorporate dissolution with the SEC to follow afterliquidation.

With regard to voluntary dissolution ofcorporations cases, including such cases in thejurisdiction of the special commercial courts willeliminate the problem discussed above.


FFFFF. R. R. R. R. Rules ofules ofules ofules ofules of Pr Pr Pr Pr Procedurocedurocedurocedurocedure on Core on Core on Core on Core on Corporate Rporate Rporate Rporate Rporate Rehabilitationehabilitationehabilitationehabilitationehabilitation

1. For corporations in generalFor corporations in generalFor corporations in generalFor corporations in generalFor corporations in general (other than banks, quasi-banks, insurance companies and corporations).

a.a.a.a.a. Interim RInterim RInterim RInterim RInterim Rules ofules ofules ofules ofules of Pr Pr Pr Pr Procedurocedurocedurocedurocedure on Core on Core on Core on Core on CorporateporateporateporateporateRRRRRehabilitation.ehabilitation.ehabilitation.ehabilitation.ehabilitation. Applicable to cases initiated in theregular courts under Section 5.2 of R.A. No. 8799; and

bbbbb..... SEC RSEC RSEC RSEC RSEC Rules ofules ofules ofules ofules of Pr Pr Pr Pr Procedurocedurocedurocedurocedure on Core on Core on Core on Core on Corporate Rporate Rporate Rporate Rporate Recoecoecoecoecovvvvverererereryyyyy.....Applicable to unfinished insolvency proceedings still beinghandled by the SEC (not transferred to the regular courtsif pending with the SEC as of 30 June 2000).

2. For banks, quasi-banks, insurance companies, andFor banks, quasi-banks, insurance companies, andFor banks, quasi-banks, insurance companies, andFor banks, quasi-banks, insurance companies, andFor banks, quasi-banks, insurance companies, andcooperativescooperativescooperativescooperativescooperatives administrative proceedings.

GGGGG. R. R. R. R. Rules ofules ofules ofules ofules of Pr Pr Pr Pr Procedurocedurocedurocedurocedure on Core on Core on Core on Core on Corporate Liquidation inporate Liquidation inporate Liquidation inporate Liquidation inporate Liquidation inInsolvencyInsolvencyInsolvencyInsolvencyInsolvency

1.1.1.1.1. JJJJJudicial Notice.udicial Notice.udicial Notice.udicial Notice.udicial Notice. It is a matter of judicial notice thatpresently, unlike in the case of corporate rehabilitation asdiscussed above, we do not have judicial rules of procedurefor corporate liquidation in insolvency, either for ordinarycorporations, or “special corporations” namely banks, quasi-banks, insurance companies and cooperatives. In the case ofthe last two (2) special corporations, what they have areadministrative rules of procedure but when the proceedingsare converted to judicial upon liquidation in insolvency, thereare no more governing rules. Of course, in the case ofcooperatives, they have administrative rules on liquidationwhich apply to involuntary dissolution on grounds ofinsolvency, but this only furthers confusion. As for the firsttwo (2), i.e. banks and quasi-banks, they do not even haveformal administrative procedures to speak of.


2.2.2.2.2. For Banks and Quasi-banks. For Banks and Quasi-banks. For Banks and Quasi-banks. For Banks and Quasi-banks. For Banks and Quasi-banks. As regards banks and quasi-banks, the only provision that may be considered “procedural”under R.A. No. 7653 is found in Sec. 30 entitled “Proceedingsin Receivership and Liquidation,” and it pertains only to theright of the stockholders of record representing majority ofthe capital stock to question the closure of the bank or quasi-bank, to wit:

The actions of the Monetary Board taken under thissection or under Section 29 of this Act shall be finaland executory, and may not be restrained or set asideby the court except on petition for certiorari on theground that the action taken was in excess ofjurisdiction or with such grave abuse of discretion asto amount to lack or excess of jurisdiction. The petitionfor certiorari may only be filed by the stockholdersof record representing the majority of the capital stockwithin ten (10) days from receipt by the board ofdirectors of the institution of the order directingreceivership, liquidation or conservatorship.24

3.3.3.3.3. FFFFFor insurance companies.or insurance companies.or insurance companies.or insurance companies.or insurance companies. With regard to insurancecompanies, the counterpart provision of the aforequotedSection 30 that may also be considered “procedural” isfound in Section 249 of the Insurance Code (under TitleXV “Proceedings Upon Insolvency”), and it likewisepertains to the company’s right to contest the closure ofthe insurance company, to wit:

The provision of any law to the contrarynotwithstanding, the actions of the Commissioner underthis Section shall be final and executory, and can be setaside by the Court upon petition by the company and



only if there is convincing proof that the action isplainly arbitrary and made in bad faith. TheCommissioner, through the Solicitor General, shall thenfile the corresponding answer reciting the proceedingstaken and praying for the assistance of the Court inthe liquidation of the company. No restraining orderor injunction shall be issued by the Court enjoiningthe Commissioner from implementing his actions underthis section, unless there is convincing proof that theaction of the Commissioner is plainly arbitrary andmade in bad faith and the petitioner or plaintiff fileswith the clerk or Judge of the Court in which theaction is pending a bond executed in favor of theCommissioner in an amount to be fixed by the Courtx x x.25

4. For Cooperatives.4. For Cooperatives.4. For Cooperatives.4. For Cooperatives.4. For Cooperatives. Likewise, there are no rules of proceduregoverning the judicial liquidationjudicial liquidationjudicial liquidationjudicial liquidationjudicial liquidation of insolvent cooperatives.Cooperatives undergo liquidation under the Insolvency Law(Act 1956) which apply both procedural and substantive rulessimultaneously.

5.5.5.5.5. FFFFFor Coror Coror Coror Coror Corporations in General. porations in General. porations in General. porations in General. porations in General. Outside of those provisionsof the Insolvency Law (Act 1956) which may be consideredprocedural in nature, there are no judicial rules of proceduregoverning the liquidation of insolvent corporations exceptwhat we have already discussed in the case of liquidation indissolutiondissolutiondissolutiondissolutiondissolution (and not for insolvency) under Secs. 117 to122 of the Corporation Code and under Rule 104 of theRules of Court.

25. Presidential Decree No. 1460, as amended, § 249.


II. SII. SII. SII. SII. SUMMARUMMARUMMARUMMARUMMARYYYYY OFOFOFOFOF R R R R RULESULESULESULESULES P P P P PRRRRROPOSEDOPOSEDOPOSEDOPOSEDOPOSED

The Proposed Summary of Rules are as follows:

1. Main features of the Consolidated Interim Rules ofProcedure governing corporate liquidation in insolvency:

a. Consolidated to cover all kinds of corporations;

b. Interim as to be flexible and easier to amend;

c. Limited only to corporations; and

d. Limited only to liquidation in insolvency.

2. It does not amend or change:

a. The administrative nature of corporate rehabilitationproceedings in the case of banks, quasi-banks,insurance companies;

b. The substantive provisions of the Insolvency Lawand for that matter, any other substantive law; and

c. Not even the mischievous provisions of Sections 117to 122 of the Corporation Code.

3. Updates the Insolvency Law Procedures by:

a. Incorporating the procedural provisions of theInsolvency Law after updating their language toconform to current law, rules, and regulations.

b. Clarifying the meaning of, among others,“administrative expense”; “bankruptcy estate”;“claims”; “barred claims”; “claimant”; “insolvency”;“liquidation”; “liquidation plan”; “liquidator”;“ownership interest”; “stakeholders”; “third partyclaimant”; and allowing the intervention of a thirdparty claimant.


c. Clarifying the procedures for commencement of bothVoluntary and Involuntary Liquidation proceedingsas to:

i. Substantive allegations to support the Petition;

ii. Required attachments to the Petition;

iii. Verification – updated to cover references to noforum shopping;

iv. Amount of Filing Fees;

v. Amount of Bond – left to the discretion of thecourt; and

vi. Adjudication or Commencement Order.

d. Introducing no forum shopping and mediationrequirements and making Insolvency Proceduresavailable to cross-border insolvency.

e. Adopting the general provisions embodied in theSupreme Court Interim Rules of Procedure onCorporate Rehabilitation and the Rules of Court.

f. Incorporating parallel concepts from the Law onSuccession embodied in the Rules of Court as regardsthe actions to be filed by or against the Liquidator orAssignee.

g. Expanding the role of the court in fixing the amountof bond, appointment of the Liquidator anddetermining his compensation and initiating thespeedy conversion to liquidation if corporaterehabilitation is not feasible.

h. Allowing the referral of receivables to collectionagents and the use of appraisers, brokers andauctioneers in the marketing of assets.


i. Adopting the provisions of the SEC’s Rules onCorporate Recovery with regard to the LiquidationPlan and Liquidation in general.

4. Facilitates the transition from corporate rehabilitation tocorporate liquidation regardless of the type of corporationthrough appropriate conversion proceedings and byallowing such conversion by mere motion or upon motuproprio order of the court.

5. Provides clearer guidelines for the qualifications, election,appointment, compensation, powers and functions of theLiquidator or Assignee:

a. As to qualifications, it stresses experience, formaltraining, know how, character, and absence of conflict;

b. Election of Liquidator by creditors with majority asto both number and amount claimed (Under Sec 30,IL, two-thirds (2/3) as to number, three-fifths (3/5) as to amount of claim);

c. Appointment of Liquidator by court when creditorsdo not attend election or fail or refuse to elect anAssignee or Assignee fails to qualify or dies (Sec. 31of IL);

d. Guidelines on compensation of Liquidator – fixesthe maximum rates payable but actual amount to bepaid the Liquidator considers the assets he handledand distributed, the savings he realized, the level ofadministrative expenses he incurred, the contingencyor certainty of the Liquidator’s compensation, hiseducational attainment, qualifications, experience,know how and professional standing and of coursehis achievement of the objectives of liquidation i.e.


to preserve if not enhance the value of assets anddistribute it speedily to the claimants; and

e. The objectives, principal tasks, and main tasks ofliquidation as well as the specific powers and dutiesof the Liquidator are clearly outlined in the Rules.

6. Consolidates the procedure on Liquidation proceedingsas to:

a. Adjudication Order declaring insolvency; and

b. Stay Order against all actions, attachments, andexecutions including foreclosures.

i. Stay on secured creditors – Stay limited to 180days.

• Treatment of secured creditors under Sec. 59of the IL.

• Articles 2247 and 2249 in relation to Arts.2243, 2241 and 2242 of the Civil Code on“Concurrence and Preference of Credits.”

ii. Stay of execution (Sec. 6 of IL – three (3)months).

iii. Stay of action and attachment (Sec. 60 of theIL) – until question of discharge is resolved.

iv. Suspension of proceedings upon granting of Orderof Adjudication (Sec. 24, IL).

c. Publication of Adjudication Order and Notice.

d. Turn over of assets to the Liquidator.

e. Order to take over custody of debtor’s property (Sec.26, IL) for the benefit of all creditors (Sec. 27, IL).


f. Form, content, approval and implementation of theLiquidation Plan.

g. Procedures for filing and proof of claims madeuniform and patterned after IL as well as proceduresof countries with well developed insolvency systemsi.e. ,USA.

7. Updates the rules on the distribution of the proceeds ofliquidation by incorporating current laws andjurisprudence in the rules on concurrence and Preferenceof Credits as well as in the orororororder ofder ofder ofder ofder of pa pa pa pa paymentymentymentymentyment itself, andadding new provisions to facilitate and expedite thedistribution of the proceeds of liquidation.

RRRRReeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 8762. 8762. 8762. 8762. 8762

AAAAANNNNN A A A A ACTCTCTCTCT L L L L LIBERALIZINGIBERALIZINGIBERALIZINGIBERALIZINGIBERALIZING THETHETHETHETHE R R R R RETETETETETAILAILAILAILAIL TTTTTRADERADERADERADERADE

BBBBBUSINESSUSINESSUSINESSUSINESSUSINESS, R, R, R, R, REPEALINGEPEALINGEPEALINGEPEALINGEPEALING FORFORFORFORFOR THETHETHETHETHE P P P P PURPOSEURPOSEURPOSEURPOSEURPOSE

RRRRREPUBLICEPUBLICEPUBLICEPUBLICEPUBLIC A A A A ACTCTCTCTCT N N N N NOOOOO. 1180, . 1180, . 1180, . 1180, . 1180, ASASASASAS A A A A AMENDEDMENDEDMENDEDMENDEDMENDED, , , , , ANDANDANDANDAND

FORFORFORFORFOR O O O O OTHERTHERTHERTHERTHER P P P P PURPOSESURPOSESURPOSESURPOSESURPOSES

Be it enacted by the Senate and House of Representatives of thePhilippines in Congress assembled:

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. TTTTTitle.itle.itle.itle.itle. – This Act shall be known as the “RetailTrade Liberalization Act of 2000.” SSSSSECECECECEC. 2.. 2.. 2.. 2.. 2. DecDecDecDecDeclaration oflaration oflaration oflaration oflaration of P P P P Policolicolicolicolicyyyyy..... – It is the policy of the Stateto promote consumer welfare in attracting, promoting andwelcoming productive investments that will bring down pricesfor the Filipino consumer, create more jobs, promote tourism,assist small manufacturers, stimulate economic growth and enablePhilippine goods and services to become globally competitivethrough the liberalization of the retail trade sector.

Pursuant to this policy, the Philippine retail industry is herebyliberalized to encourage Filipino and foreign investors to forgean efficient and competitive retail trade sector in the interest ofempowering the Filipino consumer through lower prices, higherquality goods, better services and wider choices.

SSSSSECECECECEC. 3.. 3.. 3.. 3.. 3. Definition.Definition.Definition.Definition.Definition. – As used in this Act:

(1) “Retail Trade” shall mean any act, occupation or callingof habitually selling direct to the general public

1992004] REPUBLIC ACT NO. 8762

merchandise, commodities or goods for consumption, butthe restriction of this law shall not apply to the following:

(a) Sales by a manufacturer, processor, laborer, or worker,to the general public the products manufactured,processed or produced by him if his capital does notexceed One Hundred Thousand Pesos(Php100,000.00);

(b) Sales by a farmer or agriculturist selling the productsof his farm;

(c) Sales in restaurant operations by a hotel owner orinnkeeper irrespective of the amount of capital:Provided, that the restaurant is incidental to the hotelbusiness; and

(d) Sales which are limited only to products manufactured,processed or assembled by a manufacturer through asingle outlet, irrespective of capitalization.

(2) “High-end or luxury goods” shall refer to goods whichare not necessary for life maintenance and whose demandis generated in large part by the highest income groups.Luxury goods shall include, but are not limited to,products such as: jewelry, branded or designer clothingand footwear, wearing apparel, leisure and sporting goods,electronics and other personal effects.

SSSSSECECECECEC. 4.. 4.. 4.. 4.. 4. TTTTTrrrrreatment ofeatment ofeatment ofeatment ofeatment of Natural-Bor Natural-Bor Natural-Bor Natural-Bor Natural-Born Citizen n Citizen n Citizen n Citizen n Citizen WWWWWho Hasho Hasho Hasho Hasho HasLost His Philippine CitizenshipLost His Philippine CitizenshipLost His Philippine CitizenshipLost His Philippine CitizenshipLost His Philippine Citizenship..... – A natural-born citizenof the Philippines who has lost his Philippine citizenship butwho resides in the Philippines shall be granted the same rights asFilipino citizens for purposes of this Act.


SSSSSECECECECEC. 5.. 5.. 5.. 5.. 5. FFFFForororororeign Equity Peign Equity Peign Equity Peign Equity Peign Equity Parararararticipation. ticipation. ticipation. ticipation. ticipation. – Foreign-ownedpartnerships, associations and corporations formed and organizedunder the laws of the Philippines may, upon registration with theSecurities and Exchange Commission (SEC) and the Departmentof Trade and Industry (DTI), or in case of foreign-owned singleproprietorships, with the DTI, engage or invest in the retail tradebusiness, subject to the following categories:

Category ACategory ACategory ACategory ACategory A – Enterprises with paid-up capital of theequivalent in Philippine Pesos of less thanTwo million five hundred thousand USdollars (US$2,500,000.00) shall be reservedexclusively for Filipino citizens andcorporations wholly owned by Filipinocitizens.

Category BCategory BCategory BCategory BCategory B – Enterprises with a minimum paid-up capitalof the equivalent in Philippine Pesos of Twomillion five hundred thousand US dollars(US$2,500,000.00) but less than Sevenmillion five hundred US dollars(US$7,500,00.00) may be wholly owned byforeigners except for the first two (2) yearsafter the effectivity of this Act wherein foreignparticipation shall be limited to not morethan sixty percent (60%) of total equity.

Category CCategory CCategory CCategory CCategory C – Enterprises with a paid-up capital of theequivalent in Philippine Pesos of Sevenmillion five hundred thousand US dollars(US$7,500,000.00) or more may be whollyowned by foreigners: Provided, however, thatin no case shall the investments forestablishing a store in Categories B and C be


less than the equivalent in Philippine Pesosof Eight hundred thirty thousand US dollars(US$830,000.00).

Category DCategory DCategory DCategory DCategory D –Enterprises specializing in high-end or luxuryproducts with a paid-up capital of theequivalent in Philippine Pesos of Twohundred fifty thousand US dollars(US$250,000.00) per store may be wholly-owned by foreigners.

The foreign investor shall be required to maintain in thePhilippines the full amount of the prescribed minimum capital, unless the foreign investor has notified the SEC and the DTI ofits intention to repatriate its capital and cease operations in thePhilippines. The actual use in Philippine operations of theinwardly remitted minimum capital requirements shall bemonitored by the SEC.

Failure to maintain the full amount of the prescribedminimum capital prior to notification of the SEC and the DTI,shall subject the foreign investor to penalties or restrictions onany future trading activities/ business in the Philippines.

Foreign retail stores shall secure a certification from theBangko Sentral ng Pilipinas (BSP) and the DTI, which will verifyor confirm inward remittance of the minimum required capitalinvestment.

SSSSSECECECECEC. 6.. 6.. 6.. 6.. 6. F F F F Forororororeign Ineign Ineign Ineign Ineign Invvvvvestors Acquiring Sharestors Acquiring Sharestors Acquiring Sharestors Acquiring Sharestors Acquiring Shares ofes ofes ofes ofes of Stoc Stoc Stoc Stoc Stock ofk ofk ofk ofk ofLocal RLocal RLocal RLocal RLocal Retailers.etailers.etailers.etailers.etailers. – Foreign Investors acquiring shares fromexisting retail stores whether or not publicly listed whose net worthis in excess of the peso equivalent of Two million five hundredthousand US dollars (US$2,500,000.00) may purchase only upto a minimum of sixty percent (60%) of the equity thereof


within the first two (2) years from the effectivity of this Act andthereafter, they may acquire the remaining percentage consistentwith the allowable foreign participation as herein provided. SSSSSECECECECEC. 7.. 7.. 7.. 7.. 7. Public Offering of Shares of Stock.Public Offering of Shares of Stock.Public Offering of Shares of Stock.Public Offering of Shares of Stock.Public Offering of Shares of Stock. – All retailtrade enterprises under Categories B and C in which foreignownership exceeds eighty percent (80%) of equity shall offer aminimum of thirty percent (30%) of their equity to the publicthrough any stock exchange in the Philippines within eight (8)years from their start of operations. SSSSSECECECECEC. 8. . 8. . 8. . 8. . 8. QualifQualifQualifQualifQualifications ofications ofications ofications ofications of F F F F Forororororeign Reign Reign Reign Reign Retailers.etailers.etailers.etailers.etailers. – No foreignretailer shall be allowed to engage in retail trade in the Philippinesunless all the following qualifications are met:

(a) A minimum of Two hundred million US dollars(US$200,000,000.00) net worth in its parent corporationfor Categories B and C, and Fifty million US dollars(US$50,000,000.00) net worth in its parent corporationfor Category D;

(b) Five (5) retailing branches or franchises in operationanywhere around the world unless such retailers has atleast one (1) store capitalized at a minimum of Twenty-five million US dollars (US$25,000,000.00);

(c) Five (5)-year track record in retailing; and

(d) Only nationals from, or judicial entities formed orincorporated in countries which allow the entry ofFilipino retailers shall be allowed to engage in retail tradein the Philippines.

The DTI is hereby authorized to pre-qualify all foreignretailers, subject to the provisions of this Act, before they areallowed to conduct business in the Philippines.


The DTI shall keep a record of qualified foreign retailerswho may, upon compliance with law, establish retail stores in thePhilippines. It shall ensure that the parent retail trading companyof the foreign investor complies with the qualifications oncapitalization and track record prescribed in this Section.

The Inter-Agency Committee on Tariff and Related Mattersof the National Economic Development Authority (NEDA)Board shall formulate and regularly update a list of foreign retailersof high-end or luxury goods and render an annual report on thesame to Congress. SSSSSECECECECEC. 9.. 9.. 9.. 9.. 9. Promotion of Locally Manufactured Products.Promotion of Locally Manufactured Products.Promotion of Locally Manufactured Products.Promotion of Locally Manufactured Products.Promotion of Locally Manufactured Products.– For ten (10) years after the effectivity of this Act, at least thirtypercent (30%) of the aggregate cost of the stock inventory offoreign retailers falling under Categories B and C and ten percent(10%) for Category D shall be made in the Philippines.

SSSSSECECECECEC. 10.. 10.. 10.. 10.. 10. Prohibited Activities of Qualified ForeignProhibited Activities of Qualified ForeignProhibited Activities of Qualified ForeignProhibited Activities of Qualified ForeignProhibited Activities of Qualified ForeignRRRRRetailers.etailers.etailers.etailers.etailers. – Qualified foreign retailers shall not be allowed toengage in certain retailing activities outside their accredited storesthrough the use of mobile or rolling stores or carts, the use ofsales representatives, door-to-door selling, restaurants and sari-sari stores and such other similar retailing activities: Provided,that a detailed list of prohibited activities shall hereafter beformulated by the DTI.

SSSSSECECECECEC. 11.. 11.. 11.. 11.. 11. Implementing AgImplementing AgImplementing AgImplementing AgImplementing Agencencencencency; Ry; Ry; Ry; Ry; Rules and Rules and Rules and Rules and Rules and Reeeeegulations.gulations.gulations.gulations.gulations.– The monitoring and regulation of foreign sole proprietorships,partnerships, associations or corporations allowed to engage inretail trade shall be the responsibility of the DTI. This shall includeresolution of conflicts.


The DTI, in coordination with the SEC, the NEDA and theBSP shall formulate and issue the implementing rules andregulations necessary to implement this Act within ninety (90)days after its approval.

SSSSSECECECECEC. 12.. 12.. 12.. 12.. 12. PPPPPenalty Clause.enalty Clause.enalty Clause.enalty Clause.enalty Clause. – Any person who shall be foundguilty of violation of any provision of this Act shall be punishedby imprisonment of not less than six (6) years and one (1) daybut not more than eight (8) years, and a fine of not less than Onemillion pesos (Php1,000,000.00) but not more than Twentymillion pesos (Php20,000,000.00). In the case of associations,partnerships or corporations, the penalty shall be imposed uponits partners, president, directors, managers and other officersresponsible for the violation. If the offender is not a citizen ofthe Philippines, he shall be deported immediately after service ofsentence. If the Filipino offender is a public officer or employee,he shall, in addition to the penalty prescribed herein, sufferdismissal and permanent disqualification from public office. SSSSSECECECECEC. 13.. 13.. 13.. 13.. 13. RRRRReeeeepealing Clause.pealing Clause.pealing Clause.pealing Clause.pealing Clause. – Republic Act No. 1180, asamended, is hereby repealed. Republic Act No. 3018, as amended,and all other laws, executive orders, rules and regulations or partsthereof inconsistent with this Act are repealed or modifiedaccordingly.

SSSSSECECECECEC. 14. . 14. . 14. . 14. . 14. SeSeSeSeSeparability Clause. – parability Clause. – parability Clause. – parability Clause. – parability Clause. – If any provision of this Actshall be held unconstitutional, the other provisions not otherwiseaffected thereby shall remain in force and effect.

SSSSSECECECECEC. 15. . 15. . 15. . 15. . 15. EfEfEfEfEffffffectiectiectiectiectivityvityvityvityvity. . . . . – This Act shall take effect fifteen (15)days after its approval and publication in at least two (2)newspapers of general circulation in the Philippines.

Approved, March 7, 2000.


AAAAANNNNN A A A A ACTCTCTCTCT P P P P PRRRRROOOOOVIDINGVIDINGVIDINGVIDINGVIDING FORFORFORFORFOR THETHETHETHETHE R R R R RECOGNITIONECOGNITIONECOGNITIONECOGNITIONECOGNITION ANDANDANDANDAND

UUUUUSESESESESE OFOFOFOFOF E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC C C C C COMMEROMMEROMMEROMMEROMMERCIALCIALCIALCIALCIAL ANDANDANDANDAND N N N N NONONONONON-----CCCCCOMMEROMMEROMMEROMMEROMMERCIALCIALCIALCIALCIAL TTTTTRANSARANSARANSARANSARANSACTIONSCTIONSCTIONSCTIONSCTIONS ANDANDANDANDAND D D D D DOCUMENTSOCUMENTSOCUMENTSOCUMENTSOCUMENTS,,,,,

PPPPPENENENENENALALALALALTIESTIESTIESTIESTIES FORFORFORFORFOR U U U U UNLANLANLANLANLAWFULWFULWFULWFULWFUL U U U U USESESESESE TTTTTHEREOFHEREOFHEREOFHEREOFHEREOF ANDANDANDANDAND FORFORFORFORFOR

OOOOOTHERTHERTHERTHERTHER P P P P PURPOSESURPOSESURPOSESURPOSESURPOSES


PPPPPARARARARARTTTTT I I I I ISSSSSHORHORHORHORHORTTTTT TTTTTITLEITLEITLEITLEITLE ANDANDANDANDAND D D D D DECLARAECLARAECLARAECLARAECLARATIONTIONTIONTIONTION OFOFOFOFOF P P P P POLICYOLICYOLICYOLICYOLICY

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. ShorShorShorShorShort t t t t TTTTTitle.itle.itle.itle.itle. – This Act shall be known as the“Electronic Commerce Act of 2000.”

SSSSSECECECECEC. 2.. 2.. 2.. 2.. 2. DecDecDecDecDeclaration oflaration oflaration oflaration oflaration of P P P P Policolicolicolicolicyyyyy..... – The State recognizes thevital role of information and communications technology (ICT)in nation-building; the need to create an information-friendlyenvironment which supports and ensures the availability, diversityand affordability of ICT products and services; the primaryresponsibility of the private sector in contributing investmentsand services in telecommunications and information technology;the need to develop, with appropriate training programs andinstitutional policy changes, human resources for the informationtechnology age, a labor force skilled in the use of ICT and apopulation capable of operating and utilizing electronic appliancesand computers; its obligation to facilitate the transfer andpromotion of adaptation technology, to ensure network security,connectivity and neutrality of technology for the national benefit;


and the need to marshal, organize and deploy national informationinfrastructures, comprising in both telecommunications networkand strategic information services, including their interconnectionto the global information networks, with the necessary andappropriate legal, financial, diplomatic and technical framework,systems and facilities.

PPPPPARARARARARTTTTT II II II II IIEEEEELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC C C C C COMMEROMMEROMMEROMMEROMMERCECECECECE INININININ G G G G GENERALENERALENERALENERALENERAL

CCCCCHAPTERHAPTERHAPTERHAPTERHAPTER I I I I IGGGGGENERALENERALENERALENERALENERAL P P P P PRRRRROOOOOVISIONSVISIONSVISIONSVISIONSVISIONS

SSSSSECTIONECTIONECTIONECTIONECTION 3. 3. 3. 3. 3. ObjectiObjectiObjectiObjectiObjectivvvvve.e.e.e.e. – This Act aims to facilitate domesticand international dealings, transactions, arrangements, agreements,contracts and exchanges and storage of information through theutilization of electronic, optical and similar medium, mode,instrumentality and technology to recognize the authenticity andreliability of electronic documents related to such activities andto promote the universal use of electronic transaction in thegovernment and general public.

SSSSSECECECECEC. 4.. 4.. 4.. 4.. 4. SpherSpherSpherSpherSphere ofe ofe ofe ofe of A A A A Application.pplication.pplication.pplication.pplication. – This Act shall apply to anykind of data message and electronic document used in the contextof commercial and non-commercial activities to include domesticand international dealings, transactions, arrangements, agreements,contracts and exchanges and storage of information.

SSSSSECECECECEC. 5. . 5. . 5. . 5. . 5. DefDefDefDefDefinition ofinition ofinition ofinition ofinition of TTTTTerererererms.ms.ms.ms.ms. – For the purposes of this Act,the following terms are defined, as follows:


a. “Addressee” refers to a person who is intended by theoriginator to receive the electronic data message orelectronic document. The term does not include a personacting as an intermediary with respect to that electronicdata message or electronic document.

b. “Computer” refers to any device or apparatus which, byelectronic,electro-mechanical or magnetic impulse, or byother means, is capable of receiving, recording,transmitting, storing, processing, retrieving, or producinginformation, data, figures, symbols or other modes ofwritten expression according to mathematical and logicalrules or of performing any one or more of those functions.

c. “Electronic Data Message” refers to informationgenerated, sent, received or stored by electronic, opticalor similar means.

d. “Information and Communication System” refers to asystem intended for and capable of generating, sending,receiving, storing or otherwise processing electronic datamessages or electronic documents and includes thecomputer system or other similar device by or in whichdata is recorded or stored and any procedures related tothe recording or storage of electronic data message orelectronic document.

e. “Electronic Signature” refers to any distinctive mark,characteristic and/or sound in electronic form,representing the identity of a person and attached to orlogically associated with the electronic data message orelectronic document or any methodology or proceduresemployed or adopted by a person and executed or adoptedby such person with the intention of authenticating or


approving an electronic data message or electronicdocument.

f. “Electronic Document” refers to information or therepresentation of information, data, figures, symbols orother modes of written expression, described or howeverrepresented, by which a right is established or an obligationextinguished, or by which a fact may be proved andaffirmed, which is received, recorded, transmitted, stored,processed, retrieved or produced electronically.

g. “Electronic Key” refers to a secret code which secures anddefends sensitive information that crosses over publicchannels into a form decipherable only with a matchingelectronic key.

h. “Intermediary” refers to a person who in behalf of anotherperson and with respect to a particular electronic documentsends, receives and/or stores or provides other services inrespect of that electronic document.

i. “Originator” refers to a person by whom, or on whosebehalf, the electronic document purports to have beencreated, generated and/or sent . The term does not includea person acting as an intermediary with respect to thatelectronic document.

j. “Service Provider” refers to a provider of –

(i) On-line services or network access, or the operator offacilities therefor, including entities offering thetransmission, routing, or providing of connectionsfor online communications, digital or otherwise,between or among points specified by a user, ofelectronic documents of the user’s choosing; or


(ii) The necessary technical means by which electronicdocuments of an originator may be stored and madeaccessible to a designated or undesignated third party.

Such service providers shall have no authority to modifyor alter the content of the electronic data message orelectronic document received or to make any entry thereinon behalf of the originator, addressee or any third partyunless specifically authorized to do so, and who shall retainthe electronic document in accordance with the specificrequest or as necessary for the purpose of performing theservices it was engaged to perform.

CCCCCHAPTERHAPTERHAPTERHAPTERHAPTER II II II II IILLLLLEGALEGALEGALEGALEGAL R R R R RECOGNITIONECOGNITIONECOGNITIONECOGNITIONECOGNITION OFOFOFOFOF E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC WWWWWRITINGRITINGRITINGRITINGRITING

OROROROROR D D D D DOCUMENTOCUMENTOCUMENTOCUMENTOCUMENT ANDANDANDANDAND D D D D DAAAAATTTTTAAAAA M M M M MESSAESSAESSAESSAESSAGESGESGESGESGES

SSSSSECTIONECTIONECTIONECTIONECTION 6. 6. 6. 6. 6. LeLeLeLeLegggggal Ral Ral Ral Ral Recognition ofecognition ofecognition ofecognition ofecognition of Data Messag Data Messag Data Messag Data Messag Data Messageseseseses..... –Information shall not be denied legal effect, validity orenforceability solely on the grounds that it is in the data messagepurporting to give rise to such legal effect, or that it is merelyreferred to in that electronic data message.

SSSSSECECECECEC. 7.. 7.. 7.. 7.. 7. LeLeLeLeLegggggal Ral Ral Ral Ral Recognition ofecognition ofecognition ofecognition ofecognition of Electr Electr Electr Electr Electronic Documents.onic Documents.onic Documents.onic Documents.onic Documents. –Electronic documents shall have the legal effect, validity orenforceability as any other document or legal writing, and –

(a) Where the law requires a document to be in writing, thatrequirement is met by an electronic document if the saidelectronic document maintains its integrity and reliabilityand can be authenticated so as to be usable for subsequentreference, in that –


(i) The electronic document has remained complete andunaltered, apart from the addition of any endorsementand any authorized change, or any change which arisesin the normal course of communication, storage anddisplay; and

(ii) The electronic document is reliable in the light ofthe purpose for which it was generated and in thelight of all the relevant circumstances.

(b) Paragraph (a) applies whether the requirement therein isin the form of an obligation or whether the law simplyprovides consequences for the document not beingpresented or retained in its original form.

(c) Where the law requires that a document be presented orretained in its original form, that requirement is met byan electronic document if –

(i) There exists a reliable assurance as to the integrity ofthe document from the time when it was firstgenerated in its final form; and

(ii) That document is capable of being displayed to theperson to whom it is to be presented: Provided, Thatno provision of this Act shall apply to vary any andall requirements of existing laws on formalitiesrequired in the execution of documents for theirvalidity.

For evidentiary purposes, an electronic document shall be thefunctional equivalent of a written document under existing laws.

This Act does not modify any statutory rule relating to theadmissibility of electronic data messages or electronic documents,except the rules relating to authentication and best evidence.


SSSSSECECECECEC. 8.. 8.. 8.. 8.. 8. LeLeLeLeLegggggal Ral Ral Ral Ral Recognition ofecognition ofecognition ofecognition ofecognition of Electr Electr Electr Electr Electronic Signaturonic Signaturonic Signaturonic Signaturonic Signatureseseseses. . . . . –An electronic signature on the electronic document shall beequivalent to the signature of a person on a written document ifthat signature is proved by showing that a prescribed procedure,not alterable by the parties interested in the electronic document,existed under which –

(a) A method is used to identify the party sought to be boundand to indicate said party’s access to the electronicdocument necessary for his consent or approval throughthe electronic signature;

(b) Said method is reliable and appropriate for the purposefor which the electronic document was generated orcommunicated, in the light of all the circumstances,including any relevant agreement;

(c) It is necessary for the party sought to be bound, in orderto proceed further with the transaction, to have executedor provided the electronic signature; and

(d) The other party is authorized and enabled to verify theelectronic signature and to make the decision to proceedwith the transaction authenticated by the same.

SSSSSECECECECEC. 9. . 9. . 9. . 9. . 9. PrPrPrPrPresumption Resumption Resumption Resumption Resumption Relating to Electrelating to Electrelating to Electrelating to Electrelating to Electronic Signaturonic Signaturonic Signaturonic Signaturonic Signatureseseseses..... -In any proceedings involving an electronic signature, it shall bepresumed that –

(a) The electronic signature is the signature of the person towhom it correlates; and

(b) The electronic signature was affixed by that person withthe intention of signing or approving the electronicdocument unless the person relying on the electronicallysigned electronic document knows or has notice of defects


in or unreliability of the signature or reliance on theelectronic signature is not reasonable under thecircumstances.

SSSSSECECECECEC. 10.. 10.. 10.. 10.. 10. Original Documents.Original Documents.Original Documents.Original Documents.Original Documents. –

(1) Where the law requires information to be presented or retainedin its original form, that requirement is met by an electronicdata message or electronic document if:

(a) the integrity of the information from the time when itwas first generated in its final form, as an electronic datamessage or electronic document is shown by evidencealiunde or otherwise; and

(b) where it is required that information be presented, thatthe information is capable of being displayed to the personto whom it is to be presented.

(2) Paragraph (1) applies whether the requirement therein is inthe form of an obligation or whether the law simply providesconsequences for the information not being presented orretained in its original form.

(3) For the purposes of subparagraph (a) of paragraph (1):

(a) the criteria for assessing integrity shall be whether theinformation has remained complete and unaltered, apartfrom the addition of any endorsement and any changewhich arises in the normal course of communication,storage and display; and

(b) the standard of reliability required shall be assessed in thelight of the purpose for which the information wasgenerated and in the light of all relevant circumstances.


SSSSSECECECECEC. 11.. 11.. 11.. 11.. 11. Authentication of Electronic Data MessagesAuthentication of Electronic Data MessagesAuthentication of Electronic Data MessagesAuthentication of Electronic Data MessagesAuthentication of Electronic Data Messagesandandandandand ElectrElectrElectrElectrElectronic Documents.onic Documents.onic Documents.onic Documents.onic Documents. – Until the Supreme Court byappropriate rules shall have so provided, electronic documents,electronic data messages and electronic signatures, shall beauthenticated by demonstrating, substantiating and validating aclaimed identity of a user, device, or another entity in aninformation or communication system, among other ways, asfollows:

(a) The electronic signature shall be authenticated by proofthat a letter, character, number or other symbol inelectronic form representing the persons named in andattached to or logically associated with an electronic datamessage, electronic document, or that the appropriatemethodology or security procedures, when applicable, wereemployed or adopted by a person and executed or adoptedby such person, with the intention of authenticating orapproving an electronic data message or electronicdocument;

(b) The electronic data message and electronic document shallbe authenticated by proof that an appropriate securityprocedure, when applicable was adopted and employedfor the purpose of verifying the originator of an electronicdata message and/or electronic document, or in detectingerror or alteration in the communication, content orstorage of an electronic document or electronic datamessage from a specific point, which, using algorithm orcodes, identifying words or numbers, encryptions, answersback or acknowledgment procedures, or similar securitydevices.

The Supreme Court may adopt such other authenticationprocedures, including the use of electronic notarization systems


as necessary and advisable, as well as the certificate ofauthentication on printed or hard copies of the electronicdocument or electronic data messages by electronic notaries, serviceproviders and other duly recognized or appointed certificationauthorities.

The person seeking to introduce an electronic data messageand electronic document in any legal proceeding has the burdenof proving its authenticity by evidence capable of supporting afinding that the electronic data message and electronic documentis what the person claims it to be.

In the absence of evidence to the contrary, the integrity ofthe information and communication system in which an electronicdata message or electronic document is recorded or stored may beestablished in any legal proceeding –

(a) By evidence that at all material times the informationand communication system or other similar device wasoperating in a manner that did not affect the integrity ofthe electronic data message and/or electronic document,and there are no other reasonable grounds to doubt theintegrity of the information and communication system;

(b) By showing that the electronic data message and/orelectronic document was recorded or stored by a party tothe proceedings who is adverse in interest to the partyusing it; or

(c) By showing that the electronic data message and/orelectronic document was recorded or stored in the usualand ordinary course of business by a person who is not aparty to the proceedings and who did not act under thecontrol of the party using the record.


SSSSSECECECECEC. 12.. 12.. 12.. 12.. 12. Admissibility and Evidential Admissibility and Evidential Admissibility and Evidential Admissibility and Evidential Admissibility and Evidential WWWWWeight ofeight ofeight ofeight ofeight ofElectronic DataElectronic DataElectronic DataElectronic DataElectronic Data Message and Electronic Documents.Message and Electronic Documents.Message and Electronic Documents.Message and Electronic Documents.Message and Electronic Documents. –In any legal proceedings, nothing in the application of the ruleson evidence shall deny the admissibility of an electronic datamessage or electronic document in evidence –

a. On the sole ground that it is in electronic form; or

b. On the ground that it is not in the standard written form,and the electronic data message or electronic documentmeeting, and complying with the requirements underSections 6 or 7 hereof shall be the best evidence of theagreement and transaction contained therein.

In assessing the evidential weight of an electronic data messageor electronic document, the reliability of the manner in which itwas generated, stored or communicated, the reliability of themanner in which its originator was identified, and other relevantfactors shall be given due regard.

SSSSSECECECECEC. 13.. 13.. 13.. 13.. 13. RRRRRetention ofetention ofetention ofetention ofetention of Electr Electr Electr Electr Electronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Message ande ande ande ande andElectrElectrElectrElectrElectroniconiconiconiconic Document.Document.Document.Document.Document. – Notwithstanding any provision oflaw, rule or regulation to the contrary –

(a) The requirement in any provision of law that certaindocuments be retained in their original form is satisfiedby retaining them in the form of an electronic datamessage or electronic document which –

i. Remains accessible so as to be usable for subsequentreference;

ii. Is retained in the format in which it was generated,sent or received, or in a format which can bedemonstrated to accurately represent the electronic


data message or electronic document generated, sentor received;

iii. Enables the identification of its originator andaddressee, as well as the determination of the dateand the time it was sent or received.

(b) The requirement referred to in paragraph (a) is satisfiedby using the services of a third party, provided that theconditions set forth in subparagraphs (i), (ii) and (iii) ofparagraph (a) are met.

SSSSSECECECECEC. 14. . 14. . 14. . 14. . 14. PrPrPrPrProofoofoofoofoof By Af By Af By Af By Af By Affffffidaidaidaidaidavit. vit. vit. vit. vit. – The matters referred to inSection 12, on admissibility and Section 9, on the presumptionof integrity, may be presumed to have been established by anaffidavit given to the best of the deponent’s knowledge subjectto the rights of parties in interest as defined in the followingsection.

SSSSSECECECECEC. 15. . 15. . 15. . 15. . 15. Cross-Examination.Cross-Examination.Cross-Examination.Cross-Examination.Cross-Examination. –

(1) A deponent of an affidavit referred to in Section 14 that hasbeen introduced in evidence may be cross-examined as ofright by a party to the proceedings who is adverse in interestto the party who has introduced the affidavit or has causedtheaffidavit to be introduced.

(2) Any party to the proceedings has the right to cross-examine aperson referred to in Section 11, paragraph 4, sub-paragraph c.


CCCCCHAPTERHAPTERHAPTERHAPTERHAPTER III III III III IIICCCCCOMMUNICAOMMUNICAOMMUNICAOMMUNICAOMMUNICATIONTIONTIONTIONTION OFOFOFOFOF E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DAAAAATTTTTAAAAA

MMMMMESSAESSAESSAESSAESSAGESGESGESGESGES ANDANDANDANDAND E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DOCUMENTSOCUMENTSOCUMENTSOCUMENTSOCUMENTS

SSSSSECTIONECTIONECTIONECTIONECTION 16. 16. 16. 16. 16. FFFFFororororormation and mation and mation and mation and mation and VVVVValidity ofalidity ofalidity ofalidity ofalidity of Electr Electr Electr Electr ElectroniconiconiconiconicContractsContractsContractsContractsContracts..... –

(1) Except as otherwise agreed by the parties, an offer, theacceptance of an offer and such other elements required underexisting laws for the formation of contracts may be expressedin, demonstrated and proved by means of electronic datamessage or electronic documents and no contract shall bedenied validity or enforceability on the sole ground that it isin the form of an electronic data message or electronicdocument, or that any or all of the elements required underexisting laws for the formation of the contracts is expressed,demonstrated and proved by means of electronic documents.

(2) Electronic transactions made through networking amongbanks, or linkages thereof with other entities or networks,and vice versa, shall be deemed consummated upon the actualdispensing of cash or the debit of one account and thecorresponding credit to another, whether such transaction isinitiated by the depositor or by an authorized collecting party:Provided, that the obligation of one bank, entity, or personsimilarly situated to another arising therefrom shall beconsidered absolute and shall not be subjected to the processof preference of credits.

SSSSSECECECECEC. 17. . 17. . 17. . 17. . 17. RRRRRecognition becognition becognition becognition becognition by Py Py Py Py Pararararar ties ofties ofties ofties ofties of Electr Electr Electr Electr Electronic Dataonic Dataonic Dataonic Dataonic DataMessagMessagMessagMessagMessage ore ore ore ore or ElectrElectrElectrElectrElectronic Document. onic Document. onic Document. onic Document. onic Document. – As between theoriginator and the addressee of a electronic data message orelectronic document, a declaration of will or other statement shall


not be denied legal effect, validity or enforceability solely on theground that it is in the form of an electronic data message orelectronic document.

SSSSSECECECECEC. 18.. 18.. 18.. 18.. 18. Attribution of Electronic Data Message.Attribution of Electronic Data Message.Attribution of Electronic Data Message.Attribution of Electronic Data Message.Attribution of Electronic Data Message. –

(1) An electronic data message or electronic document is that ofthe originator if it was sent by the originator himself.

(2) As between the originator and the addressee, an electronicdata message or electronic document is deemed to be that ofthe originator if itwas sent:

(a) by a person who had the authority to act on behalf ofthe originator with respect to that electronic data messageor electronic document; or

(b) by an information system programmed by, or on behalfof the originator to operate automatically.

(3) As between the originator and the addressee, an addressee isentitled to regard an electronic data message or electronicdocument as being that of the originator, and to act on thatassumption, if:

(a) in order to ascertain whether the electronic data messageor electronic document was that of the originator, theaddressee properly applied a procedure previously agreedto by the originator for that purpose; or

(b) the electronic data message or electronic document asreceived by the addressee resulted from the actions of aperson whose relationship with the originator or with anyagent of the originator enabled that person to gain accessto a method used by the originator to identify electronic data messages as his own.


(4) Paragraph (3) does not apply:

(a) as of the time when the addressee has both received noticefrom the originator that the electronic data message orelectronic document is not that of the originator, and hasreasonable time to act accordingly; or

(b) in a case within paragraph (3) sub-paragraph (b), at anytime when the addressee knew or should have known,had it exercised reasonable care or used any agreedprocedure, that the electronic data message or electronicdocument was not that of the originator.

(5) Where an electronic data message or electronic document isthat of the originator or is deemed to be that of the originator,or the addressee is entitled to act on that assumption, then, asbetween the originator and the addressee, the addressee isentitled to regard the electronic data message or electronicdocument as received as being what the originator intendedto send, and to act on that assumption. The addressee is notso entitled when it knew or should have known, had it exercisedreasonable care or used any agreed procedure, that thetransmission resulted in any error in the electronic datamessage or electronic document as received.

(6) The addressee is entitled to regard each electronic data messageor electronic document received as a separate electronic datamessage or electronic document and to act on that assumption,except to the extent that it duplicates another electronic datamessage or electronic documentand the addressee knew orshould have known, had it exercised reasonable care or usedany agreed procedure, that the electronic data message orelectronic document was a duplicate

.


SSSSSECECECECEC. 19.. 19.. 19.. 19.. 19. ErErErErErrrrrror on Electror on Electror on Electror on Electror on Electronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Message or Electre or Electre or Electre or Electre or ElectroniconiconiconiconicDocument.Document.Document.Document.Document. – The addressee is entitled to regard the electronicdata message or electronic document received as that which theoriginator intended to send, and to act on that assumption, unlessthe addressee knew or should have known, had the addresseeexercised reasonable care or used the appropriate procedure –

(a) That the transmission resulted in any error therein or inthe electronicdocument when the electronic data messageor electronic document enters the designated informationsystem, or

(b) That electronic data message or electronic document issent to an information system which is not so designatedby the addressee for thepurpose.

SSSSSECECECECEC. 20. . 20. . 20. . 20. . 20. AgAgAgAgAgrrrrreement on Aceement on Aceement on Aceement on Aceement on Acknoknoknoknoknowledgment ofwledgment ofwledgment ofwledgment ofwledgment of R R R R Receipt ofeceipt ofeceipt ofeceipt ofeceipt ofElectronicElectronicElectronicElectronicElectronic Data Messages or Electronic Documents.Data Messages or Electronic Documents.Data Messages or Electronic Documents.Data Messages or Electronic Documents.Data Messages or Electronic Documents. –The following rules shall apply where, on or before sending anelectronic data message or electronic document, the originatorand the addressee have agreed, or in that electronic document orelectronic data message, the originator has requested, that receiptof the electronic document or electronic data message beacknowledged:

(a) Where the originator has not agreed with the addresseethat the acknowledgment be given in a particular form orby a particular method, an acknowledgment may be givenby or through any communication bythe addressee,automated or otherwise, or any conduct of the addressee,sufficient to indicate to the originator that the electronicdata message or electronic document has been received.


(b) Where the originator has stated that the effect orsignificance of the electronic data message or electronicdocument is conditional on receiptof the acknowledgmentthereof, the electronic data message or electronic documentis treated as though it has never been sent, until theacknowledgment is received.

(c) Where the originator has not stated that the effect orsignificance of the electronic data message or electronicdocument is conditional on receipt of theacknowledgment, and the acknowledgment has notbeen received by the originator within the time specifiedor agreed or, if no time has been specified or agreed, withina reasonable time, the originator may give notice to theaddressee stating that no acknowledgment has beenreceived and specifying a reasonable time by which theacknowledgment must be received; and if theacknowledgment is not received within the time specifiedin subparagraph (c), the originator may, upon notice tothe addressee, treat the electronic document or electronicdata message as though it had never been sent, or exerciseany other rights it may have.

SSSSSECECECECEC. 21. . 21. . 21. . 21. . 21. TTTTTime ofime ofime ofime ofime of Dispatc Dispatc Dispatc Dispatc Dispatch ofh ofh ofh ofh of Electr Electr Electr Electr Electronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Messagesesesesesororororor ElectrElectrElectrElectrElectronic Documents. onic Documents. onic Documents. onic Documents. onic Documents. – Unless otherwise agreed betweenthe originator and the addressee, the dispatch of an electronicdata message or electronic document occurs when it enters aninformation system outside the control of the originator or ofthe person who sent the electronic data message or electronicdocument on behalf of the originator.


SSSSSECECECECEC. 22.. 22.. 22.. 22.. 22. TTTTTime ofime ofime ofime ofime of R R R R Receipt ofeceipt ofeceipt ofeceipt ofeceipt of Electr Electr Electr Electr Electronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Messagesesesesesororororor ElectrElectrElectrElectrElectronic Documents.onic Documents.onic Documents.onic Documents.onic Documents. – Unless otherwise agreed betweenthe originator and the addressee, the time of receipt of an electronicdata message or electronic document is as follows:

(a) If the addressee has designated an information system forthe purpose of receiving electronic data message orelectronic document,receipt occurs at the time when theelectronic data message or electronic document enters thedesignated information system: Provided, however,thatif the originator and the addressee are both participantsin the designated information system, receipt occurs atthe time when the electronic data message or electronicdocument is retrieved by the addressee.

(b) If the electronic data message or electronic document issent to an information system of the addressee that is notthe designated information system, receipt occurs at thetime when the electronic data message or electronicdocument is retrieved by the addressee;

(c) If the addressee has not designated an information system,receipt occurs when the electronic data message orelectronic document enters an information system of theaddressee.

These rules apply notwithstanding that the place where theinformation system is located may be different from the placewhere the electronic data message or electronic document is deemedto be received.

SSSSSECECECECEC. 23. . 23. . 23. . 23. . 23. Place ofPlace ofPlace ofPlace ofPlace of Dispatc Dispatc Dispatc Dispatc Dispatch and Rh and Rh and Rh and Rh and Receipt ofeceipt ofeceipt ofeceipt ofeceipt of Electr Electr Electr Electr ElectroniconiconiconiconicDataDataDataDataData Messages or Electronic Documents.Messages or Electronic Documents.Messages or Electronic Documents.Messages or Electronic Documents.Messages or Electronic Documents. – Unless otherwiseagreed between the originator and the addressee, an electronic datamessage or electronic document is deemed to be dispatched at the


place where the originator has its place of business and received atthe place where the addressee has its place of business. This ruleshall apply even if the originator or addressee had used a laptopor other portable device to transmit or receive his electronic datamessage or electronic document. This rule shall also apply todetermine the tax situs of such transaction.

For the purpose hereof -

a. If the originator or the addressee has more than one placeof business ,the place of business is that which has theclosest relationship to the underlying transaction or, wherethere is no underlying transaction, the principal place ofbusiness.

b. If the originator of the addressee does not have a placeof business, reference is to be made to its habitualresidence; or

c. The “usual place of residence” in relation to a bodycorporate, means the place where it is incorporated orotherwise legally constituted.

SSSSSECECECECEC. 24.. 24.. 24.. 24.. 24. Choice of Security Methods.Choice of Security Methods.Choice of Security Methods.Choice of Security Methods.Choice of Security Methods. – Subject to applicablelaws and/or rules and guidelines promulgated by the Departmentof Trade and Industry with other appropriate government agencies,parties to any electronic transaction shall be free to determine thetype and level of electronic data message and electronic documentsecurity needed, and to select and use or implement appropriatetechnological methods that suit their needs.


PPPPPARARARARARTTTTT III III III III IIIEEEEELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC C C C C COMMEROMMEROMMEROMMEROMMERCECECECECE INININININ S S S S SPECIFICPECIFICPECIFICPECIFICPECIFIC A A A A AREASREASREASREASREAS

CCCCCHAPTERHAPTERHAPTERHAPTERHAPTER I I I I ICCCCCARRIAARRIAARRIAARRIAARRIAGEGEGEGEGE OFOFOFOFOF G G G G GOODSOODSOODSOODSOODS

SSSSSECTIONECTIONECTIONECTIONECTION 25. 25. 25. 25. 25. Actions RActions RActions RActions RActions Related to Contracts ofelated to Contracts ofelated to Contracts ofelated to Contracts ofelated to Contracts of Car Car Car Car Carriagriagriagriagriageeeeeofofofofof Goods. Goods. Goods. Goods. Goods. – Without derogating from the provisions of parttwo of this law, this chapter applies to any action in connectionwith, or in pursuance of, a contract of carriage of goods, includingbut not limited to:

(a) (i) furnishing the marks, number, quantity or weight ofgoods;

(ii) stating or declaring the nature or value of goods;

(iii)issuing a receipt for goods;

(iv)confirming that goods have been loaded;

(b) (i) notifying a person of terms and conditions of thecontract;

(ii) giving instructions to a carrier;

(c) (i) claiming delivery of goods;

(ii) authorizing release of goods;

(iii)giving notice of loss of, or damage to, goods;

(d) giving any other notice or statement in connection withthe performance of the contract;

(e) undertaking to deliver goods to a named person or aperson

(f) granting, acquiring, renouncing, surrendering, transferringor negotiating rights in goods;


(g) acquiring or transferring rights and obligations under thecontract.

SSSSSECECECECEC. 26.. 26.. 26.. 26.. 26. TTTTTransporransporransporransporransport Documents.t Documents.t Documents.t Documents.t Documents. –

(1) Where the law requires that any action referred to contractof carriage of goods be carried out in writing or by using apaper document, that requirement is met if the action is carriedout by using one or more electronic data messages or electronicdocuments.

(2) Paragraph (1) applies whether the requirement therein is inthe form of an obligation or whether the law simply providesconsequences for failing either to carry out the action in writingor to use a paper document.

(3) If a right is to be granted to, or an obligation is to be acquiredby, one person and no other person, and if the law requiresthat, in order to effect this, the right or obligation must beconveyed to that person by the transfer, or use of, a paperdocument, that requirement is met if the right or obligationis conveyed by using one or more electronic data messages orelectronic documents Provided, That a reliable method is usedto render such electronic data messages or electronic documentsunique.

(4) For the purposes of paragraph (3), the standard of reliabilityrequired shall be assessed in the light of the purpose for whichthe right or obligation was conveyed and in the light of allthe circumstances, including any relevant agreement.

(5) Where one or more data messages are used to effect any actionin subparagraphs (f) and (g) of Section 25, no paper documentused to effect any such action is valid unless the use ofelectronic data message or electronic document has been


terminated and replaced by the use of paper documents. Apaper document issued in these circumstances shall contain astatement of such termination. The replacement of electronicdata messages or electronic documents by paper documentsshall not affect the rights or obligations of the partiesinvolved.

(6) If a rule of law is compulsorily applicable to a contract ofcarriage of goods which is in, or is evidenced by, a paperdocument, that rule shall not be inapplicable to such a contractof carriage of goods which is evidenced by one or moreelectronic data messages or electronic documents by reasonof the fact that the contract is evidenced by such electronicdata messages or electronic documents instead of by a paperdocument.

PPPPPARARARARARTTTTT IV IV IV IV IVEEEEELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC TTTTTRANSARANSARANSARANSARANSACTIONSCTIONSCTIONSCTIONSCTIONS INININININ G G G G GOOOOOVERNMENTVERNMENTVERNMENTVERNMENTVERNMENT

SSSSSECTIONECTIONECTIONECTIONECTION 27. 27. 27. 27. 27. GoGoGoGoGovvvvvererererernment Use ofnment Use ofnment Use ofnment Use ofnment Use of Electr Electr Electr Electr Electronic Dataonic Dataonic Dataonic Dataonic DataMessages,Messages,Messages,Messages,Messages, Electronic Documents and ElectronicElectronic Documents and ElectronicElectronic Documents and ElectronicElectronic Documents and ElectronicElectronic Documents and ElectronicSignaturSignaturSignaturSignaturSignatures.es.es.es.es. – Notwithstanding any law to the contrary, withintwo (2) years from the date of the effectivity of this Act, alldepartments, bureaus, offices and agencies of the government, aswell as all government-owned and-controlled corporations, thatpursuant to law require or accept the filing of documents, requirethat documents be created, or retained and/or submitted, issuepermits, licenses or certificates of registration or approval, orprovide for the method and manner of payment or settlement offees and other obligations to the government, shall –


(a) accept the creation, filing or retention of such documentsin the form of electronic data messages or electronicdocuments;

(b) issue permits, licenses, or approval in the form of electronicdata messages or electronic documents;

(c) require and/or accept payments, and issue receiptsacknowledging such payments, through systems usingelectronic data messages or electronic documents; or

(d) transact the government business and/or performgovernmental functions using electronic data messages orelectronic documents, and for the purpose, are authorizedto adopt and promulgate, after appropriate public hearingand with due publication in newspapers of generalcirculation, the appropriate rules, regulations, or guidelines,to, among others, specify –

(1) the manner and format in which such electronic datamessages orelectronic documents shall be filed, created,retained or issued;

(2) where and when such electronic data messages orelectronic documents have to be signed, the use of aelectronic signature, the type of electronic signaturerequired;

(3) the format of an electronic data message or electronicdocument and the manner the electronic signatureshall be affixed to the electronic data message orelectronic document;

(4) the control processes and procedures as appropriateto ensure adequate integrity, security andconfidentiality of electronic data messages or electronicdocuments or records or payments;


(5) other attributes required of electronic data messagesor electronic documents or payments; and

(6) the full or limited use of the documents and papersfor compliance with the government requirements:Provided, That this Act shall by itself mandate anydepartment of the government, organ of state orstatutory corporation to accept or issue any documentin the form of electronic data messages or electronicdocuments upon the adoption, promulgation andpublication of the appropriate rules, regulations, orguidelines.

SSSSSECECECECEC. 28.. 28.. 28.. 28.. 28. RPWEB RPWEB RPWEB RPWEB RPWEB TTTTTo Pro Pro Pro Pro Promote the Use ofomote the Use ofomote the Use ofomote the Use ofomote the Use of Electr Electr Electr Electr ElectroniconiconiconiconicDocumentsDocumentsDocumentsDocumentsDocuments and Electrand Electrand Electrand Electrand Electronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Messages in Goes in Goes in Goes in Goes in Govvvvvererererernmentnmentnmentnmentnmentand to the Generaland to the Generaland to the Generaland to the Generaland to the General PubPubPubPubPublic.lic.lic.lic.lic. – Within two (2) years from theeffectivity of this Act, there shall be installed an electronic onlinenetwork in accordance with Administrative Order 332 and Houseof Representatives Resolution 890, otherwise known as RPWEB,to implement Part IV of this Act to facilitate the open, speedyand efficient electronic online transmission, conveyance and useof electronic data messages or electronic documents amongst allgovernment departments, agencies, bureaus, offices down to thedivision level and to the regional and provincial offices aspracticable as possible, government owned and controlledcorporations, local government units, other publicinstrumentalities, universities, colleges and other schools, anduniversal access to the general public.

The RPWEB network shall serve as initial platform of thegovernment information infrastructure (GII) to facilitate theelectronic online transmission and conveyance of governmentservices to evolve and improve by better technologies or kinds ofelectronic online wide area networks utilizing, but not limited to,


fiber optic, satellite, wireless and other broadbandtelecommunication mediums or modes. To facilitate the rapiddevelopment of the GII, the Department of Transportation andCommunications, National Telecommunications Commission andthe National Computer Center are hereby directed to aggressivelypromote and implement a policy environment and regulatory ornon-regulatory framework that shall lead to the substantialreduction of costs of including, but not limited to, lease lines,land, satellite and dial-up telephone access, cheap broadband andwireless accessibility by government departments, agencies, bureaus,offices, government owned and controlled corporations, localgovernment units, other public instrumentalities and the generalpublic, to include the establishment of agovernment website portaland a domestic internet exchange system to facilitate strategic accessto government and amongst agencies thereof and the generalpublic and for the speedier flow of locally generated internet trafficwithin the Philippines.

The physical infrastructure of cable and wireless systems forcable TV and broadcast excluding programming and content andthe management thereof shall be considered as within the activityof telecommunications for the purpose of electronic commerceand to maximize the convergence of ICT in the installation ofthe GII.

SSSSSECECECECEC. 29.. 29.. 29.. 29.. 29. AAAAAuthority ofuthority ofuthority ofuthority ofuthority of the De the De the De the De the Deparparparparpar tment oftment oftment oftment oftment of TTTTTrade andrade andrade andrade andrade andIndustrIndustrIndustrIndustrIndustry andy andy andy andy and PPPPParararararticipating Entities.ticipating Entities.ticipating Entities.ticipating Entities.ticipating Entities. – The Department ofTrade and Industry (DTI) shall direct and supervise the promotionand development of electronic commerce in the country withrelevant government agencies, without prejudice to the provisionsof Republic Act No. 7653 (Charter of Bangko Sentral ngPilipinas) and Republic Act No. 337 (General Banking Act), asamended.


Among others, the DTI is empowered to promulgate rulesand regulations, as well as provide quality standards or issuecertifications, as the case may be, and perform such other functionsas may be necessary for the implementation of this Act in the areaof electronic commerce to include, but shall not be limited to,the installation of an online public information and quality andprice monitoring system for goods and services aimed in protectingthe interests of the consuming public availingof the advantagesof this Act.

PPPPPARARARARARTTTTT VVVVVFFFFFINININININALALALALAL P P P P PRRRRROOOOOVISIONSVISIONSVISIONSVISIONSVISIONS

SSSSSECTIONECTIONECTIONECTIONECTION 30. 30. 30. 30. 30. Extent ofExtent ofExtent ofExtent ofExtent of Liability of Liability of Liability of Liability of Liability of a Ser a Ser a Ser a Ser a Service Prvice Prvice Prvice Prvice Prooooovidervidervidervidervider.....– Except as otherwise provided in this Section, no person or partyshall be subject to any civil or criminal liability in respect of theelectronic data message or electronic document for which theperson or party acting as a service provider as defined in Section 5merely provides access if such liability is founded on –

(a) The obligations and liabilities of the parties under theelectronic data message or electronic document;

(b) The making, publication, dissemination or distributionof such material or any statement made in such material,including possible infringement ofany right subsisting inor in relation to such material: Provided, That:

i. The service provider does not have actual knowledge,or is not aware of the facts or circumstances fromwhich it is apparent, that the making,publication,dissemination or distribution of such material isunlawful or infringes any rights subsisting in or inrelation to such material;


ii. The service provider does not knowingly receive afinancial benefit directly attributable to the unlawfulor infringing activity; and

iii. The service provider does not directly commit anyinfringement or other unlawful act and does notinduce or cause another person or party to commitany infringement or other unlawful act and/or doesnot benefit financially from the infringing activity orunlawful act of another person or party: Provided,further, That nothing in this Section shall affect –

a) Any obligation founded on contract;

b) The obligation of a service provider as such undera licensing or other regulatory regime establishedunder written law; or

c) Any obligation imposed under any written law;

d) The civil liability of any party to the extent thatsuch liability forms the basis for injunctive reliefissued by a court under any law requiring thatthe service provider take or refrain from actionsnecessary to remove, block or deny access to anymaterial, or to preserve evidence of a violationof law.

SSSSSECECECECEC. 31.. 31.. 31.. 31.. 31. Lawful Access. Lawful Access. Lawful Access. Lawful Access. Lawful Access. – Access to an electronic file, or anelectronic signature of an electronic data message or electronicdocument shall only be authorized and enforced in favor of theindividual or entity having a legal right to the possession or theuse of the plaintext, electronic signature or file and solely for theauthorized purposes. The electronic key for identity or integrityshall not be made available to any person or party without the


consent of the individual or entity in lawful possession of thatelectronic key.

SSSSSECECECECEC. 32.. 32.. 32.. 32.. 32. Ob Ob Ob Ob Obligligligligligation ofation ofation ofation ofation of Conf Conf Conf Conf Confidentialityidentialityidentialityidentialityidentiality..... – Except for thepurposes authorized under this Act, any person who obtainedaccess to any electronic key, electronic data message, or electronicdocument, book, register, correspondence, information, or othermaterial pursuant to any powers conferred under this Act, shallnot convey to or share the same with any other person.

SSSSSECECECECEC. 33. . 33. . 33. . 33. . 33. PPPPPenalties.enalties.enalties.enalties.enalties. – The following Acts shall be penalized byfine and/or imprisonment, as follows:

(a) Hacking or cracking which refers to unauthorized accessinto or interference in a computer system/server orinformation and communication system; or any access inorder to corrupt, alter, steal, or destroy using a computeror other similar information and communication devices,without the knowledge and consent of the owner of thecomputer or information and communications system,including the introduction of computer viruses and thelike, resulting in the corruption,destruction, alteration,theft or loss of electronic data messages or electronicdocuments shall be punished by a minimum fine of Onehundred thousand pesos (P100,000.00) and a maximumcommensurate to thedamage incurred and a mandatoryimprisonment of six (6) months to three (3) years;

(b) Piracy or the unauthorized copying, reproduction,dissemination, distribution, importation, use, removal,alteration, substitution, modification, storage, uploading,downloading, communication, making available to thepublic, or broadcasting of protected material, electronic


signature or copyrighted works including legally protectedsound recordings or phonograms or information materialon protected works,through the use oftelecommunication networks, such as, but not limited to,the internet, in a manner that infringes intellectual propertyrights shall be punished by a minimum fine of Onehundred thousand pesos (P100,000.00) and a maximumcommensurate to the damage incurred and a mandatoryimprisonment of six (6) months to three (3) years;

(c) Violations of the Consumer Act or Republic Act No.7394 and other relevant or pertinent laws throughtransactions covered by or using electronic data messagesor electronic documents, shall be penalized with the samepenalties as provided in those laws;

(d) Other violations of the provisions of this Act, shall bepenalized with a maximum penalty of One million pesos(P1,000,000.00) or six (6) years imprisonment.

SSSSSECECECECEC. 34. . 34. . 34. . 34. . 34. Implementing RImplementing RImplementing RImplementing RImplementing Rules and Rules and Rules and Rules and Rules and Reeeeegulations.gulations.gulations.gulations.gulations. – The DTI,Department of Budget and Management and the Bangko Sentralng Pilipinas are hereby empowered to enforce the provisions ofthis Act and issue implementing rules and regulations necessary,in coordination with the Department of Transportation andCommunications, National Telecommunications Commission,National Computer Center, National Information TechnologyCouncil, Commission on Audit, other concerned agencies andthe private sector, to implement this Act within sixty (60)daysafter its approval.

Failure to issue rules and regulations shall not in any manneraffect the executory nature of the provisions of this Act.


SSSSSECECECECEC. 35.. 35.. 35.. 35.. 35. OvOvOvOvOversight Committee. ersight Committee. ersight Committee. ersight Committee. ersight Committee. – There shall be aCongressional Oversight Committee composed of theCommittees on Trade and Industry/Commerce, Science andTechnology, Finance and Appropriations of both the Senate andHouse of Representatives, which shall meet at least every quarterof the first two years and every semester for the third year afterthe approval of this Act to oversee its implementation. The DTI,DBM, Bangko Sentral ng Pilipinas, and other government agenciesas may be determined by the Congressional Committee shallprovide a quarterly performance report of their actions taken inthe implementation of this Act for the first three (3) years.

SSSSSECECECECEC. 36.. 36.. 36.. 36.. 36. AAAAApprpprpprpprppropriations.opriations.opriations.opriations.opriations. – The amount necessary to carryout the provisions of Secs. 27 and 28 of this Act shall be chargedagainst any available funds and/or savings under the GeneralAppropriations Act of 2000 in the first year of effectivity ofthis Act. Thereafter, the funds needed for the continuedimplementation shall be included in the annual GeneralAppropriations Act.

SSSSSECECECECEC. 37.. 37.. 37.. 37.. 37. Statutory Interpretation.Statutory Interpretation.Statutory Interpretation.Statutory Interpretation.Statutory Interpretation. – Unless otherwiseexpressly provided for, the interpretation of this Act shall givedue regard to its international origin and the need to promoteuniformity in its application and the observance of good faith ininternational trade relations. The generally accepted principles ofinternational law and convention on electronic commerce shalllikewise be considered.

SSSSSECECECECEC. 38.. 38.. 38.. 38.. 38. VVVVVariation bariation bariation bariation bariation by Agy Agy Agy Agy Agrrrrreement.eement.eement.eement.eement. – As between partiesinvolved in generating, sending, receiving, storing or otherwiseprocessing electronic data message or electronic document, anyprovision of this Act may be varied by agreement between andamong them.


SSSSSECECECECEC. 39.. 39.. 39.. 39.. 39. RRRRReciprecipreciprecipreciprocityocityocityocityocity..... – All benefits, privileges, advantages orstatutory rules established under this Act, including those involvingpractice of profession, shall be enjoyed only by parties whosecountry of origin grants the same benefits and privileges oradvantages to Filipino citizens.

SSSSSECECECECEC. 40.. 40.. 40.. 40.. 40. Se Se Se Se Separability Clause. parability Clause. parability Clause. parability Clause. parability Clause. – The provisions of this Actare hereby declared separable and in the event of any such provisionis declared unconstitutional, the other provisions, which are notaffected, shall remain in force and effect.

SSSSSECECECECEC. 41.. 41.. 41.. 41.. 41. RRRRReeeeepealing Clause. pealing Clause. pealing Clause. pealing Clause. pealing Clause. ––––– All other laws, decrees, rulesand regulations or parts thereof which are inconsistent with theprovisions of this Act are hereby repealed, amended or modifiedaccordingly.

SSSSSECECECECEC. 42.. 42.. 42.. 42.. 42. EfEfEfEfEffffffectiectiectiectiectivityvityvityvityvity..... – This Act shall take effect immediatelyafter its publication in the Official Gazette or in at least two (2)national newspapers of general circulation.

This Act, which is a consolidation of Senate Bill No. 1902 andHouse Bill No. 9971 was finally passed by the Senate and theHouse of Representatives on June 8, 2000 and June 7, 2000,respectively.

Approved, June 14, 2000.


AAAAANNNNN A A A A ACTCTCTCTCT D D D D DEFININGEFININGEFININGEFININGEFINING THETHETHETHETHE C C C C CRIMERIMERIMERIMERIME OFOFOFOFOF M M M M MONEYONEYONEYONEYONEY

LLLLLAAAAAUNDERINGUNDERINGUNDERINGUNDERINGUNDERING, P, P, P, P, PRRRRROOOOOVIDINGVIDINGVIDINGVIDINGVIDING P P P P PENENENENENALALALALALTIESTIESTIESTIESTIES TTTTTHEREFORHEREFORHEREFORHEREFORHEREFOR

ANDANDANDANDAND FORFORFORFORFOR O O O O OTHERTHERTHERTHERTHER P P P P PURPOSESURPOSESURPOSESURPOSESURPOSES


SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. ShorShorShorShorShort t t t t TTTTTitleitleitleitleitle..... – This Act shall be known as the“Anti-Money Laundering Act of 2001.”

SSSSSECECECECEC. 2.. 2.. 2.. 2.. 2. DecDecDecDecDeclaration oflaration oflaration oflaration oflaration of P P P P Policolicolicolicolicyyyyy. . . . . – It is hereby declared thepolicy of the State to protect and preserve the integrity andconfidentiality of bank accounts and to ensure that the Philippinesshall not be used as a money laundering site for the proceeds ofany unlawful activity. Consistent with its foreign policy, the Stateshall extend cooperation in transnational investigations andprosecutions of persons involved in money laundering activitieswherever committed.

SSSSSECECECECEC. 3.. 3.. 3.. 3.. 3. DefDefDefDefDefinitions.initions.initions.initions.initions. – For purposes of this Act, the followingterms are hereby defined as follows:

(a) “Covered institution” refers to:

(1) banks, non-banks, quasi-banks, trust entities, and allother institutions and their subsidiaries and affiliatessupervised or regulated by the Bangko Sentral ngPilipinas (BSP);

(2) insurance companies and all other institutionssupervised or regulated by the Insurance Commission;and


(3) a. securities dealers, brokers, salesmen, investmenthouses and other similar entities managingsecurities or rendering services as investment agent,advisor, or consultant;

b. mutual funds, close-end investment companies,common trust funds, pre-need companies andother similar entities;

c. foreign exchange corporations, money changers,money payment, remittance, and transfercompanies and other similar entities; and

d. other entities administering or otherwise dealingin currency, commodities or financial derivativesbased thereon, valuable objects, cash substitutesand other similar monetary instruments orproperty supervised or regulated by the Securitiesand Exchange Commission.

(b) “Covered transaction” is a single, series, or combinationof transactions involving a total amount in excess of Fourmillion Philippine pesos (Php4,000,000.00) or anequivalent amount in foreign currency based on theprevailing exchange rate within five (5) consecutivebanking days except those between a covered institutionand a person who, at the time of the transaction was aproperly identified client and the amount is commensuratewith the business or financial capacity of the client; orthose with an underlying legal or trade obligation, purpose,origin or economic justification.

It likewise refers to a single, series or combination orpattern of unusually large and complex transactions inexcess of Four million Philippine pesos


(Php4,000,000.00) especially cash deposits andinvestments having no credible purpose or origin,underlying trade obligation or contract.

(c) “Monetary instrument” refers to:

(1) coins or currency of legal tender of the Philippines,or of any other country;

(2) drafts, checks and notes;

(3) securities or negotiable instruments, bonds,commercial papers, deposit certificates, trustcertificates, custodial receipts or deposit substituteinstruments, trading orders, transaction tickets andconfirmations of sale or investments and moneymarket instruments; and

(4) other similar instruments where title thereto passes toanother by endorsement, assignment or delivery.

(d) ”Offender” refers to any person who commits a moneylaundering offense.

(e) “Person” refers to any natural or juridical person.

(f) “Proceeds” refers to an amount derived or realized froman unlawful activity.

(g) “Supervising Authority” refers to the appropriatesupervisory or regulatory agency, department or officesupervising or regulating the covered institutionsenumerated in Section 3(a).

(h) “Transaction” refers to any act establishing any right orobligation or giving rise to any contractual or legalrelationship between the parties thereto. It also includesany movement of funds by any means with a coveredinstitution.


(i) “Unlawful activity” refers to any act or omission or seriesor combination thereof involving or having relation tothe following:

(1) Kidnapping for ransom under Article 267 of ActNo. 3815, otherwise known as the Revised PenalCode, as amended;

(2) Sections 3, 4, 5, 7, 8 and 9 of Article Two ofRepublic Act No. 6425, as amended, otherwiseknown as the Dangerous Drugs Act of 1972;

(3) Section 3 paragraphs B, C, E, G, H and I of RepublicAct No. 3019, as amended, otherwise known as theAnti-Graft and Corrupt Practices Act;

(4) Plunder under Republic Act No. 7080, as amended;

(5) Robbery and extortion under Articles 294, 295,296, 299, 300, 301 and 302 of the Revised PenalCode, as amended;

(6) Jueteng and Masiao punished as illegal gamblingunder Presidential Decree No. 1602;

(7) Piracy on the high seas under the Revised PenalCode, as amended and Presidential Decree No. 532;

(8) Qualified theft under Article 310 of the RevisedPenal Code, as amended;

(9) Swindling under Article 315 of the Revised PenalCode, as amended;

(10) Smuggling under Republic Act Nos. 455 and 1937;

(11) Violations under Republic Act No. 8792, otherwiseknown as the Electronic Commerce Act of 2000;


(12) Hijacking and other violations under Republic ActNo. 6235; destructive arson and murder, as definedunder the Revised Penal Code, as amended,including those perpetrated by terrorists againstnon-combatant persons and similar targets;

(13) Fraudulent practices and other violations underRepublic Act No. 8799, otherwise known as theSecurities Regulation Code of 2000;

(14) Felonies or offenses of a similar nature that arepunishable under the penal laws of other countries.

SSSSSECECECECEC. 4. . 4. . 4. . 4. . 4. Money Laundering Offense.Money Laundering Offense.Money Laundering Offense.Money Laundering Offense.Money Laundering Offense. – Money laundering isa crime whereby the proceeds of an unlawful activity are transacted,thereby making them appear to have originated from legitimatesources. It is committed by the following:

(a) Any person knowing that any monetary instrument orproperty represents, involves, or relates to, the proceedsof any unlawful activity, transacts or attempts to transactsaid monetary instrument or property.

(b) Any person knowing that any monetary instrument orproperty involves the proceeds of any unlawful activity,performs or fails to perform any act as a result of whichhe facilitates the offense of money laundering referred toin paragraph (a) above.

(c) Any person knowing that any monetary instrument orproperty is required under this Act to be disclosed andfiled with the Anti-Money Laundering Council(AMLC), fails to do so.


SSSSSECECECECEC. 5. . 5. . 5. . 5. . 5. JJJJJurisdiction ofurisdiction ofurisdiction ofurisdiction ofurisdiction of Money Laundering Cases Money Laundering Cases Money Laundering Cases Money Laundering Cases Money Laundering Cases. . . . . – Theregional trial courts shall have jurisdiction to try all cases on moneylaundering. Those committed by public officers and privatepersons who are in conspiracy with such public officers shall beunder the jurisdiction of the Sandiganbayan.

SSSSSECECECECEC. 6.. 6.. 6.. 6.. 6. Prosecution of Money Laundering.Prosecution of Money Laundering.Prosecution of Money Laundering.Prosecution of Money Laundering.Prosecution of Money Laundering. – – – – –

(a) Any person may be charged with and convicted of boththe offense of money laundering and the unlawful activityas herein defined.

(b) Any proceeding relating to the unlawful activity shall begiven precedence over the prosecution of any offense orviolation under this Act without prejudice to the freezingand other remedies provided.

SSSSSECECECECEC. 7. . 7. . 7. . 7. . 7. Creation of Anti-Money Laundering CouncilCreation of Anti-Money Laundering CouncilCreation of Anti-Money Laundering CouncilCreation of Anti-Money Laundering CouncilCreation of Anti-Money Laundering Council(AML(AML(AML(AML(AMLC).C).C).C).C). – The Anti-Money Laundering Council is herebycreated and shall be composed of the Governor of the BangkoSentral ng Pilipinas as chairman, the Commissioner of theInsurance Commission and the Chairman of the Securities andExchange Commission as members. The AMLC shall actunanimously in the discharge of its functions as defined hereunder:

(1) to require and receive covered transaction reports fromcovered institutions;

(2) to issue orders addressed to the appropriate SupervisingAuthority or the covered institution to determine thetrue identity of the owner of any monetary instrumentor property subject of a covered transaction report orrequest for assistance from a foreign State, or believedby the Council, on the basis of substantial evidence, tobe, in whole or in part, wherever located, representing,


involving, or related to, directly or indirectly, in anymanner or by any means, the proceeds of an unlawfulactivity;

(3) to institute civil forfeiture proceedings and all otherremedial proceedings through the Office of the SolicitorGeneral;

(4) to cause the filing of complaints with the Departmentof Justice or the Ombudsman for the prosecution ofmoney laundering offenses;

(5) to initiate investigations of covered transactions, moneylaundering activities and other violations of this Act;

(6) to freeze any monetary instrument or property allegedto be proceeds of any unlawful activity;

(7) to implement such measures as may be necessary andjustified under this Act to counteract money laundering;

(8) to receive and take action in respect of, any request fromforeign states for assistance in their own anti-moneylaundering operations provided in this Act;

(9) to develop educational programs on the perniciouseffects of money laundering, the methods andtechniques used in money laundering, the viable meansof preventing money laundering and the effective waysof prosecuting and punishing offenders; and

(10) to enlist the assistance of any branch, department,bureau, office, agency or instrumentality of thegovernment, including government-owned and -controlled corporations, in undertaking any and all anti-money laundering operations, which may include theuse of its personnel, facilities and resources for the more


resolute prevention, detection and investigation ofmoney laundering offenses and prosecution ofoffenders.

SSSSSECECECECEC. 8.. 8.. 8.. 8.. 8. CrCrCrCrCreation ofeation ofeation ofeation ofeation of a Secr a Secr a Secr a Secr a Secretariat.etariat.etariat.etariat.etariat. – The AMLC is herebyauthorized to establish a secretariat to be headed by an ExecutiveDirector who shall be appointed by the Council for a term offive (5) years. He must be a member of the Philippine Bar, atleast thirty-five (35) years of age and of good moral character,unquestionable integrity and known probity. All members of theSecretariat must have served for at least five (5) years either in theInsurance Commission, the Securities and Exchange Commissionor the Bangko Sentral ng Pilipinas (BSP) and shall hold full-timepermanent positions within the BSP.

SSSSSECECECECEC. 9. . 9. . 9. . 9. . 9. Prevention of Money Laundering; CustomerPrevention of Money Laundering; CustomerPrevention of Money Laundering; CustomerPrevention of Money Laundering; CustomerPrevention of Money Laundering; CustomerIdentifIdentifIdentifIdentifIdentification Rication Rication Rication Rication Requirequirequirequirequirements and Rements and Rements and Rements and Rements and Recorecorecorecorecord Kd Kd Kd Kd Keeeeeeeeeepingpingpingpingping. –. –. –. –. –

(a) Customer Identification. – Covered institutions shallestablish and record the true identity of its clients basedon official documents. They shall maintain a system ofverifying the true identity of their clients and, in case ofcorporate clients, require a system of verifying their legalexistence and organizational structure, as well as theauthority and identification of all persons purporting toact on their behalf.

The provisions of existing laws to the contrarynotwithstanding, anonymous accounts, accounts underfictitious names, and all other similar accounts shall beabsolutely prohibited. Peso and foreign currency non-checking numbered accounts shall be allowed. The BSPmay conduct annual testing solely limited to the


determination of the existence and true identity of theowners of such accounts.

(b) Record Keeping. – All records of all transactions ofcovered institutions shall be maintained and safely storedfor five (5) years from the dates of transactions. Withrespect to closed accounts, the records on customeridentification, account files and business correspondence,shall be preserved and safely stored for at least five (5)years from the dates when they were closed.

(c) Reporting of Covered Transactions. – Coveredinstitutions shall report to the AMLC all coveredtransactions within five (5) working days from occurrencethereof, unless the Supervising Authority concernedprescribes a longer period not exceeding ten (10) workingdays.

When reporting covered transactions to the AMLC,covered institutions and their officers, employees,representatives, agents, advisors, consultants or associatesshall not be deemed to have violated Republic Act No.1405, as amended; Republic Act No. 6426, as amended;Republic Act No. 8791 and other similar laws, but areprohibited from communicating, directly or indirectly, inany manner or by any means, to any person the fact that acovered transaction report was made, the contents thereof,or any other information in relation thereto. In case ofviolation thereof, the concerned officer, employee,representative, agent, advisor, consultant or associate ofthe covered institution, shall be criminally liable.

However, no administrative, criminal or civilproceedings, shall lie against any person for having madea covered transaction report in the regular performanceof his duties and in good faith, whether or not such


reporting results in any criminal prosecution under thisAct or any other Philippine law.

When reporting covered transactions to the AMLC,covered institutions and their officers, employees,representatives, agents, advisors, consultants or associatesare prohibited from communicating, directly or indirectly,in any manner or by any means, to any person, entity, themedia, the fact that a covered transaction report was made,the contents thereof, or any other information in relationthereto. Neither may such reporting be published or airedin any manner or form by the mass media, electronic mail,or other similar devices. In case of violation thereof, theconcerned officer, employee, representative, agent, advisor,consultant or associate of the covered institution, or mediashall be held criminally liable.

SSSSSECECECECEC. 10. . 10. . 10. . 10. . 10. AAAAAuthority to Futhority to Futhority to Futhority to Futhority to Frrrrreeeeeeeeeeze.ze.ze.ze.ze. – Upon determination thatprobable cause exists that any deposit or similar account is in anyway related to an unlawful activity, the AMLC may issue a freezeorder, which shall be effective immediately, on the account for aperiod not exceeding fifteen (15) days. Notice to the depositorthat his account has been frozen shall be issued simultaneouslywith the issuance of the freeze order. The depositor shall haveseventy-two (72) hours upon receipt of the notice to explainwhy the freeze order should be lifted. The AMLC has seventy-two (72) hours to dispose of the depositor’s explanation. If itfails to act within seventy-two (72) hours from receipt of thedepositor’s explanation, the freeze order shall automatically bedissolved. The fifteen (15)-day freeze order of the AMLC maybe extended upon order of the court, provided that the fifteen(15)-day period shall be tolled pending the court’s decision toextend the period.


No court shall issue a temporary restraining order or writ ofinjunction against any freeze order issued by the AMLC exceptthe Court of Appeals or the Supreme Court.

SSSSSECECECECEC. 11. . 11. . 11. . 11. . 11. Authority to Inquire into Bank Deposits.Authority to Inquire into Bank Deposits.Authority to Inquire into Bank Deposits.Authority to Inquire into Bank Deposits.Authority to Inquire into Bank Deposits. –Notwithstanding the provisions of Republic Act No. 1405, asamended; Republic Act No. 6426, as amended; Republic ActNo. 8791, and other laws, the AMLC may inquire into or examineany particular deposit or investment with any banking institutionor non-bank financial institution upon order of any competentcourt in cases of violation of this Act when it has been establishedthat there is probable cause that the deposits or investmentsinvolved are in any way related to a money laundering offense:Provided, That this provision shall not apply to deposits andinvestments made prior to the effectivity of this Act.

SSSSSECECECECEC. 12.. 12.. 12.. 12.. 12. FFFFForforforforforfeitureitureitureitureiture Pre Pre Pre Pre Prooooovisions.visions.visions.visions.visions. –

(a) Civil Forfeiture. – When there is a covered transactionreport made, and the court has, in a petition filed for thepurpose ordered seizure of any monetary instrument orproperty, in whole or in part, directly or indirectly, relatedto said report, the Revised Rules of Court on civilforfeiture shall apply.

(b) Claim on Forfeited Assets. – Where the court has issuedan order of forfeiture of the monetary instrument orproperty in a criminal prosecution for any moneylaundering offense defined under Section 4 of this Act,the offender or any other person claiming an interesttherein may apply, by verified petition, for a declarationthat the same legitimately belongs to him and forsegregation or exclusion of the monetary instrument orproperty corresponding thereto. The verified petition shall


be filed with the court which rendered the judgment ofconviction and order of forfeiture, within fifteen (15)days from the date of the order of forfeiture, in defaultof which the said order shall become final and executory.This provision shall apply in both civil and criminalforfeiture.

(c) Payment in Lieu of Forfeiture. – Where the court hasissued an order of forfeiture of the monetary instrumentor property subject of a money laundering offense definedunder Section 4, and said order cannot be enforced becauseany particular monetary instrument or property cannot,with due diligence, be located, or it has been substantiallyaltered, destroyed, diminished in value or otherwiserendered worthless by any act or omission, directly orindirectly, attributable to the offender, or it has beenconcealed, removed, converted or otherwise transferredto prevent the same from being found or to avoidforfeiture thereof, or it is located outside the Philippinesor has been placed or brought outside the jurisdiction ofthe court, or it has been commingled with other monetaryinstruments or property belonging to either the offenderhimself or a third person or entity, thereby rendering thesame difficult to identify or be segregated for purposesof forfeiture, the court may, instead of enforcing the orderof forfeiture of the monetary instrument or property orpart thereof or interest therein, accordingly order theconvicted offender to pay an amount equal to the valueof said monetary instrument or property. This provisionshall apply in both civil and criminal forfeiture.


SSSSSECECECECEC. 13. . 13. . 13. . 13. . 13. Mutual Assistance among States.Mutual Assistance among States.Mutual Assistance among States.Mutual Assistance among States.Mutual Assistance among States. –

(a) Request for Assistance from a Foreign State. – Where aforeign State makes a request for assistance in theinvestigation or prosecution of a money launderingoffense, the AMLC may execute the request or refuse toexecute the same and inform the foreign State of anyvalid reason for not executing the request or for delayingthe execution thereof. The principles of mutuality andreciprocity shall, for this purpose, be at all timesrecognized.

(b) Powers of the AMLC to Act on a Request for Assistancefrom a Foreign State. -–The AMLC may execute a requestfor assistance from a foreign State by: (1) tracking down,freezing, restraining and seizing assets alleged to be proceedsof any unlawful activity under the procedures laid downin this Act; (2) giving information needed by the foreignState within the procedures laid down in this Act; and(3) applying for an order of forfeiture of any monetaryinstrument or property in the court: Provided, That thecourt shall not issue such an order unless the applicationis accompanied by an authenticated copy of the order ofa court in the requesting State ordering the forfeiture ofsaid monetary instrument or property of a person whohas been convicted of a money laundering offense in therequesting State, and a certification or an affidavit of acompetent officer of the requesting State stating that theconviction and the order of forfeiture are final and thatno further appeal lies in respect of either.

(c) Obtaining Assistance from Foreign States. – The AMLCmay make a request to any foreign State for assistance in(1) tracking down, freezing, restraining and seizing assets


alleged to be proceeds of any unlawful activity; (2)obtaining information that it needs relating to any coveredtransaction, money laundering offense or any other matterdirectly or indirectly related thereto; (3) to the extentallowed by the law of the foreign State, applying with theproper court therein for an order to enter any premisesbelonging to or in the possession or control of, any or allof the persons named in said request, and/or search anyor all such persons named therein and/or remove anydocument, material or object named in said request:Provided, That the documents accompanying the requestin support of the application have been duly authenticatedin accordance with the applicable law or regulation of theforeign State; and (4) applying for an order of forfeitureof any monetary instrument or property in the propercourt in the foreign State: Provided, That the request isaccompanied by an authenticated copy of the order ofthe regional trial court ordering the forfeiture of saidmonetary instrument or property of a convicted offenderand an affidavit of the clerk of court stating that theconviction and the order of forfeiture are final and thatno further appeal lies in respect of either.

(d) Limitations on Requests for Mutual Assistance. – TheAMLC may refuse to comply with any request forassistance where the action sought by the requestcontravenes any provision of the Constitution or theexecution of a request is likely to prejudice the nationalinterest of the Philippines unless there is a treaty betweenthe Philippines and the requesting State relating to theprovision of assistance in relation to money launderingoffenses.


(e) Requirements for Requests for Mutual Assistance fromForeign States. – A request for mutual assistance from aforeign State must (1) confirm that an investigation orprosecution is being conducted in respect of a moneylaunderer named therein or that he has been convicted ofany money laundering offense; (2) state the grounds onwhich any person is being investigated or prosecuted formoney laundering or the details of his conviction; (3)give sufficient particulars as to the identity of said person;(4) give particulars sufficient to identify any coveredinstitution believed to have any information, document,material or object which may be of assistance to theinvestigation or prosecution; (5) ask from the coveredinstitution concerned any information, document, materialor object which may be of assistance to the investigationor prosecution; (6) specify the manner in which and towhom said information, document, material or objectobtained pursuant to said request, is to be produced; (7)give all the particulars necessary for the issuance by thecourt in the requested State of the writs, orders orprocesses needed by the requesting State; and (8) containsuch other information as may assist in the execution ofthe request.

(f) Authentication of Documents. – For purposes of thisSection, a document is authenticated if the same is signedor certified by a judge, magistrate or equivalent officer inor of, the requesting State, and authenticated by the oathor affirmation of a witness or sealed with an official orpublic seal of a minister, secretary of State, or officer inor of, the government of the requesting State, or of theperson administering the government or a departmentof the requesting territory, protectorate or colony. The


certificate of authentication may also be made by asecretary of the embassy or legation, consul general, consul,vice consul, consular agent or any officer in the foreignservice of the Philippines stationed in the foreign Statein which the record is kept, and authenticated by the sealof his office.

(g) Extradition. – The Philippines shall negotiate for theinclusion of money laundering offenses as herein definedamong extraditable offenses in all future treaties.

SSSSSECECECECEC. 14.. 14.. 14.. 14.. 14. PPPPPenal Prenal Prenal Prenal Prenal Prooooovisions.visions.visions.visions.visions. –

(a) Penalties for the Crime of Money Laundering. – Thepenalty of imprisonment ranging from seven (7) tofourteen (14) years and a fine of not less than Threemillion Philippine pesos (Php3,000,000.00) but not morethan twice the value of the monetary instrument orproperty involved in the offense, shall be imposed upona person convicted under Section 4(a) of this Act.

The penalty of imprisonment from four (4) to seven(7) years and a fine of not less than One million fivehundred thousand Philippine pesos (Php1,500,000.00)but not more than Three million Philippine pesos(Php3,000,000.00), shall be imposed upon a personconvicted under Section 4(b) of this Act.

The penalty of imprisonment from six (6) monthsto four (4) years or a fine of not less than One hundredthousand Philippine pesos (Php100,000.00) but not morethan Five hundred thousand Philippine pesos(Php500,000.00), or both, shall be imposed on a personconvicted under Section 4(c) of this Act.


(b) Penalties for Failure to Keep Records. – The penalty ofimprisonment from six (6) months to one (1) year or afine of not less than One hundred thousand Philippinepesos (Php100,000.00) but not more than Five hundredthousand Philippine pesos (Php500,000.00), or both,shall be imposed on a person convicted under Section9(b) of this Act.

(c) Malicious Reporting. – Any person who, with malice, orin bad faith, reports or files a completely unwarranted orfalse information relative to money laundering transactionagainst any person shall be subject to a penalty of six (6)months to four (4) years imprisonment and a fine of notless than One hundred thousand Philippine pesos(Php100,000.00) but not more than Five hundredthousand Philippine pesos (Php500,000.00), at thediscretion of the court: Provided, That the offender isnot entitled to avail the benefits of the Probation Law.

If the offender is a corporation, association,partnership or any juridical person, the penalty shall beimposed upon the responsible officers, as the case may be,who participated in the commission of the crime or whoshall have knowingly permitted or failed to prevent itscommission. If the offender is a juridical person, the courtmay suspend or revoke its license. If the offender is analien, he shall, in addition to the penalties herein prescribed,be deported without further proceedings after serving thepenalties herein prescribed. If the offender is a publicofficial or employee, he shall, in addition to the penaltiesprescribed herein, suffer perpetual or temporary absolutedisqualification from office, as the case may be.


Any public official or employee who is called uponto testify and refuses to do the same or purposely fails totestify shall suffer the same penalties prescribed herein.

(d) Breach of Confidentiality. – The punishment ofimprisonment ranging from three (3) to eight (8) yearsand a fine of not less than Five hundred thousandPhilippine pesos (Php500,000.00) but not more thanOne million Philippine pesos (Php1,000,000.00), shallbe imposed on a person convicted for a violation underSection 9(c).

SSSSSECECECECEC. 15.. 15.. 15.. 15.. 15. System ofSystem ofSystem ofSystem ofSystem of Incenti Incenti Incenti Incenti Incentivvvvves and Res and Res and Res and Res and Rewewewewewararararards.ds.ds.ds.ds. – A systemof special incentives and rewards is hereby established to be givento the appropriate government agency and its personnel that ledand initiated an investigation, prosecution and conviction ofpersons involved in the offense penalized in Section 4 of thisAct.

SSSSSECECECECEC. 16. . 16. . 16. . 16. . 16. PrPrPrPrProhibitions Agohibitions Agohibitions Agohibitions Agohibitions Against Painst Painst Painst Painst Political Harassment.olitical Harassment.olitical Harassment.olitical Harassment.olitical Harassment. –This Act shall not be used for political persecution or harassmentor as an instrument to hamper competition in trade and commerce.

No case for money laundering may be filed against and noassets shall be frozen, attached or forfeited to the prejudice of acandidate for an electoral office during an election period.

SSSSSECECECECEC. 17.. 17.. 17.. 17.. 17. RRRRRestitution. estitution. estitution. estitution. estitution. – Restitution for any aggrieved partyshall be governed by the provisions of the New Civil Code.

SSSSSECECECECEC. 18.. 18.. 18.. 18.. 18. Implementing RImplementing RImplementing RImplementing RImplementing Rules and Rules and Rules and Rules and Rules and Reeeeegulations.gulations.gulations.gulations.gulations. – Withinthirty (30) days from the effectivity of this Act, the BangkoSentral ng Pilipinas, the Insurance Commission and the Securitiesand Exchange Commission shall promulgate the rules and


regulations to implement effectively the provisions of this Act.Said rules and regulations shall be submitted to the CongressionalOversight Committee for approval.

Covered institutions shall formulate their respective moneylaundering prevention programs in accordance with this Actincluding, but not limited to, information dissemination on moneylaundering activities and its prevention, detection and reporting,and the training of responsible officers and personnel of coveredinstitutions.

SSSSSECECECECEC. 19. . 19. . 19. . 19. . 19. CongCongCongCongCongrrrrressional Ovessional Ovessional Ovessional Ovessional Oversight Committee.ersight Committee.ersight Committee.ersight Committee.ersight Committee. – There ishereby created a Congressional Oversight Committee composedof seven (7) members from the Senate and seven (7) membersfrom the House of Representatives. The members from the Senateshall be appointed by the Senate President based on theproportional representation of the parties or coalitions thereinwith at least two (2) Senators representing the minority. Themembers from the House of Representatives shall be appointedby the Speaker also based on proportional representation of theparties or coalitions therein with at least two (2) membersrepresenting the minority.

The Oversight Committee shall have the power to promulgateits own rules, to oversee the implementation of this Act, and toreview or revise the implementing rules issued by the Anti-MoneyLaundering Council within thirty (30) days from thepromulgation of the said rules.

SSSSSECECECECEC. 20. . 20. . 20. . 20. . 20. AAAAApprpprpprpprppropriations Clauseopriations Clauseopriations Clauseopriations Clauseopriations Clause..... – The AMLC shall beprovided with an initial appropriation of Twenty-five millionPhilippine pesos (Php25,000,000.00) to be drawn from thenational government. Appropriations for the succeeding years shallbe included in the General Appropriations Act.


SSSSSECECECECEC. 21.. 21.. 21.. 21.. 21. SeSeSeSeSeparability Clause.parability Clause.parability Clause.parability Clause.parability Clause. – If any provision or sectionof this Act or the application thereof to any person orcircumstance is held to be invalid, the other provisions or sectionsof this Act, and the application of such provision or section toother persons or circumstances, shall not be affected thereby.

SSSSSECECECECEC. 22.. 22.. 22.. 22.. 22. RRRRReeeeepealing Clause. pealing Clause. pealing Clause. pealing Clause. pealing Clause. – All laws, decrees, executive orders,rules and regulations or parts thereof, including the relevantprovisions of Republic Act No. 1405, as amended; Republic ActNo. 6426, as amended; Republic Act No. 8791, as amended andother similar laws, as are inconsistent with this Act, are herebyrepealed, amended or modified accordingly.

SSSSSECECECECEC. 23.. 23.. 23.. 23.. 23. EfEfEfEfEffffffectiectiectiectiectivityvityvityvityvity..... – This Act shall take effect fifteen (15)days after its complete publication in the Official Gazette or in atleast two (2) national newspapers of general circulation.

The provisions of this Act shall not apply to deposits andinvestments made prior to its effectivity.

Approved, September 29, 2001.


AAAAANNNNN A A A A ACTCTCTCTCT A A A A AMENDINGMENDINGMENDINGMENDINGMENDING R R R R REPUBLICEPUBLICEPUBLICEPUBLICEPUBLIC A A A A ACTCTCTCTCT N N N N NOOOOO. 9160,. 9160,. 9160,. 9160,. 9160,OOOOOTHERTHERTHERTHERTHERWISEWISEWISEWISEWISE K K K K KNONONONONOWNWNWNWNWN ASASASASAS THETHETHETHETHE “““““AAAAANTINTINTINTINTI-M-M-M-M-MONEYONEYONEYONEYONEY

LLLLLAAAAAUNDERINGUNDERINGUNDERINGUNDERINGUNDERING A A A A ACTCTCTCTCT OFOFOFOFOF 2001” 2001” 2001” 2001” 2001”


SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. Section 3, paragraph (b), of Republic Act No. 9160is hereby amended as follows:

“(b) ‘Covered transaction’ is a transaction in cash or otherequivalent monetary instrument involving a totalamount in excess of Five hundred thousand pesos(Php500,000.00) within one (1) banking day.”

SSSSSECECECECEC. 2. . 2. . 2. . 2. . 2. Section 3 of the same Act is further amended by insertingbetween paragraphs (b) and (c) a new paragraph designated as (b-1) to read as follows:

“(b-1) ‘Suspicious transaction’ are transactions with coveredinstitutions, regardless of the amounts involved, whereany of the following circumstances exist:

“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 withthe business or financial capacity of the client;

“4. taking into account all known circumstances, itmay be perceived that the client’s transaction is


structured in order to avoid being the subject ofreporting requirements under the Act;

“5. any circumstance relating to the transaction whichis observed to deviate from the profile of theclient and/or the client’s past transactions withthe covered institution;

“6. the transaction is in any way related to an unlawfulactivity or offense under this Act that is about tobe, is being or has been committed; or

“7. any transaction that is similar or analogous to anyof the foregoing.”

SSSSSECECECECEC. 3.. 3.. 3.. 3.. 3. Section 3(i) of the same Act is further amended to readas follows:

“(i)‘Unlawful activity’ refers to any act or omission or seriesor combination thereof involving or having directrelation to the following:

“(1) Kidnapping for ransom under Article 267 of ActNo. 3815, otherwise known as the Revised PenalCode, as amended;

“(2) Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15, and 16 ofRepublic Act No. 9165, otherwise known as theComprehensive Dangerous Drugs Act of 2002;

“(3) Section 3 paragraphs B, C, E, G, H and I of RepublicAct No. 3019, as amended, otherwise known as theAnti-Graft and Corrupt Practices Act;

“(4) Plunder under Republic Act No. 7080, asamended;


“(5) Robbery and extortion under Articles 294, 295,296, 299, 300, 301 and 302 of the Revised PenalCode, as amended;

“(6) Jueteng and Masiao punished as illegal gamblingunder Presidential Decree No. 1602;

“(7) Piracy on the high seas under the Revised PenalCode, as amended and Presidential Decree No. 532;

“(8) Qualified theft under Article 310 of the RevisedPenal Code, as amended;

“(9) Swindling under Article 315 of the Revised PenalCode, as amended;

“(10)Smuggling under Republic Act Nos. 455 and 1937;

“(11)Violations under Republic Act No. 8792, otherwiseknown as the Electronic Commerce Act of 2000;

“(12)Hijacking and other violations under Republic ActNo. 6235; destructive arson and murder, as definedunder the Revised Penal Code, as amended,including those perpetrated by terrorists againstnon-combatant persons and similar targets;

“(13)Fraudulent practices and other violations underRepublic Act No. 8799, otherwise known as theSecurities Regulation Code of 2000;

“(14)Felonies or offenses of a similar nature that arepunishable under the penal laws of other countries.”

SSSSSECECECECEC. 4.. 4.. 4.. 4.. 4. Section 4 of the same Act is hereby amended to read asfollows:


“SEC. 4. Money Laundering Offense.Money Laundering Offense.Money Laundering Offense.Money Laundering Offense.Money Laundering Offense. – Money launderingis a crime whereby the proceeds of an unlawful activity asherein defined are transacted, thereby making them appear tohave originated from legitimate sources. It is committed bythe following:

“(a) Any person knowing that any monetary instrument orproperty represents, involves, or relates to, the proceedsof any unlawful activity, transacts or attempts to transactsaid monetary instrument or property.

“(b) Any person knowing that any monetary instrument orproperty involves the proceeds of any unlawful activity,performs or fails to perform any act as a result of whichhe facilitates the offense of money laundering referredto in paragraph (a) above.

“(c) Any person knowing that any monetary instrument orproperty is required under this Act to be disclosed andfiled with the Anti-Money Laundering Council(AMLC), fails to do so.”

SSSSSECECECECEC. 5.. 5.. 5.. 5.. 5. Section 7 of the same Act is hereby amended as follows:

“SEC. 7. Creation of Anti-Money Laundering CouncilCreation of Anti-Money Laundering CouncilCreation of Anti-Money Laundering CouncilCreation of Anti-Money Laundering CouncilCreation of Anti-Money Laundering Council(AML(AML(AML(AML(AMLC)C)C)C)C). – The Anti-Money Laundering Council is herebycreated and shall be composed of the Governor of the BangkoSentral ng Pilipinas as chairman, the Commissioner of theInsurance Commission and the Chairman of the Securitiesand Exchange Commission as members. The AMLC shall actunanimously in the discharge of its functions as definedhereunder:

“(1) to require and receive covered or suspicious transactionreports from covered institutions;


“(2) to issue orders addressed to the appropriate SupervisingAuthority or the covered institution to determine thetrue identity of the owner of any monetary instrumentor property subject of a covered transaction orsuspicious transaction report or request for assistancefrom a foreign State, or believed by the Council, onthe basis of substantial evidence, to be, in whole or inpart, wherever located, representing, involving, orrelated to, directly or indirectly, in any manner or byany means, the proceeds of an unlawful activity.

“(3) to institute civil forfeiture proceedings and all otherremedial proceedings through the Office of theSolicitor General;

“(4) to cause the filing of complaints with the Departmentof Justice or the Ombudsman for the prosecution ofmoney laundering offenses;

“(5) to investigate suspicious transactions and coveredtransactions deemed suspicious after an investigationby AMLC, money laundering activities, and otherviolations of this Act;

“(6) to apply before the Court of Appeals, ex parte, forthe freezing of any monetary instrument or propertyalleged to be the proceeds of any unlawful activity asdefined in Sec. 3(i) hereof;

“(7) to implement such measures as may be necessary andjustified under this Act to counteract moneylaundering;

“(8) to receive and take action in respect of, any requestfrom foreign states for assistance in their own anti-money laundering operations provided in this Act;


“(9) to develop educational programs on the perniciouseffects of money laundering, the methods andtechniques used in money laundering, the viable meansof preventing money laundering and the effective waysof prosecuting and punishing offenders;

“(10) to enlist the assistance of any branch, department,bureau, office, agency or instrumentality of thegovernment, including government-owned and -controlled corporations, in undertaking any and allanti-money laundering operations, which may includethe use of its personnel, facilities and resources for themore resolute prevention, detection and investigationof money laundering offenses and prosecution ofoffenders; and

“(11) to impose administrative sanctions for the violationof laws, rules, regulations and orders and resolutionsissued pursuant thereto.”

SSSSSECECECECEC. 6.. 6.. 6.. 6.. 6. Section 9(c) of the same Act is hereby amended to readas follows:

“(c) Reporting of Covered and Suspicious Transactions. –Covered institutions shall report to the AMLC all coveredtransactions and suspicious transactions within five (5)working days from occurrence thereof, unless the SupervisingAuthority prescribes a longer period not exceeding ten (10)working days.

“Should a transaction be determined to be both a coveredtransaction and a suspicious transaction, the covered institutionshall be required to report the same as a suspicious transaction.

“When reporting covered or suspicious transactions tothe AMLC, covered institutions and their officers and


employees shall not be deemed to have violated Republic ActNo. 1405, as amended, Republic Act No. 6426, as amended,Republic Act No. 8791 and other similar laws, but areprohibited from communicating, directly or indirectly, in anymanner or by any means, to any person, the fact that a coveredor suspicious transaction report was made, the contentsthereof, or any other information in relation thereto. In caseof violation thereof, the concerned officer and employee ofthe covered institution shall be criminally liable. However, noadministrative, criminal or civil proceedings, shall lie againstany person for having made a covered or suspicious transactionreport in the regular performance of his duties in good faith,whether or not such reporting results in any criminalprosecution under this Act or any other law.

“When reporting covered or suspicious transactions tothe AMLC, covered institutions and their officers andemployees are prohibited from communicating directly orindirectly, in any manner or by any means, to any person orentity, the media, the fact that a covered or suspicioustransaction report was made, the contents thereof, or any otherinformation in relation thereto. Neither may such reportingbe published or aired in any manner or form by the massmedia, electronic mail, or other similar devices. In case ofviolation thereof, the concerned officer and employee of thecovered institution and media shall be held criminally liable.”


“SEC. 10. Freezing of Monetary Instrument orFreezing of Monetary Instrument orFreezing of Monetary Instrument orFreezing of Monetary Instrument orFreezing of Monetary Instrument orPrPrPrPrProperoperoperoperopertytytytyty..... – The Court of Appeals, upon application exparte by the AMLC and after determination that probable


cause exists that any monetary instrument or property is inany way related to an unlawful activity as defined in Section3(i) hereof, may issue a freeze order which shall be effectiveimmediately. The freeze order shall be for a period of twenty(20) days unless extended by the court.”


“SEC. 11. Authority to Inquire into Bank Deposits.Authority to Inquire into Bank Deposits.Authority to Inquire into Bank Deposits.Authority to Inquire into Bank Deposits.Authority to Inquire into Bank Deposits. –Notwithstanding the provisions of Republic Act No. 1405,as amended, Republic Act No. 6426, as amended, RepublicAct No. 8791, and other laws, the AMLC may inquire intoor examine any particular deposit or investment with anybanking institution or non-bank financial institution uponorder of any competent court in cases of violation of thisAct, when it has been established that there is probable causethat the deposits or investments are related to an unlawfulactivity as defined in Section 3(i) hereof or a moneylaundering offense under Section 4 hereof; except that nocourt order shall be required in cases involving unlawfulactivities defined in Sections 3(i)(1), (2) and (12).

“To ensure compliance with this Act, the Bangko Sentralng Pilipinas (BSP) may inquire into or examine any depositor investment with any banking institution or nonbankfinancial institution when the examination is made in thecourse of a periodic or special examination, in accordancewith the rules of examination of the BSP.”

SSSSSECECECECEC. 9.. 9.. 9.. 9.. 9. Section 14, paragraphs (c) and (d) of the same Act ishereby amended to read as follows:


“(c) Malicious Reporting. Any person who, with malice, orin bad faith, reports or files a completely unwarranted or falseinformation relative to money laundering transaction againstany person shall be subject to a penalty of six (6) months tofour (4) years imprisonment and a fine of not less than Onehundred thousand Philippine pesos (PhP100,000.00) but notmore than Five hundred thousand Philippine pesos (Php500,000.00), at the discretion of the court: Provided, Thatthe offender is not entitled to avail the benefits of theProbation Law.

“If the offender is a corporation, association, partnershipor any juridical person, the penalty shall be imposed upon theresponsible officers, as the case may be, who participated in,or allowed by their gross negligence, the commission of thecrime. If the offender is a juridical person, the court maysuspend or revoke its license. If the offender is an alien, heshall, in addition to the penalties herein prescribed, be deportedwithout further proceedings after serving the penalties hereinprescribed. If the offender is a public official or employee, heshall, in addition to the penalties prescribed herein, sufferperpetual or temporary absolute disqualification from office,as the case may be.

“Any public official or employee who is called upon totestify and refuses to do the same or purposely fails to testifyshall suffer the same penalties prescribed herein.

“(d) Breach of Confidentiality. The punishment ofimprisonment ranging from three (3) to eight (8) years and afine of not less than Five hundred thousand Philippine pesos(PhP500,000.00) but not more than One million Philippinepesos (Php 1,000,000.00) shall be imposed on a personconvicted for a violation under Section 9(c). In the case of a


breach of confidentiality that is published or reported bymedia, the responsible reporter, writer, president, publisher,manager and editor-in-chief shall be liable under this Act.”

SSSSSECECECECEC. 10.. 10.. 10.. 10.. 10. Section 15 of Republic Act No. 9160 is hereby deleted.

SSSSSECECECECEC. 11.. 11.. 11.. 11.. 11. Section 23 of the same Act is hereby amended to readas follows:

“SEC. 23. EfEfEfEfEffffffectiectiectiectiectivityvityvityvityvity..... – This Act shall take effect fifteen(15) days after its complete publication in the Official Gazetteor in at least two (2) national newspapers of generalcirculation.”

SSSSSECECECECEC. 12.. 12.. 12.. 12.. 12. TTTTTransitorransitorransitorransitorransitory Pry Pry Pry Pry Prooooovision.vision.vision.vision.vision. – Existing freeze orders issuedby the AMLC shall remain in force for a period of thirty (30)days after the effectivity of this Act, unless extended by the Courtof Appeals.

SSSSSECECECECEC. 13.. 13.. 13.. 13.. 13. EfEfEfEfEffffffectiectiectiectiectivityvityvityvityvity. – This Act shall take effect fifteen (15)days after its complete publication in the Official Gazette or in atleast two (2) national newspapers of general circulation.

Approved, March 7, 2003.

RRRRRules and Rules and Rules and Rules and Rules and Reeeeegulations Implementinggulations Implementinggulations Implementinggulations Implementinggulations ImplementingRRRRReeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 8762. 8762. 8762. 8762. 8762

AAAAANNNNN A A A A ACTCTCTCTCT L L L L LIBERALIZINGIBERALIZINGIBERALIZINGIBERALIZINGIBERALIZING THETHETHETHETHE R R R R RETETETETETAILAILAILAILAIL TTTTTRADERADERADERADERADE

BBBBBUSINESSUSINESSUSINESSUSINESSUSINESS, R, R, R, R, REPEALINGEPEALINGEPEALINGEPEALINGEPEALING R R R R REPUBLICEPUBLICEPUBLICEPUBLICEPUBLIC A A A A ACTCTCTCTCT N N N N NOOOOO. 1180,. 1180,. 1180,. 1180,. 1180,ASASASASAS A A A A AMENDEDMENDEDMENDEDMENDEDMENDED

Pursuant to the provisions of Section 11 of Republic Act No.8762, the following rules and regulations are hereby promulgated.

RRRRRULEULEULEULEULE I I I I IDDDDDEFINITIONEFINITIONEFINITIONEFINITIONEFINITION OFOFOFOFOF TTTTTERMSERMSERMSERMSERMS

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. For purposes of this Rules and Regulations:

(a) “Retail Trade” shall mean any act, occupation or callingof habitually selling direct to the general publicmerchandise, commodities or goods for consumption.

(b) “High-end or Luxury Goods” shall refer to goods whichare not necessary for life maintenance and whose demandis generated in large part by the higher income groups.Luxury goods shall include, but are not limited to,products such as jewelry, branded or designer clothing andfootwear, wearing apparel, leisure and sporting goods,electronics and other personal effects.

(c) “Investment” shall mean assets, tangible or intangibleincluding but not limited to buildings, leasehold rights,furniture, equipment and inventory.

2672004] RULES AND REGULATIONS IMPLEMENTINGREPUBLIC ACT NO. 8762

(d) “Foreign Retailer” shall mean a non-Filipino citizen, if anatural person, or if a juridical person, a duly formed andorganized corporation, partnership, association or entitythat is not wholly-owned by Filipinos, engaged in retailtrade.

(e) “Foreign Investor” shall mean a non-Filipino citizen, if anatural person, or if a juridical person, a duly formed andorganized corporation, partnership, association or entitythat is not wholly-owned by Filipinos, whether or notengaged in retail trade.

(f) “Natural-born Filipino Citizen” are those who are citizensof the Philippines from birth without having to performany act to acquire or perfect their citizenship. Those whoelect Philippine citizenship in accordance with Article IV,paragraph 3 of the 1987 Constitution shall be deemednatural-born citizens.

(g) “Consumption” shall mean the utilization of economicgoods in the satisfaction of want resulting in immediatedestruction, gradual decay or deterioration ortransformation into other goods.

(h) “Manufacturer” refers to a person who alters raw materialor manufactured or partially manufactured products, orcombines the same in order to produce finished productsfor the purpose of being sold or distributed to others.

(i) “Processor” refers to a person who converts raw materialsinto marketable form by special treatment or a series ofaction that changes the nature or state of the product,like slaughtering, milling, pasteurization, drying, ordessicating, quick freezing and the like. Mere packing,packaging, sorting or classifying does not make a persona processor.


(j) “Farmer or Agriculturist” refers to an individualpersonally engaged in dairy farming, fish farming,aquaculture, poultry or livestock raising, and his principalincome is derived from any one or more of the foregoingoperations.

(k) “Capital” shall mean the working capital for soleproprietorships and partnerships, while for corporations,it shall be the paid-up capital.

(l) “Paid-Up Capital” shall mean the total investment in abusiness that has been paid-in in a corporation orpartnership or invested in a single proprietorship, whichmay be in cash or in property. It shall also refer to inwardremittance or assigned capital in the case of foreigncorporations.

(m)“Retail Store” shall mean the company that owns the retailstore and/or the physical location, such as a shop, wheregoods are sold on a retail basis. It includes theadministrative offices, warehouse, preparation facility orstorage facility of such goods, regardless of whether ornot it is adjacent to such outlet.

In cases where the administrative office, warehouse,preparation facility, or storage facility services several stores,the capital for such administrative office, warehouse,preparation or storage facility to be included in theinvestment requirement for one store shall be pro-ratedto the number of stores being serviced.

(n) “Locally Manufactured Goods” shall mean goodsproduced in the Philippines.

(o) “Branch Office” shall mean an office of a foreign companythat carries out the business activities of such head officeand derives income from the host country.


(p) “Franchise” shall mean a business relationship wherein,for a consideration, the franchisor grants to the franchiseea licensed right, subject to agreed-upon requirements andrestrictions, to conduct business utilizing the trade and/or service marks of the franchisor, and also provides tothe franchisee, advice and assistance in organizing,merchandising, and managing the business conductedpursuant to the license. This type of agreement mayinclude a licensing agreement or any similar arrangement.

(q) “Net Worth” shall mean total equity of a business; totalassets less total liabilities.

(r) “Track record” shall include the track record of theapplicant-foreign retailer, its predecessors, or its principalstockholders, affiliates and subsidiaries.

(s) “Reciprocity Rights” shall denote the relation betweentwo states when each of them, by their respective laws orby treaty, gives the citizens or nationals of the othercertain privileges, as in the undertaking of retail tradeactivities, on condition that its own citizens or nationalsshall enjoy similar privileges in the latter state.

Notwithstanding the law allowing one hundredpercent foreign ownership of retail activities subject tothe capitalization requirements, a foreign retailer shall onlybe allowed to own up to the extent of the foreignownership allowed for retailing in its home country.

(t) A former natural born Filipino citizen is deemed “residingin the Philippines” if he physically stays in the countryfor at least one hundred eighty (180) days within a givenyear.


SSSSSECECECECEC. 2.. 2.. 2.. 2.. 2. Sales Not ConsiderSales Not ConsiderSales Not ConsiderSales Not ConsiderSales Not Considered As Red As Red As Red As Red As Retailetailetailetailetail..... – The followingsales are not considered as retail:

(a) Sales of a manufacturer, processor, laborer, or worker ofproducts manufactured, processed or produced by himto the general public whose capital does not exceed Onehundred thousand pesos (Php100,000.00);

(b) Sales by a farmer or agriculturist selling the products ofhis farm, regardless of capital;

(c) Sales arising from restaurant operations by a hotel owneror inn-keeper irrespective of the amount of capital,provided, that the restaurant is incidental to the hotelbusiness;

(d) Sales through a single outlet owned by a manufacturer ofproducts manufactured, processed or assembled in thePhilippines, irrespective of capitalization;

(e) Sales to industrial and commercial users or consumers whouse the products bought by them to render service to thegeneral public and/or produce or manufacture of goodswhich are in turn sold by them; or

(f) Sales to the government and/or its agencies andgovernment-owned and controlled corporations.

RRRRRULEULEULEULEULE II II II II IIRRRRRIGHTSIGHTSIGHTSIGHTSIGHTS OFOFOFOFOF F F F F FORMERORMERORMERORMERORMER N N N N NAAAAATURALTURALTURALTURALTURAL B B B B BORNORNORNORNORN F F F F FILIPINOSILIPINOSILIPINOSILIPINOSILIPINOS

TTTTTOOOOO E E E E ENGANGANGANGANGAGEGEGEGEGE INININININ R R R R RETETETETETAILAILAILAILAIL TTTTTRADERADERADERADERADE

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. Rights of Rights of Rights of Rights of Rights of F F F F Fororororormer Natural bormer Natural bormer Natural bormer Natural bormer Natural born Filipinos. n Filipinos. n Filipinos. n Filipinos. n Filipinos. –Any natural born Filipino citizen who has lost his Philippinecitizenship and who has legal capacity to enter into a contractunder Philippine laws may be allowed to engage in retail trade,provided that he resides in the Philippines.


SSSSSECECECECEC. 2.. 2.. 2.. 2.. 2. Documentary Evidences. Documentary Evidences. Documentary Evidences. Documentary Evidences. Documentary Evidences. – Any person who meetsthe requirements provided for under the preceding paragraph shallbe considered as a Filipino citizen for purposes of this Act, uponshowing any of the following documents:

1. Copy of birth certificate

(i) certified by the local civil registrar or the NationalStatistics Office; or

(ii) for those born abroad, certificate of birth from theappropriate government agency of the country wherethe birth is recorded showing the father or mother tobe a Filipino at the time of birth or if the citizenshipof the parents is not indicated, additional proof thatthe parent/s is a Filipino citizen or has not lost his/her Filipino citizenship at the time of the applicant’sbirth; or

(iii) those born before 17 January 1973 of Filipinomothers must additionally submit all of thefollowing: certified true copies of his/her swornstatement of election of Filipino citizenship, oath ofallegiance from the civil registrar where the documentswere filed and/or forwarded, and identificationcertificate issued by the Bureau of Immigration;

2. In case of loss and/or destruction of the record of birthor non-registration of birth, a

(i) Certificate of non-availability of birth certificate onaccount of loss and/or destruction of birth recordfrom the local civil registrar and/or appropriategovernment agency if birth was registered abroad; or

(ii) copy of birth certificate of mother or father certifiedby the local civil registrar or the NSO; and


(iii) affidavit of two (2) disinterested persons attestingto their personal knowledge that at the time of theapplicant’s birth, the child was born of a Filipinomother or father.

Any document executed or issued abroad must beauthenticated by the Philippine Embassy/Consulate havingjurisdiction over the place of execution or issuance of thedocument.

RRRRRULEULEULEULEULE III III III III IIICCCCCAPITAPITAPITAPITAPITALIZAALIZAALIZAALIZAALIZATIONTIONTIONTIONTION ANDANDANDANDAND E E E E EQQQQQUITYUITYUITYUITYUITY R R R R REQEQEQEQEQUIREMENTSUIREMENTSUIREMENTSUIREMENTSUIREMENTS

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. FFFFForororororeign Equity Peign Equity Peign Equity Peign Equity Peign Equity Parararararticipation.ticipation.ticipation.ticipation.ticipation. – Foreign-ownedpartnerships, associations and corporations formed and organizedunder the laws of the Philippines may, upon registration with theSecurities and Exchange Commission (SEC), or in case of foreign-owned single proprietorships, with the Department of Trade andIndustry (DTI), engage or invest in the retail trade business, subjectto the following categories:

Category A – Enterprises with paid-up capital of theequivalent in Philippine pesos of less thanTwo million five hundred thousand USdollars (US$2,500,000.00) shall be reservedexclusively for Filipino citizens andcorporations wholly owned by Filipinocitizens.

Category B – Enterprises with a minimum paid-up capitalof the equivalent in Philippines pesos of Twomillion five hundred thousand US dollars(US$2,500,000.00) but less than Sevenmillion five hundred thousand US dollars


(US$7,500,000.00) may be wholly owned byforeigners except for the first two (2) yearsafter the effectivity of this Act wherein foreignparticipation shall be limited to not morethan sixty percent (60%) of total equity.

Category C – Enterprises with a paid-up capital of theequivalent in Philippine pesos of Sevenmillion five hundred thousand US dollars(US$7,500,000.00) or more may be whollyowned by foreigners.

Category D – Enterprises specializing in high-end or luxuryproducts with a paid-up capital of theequivalent in Philippine pesos of Twohundred fifty thousand US dollars(US$250,000.00) per store may be whollyowned by foreigners.

SSSSSECECECECEC. 2. . 2. . 2. . 2. . 2. Branches/StoresBranches/StoresBranches/StoresBranches/StoresBranches/Stores..... – Opening of branches/stores bythe registered foreign retailer shall be allowed, provided that theinvestments for each branch/store established by registered foreignretailers falling under Categories B and C must be no less than theequivalent in Philippine pesos of Eight hundred thirty thousandUS dollars (US$830,000.00).

RRRRRULEULEULEULEULE IV IV IV IV IVPPPPPREQREQREQREQREQUUUUUALIFICAALIFICAALIFICAALIFICAALIFICATIONTIONTIONTIONTION OFOFOFOFOF F F F F FOREIGNOREIGNOREIGNOREIGNOREIGN R R R R RETETETETETAILERSAILERSAILERSAILERSAILERS

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. PrPrPrPrPrequalifequalifequalifequalifequalification Rication Rication Rication Rication Requirequirequirequirequirements.ements.ements.ements.ements. – Before aforeign retailer is allowed to engage in the retail trade business orinvest in an existing retail store in the Philippines, it must possessall of the following qualifications:


(a) A minimum of Two hundred million US dollars(US$200,000,000.00) net worth in its parent corporationfor Categories B and C, and Fifty million US dollars(US$50,000,000.00) net worth in its parent corporationfor Category D;

(b) Five (5) retailing branches or franchises in operationanywhere around the world unless such retailer has at leastone (1) store capitalized at a minimum of Twenty-fivemillion US dollars (US$25,000,000.00):

(c) Five (5)-year track record in retailing; and

For purposes of determining compliance with the aboverequirements, the net worth, track record and existenceof branches and franchises of the parent company, itsbranches and subsidiaries and of its affiliate companies,as well as their predecessors, which substantially owns,controls or administers the operations of the applicantshall be considered.

(d) Only nationals from, or juridical entities formed orincorporated in countries which allow the entry ofFilipino retailers shall be allowed to engage in retail tradein the Philippines.

SSSSSECECECECEC. 2.. 2.. 2.. 2.. 2. Application for Pre-Qualification.Application for Pre-Qualification.Application for Pre-Qualification.Application for Pre-Qualification.Application for Pre-Qualification. – A request forpre-qualification by the aforementioned foreign retailer must besubmitted to the Board of Investments before filing a formalapplication to engage in the retail business or invest in an existingretail store. Said request for pre-qualification must be accompaniedby the following documents:

(a) Latest Annual Financial Statement showing the net worthof the applicant;


(b) Certification by a responsible officer of the applicant-foreign retailer duly authenticated by the PhilippineEmbassy/Consulate stating that:

i. it has been engaged in retailing for the past five years;and

ii. has at least five (5) retailing branches anywhere in theworld, or at least one branch is capitalized at aminimum of Twenty-five million US dollars(US$25,000,000.00);

(c) Copies of franchise or licensing agreements between theapplicant and its franchisee/licensee if the applicant failsto meet the preceding requirement of at least five (5)retailing branches; and

(d) Certification by the proper official of the home state ofthe applicant-foreign retailer to the effect that the laws ofsuch state allows or permits reciprocal rights to Philippinecitizens and enterprises together with the extent ofparticipation allowed.

SSSSSECECECECEC..... 3.3.3.3.3. EnterEnterEnterEnterEnterprises composed ofprises composed ofprises composed ofprises composed ofprises composed of TTTTTwwwwwo (2) or Moro (2) or Moro (2) or Moro (2) or Moro (2) or MoreeeeeStocStocStocStocStockholders/Pkholders/Pkholders/Pkholders/Pkholders/Pararararartnerstnerstnerstnerstners..... – If a single retailing corporation/partnership to be formed and organized under Philippine lawswill be owned by several foreign retailers and foreign investors, anapplication for all of the stockholders/partners for pre-qualification must be filed with the BOI. The foreign retailer-stockholder/partner with the highest equity in said companyshould satisfy the conditions mentioned under Rule IV, Sections1 and 2.

However, In cases where all or two or more of the foreignstockholders/partners have equal shares, the prequalification


condition shall be deemed complied with if the stockholders/partners owning or controlling at least majority of the stocks orinterests meet the aforementioned conditions.

SSSSSECECECECEC. 4.. 4.. 4.. 4.. 4. Issuance ofIssuance ofIssuance ofIssuance ofIssuance of Cer Cer Cer Cer Cer tiftiftiftiftificate oficate oficate oficate oficate of Compliance with Compliance with Compliance with Compliance with Compliance withPrPrPrPrPrequalifequalifequalifequalifequalificationicationicationicationication. – The Board of Investments (BOI), shallissue, within twenty (20) working days from submission of allnecessary documents, after evaluation and verification, aCertification that the foreign retailer meets the qualificationsprescribed by the law.

SSSSSECECECECEC. 5. . 5. . 5. . 5. . 5. List ofList ofList ofList ofList of Qualif Qualif Qualif Qualif Qualified Fied Fied Fied Fied Forororororeign Reign Reign Reign Reign Retailers.etailers.etailers.etailers.etailers. – The DTIthrough the Board of Investments (BOI) shall keep a record offoreign retailers who have been pre-qualified to establish retailstores in the Philippines. It shall ensure that the parent retail tradingcompany of the foreign investor complies with the qualificationson capitalization and track record.

RRRRRULEULEULEULEULE VVVVVIIIIINVESTMENTSNVESTMENTSNVESTMENTSNVESTMENTSNVESTMENTS INININININ E E E E EXISTINGXISTINGXISTINGXISTINGXISTING R R R R RETETETETETAILAILAILAILAIL S S S S STTTTTORESORESORESORESORES

SSSSSECTIONECTIONECTIONECTIONECTION I. I. I. I. I. FFFFForororororeign Ineign Ineign Ineign Ineign Invvvvvestments in Existing Storestments in Existing Storestments in Existing Storestments in Existing Storestments in Existing Stores.es.es.es.es.– Any foreign investor, whether or not it is presently engaged inretail trade, may be allowed to invest in existing retail stores, publiclylisted or not, subject to the paid up capitalization amountsexpressed in net worth, investment per store and equityrequirements under Rule III hereof.

SSSSSECECECECEC. 2.. 2.. 2.. 2.. 2. PrPrPrPrPre-qualife-qualife-qualife-qualife-qualification Rication Rication Rication Rication Requirequirequirequirequirements.ements.ements.ements.ements. – In addition tothe foregoing, foreign investors which are also retailers that willinvest in existing retail stores are required to be pre-qualified beforethey may actually buy shares thereto.


RRRRRULEULEULEULEULE VIVIVIVIVIHHHHHIGHIGHIGHIGHIGH-----ENDENDENDENDEND OROROROROR L L L L LUXURUXURUXURUXURUXURYYYYY G G G G GOODSOODSOODSOODSOODS

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. List ofList ofList ofList ofList of R R R R Retailers Selling High-End or Luxuretailers Selling High-End or Luxuretailers Selling High-End or Luxuretailers Selling High-End or Luxuretailers Selling High-End or LuxuryyyyyGoods.Goods.Goods.Goods.Goods. – An annual list of foreign retailers selling high-end orluxury goods shall be formulated and regularly updated by theInter-Agency Committee on Tariff and Related Matters of theNational Economic Development Authority (NEDA) Board, incoordination with the relevant organizations and the private sectorconcerned. (Section 8, second to the last paragraph)

SSSSSECECECECEC. 2.. 2.. 2.. 2.. 2. Annual RAnnual RAnnual RAnnual RAnnual Reeeeeporporporporport to Congt to Congt to Congt to Congt to Congrrrrress. ess. ess. ess. ess. – The Inter-AgencyCommittee on Tariff and Related Matters of the NationalEconomic Development Authority (NEDA) Board shall annuallyreport to Congress the list of foreign retailers selling high-end orluxury goods. (Section 8, last paragraph)

RRRRRULEULEULEULEULE VIIVIIVIIVIIVIIAAAAAPPLICAPPLICAPPLICAPPLICAPPLICATIONTIONTIONTIONTION FORFORFORFORFOR R R R R REGISTRAEGISTRAEGISTRAEGISTRAEGISTRATIONTIONTIONTIONTION

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. Filing of Application.Filing of Application.Filing of Application.Filing of Application.Filing of Application. – Applications forregistration, together with supporting documents, shall be filedwith the Securities and Exchange Commission (SEC) in the caseof domestic corporations or partnerships that are owned whollyor partially by foreign retailers, or the DTI through its Regionaland Provincial Offices, in the case of single proprietorships.

All applications shall be subject to the payment of theprescribed filing fees.

SSSSSECECECECEC. 2. . 2. . 2. . 2. . 2. CerCerCerCerCertiftiftiftiftificate oficate oficate oficate oficate of Compliance with Pr Compliance with Pr Compliance with Pr Compliance with Pr Compliance with Pre-qualife-qualife-qualife-qualife-qualificationicationicationicationicationRRRRRequirequirequirequirequirements.ements.ements.ements.ements. – No corporation/partnership/association orsole proprietorship owned wholly or partially by foreign retailers


may be allowed to register without securing the necessary certificateof compliance with the prequalification conditions from the Boardof Investments.

SSSSSECECECECEC. 3.. 3.. 3.. 3.. 3. Issuance ofIssuance ofIssuance ofIssuance ofIssuance of Cer Cer Cer Cer Certiftiftiftiftificate oficate oficate oficate oficate of Incor Incor Incor Incor Incorporation/Businessporation/Businessporation/Businessporation/Businessporation/BusinessName.Name.Name.Name.Name. – Upon submission of all the required documents, theSecurities and Exchange Commission (SEC), in cases ofcorporations/partnerships/association and the Department ofTrade & Industry, through its Regional or Provincial Offices incases of sole proprietorships, shall issue the Certificate ofIncorporation and the Business Name, respectively, granting legalpersonality to the applicant-retailer.

In addition, the foreign retailers shall secure all necessarypermits and licenses from the concerned government agencies.

SSSSSECECECECEC. 4.. 4.. 4.. 4.. 4. BSP RBSP RBSP RBSP RBSP Reeeeegistration ofgistration ofgistration ofgistration ofgistration of Inw Inw Inw Inw Inwararararard Rd Rd Rd Rd Remittance.emittance.emittance.emittance.emittance. – Priorto operations, foreign retail stores and foreign investors shall registertheir investments with the Bangko Sentral ng Pilipinas (BSP) toensure that the inward remittance of the required capitalinvestment is fully documented.

The BSP shall issue the Bangko Sentral Registration Certificate(BSRC) upon submission of a bank certification of remittanceof foreign exchange converted and sold to pesos through theauthorized agent bank and compliance with such other BSP rulesfor such registration.

SSSSSECECECECEC. 5. . 5. . 5. . 5. . 5. Establishment of Branches.Establishment of Branches.Establishment of Branches.Establishment of Branches.Establishment of Branches. – All registered foreignretailers that will establish additional branches shall be requiredto file an application with the DTI, supported by documentsshowing proof of compliance with the US$830,000 investmentrequirement per branch, and the Certificate of Incorporation/DTI Certificate issued to the retailer.


SSSSSECECECECEC. 6.. 6.. 6.. 6.. 6. R R R R Reeeeeporporporporporting Rting Rting Rting Rting Requirequirequirequirequirementsementsementsementsements. . . . . – Every registered foreignretail enterprise shall submit annually to the Department of Tradeand Industry (DTI) the following reports:

(a) A general information sheet in the prescribed formshowing, among others, the accredited stores of theenterprise and the status of operations of the entity;

(b) An audited financial statement and income tax return;

(c) Certification by a responsible officer of the companyshowing the maintenance of the required minimum capitalunless the foreign investor has notified the SEC and theDTI of its intention to repatriate its capital and ceaseoperations in the Philippines.

RRRRRULEULEULEULEULE VIIIVIIIVIIIVIIIVIIIPPPPPRRRRROHIBITEDOHIBITEDOHIBITEDOHIBITEDOHIBITED A A A A ACTIVITIESCTIVITIESCTIVITIESCTIVITIESCTIVITIES OFOFOFOFOF Q Q Q Q QUUUUUALIFIEDALIFIEDALIFIEDALIFIEDALIFIED

FFFFFOREIGNOREIGNOREIGNOREIGNOREIGN R R R R RETETETETETAILERSAILERSAILERSAILERSAILERS

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. Accredited Stores.Accredited Stores.Accredited Stores.Accredited Stores.Accredited Stores. – Qualified foreign retailersshall not be allowed to engage in certain retailing activities outsidetheir accredited stores through the use of mobile or rolling storesor carts, the use of sales representatives, door-to-door selling,restaurants and sari-sari stores and such other similar retailingactivities.

SSSSSECECECECEC. 2. . 2. . 2. . 2. . 2. List of Prohibited Activities.List of Prohibited Activities.List of Prohibited Activities.List of Prohibited Activities.List of Prohibited Activities. – A detailed list ofthese prohibited activities shall be formulated by the DTI.


RRRRRULEULEULEULEULE IX IX IX IX IXCCCCCOMPLIANCEOMPLIANCEOMPLIANCEOMPLIANCEOMPLIANCE R R R R REQUIREMENTSEQUIREMENTSEQUIREMENTSEQUIREMENTSEQUIREMENTS

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. Maintenance of Prescribed MinimumMaintenance of Prescribed MinimumMaintenance of Prescribed MinimumMaintenance of Prescribed MinimumMaintenance of Prescribed MinimumCapital.Capital.Capital.Capital.Capital. – The foreign investor shall be required to maintain inthe Philippines the full amount of the prescribed minimum capital,unless the foreign investor has notified the SEC and the DTI ofits intention to repatriate its capital and cease operations in thePhilippines.

The SEC shall establish mechanisms to monitor the actualuse in Philippine operation of the inwardly remitted minimumcapital requirement.

Failure to maintain the full amount of the prescribedminimum capital prior to notification of the SEC and the DTI,shall subject the foreign investor to penalties or restrictions onany future trading activities/business in the Philippines.

SSSSSECECECECEC. 2. . 2. . 2. . 2. . 2. Public Offering of Shares of Stock.Public Offering of Shares of Stock.Public Offering of Shares of Stock.Public Offering of Shares of Stock.Public Offering of Shares of Stock. – All registeredretail enterprises under Categories B and C in which foreignownership exceeds eighty percent (80%) of equity shall offer aminimum of thirty percent (30%) of their equity to the publicthrough any stock exchange in the Philippines within eight (8)years from their start of operations. (Section 7)

Affected registered retailers shall then be required to list theirshares at any stock exchange duly formed and organized underPhilippine laws.

Compliance with this requirement shall be supervised andmonitored by the SEC.

SSSSSECECECECEC. 3.. 3.. 3.. 3.. 3. Promotion of Locally Manufactured ProductsPromotion of Locally Manufactured ProductsPromotion of Locally Manufactured ProductsPromotion of Locally Manufactured ProductsPromotion of Locally Manufactured Products.....– For ten (10) years after the effectivity of this Act, at any given


time, at least thirty percent (30%) of the aggregate cost of thestock inventory situated in the Philippines of foreign retailersfalling under Categories B and C and ten percent (10%) forCategory D shall be made in the Philippines.

All registered foreign retailers shall be required to maintainbooks of accounts showing the inventory situated in thePhilippines and its origin at all times and these books may beexamined at any time, by the duly authorized representative ofthe Department of Trade and Industry.

Furthermore, these registered foreign retailers shall be requiredto submit quarterly statements under oath certifying the ratio oftheir local and imported inventory.

SSSSSECECECECEC. 4.. 4.. 4.. 4.. 4. VVVVVisitorial Pisitorial Pisitorial Pisitorial Pisitorial Pooooowwwwwers.ers.ers.ers.ers. – In the public interest and/or forthe enforcement of any applicable law, rules and regulations, theDTI/BOI, SEC or any government office having jurisdictionon the matter may, through any of its duly authorizedrepresentatives, conduct necessary examination of records,inventory and books of accounts of the registered foreign retailenterprise in the Philippines, make pertinent inquiries from itsofficials and take such action as may be necessary for the properexercise of its authority.

SSSSSECECECECEC. 5. . 5. . 5. . 5. . 5. Implementing AgImplementing AgImplementing AgImplementing AgImplementing Agencencencencencyyyyy..... – The monitoring andregulation of foreign sole proprietorships, partnerships,associations, or corporations allowed to engage in retail trade shallbe the responsibility of the DTI. This shall include resolution ofconflicts, through mediation.

SSSSSECECECECEC. 6.. 6.. 6.. 6.. 6. WWWWWithdraithdraithdraithdraithdrawwwwwal/Closural/Closural/Closural/Closural/Closure ofe ofe ofe ofe of R R R R Retail Estabetail Estabetail Estabetail Estabetail Establishments.lishments.lishments.lishments.lishments.– Applications for withdrawal or closure of retail establishments


shall be filed with the Securities and Exchange Commission forcorporations/partnerships/associations or the DTI, through itsRegional or Provincial Offices, with respect to sole proprietorships.

The DTI shall be notified by the concerned agency of actionstaken on requests for withdrawal or closure of foreign retailestablishments.

SSSSSECECECECEC. 7.. 7.. 7.. 7.. 7. PPPPPenalties.enalties.enalties.enalties.enalties. – Any person who shall be found guilty ofviolation of any provision of this Act, or its implementing rulesand regulations, or other terms and conditions of its registration,shall be punished by imprisonment of not less than six (6) yearsand one (1) day but not more that eight (8) years, and a fine ofnot less than One million pesos (Php1,000,000.00) but not morethan Twenty million pesos (Php20,000,000.00).

In the case of associations, partnerships or corporations, thepenalty shall be imposed upon its partners, president, directors,manager, and other officers responsible for the violation. If theoffender is not a citizen of the Philippines, he shall be deportedimmediately after service of sentence. If the Filipino offender is apublic officer or employee, he shall, in addition to the penaltyprescribed herein, suffer dismissal and permanent disqualificationfrom public office.

RRRRRULEULEULEULEULE X X X X XRRRRREPEALINGEPEALINGEPEALINGEPEALINGEPEALING ANDANDANDANDAND E E E E EFFECTIVITYFFECTIVITYFFECTIVITYFFECTIVITYFFECTIVITY C C C C CLALALALALAUSESUSESUSESUSESUSES

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. All other rules and regulations or parts thereof,inconsistent with the foregoing rules and regulations are repealed,amended or modified accordingly.

SSSSSECECECECEC. 2.. 2.. 2.. 2.. 2. These Rules shall take effect fifteen (15) days uponpublication in two (2) newspapers of general circulation.

Implementing RImplementing RImplementing RImplementing RImplementing Rules and Rules and Rules and Rules and Rules and Reeeeegulationsgulationsgulationsgulationsgulationsof theof theof theof theof the

Electronic Commerce ActElectronic Commerce ActElectronic Commerce ActElectronic Commerce ActElectronic Commerce Act

Pursuant to the provisions of Section 34 of Republic Act No.8792, otherwise known as the Electronic Commerce Act (the“Act”), the following implementing rules and regulations (the“Rules”) are hereby promulgated:

PPPPPARARARARARTTTTT I I I I IDDDDDECLARAECLARAECLARAECLARAECLARATIONTIONTIONTIONTION OFOFOFOFOF P P P P POLICYOLICYOLICYOLICYOLICY ANDANDANDANDAND P P P P PRINCIPLESRINCIPLESRINCIPLESRINCIPLESRINCIPLES FORFORFORFORFOR

EEEEELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC C C C C COMMEROMMEROMMEROMMEROMMERCECECECECE P P P P PRRRRROMOOMOOMOOMOOMOTIONTIONTIONTIONTION

CCCCCHAPTERHAPTERHAPTERHAPTERHAPTER I I I I IDDDDDECLARAECLARAECLARAECLARAECLARATIONTIONTIONTIONTION OFOFOFOFOF P P P P POLICYOLICYOLICYOLICYOLICY

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. DecDecDecDecDeclaration oflaration oflaration oflaration oflaration of P P P P Policolicolicolicolicyyyyy. . . . . – The State recognizesthe vital role of information and communications technology(ICT) in nation-building; the need to create an information-friendly environment which supports and ensures the availability,diversity and affordability of ICT products and services; theprimary responsibility of the private sector in contributinginvestments and services in ICT; the need to develop, withappropriate training programs and institutional policy changes,human resources for the information age, a labor force skilled inthe use of ICT and a population capable of operating and utilizingelectronic appliances and computers; its obligation to facilitatethe transfer and promotion of technology; to ensure networksecurity, connectivity and neutrality of technology for the nationalbenefit; and the need to marshal, organize and deploy national


information infrastructures, comprising in both communicationsnetwork and strategic information services, including theirinterconnection to the global information networks, with thenecessary and appropriate legal, financial, diplomatic and technicalframework, systems and facilities.

SSSSSECECECECEC. 2. . 2. . 2. . 2. . 2. AAAAAuthority ofuthority ofuthority ofuthority ofuthority of the De the De the De the De the Deparparparparpar tment oftment oftment oftment oftment of TTTTTrade andrade andrade andrade andrade andIndustrIndustrIndustrIndustrIndustry and Py and Py and Py and Py and Parararararticipating Entities. ticipating Entities. ticipating Entities. ticipating Entities. ticipating Entities. – The Department ofTrade and Industry (DTI) shall direct and supervise the promotionand development of electronic commerce in the country withrelevant government agencies, without prejudice to the provisionsof Republic Act. 7653 (Charter of Bangko Sentral ng Pilipinas)and Republic Act No. 8791 (General Banking Act).

CCCCCHAPTERHAPTERHAPTERHAPTERHAPTER II II II II IIDDDDDECLARAECLARAECLARAECLARAECLARATIONTIONTIONTIONTION OFOFOFOFOF P P P P PRINCIPLESRINCIPLESRINCIPLESRINCIPLESRINCIPLES FORFORFORFORFOR

EEEEELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC C C C C COMMEROMMEROMMEROMMEROMMERCECECECECE P P P P PRRRRROMOOMOOMOOMOOMOTIONTIONTIONTIONTION

SSSSSECTIONECTIONECTIONECTIONECTION 3. 3. 3. 3. 3. Principles.Principles.Principles.Principles.Principles. – Pursuant to the mandate under Section29 of the Act to direct and supervise the promotion anddevelopment of electronic commerce in the country, the followingprinciples are hereby adopted as Government policy on electroniccommerce:

(a) Role of the Government. – Government intervention,when required, shall promote a stable legal environment,allow a fair allocation of scarce resources and protect publicinterest. Such intervention shall be no more than isessential and should be clear, transparent, objective, non-discriminatory, proportional, flexible, and technologicallyneutral. Mechanisms for private sector input andinvolvement in policy making shall be promoted andwidely used.

2852004] IMPLEMENTING RULES AND REGULATIONS OFTHE ELECTRONIC COMMERCE ACT

(b) Role of the Private Sector. – The development ofelectronic commerce shall be led primarily by the privatesector in response to market forces. Participation inelectronic commerce shall be pursued through an openand fair competitive market.

(c) International Coordination and Harmonization. –Electronic commerce is global by nature. Governmentpolicies that affect electronic commerce will beinternationally coordinated and compatible and willfacilitate interoperability within an international,voluntary and consensus-based environment for standardssetting.

(d) Neutral Tax Treatment. – Transactions conducted usingelectronic commerce should receive neutral tax treatmentin comparison to transactions using non-electronic meansand taxation of electronic commerce shall be administeredin the least burdensome manner.

(e) Protection of Users. – The protection of users, inparticular with regard to privacy, confidentiality,anonymity and content control shall be pursued throughpolicies driven by choice, individual empowerment, andindustry-led solutions. It shall be in accordance withapplicable laws. Subject to such laws, business should makeavailable to consumers and, where appropriate, businessusers the means to exercise choice with respect to privacy,confidentiality, content control and, under appropriatecircumstances, anonymity.

(f) Electronic Commerce Awareness. – Government and theprivate sector will inform society, both individualconsumers and businesses, about the potentials of


electronic commerce and its impact on social and economicstructures.

(g) Small and Medium-Sized Enterprises. – Government willprovide small and medium-sized enterprises (SMEs) withinformation and education relevant to opportunitiesprovided by global electronic commerce. Government willcreate an environment that is conducive to private sectorinvestment in information technologies and encouragecapital access for SMEs.

(h) Skills Development. – Government shall enable workersto share in the new and different employment generatedby electronic commerce. In this regard, the Governmentshall continue to promote both formal and non-formalskills-development programs.

(i) Government as a Model User. – Government shall utilizenew electronic means to deliver core public services inorder to demonstrate the benefits derived therefrom andto promote the use of such means. In this regard, theGovernment will be a pioneer in using new technologies.In particular, the Government Information System Plan(GISP), which is expected to include, but not be limitedto, online public information and cultural resources,databases for health services, web sites at local, regionaland national levels and public libraries and databases, whereappropriate, will be implemented in accordance with theprovisions of the Act and RPWEB.

(j) Convergence. – Convergence of technologies is crucialto electronic commerce and will be supported byappropriate government policies. Government will workclosely with business in preparing for and reacting tochanges caused by convergence.


(k) Domain Name System. – The Government supportsinitiatives to ensure that Internet users will have a sufficientvoice in the governance of the domain name system.

(l) Access to Public Records. – Government shall provideequal and transparent access to public domain information.

(m)Dispute Mechanisms. – Government encourages the useof self-regulatory extra-judicial dispute settlementmechanisms such as arbitration and mediation as aneffective way of resolving electronic commerce disputes.

CCCCCHAPTERHAPTERHAPTERHAPTERHAPTER III III III III IIIOOOOOBJECTIVEBJECTIVEBJECTIVEBJECTIVEBJECTIVE ANDANDANDANDAND S S S S SPHEREPHEREPHEREPHEREPHERE OFOFOFOFOF A A A A APPLICAPPLICAPPLICAPPLICAPPLICATIONTIONTIONTIONTION

SSSSSECTIONECTIONECTIONECTIONECTION 4. 4. 4. 4. 4. ObjectiObjectiObjectiObjectiObjectivvvvve ofe ofe ofe ofe of the Act. the Act. the Act. the Act. the Act. – The Act aims to facilitatedomestic and international dealings, transactions, arrangements,agreements, contracts and exchanges and storage of informationthrough the utilization of electronic, optical and similar medium,mode, instrumentality and technology to recognize theauthenticity and reliability of electronic documents related to suchactivities and to promote the universal use of electronictransactions in the government and by the general public.

SSSSSECECECECEC. 5.. 5.. 5.. 5.. 5. SpherSpherSpherSpherSphere ofe ofe ofe ofe of A A A A Application.pplication.pplication.pplication.pplication. – The Act shall apply to anykind of electronic data message and electronic document used inthe context of commercial and non-commercial activities toinclude domestic and international dealings, transactions,arrangements, agreements, contracts and exchanges and storage ofinformation.


PPPPPARARARARARTTTTT II II II II IIEEEEELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC C C C C COMMEROMMEROMMEROMMEROMMERCECECECECE INININININ G G G G GENERALENERALENERALENERALENERAL

CCCCCHAPTERHAPTERHAPTERHAPTERHAPTER I I I I IGGGGGENERALENERALENERALENERALENERAL P P P P PRRRRROOOOOVISIONSVISIONSVISIONSVISIONSVISIONS

SSSSSECTIONECTIONECTIONECTIONECTION 6. 6. 6. 6. 6. DefDefDefDefDefinition ofinition ofinition ofinition ofinition of TTTTTerererererms. ms. ms. ms. ms. – For the purposes of theAct and these Rules, the following terms are defined, as follows:

(a) “Addressee” refers to a person who is intended by theoriginator to receive the electronic data message orelectronic document, but does not include a person actingas an intermediary with respect to that electronic datamessage or electronic document.

(b) “Commercial Activities” shall be given a wideinterpretation so as to cover matters arising from allrelationships of a commercial nature, whether contractualor not. The term shall likewise refer to acts, events,transactions, or dealings occurring between or amongparties including, but not limited to, factoring,investments, leasing, consulting, insurance, and all otherservices, as well as the manufacture, processing, purchase,sale, supply, distribution or transacting in any manner, oftangible and intangible property of all kinds such ascommodities, goods, merchandise, financial and bankingproducts, patents, participations, shares of stock, software,books, works of art and other intellectual property.

(c) “Computer” refers to any device or apparatus singly orinterconnected which, by electronic, electro-mechanical,optical and/or magnetic impulse, or other means withthe same function, can receive, record, transmit, store,process, correlate, analyze, project, retrieve and/or produce


information, data, text, graphics, figures, voice, video,symbols or other modes of expression or perform anyone or more of these functions.

(d) “Convergence” refers to technologies moving togethertowards a common point and elimination of differencesbetween the provisioning of video, voice and data, usingdigital and other emerging technologies; the comingtogether of two or more disparate disciplines ortechnologies; the ability of different network platformsto carry any kind of service; and the coming together ofconsumer devices such as, but not limited to, the telephone,television and personal computer.

(e) “Electronic data message” refers to information generated,sent, received or stored by electronic, optical or similarmeans, but not limited to, electronic data interchange(EDI), electronic mail, telegram, telex or telecopy. Throughout these Rules, the term “electronic datamessage” shall be equivalent to and be used interchangeablywith “electronic document.”

(f) “Information and Communications System” refers to asystem for generating, sending, receiving, storing orotherwise processing electronic data messages or electronicdocuments and includes the computer system or othersimilar device by or in which data is recorded or storedand any procedures related to the recording or storage ofelectronic data message or electronic document.

(g) “Electronic signature” refers to any distinctive mark,characteristic and/or sound in electronic form,representing the identity of a person and attached to orlogically associated with the electronic data message orelectronic document or any methodology or procedures


employed or adopted by a person and executed or adoptedby such person with the intention of authenticating orapproving an electronic data message or electronicdocument.

(h) “Electronic document” refers to information or therepresentation of information, data, figures, symbols orother modes of written expression, described or howeverrepresented, by which a right is established or an obligationextinguished, or by which a fact may be proved andaffirmed, which is received, recorded, transmitted, stored,processed, retrieved or produced electronically. Throughout these Rules, the term “electronic document”shall be equivalent to and be used interchangeably with“electronic data message.”

(i) “Electronic key” refers to a secret code, which secures anddefends sensitive information that crosses over publicchannels into a form decipherable only by itself or with amatching electronic key. This term shall include, but notbe limited to, keys produced by single key cryptosystems,public key cryptosystems or any other similar method orprocess, which may hereafter, be developed.

(j) “Intermediary” refers to a person who in behalf of anotherperson and with respect to a particular electronic datamessage or electronic document sends, receives and/orstores, or provides other services in respect of thatelectronic data message or electronic document.

(k) “Non-Commercial Activities” are those not falling undercommercial activities.

(l) “Originator” refers to a person by whom, or on whosebehalf, the electronic data message or electronic document


purports to have been created, generated and/or sent. Theterm does not include a person acting as an intermediarywith respect to that electronic data message or electronicdocument.

(m)“Person” means any natural or juridical person including,but not limited to, an individual, corporation, partnership,joint venture, unincorporated association, trust or otherjuridical entity, or any governmental authority.

(n) “Service provider” refers to a provider of –

i. Online services or network access, or the operator offacilities therefor, including entities offering thetransmission, routing, or providing of connectionsfor online communications, digital or otherwise,between or among points specified by a user, ofelectronic data message or electronic documents ofthe user’s choosing; or

ii. The necessary technical means by which electronicdata message or electronic documents of an originatormay be stored and made accessible to a designated orundesignated third party.

Such service providers shall have no authority to modifyor alter the content of the electronic data message orelectronic document received or to make any entry thereinon behalf of the originator, addressee or any third partyunless specifically authorized to do so, and shall retainthe electronic data message or electronic document inaccordance with the specific request or as necessary forthe purpose of performing the services it was engaged toperform.


CCCCCHAPTERHAPTERHAPTERHAPTERHAPTER II II II II IILLLLLEGALEGALEGALEGALEGAL R R R R RECOGNITIONECOGNITIONECOGNITIONECOGNITIONECOGNITION OFOFOFOFOF E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DAAAAATTTTTAAAAA

MMMMMESSAESSAESSAESSAESSAGESGESGESGESGES A A A A ANDNDNDNDND E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DOCUMENTSOCUMENTSOCUMENTSOCUMENTSOCUMENTS

SSSSSECTIONECTIONECTIONECTIONECTION 7. 7. 7. 7. 7. LeLeLeLeLegggggal Ral Ral Ral Ral Recognition ofecognition ofecognition ofecognition ofecognition of Electr Electr Electr Electr Electronic Dataonic Dataonic Dataonic Dataonic DataMessagMessagMessagMessagMessages and Electres and Electres and Electres and Electres and Electronic Documents. onic Documents. onic Documents. onic Documents. onic Documents. – Information shallnot be denied validity or enforceability solely on the ground thatit is in the form of an electronic data message or electronicdocument, purporting to give rise to such legal effect. Electronicdata messages or electronic documents shall have the legal effect,validity or enforceability as any other document or legal writing.In particular, subject to the provisions of the Act and these Rules:

(a) A requirement under law that information is in writing issatisfied if the information is in the form of an electronicdata message or electronic document.

(b) A requirement under law for a person to provideinformation in writing to another person is satisfied bythe provision of the information in an electronic datamessage or electronic document.

(c) A requirement under law for a person to provideinformation to another person in a specified non-electronic form is satisfied by the provision of theinformation in an electronic data message or electronicdocument if the information is provided in the same orsubstantially the same form.

(d) Nothing limits the operation of any requirement underlaw for information to be posted or displayed in specifiedmanner, time or location; or for any information ordocument to be communicated by a specified methodunless and until a functional equivalent shall have beendeveloped, installed, and implemented.


SSSSSECECECECEC. 8.. 8.. 8.. 8.. 8. Incor Incor Incor Incor Incorporation bporation bporation bporation bporation by Ry Ry Ry Ry Refefefefeferererererence.ence.ence.ence.ence. – Information shallnot be denied validity or enforceability solely on the ground thatit is not contained in an electronic data message or electronicdocument but is merely incorporated by reference therein.

SSSSSECECECECEC. 9.. 9.. 9.. 9.. 9. Use Not MandatorUse Not MandatorUse Not MandatorUse Not MandatorUse Not Mandatoryyyyy. . . . . – Without prejudice to theapplication of Section 27 of the Act and Section 37 of theseRules, nothing in the Act or these Rules requires a person to useor accept information contained in electronic data messages,electronic documents, or electronic signatures, but a person’sconsent to do so may be inferred from the person’s conduct.

SSSSSECECECECEC. 10.. 10.. 10.. 10.. 10. WWWWWritingritingritingritingriting..... – Where the law requires a document to bein writing, or obliges the parties to conform to a writing, orprovides consequences in the event information is not presentedor retained in its original form, an electronic document orelectronic data message will be sufficient if the latter:

(a) maintains its integrity and reliability; and

(b) can be authenticated so as to be usable for subsequentreference, in that:

i. It has remained complete and unaltered, apart fromthe addition of any endorsement and any authorizedchange, or any change which arises in the normalcourse of communication, storage and display; and

ii. It is reliable in the light of the purpose for which itwas generated and in the light of all relevantcircumstances.

SSSSSECECECECEC. 11.. 11.. 11.. 11.. 11.Original. Original. Original. Original. Original. – Where the law requires that a documentbe presented or retained in its original form, that requirement ismet by an electronic document or electronic data message if:


(a) There exists a reliable assurance as to the integrity of theelectronic document or electronic data message from thetime when it was first generated in its final form and suchintegrity is shown by evidence aliunde (that is, evidenceother than the electronic data message itself) or otherwise;and

(b) The electronic document or electronic data message iscapable of being displayed to the person to whom it is tobe presented.

(c) For the purposes of paragraph (a) above:

i. The criteria for assessing integrity shall be whetherthe information has remained complete and unaltered,apart from the addition of any endorsement and anychange which arises in the normal course ofcommunication, storage and display; and

(ii) The standard of reliability required shall be assessedin the light of the purpose for which the informationwas generated and in the light of all relevantcircumstances.

An electronic data message or electronic document meetingand complying with the requirements of Sections 6 or 7 ofthe Act shall be the best evidence of the agreement andtransaction contained therein.

SSSSSECECECECEC. 12.. 12.. 12.. 12.. 12. Solemn Contracts.Solemn Contracts.Solemn Contracts.Solemn Contracts.Solemn Contracts. – No provision of the Act shallapply to vary any and all requirements of existing laws and relevantjudicial pronouncements respecting formalities required in theexecution of documents for their validity. Hence, when the lawrequires that a contract be in some form in order that it may bevalid or enforceable, or that a contract is proved in a certain way,that requirement is absolute and indispensable.


LLLLLEGALEGALEGALEGALEGAL R R R R RECOGNITIONECOGNITIONECOGNITIONECOGNITIONECOGNITION OFOFOFOFOF E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC S S S S SIGNIGNIGNIGNIGNAAAAATURESTURESTURESTURESTURES

SSSSSECTIONECTIONECTIONECTIONECTION 13. 13. 13. 13. 13. LeLeLeLeLegggggal Ral Ral Ral Ral Recognition ofecognition ofecognition ofecognition ofecognition of Electr Electr Electr Electr ElectroniconiconiconiconicSignatures.Signatures.Signatures.Signatures.Signatures. – An electronic signature relating to an electronicdocument or electronic data message shall be equivalent to thesignature of a person on a written document if the signature:

(a) is an electronic signature as defined in Section 6(g) ofthese Rules; and

(b) is proved by showing that a prescribed procedure, notalterable by the parties interested in the electronicdocument or electronic data message, existed under which:

(i) A method is used to identify the party sought to bebound and to indicate said party’s access to theelectronic document or electronic data messagenecessary for his consent or approval through theelectronic signature;

(ii) Said method is reliable and appropriate for the purposefor which the electronic document or electronic datamessage was generated or communicated, in the lightof all circumstances, including any relevant agreement;

(iii) It is necessary for the party sought to be bound, inorder to proceed further with the transaction, to haveexecuted or provided the electronic signature; and,

(iv) The other party is authorized and enabled to verifythe electronic signature and to make the decision toproceed with the transaction authenticated by thesame.

The parties may agree to adopt supplementary oralternative procedures provided that the requirements ofparagraph (b) are complied with.


For purposes of subparagraphs (i) and (ii) ofparagraph (b), the factors referred to in Annex “2” maybe taken into account.

SSSSSECECECECEC. 14.. 14.. 14.. 14.. 14. PrPrPrPrPresumption Resumption Resumption Resumption Resumption Relating to Electrelating to Electrelating to Electrelating to Electrelating to Electronic Signaturonic Signaturonic Signaturonic Signaturonic Signatures.es.es.es.es.– In any proceeding involving an electronic signature, the proofof the electronic signature shall give rise to the rebuttablepresumption that:

(a) The electronic signature is the signature of the person towhom it correlates; and

(b) The electronic signature was affixed by that person withthe intention of signing or approving the electronic datamessage or electronic document unless the person relyingon the electronically signed electronic data message orelectronic document knows or has notice of defects in orunreliability of the signature or reliance on the electronicsignature is not reasonable under the circumstances.

MMMMMODESODESODESODESODES OFOFOFOFOF A A A A AUTHENTICAUTHENTICAUTHENTICAUTHENTICAUTHENTICATIONTIONTIONTIONTION

SSSSSECTIONECTIONECTIONECTIONECTION 15. 15. 15. 15. 15. Method of Authenticating Electronic Method of Authenticating Electronic Method of Authenticating Electronic Method of Authenticating Electronic Method of Authenticating ElectronicDocuments, Electronic Data Messages, and ElectronicDocuments, Electronic Data Messages, and ElectronicDocuments, Electronic Data Messages, and ElectronicDocuments, Electronic Data Messages, and ElectronicDocuments, Electronic Data Messages, and ElectronicSignatures. Signatures. Signatures. Signatures. Signatures. – Electronic documents, electronic data messagesand electronic signatures, shall be authenticated by demonstrating,substantiating and validating a claimed identity of a user, device,or another entity in an information or communication system.

Until the Supreme Court, by appropriate rules, shall have soprovided, electronic documents, electronic data messages andelectronic signatures shall be authenticated, among other ways, inthe following manner:


(a) The electronic signature shall be authenticated by proofthat a letter, character, number or other symbol inelectronic form representing the persons named in andattached to or logically associated with an electronic datamessage, electronic document, or that the appropriatemethodology or security procedures, when applicable, wereemployed or adopted by a person and executed or adoptedby such person, with the intention of authenticating orapproving an electronic data message or electronicdocument;

(b) The electronic data message or electronic document shallbe authenticated by proof that an appropriate securityprocedure, when applicable was adopted and employedfor the purpose of verifying the originator of an electronicdata message or electronic document, or detecting erroror alteration in the communication, content or storageof an electronic document or electronic data message froma specific point, which, using algorithm or codes,identifying words or numbers, encryptions, answers backor acknowledgment procedures, or similar security devices.

SSSSSECECECECEC. 16. . 16. . 16. . 16. . 16. Burden of Authenticating ElectronicBurden of Authenticating ElectronicBurden of Authenticating ElectronicBurden of Authenticating ElectronicBurden of Authenticating ElectronicDocuments or ElectrDocuments or ElectrDocuments or ElectrDocuments or ElectrDocuments or Electronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Messages. es. es. es. es. – The personseeking to introduce an electronic document or electronic datamessage in any legal proceeding has the burden of proving itsauthenticity by evidence capable of supporting a finding that theelectronic data message or electronic document is what the personclaims it to be.


MMMMMODESODESODESODESODES FORFORFORFORFOR E E E E ESTSTSTSTSTABLISHINGABLISHINGABLISHINGABLISHINGABLISHING I I I I INTEGRITYNTEGRITYNTEGRITYNTEGRITYNTEGRITY

SSSSSECTIONECTIONECTIONECTIONECTION 17. 17. 17. 17. 17. Method of Establishing the Integrity ofMethod of Establishing the Integrity ofMethod of Establishing the Integrity ofMethod of Establishing the Integrity ofMethod of Establishing the Integrity ofan Electronic Document or Electronic Data Message. –an Electronic Document or Electronic Data Message. –an Electronic Document or Electronic Data Message. –an Electronic Document or Electronic Data Message. –an Electronic Document or Electronic Data Message. –In the absence of evidence to the contrary, the integrity of theinformation and communication system in which an electronicdata message or electronic document is recorded or stored may beestablished in any legal proceeding, among other methods:

(a) By evidence that at all material times the informationand communication system or other similar device wasoperating in a manner that did not affect the integrity ofthe electronic document or electronic data message, andthere are no other reasonable grounds to doubt theintegrity of the information and communication system;

(b) By showing that the electronic document or electronicdata message was recorded or stored by a party to theproceedings who is adverse in interest to the party usingit; or

(c) By showing that the electronic document or electronicdata message was recorded or stored in the usual andordinary course of business by a person who is not a partyto the proceedings and who did not act under the controlof the party using the record.

AAAAADMISSIBILITYDMISSIBILITYDMISSIBILITYDMISSIBILITYDMISSIBILITY ANDANDANDANDAND E E E E EVIDENTIALVIDENTIALVIDENTIALVIDENTIALVIDENTIAL WWWWWEIGHTEIGHTEIGHTEIGHTEIGHT

SSSSSECTIONECTIONECTIONECTIONECTION 18. 18. 18. 18. 18. Admissibility and Evidential Admissibility and Evidential Admissibility and Evidential Admissibility and Evidential Admissibility and Evidential WWWWWeight ofeight ofeight ofeight ofeight ofElectronic Data Messages and Electronic Documents.Electronic Data Messages and Electronic Documents.Electronic Data Messages and Electronic Documents.Electronic Data Messages and Electronic Documents.Electronic Data Messages and Electronic Documents. – For evidentiary purposes, an electronic document or electronicdata message shall be the functional equivalent of a written


document under existing laws. In any legal proceeding, nothingin the application of the rules on evidence shall deny theadmissibility of an electronic data message or electronic documentin evidence:

(a) On the sole ground that it is in electronic form; or

(b) On the ground that it is not in the standard written form.

The Act does not modify any statutory rule relating to theadmissibility of electronic data messages or electronic documents,except the rules relating to authentication and best evidence.

In assessing the evidential weight of an electronic data messageor electronic document, the reliability of the manner in which itwas generated, stored or communicated, the reliability of themanner in which its originator was identified, and other relevantfactors shall be given due regard.

SSSSSECECECECEC. 19. . 19. . 19. . 19. . 19. Proof by Affidavit and Cross-Examination. Proof by Affidavit and Cross-Examination. Proof by Affidavit and Cross-Examination. Proof by Affidavit and Cross-Examination. Proof by Affidavit and Cross-Examination. –The matters referred to in Section 12 of the Act on admissibilityand evidentiary weight, and Section 9 of the Act on thepresumption of integrity of electronic signatures, may bepresumed to have been established by an affidavit given to thebest of the deponent’s or affiant’s personal knowledge subject tothe rights of parties in interest to cross-examine such deponentor affiant as a matter of right. Such right of cross-examinationmay likewise be enjoyed by a party to the proceedings who isadverse in interest to the party who has introduced the affidavitor has caused the affidavit to be introduced.

Any party to the proceedings has the right to cross-examine aperson referred to in Section 11, paragraph 4, and sub-paragraph(c) of the Act.


RRRRRETENTIONETENTIONETENTIONETENTIONETENTION OFOFOFOFOF E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DAAAAATTTTTAAAAA M M M M MESSAESSAESSAESSAESSAGEGEGEGEGE ANDANDANDANDAND

EEEEELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DOCUMENTOCUMENTOCUMENTOCUMENTOCUMENT

SSSSSECTIONECTIONECTIONECTIONECTION 20. 20. 20. 20. 20. RRRRRetention ofetention ofetention ofetention ofetention of Electr Electr Electr Electr Electronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Message ande ande ande ande andElectrElectrElectrElectrElectronic Document.onic Document.onic Document.onic Document.onic Document. – Notwithstanding any provision oflaw, rule or regulation to the contrary:

(a) The requirement in any provision of law that certaindocuments be retained in their original form is satisfiedby retaining them in the form of an electronic datamessage or electronic document which:

(i) Remains accessible so as to be usable for subsequentreference;

(ii) Is retained in the format in which it was generated,sent or received, or in a format which can bedemonstrated to accurately represent the electronicdata message or electronic document generated, sentor received; and,

(iii)Where applicable, enables the identification of itsoriginator and addressee, as well as the determinationof the date and the time it was sent or received.

(b) The requirement referred to in paragraph (a) is satisfiedby using the services of a third party, provided that theconditions set forth in subparagraphs (i), (ii) and (iii) ofparagraph (a) are met.

(c) Relevant government agencies tasked with enforcing orimplementing applicable laws relating to the retention ofcertain documents may, by appropriate issuances, imposeregulations to ensure the integrity, reliability of suchdocuments and the proper implementation of Section13 of the Act.


CCCCCHAPTERHAPTERHAPTERHAPTERHAPTER III III III III IIICCCCCOMMUNICAOMMUNICAOMMUNICAOMMUNICAOMMUNICATIONTIONTIONTIONTION OFOFOFOFOF E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DAAAAATTTTTAAAAA M M M M MESSAESSAESSAESSAESSAGESGESGESGESGES

AAAAANDNDNDNDND E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DOCUMENTSOCUMENTSOCUMENTSOCUMENTSOCUMENTS

SSSSSECTIONECTIONECTIONECTIONECTION 21. 21. 21. 21. 21. FFFFFororororormation and mation and mation and mation and mation and VVVVValidity ofalidity ofalidity ofalidity ofalidity of Electr Electr Electr Electr ElectroniconiconiconiconicContracts. –Contracts. –Contracts. –Contracts. –Contracts. – Except as otherwise agreed by the parties, an offer,the acceptance of an offer and such other elements required underexisting laws for the formation and perfection of contracts maybe expressed in, demonstrated and proved by means of electronicdata message or electronic documents and no contract shall bedenied validity or enforceability on the sole ground that it is inthe form of an electronic data message or electronic document,or that any or all of the elements required under existing laws forthe formation of the contracts is expressed, demonstrated andproved by means of electronic documents.

SSSSSECECECECEC. 22. . 22. . 22. . 22. . 22. Consummation ofConsummation ofConsummation ofConsummation ofConsummation of Electr Electr Electr Electr Electronic onic onic onic onic TTTTTransactions withransactions withransactions withransactions withransactions withBanks. Banks. Banks. Banks. Banks. – Electronic transactions made through networking amongbanks, or linkages thereof with other entities or networks, andvice versa, shall be deemed consummated under rules andregulations issued by the Bangko Sentral under the succeedingparagraph hereunder, upon the actual dispensing of cash or thedebit of one account and the corresponding credit to another,whether such transaction is initiated by the depositor or by anauthorized collecting party; Provided, that the obligation of onebank, entity, or person similarly situated to another arisingtherefrom shall be considered absolute and shall not be subjectedto the process of preference of credits; Provided, however, thatthe foregoing shall apply only to transactions utilizing theAutomated Teller Machine switching network.

Without prejudice to the foregoing, all electronic transactionsinvolving banks, quasi-banks, trust entities, and other institutions


which, under special laws are subject to the supervision of theBangko Sentral ng Pilipinas, shall be covered by the rules andregulations issued by the same pursuant to its authority underSection 59 of Republic Act No. 8791 (The General BankingAct), Republic Act No. 7653 (the Charter of the Bangko Sentralng Pilipinas) and Section 20, Article XII of the Constitution.

SSSSSECECECECEC. 23. . 23. . 23. . 23. . 23. RRRRRecognition becognition becognition becognition becognition by Py Py Py Py Pararararar ties ofties ofties ofties ofties of Electr Electr Electr Electr Electronic Dataonic Dataonic Dataonic Dataonic DataMessagMessagMessagMessagMessage. e. e. e. e. – As between the originator and the addressee of anelectronic data message or electronic document, a declaration ofwill or other statement shall not be denied legal effect, validity orenforceability solely on the ground that it is in the form of anelectronic data message or electronic document.

AAAAATTRIBTTRIBTTRIBTTRIBTTRIBUTIONUTIONUTIONUTIONUTION OFOFOFOFOF E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DAAAAATTTTTAAAAA M M M M MESSAESSAESSAESSAESSAGEGEGEGEGE ANDANDANDANDAND

EEEEELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DOCUMENTOCUMENTOCUMENTOCUMENTOCUMENT

SSSSSECTIONECTIONECTIONECTIONECTION 24. 24. 24. 24. 24. Origin of Electronic Data Message.Origin of Electronic Data Message.Origin of Electronic Data Message.Origin of Electronic Data Message.Origin of Electronic Data Message. – Anelectronic data message or electronic document is that of theoriginator if it was sent by the originator himself.

SSSSSECECECECEC. 25. . 25. . 25. . 25. . 25. Origin of Electronic Data Message NotOrigin of Electronic Data Message NotOrigin of Electronic Data Message NotOrigin of Electronic Data Message NotOrigin of Electronic Data Message NotPPPPPersonallersonallersonallersonallersonally Sent by Sent by Sent by Sent by Sent by an Originatory an Originatory an Originatory an Originatory an Originator..... – As between the originatorand the addressee, an electronic data message or electronicdocument is deemed to be that of the originator if it was sent:

(a) by a person who had the authority to act on behalf ofthe originator with respect to that electronic data messageor electronic document; or

(b) by an information and communications systemprogrammed by, or on behalf of the originator to operateautomatically.


SSSSSECECECECEC. 26. . 26. . 26. . 26. . 26. WWWWWhen an Originator Mahen an Originator Mahen an Originator Mahen an Originator Mahen an Originator May Be Bound By any Be Bound By any Be Bound By any Be Bound By any Be Bound By anElectrElectrElectrElectrElectronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Message. e. e. e. e. – As between the originator andthe addressee, an addressee is entitled to regard an electronic datamessage or electronic document as being that of the originator,and to act on that assumption, if:

(a) in order to ascertain whether the electronic data messagewas that of the originator, the addressee properly applieda procedure previously agreed to by the originator forthat purpose; or

(b) the electronic data message or electronic document asreceived by the addressee resulted from the actions of aperson whose relationship with the originator or with anyagent of the originator enabled that person to gain accessto a method used by the originator to identify electronicdata messages or electronic documents as his own.

The provisions of this Section do not exclude other instancesor circumstances when an originator may be bound by the relianceand consequent action of an addressee respecting an electronicdata message, which purports to have been that of the originator.

SSSSSECECECECEC. 27.. 27.. 27.. 27.. 27. WWWWWhen an Originator Mahen an Originator Mahen an Originator Mahen an Originator Mahen an Originator May Not Be Bound By any Not Be Bound By any Not Be Bound By any Not Be Bound By any Not Be Bound By anElectrElectrElectrElectrElectronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Message.e.e.e.e. – As between the originator andthe addressee, an addressee is not entitled to regard an electronicdata message as being that of the originator, and to act on thatassumption:

(a) as of the time when the addressee has both received noticefrom the originator that the electronic data message orelectronic document is not that of the originator, and hasreasonable time to act accordingly; or

(b) in a case within paragraph (b) Section 26 of these Rules,at any time when the addressee knew or should have


known, had it exercised reasonable care or used any agreedprocedure, that the electronic data message or electronicdocument was not that of the originator.

The provisions of this Section do not exclude other instancesor circumstances when an originator may not be liable for thereliance and consequent action of an addressee respecting anelectronic data message, which purports to have been that of theoriginator.

SSSSSEPEPEPEPEPARAARAARAARAARATETETETETE R R R R RECEIPTECEIPTECEIPTECEIPTECEIPT OFOFOFOFOF ANDANDANDANDAND E E E E ERRRRRRRRRROROROROROR ONONONONON E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC

DDDDDAAAAATTTTTAAAAA M M M M MESSAESSAESSAESSAESSAGEGEGEGEGE ANDANDANDANDAND E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DOCUMENTOCUMENTOCUMENTOCUMENTOCUMENT

SSSSSECTIONECTIONECTIONECTIONECTION 28. 28. 28. 28. 28. Assumption RAssumption RAssumption RAssumption RAssumption Reeeeegggggarararararding Rding Rding Rding Rding Receipt ofeceipt ofeceipt ofeceipt ofeceipt of Se Se Se Se SeparateparateparateparateparateElectrElectrElectrElectrElectronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Messages.es.es.es.es. – The addressee is entitled to regardeach electronic data message or electronic document received as aseparate electronic data message or electronic document and toact on that assumption, except to the extent that it duplicatesanother electronic data message or electronic document and theaddressee knew or should have known, had it exercised reasonablecare or used any agreed procedure, that the electronic data messageor electronic document was a duplicate.

SSSSSECECECECEC. 29.. 29.. 29.. 29.. 29. ErErErErErrrrrror on Electror on Electror on Electror on Electror on Electronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Message or Electre or Electre or Electre or Electre or ElectroniconiconiconiconicDocument.Document.Document.Document.Document. – The addressee is entitled to regard the electronicdata message or electronic document received as that which theoriginator intended to send, and to act on that assumption, unlessthe addressee knew or should have known, had the addresseeexercised reasonable care, used the appropriate procedure or appliedan agreed procedure:

(a) That the transmission resulted in any error therein or inthe electronic data message or electronic document when


the latter enters the designated information andcommunications system; or

(b) That electronic data message or electronic document issent to an information and communications system whichis not so designated by the addressee for the purpose.

DDDDDISPISPISPISPISPAAAAATTTTTCHCHCHCHCH ANDANDANDANDAND R R R R RECEIPTECEIPTECEIPTECEIPTECEIPT OFOFOFOFOF E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DAAAAATTTTTAAAAA

MMMMMESSAESSAESSAESSAESSAGEGEGEGEGE ANDANDANDANDAND E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DOCUMENTOCUMENTOCUMENTOCUMENTOCUMENT

SSSSSECTIONECTIONECTIONECTIONECTION 30. 30. 30. 30. 30. AgAgAgAgAgrrrrreement on Aceement on Aceement on Aceement on Aceement on Acknoknoknoknoknowledgment ofwledgment ofwledgment ofwledgment ofwledgment of R R R R Receipteceipteceipteceipteceiptof Electronic Data Messages or Electronic Documents.of Electronic Data Messages or Electronic Documents.of Electronic Data Messages or Electronic Documents.of Electronic Data Messages or Electronic Documents.of Electronic Data Messages or Electronic Documents.– The following rules shall apply where, on or before sending anelectronic data message or electronic document, the originatorand the addressee have agreed, or in that electronic document orelectronic data message, the originator has requested, that receiptof the electronic document or electronic data message beacknowledged:

(a) Where the originator has not agreed with the addresseethat the acknowledgment be given in a particular form orby a particular method, an acknowledgment may be givenby or through any communication by the addressee,automated or otherwise, or any conduct of the addressee,sufficient to indicate to the originator that the electronicdata message or electronic document has been received.

(b) Where the originator has stated that the effect orsignificance of the electronic data message or electronicdocument is conditional on receipt of theacknowledgment thereof, the electronic data message orelectronic document is treated as though it has never beensent, until the acknowledgment is received.


(c) Where the originator has not stated that the effect orsignificance of the electronic data message or electronicdocument is conditional on receipt of theacknowledgment, and the acknowledgment has not beenreceived by the originator within the time specified oragreed or, if no time has been specified or agreed, withina reasonable time, the originator may give notice to theaddressee stating that no acknowledgment has beenreceived and specifying a reasonable time by which theacknowledgment must be received; and if theacknowledgment is not received within the time specified,the originator may, upon notice to the addressee, treat theelectronic document or electronic data message as thoughit had never been sent, or exercise any other rights it mayhave.

SSSSSECECECECEC. 31. . 31. . 31. . 31. . 31. TTTTTime ofime ofime ofime ofime of Dispatc Dispatc Dispatc Dispatc Dispatch ofh ofh ofh ofh of Electr Electr Electr Electr Electronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Messageeeeeor Electror Electror Electror Electror Electronic Document. onic Document. onic Document. onic Document. onic Document. – Unless otherwise agreed betweenthe originator and the addressee, the dispatch of an electronicdata message or electronic document occurs when it enters aninformation and communications system outside the control ofthe originator or of the person who sent the electronic data messageor electronic document on behalf of the originator.

SSSSSECECECECEC. 32. . 32. . 32. . 32. . 32. TTTTTime ofime ofime ofime ofime of R R R R Receipt ofeceipt ofeceipt ofeceipt ofeceipt of Electr Electr Electr Electr Electronic Data Messagonic Data Messagonic Data Messagonic Data Messagonic Data Messageeeeeor Electror Electror Electror Electror Electronic Document. onic Document. onic Document. onic Document. onic Document. – Unless otherwise agreed betweenthe originator and the addressee, the time of receipt of an electronicdata message or electronic document is as follows:

(a) If the addressee has designated an information andcommunications system for the purpose of receivingelectronic data message or electronic document, receiptoccurs at the time when the electronic data message or


electronic document enters the designated informationand communications system; Provided, however, that ifthe originator and the addressee are both participants inthe designated information and communications system,receipt occurs at the time when the electronic data messageor electronic document is retrieved by the addressee.

(b) If the electronic data message or electronic document issent to an information and communications system ofthe addressee that is not the designated information andcommunications system, receipt occurs at the time whenthe electronic data message or electronic document isretrieved by the addressee.

(c) If the addressee has not designated an information andcommunications system, receipt occurs when theelectronic data message or electronic document enters aninformation and communications system of the addressee.

These rules apply notwithstanding that the place where theinformation and communications system is located may bedifferent from the place where the electronic data message orelectronic document is deemed to be received.

SSSSSECECECECEC. 33. . 33. . 33. . 33. . 33. Place ofPlace ofPlace ofPlace ofPlace of Dispatc Dispatc Dispatc Dispatc Dispatch and Rh and Rh and Rh and Rh and Receipt ofeceipt ofeceipt ofeceipt ofeceipt of Electr Electr Electr Electr ElectroniconiconiconiconicData Message or Electronic Document.Data Message or Electronic Document.Data Message or Electronic Document.Data Message or Electronic Document.Data Message or Electronic Document. – Unless otherwiseagreed between the originator and the addressee, an electronic datamessage or electronic document is deemed to be dispatched at theplace where the originator has its place of business and received atthe place where the addressee has its place of business. This ruleshall apply even if the originator or addressee had used a laptopor other portable device to transmit or receive his electronic datamessage or electronic document. This rule shall also apply todetermine the tax situs of such transaction to the extent not


inconsistent with Philippine situs rules and the regulations whichmay be promulgated by the Bureau of Internal Revenue (BIR)relating to the tax treatment of electronic commerce transactions.

For the purpose hereof:

(a) If the originator or the addressee has more than one placeof business, the place of business is that which has theclosest relationship to the underlying transaction or, wherethere is no underlying transaction, the principal place ofbusiness.

(b) If the originator or the addressee does not have a place ofbusiness, reference is to be made to its habitual residence;or

(c) The “usual place of residence” in relation to a bodycorporate, which does not have a place of business, meansthe place where it is incorporated or otherwise legallyconstituted.

Nothing in this Section shall be deemed to amend the rulesof private international law.

SSSSSECURITYECURITYECURITYECURITYECURITY M M M M METHODSETHODSETHODSETHODSETHODS

SSSSSECTIONECTIONECTIONECTIONECTION 34. 34. 34. 34. 34. Choice of Security Methods.Choice of Security Methods.Choice of Security Methods.Choice of Security Methods.Choice of Security Methods. – Subject toapplicable laws and/or rules and guidelines promulgated by theDepartment of Trade and Industry and other appropriategovernment agencies, parties to any electronic transaction shallbe free to determine the type and level of electronic data messageor electronic document security needed, and to select and use orimplement appropriate technological methods that suit their needs.


PPPPPARARARARARTTTTT III III III III IIIEEEEELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC C C C C COMMEROMMEROMMEROMMEROMMERCECECECECE INININININ C C C C CARRIAARRIAARRIAARRIAARRIAGEGEGEGEGE OFOFOFOFOF G G G G GOODSOODSOODSOODSOODS

SSSSSECTIONECTIONECTIONECTIONECTION 35. 35. 35. 35. 35. Actions RActions RActions RActions RActions Related to Contracts ofelated to Contracts ofelated to Contracts ofelated to Contracts ofelated to Contracts of Car Car Car Car Carriagriagriagriagriageeeeeofofofofof Goods. Goods. Goods. Goods. Goods. – Without derogating from the provisions of PartTwo of the Act, this Part of the Rules applies to any action inconnection with, or in pursuance of, a contract of carriage ofgoods, including but not limited to:

(a) (i) furnishing the marks, number, quantity or weight ofgoods;

(ii) stating or declaring the nature or value of goods;

(iii)issuing a receipt for goods;

(iv)confirming that goods have been loaded;

(b) (i) notifying a person of terms and conditions of thecontract;

(ii) giving instructions to a carrier;

(c) (i) claiming delivery of goods;

(ii) authorizing release of goods;

(iii)giving notices of loss of, or damage to goods;

(d) giving any other notice or statement in connection withthe performance of the contract;

(e) undertaking to deliver goods to a named person or aperson authorized to claim delivery;

(f) granting, acquiring, renouncing, surrendering, transferringor negotiating rights in goods;

(g) acquiring or transferring rights and obligations under thecontract.


SSSSSECECECECEC. 36.. 36.. 36.. 36.. 36. TTTTTransporransporransporransporransport Documents.t Documents.t Documents.t Documents.t Documents. –

(1) Subject to paragraph (3), where the law requires that anyaction referred to in the immediately preceding Sectionbe carried out in writing or by using a paper document,that requirement is met if the action is carried out byusing one or more electronic data messages or electronicdocuments. The transport documents referred to hereinshall include, but not be limited to, those enumerated inAnnex “1” hereof. Concerned agencies such as, but notlimited to, the DTI, Department of Finance, DOTC,Philippine Ports Authority and other port authorities,shall, within their respective mandates, issue appropriaterules and guidelines with respect to transport documentsas provided herein.

(2) Paragraph (1) applies whether the requirement therein isin the form of an obligation or whether the law simplyprovides consequences for failing either to carry out theaction in writing or to use a paper document.

(3) If a right is to be granted to, or an obligation is to beacquired by, one person and no other person, and if thelaw requires that, in order to effect this, the right orobligation must be conveyed to that person by the transfer,or use of, a paper document, that requirement is met ifthe right or obligation is conveyed by using one or moreelectronic data messages or electronic documents:Provided, That a reliable method is used to render suchelectronic data messages or electronic documents unique.

(4) For the purposes of paragraph (3), the standard ofreliability required shall be assessed in the light of thepurpose for which the right or obligation was conveyed


and in the light of all the circumstances including anyrelevant agreement.

(5) Where one or more electronic data messages or electronicdocuments are used to effect any action in subparagraphs(f) and (g) of Section 25 of the Act, no paper documentused to effect any such action is valid unless the use ofelectronic data message or electronic document has beenterminated and replaced by the use of paper documents.A paper document issued in these circumstances shallcontain a statement of such termination. The replacementof electronic data messages or electronic documents bypaper documents shall not affect the rights or obligationsof the parties involved.

(6) If a rule of law is compulsorily applicable to a contractof carriage of goods which is in, or is evidenced by, apaper document, that rule shall not be inapplicable tosuch a contract of carriage of goods which is evidencedby one or more electronic data messages or electronicdocuments by reason of the fact that the contract isevidenced by such electronic data message or electronicdocument instead of a paper document.

PPPPPARARARARARTTTTT IV IV IV IV IVEEEEELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC TTTTTRANSARANSARANSARANSARANSACTIONSCTIONSCTIONSCTIONSCTIONS INININININ G G G G GOOOOOVERNMENTVERNMENTVERNMENTVERNMENTVERNMENT

CCCCCHAPTERHAPTERHAPTERHAPTERHAPTER I I I I IGGGGGOOOOOVERNMENTVERNMENTVERNMENTVERNMENTVERNMENT U U U U USESESESESE OFOFOFOFOF D D D D DAAAAATTTTTAAAAA M M M M MESSAESSAESSAESSAESSAGESGESGESGESGES,,,,,

EEEEELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC D D D D DOCUMENTSOCUMENTSOCUMENTSOCUMENTSOCUMENTS ANDANDANDANDAND E E E E ELECTRLECTRLECTRLECTRLECTRONICONICONICONICONIC

SSSSSIGNIGNIGNIGNIGNAAAAATURESTURESTURESTURESTURES

SSSSSECTIONECTIONECTIONECTIONECTION 37. 37. 37. 37. 37. GoGoGoGoGovvvvvererererernment Use ofnment Use ofnment Use ofnment Use ofnment Use of Electr Electr Electr Electr Electronic Dataonic Dataonic Dataonic Dataonic DataMessages, Electronic Documents and ElectronicMessages, Electronic Documents and ElectronicMessages, Electronic Documents and ElectronicMessages, Electronic Documents and ElectronicMessages, Electronic Documents and Electronic


SignaturSignaturSignaturSignaturSignatures.es.es.es.es. – Notwithstanding any law to the contrary, withintwo (2) years from the date of the effectivity of the Act, alldepartments, bureaus, offices and agencies of the government, aswell as all government-owned and -controlled corporations, thatpursuant to law require or accept the filing of documents, requirethat documents be created, or retained and/or submitted, issuepermits, licenses or certificates of registration or approval, orprovide for the method and manner of payment or settlement offees and other obligations to the government, shall:

(a) accept the creation, filing or retention of such documentsin the form of electronic data messages or electronicdocuments;

(b) issue permits, licenses, or approval in the form of electronicdata messages or electronic documents;

(c) require and/or accept payments, and issue receiptsacknowledging such payments, through systems usingelectronic data messages or electronic documents; or

(d) transact the government business and/or performgovernmental functions using electronic data messages orelectronic documents, and for the purpose, are authorizedto adopt and promulgate, after appropriate public hearingand with due publication in newspapers of generalcirculation, the appropriate rules, regulations, or guidelines,to, among others, specify:

(1) the manner and format in which such electronic datamessages or electronic documents shall be filed, created,retained or issued;

(2) where and when such electronic data messages orelectronic documents have to be signed, the use of a


electronic signature, the type of electronic signaturerequired;

(3) the format of an electronic data message or electronicdocument and the manner the electronic signatureshall be affixed to the electronic data message orelectronic document;

(4) the control processes and procedures as appropriateto ensure adequate integrity, security andconfidentiality of electronic data messages or electronicdocuments or records or payments;

(5) other attributes required of electronic data messagesor electronic documents or payments; and

(6) the full or limited use of the documents and papersfor compliance with the government requirements;

Provided, That the Act shall by itself mandate anydepartment of the government, organ of state or statutorycorporation to accept or issue any document in the form ofelectronic data messages or electronic documents upon theadoption, promulgation and publication of the appropriaterules, regulations, or guidelines. Nothing in the Act or theRules authorizes any person to require any branch, department,agency, bureau, or instrumentality of government to acceptor process electronic data messages; conduct its business; orperform its functions by electronic means until the adoption,promulgation and publication of the aforementionedappropriate rules, regulations or guidelines. Such rules,regulations or guidelines as well as the underlying technologiesutilized in the implementation of the Act and these Rulesshall conform to the principles set forth in the immediatelysucceeding section.


SSSSSECECECECEC. 38. . 38. . 38. . 38. . 38. Principles GoPrinciples GoPrinciples GoPrinciples GoPrinciples Govvvvverererererning Goning Goning Goning Goning Govvvvvererererernment Use ofnment Use ofnment Use ofnment Use ofnment Use ofElectronic Data Messages, Electronic Documents andElectronic Data Messages, Electronic Documents andElectronic Data Messages, Electronic Documents andElectronic Data Messages, Electronic Documents andElectronic Data Messages, Electronic Documents andElectrElectrElectrElectrElectronic Signaturonic Signaturonic Signaturonic Signaturonic Signatures. es. es. es. es. – The following principles shall governthe implementation of Section 27 of the Act and shall bemandatory upon all departments, bureaus, offices and agencies ofthe government, as well as all government-owned and -controlledcorporations:

(a) Technology Neutrality. – All solutions implemented shallneither favor a particular technology over another nordiscriminate against or in favor of particular vendors oftechnology.

(b) Interoperability. – All implementation of technologicalsolutions shall ensure the interoperability of systemsforming part of the government network.

(c) Elimination of Red Tape. – Government processes shallbe re-examined and if appropriate, simplified or re-engineered to maximize the functionality of technologyand to eliminate unnecessary delays in the delivery ofgovernmental services.

(d) Security Measures. – Government shall implementappropriate security measures to guard againstunauthorized access, unlawful disclosure of information,and to ensure the integrity of stored information.

(e) Auditability. – All systems installed shall provide for anaudit trail.

SSSSSECECECECEC. 39.. 39.. 39.. 39.. 39. GoGoGoGoGovvvvvererererernment Infnment Infnment Infnment Infnment Infororororormation System Plan (GISP).mation System Plan (GISP).mation System Plan (GISP).mation System Plan (GISP).mation System Plan (GISP).– It is hereby mandated that the GISP shall be adjusted, modifiedand amended to conform to the provisions and requirements ofthe Act, RPWEB and these Rules.


CCCCCHAPTERHAPTERHAPTERHAPTERHAPTER II II II II IIRPWEBRPWEBRPWEBRPWEBRPWEB

SSSSSECTIONECTIONECTIONECTIONECTION 40. 40. 40. 40. 40. RPWEB RPWEB RPWEB RPWEB RPWEB TTTTTo Pro Pro Pro Pro Promote the Use ofomote the Use ofomote the Use ofomote the Use ofomote the Use of Electr Electr Electr Electr ElectroniconiconiconiconicDocuments and Electronic Data Messages inDocuments and Electronic Data Messages inDocuments and Electronic Data Messages inDocuments and Electronic Data Messages inDocuments and Electronic Data Messages inGoGoGoGoGovvvvvererererernment and to the General Pubnment and to the General Pubnment and to the General Pubnment and to the General Pubnment and to the General Public.lic.lic.lic.lic. – Within two (2)years from the effectivity of the Act, there shall be installed anelectronic online network in accordance with Administrative Order332 and House of Representatives Resolution 890, otherwiseknown as RPWEB, to implement Part IV of the Act to facilitatethe open, speedy and efficient electronic online transmission,conveyance and use of electronic data messages or electronicdocuments amongst all government departments, agencies,bureaus, offices down to the division level and to the regionaland provincial offices as practicable as possible, government-ownedand -controlled corporations, local government units, other publicinstrumentalities, universities, colleges and other schools, anduniversal access to the general public.

The RPWEB network shall serve as initial platform of thegovernment information infrastructure to facilitate the electroniconline transmission and conveyance of government services toevolve and improve by better technologies or kinds of electroniconline wide area networks utilizing, but not limited to, fiber optic,satellite, wireless and other broadband telecommunicationmediums or modes.

SSSSSECECECECEC. 41.. 41.. 41.. 41.. 41. Implementing AgImplementing AgImplementing AgImplementing AgImplementing Agencies.encies.encies.encies.encies. – To facilitate the rapiddevelopment of the government information infrastructure, theDepartment of Transportation and Communications, NationalTelecommunications Commission and the National ComputerCenter shall in coordination with each other, promulgate theappropriate issuances in accordance with their respective mandate


to aggressively formulate, promote and implement a policyenvironment and regulatory or non-regulatory framework thatshall lead to the substantial reduction of costs of including, butnot limited to, leased lines, land, satellite and dial-up telephoneaccess, cheap broadband and wireless accessibility by governmentdepartments, agencies, bureaus, offices, government-owned and -controlled corporations, local government units, other publicinstrumentalities and the general public, to include theestablishment of a government website portal and a domesticinternet exchange system to facilitate strategic access to governmentand amongst agencies thereof and the general public and for thespeedier flow of locally generated internet traffic within thePhilippines.

SSSSSECECECECEC. 42. . 42. . 42. . 42. . 42. CabCabCabCabCable le le le le TTTTTeleeleeleeleelevision and Brvision and Brvision and Brvision and Brvision and Broadcast as oadcast as oadcast as oadcast as oadcast as TTTTTelecommunications.elecommunications.elecommunications.elecommunications.elecommunications.– The physical infrastructure of cable and wireless systems for cableTV and broadcast excluding programming and content and themanagement thereof shall be considered as within the activity oftelecommunications for the purpose of electronic commerce andto maximize the convergence of ICT in the installation of thegovernment information infrastructure.

CCCCCHAPTERHAPTERHAPTERHAPTERHAPTER III III III III IIIDDDDDELINEAELINEAELINEAELINEAELINEATIONTIONTIONTIONTION OFOFOFOFOF F F F F FUNCTIONSUNCTIONSUNCTIONSUNCTIONSUNCTIONS

SSSSSECTIONECTIONECTIONECTIONECTION 43. 43. 43. 43. 43. Delineation of Functions and CoordinationDelineation of Functions and CoordinationDelineation of Functions and CoordinationDelineation of Functions and CoordinationDelineation of Functions and Coordinationbbbbby the DTI. y the DTI. y the DTI. y the DTI. y the DTI. – In the implementation of the Act, the followinggovernment agencies shall have the functions stated hereunder:

(a) The Department of Trade and Industry shall:

(i) Supervise and coordinate the full implementation ofSection 27 of the Act. For this purpose, all


government agencies intending to comply with thesaid provision of law shall coordinate with the DTIin order to ensure adherence with the principlesprovided for in Section 38 of these Rules. Observanceof all laws and regulations on public bidding,disbursements and other restrictions, including COApolicies, shall be mandatory.

(ii) Install an online public information and quality andprice monitoring system for goods and services aimedin protecting the interests of the consuming publicavailing of the advantages of the Act.

(iii) Establish a voluntary listing system for all businessesor entities involved in electronic commerce including,but not limited to, value-added service (VAS)providers as this term is understood in Republic ActNo. 7925, banks, financial institutions, manufacturingcompanies, retailers, wholesalers, and on-lineexchanges. The list of electronic commerce entitiesshall be maintained by the DTI and made availableelectronically to all interested parties.

(iv) Review, study and assess all legal, technical andcommercial issues arising in the field of electroniccommerce which may be directed to the DTI and ifnecessary, convene the appropriate governmentagencies in order to discuss, deliberate on and resolvethe same and in the proper cases, promulgate additionalrules and regulations to implement the Act.

(b) The Bangko Sentral ng Pilipinas shall exercise and performsuch functions as mandated under the Act including thepromulgation of the rules and regulations to implementthe provisions of the Act with respect to banks, quasi-


banks, trust entities, and other institutions which, underspecial laws are subject to the Bangko Sentral ng Pilipinassupervision.

(c) The Department of Budget and Management shallidentify the fund source for the implementation ofSections 37, 39 and 40 of the Rules, consistent with theprovisions of the annual General Appropriations Act, andin its capacity in managing the budget execution andaccountability processes of government, shall beresponsible for putting such core processes online.

PPPPPARARARARARTTTTT VVVVVFFFFFINININININALALALALAL P P P P PRRRRROOOOOVISIONSVISIONSVISIONSVISIONSVISIONS

SSSSSECTIONECTIONECTIONECTIONECTION 44. 44. 44. 44. 44. Extent ofExtent ofExtent ofExtent ofExtent of Liability of Liability of Liability of Liability of Liability of a Ser a Ser a Ser a Ser a Service Prvice Prvice Prvice Prvice Prooooovidervidervidervidervider.....– Except as otherwise provided in this Section, no person or partyshall be subject to any civil or criminal liability in respect of theelectronic data message or electronic document for which theperson or party acting as a service provider as defined in Section6(n) of these Rules merely provides access if such liability isfounded on:

(a) The obligations and liabilities of the parties under theelectronic data message or electronic document;

(b) The making, publication, dissemination or distributionof such material or any statement made in such material,including possible infringement of any right subsistingin or in relation to such material: Provided, That –

(i) The service provider: (1) does not have actualknowledge, or (2) is not aware of the facts orcircumstances from which it is apparent, that the


making, publication, dissemination or distribution ofsuch material is unlawful or infringes any rightssubsisting in or in relation to such material, or (3)having become aware, advises the affected partieswithin a reasonable time, to refer the matter to theappropriate authority or, at the option of the parties,to avail of alternative modes of dispute resolution;

(ii) The service provider does not knowingly receive afinancial benefit directly attributable to the unlawfulor infringing activity; and

(iii) The service provider does not directly commit anyinfringement or other unlawful act and does notinduce or cause another person or party to commitany infringement or other unlawful act and/or doesnot benefit financially from the infringing activity orunlawful act of another person or party;

Provided, further, That nothing in this Section shall affect:

(a) Any obligation founded on contract;

(b) The obligation of a service provider as such under alicensing or other regulatory regime established underwritten law;

(c) Any obligation imposed under any written law; or

(d) The civil liability of any party to the extent that suchliability forms the basis for injunctive relief issued by acourt under any law requiring that the service providertake or refrain from actions necessary to remove, block ordeny access to any material, or to preserve evidence of aviolation of law.


LLLLLAAAAAWFULWFULWFULWFULWFUL A A A A ACCESSCCESSCCESSCCESSCCESS

SSSSSECTIONECTIONECTIONECTIONECTION 45. 45. 45. 45. 45. Lawful Access to Electronic Documents,Lawful Access to Electronic Documents,Lawful Access to Electronic Documents,Lawful Access to Electronic Documents,Lawful Access to Electronic Documents,Electronic Data Messages, and Electronic Signatures.Electronic Data Messages, and Electronic Signatures.Electronic Data Messages, and Electronic Signatures.Electronic Data Messages, and Electronic Signatures.Electronic Data Messages, and Electronic Signatures. –Access to an electronic file, or an electronic signature of anelectronic data message or electronic document shall only beauthorized and enforced in favor of the individual or entity havinga legal right to the possession or the use of the plaintext, electronicsignature or file and solely for the authorized purposes.

SSSSSECECECECEC. 46. . 46. . 46. . 46. . 46. LaLaLaLaLawful Access to Electrwful Access to Electrwful Access to Electrwful Access to Electrwful Access to Electronic Konic Konic Konic Konic Keys. eys. eys. eys. eys. – The electronickey for identity or integrity shall not be made available to anyperson or party without the consent of the individual or entityin lawful possession of that electronic key. The testimonialdisclosure of an electronic key in any proceeding shall be limitedby the Constitutional right against self-incrimination.

SSSSSECECECECEC. 47. . 47. . 47. . 47. . 47. ObObObObObligligligligligation ofation ofation ofation ofation of Conf Conf Conf Conf Confidentialityidentialityidentialityidentialityidentiality..... – Except for thepurposes authorized under the Act, any person who obtained accessto any electronic key, electronic data message, or electronicdocument, book, register, correspondence, information, or othermaterial pursuant to any powers conferred under the Act, shallnot convey to or share the same with any other person.

PPPPPENENENENENALALALALAL P P P P PRRRRROOOOOVISIONSVISIONSVISIONSVISIONSVISIONS

SSSSSECTIONECTIONECTIONECTIONECTION 48. 48. 48. 48. 48. Hacking. Hacking. Hacking. Hacking. Hacking. – Hacking or cracking which refers tounauthorized access into or interference in a computer system/server or information and communication system; or any accessin order to corrupt, alter, steal, or destroy using a computer orother similar information and communication devices, withoutthe knowledge and consent of the owner of the computer or


information and communications system, including theintroduction of computer viruses and the like, resulting in thecorruption, destruction, alteration, theft or loss of electronic datamessages or electronic document shall be punished by a minimumfine of One hundred thousand pesos (Php100,000.00) and amaximum commensurate to the damage incurred and a mandatoryimprisonment of six (6) months to three (3) years.

SSSSSECECECECEC. 49.. 49.. 49.. 49.. 49. PiracPiracPiracPiracPiracyyyyy..... – Piracy or the unauthorized copying,reproduction, dissemination, distribution, importation, use,removal, alteration, substitution, modification, storage, uploading,downloading, communication, making available to the public, orbroadcasting of protected material, electronic signature orcopyrighted works including legally protected sound recordingsor phonograms or information material on protected works,through the use of telecommunication networks, such as, but notlimited to, the internet, in a manner that infringes intellectualproperty rights shall be punished by a minimum fine of Onehundred thousand pesos (Php100,000.00) and a maximumcommensurate to the damage incurred and a mandatoryimprisonment of six (6) months to three (3) years. The foregoingshall be without prejudice to the rights, liabilities and remediesunder Republic Act No. 8293 or Intellectual Property Code ofthe Philippines and other applicable laws.

SSSSSECECECECEC. 50. . 50. . 50. . 50. . 50. Other POther POther POther POther Penal Ofenal Ofenal Ofenal Ofenal Offffffenses. enses. enses. enses. enses. – Violations of the ConsumerAct or Republic Act No. 7394 and other relevant or pertinentlaws through transactions covered by or using electronic datamessages or electronic documents, shall be penalized with the samepenalties as provided in those laws.

SSSSSECECECECEC. 51.. 51.. 51.. 51.. 51. Other Other Other Other Other VVVVViolations ofiolations ofiolations ofiolations ofiolations of the Act. the Act. the Act. the Act. the Act. – Other violationsof the provisions of the Act, shall be penalized with a maximum


penalty of One million pesos (Php1,000,000.00) or six-(6) yearsimprisonment.

MMMMMISCELLANEOUSISCELLANEOUSISCELLANEOUSISCELLANEOUSISCELLANEOUS P P P P PRRRRROOOOOVISIONSVISIONSVISIONSVISIONSVISIONS

SSSSSECTIONECTIONECTIONECTIONECTION 52. 52. 52. 52. 52. Statutory Interpretation.Statutory Interpretation.Statutory Interpretation.Statutory Interpretation.Statutory Interpretation. – Unless otherwiseexpressly provided for, the interpretation of these Rules and theAct shall give due regard to the Act’s international origin – theUNCITRAL Model Law on Electronic Commerce – and theneed to promote uniformity in its application and the observanceof good faith in international trade relations. The generallyaccepted principles of international law and convention onelectronic commerce shall likewise be considered.

SSSSSECECECECEC. 53. . 53. . 53. . 53. . 53. VVVVVariation bariation bariation bariation bariation by Agy Agy Agy Agy Agrrrrreement.eement.eement.eement.eement. – Any provision of theAct may be varied by agreement between and among parties;Provided that such agreement involves only the generation, sending,receiving, storing or otherwise processing of an electronic datamessage or electronic document. Nothing shall authorizecontracting parties to agree upon stipulations or covenants, whichdefeat the legal recognition, validity, and admissibility of electronicdata messages, electronic documents, or electronic signatures.

SSSSSECECECECEC. 54. . 54. . 54. . 54. . 54. RRRRReciprecipreciprecipreciprocityocityocityocityocity..... – All benefits, privileges, advantages orstatutory rules established under this Act, including those involvingpractice of profession, shall be enjoyed only by parties whosecountry of origin grants the same benefits and privileges oradvantages to Filipino citizens. Inasmuch as the Act merelycontemplates the legal recognition of electronic forms ofdocuments and signatures and does not amend any law governingthe underlying substantive validity of acts or transactions, thisprovision shall be subject to existing Constitutional and statutory


restrictions relative to activities which are reserved to Philippinecitizens or juridical entities partially or wholly-owned by Philippinecitizens.

SSSSSECECECECEC. 55. . 55. . 55. . 55. . 55. OvOvOvOvOversight Committee.ersight Committee.ersight Committee.ersight Committee.ersight Committee. – There shall be aCongressional Oversight Committee composed of theCommittees on Trade and Industry/Commerce, Science andTechnology, Finance and Appropriations of both the Senate andHouse of Representatives, which shall meet at least every quarterof the first two years and every semester for the third year afterthe approval of this Act to oversee its implementation. The DTI,DBM, Bangko Sentral ng Pilipinas, and other government agenciesas may be determined by the Congressional Committee shallprovide a quarterly performance report of their actions taken inthe implementation of this Act for the first three (3) years.

SSSSSECECECECEC. 56.. 56.. 56.. 56.. 56. DTI’DTI’DTI’DTI’DTI’s Continuing As Continuing As Continuing As Continuing As Continuing Authority to Implement theuthority to Implement theuthority to Implement theuthority to Implement theuthority to Implement theAct and Issue Implementing RAct and Issue Implementing RAct and Issue Implementing RAct and Issue Implementing RAct and Issue Implementing Rules.ules.ules.ules.ules. – Among others, theDTI is empowered to promulgate rules and regulations, as well asprovide quality standards or issue certifications, as the case maybe, and perform such other functions as may be necessary for theimplementation of this Act in the area of electronic commerce.

SSSSSECECECECEC. 57. . 57. . 57. . 57. . 57. SeSeSeSeSeparabilityparabilityparabilityparabilityparability..... – If any provision in these Rules orapplication of such provision to any circumstance is held invalid,the remainder of these Rules shall not be affected thereby.

SSSSSECECECECEC. 58.. 58.. 58.. 58.. 58. EfEfEfEfEffffffectiectiectiectiectivityvityvityvityvity..... – These Rules shall take effect fifteen(15) days from the complete publication thereof in a newspaperof general circulation.

Done in July, 2000.


ANNEX IANNEX IANNEX IANNEX IANNEX IUNIFORM CUSTUNIFORM CUSTUNIFORM CUSTUNIFORM CUSTUNIFORM CUSTOMS AND PRAOMS AND PRAOMS AND PRAOMS AND PRAOMS AND PRACTICE. 500CTICE. 500CTICE. 500CTICE. 500CTICE. 500

(UCP)(UCP)(UCP)(UCP)(UCP)

Art. 23. Marine/Ocean bill of Loading

23.1. Late delivery, Misrouting, Mishandling, Loss andDamage

23.2 Customs Duties and Taxes

23.3 Port Charges i.e., Arrastre Wharfage

23.4 Inbound Shipment-Cargo Handler/Operator

23.4.1 Warehouse Operator

Art. 24. Non-Negotiable Seaway Bill

24.1. Claim- ibid

24.2. Customs Duties, and Taxes


24.4 Inbound Shipment-Cargo handler/operator


Art. 25. Charter Party/Bill of Lading

25.1 Claim - ibid.

25.2 Customs Duties & Taxes


25.4 Inbound shipment-cargo handler/operator



Art. 26 Multi-Modal Transport Docs.

26.1 late delivery, misrouting, mishandling, loss and damage

26.2 Customs duties, and taxes

26.3 Port charges i.e., arrastre wharfage


26.4.1. Warehouse operator

Art. 27. Airport Transport Documents

27.1. Claim-ibid

27.2 Customs duties & taxes

27.3 Airport charges

27.4 inbound shipment-cargo handler/operator


Art. 28. Road, Rail, or Inland Waterway Transport Documents

28.1 Claim- ibid

28.2 Customs Duties & taxes

28.3 Terminal charges



Art 29. Courier and Post Receipts

29.1 Late delivery, misrouting, mishandling, loss & damage


29.3 Postal authority charges




Art. 30. Transport Documents issued by freight forwarders

30.1. Claim - ibid


30.3 Port charges i.e., arrastre wharfage



ANNEX IIANNEX IIANNEX IIANNEX IIANNEX II

a) the sophistication of the equipment used by each of theparties;

b) the nature of their trade activity;

c) the frequency at which commercial transactions take placebetween the parties;

d) the kind and size of the transaction;

e) the function of signature requirements in a given statutoryand regulatory environment;

f) the capability of communication systems;

g) compliance with authentication procedures set forth byintermediaries;

h) the range of authentication procedures made available byany intermediary;

i) compliance with trade customs and practice;


j) the existence of insurance coverage mechanisms againstunauthorized messages;

k) the importance and the value of the informationcontained in the data message;

l) the availability of alternative methods of identificationand the cost of implementation;

m) the degree of acceptance or non-acceptance of the methodof identification in the relevant industry or field both atthe time the method was agreed upon and the time whenthe data message was communicated; and

n) any other relevant factor.

RRRRRules and Rules and Rules and Rules and Rules and Reeeeegulations Implementinggulations Implementinggulations Implementinggulations Implementinggulations Implementingthe Anti-Money Laundering Act ofthe Anti-Money Laundering Act ofthe Anti-Money Laundering Act ofthe Anti-Money Laundering Act ofthe Anti-Money Laundering Act of

2001 (R2001 (R2001 (R2001 (R2001 (Reeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 9160). 9160). 9160). 9160). 9160)

RRRRRULEULEULEULEULE 1 1 1 1 1PPPPPOLICYOLICYOLICYOLICYOLICY ANDANDANDANDAND A A A A APPLICAPPLICAPPLICAPPLICAPPLICATIONTIONTIONTIONTION

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. TTTTTitleitleitleitleitle..... – These Rules shall be known and cited asthe “Rules and Regulations Implementing Republic Act No.9160” (the Anti-Money Laundering Act of 2001 [AMLA]).

SSSSSECECECECEC. 2. . 2. . 2. . 2. . 2. PurPurPurPurPurpose.pose.pose.pose.pose. – These Rules are promulgated to prescribethe procedures and guidelines for the implementation of theAMLA.

SSSSSECECECECEC. 3. . 3. . 3. . 3. . 3. DecDecDecDecDeclaration oflaration oflaration oflaration oflaration of P P P P Policolicolicolicolicyyyyy..... – It is the policy of the Statethat:

(a) The integrity and confidentiality of bank accounts shallbe protected and preserved;

(b) The Philippines shall not be used as a money launderingsite for the proceeds of any unlawful activity; and

(c) Consistent with its foreign policy, the Philippines shallextend cooperation in transnational investigations andprosecutions of persons involved in money launderingactivities wherever committed.

SSSSSECECECECEC. 4.. 4.. 4.. 4.. 4. DefDefDefDefDefinition ofinition ofinition ofinition ofinition of TTTTTererererermsmsmsmsms..... –

(a) “Covered institutions” refer to the following:

3292004] RULES AND REGULATIONS IMPLEMENTING THEANTI-MONEY LAUNDERING ACT OF 2001

(REPUBLIC ACT NO. 9160)

(1) Banks, offshore banking units, quasi-banks, trustentities, non-stock savings and loan associations,pawnshops, and all other institutions including theirsubsidiaries and affiliates supervised and/or regulatedby the Bangko Sentral ng Pilipinas (BSP).

A subsidiary means an entity more than fiftypercent (50%) of the outstanding voting stock ofwhich is owned by a bank, quasi-bank, trust entity orany other institution supervised or regulated by theBSP.

An affiliate means an entity at least twenty percent(20%) but not exceeding fifty percent (50%) of thevoting stock of which is owned by a bank, quasi-bank, trust entity, or any other institution supervisedand/or regulated by the BSP.

(2) Insurance companies, insurance agents, insurancebrokers, professional reinsurers, reinsurance brokers,holding companies, holding company systems, andall other persons and entities supervised and/orregulated by the Insurance Commission (IC).

An insurance company includes those entitiesauthorized to transact insurance business in thePhilippines, whether life or non-life and whetherdomestic, domestically incorporated, or branch of aforeign entity. A contract of insurance is an agreementwhereby one undertakes for a consideration toindemnify another against loss, damage, or liabilityarising from an unknown or contingent event.Transacting insurance business includes making orproposing to make, as insurer, any insurance contract,or as surety, any contract of suretyship as a vocation


and not as merely incidental to any other legitimatebusiness or activity of the surety, doing any kind ofbusiness specifically recognized as constituting thedoing of an insurance business within the meaningof Presidential Decree (P.D.) No. 612, as amended,including a reinsurance business and doing orproposing to do any business in substance equivalentto any of the foregoing in a manner designed to evadethe provisions of P.D. No. 612, as amended.

An insurance agent includes any person whosolicits or obtains insurance on behalf of anyinsurance company or transmits for a person otherthan himself an application for a policy or contractof insurance to or from such company or offers orassumes to act in the negotiation of such insurance.

An insurance broker includes any person who actsor aids in any manner in soliciting, negotiating orprocuring the making of any insurance contract or inplacing risk or taking out insurance, on behalf of aninsured other than himself.

A professional reinsurer includes any person,partnership, association, or corporation that transactssolely and exclusively reinsurance business in thePhilippines, whether domestic, domesticallyincorporated, or a branch of a foreign entity. A contractof reinsurance is one by which an insurer procures athird person to insure him against loss or liability byreason of such original insurance.

A reinsurance broker includes any person who,not being a duly authorized agent, employee or officerof an insurer in which any reinsurance is effected, acts



or aids in any manner in negotiating contracts ofreinsurance or placing risks of effecting reinsurance,for any insurance company authorized to do businessin the Philippines.

A holding company includes any person whodirectly or indirectly controls any authorized insurer.

A holding company system includes a holdingcompany together with its controlled insurers andcontrolled persons.

(3) (i) Securities dealers, brokers, salesmen, associatedpersons of brokers or dealers, investment houses,investment agents and consultants, tradingadvisors, and other entities managing securitiesor rendering similar services; (ii) mutual funds oropen-end investment companies, close-endinvestment companies, common trust funds, pre-need companies or issuers and other similarentities; (iii) foreign exchange corporations,money changers, money payment, remittance, andtransfer companies and other similar entities, and(iv) other entities administering or otherwisedealing in currency, commodities or financialderivatives based thereon, valuable objects, cashsubstitutes and other similar monetary instrumentsor property supervised and/or regulated by theSecurities and Exchange Commission (SEC).

A securities broker includes a person engagedin the business of buying and selling securitiesfor the account of others.


A securities dealer includes any person whobuys and sells securities for his/her account inthe ordinary course of business.

A securities salesman includes a naturalperson, employed as such or as an agent, by a dealer,issuer or broker to buy and sell securities.

An associated person of a broker or dealerincludes an employee thereof who directlyexercises control of supervisory authority, butdoes not include a salesman, or an agent, or a personwhose functions are solely clerical or ministerial.

An investment house includes an enterprisewhich engages or purports to engage, whetherregularly or on an isolated basis, in theunderwriting of securities of another person orenterprise, including securities of the Governmentand its instrumentalities.

A mutual fund or an open-end investmentcompany includes an investment company whichis offering for sale or has outstanding, anyredeemable security of which it is the issuer.

A closed-end investment company includesan investment company other than open-endinvestment company.

A common trust fund includes a fundmaintained by an entity authorized to performtrust functions under a written and formallyestablished plan, exclusively for the collectiveinvestment and reinvestment of certain moneyrepresenting participation in the plan received by



it in its capacity as trustee, for the purpose ofadministration, holding or management of suchfunds and/or properties for the use, benefit oradvantage of the trustor or of others known asbeneficiaries.

A pre-need company or issuer includes anycorporation supervised and/or regulated by theSEC and is authorized or licensed to sell or offerfor sale pre-need plans.

A foreign exchange corporation includes anyenterprise which engages or purports to engage,whether regularly or on an isolated basis, in thesale and purchase of foreign currency notes andsuch other foreign-currency denominated non-bank deposit transactions as may be authorizedunder its articles of incorporation.

An investment agent or consultant or tradingadvisor includes any person who is engaged inthe business of advising others as to the value ofany security and the advisability of trading in anysecurity or in the business of issuing reports ormaking analysis of capital markets. However, incase the issuance of reports or the rendering ofthe analysis of capital markets is solely incidentalto the conduct of the business or profession ofbanks, trust companies, journalists, reporters,columnists, editors, lawyers, accountants, teachers,and publishers of newspapers and business orfinancial publications of general and regularcirculation, including their employees, they shallnot be deemed to be investment agents or


consultants or trade advisors within thecontemplation of the AMLA and these Rules.

A money changer includes any person in thebusiness of buying or selling foreign currencynotes.

A money payment, remittance and transfercompany includes any person offering to pay,remit or transfer or transmit money on behalf ofany person to another person.

(b) “Customer” refers to any person or entity that keeps anaccount, or otherwise transacts business, with a coveredinstitution and any person or entity on whose behalf anaccount is maintained or a transaction is conducted, aswell as the beneficiary of said transactions. A customeralso includes the beneficiary of a trust, an investment fund,a pension fund or a company or person whose assets aremanaged by an asset manager, or a grantor of a trust. Itincludes any insurance policy holder, whether actual orprospective.

(c) “Monetary Instrument” refers to:

(1) Coins or currency of legal tender of the Philippines,or of any other country;

(2) Drafts, checks and notes;

(3) Securities or negotiable instruments, bonds,commercial papers, deposit certificates, trustcertificates, custodial receipts or deposit substituteinstruments, trading orders, transaction tickets andconfirmations of sale or investments and moneymarket instruments;



(4) Other similar instruments where title thereto passesto another by endorsement, assignment, or delivery;and

(5) Contracts or policies of insurance, life or non-life,and contracts of suretyship.

(d) “Offender” refers to any person who commits a moneylaundering offense.

(e) “Person” refers to any natural or juridical person.

(f) “Proceeds” refers to an amount derived or realized froman unlawful activity. It includes:

(1) All material results, profits, effects and any amountrealized from any unlawful activity;

(2) All monetary, financial or economic means, devices,documents, papers or things used in or having anyrelation to any unlawful activity; and

(3) All moneys, expenditures, payments, disbursements,costs, outlays, charges, accounts, refunds and othersimilar items for the financing, operations, andmaintenance of any unlawful activity.

(g) “Property” includes any thing or item of value, real orpersonal, tangible or intangible, or any interest therein orany benefit, privilege, claim or right with respect thereto.

(h) “Supervising Authority” refers to the BSP, the SEC andthe IC. Where the SEC supervision applies only to theincorporation of the registered institution, within thelimits of the AMLA, the SEC shall have the authorityto require and ask assistance from the government agencyhaving regulatory power and/or licensing authority over


said covered institution for the implementation andenforcement of the AMLA and these Rules.

(i) “Transaction” refers to any act establishing any right orobligation or giving rise to any contractual or legalrelationship between the parties thereto. It also includesany movement of funds by any means with a coveredinstitution.

SSSSSECECECECEC. 5. . 5. . 5. . 5. . 5. Limitations ofLimitations ofLimitations ofLimitations ofLimitations of the R the R the R the R the Rules.ules.ules.ules.ules. –

(a) The provisions of the AMLA and these Rules shall notapply to deposits, investments, and all other accounts ofcustomers with covered institutions that were opened orcreated prior to the effectivity of the AMLA on October17, 2001. Hence, no covered transaction reports,investigation and prosecution of money laundering cases,or any other action authorized under the AMLA, may beundertaken with respect to such deposits, investments andaccounts as well as transactions or circumstances in relationthereto, that have been completed prior to October 17,2001. However, the AMLA and these Rules shall applyto all movements of funds respecting such deposits,investments and accounts as well as transactions orcircumstances in relation thereto, that are initiated orcommenced on or after October 17, 2001.

(b) The AMLA and these Rules shall not be used for politicalpersecution or harassment or as an instrument to hampercompetition in trade and commerce.



RRRRRULEULEULEULEULE 2 2 2 2 2CCCCCOMPOSITIONOMPOSITIONOMPOSITIONOMPOSITIONOMPOSITION ANDANDANDANDAND P P P P PRRRRROCEEDINGSOCEEDINGSOCEEDINGSOCEEDINGSOCEEDINGS OFOFOFOFOF

THETHETHETHETHE A A A A ANTINTINTINTINTI-M-M-M-M-MONEYONEYONEYONEYONEY L L L L LAAAAAUNDERINGUNDERINGUNDERINGUNDERINGUNDERING C C C C COUNCILOUNCILOUNCILOUNCILOUNCIL

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. CompositionCompositionCompositionCompositionComposition..... – The members of the Anti-MoneyLaundering Council (AMLC) created under the AMLA shall bethe Governor of the BSP, the Insurance Commissioner and theChairman of the SEC. The Governor of the BSP shall be theChairman.

SSSSSECECECECEC. 2.. 2.. 2.. 2.. 2. ColleColleColleColleCollegialitygialitygialitygialitygiality..... – The AMLC is a collegial body wherethe Chairman and the members of the AMLC are entitled toone (1) vote each.

SSSSSECECECECEC. 3.. 3.. 3.. 3.. 3. Unanimous Decision.Unanimous Decision.Unanimous Decision.Unanimous Decision.Unanimous Decision. – The AMLC shall actunanimously in discharging its functions as defined in the AMLAand in these Rules. However, in the case of the incapacity, absenceor disability of any member to discharge his functions, the officerduly designated or authorized to discharge the functions of theGovernor of the BSP, the Chairman of the SEC or the InsuranceCommissioner, as the case may be, shall act in his stead in theAMLC.

SSSSSECECECECEC. 4. . 4. . 4. . 4. . 4. DeleDeleDeleDeleDelegggggation ofation ofation ofation ofation of A A A A Authorityuthorityuthorityuthorityuthority..... – Action on routinaryadministrative matters may be delegated to any member of theAMLC or to any ranking official of the Secretariat under suchguidelines as the AMLC may determine.

SSSSSECECECECEC. 5.. 5.. 5.. 5.. 5. Secretariat.Secretariat.Secretariat.Secretariat.Secretariat. –

(a) The Secretariat shall be headed by an Executive Directorwho shall be appointed by the AMLC for a term of five


(5) years. He must be a member of the Philippine Bar, atleast thirty-five (35) years of age and of good moralcharacter, unquestionable integrity and known probity.He shall be considered a regular employee of the BSPwith the rank of Assistant Governor, and shall be entitledto such benefits and subject to such rules and regulationsas are applicable to officers of similar rank.

(b) Other than the Executive Director whose qualificationsare provided for in the preceding paragraph, in organizingthe Secretariat, the AMLC may only choose from amongthose who have served, continuously or cumulatively, forat least five (5) years in the BSP, the SEC or the IC, butwho need not be incumbents therein at the time of theirappointment in the Secretariat. All members of theSecretariat shall be considered regular employees of theBSP and shall be entitled to such benefits and subject tosuch rules and regulations as are applicable to BSPemployees of similar rank.

SSSSSECECECECEC. 6. . 6. . 6. . 6. . 6. Detail and Secondment ofDetail and Secondment ofDetail and Secondment ofDetail and Secondment ofDetail and Secondment of P P P P Personnel.ersonnel.ersonnel.ersonnel.ersonnel. – The AMLCis authorized under Section 7 (10) of the AMLA to enlist theassistance of the BSP, the SEC or the IC or any other branch,department, bureau, office, agency or instrumentality of thegovernment, including government-owned and-controlledcorporations, in undertaking any and all anti-money launderingoperations. This includes the use of any member of their personnelwho may be detailed or seconded to the AMLC, subject to existinglaws and Civil Service Rules and Regulations.

SSSSSECECECECEC. 7.. 7.. 7.. 7.. 7. ConfConfConfConfConfidentiality ofidentiality ofidentiality ofidentiality ofidentiality of Pr Pr Pr Pr Proceedings.oceedings.oceedings.oceedings.oceedings. – The members ofthe AMLC, the Executive Director, and all the members of theSecretariat, whether permanent, on detail or on secondment, shall



not reveal in any manner except under orders of the court, theCongress or any government office or agency authorized by law,or under such conditions as may be prescribed by the AMLC,any information known to them by reason of their office. In caseof violation of this provision, the person shall be punished inaccordance with the pertinent provisions of R.A. Nos. 3019, 6713and 7653.

SSSSSECECECECEC. 8. . 8. . 8. . 8. . 8. Meetings.Meetings.Meetings.Meetings.Meetings. – The AMLC shall meet every first Mondayof the month or as often as may be necessary at the call of theChairman. Subject to the rule on confidentiality in theimmediately preceding section, the meetings of the AMLC maybe conducted through modern technologies such as, but notlimited to, teleconferencing and video-conferencing.

SSSSSECECECECEC. 9. . 9. . 9. . 9. . 9. BudgBudgBudgBudgBudget. et. et. et. et. – The budget appropriated by the Congressshall be used to defray operational expenses of the AMLC,including indemnification for legal costs and expenses reasonablyincurred for the services of external counsel or in connectionwith any civil, criminal or administrative action, suit or proceedingsto which members of the AMLC and the Executive Directorand other members of the Secretariat may be made a party byreason of the performance of their functions or duties.

RRRRRULEULEULEULEULE 3 3 3 3 3PPPPPOOOOOWERSWERSWERSWERSWERS OFOFOFOFOF THETHETHETHETHE AML AML AML AML AMLCCCCC

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. AAAAAuthority to Initiate Inuthority to Initiate Inuthority to Initiate Inuthority to Initiate Inuthority to Initiate Invvvvvestigestigestigestigestigations on theations on theations on theations on theations on theBasis ofBasis ofBasis ofBasis ofBasis of VVVVVoluntaroluntaroluntaroluntaroluntary Citizens’y Citizens’y Citizens’y Citizens’y Citizens’ Complaints and Go Complaints and Go Complaints and Go Complaints and Go Complaints and GovvvvvererererernmentnmentnmentnmentnmentAgAgAgAgAgencencencencency Ry Ry Ry Ry Refefefefeferererererrals.rals.rals.rals.rals. –

(a) Any person, including covered institutions not subject toany account secrecy laws and branches, departments,


bureaus, offices, agencies and instrumentalities of thegovernment, including government-owned and-controlledcorporations, may report to the AMLC any activity thatengenders reasonable belief that any money launderingoffense under Section 4 of the AMLA and defined underRule 4 of these Rules is about to be, is being or has beencommitted.

(b) The person so reporting shall file a Voluntary Citizens’Complaint (VCC) or Government Referral (GR) in theform prescribed by the AMLC. The VCC and GR formsshall indicate that the members of the AMLC, theExecutive Director and all the members of the Secretariatare bound by the confidentiality rule provided in Section7, Rule 2 of these Rules. The VCC shall be signed by thecomplainant. The GR shall be signed by the authorizedrepresentative of the government agency concerned,indicating his current position and rank therein.

(c) Any person who files a VCC or GR shall not incur anyliability for all their acts in relation thereto that were donein good faith. However, any person who, with malice, orin bad faith, reports or files a completely unwarranted orfalse information relative to any money launderingtransaction against any person shall be subject to thepenalties provided for under Section 14 (c) of the AMLA.

(d) On the basis of the VCC or GR, the AMLC may initiateinvestigation thereof, and based on the evidence gathered,the AMLC may cause the filing of criminal complaintswith the Department of Justice or the Ombudsman forthe prosecution of money laundering offenses.



SSSSSECECECECEC. 2. . 2. . 2. . 2. . 2. AAAAAuthority to Initiate Inuthority to Initiate Inuthority to Initiate Inuthority to Initiate Inuthority to Initiate Invvvvvestigestigestigestigestigations on the Basisations on the Basisations on the Basisations on the Basisations on the Basisofofofofof Co Co Co Co Covvvvvererererered ed ed ed ed TTTTTransaction Rransaction Rransaction Rransaction Rransaction Reeeeeporporporporports.ts.ts.ts.ts. –

(a) Covered Transactions. The mandatory duty and obligationof covered institutions to make reports to the AMLCcovers the following transactions:

(1) A single transaction involving an amount in excess ofFour million Philippine pesos (Php4,000,000.00) oran equivalent amount in foreign currency based onthe prevailing exchange rate where the client is notproperly identified and/or the amount is notcommensurate with his business or financial capacity.

(2) A single transaction involving an amount in excess ofFour million Philippine pesos (Php4,000,000.00) oran equivalent amount in foreign currency based onthe prevailing exchange rate which has no underlyinglegal or trade obligation, purpose, origin, or economicjustification.

(3) A series or combination of transactions conductedwithin five (5) consecutive banking days aggregatingto a total amount in excess of Four million Philippinepesos (Php4,000,000.00) or an equivalent in foreigncurrency based on the prevailing exchange rate wherethe client is not properly identified and/or the amountis not commensurate with his business or financialcapacity.

(4) A series or combination of transactions conductedwithin five (5) consecutive banking days aggregatingto a total amount in excess of Four million Philippinepesos (Php4,000,000.00) or an equivalent in foreigncurrency based on the prevailing exchange rate heremost, if not all the transactions, do not have any


underlying legal or trade obligation, purpose, origin,or economic justification.

(5) A single unusually large and complex transaction inexcess of Four million Philippine pesos(Php4,000,000.00), especially a cash deposit orinvestment having no credible purpose or origin,underlying trade obligation or contract, regardless ofwhether or not the client is properly identified and/or the amount is commensurate with his business orfinancial capacity.

(6) A series, combination or pattern of unusually largeand complex transactions aggregating to, withoutreference to any period, a total amount in excess ofFour million Philippine pesos (Php4,000,000.00),especially cash deposits and/or investments havingno credible purpose or origin, underlying tradeobligation or contract, regardless of whether or notthe client is properly identified and/or the amount iscommensurate with his business or financial capacity.

(b) Obligation to Report Covered Transactions. All coveredinstitutions supervised or regulated by the BSP, the SECand the IC shall report all covered transactions to theAMLC within five (5) working days from the date ofthe transaction or from the date when the coveredinstitution concerned gained/acquired information/knowledge that the transaction is a covered transaction.

(c) Covered Transaction Report Form. The CoveredTransaction Report (CTR) shall be in the form prescribedby the appropriate Supervising Authority and approvedby the AMLC. It shall be signed by the employee(s) whodealt directly with the customer in the transaction and/



or who made the initial internal report within the coveredinstitution, the compliance officer or his equivalent, anda senior official of the bank with a rank not lower thansenior vice-president. The CTR shall be filed with theAMLC in a central location, to be determined by theAMLC, as indicated in the instructions on the CTR form.

(d) Exemption from Bank Secrecy Laws. When reportingcovered transactions to the AMLC, banks and theirofficers, employees, representatives, agents, advisors,consultants or associates shall not be deemed to haveviolated R.A. No. 1405, as amended, R.A. No. 6426, asamended, R.A. No. 8791 and other similar laws.

(e) Safe Harbor Provision. No administrative, criminal orcivil proceedings shall lie against any person for havingmade a covered transaction report in the regularperformance of his duties and in good faith, whether ornot such reporting results in any criminal prosecutionunder the AMLA or any other Philippine law.

(f) Filing of Criminal Complaints. On the basis of the CTR,the AMLC may initiate investigation thereof, and basedon the evidence gathered, the AMLC may cause the filingof criminal complaints with the Department of Justiceor the Ombudsman for the prosecution of moneylaundering offenses.

(g) Malicious Reporting. Any person who, with malice, or inbad faith, reports or files a completely unwarranted orfalse information relative to any money launderingtransaction against any person, shall be subject to a penaltyof imprisonment from six (6) months to four (4) yearsand a fine of not less than One hundred thousand


Philippine pesos (Php100,000.00) but not more thanFive hundred thousand Philippine pesos(Php500,000.00), at the discretion of the court: Provided,That the offender is not entitled to avail of the benefitsunder the Probation Law.

If the offender is a corporation, association,partnership or any juridical person, the penalty shall beimposed upon the responsible officers, as the case may be,who participated or failed to prevent its commission. Ifthe offender is a juridical person, the court may suspendor revoke its license. If the offender is an alien, he shall, inaddition to the penalties herein prescribed, be deportedwithout further proceedings after serving the penaltiesherein prescribed. If the offender is a public official oremployee, he shall, in addition to the penalties prescribedherein, suffer perpetual or temporary absolutedisqualification from office, as the case may be.

(h) Breach of Confidentiality. When reporting coveredtransactions to the AMLC, covered institutions and theirofficers, employees, representatives, agents, advisors,consultants or associates are prohibited fromcommunicating, directly or indirectly, in any manner orby any means, to any person, entity, or the media, the factthat a covered transaction report was made, the contentsthereof, or any other information in relation thereto.Neither may such reporting be published or aired in anymanner or form by the mass media, electronic mail, orother similar devices. Violation of this provision shallconstitute the offense of breach of confidentialitypunished under Section 14 (d) of the AMLA withimprisonment from three (3) to eight (8) years and a fine



of not less than Five hundred thousand Philippine pesos(Php500,000.00) but not more than One millionPhilippine pesos (Php1,000,000.00).

(i) File of Covered Transactions. Covered institutions shallmaintain a complete file on all covered transactions thathave been reported to the AMLC. Covered institutionsshall undertake the necessary adequate security measuresto ensure the confidentiality of such file. The file ofcovered transactions shall be kept for at least five (5) years:Provided, That if money laundering cases based thereonhave been filed in court, the file must be retained beyondthe five(5)-year period until it is confirmed that the casehas been finally resolved or terminated by the court.

SSSSSECECECECEC. 3.. 3.. 3.. 3.. 3. Authority to Freeze Accounts.Authority to Freeze Accounts.Authority to Freeze Accounts.Authority to Freeze Accounts.Authority to Freeze Accounts. –

(a) The AMLC is authorized under Sections 6 (6) and 10of the AMLA to freeze any account or any monetaryinstrument or property subject thereof upondetermination that probable cause exists that the same isin any way related to any unlawful activity and/or moneylaundering offense. The AMLC may freeze any accountor any monetary instrument or property subject thereofprior to the institution or in the course of, the criminalproceedings involving the unlawful activity and/or moneylaundering offense to which said account, monetaryinstrument, or property is any way related. For purposesof Section 10 of the AMLA and Section 3, Rule 3 ofthese Rules, probable cause includes such facts andcircumstances which would lead a reasonably discreet,prudent or cautious man to believe that an unlawfulactivity and/or a money laundering offense is about to


be, is being or has been committed and that the accountor any monetary instrument or property subject thereofsought to be frozen is in any way related to said unlawfulactivity and/or money laundering offense.

(b) The freeze order on such account shall be effectiveimmediately for a period not exceeding fifteen (15) days.

(c) The AMLC must serve notice of the freeze order uponthe covered institution concerned and the owner or holderof the deposit, investment or similar account,simultaneously with the issuance thereof. Upon receiptof the notice of the freeze order, the covered institutionconcerned shall immediately stop, freeze, block, suspendor otherwise place under its absolute control the accountand the monetary instrument or property subject thereof.

(d) The owner or holder of the account so notified shall havea non-extendible period of seventy-two (72) hours uponreceipt of the notice to file a verified explanation withthe AMLC why the freeze order should be lifted. Failureof the owner or holder of the account to file such verifiedexplanation shall be deemed waiver of his right toquestion the freeze order.

(e) The AMLC shall have seventy-two (72) hours fromreceipt of the written explanation of the owner or holderof the frozen account to resolve the same. If the AMLCfails to act within said period, the freeze order shallautomatically be dissolved. However, the coveredinstitution shall not lift the freeze order without securingofficial confirmation from the AMLC.

(f) Before the fifteen (15)-day period expires, the AMLCmay apply in court for an extension of said period. Upon



the timely filing of such application and pending thedecision of the court to extend the period, said periodshall be suspended and the freeze order shall remaineffective.

(g) In case the court denies the application for extension, thefreeze order shall remain effective only for the balance ofthe fifteen (15)-day period.

(h) No court shall issue a temporary restraining order or writof injunction against any freeze order issued by theAMLC or any court order extending period of effectivityof the freeze order except the Court of Appeals or theSupreme Court.

(i) No assets shall be frozen to the prejudice of a candidatefor an electoral office during an election period.

SSSSSECECECECEC. 4.. 4.. 4.. 4.. 4. Authority to Inquire into AccountsAuthority to Inquire into AccountsAuthority to Inquire into AccountsAuthority to Inquire into AccountsAuthority to Inquire into Accounts. . . . . –

(a) The AMLC is authorized under Section 7 (2) of theAMLA to issue orders addressed to the appropriateSupervising Authority or any covered institution todetermine and reveal the true identity of the owner ofany monetary instrument or property subject of a coveredtransaction report, or a request for assistance from aforeign State, or believed by the AMLC, on the basis ofsubstantial evidence, to be, in whole or in part, whereverlocated, representing, involving, or related to, directly orindirectly, in any manner or by any means, the proceedsof an unlawful activity. For purposes of the AMLA andthese Rules, substantial evidence includes such relevantevidence as a reasonable mind might accept as adequateto support a conclusion.


(b) In case of any violation of the AMLA involving bankdeposits and investments, the AMLC may inquire intoor examine any particular deposit or investment with anybanking institution or non-bank financial institutionupon order of any competent court when the AMLChas established that there is probable cause that the depositsor investments involved are in any way related to anyunlawful activity and/or money laundering offense. TheAMLC may file the application for authority to inquireinto or examine any particular bank deposit or investmentin court, prior to the institution or in the course of, thecriminal proceedings involving the unlawful activity and/or money laundering offense to which said bank depositor investment is any way related. For purposes of Section11 of the AMLA and Section 4, Rule 3 of these Rules,probable cause includes such facts and circumstances whichwould lead a reasonably discreet, prudent or cautious manto believe that an unlawful activity and/or a moneylaundering offense is about to be, is being or has beencommitted and that the bank deposit or investment soughtto be inquired into or examined is in any way related tosaid unlawful activity and/or money laundering offense.

SSSSSECECECECEC. 5. . 5. . 5. . 5. . 5. Authority to Institute Civil ForfeitureAuthority to Institute Civil ForfeitureAuthority to Institute Civil ForfeitureAuthority to Institute Civil ForfeitureAuthority to Institute Civil ForfeiturePrPrPrPrProceedings.oceedings.oceedings.oceedings.oceedings. – The AMLC is authorized under Section 7 (3)of the AMLA to institute civil forfeiture proceedings and allother remedial proceedings through the Office of the SolicitorGeneral.

SSSSSECECECECEC. 6.. 6.. 6.. 6.. 6. Authority to Assist the United Nations andAuthority to Assist the United Nations andAuthority to Assist the United Nations andAuthority to Assist the United Nations andAuthority to Assist the United Nations andother Interother Interother Interother Interother International Ornational Ornational Ornational Ornational Orggggganizations and Fanizations and Fanizations and Fanizations and Fanizations and Forororororeign States.eign States.eign States.eign States.eign States. –The AMLC is authorized under Sections 7 (8) and 13 (b) and



(d) of the AMLA to receive and take action in respect of anyrequest of foreign states for assistance in their own anti-moneylaundering operations. It is also authorized under Section 7 (7)of the AMLA to cooperate with the National Government and/or take appropriate action in respect of conventions, resolutionsand other directives of the United Nations (UN), the UNSecurity Council, and other international organizations of whichthe Philippines is a member. However, the AMLC may refuse tocomply with any such request, convention, resolution or directivewhere the action sought therein contravenes the provision of theConstitution or the execution thereof is likely to prejudice thenational interest of the Philippines.

SSSSSECECECECEC. 7.. 7.. 7.. 7.. 7. Authority to Develop and Implement EducationalAuthority to Develop and Implement EducationalAuthority to Develop and Implement EducationalAuthority to Develop and Implement EducationalAuthority to Develop and Implement EducationalPrPrPrPrProgogogogograms.rams.rams.rams.rams. – The AMLC is authorized under Section 7 (9) ofthe AMLA to develop educational programs on the perniciouseffects of money laundering, the methods and techniques used inmoney laundering, the viable means of preventing moneylaundering, and the effective ways of prosecuting and punishingoffenders. The AMLC shall conduct nationwide informationcampaigns to heighten awareness of the public of their civic dutyas citizens to report any and all activities which engender reasonablebelief that a money laundering offense under Section 4 of theAMLA is about to be, is being or has been committed.

SSSSSECECECECEC. 8. . 8. . 8. . 8. . 8. AAAAAuthority to Issue, Clarify and Amend theuthority to Issue, Clarify and Amend theuthority to Issue, Clarify and Amend theuthority to Issue, Clarify and Amend theuthority to Issue, Clarify and Amend the RRRRRulesulesulesulesulesand Rand Rand Rand Rand Reeeeegulations Implementing R.A. Nogulations Implementing R.A. Nogulations Implementing R.A. Nogulations Implementing R.A. Nogulations Implementing R.A. No. 9160.. 9160.. 9160.. 9160.. 9160. – TheAMLC is authorized under Sections 7 (7), 18 and 19 of theAMLA to promulgate as well as clarify and/or amend, as may benecessary, these Rules. The AMLC may make appropriate issuancesfor this purpose.


SSSSSECECECECEC. 9. . 9. . 9. . 9. . 9. AAAAAuthority to Estabuthority to Estabuthority to Estabuthority to Estabuthority to Establish Inflish Inflish Inflish Inflish Infororororormation Sharingmation Sharingmation Sharingmation Sharingmation SharingSystem.System.System.System.System. – Subject to such limitations as provided for by law, theAMLC is authorized under Section 7 (7) of the AMLA toestablish an information sharing system that will enable theAMLC to store, track and analyze money laundering transactionsfor the resolute prevention, detection and investigation of moneylaundering offenses. For this purpose, the AMLC shall install acomputerized system that will be used in the creation andmaintenance of an information database. The AMLC is alsoauthorized, under Section 7 (9) of the AMLA to enter intomemoranda of agreement with the intelligence units of the ArmedForces of the Philippines, the Philippine National Police, theDepartment of Finance, the Department of Justice, as well astheir attached agencies, and other domestic or transnationalgovernmental or non-governmental organizations or groups forsharing of all information that may, in any way, facilitate theresolute prevention, investigation and prosecution of moneylaundering offenses and other violations of the AMLA.

SSSSSECECECECEC. 10.. 10.. 10.. 10.. 10. Authority to Establish System of IncentivesAuthority to Establish System of IncentivesAuthority to Establish System of IncentivesAuthority to Establish System of IncentivesAuthority to Establish System of Incentivesand Rand Rand Rand Rand Rewewewewewararararards.ds.ds.ds.ds. – The AMLC is authorized under Section 15 ofthe AMLA to establish a system of special incentives and rewardsto be given to the appropriate government agency and its personnelthat led and initiated the investigation, prosecution, and convictionof persons involved in money laundering offenses under Section4 of the AMLA. Any monetary reward shall be made payableout of the funds appropriated by Congress.

SSSSSECECECECEC. 11.. 11.. 11.. 11.. 11. Other InherOther InherOther InherOther InherOther Inherent, Necessarent, Necessarent, Necessarent, Necessarent, Necessaryyyyy, Implied or Incidental, Implied or Incidental, Implied or Incidental, Implied or Incidental, Implied or IncidentalPPPPPooooowwwwwers.ers.ers.ers.ers. – The AMLC shall perform such other functions andexercise such other powers as may be inherent, necessary, impliedor incidental to the functions assigned, and powers granted, to it



under the AMLA for the purpose of carrying out the declaredpolicy of the AMLA.

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MMMMMONEYONEYONEYONEYONEY L L L L LAAAAAUNDERINGUNDERINGUNDERINGUNDERINGUNDERING O O O O OFFENSESFFENSESFFENSESFFENSESFFENSES

SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. Money Laundering Offenses and theirMoney Laundering Offenses and theirMoney Laundering Offenses and theirMoney Laundering Offenses and theirMoney Laundering Offenses and theirCorCorCorCorCorrrrrresponding Pesponding Pesponding Pesponding Pesponding Penalties.enalties.enalties.enalties.enalties. – Money laundering is a crimewhereby the proceeds of an unlawful activity are transacted, therebymaking them appear to have originated from legitimate sources.It is a process comprising of three (3) stages, namely, placementor the physical disposal of the criminal proceeds, layering or theseparation of the criminal proceeds from their source by creatinglayers of financial transactions to disguise the audit trail, andintegration or the provision of apparent legitimacy to the criminalproceeds. Any transaction involving such criminal proceeds orattempt to transact the same during the placement, layering orintegration stage shall constitute the crime of money laundering.

(a) When it is committed by a person who, knowing thatany monetary instrument or property represents, involves,or relates to, the proceeds of any unlawful activity, transactsor attempts to transact said monetary instrument orproperty, the penalty is imprisonment from seven (7) tofourteen (14) years and a fine of not less than Threemillion Philippine pesos (Php3,000,000.00) but not morethan twice the value of the monetary instrument orproperty involved in the offense.

(b) When it is committed by a person who, knowing thatany monetary instrument or property involves theproceeds of any unlawful activity, performs or fails toperform any act, as a result of which he facilitates the


offense of money laundering referred to in paragraph (a)above, the penalty is imprisonment from four (4) to seven(7) years and a fine of not less than One million fivehundred thousand Philippine pesos (Php1,500,000.00)but not more than Three million Philippine pesos(Php3,000,000.00).

(c) When it is committed by a person who, knowing thatany monetary instrument or property is required underthis Act to be disclosed and filed with the AMLC, failsto do so, the penalty is imprisonment from six (6) monthsto four (4) years or a fine of not less than One hundredthousand Philippine pesos (Php100,000.00) but not morethan Five hundred thousand Philippine pesos(Php500,000.00), or both.

SSSSSECECECECEC. 2. . 2. . 2. . 2. . 2. UnlaUnlaUnlaUnlaUnlawful Actiwful Actiwful Actiwful Actiwful Activities. vities. vities. vities. vities. – These refer to any act oromission or series or combination thereof involving or havingrelation to the following:

(a) Kidnapping for ransom under Article of Act No. 3815,the Revised Penal Code, as amended;

(b) Robbery and extortion under Articles 294, 295, 296, 299,300, 301 and 302 of the same Code;

(c) Qualified theft under Article 310 of the same Code;

(d) Swindling under Article 315 of the same Code;

(e) Piracy on the high seas under the same Code andPresidential Decree (P.D.) No. 532;

(f) Destructive arson and murder as defined under the sameCode and hijacking and other violations under RepublicAct (R.A.) No. 6235, including those perpetrated by



terrorists against non-combatant persons and similartargets;

(g) Jueteng and Masiao punished as illegal gambling underP.D. No. 1602;

(h) Smuggling under R.A. Nos. 455 and 1937;

(i) Section 3, paragraphs B, C, E, G, H and I of R.A. No.3019, the Anti-Graft and Corrupt Practices Act, asamended;

(j) Sections 3, 4, 5, 7, 8 and 9 of Article Two of R.A. No.6425, the Dangerous Drugs Act of 1972 as amended;

(k) Plunder under R.A. No. 7080, as amended;

(l) Violations under R.A. No. 8792, the ElectronicCommerce Act of 2000;

(m)Fraudulent practices and other violations under R.A. No.8799, the Securities Regulation Code of 2000; and

(n) Felonies or offenses of a similar nature that are punishableunder the penal laws of other countries.

SSSSSECECECECEC. 3. . 3. . 3. . 3. . 3. JJJJJurisdiction ofurisdiction ofurisdiction ofurisdiction ofurisdiction of Money Laundering Cases Money Laundering Cases Money Laundering Cases Money Laundering Cases Money Laundering Cases..... – TheRegional Trial Courts shall have the jurisdiction to try all cases onmoney laundering. Those committed by public officers and privatepersons who are in conspiracy with such public officers shall beunder the jurisdiction of the Sandiganbayan.

SSSSSECECECECEC. 4. . 4. . 4. . 4. . 4. Prosecution of Money LaunderingProsecution of Money LaunderingProsecution of Money LaunderingProsecution of Money LaunderingProsecution of Money Laundering..... –

(a) Any person may be charged with and convicted of boththe offense of money laundering and the unlawful activityas defined under Section 3 (i) of the AMLA.


(b) Any proceeding relating to the unlawful activity shall begiven precedence over the prosecution of any offense orviolation under the AMLA without prejudice to theissuance by the AMLC of a freeze order with respect tothe deposit, investment or similar account involved thereinand resort to other remedies provided under the AMLA.

(c) Knowledge of the offender that any monetary instrumentor property represents, involves, or relates to the proceedsof an unlawful activity or that any monetary instrumentor property is required under the AMLA to be disclosedand filed with the AMLC, may be established by directevidence or inferred from the attendant circumstances.

(d) All the elements of every money laundering offense underSection 4 of the AMLA must be proved by evidencebeyond reasonable doubt, including the element ofknowledge that the monetary instrument or propertyrepresents, involves or relates to the proceeds of anyunlawful activity. No element of the unlawful activity,however, including the identity of the perpetrators andthe details of the actual commission of the unlawfulactivity need be established by proof beyond reasonabledoubt. The elements of the offense of money launderingare separate and distinct from the elements of the felonyor offense constituting the unlawful activity.

(e) No case for money laundering may be filed to theprejudice of a candidate for an electoral office during anelection period. However, this prohibition shall notconstitute a bar to the prosecution of any moneylaundering case filed in court before the election period.

(f) The AMLC may apply, in the course of the criminalproceedings, for provisional remedies to prevent the



monetary instrument or property subject thereof frombeing removed, concealed, converted, commingled withother property or otherwise to prevent its being found ortaken by the applicant or otherwise placed or taken beyondthe jurisdiction of the court. However, no assets shall beattached to the prejudice of a candidate for an electoraloffice during an election period.

(g) Where there is conviction for money laundering underSection 4 of the AMLA, the court shall issue a judgmentof forfeiture in favor of the Government of thePhilippines with respect to the monetary instrument orproperty found to be proceeds of one or more unlawfulactivities. However, no assets shall be forfeited to theprejudice of a candidate for an electoral office during anelection period.

(h) Restitution for any aggrieved party shall be governed bythe provisions of the New Civil Code.

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SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. Customer IdentifCustomer IdentifCustomer IdentifCustomer IdentifCustomer Identification Rication Rication Rication Rication Requirequirequirequirequirements.ements.ements.ements.ements. –

(a) True Identity of Individuals as Clients. – Coveredinstitutions shall establish appropriate systems andmethods based on internationally compliant standardsand adequate internal controls for verifying and recordingthe true and full identity of their customers.

For this purpose, they shall develop clear customeracceptance policies and procedures when conductingbusiness relations or specific transactions, such as, but not


limited to, opening of deposit accounts, accepting depositsubstitutes, entering into trust and other fiduciarytransactions, renting of safety deposit boxes, performingremittances and other large cash transactions.

When dealing with customers who are acting astrustee, nominee, agent or in any capacity for and on behalfof another, covered institutions shall verify and recordthe true and full identity of the person(s) on whose behalfa transaction is being conducted. Covered institutions shallalso establish and record the true and full identity of suchtrustees, nominees, agents and other persons and the natureof their capacity and duties. In case a covered institutionhas doubts as to whether such persons are being used asdummies in circumvention of existing laws, it shallimmediately make the necessary inquiries to verify thestatus of the business relationship between the parties.

(b) Minimum Information/Documents required forIndividual Customers. – Covered institutions shall requirecustomers to produce original documents of identityissued by an official authority, preferably bearing aphotograph of the customer. Examples of suchdocuments are identity cards and passports. Wherepracticable, file copies of documents of identity are to bekept. Alternatively, the identity card or passport numberand/or other relevant details are to be recorded. Thefollowing minimum information/documents shall beobtained from individual customers:

(1) Name;

(2) Present address;

(3) Permanent address;



(4) Date and place of birth;

(5) Nationality;

(6) Nature of work and name of employer or natureof self-employment/business;

(7) Contact numbers;

(8) Tax identification number, Social Security Systemnumber or Government Service and InsuranceSystem number;

(9) Specimen signature;

(10) Source of fund(s); and

(11) Names of beneficiaries in case of insurance contractsand whenever applicable.

(c) Minimum Information/Documents Required forCorporate and Juridical Entities. – Before establishingbusiness relationships, covered institutions shall endeavorto ensure that the customer that is a corporate or juridicalentity has not been or is not in the process of being,dissolved, wound up or voided, or that its business oroperations has not been or is not in the process of being,closed, shut down, phased out, or terminated. Dealingswith shell companies and corporations, being legal entitieswhich have no business substance in their own right butthrough which financial transactions may be conducted,should be undertaken with extreme caution. The followingminimum information/documents shall be obtainedfrom customers that are corporate or juridical entities,including shell companies and corporations:

(1) Articles of Incorporation/Partnership;

(2) By-laws;


(3) Official address or principal business address;

(4) List of directors/partners;

(5) List of principal stockholders owning at least twopercent (2%) of the capital stock;


(7) Beneficial owners, if any; and

(8) Verification of the authority and identification ofthe person purporting to act on behalf of the client.

(d) Verification without Face-to-Face Contact. – To theextent and through such means allowed under existinglaws and applicable rules and regulations of the BSP, theSEC and the IC, covered institutions may create newaccounts without face-to-face contact. However, such newaccounts shall not be valid and effective unless thecustomer complies with the requirements under the two(2) immediately preceding subsections and such otherrequirements that have been or will be imposed by theBSP, the SEC and the IC, as the case may be, pursuant toRule 5 of these Rules and/or their respective charters,within ten (10) days from the creation of the newaccounts. Unless such requirements have been fullycomplied with, no transaction shall be honored by anycovered institution respecting an account created withoutface-to-face contact.

(e) Acquisition of Another Covered Institution. – When acovered institution acquires the business of anothercovered institution, either in whole or as a productportfolio, it is not necessary for the identity of all existingcustomers to be re-established: Provided, That all customer



account records are acquired with the business and duediligence inquiries do not raise any doubt as to whetheror not the acquired business has fully complied with allthe requirements under the AMLA and these Rules.

(f) Risk-monitoring and Review. – Covered institutions shalladopt programs for on-going monitoring of high-riskaccounts and risk management, subject to such rules andregulations as may be prescribed by the appropriateSupervising Authority. Regular reviews of customer baseshould be undertaken to ensure that the nature of accountsand potential risks are properly identified, monitored andcontrolled.

(g) Prohibition against Certain Accounts. – Coveredinstitutions shall maintain accounts only in the true nameof the account owner or holder. The provisions of existinglaws to the contrary notwithstanding, anonymousaccounts, accounts under fictitious names, incorrect nameaccounts and all other similar accounts shall be absolutelyprohibited.

(h) Numbered Accounts. – Peso and foreign currency non-checking numbered accounts shall be allowed: Provided,That the true identity of the customer is satisfactorilyestablished based on official and other reliable documentsand records, and that the information and documentsrequired under Section 1 (b) and (c) of Rule 5 of theseRules are obtained and recorded by the covered institution.The BSP may conduct annual testing for the purpose ofdetermining the existence and true identity of the ownersof such accounts.


SSSSSECECECECEC. 2. . 2. . 2. . 2. . 2. RRRRRecorecorecorecorecordkdkdkdkdkeeeeeeeeeeping Rping Rping Rping Rping Requirequirequirequirequirements.ements.ements.ements.ements. – Covered transactionsshall prepare and maintain documentation on their customeraccounts, relationships and transactions such that any account,relationship or transaction can be so reconstructed as to enablethe AMLC, the law enforcement and prosecutorial authorities,and/or the courts to establish an audit trail for money laundering.

(a) Existing and New Accounts and New Transactions. – Allrecords of existing and new accounts and of newtransactions shall be maintained and safely stored for five(5) years from October 17, 2001 or from the dates ofthe accounts or transactions, whichever is later.

(b) Closed Accounts. – With respect to closed accounts, therecords on customer identification, account files andbusiness correspondence shall be preserved and safelystored for at least five (5) years from the dates when theywere closed.

(c) Retention of Records in Case a Money Laundering CaseHas Been Filed in Court. – If a money laundering casebased on any record kept by the covered institutionconcerned has been filed in court, said file must be retainedbeyond the period stipulated in the two (2) immediatelypreceding subsections, as the case may be, until it isconfirmed that the case has been finally resolved orterminated by the court.

(d) Form of Records. – Records shall be retained as originalsor certified true copies on paper, microfilm or electronicform: Provided, That such forms are admissible in courtpursuant to existing laws and the applicable rulespromulgated by the Supreme Court.



(e) Penalties for Failure to Keep Records. – The penalty ofimprisonment from six (6) months to one (1) year or afine of not less than One hundred thousand Philippinepesos (Php100,000.00) but not more than Five hundredthousand Philippine pesos (Php500,000.00), or both,shall be imposed on a person convicted for a violation ofSection 9 (b) of the AMLA.

SSSSSECECECECEC. 3. . 3. . 3. . 3. . 3. Money Laundering Prevention Programs.Money Laundering Prevention Programs.Money Laundering Prevention Programs.Money Laundering Prevention Programs.Money Laundering Prevention Programs. –Covered institutions shall formulate their respective moneylaundering prevention programs in accordance with Section 9 andother pertinent provisions of the AMLA and Sections 1 and 2of Rules 3 and 4 and other pertinent provisions of these Rules,subject to such guidelines as may be prescribed by the SupervisingAuthority and approved by the AMLC. Every covered institutionshall submit its own money laundering program to the SupervisingAuthority concerned within a non-extendible period of sixty (60)days from the date of effectivity of these Rules.

Every money laundering program shall establish detailedprocedures implementing a comprehensive, institution-wide“know-your-client” policy, set-up an effective dissemination ofinformation on money laundering activities and their prevention,detection and reporting, adopt internal policies, procedures andcontrols, designate compliance officers at management level,institute adequate screening and recruitment procedures, and set-up an audit function to test the system.

Covered institutions shall adopt, as part of their moneylaundering programs, a system of flagging and monitoringtransactions that qualify as covered transactions except that theyinvolve amounts below the threshold to facilitate the process ofaggregating them for purposes of future reporting of such


transactions to the AMLC when their aggregated amounts breachthe threshold. Covered institutions not subject to account secrecylaws shall incorporate in their money laundering programs theprovisions of Section 1, Rule 3 of these Rules and such otherguidelines for the voluntary reporting to the AMLC of alltransactions that engender the reasonable belief that a moneylaundering offense is about to be, is being, or has been committed.

SSSSSECECECECEC. 4. . 4. . 4. . 4. . 4. TTTTTraining ofraining ofraining ofraining ofraining of P P P P Personnel.ersonnel.ersonnel.ersonnel.ersonnel. – Covered institutions shallprovide all their responsible officers and personnel with efficientand effective training and continuing education programs to enablethem to fully comply with all their obligations under the AMLAand these Rules.

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SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. CiCiCiCiCivil Fvil Fvil Fvil Fvil Forforforforforfeitureitureitureitureiture.e.e.e.e. – When there is a coveredtransaction report made, and the court has, in a petition filed forthe purpose ordered seizure of any monetary instrument orproperty, in whole or in part, directly or indirectly, related to saidreport, the Revised Rules of Court on civil forfeiture shall apply.However, no assets shall be forfeited to the prejudice of a candidatefor an electoral office during an election period.

SSSSSECECECECEC. 2.. 2.. 2.. 2.. 2. Claim on FClaim on FClaim on FClaim on FClaim on Forforforforforfeited Assets.eited Assets.eited Assets.eited Assets.eited Assets. – Where the court hasissued an order of forfeiture of the monetary instrument orproperty in a criminal prosecution for any money launderingoffense under Section 4 of the AMLA, the offender or any otherperson claiming an interest therein may apply, by verified petition,for a declaration that the same legitimately belongs to him andfor segregation or exclusion of the monetary instrument or property



corresponding thereto. The verified petition shall be filed withthe court which rendered the judgment of conviction and orderof forfeiture, within fifteen (15) days from the date of the orderof forfeiture, in default of which the said order shall becomefinal and executory. This provision shall apply in both civil andcriminal forfeiture.

SSSSSECECECECEC. 3.. 3.. 3.. 3.. 3. PPPPPaaaaayment in lieu ofyment in lieu ofyment in lieu ofyment in lieu ofyment in lieu of F F F F Forforforforforfeitureitureitureitureitureeeee. . . . . – Where the courthas issued an order of forfeiture of the monetary instrument orproperty subject of a money laundering offense under Section 4of the AMLA, and said order cannot be enforced because anyparticular monetary instrument or property cannot, with duediligence, be located, or it has been substantially altered, destroyed,diminished in value or otherwise rendered worthless by any act oromission, directly or indirectly, attributable to the offender, or ithas been concealed, removed, converted or otherwise transferredto prevent the same from being found or to avoid forfeiturethereof, or it is located outside the Philippines or has been placedor brought outside the jurisdiction of the court, or it has beencommingled with other monetary instruments or propertybelonging to either the offender himself or a third person or entity,thereby rendering the same difficult to identify or be segregatedfor purposes of forfeiture, the court may, instead of enforcingthe order of forfeiture of the monetary instrument or propertyor part thereof or interest therein, accordingly order the convictedoffender to pay an amount equal to the value of said monetaryinstrument or property. This provision shall apply in both civiland criminal forfeiture.


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SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. RRRRRequest fequest fequest fequest fequest for Assistance fror Assistance fror Assistance fror Assistance fror Assistance from a Fom a Fom a Fom a Fom a Forororororeign Stateeign Stateeign Stateeign Stateeign State.....– Where a foreign state makes a request for assistance in theinvestigation or prosecution of a money laundering offense, theAMLC may execute the request or refuse to execute the same andinform the foreign state of any valid reason for not executing therequest or for delaying the execution thereof. The principles ofmutuality and reciprocity shall, for this purpose, be at all timesrecognized.

SSSSSECECECECEC. 2.. 2.. 2.. 2.. 2. PPPPPooooowwwwwers ofers ofers ofers ofers of the AML the AML the AML the AML the AMLC to Act on a RC to Act on a RC to Act on a RC to Act on a RC to Act on a Request fequest fequest fequest fequest forororororAssistance frAssistance frAssistance frAssistance frAssistance from a Fom a Fom a Fom a Fom a Forororororeign Stateeign Stateeign Stateeign Stateeign State..... – The AMLC may executea request for assistance from a foreign state by: (a) tracking down,freezing, restraining and seizing assets alleged to be proceeds ofany unlawful activity under the procedures laid down in theAMLA and in these Rules; (b) giving information needed by theforeign state within the procedures laid down in the AMLA andin these Rules; and (c) applying for an order of forfeiture of anymonetary instrument or property in the court: Provided, Thatthe court shall not issue such an order unless the application isaccompanied by an authenticated copy of the order of a court inthe requesting state ordering the forfeiture of said monetaryinstrument or property of a person who has been convicted of amoney laundering offense in the requesting state, and a certificationor an affidavit of a competent officer of the requesting state statingthat the conviction and the order of forfeiture are final and thatno further appeal lies in respect of either.

SSSSSECECECECEC. 3. . 3. . 3. . 3. . 3. Obtaining Assistance FObtaining Assistance FObtaining Assistance FObtaining Assistance FObtaining Assistance Frrrrrom Fom Fom Fom Fom Forororororeign Stateseign Stateseign Stateseign Stateseign States..... – TheAMLC may make a request to any foreign state for assistance in



(a) tracking down, freezing, restraining and seizing assets allegedto be proceeds of any unlawful activity; (b) obtaining informationthat it needs relating to any covered transaction, money launderingoffense or any other matter directly or indirectly related thereto;(c) to the extent allowed by the law of the foreign state, applyingwith the proper court therein for an order to enter any premisesbelonging to or in the possession or control of, any or all of thepersons named in said request, and/or search any or all such personsnamed therein and/or remove any document, material or objectnamed in said request: Provided, That the documents accompanyingthe request in support of the application have been dulyauthenticated in accordance with the applicable law or regulationof the foreign state; and (d) applying for an order of forfeitureof any monetary instrument or property in the proper court inthe foreign state: Provided, That the request is accompanied by anauthenticated copy of the order of the Regional Trial Courtordering the forfeiture of said monetary instrument or propertyof a convicted offender and an affidavit of the clerk of courtstating that the conviction and the order of forfeiture are finaland that no further appeal lies in respect of either.

SSSSSECECECECEC. 4.. 4.. 4.. 4.. 4. Limitations on RLimitations on RLimitations on RLimitations on RLimitations on Requests fequests fequests fequests fequests for Mutual Assistanceor Mutual Assistanceor Mutual Assistanceor Mutual Assistanceor Mutual Assistance.....– The AMLC may refuse to comply with any request for assistancewhere the action sought by the request contravenes any provisionof the Constitution or the execution of a request is likely toprejudice the national interest of the Philippines, unless there is atreaty between the Philippines and the requesting state relating tothe provision of assistance in relation to money laundering offenses.

SSSSSECECECECEC. 5. . 5. . 5. . 5. . 5. RRRRRequirequirequirequirequirements fements fements fements fements for Ror Ror Ror Ror Requests fequests fequests fequests fequests for Mutual Assistanceor Mutual Assistanceor Mutual Assistanceor Mutual Assistanceor Mutual Assistancefrom Foreign Statesfrom Foreign Statesfrom Foreign Statesfrom Foreign Statesfrom Foreign States..... – A request for mutual assistance from aforeign state must (a) confirm that an investigation or prosecution


is being conducted in respect of a money launderer named thereinor that he has been convicted of any money laundering offense;(b) state the grounds on which any person is being investigatedor prosecuted for money laundering or the details of hisconviction; (c) give sufficient particulars as to the identity ofsaid person; (d) give particulars sufficient to identify any coveredinstitution believed to have any information, document, materialor object which may be of assistance to the investigation orprosecution; (e) ask from the covered institution concerned anyinformation, document, material or object which may be ofassistance to the investigation or prosecution; (f) specify themanner in which and to whom said information, document,material or object obtained pursuant to said request, is to beproduced; (g) give all the particulars necessary for the issuance bythe court in the requested state of the writs, orders or processesneeded by the requesting state; and (8) contain such otherinformation as may assist in the execution of the request.

SSSSSECECECECEC. 6.. 6.. 6.. 6.. 6. Authentication of DocumentsAuthentication of DocumentsAuthentication of DocumentsAuthentication of DocumentsAuthentication of Documents. . . . . – For purposes ofSection 13 of the AMLA and Rule 7 of these Rules, a documentis authenticated if the same is signed or certified by a judge,magistrate or equivalent officer in or of the requesting state, andauthenticated by the oath or affirmation of a witness or sealedwith an official or public seal of a minister, secretary of state, orofficer in or of, the government of the requesting state, or of theperson administering the government or a department of therequesting territory, protectorate or colony. The certificate ofauthentication may also be made by a secretary of the embassy orlegation, consul general, consul, vice consul, consular agent or anyofficer in the foreign service of the Philippines stationed in theforeign state in which the record is kept, and authenticated by theseal of his office.



SSSSSECECECECEC. 7. . 7. . 7. . 7. . 7. ExtraditionExtraditionExtraditionExtraditionExtradition..... – The Philippines shall negotiate for theinclusion of money laundering offenses as defined under Section4 of the AMLA among the extraditable offenses in all futuretreaties.

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SSSSSECTIONECTIONECTIONECTIONECTION 1. 1. 1. 1. 1. AmendmentsAmendmentsAmendmentsAmendmentsAmendments..... – These Rules or any portionthereof may be amended by unanimous vote of the members ofthe AMLC and approved by the Congressional OversightCommittee as provided for under Section 19 of the AMLA.

SSSSSECECECECEC. 2.. 2.. 2.. 2.. 2. EfEfEfEfEffffffectiectiectiectiectivityvityvityvityvity. – These Rules shall take effect after itsapproval by the Congressional Oversight Committee and fifteen(15) days after the completion of its publication in the OfficialGazette or in a newspaper of general circulation.

RRRRReeeeevised Implementing Rvised Implementing Rvised Implementing Rvised Implementing Rvised Implementing Rulesulesulesulesulesand Rand Rand Rand Rand Reeeeegulationsgulationsgulationsgulationsgulations

R.A. NoR.A. NoR.A. NoR.A. NoR.A. No. 9160, as amended b. 9160, as amended b. 9160, as amended b. 9160, as amended b. 9160, as amended byyyyyR.A. NoR.A. NoR.A. NoR.A. NoR.A. No. 9194. 9194. 9194. 9194. 9194

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RRRRRULEULEULEULEULE 1. 1. 1. 1. 1.AAAAA..... TTTTTitle. itle. itle. itle. itle. – These Rules shall be known and cited as the“Revised Rules and Regulations Implementing Republic Act No.9160" (the Anti-Money Laundering Act of 2001 [AMLA], asasasasasamended bamended bamended bamended bamended by Ry Ry Ry Ry Reeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 9194. 9194. 9194. 9194. 9194.

RRRRRULEULEULEULEULE 1. 1. 1. 1. 1.BBBBB. . . . . PurPurPurPurPurposeposeposeposepose. – These Rules are promulgated to prescribethe procedures and guidelines for the implementation of theAMLA, as amended bas amended bas amended bas amended bas amended by Ry Ry Ry Ry Reeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 9194. 9194. 9194. 9194. 9194.

RRRRRULEULEULEULEULE 2 2 2 2 2DDDDDECLARAECLARAECLARAECLARAECLARATIONTIONTIONTIONTION OFOFOFOFOF P P P P POLICYOLICYOLICYOLICYOLICY

RRRRRULEULEULEULEULE 2. 2. 2. 2. 2. DecDecDecDecDeclaration oflaration oflaration oflaration oflaration of P P P P Policolicolicolicolicyyyyy. . . . . – It is hereby declared thepolicy of the State to protect the integrity and confidentiality ofbank accounts and to ensure that the Philippines shall not beused as money laundering site for the proceeds of any unlawfulactivity. Consistent with its foreign policy, the Philippines shallextend cooperation in transnational investigations and prosecutionsof persons involved in money laundering activities wherevercommitted.

3692004] REVISED IMPLEMENTING RULES ANDREGULATIONS REPUBLIC ACT NO. 9160,

AS AMENDED BY REPUBLIC ACT NO. 9194

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RRRRRULEULEULEULEULE 3. 3. 3. 3. 3. DefDefDefDefDefinitions.initions.initions.initions.initions. – For purposes of this Act, the followingterms are hereby defined as follows:

RRRRRULEULEULEULEULE 3. 3. 3. 3. 3. AAAAA. . . . . “Covered Institution” refers to:

RRRRRULEULEULEULEULE 3. 3. 3. 3. 3.AAAAA.1..1..1..1..1. Banks, offshore banking units, quasi-banks, trustentities, nonstock savings and loan associations, pawnshops, andall other institutions, including their subsidiaries and affiliatessupervised and/or regulated by the Bangko Sentral ng Pilipinas(BSP).

(a) A subsidiary means an entity more than fifty percent(50%) of the outstanding voting stock of which is ownedby a bank, quasi-bank, trust entity or any other institutionsupervised or regulated by the BSP.

(b) An affiliate means an entity at least twenty percent (20%)but not exceeding fifty percent (50%) of the voting stockof which is owned by a bank, quasi-bank, trust entity, orany other institution supervised and/or regulated by theBSP.

RRRRRULEULEULEULEULE 3. 3. 3. 3. 3.AAAAA.2..2..2..2..2. Insurance companies, insurance agents, insurancebrokers, professional reinsurers, reinsurance brokers, holdingcompanies, holding company systems, and all other persons andentities supervised and/or regulated by the Insurance Commission(IC).

(a) An insurance company includes those entities authorizedto transact insurance business in the Philippines, whetherlife or non- life and whether domestic, domesticallyincorporated, or branch of a foreign entity. A contract of


insurance is an agreement whereby one undertakes for aconsideration to indemnify another against loss, damageor liability arising from an unknown or contingent event.Transacting insurance business includes making orproposing to make, as insurer, any insurance contract, oras surety, any contract of suretyship as a vocation and notas merely incidental to any other legitimate business oractivity of the surety, doing any kind of businessspecifically recognized as constituting the doing of aninsurance business within the meaning of PresidentialDecree (P.D.) No. 612, as amended, including a reinsurancebusiness and doing or proposing to do any business insubstance equivalent to any of the foregoing in a mannerdesigned to evade the provisions of P.D. No. 612, asamended.

(b) An insurance agent includes any person who solicits orobtains insurance on behalf of any insurance companyor transmits for a person other than himself an applicationfor a policy or contract of insurance to or from suchcompany or offers or assumes to act in the negotiation ofsuch insurance.

(c) An insurance broker includes any person who acts or aidsin any manner in soliciting, negotiating or procuring themaking of any insurance contract or in placing risk ortaking out insurance, on behalf of an insured other thanhimself.

(d) A professional reinsurer includes any person, partnership,association or corporation that transacts solely andexclusively reinsurance business in the Philippines, whetherdomestic, domestically incorporated or a branch of aforeign entity. A contract of reinsurance is one by which



an insurer procures a third person to insure him againstloss or liability by reason of such original insurance.

(e) A reinsurance broker includes any person who, not beinga duly authorized agent, employee or officer of an insurerin which any reinsurance is effected, acts or aids in anymanner in negotiating contracts of reinsurance or placingrisks of effecting reinsurance for any insurance companyauthorized to do business in the Philippines.

(f) A holding company includes any person who directly orindirectly controls any authorized insurer. A holdingcompany system includes a holding company togetherwith its controlled insurers and controlled persons.

RRRRRULEULEULEULEULE 3. 3. 3. 3. 3.AAAAA.3..3..3..3..3.

(i) Securities dealers, brokers, salesmen, associated persons ofbrokers or dealers, investment houses, investment agentsand consultants, trading advisors, and other entitiesmanaging securities or rendering similar services;

(ii) mutual funds or open-end investment companies, close-end investment companies, common trust funds, pre-needcompanies or issuers and other similar entities;

(iii) foreign exchange corporations, money changers, moneypayment, remittance, and transfer companies and othersimilar entities; and

(iv) other entities administering or otherwise dealing incurrency, commodities or financial derivatives basedthereon, valuable objects, cash substitutes, and othersimilar monetary instruments or property supervisedand/or regulated by the Securities and ExchangeCommission (SEC).


(a) A securities broker includes a person engaged in thebusiness of buying and selling securities for theaccount of others.

(b) A securities dealer includes any person who buys andsells securities for his/her account in the ordinarycourse of business.

(c) A securities salesman includes a natural person,employed as such-or as an agent, by a dealer, issuer orbroker to buy and sell securities.

(d) An associated person of a broker or dealer includesan employee thereof who directly exercises control orsupervisory authority, but does not include a salesman,or an agent or a person whose functions are solelyclerical or ministerial.

(e) An investment house includes an enterprise whichengages or purports to engage, whether regularly oron an isolated basis, in the underwriting of securitiesof another person or enterprise, including securitiesof the Government and its instrumentalities.

(f) A mutual fund or an open-end investment companyincludes an investment company which is offeringfor sale or has outstanding, any redeemable securityof which it is the issuer.

(g) A closed-end investment company includes aninvestment company other than open-end investmentcompany.

(h) A common trust fund includes a fund maintained byan entity authorized to perform trust functions undera written and formally established plan, exclusively



for the collective investment and reinvestment ofcertain money representing participation in the planreceived by it in its capacity as trustee, for the purposeof administration, holding or management of suchfunds and/or properties for the use, benefit, oradvantage of the trustor or of others known asbeneficiaries.

(i) A pre-need company or issuer includes any corporationsupervised and/or regulated by the SEC and isauthorized or licensed to sell or offer for sale pre-need plans. Pre-need plans are contracts which providefor the performance of future service(s) or paymentof future monetary consideration at the time of actualneed, payable either in cash or installment by the planholder at prices stated in the contract with or withoutinterest or insurance coverage and includes life, pension,education, internment and other plans, which theCommission may, from time to time, approve.

(j) A foreign exchange corporation includes any enterprisewhich engages or purports to engage, whetherregularly or on isolated basis, in the sale and purchaseof foreign currency notes and such other foreigncurrency denominated non-bank deposit transactionsas may be authorized under its ar ticles ofincorporation.

(k) Investment Advisor/Agent/Consultant shall refer toany person:

(1) who for an advisory fee is engaged in the businessof advising others, either directly or throughcirculars, reports, publications or writings, as to


the value of any security and as to the advisabilityof trading in any security; or

(2) who for compensation and as part of a regularbusiness, issues or promulgates, analyzes reportsconcerning the capital market, except:

(a) any bank or trust company;

(b) any journalist, reporter, columnist, editor,lawyer, accountant, teacher;

(c) the publisher of any bonafide newspaper,news, business or financial publication ofgeneral and regular circulation, including theiremployees;

(d) any contract market;

(e) such other person not within the intent ofthis definition, provided that the furnishingof such service by the foregoing persons issolely incidental to the conduct of theirbusiness or profession.

(3) any person who undertakes the management ofportfolio securities of investment companies,including the arrangement of purchases, sales orexchanges of securities.

(l) A moneychanger includes any person in the businessof buying or selling foreign currency notes.

(m)A money payment, remittance and transfer companyincludes any person offering to pay, remit or transferor transmit money on behalf of any person to anotherperson.



(n) “Customer” refers to any person or entity that keepsan account, or otherwise transacts business, with acovered institution and any person or entity on whosebehalf an account is maintained or a transaction isconducted, as well as the beneficiary of saidtransactions. A customer also includes the beneficiaryof a trust, an investment fund, a pension fund or acompany or person whose assets are managed by anasset manager, or a grantor of a trust. It includes anyinsurance policy holder, whether actual or prospective.

(o) “Property” includes any thing or item of value, realor personal, tangible or intangible, or any interesttherein or any benefit, privilege, claim or right withrespect thereto.

RRRRRULEULEULEULEULE 3. 3. 3. 3. 3.BBBBB..... “Covered Transanction” is a transaction in cash orother equivalent monetary instrument involving a total amountin excess of Five hundred thousand pesos (Php500,000.00),within one (1) banking day.

RRRRRULEULEULEULEULE 3. 3. 3. 3. 3.BBBBB.1..1..1..1..1. Suspicious transactions are transactions regardlessof 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 comensurate with thebusiness or financial capacity of the client;

4. Taking into account all known circumstances, it maybe perceived that the client’s transaction is structuredin order to avoid being the subject of reportingrequirements under the Act;


5. Any circumstance relating to the transaction which isobserved to deviate from the profile of the clientand/or the client’s past transactions with the coveredinstitution;

6. The transaction is in any way related to an unlawfulactivity or any money laundering activity or ofenseunder this Act that is about to be, is being or hasbeen committed; or

7. Any transaction that is similar, analogous or identicalto any of the foregoing.

RRRRRULEULEULEULEULE 3. 3. 3. 3. 3.CCCCC..... “Monetary Instrument” refers to:

(1) Coins or currency of legal tender of the Philippines, orof any other country;

(2) Drafts, checks and notes;

(3) Securities or negotiable instruments, bonds, commercialpapers, deposit certificates, trust certificates, custodialreceipts or deposit substitute instruments, trading orders,transaction tickets and confirmations of sale orinvestments and money market instruments;

(4) Contracts or policies of insurance, life or non-life, andcontracts of suretyship; and

(5) Other similar instruments where title thereto passes toanother by endorsement, assignment or delivery.

RRRRRULEULEULEULEULE 3. 3. 3. 3. 3.DDDDD..... “Offender” refers to any person who commits a moneylaundering offense.

RRRRRULEULEULEULEULE 3. 3. 3. 3. 3.EEEEE..... “Person” refers to any natural or juridical person.

RRRRRULEULEULEULEULE 3. 3. 3. 3. 3.FFFFF “Proceeds” refers to an amount derived or realizedfrom an unlawful activity. It includes:



(1) All material results, profits, effects and any amount realizedfrom any unlawful activity;

(2) All monetary, financial or economic means, devices,documents, papers or things used in or having any relationto any unlawful activity; and

(3) All moneys, expenditures, payments, disbursements, costs,outlays, charges, accounts, refunds and other similar itemsfor the financing, operations, and maintenance of anyunlawful activity.

RRRRRULEULEULEULEULE 3. 3. 3. 3. 3.GGGGG..... “Supervising Authority” refers to the BSP, the SECand the IC. Where the BSP, SEC or IC supervision applies onlyto the registration of the covered institution – the BSP, the SECor the IC, within the limits of the AMLA, shall have the authorityto require and ask assistance from the government agency havingregulatory power and/or licensing authority over said coveredinstitution for the implementation and enforcement of the AMLAand these Rules.

RRRRRULEULEULEULEULE 3. 3. 3. 3. 3.HHHHH. . . . . “Transaction” refers to any act establishing any rightor obligation or giving rise to any contractual or legal relationshipbetween the parties thereto. It also includes any movement offunds by any means with a covered institution.

RRRRRULEULEULEULEULE 3. 3. 3. 3. 3.IIIII. . . . . “Unlawful activity” refers to any act or omission orseries or combination thereof involving or having relation, to thefollowing:

(A) Kidnapping for ransom under Article 267 of Act No.3815, otherwise known as the Revised Penal Code, asamended;

(14) Kidnapping for ransom


(B) Sections 4, 5, 6, 8, 9, 10, 12,13, 14, 15 and 16 of RepublicAct No. 9165, otherwise known as the ComprehensiveDangerous 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 forprohibited users;

(21) Manufacture of prohibited drugs;

(22) Possession of prohibited drugs;

(23) Use of prohibited drugs;

(24) Cultivation of plants which are sources ofprohibited drugs;

(25) Culture of plants which are sources of prohibiteddrugs

(C) Section 3 paragraphs b, c, e, g, h and i of Republic ActNo. 3019, as amended, otherwise known as the Anti-Graftand Corrupt Practices Act;

(14) Directly or indirectly requesting or receiving anygift, present, share, percentage or benefit for himselfor for any other person in connection with anycontract or transaction between the Governmentand any party, wherein the public officer in hisofficial capacity has to intervene under the law;



(15) Directly or indirectly requesting or receiving anygift, present or other pecuniary or material benefit,for himself or for another, from any person forwhom the public officer, in any manner or capacity,has secured or obtained, or will secure or obtain,any government permit or license, in considerationfor the help given or to be given, without prejudiceto Section 13 of R.A. 3019;

(16) Causing any undue injury to any party, includingthe government, or giving any private party anyunwarranted benefits, advantage or preference inthe discharge of his official, administrative orjudicial functions through manifest partiality,evident bad faith or gross inexcusable negligence;

(17) Entering, on behalf of the government, into anycontract or transaction manifestly and grosslydisadvantageous to the same, whether or not thepublic officer profited or will profit thereby;

(18) Directly or indirectly having financial or pecuniaryinterest in any business contract or transaction inconnection with which he intervenes or takes partin his official capacity, or in which he is prohibitedby the Constitution or by any law from having anyinterest;

(19) Directly or indirectly becoming interested, forpersonal gain, or having material interest in anytransaction or act requiring the approval of a board,panel or group of which he is a member, and whichexercise of discretion in such approval, even if hevotes against the same or he does not participate inthe 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 raidsupon the public treasury;

(21) Plunder by receiving, directly or indirectly, anycommission, gift, share, percentage, kickbacks or anyother form of pecuniary benefit from any personand/or entity in connection with any governmentcontract or project or by reason of the office orposition of the public officer concerned;

(22) Plunder by the illegal or fraudulent conveyance ordisposition of assets belonging to the NationalGovernment or any of its subdivisions, agencies,instrumentalities or government-owned orcontrolled corporations or their subsidiaries;

(23) Plunder by obtaining, receiving or accepting,directly or indirectly, any shares of stock, equity orany other form of interest or participation includingthe promise of future employment in any businessenterprise or undertaking;

(24) Plunder by establishing agricultural, industrial orcommercial monopolies or other combinationsand/or implementation of decrees and ordersintended to benefit particular persons or specialinterests;

(25) Plunder by taking undue advantage of officialposition, authority, relationship, connection orinfluence to unjustly enrich himself or themselvesat the expense and to the damage and prejudice ofthe Filipino people and the Republic of thePhilippines.



(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 anuninhabited place and by a band, or with use offirearms on a street, road or alley;

(28) Robbery in an uninhabited house or public buildingor edifice devoted to worship.

(F) Jueteng and Masiao punished as illegal gambling underPresidential Decree No. 1602;

(29) Jueteng;

(30) Masiao.

(G)Piracy on the high seas under the Revised Penal Code, asamended, 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 PenalCode, as amended;

(34) Qualified theft.

(I) Swindling under Article 315 of the Revised Penal Code,as amended;

(35) Estafa with unfaithfulness or abuse of confidenceby altering the substance, quality or quantity ofanything of value which the offender shall deliverby virtue of an obligation to do so, even thoughsuch obligation be based on an immoral or illegalconsideration;


(36) Estafa with unfaithfulness or abuse of confidenceby misappropriating or converting, to the prejudiceof another, money, goods or any other personalproperty received by the offender in trust or oncommission, or for administration, or under anyother obligation involving the duty to make deliveryor to return the same, even though such obligationbe totally or partially guaranteed by a bond; or bydenying having received such money, goods, or otherproperty;

(37) Estafa with unfaithfulness or abuse of confidenceby taking undue advantage of the signature of theoffended party in blank, and by writing anydocument above such signature in blank, to theprejudice of the offended party or any third person;

(38) Estafa by using a fictitious name, or falselypretending to possess power, influence,qualifications, property, credit, agency, business orimaginary transactions, or by means of other similardeceits;

(39) Estafa by altering the quality, fineness or weight ofanything pertaining to his art or business;

(40) Estafa by pretending to have bribed anygovernment employee;

(41) Estafa by postdating a check, or issuing a check inpayment of an obligation when the offender hasno funds in the bank, or his funds deposited thereinwere not sufficient to cover the amount of thecheck;



(42) Estafa by inducing another, by means of deceit, tosign any document;

(43) Estafa by resorting to some fraudulent practice toensure success in a gambling game;

(44) Estafa by removing, concealing or destroying, inwhole 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 fraudulentimportation;

(50) Concealing smuggled article after fraudulentimportation;

(51) Buying smuggled article after fraudulentimportation;

(52) Selling smuggled article after fraudulentimportation;

(53) Transportation of smuggled article after fraudulentimportation;

(54) Fraudulent practices against customs revenue.

(K) Violations under Republic Act No. 8792, otherwise knownas the Electronic Commerce Act of 2000;

K.1. Hacking or cracking, which refers to:


(55) unauthorized access into or interference in acomputer system/server or information andcommunication system; or

(56) any access in order to corrupt, alter, steal, or destroyusing a computer or other similar information andcommunication devices, without the knowledge andconsent of the owner of the computer orinformation 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 electronicdocument;

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 protectedmaterial, electronic signature or copyrighted worksincluding legally protected sound recordings orphonograms or information material on protectedworks, through the use of telecommunicationnetworks, such but not limited to, the internet, in amanner that infringes intellectual property rights;



K.3.Violations of the Consumer Act or Republic Act No.7394 and other relevant or pertinent laws throughtransactions covered by or using electronic data messagesor electronic documents:

(64) Sale of any consumer product that is not inconformity with standards under the Consumer Act;

(65) Sale of any product that has been banned by a ruleunder the Consumer Act; ,

(66) Sale of any adulterated or mislabeled product usingelectronic documents;

(67) Adulteration or misbranding of any consumerproduct;

(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 drugor device held for sale;

(71) Sale of any drug or device not registered inaccordance with the provisions of the E-CommerceAct;

(72) Sale of any drug or device by any person not licensedin accordance with the provisions of the E-Commerce Act;

(73) Sale of any drug or device beyond its expirationdate;

(74) Introduction into commerce of any mislabeled orbanned hazardous substance;


(75) Alteration or removal of the labeling of a hazardoussubstance;

(76) Deceptive sales acts and practices;

(77) Unfair or unconscionable sales acts and practices;

(78) Fraudulent practices relative to weights andmeasures;

(79) False representations in advertisements as theexistence 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 consumerloans;

(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 theRevised Penal Code, as amended, including thoseperpetrated by terrorists against non-combatant personsand similar targets;

(85) Hijacking;

(86) Destructive arson;

(87) Murder;

(88) Hijacking, destructive arson or murder perpetratedby terrorists against non-combatant persons andsimilar targets;



(M) Fraudulent practices and other violations under RepublicAct No. 8799, otherwise known as the SecuritiesRegulation Code of 2000;

(89) Sale, offer or distribution of securities within thePhilippines without a registration statement dulyfiled with and approved by the SEC;

(90) Sale or offer to the public of any pre-need plan notin accordance with the rules and regulations whichthe SEC shall prescribe;

(91) Violation of reportorial requirements imposedupon issuers of securities;

(92) Manipulation of security prices by creating a falseor misleading appearance of active trading in anylisted security traded in an Exchange or any othertrading market;

(93) Manipulation of security prices by effecting, aloneor with others, a series of transactions in securitiesthat raises their prices to induce the purchase of asecurity, whether of the same or different class, ofthe same issuer or of a controlling, controlled orcommonly controlled company by others;

(94) Manipulation of security prices by effecting, aloneor with others, series of transactions in securitiesthat depresses their price to induce the sale of asecurity, whether of the same or different class, ofthe same issuer or of a controlling, controlled orcommonly controlled company by others;

(95) Manipulation of security prices by effecting, aloneor with others, a series of transactions in securitiesthat creates active trading to induce such a purchase


or sale though manipulative devices such asmarking the close, painting the tape, squeezing thefloat, hype and dump, boiler room operations andsuch other similar devices;

(96) Manipulation of security prices by circulating ordisseminating information that the price of anysecurity listed in an Exchange will or is likely to riseor fall because of manipulative market operationsof anyone or more persons conducted for thepurpose of raising or depressing the price of thesecurity for the purpose of inducing the purchaseor sale of such security;

(97) Manipulation of security prices by making false ormisleading statements with respect to any materialfact; which he knew or had reasonable ground tobelieve, was so false and misleading, for the purposeof inducing the purchase or sale of any securitylisted or traded in an Exchange;

(98) Manipulation of security prices by effecting, aloneor with others, any series of transactions for thepurchase and/or sale of any security traded in anExchange for the purpose of pegging, fixing orstabilizing the price of such security, unlessotherwise allowed by the Securities RegulationCode or by the rules of the SEC;

(99) Sale or purchase of any security using anymanipulative deceptive device or contrivance;

(100) Execution of short sales or stop-loss order inconnection with the purchase or sale of any securitynot in accordance with such rules and regulations



as the SEC may prescribe as necessary andappropriate in the public interest or the protectionof the investors;

(101) Employment of any device, scheme or artifice todefraud in connection with the purchase and saleof any securities;

(102) Obtaining money or property in connection withthe purchase and sale of any security by means ofany untrue statement of a material fact or anyomission to state a material fact necessary in orderto make the statements made, in the light of thecircumstances under which they were made, notmisleading;

(103) Engaging in any act, transaction, practice or courseof action in the sale and purchase of any securitywhich operates or would operate as a fraud or deceitupon any person;

(104) Insider trading;

(105) Engaging in the business of buying and sellingsecurities in the Philippines as a broker or dealer,or acting as a salesman, or an associated person ofany broker or dealer without any registration fromthe Commission;

(106) Employment by a broker or dealer of any salesmanor associated person or by an issuer of any salesman,not registered with the SEC; ,

(107) Effecting any transaction in any security, orreporting such transaction, in an Exchange or usingthe facility of an Exchange which is not registeredwith the SEC;


(108) Making use of the facility of a clearing agencywhich is not registered with the SEC;

(109) Violations of margin requirements;

(110) Violations on the restrictions on borrowings bymembers, brokers and dealers;

(111) Aiding and Abetting in any violations of theSecurities Regulation Code;

(112) Hindering, obstructing or delaying the filing ofany document required under the SecuritiesRegulation Code or the rules and regulations ofthe SEC;

(113) Violations of any of the provisions of theimplementing rules and regulations of the SEC;

(114) Any other violations of any of the provisions ofthe Securities Regulation Code.

(N) Felonies or offenses of a similar nature to the afore-mentioned unlawful activities that are punishable underthe penal laws of other countries.

In determining whether or not a felony or offensepunishable under the penal laws of other countries, is“of a similar nature,” as to constitute the same as anunlawful activity under the AMLA, the nomenclatureof said felony or offense need not be identical to any ofthe predicate crimes listed under Rule 3.i.



RRRRRULEULEULEULEULE 4 4 4 4 4MMMMMONEYONEYONEYONEYONEY L L L L LAAAAAUNDERINGUNDERINGUNDERINGUNDERINGUNDERING O O O O OFFENSEFFENSEFFENSEFFENSEFFENSE

RRRRRULEULEULEULEULE 4.1. 4.1. 4.1. 4.1. 4.1. Money Laundering OffenseMoney Laundering OffenseMoney Laundering OffenseMoney Laundering OffenseMoney Laundering Offense – Money launderingis a crime whereby the proceeds of an unlawful activity as hereindefined are transacted, thereby making them appear to haveoriginated from legitimate sources. It is committed by the following:

a) Any person knowing that any monetary instrument orproperty represents, involves, or relates to, the proceedsof any unlawful activity, transacts or attempts to transactsaid monetary instrument or property.

b) Any person knowing that any monetary instrument orproperty involves the proceeds of any unlawful activity,performs or fails to perform any act as a result of whichhe facilitates the offense of money laundering referred toin paragraph (a) above.

c) Any person knowing that any monetary instrument orproperty is required under this Act to be disclosed andfiled with the Anti-Money Laundering Council(AMLC), fails to do so.

RRRRRULEULEULEULEULE 5 5 5 5 5JJJJJURISDICTIONURISDICTIONURISDICTIONURISDICTIONURISDICTION OFOFOFOFOF M M M M MONEYONEYONEYONEYONEY L L L L LAAAAAUNDERINGUNDERINGUNDERINGUNDERINGUNDERING C C C C CASESASESASESASESASES ANDANDANDANDAND

MMMMMONEYONEYONEYONEYONEY L L L L LAAAAAUNDERINGUNDERINGUNDERINGUNDERINGUNDERING I I I I INVESTIGANVESTIGANVESTIGANVESTIGANVESTIGATIONTIONTIONTIONTION P P P P PRRRRROCEDURESOCEDURESOCEDURESOCEDURESOCEDURES

RRRRRULEULEULEULEULE 5.1. 5.1. 5.1. 5.1. 5.1. JJJJJurisdiction ofurisdiction ofurisdiction ofurisdiction ofurisdiction of Money Laundering Cases. Money Laundering Cases. Money Laundering Cases. Money Laundering Cases. Money Laundering Cases. –The Regional Trial Courts shall have the jurisdiction to try allcases on money laundering. Those committed by public officersand private persons who are in conspiracy with such public officersshall be under the jurisdiction of the Sandiganbayan.


RRRRRULEULEULEULEULE 5.2. 5.2. 5.2. 5.2. 5.2. InInInInInvvvvvestigestigestigestigestigation ofation ofation ofation ofation of Money Laundering Of Money Laundering Of Money Laundering Of Money Laundering Of Money Laundering Offffffenses.enses.enses.enses.enses.– The AMLC shall investigate:

(a) suspicious transactions;

(b) covered transactions deemed suspicious after aninvestigation conducted by the AMLC;

(c) money laundering activities; and

(d) other violations of this Act.

RRRRRULEULEULEULEULE 5.3. 5.3. 5.3. 5.3. 5.3. Attempts at Attempts at Attempts at Attempts at Attempts at TTTTTransactions. ransactions. ransactions. ransactions. ransactions. – Section 4 (a) and(b) of the AMLA provides that any person who attempts totransact any monetary instrument or property representing,involving or relating to the proceeds of any unlawful activityshall be prosecuted for a money laundering offense. Accordingly,the reports required under Rule 9.3 (a) and (b) of these Rulesshall include those pertaining to any attempt by any person totransact any monetary instrument or property representing,involving or relating to the proceeds of any unlawful activity.

RRRRRULEULEULEULEULE 6 6 6 6 6PPPPPRRRRROSECUTIONOSECUTIONOSECUTIONOSECUTIONOSECUTION OFOFOFOFOF M M M M MONEYONEYONEYONEYONEY L L L L LAAAAAUNDERINGUNDERINGUNDERINGUNDERINGUNDERING R R R R RULEULEULEULEULE

RRRRRULEULEULEULEULE 6.1. 6.1. 6.1. 6.1. 6.1. Prosecution of Money Laundering. Prosecution of Money Laundering. Prosecution of Money Laundering. Prosecution of Money Laundering. Prosecution of Money Laundering. –

(a) Any person may be charged with and convicted of boththe offense of money laundering and the unlawful activityas defined under Rule 3 (i) of the AMLA.

(b) Any proceeding relating to the unlawful activity shall begiven precedence over the prosecution of any offense orviolation under the AMLA without prejudice to theapplication ex-parte by the AMLC to the Court ofAppeals for a freeze order with respect to the monetary



instrument or property involved therein and resort toother remedies provided under the AMLA, the Rules ofCourt and other pertinent laws and rules.

RRRRRULEULEULEULEULE 6.2. 6.2. 6.2. 6.2. 6.2. When the AMLC finds, after investigation, that thereis probable cause to charge any person with a money launderingoffense under Section 4 of the AMLA, it shall cause a complaintto be filed, pursuant to Section 7 (4) of the AMLA, before theDepartment of Justice or the Ombudsman, which shall thenconduct the preliminary investigation of the case.

RRRRRULEULEULEULEULE 6.3. 6.3. 6.3. 6.3. 6.3. After due notice and hearing in the preliminaryinvestigation proceedings before the Department of Justice, orthe Ombudsman, as the case may be, and the latter should findprobable cause of a money laundering offense, it shall file thenecessary information before the Regional Trial Courts or theSandiganbayan.

RRRRRULEULEULEULEULE 6.4. 6.4. 6.4. 6.4. 6.4. Trial for the money laundering offense shall proceedin accordance with the Code of Criminal Procedure or the Rulesof Procedure of the Sandiganbanyan, as the case may be.

RRRRRULEULEULEULEULE 6.5. 6.5. 6.5. 6.5. 6.5. Knowledge of the offender that any monetaryinstrument or property represents, involves, or relates to theproceeds of an unlawful activity or that any monetary instrumentor property is required under the AMLA to be disclosed andfiled with the AMLC, may be established by direct evidence orinferred from the attendant circumstances.

RRRRRULEULEULEULEULE 6.6. 6.6. 6.6. 6.6. 6.6. All the elements of every money laundering offenseunder Section 4 of the AMLA must be proved by evidence


beyond reasonable doubt, including the element of knowledgethat the monetary instrument or property represents, involves orrelates to the proceeds of any unlawful activity.

RRRRRULEULEULEULEULE 6.7. 6.7. 6.7. 6.7. 6.7. No element of the unlawful activity, however,including the identity of the perpetrators and the details of theactual commission of the unlawful activity need be establishedby proof beyond reasonable doubt. The elements of the offenseof money laundering are separate and distinct from the elementsof the felony or offense constituting the unlawful activity.

RRRRRULEULEULEULEULE 7 7 7 7 7CCCCCREAREAREAREAREATIONTIONTIONTIONTION OFOFOFOFOF A A A A ANTINTINTINTINTI-M-M-M-M-MONEYONEYONEYONEYONEY

LLLLLAAAAAUNDERINGUNDERINGUNDERINGUNDERINGUNDERING C C C C COUNCILOUNCILOUNCILOUNCILOUNCIL (AML (AML (AML (AML (AMLC)C)C)C)C)

RRRRRULEULEULEULEULE 7.1. 7.1. 7.1. 7.1. 7.1.AAAAA..... Composition Composition Composition Composition Composition – The Anti-Money LaunderingCouncil is hereby created and shall be composed of the Governorof the Bangko Sentral ng Pilipinas as Chairman, theCommissioner of the Insurance Commission and the Chairmanof the Securities and Exchange Commission as members.

RRRRRULEULEULEULEULE 7.1. 7.1. 7.1. 7.1. 7.1.BBBBB..... Unanimous Decision Unanimous Decision Unanimous Decision Unanimous Decision Unanimous Decision – The AMLC shall actunanimously in discharging its functions as defined in the AMLAand in these Rules. However, in the case of the incapacity, absence,or disability of any members to discharge his functions, the officerduly designated or authorized to discharge the functions of theGovernor of the BSP, the Chairman of the SEC, or the InsuranceCommissioner, as the case may be, shall act in his stead in theAMLC.

RRRRRULEULEULEULEULE 7.2. 7.2. 7.2. 7.2. 7.2. Functions. Functions. Functions. Functions. Functions. – The functions of the AMLC aredefined hereunder:



(1) to require and receive covered or suspicious transactionreports from covered institutions;

(2) to issue orders addressed to the appropriate SupervisingAuthority or the covered institution to determine thetrue identity of the owner of any monetary instrumentor property subject of a covered or suspicious transactionreport, or request for assistance from a foreign State, orbelieved by the Council, on the basis of substantialevidence, to be, in whole or in part, wherever located,representing, involving, or related to, directly or indirectly,in any manner or by any means, the proceeds of anunlawful activity;

(3) to institute civil forfeiture proceedings and all otherremedial proceedings through the Office of the SolicitorGeneral;

(4) to cause the filing of complaints with the Department ofJustice or the Ombudsman for the prosecution of moneylaundering offenses;

(5) to investigate suspicious transactions and coveredtransactions deemed suspicious after an investigation bythe AMLC, money laundering activities and otherviolations of this Act;

(6) to apply before the Court of Appeals, ex-parte, for thefreezing of any monetary instrument or property allegedto be proceeds of any unlawful activity as defined underSection 3 (i) hereof;

(7) to implement such measures as may be inherent, necessary,implied, incidental and justified under the AMLA tocounteract money laundering. Subject to such limitationsas provided for by law, the AMLC is authorized under


Rule 7 (7) of the AMLA to establish an informationsharing system that will enable the AMLC to store, trackand analyze money laundering transactions for the resoluteprevention, detection and investigation of moneylaundering offenses. For this purpose, the AMLC shallinstall a computerized system that will be used in thecreation and maintenance of an information database;

(8) to receive and take action in respect of any request fromforeign states for assistance in their own anti-moneylaundering operations as provided in the AMLA. TheAMLC is authorized under Sections 7 (8) and 13 (b)and (d) of the AMLA to receive and take action in respectof any request of foreign states for assistance in their ownanti-money laundering operations, in respect ofconventions, resolutions and other directives of the UnitedNations (UN), the UN Security Council, and otherinternational organizations of which the Philippines is amember. However, the AMLC may refuse to comply withany such request, convention, resolution or directive wherethe action sought therein contravenes the provisions ofthe Constitution, or the execution thereof is likely toprejudice the national interest of the Philippines.

(9) to develop educational programs on the pernicious effectsof money laundering, the methods and techniques usedin money laundering, the viable means of preventingmoney laundering and the effective ways of prosecutingand punishing offenders.

(10) to enlist the assistance of any branch, department, bureau,office, agency or instrumentality of the government,including government-owned and controlled corporations,in undertaking any and all anti-money laundering



operations, which may include the use of its personnel,facilities and resources for the more resolute prevention,detection and investigation of money laundering offensesand prosecution of offenders. The AMLC may requirethe intelligence units of the Armed Forces of thePhilippines, the Philippine National Police, theDepartment of Finance, the Department of Justice, aswell as their attached agencies, and other domestic ortransnational governmental or non-governmentalorganizations or groups to divulge to the AMLC allinformation that may, in any way, facilitate the resoluteprevention, investigation and prosecution of moneylaundering offenses and other violations of the AMLA.

(11) to impose administrative sanctions for the violation oflaws, rules, regulations and orders and resolutions issuedpursuant thereto.

RRRRRULEULEULEULEULE 7.3. 7.3. 7.3. 7.3. 7.3. Meetings. Meetings. Meetings. Meetings. Meetings. – The AMLC shall meet every firstMonday of the month, or as often as may be necessary at the callof the Chairman.

RRRRRULEULEULEULEULE 8 8 8 8 8CCCCCREAREAREAREAREATIONTIONTIONTIONTION OFOFOFOFOF AAAAA S S S S SECRETECRETECRETECRETECRETARIAARIAARIAARIAARIATTTTT

RRRRRULEULEULEULEULE 8.1. 8.1. 8.1. 8.1. 8.1. TTTTThe Exhe Exhe Exhe Exhe Executiecutiecutiecutiecutivvvvve Dire Dire Dire Dire Directorectorectorectorector..... – The Secretariat shallbe headed by an Executive Director who shall be appointed bythe AMLC for a term of five (5) years. He must be a member ofthe Philippine Bar, at least thirty-five (35) years of age, musthave served at least five (5) years either at the BSP, the SEC orthe IC and of good moral character, unquestionable integrity andknown probity. He shall be considered a full-time permanent


employee of the BSP with the rank of Assistant Governor, andshall be entitled to such benefits and subject to rules andregulations, as well as prohibitions, as are applicable to officers ofsimilar rank.

RRRRRULEULEULEULEULE 8.2. 8.2. 8.2. 8.2. 8.2. Composition. Composition. Composition. Composition. Composition. – In organizing the Secretariat, theAMLC may choose from those who have served, continuouslyor cumulatively, for at least five (5) years in the BSP, the SEC orthe IC. All members of the Secretariat shall be considered regularemployees of the BSP and shall be entitled to such benefits andsubject to such rules and regulations as are applicable to BSPemployees of similar rank.

RRRRRULEULEULEULEULE 8.3. 8.3. 8.3. 8.3. 8.3. Detail and Secondment. Detail and Secondment. Detail and Secondment. Detail and Secondment. Detail and Secondment. – The AMLC isauthorized under Section 7(10) of the AMLA to enlist theassistance of the BSP, the SEC or the IC, or any other branch,department, bureau, office, agency or instrumentality of thegovernment, including government-owned and controlledcorporations, in undertaking any and all anti-money launderingoperations. This includes the use of any member of their personnelwho may be detailed or seconded to the AMLC, subject to existinglaws and Civil Service Rules and Regulations. Detailed personnelshall continue to receive their salaries, benefits and emolumentsfrom their respective mother units. Seconded personnel shallreceive, in lieu of their respective compensation packages fromtheir respective mother units, the salaries, emoluments and all otherbenefits to which their AMLC Secretariat positions are entitledto.

RRRRRULEULEULEULEULE 8.4. 8.4. 8.4. 8.4. 8.4. ConfConfConfConfConfidentiality Pridentiality Pridentiality Pridentiality Pridentiality Prooooovisions.visions.visions.visions.visions. – The members ofthe AMLC, the Executive Director, and all the members of theSecretariat, whether permanent, on detail or on secondment, shall



not reveal, in any manner, any information known to them byreason of their office. This prohibition shall apply even after theirseparation from the AMLC. In case of violation of this provision,the person shall be punished in accordance with the pertinentprovisions of the Central Bank.

RRRRRULEULEULEULEULE 9 9 9 9 9PPPPPREVENTIONREVENTIONREVENTIONREVENTIONREVENTION OFOFOFOFOF M M M M MONEYONEYONEYONEYONEY L L L L LAAAAAUNDERINGUNDERINGUNDERINGUNDERINGUNDERING;;;;;

CCCCCUSTUSTUSTUSTUSTOMEROMEROMEROMEROMER I I I I IDENTIFICADENTIFICADENTIFICADENTIFICADENTIFICATIONTIONTIONTIONTION

RRRRREQUIREMENTSEQUIREMENTSEQUIREMENTSEQUIREMENTSEQUIREMENTS ANDANDANDANDAND R R R R RECORDECORDECORDECORDECORD K K K K KEEPINGEEPINGEEPINGEEPINGEEPING

RRRRRULEULEULEULEULE 9.1. 9.1. 9.1. 9.1. 9.1. Customer Identif Customer Identif Customer Identif Customer Identif Customer Identification Rication Rication Rication Rication Requirequirequirequirequirements.ements.ements.ements.ements.

RRRRRULEULEULEULEULE 9.1. 9.1. 9.1. 9.1. 9.1.AAAAA..... Customer Identif Customer Identif Customer Identif Customer Identif Customer Identification.ication.ication.ication.ication. – Coveredinstitutions shall establish and record the true identity of itsclients based on official documents. They shall maintain asystem of verifying the true identity of their clients and, incase of corporate clients, require a system of verifying theirlegal existence and organizational structure, as well as theauthority and identification of all persons purporting to acton their behalf. Covered institutions shall establish appropriatesystems and methods based on internationally compliantstandards and adequate internal controls for verifying andrecording the true and full identity of their customers.

RRRRRULEULEULEULEULE 9.1. 9.1. 9.1. 9.1. 9.1.BBBBB. . . . . TTTTTrrrrrustee, Nominee and Agustee, Nominee and Agustee, Nominee and Agustee, Nominee and Agustee, Nominee and Agent Accounts.ent Accounts.ent Accounts.ent Accounts.ent Accounts.– When dealing with customers who are acting as trustee,nominee, agent or in any capacity for and on behalf of another,covered institutions shall verify and record the true and fullidentity of the person(s) on whose behalf a transaction isbeing conducted. Covered institutions shall also establish andrecord the true and full identity of such trustees, nominees,agents and other persons and the nature of their capacity and


duties. In case a covered institution has doubts as to whethersuch persons are being used as dummies in circumvention ofexisting laws, it shall immediately make the necessary inquiriesto verify the status of the business relationship between theparties.

RRRRRULEULEULEULEULE 9.1. 9.1. 9.1. 9.1. 9.1.CCCCC..... Minimum Inf Minimum Inf Minimum Inf Minimum Inf Minimum Infororororormation/Documentsmation/Documentsmation/Documentsmation/Documentsmation/DocumentsRRRRRequirequirequirequirequired fed fed fed fed for Indior Indior Indior Indior Individual Customers.vidual Customers.vidual Customers.vidual Customers.vidual Customers. – Coveredinstitutions shall require customers to produce originaldocuments of identity issued by an official authority, bearinga photograph of the customer. Examples of such documentsare identity cards and passports. The following minimuminformation/documents shall be obtained from individualcustomers:

(1) Name;

(2) Present address;

(3) Permanent address;

(4) Date and place of birth;

(5) Nationality;

(6) Nature of work and name of employer or nature ofselfemployment/business;


(8) Tax identification number, Social Security Systemnumber or Government Service and Insurance Systemnumber;

(9) Specimen signature;

(10) Source of fund(s); and

(11) Names of beneficiaries in case of insurance contractsand whenever applicable.



RRRRRULEULEULEULEULE 9.1. 9.1. 9.1. 9.1. 9.1.DDDDD. . . . . Minimum InfMinimum InfMinimum InfMinimum InfMinimum Infororororormation/Documentsmation/Documentsmation/Documentsmation/Documentsmation/DocumentsRRRRRequirequirequirequirequired fed fed fed fed for Coror Coror Coror Coror Corporate and Jporate and Jporate and Jporate and Jporate and Juridical Entities.uridical Entities.uridical Entities.uridical Entities.uridical Entities. – Beforeestablishing business relationships, covered institutions shallendeavor to ensure that the customer is a corporate or juridicalentity which has not been or is not in the process of beingdissolved, wound up or voided, or that its business oroperations has not been or is not in the process of beingclosed, shut down, phased out, or terminated. Dealings withshell companies and corporations, being legal entities whichhave no business substance in their own right but throughwhich financial transactions may be conducted, should beundertaken with extreme caution. The following minimuminformation/documents shall be obtained from customersthat are corporate or juridical entities, including shellcompanies and corporations:

(1) Articles of Incorporation/Partnership;

(2) By-laws;

(3) Official address or principal business address;

(4) List of directors/partners;

(5) List of principal stockholders owning at least twopercent (2%) of the capital stock;


(7) Beneficial owners, if any; and

(8) Verification of the authority and identification ofthe person purporting to act on behalf of the client.

RRRRRULEULEULEULEULE 9.1. 9.1. 9.1. 9.1. 9.1.EEEEE..... Pr Pr Pr Pr Prohibition agohibition agohibition agohibition agohibition against Cerainst Cerainst Cerainst Cerainst Certain Accounts. tain Accounts. tain Accounts. tain Accounts. tain Accounts. –Covered institutions shall maintain accounts only in the trueand full name of the account owner or holder. The provisions


of existing laws to the contrary notwithstanding, anonymousaccounts, accounts under fictitious names, and all other similaraccounts shall be absolutely prohibited.

RRRRRULEULEULEULEULE 9.1. 9.1. 9.1. 9.1. 9.1.FFFFF..... Pr Pr Pr Pr Prohibition agohibition agohibition agohibition agohibition against opening ainst opening ainst opening ainst opening ainst opening ofofofofof AccountsAccountsAccountsAccountsAccountswithout Face-to- face Contactwithout Face-to- face Contactwithout Face-to- face Contactwithout Face-to- face Contactwithout Face-to- face Contact. – No new accounts shallbe opened and created without face-to-face contact and fullcompliance with the requirements under Rule 9.1.c of theseRules.

RRRRRULEULEULEULEULE 9.1. 9.1. 9.1. 9.1. 9.1.GGGGG..... Number Number Number Number Numbered Accounts.ed Accounts.ed Accounts.ed Accounts.ed Accounts. – Peso and foreigncurrency non-checking numbered accounts shall be allowed:Provided, That the true identity of the customers of all pesoand foreign currency non-checking numbered accounts aresatisfactorily established based on official and other reliabledocuments and records, and that the information anddocuments required under the provisions of these Rules areobtained and recorded by the covered institution. No pesoand foreign currency non-checking accounts shall be allowedwithout the establishment of such identity and in the mannerherein provided. The BSP may conduct annual testing for thepurpose of determining the existence and true identity ofthe owners of such accounts. The SEC and the IC may conductsimilar testing more often than once a year and covering suchother related purposes as may be allowed under their respectivecharters.

RRRRRULEULEULEULEULE 9.2. 9.2. 9.2. 9.2. 9.2. R R R R Recorecorecorecorecord Kd Kd Kd Kd Keeeeeeeeeeping Rping Rping Rping Rping Requirequirequirequirequirements.ements.ements.ements.ements.

RRRRRULEULEULEULEULE 9.2. 9.2. 9.2. 9.2. 9.2.AAAAA..... R R R R Recorecorecorecorecord Kd Kd Kd Kd Keeeeeeeeeeping: Kinds ping: Kinds ping: Kinds ping: Kinds ping: Kinds ofofofofof RRRRRecorecorecorecorecords andds andds andds andds andPPPPPeriod feriod feriod feriod feriod for Ror Ror Ror Ror Retention.etention.etention.etention.etention. – All records of all transactions ofcovered institutions shall be maintained and safely stored forfive (5) years from the dates of transactions. Said records and



files shall contain the full and true identity of the owners orholders of the accounts involved in the covered transactionsand all other customer identification documents. Coveredinstitutions shall undertake the necessary adequate securitymeasures to ensure the confidentiality of such file. Coveredinstitutions shall prepare and maintain documentation, inaccordance with the aforementioned client identificationrequirements, on their customer accounts, relationships andtransactions such that any account, relationship or transactioncan be so reconstructed as to enable the AMLC, and/or thecourts to establish an audit trail for money laundering.

RRRRRULEULEULEULEULE 9.2. 9.2. 9.2. 9.2. 9.2.BBBBB..... Existing and New Accounts and New Existing and New Accounts and New Existing and New Accounts and New Existing and New Accounts and New Existing and New Accounts and NewTTTTTransactions.ransactions.ransactions.ransactions.ransactions. – All records of existing and new accountsand of new transactions shall be maintained and safely storedfor five (5) years from October 17, 2001 or from the datesof the accounts or transactions, whichever is later.

RRRRRULEULEULEULEULE 9.2. 9.2. 9.2. 9.2. 9.2.CCCCC..... Closed Accounts. Closed Accounts. Closed Accounts. Closed Accounts. Closed Accounts. – With respect to closedaccounts, the records on customer identification, account filesand business correspondence shall be preserved and safelystored for at least five (5) years from the dates when theywere closed.

RRRRRULEULEULEULEULE 9.2. 9.2. 9.2. 9.2. 9.2.DDDDD..... R R R R Retention etention etention etention etention ofofofofof RRRRRecorecorecorecorecords in Case ds in Case ds in Case ds in Case ds in Case a a a a a MoneyMoneyMoneyMoneyMoneyLaundering Case has been Filed in CourLaundering Case has been Filed in CourLaundering Case has been Filed in CourLaundering Case has been Filed in CourLaundering Case has been Filed in Court.t.t.t.t. – If a moneylaundering case based on any record kept by the coveredinstitution concerned has been filed in court, said file mustbe retained beyond the period stipulated in the three (3)immediately preceding sub-Rules as the case may be, until itis confirmed that the case has been finally resolved orterminated by the court.


RRRRRULEULEULEULEULE 9.2. 9.2. 9.2. 9.2. 9.2.EEEEE..... F F F F Forororororm ofm ofm ofm ofm of R R R R Recorecorecorecorecords. ds. ds. ds. ds. – Records shall be retainedas originals in such forms as are admissible in court pursuantto existing laws and the applicable rules promulgated by theSupreme Court.

RRRRRULEULEULEULEULE 9.3. 9.3. 9.3. 9.3. 9.3. RRRRReeeeeporporporporporting ting ting ting ting ofofofofof CoCoCoCoCovvvvvererererered ed ed ed ed TTTTTransactions.ransactions.ransactions.ransactions.ransactions.

RRRRRULEULEULEULEULE 9.3. 9.3. 9.3. 9.3. 9.3.AAAAA. . . . . PPPPPeriod oferiod oferiod oferiod oferiod of R R R R Reeeeeporporporporpor ting Coting Coting Coting Coting CovvvvverererereredededededTTTTTransactions and Suspicious ransactions and Suspicious ransactions and Suspicious ransactions and Suspicious ransactions and Suspicious TTTTTransactions. ransactions. ransactions. ransactions. ransactions. – Coveredinstitutions shall report to the AMLC all covered transactionsand suspicious transactions within five (5) working days fromoccurrence, thereof, unless the supervising authority concernedprescribes a longer period not exceeding ten (10) workingdays.

Should a transaction be determined to be both a covered anda suspicious transaction, the covered institution shall reportthe same as a suspicious transaction.

The reporting of covered transactions by covered institutionsshall be deferred for a period of sixty (60) days after theeffectivity of republic act no. 9194, or as may be determinedby the AMLC, in order to allow the covered institutions toconfigure their respective computer systems; Provided That,all covered transactions during said deferment period shall besubmitted thereafter.

RRRRRULEULEULEULEULE 9.3. 9.3. 9.3. 9.3. 9.3.BBBBB..... Co Co Co Co Covvvvvererererered and SuspiciousTed and SuspiciousTed and SuspiciousTed and SuspiciousTed and SuspiciousTransactionransactionransactionransactionransactionRRRRReeeeeporporporporport Ft Ft Ft Ft Forororororms.ms.ms.ms.ms. – The Covered Transaction Report (CTR)and the Suspicious Transaction Report (STR) shall be in theforms prescribed by the AMLC.

RRRRRULEULEULEULEULE 9.3. 9.3. 9.3. 9.3. 9.3.BBBBB.1..1..1..1..1. – Covered institutions shall use theexisting forms for covered transaction reports andsuspicious transaction reports, until such time as theAMLC has issued new sets of forms.



RRRRRULEULEULEULEULE 9.3. 9.3. 9.3. 9.3. 9.3.BBBBB.2. .2. .2. .2. .2. – Covered transaction reports andsuspicious transaction reports shall be submitted in asecured manner to the AMLC in electronic form, eithervia diskettes, leased lines, or through internet facilities,with the corresponding hard copy for suspicioustransactions. The final flow and procedures for suchreporting shall be mapped out in the manual of operationsto be issued by

the AMLC.

RRRRRULEULEULEULEULE 9.3. 9.3. 9.3. 9.3. 9.3.CCCCC..... ExExExExExemption fremption fremption fremption fremption from Bank Secrom Bank Secrom Bank Secrom Bank Secrom Bank Secrecececececy Lay Lay Lay Lay Laws.ws.ws.ws.ws.– When reporting covered or suspicious transactions tothe AMLC, covered institutions and their officers andemployees, shall not be deemed to have violated R.A.No. 1405, as amended, R.A. No. 6426, as amended, R.A.No. 8791 and other similar laws, but are prohibited fromcommunicating, directly or indirectly, in any manner orby any means, to any person the fact that a covered orsuspicious transaction report was made, the contentsthereof, or any other information in relation thereto. Incase of violation thereof, the concerned officer andemployee of the covered institution, shall be criminallyliable.

RRRRRULEULEULEULEULE 9.3. 9.3. 9.3. 9.3. 9.3.DDDDD. . . . . ConfConfConfConfConfidentiality Pridentiality Pridentiality Pridentiality Pridentiality Prooooovisions. visions. visions. visions. visions. – Whenreporting covered transactions or suspicious transactionsto the AMLC, covered institutions and their officers andemployees, are prohibited from communicating, directlyor indirectly, in any manner or by any means, to any person,entity, the media, the fact that a covered or suspicioustransaction report was made, the contents thereof, or anyother information in relation thereto. Neither may suchreporting be published or aired in any manner or formby the mass media, electronic mail, or other similar devices.


In case of violation thereof, the concerned officer, andemployee, of the covered institution, or media shall beheld criminally liable.

RRRRRULEULEULEULEULE 9.3. 9.3. 9.3. 9.3. 9.3.EEEEE..... SafSafSafSafSafe Harbor Pre Harbor Pre Harbor Pre Harbor Pre Harbor Prooooovisions.visions.visions.visions.visions. – Noadministrative, criminal or civil proceedings , shall lieagainst any person for having made a covered transactionreport or a suspicious transaction report in the regularperformance of his duties and in good faith, whether ornot such reporting results in any criminal prosecutionunder this Act or any other Philippine law.

RRRRRULEULEULEULEULE 10 10 10 10 10AAAAAPPLICAPPLICAPPLICAPPLICAPPLICATIONTIONTIONTIONTION FORFORFORFORFOR F F F F FREEZEREEZEREEZEREEZEREEZE O O O O ORDERSRDERSRDERSRDERSRDERS

RRRRRULEULEULEULEULE 10.1. 10.1. 10.1. 10.1. 10.1. WWWWWhen the AMLhen the AMLhen the AMLhen the AMLhen the AMLC maC maC maC maC may apply apply apply apply apply fy fy fy fy for the fror the fror the fror the fror the freeeeeeeeeezingzingzingzingzingofofofofof an an an an any monetary monetary monetary monetary monetary instry instry instry instry instrument or prument or prument or prument or prument or properoperoperoperopertytytytyty..... –

(a) After an investigation conducted by the AMLC and upondetermination that probable cause exists that a monetaryinstrument or property is in any way related to anyunlawful activity as defined under section 3 (i), the AMLCmay file an ex-parte application before the court of appealsfor the issuance of a freeze order on any monetaryinstrument or property subject thereof, prior to theinstitution or in the course of, the criminal proceedingsinvolving the unlawful activity to which said monetaryinstrument or property is any way related.

(b) Considering the intricate and diverse web of related andinterlocking accounts pertaining to the monetaryinstrument (s) or property (ies) that any person may createin the different covered institutions, their branches and/



or other units, the AMLC may apply to the court ofappeals for the freezing, not only of the monetaryinstruments or properties in the names of the reportedowner(s)/holder(s), and monetary instruments orproperties named in the application of the AMLC butalso all other related web of accounts pertaining to othermonetary instruments and properties, the funds andsources of which originated from or are related to themonetary instrument(s) or property(ies) subject of thefreeze order(s).

(c) The freeze order shall be effective for twenty (20) daysunless extended by the court of appeals upon applicationby the AMLC.

RRRRRULEULEULEULEULE 10.2. 10.2. 10.2. 10.2. 10.2. Definition Definition Definition Definition Definition of of of of of Probable Cause.Probable Cause.Probable Cause.Probable Cause.Probable Cause. – Probablecause includes such facts and circumstances which would lead areasonably discreet, prudent or cautious man to believe that anunlawful activity and/or a money laundering offense is about tobe, is being or has been committed and that the account or anymonetary instrument or property subject thereof, sought to befrozen is in any way related to said unlawful activity and/or moneylaundering offense.

RRRRRULEULEULEULEULE 10.3. 10.3. 10.3. 10.3. 10.3. Duty Duty Duty Duty Duty ofofofofof cococococovvvvvererererered institution upon red institution upon red institution upon red institution upon red institution upon receipteceipteceipteceipteceiptthereof.thereof.thereof.thereof.thereof. –

RRRRRULEULEULEULEULE 10.3. 10.3. 10.3. 10.3. 10.3.AAAAA..... Upon receipt of the notice of the freeze order,the covered institution concerned shall immediately freezethe monetary instrument or property and related web ofaccounts subject thereof.


RRRRRULEULEULEULEULE 10.3. 10.3. 10.3. 10.3. 10.3.BBBBB..... The covered institution shall likewiseimmediately furnish a copy of the notice of the freeze orderupon the owner or holder of the monetary instrument orproperty or related web of accounts subject thereof.

RRRRRULEULEULEULEULE 10.3. 10.3. 10.3. 10.3. 10.3.CCCCC. . . . . Within twenty-four (24) hours from receiptof the freeze order, the covered institution concerned shallsubmit to the Court of Appeals and the AMLC, by personaldelivery, a detailed written return on the freeze order, specifyingall the pertinent and relevant information which shall includethe following:

1. The account number(s);

2. The name(s) of the account owner(s) or holder(s);

3. The amount of the monetary instrument, propertyor related web of accounts as of the time they werefrozen;

4. All relevant information as to the nature of themonetary instrument or property;

5. Any information on the related web of accountspertaining to the monetary instrument or propertysubject of the freeze order; and

6. The time when the freeze thereon took effect.

RRRRRULEULEULEULEULE 10.4. 10.4. 10.4. 10.4. 10.4. DefDefDefDefDefinition ofinition ofinition ofinition ofinition of R R R R Related elated elated elated elated WWWWWeeeeeb ofb ofb ofb ofb of Accounts. Accounts. Accounts. Accounts. Accounts. –

“Related web of accounts pertaining to the money instrument orproperty subject of the freeze order” is defined as those accounts,the funds and sources of which originated from and/or arematerially linked to the monetary instrument(s) or property(ies)subject of the freeze order(s).



Upon receipt of the freeze order issued by the court of appealsand upon verification by the covered institution that the relatedweb of accounts originated from and/or are materially linked tothe monetary instrument or property subject of the freeze order,the covered institution shall freeze these related web of accountswherever these funds may be found.

The return of the covered institution as required under rule10.3.c shall include the fact of such freezing and an explanationas to the grounds for the identification of the related web ofaccounts.

RRRRRULEULEULEULEULE 10.5. 10.5. 10.5. 10.5. 10.5. Extension Extension Extension Extension Extension of of of of of the Freeze Order.the Freeze Order.the Freeze Order.the Freeze Order.the Freeze Order. – Before thetwenty (20) day period of the freeze order issued by the court ofappeals expires, the AMLC may apply in the same court for anextension of said period. Upon the timely filing of suchapplication and pending the decision of the court of appeals toextend the period, said period shall be deemed suspended and thefreeze order shall remain effective.

However, the covered institution shall not lift the effects ofthe freeze order without securing official confirmation from theAMLC.

RRRRRULEULEULEULEULE 10.6. 10.6. 10.6. 10.6. 10.6. Prohibition against Issuance Prohibition against Issuance Prohibition against Issuance Prohibition against Issuance Prohibition against Issuance of of of of of Freeze OrdersFreeze OrdersFreeze OrdersFreeze OrdersFreeze Ordersagainst candidates for against candidates for against candidates for against candidates for against candidates for an an an an an electoral office during electionelectoral office during electionelectoral office during electionelectoral office during electionelectoral office during electionperiod.period.period.period.period. – No assets shall be frozen to the prejudice of a candidatefor an electoral office during an election period.


RRRRRULEULEULEULEULE 11 11 11 11 11AAAAAUTHORITYUTHORITYUTHORITYUTHORITYUTHORITY TTTTTOOOOO I I I I INQNQNQNQNQUIREUIREUIREUIREUIRE INTINTINTINTINTOOOOO B B B B BANKANKANKANKANK D D D D DEPOSITSEPOSITSEPOSITSEPOSITSEPOSITS

RRRRRULEULEULEULEULE 11.1. 11.1. 11.1. 11.1. 11.1. Authority to Inquire into Bank DepositsAuthority to Inquire into Bank DepositsAuthority to Inquire into Bank DepositsAuthority to Inquire into Bank DepositsAuthority to Inquire into Bank Depositswith Courwith Courwith Courwith Courwith Court Ort Ort Ort Ort Orderderderderder..... – Notwithstanding the provisions ofRepublic Act No. 1405, as amended; Republic Act No. 6426, asamended; Republic Act No. 8791, and other laws, the AMLCmay inquire into or examine any particular deposit or investmentwith any banking institution or non-bank financial institutionand their subsidiaries and affiliates upon order of any competentcourt in cases of violation of this Act, when it has been establishedthat there is probable cause that the deposits or investmentsinvolved are related to an unlawful activity as defined in Section3 (i) hereof or a money laundering offense under Section 4 hereof;except in cases as provided under Rule 11.2.

RRRRRULEULEULEULEULE 11.2. 11.2. 11.2. 11.2. 11.2. Authority to Inquire into Bank DepositsAuthority to Inquire into Bank DepositsAuthority to Inquire into Bank DepositsAuthority to Inquire into Bank DepositsAuthority to Inquire into Bank Depositswithout Courwithout Courwithout Courwithout Courwithout Court Ort Ort Ort Ort Orderderderderder..... – – – – – The AMLC may inquire into orexamine deposit and investments with any banking institution ornon-bank financial institution and their subsidiaries and affiliateswithout a court order where any of the following unlawfulactivities are involved:

(a) Kidnapping for ransom under Article 267 of Act No.3815, otherwise known as the Revised Penal Code, asamended;

(b) Sections 4,5,6, 8, 9, 10, 12, 13, 14, 15 and 16 of RepublicAct No. 9165, otherwise known as the ComprehensiveDangerous Drugs Act of 2002;

(c) Hijacking and other violations under Republic Act No.6235; destructive arson and murder, as defined under theRevised Penal Code, as amended, including those



perpetrated by terrorists against noncombatant personsand similar targets.

RRRRRULEULEULEULEULE 11.2. 11.2. 11.2. 11.2. 11.2.AAAAA..... Pr Pr Pr Pr Procedurocedurocedurocedurocedure fe fe fe fe for Examination or Examination or Examination or Examination or Examination WWWWWithoutithoutithoutithoutithoutCourCourCourCourCourt Ort Ort Ort Ort Orderderderderder..... – Where any of the unlawful activitiesenumerated under the immediately preceding Rule 11.2 areinvolved, and there is probable cause that the deposits orinvestments with any banking or non-banking financialinstitution and their subsidiaries and affiliates are in anywayrelated to these unlawful activities the AMLC shall issue aresolution authorizing the inquiry into or examination ofany deposit or investment with such banking or non-bankingfinancial institution and their subsidiaries and affiliatesconcerned.

RRRRRULEULEULEULEULE 11.2. 11.2. 11.2. 11.2. 11.2.BBBBB. . . . . Duty of the Banking Institution Duty of the Banking Institution Duty of the Banking Institution Duty of the Banking Institution Duty of the Banking Institution orororororNon-Banking Institution upon RNon-Banking Institution upon RNon-Banking Institution upon RNon-Banking Institution upon RNon-Banking Institution upon Receipt ofeceipt ofeceipt ofeceipt ofeceipt of the AML the AML the AML the AML the AMLCCCCCRRRRResolution. esolution. esolution. esolution. esolution. – The banking institution or the non-bankingfinancial institution and their subsidiaries and affiliates shall,immediately upon receipt of the amlc resolution, allow theAMLC and/or its authorized representative(s) full access toall records pertaining to the deposit or investment account.

RRRRRULEULEULEULEULE 11.3. 11.3. 11.3. 11.3. 11.3. BSP Authority to Examine Deposits andBSP Authority to Examine Deposits andBSP Authority to Examine Deposits andBSP Authority to Examine Deposits andBSP Authority to Examine Deposits andInInInInInvvvvvestments; Additional Exestments; Additional Exestments; Additional Exestments; Additional Exestments; Additional Excecececeception to the Bank Secrption to the Bank Secrption to the Bank Secrption to the Bank Secrption to the Bank SecrecececececyyyyyAct. Act. Act. Act. Act. – To ensure compliance with this act, the Bangko Sentralng Pilipinas (BSP) may inquire into or examine any particulardeposit or investment with any banking institution or non-bankfinancial institution and their subsidiaries and affiliates when theexamination is made in the course of a periodic or specialexamination, in accordance with the rules of examination of theBSP.


RRRRRULEULEULEULEULE 11.3. 11.3. 11.3. 11.3. 11.3.AAAAA. . . . . BSP RBSP RBSP RBSP RBSP Rules ofules ofules ofules ofules of Examination. Examination. Examination. Examination. Examination. – The BSPshall promulgate its rules of examination for ensuringcompliance by banks and non-bank financial institutions andtheir subsidiaries and affiliates with the AMLA and these rules.

Any findings of the BSP which may constitute a violationof any provision of this act shall be transmitted to the AMLCfor appropriate action.

RRRRRULEULEULEULEULE 12 12 12 12 12FFFFFORFEITUREORFEITUREORFEITUREORFEITUREORFEITURE P P P P PRRRRROOOOOVISIONSVISIONSVISIONSVISIONSVISIONS

RRRRRULEULEULEULEULE 12.1. 12.1. 12.1. 12.1. 12.1. Authority to Institute Civil ForfeitureAuthority to Institute Civil ForfeitureAuthority to Institute Civil ForfeitureAuthority to Institute Civil ForfeitureAuthority to Institute Civil ForfeiturePrPrPrPrProceedings.oceedings.oceedings.oceedings.oceedings. – The AMLC is authorized under Section 7 (3)of the AMLA to institute civil forfeiture proceedings and allother remedial proceedings through the Office of the SolicitorGeneral.

RRRRRULEULEULEULEULE 12.2. 12.2. 12.2. 12.2. 12.2. WWWWWhen Cihen Cihen Cihen Cihen Civil Fvil Fvil Fvil Fvil Forforforforforfeitureitureitureitureiture Mae Mae Mae Mae May bey bey bey bey be AAAAApplied. –pplied. –pplied. –pplied. –pplied. –When there is a suspicious transaction report or a coveredtransaction report deemed suspicious after investigation by theAMLC, and the court has, in a petition filed for the purpose,ordered the seizure of any monetary instrument or property, inwhole or in part, directly or indirectly, related to said report, theRevised Rules of Court on civil forfeiture shall apply.

RRRRRULEULEULEULEULE 12.3. 12.3. 12.3. 12.3. 12.3. Claim onClaim onClaim onClaim onClaim on FFFFForforforforforfeited eited eited eited eited Assets.Assets.Assets.Assets.Assets. – Where the courthas issued an order of forfeiture of the monetary instrument orproperty in a criminal prosecution for any money launderingoffense under Section 4 of the AMLA, the offender or any otherperson claiming an interest therein may apply, by verified petition,for a declaration that the same legitimately belongs to him, and



for segregation or exclusion of the monetary instrument or propertycorresponding thereto. The verified petition shall be filed withthe court which rendered the judgment of conviction and orderof forfeiture within fifteen (15) days from the date of the orderof forfeiture, in default of which the said order shall becomefinal and executory. This provision shall apply in both civil andcriminal forfeiture.

RRRRRULEULEULEULEULE 12.4. 12.4. 12.4. 12.4. 12.4. PPPPPaaaaayment in lieu ofyment in lieu ofyment in lieu ofyment in lieu ofyment in lieu of F F F F Forforforforforfeitureitureitureitureiture.e.e.e.e. – Where thecourt has issued an order of forfeiture of the monetary instrumentor property subject of a money laundering offense under Section4 of the AMLA, and, said order cannot be enforced because anyparticular monetary instrument or property cannot, with duediligence, be located, or it has been substantially altered, destroyed,diminished in value or otherwise rendered worthless by any act oromission, directly or indirectly, attributable to the offender, or ithas been concealed, removed, converted or otherwise transferredto prevent the same from being found or to avoid forfeiturethereof, or it is located outside the Philippines or has been placedor brought outside the jurisdiction of the court, or it has beencommingled with other monetary instruments or propertybelonging to either the offender himself or a third person or entity,thereby rendering the same difficult to identify or be segregatedfor purposes of forfeiture, the court may, instead of enforcingthe order of forfeiture of the monetary instrument or propertyor part thereof or interest therein, accordingly order the convictedoffender to pay an amount equal to the value of said monetaryinstrument or property. This provision shall apply in both civiland criminal forfeiture.


RRRRRULEULEULEULEULE 13 13 13 13 13MMMMMUTUUTUUTUUTUUTUALALALALAL A A A A ASSISTSSISTSSISTSSISTSSISTANCEANCEANCEANCEANCE A A A A AMONGMONGMONGMONGMONG S S S S STTTTTAAAAATESTESTESTESTES

RRRRRULEULEULEULEULE 13.1. 13.1. 13.1. 13.1. 13.1. R R R R Request fequest fequest fequest fequest for Assistance fror Assistance fror Assistance fror Assistance fror Assistance from a Fom a Fom a Fom a Fom a Forororororeign State.eign State.eign State.eign State.eign State.– Where a foreign state makes a request for assistance in theinvestigation or prosecution of a money laundering offense, theAMLC may execute the request or refuse to execute the same andinform the foreign state of any valid reason for not executing therequest or for delaying the execution thereof. The principles ofmutuality and reciprocity shall, for this purpose, be at all timesrecognized.

RRRRRULEULEULEULEULE 13.2. 13.2. 13.2. 13.2. 13.2. PPPPPooooowwwwwers ofers ofers ofers ofers of the AMLthe AMLthe AMLthe AMLthe AMLC to Act C to Act C to Act C to Act C to Act on a on a on a on a on a RRRRRequestequestequestequestequestfffffor Assistance fror Assistance fror Assistance fror Assistance fror Assistance from aom aom aom aom a FFFFForororororeign State. eign State. eign State. eign State. eign State. – The AMLC mayexecute a request for assistance from a foreign state by:

(1) tracking down, freezing, restraining and seizing assetsalleged to be proceeds of any unlawful activity under theprocedures laid down in the AMLA and in these Rules;

(2) giving information needed by the foreign state withinthe procedures laid down in the AMLA and in these Rules;and

(3) applying for an order of forfeiture of any monetaryinstrument or property in the court: Provided, That thecourt shall not issue such an order unless the applicationis accompanied by an authenticated copy of the order ofa court in the requesting state ordering the forfeiture ofsaid monetary instrument or property of a person whohas been convicted of a money laundering offense in therequesting state, and a certification or an affidavit of acompetent officer of the requesting state stating that theconviction and the order of forfeiture are final and thatno further appeal lies in respect of either.



RRRRRULEULEULEULEULE 13.3. 13.3. 13.3. 13.3. 13.3. Obtaining Assistance from Foreign States.Obtaining Assistance from Foreign States.Obtaining Assistance from Foreign States.Obtaining Assistance from Foreign States.Obtaining Assistance from Foreign States.– The AMLC may make a request to any foreign state forassistance in

(1) tracking down, freezing, restraining, and seizing assetsalleged to be proceeds of any unlawful activity;

(2) obtaining information that it needs relating to any coveredtransaction, money laundering offense or any other matterdirectly or indirectly related thereto;

(3) to the extent allowed by the law of the foreign state,applying with the proper court therein for an order toenter any premises belonging to or in the possession orcontrol of, any or all of the persons named in said request,and/or search any or all such persons named therein and/or remove any document, material or object named insaid request: Provided, That the documents accompanyingthe request in support of the application have been dulyauthenticated in accordance with the applicable law orregulation of the foreign state; and

(4) applying for an order of forfeiture of any monetaryinstrument or property in the proper court in the foreignstate: Provided, That the request is accompanied by anauthenticated copy of the order of the Regional TrialCourt ordering the forfeiture of said monetary instrumentor property of a convicted offender and an affidavit ofthe clerk of court stating that the conviction and theorder of forfeiture are final and that no further appeallies in respect of either.

RRRRRULEULEULEULEULE 13.4. 13.4. 13.4. 13.4. 13.4. Limitations Limitations Limitations Limitations Limitations on on on on on RRRRRequests fequests fequests fequests fequests for Mutualor Mutualor Mutualor Mutualor MutualAssistance.Assistance.Assistance.Assistance.Assistance. – The AMLC may refuse to comply with any requestfor assistance where the action sought by the request contravenes


any provision of the Constitution or the execution of a request islikely to prejudice the national interest of the Philippines, unlessthere is a treaty between the Philippines and the requesting staterelating to the provision of assistance in relation to moneylaundering offenses.

RRRRRULEULEULEULEULE 13.5. 13.5. 13.5. 13.5. 13.5. RRRRRequirequirequirequirequirements fements fements fements fements for Ror Ror Ror Ror Requests fequests fequests fequests fequests for Mutualor Mutualor Mutualor Mutualor MutualAssistance from Foreign States.Assistance from Foreign States.Assistance from Foreign States.Assistance from Foreign States.Assistance from Foreign States. – A request for mutualassistance from a foreign state must:

(1) confirm that an investigation or prosecution is beingconducted in respect of a money launderer named thereinor that he has been convicted of any money launderingoffense;

(2) state the grounds on which any person is being investigatedor prosecuted for money laundering or the details of hisconviction;

(3) give sufficient particulars as to the identity of said person;

(4) give particulars sufficient to identify any coveredinstitution believed to have any information, document,material or object which may be of assistance to theinvestigation or prosecution;

(5) ask from the covered institution concerned anyinformation, document, material or object which may beof assistance to the investigation or prosecution;

(6) specify the manner in which and to whom saidinformation, document, material or object obtainedpursuant to said request is to be produced,

(7) give all the particulars necessary for the issuance by thecourt in the requested state of the writs, orders or processesneeded by the requesting state; and



(8) contain such other information as may assist in theexecution of the request.

RRRRRULEULEULEULEULE 13.6. 13.6. 13.6. 13.6. 13.6. Authentication of Documents. Authentication of Documents. Authentication of Documents. Authentication of Documents. Authentication of Documents. – For purposesof Section 13 (f) of the AMLA and Section 7 of the AMLA, adocument is authenticated if the same is signed or certified by ajudge, magistrate or equivalent officer in or of, the requestingstate, and authenticated by the oath or affirmation of a witness orsealed with an official or public seal of a minister, secretary ofstate, or officer in or of, the government of the requesting state,or of the person administering the government or a departmentof the requesting territory, protectorate or colony. The certificateof authentication may also be made by a secretary of the embassyor legation, consul general, consul, vice consul, consular agent orany officer in the foreign service of the Philippines stationed inthe foreign state in which the record is kept, and authenticated bythe seal of his office.

RRRRRULEULEULEULEULE 13.7. 13.7. 13.7. 13.7. 13.7. SuppletorSuppletorSuppletorSuppletorSuppletory Ay Ay Ay Ay Application ofpplication ofpplication ofpplication ofpplication of the R the R the R the R the Reeeeevised Rvised Rvised Rvised Rvised Rulesulesulesulesulesofofofofof Cour Cour Cour Cour Court.t.t.t.t. –

RRRRRULEULEULEULEULE 13.7.1. 13.7.1. 13.7.1. 13.7.1. 13.7.1. For attachment of Philippine properties in thename of persons convicted of any unlawful activity as defined inSection 3 (i) of the AMLA, execution and satisfaction of finaljudgments of forfeiture, application for examination of witnesses,procuring search warrants, production of bank documents andother materials and all other actions not specified in the AMLAand these Rules, and assistance for any of the aforementionedactions, which is subject of a request by a foreign state, resort maybe had to the proceedings pertinent thereto under the RevisedRules of Court.


RRRRRULEULEULEULEULE 13.7.2. 13.7.2. 13.7.2. 13.7.2. 13.7.2. Authority to Assist the United Nations Authority to Assist the United Nations Authority to Assist the United Nations Authority to Assist the United Nations Authority to Assist the United Nationsand other Interand other Interand other Interand other Interand other International Ornational Ornational Ornational Ornational Orggggganizations and Fanizations and Fanizations and Fanizations and Fanizations and ForororororeigneigneigneigneignStates. States. States. States. States. – The AMLC is authorized under Section 7 (8) and 13(b) and (d) of the AMLA to receive and take action in respectof any request of foreign states for assistance in their own anti-money laundering operations. It is also authorized under Section7 (7) of the AMLA to cooperate with the National Governmentand/or take appropriate action in respect of conventions,resolutions and other directives of the United Nations (UN),the UN Security Council, and other international organizationsof which the Philippines is a member. However, the AMLC mayrefuse to comply with any such request, convention, resolution ordirective where the action sought therein contravenes the provisionof the Constitution or the execution thereof is likely to prejudicethe national interest of the Philippines.

RRRRRULEULEULEULEULE 13.8. 13.8. 13.8. 13.8. 13.8. Extradition.Extradition.Extradition.Extradition.Extradition. –The Philippines shall negotiate forthe inclusion of money laundering offenses as defined underSection 4 of the AMLA among the extraditable offenses in allfuture treaties. With respect, however, to the state parties that aresignatories to the United Nations Convention AgainstTransnational Organized Crime that was ratified by the PhilippineSenate on October 22, 2001, money laundering is deemed to beincluded as an extraditable offense in any extradition treaty existingbetween said state parties, and the Philippines shall include moneylaundering as an extraditable offense in every extradition treatythat may be concluded between the Philippines and any of saidstate parties in the future.



RRRRRULEULEULEULEULE 14 14 14 14 14PPPPPENENENENENALALALALAL P P P P PRRRRROOOOOVISIONSVISIONSVISIONSVISIONSVISIONS

RRRRRULEULEULEULEULE 14.1. 14.1. 14.1. 14.1. 14.1. PPPPPenalties fenalties fenalties fenalties fenalties for the Crime or the Crime or the Crime or the Crime or the Crime ofofofofof MoneyMoneyMoneyMoneyMoneyLaundering.Laundering.Laundering.Laundering.Laundering.

RRRRRULEULEULEULEULE 14.1. 14.1. 14.1. 14.1. 14.1.AAAAA..... P P P P Penalties under Section enalties under Section enalties under Section enalties under Section enalties under Section 4 4 4 4 4 (a) of(a) of(a) of(a) of(a) of thethethethetheAMLA. AMLA. AMLA. AMLA. AMLA. – The penalty of imprisonment ranging from seven(7) to fourteen (14) years and a fine of not less than Threemillion Philippine pesos (Php3,000,000.00) but not morethan twice the value of the monetary instrument or propertyinvolved in the offense, shall be imposed upon a personconvicted under Section 4 (a) of the AMLA.

RRRRRULEULEULEULEULE 14.1. 14.1. 14.1. 14.1. 14.1.BBBBB. . . . . PPPPPenalties under Section 4 (b) ofenalties under Section 4 (b) ofenalties under Section 4 (b) ofenalties under Section 4 (b) ofenalties under Section 4 (b) of thethethethetheAMLA. AMLA. AMLA. AMLA. AMLA. – The penalty of imprisonment from four (4) toseven (7) years and a fine of not less than One million Fivehundred thousand Philippine pesos (Php1,500,000.00) butnot more than Three million Philippine pesos(Php3,000,000.00), shall be imposed upon a person convictedunder Section 4 (b) of the AMLA.

RRRRRULEULEULEULEULE 14.1. 14.1. 14.1. 14.1. 14.1.CCCCC..... P P P P Penalties under Section 4 (c) ofenalties under Section 4 (c) ofenalties under Section 4 (c) ofenalties under Section 4 (c) ofenalties under Section 4 (c) of thethethethetheAMLA.AMLA.AMLA.AMLA.AMLA. – The penalty of imprisonment from six (6) monthsto four (4) years or a fine of not less than One hundredthousand Philippine pesos (Php100,000.00) but not morethan Five hundred thousand Philippine pesos(Php500,000.00), or both, shall be imposed on a personconvicted under Section 4(c) of the AMLA.

RRRRRULEULEULEULEULE 14.1. 14.1. 14.1. 14.1. 14.1.DDDDD..... Administrati Administrati Administrati Administrati Administrativvvvve Sanctions.e Sanctions.e Sanctions.e Sanctions.e Sanctions. – (1) Afterdue notice and hearing, the AMLC shall, at its discretion,impose fines upon any covered institution, its officers andemployees, or any person who violates any of the provisions


of Republic Act No. 9160, as amended by Republic Act No.9194 and rules, regulations, orders and resolutions issuedpursuant thereto. The fines shall be in amounts as may bedetermined by the Council, taking into consideration all theattendant circumstances, such as the nature and gravity of theviolation or irregularity, but in no case shall such fines be lessthan One hundred thousand pesos (Php100,000.00) but notto exceed Five hundred thousand pesos (Php500,000.00).The imposition of the administrative sanctions shall bewithout prejudice to the filing of criminal charges against thepersons responsible for the violations.

RRRRRULEULEULEULEULE 14.2. 14.2. 14.2. 14.2. 14.2. P P P P Penalties fenalties fenalties fenalties fenalties for For For For For Failurailurailurailurailure to Ke to Ke to Ke to Ke to Keeeeeeeeeep Rp Rp Rp Rp Recorecorecorecorecords. –ds. –ds. –ds. –ds. – Thepenalty of imprisonment from six (6) months to one (1) year ora fine of not less than One hundred thousand Philippine pesos(Php100,000.00) but not more than Five hundred thousandPhilippine pesos (Php500,000.00), or both, shall be imposed ona person convicted under Section 9 (b) of the AMLA.

RRRRRULEULEULEULEULE 14.3. 14.3. 14.3. 14.3. 14.3. PPPPPenalties fenalties fenalties fenalties fenalties for Malicious Ror Malicious Ror Malicious Ror Malicious Ror Malicious Reeeeeporporporporportingtingtingtingting..... – Anyperson who, with malice, or in bad faith, reports or files acompletely unwarranted or false information relative to moneylaundering transaction against any person shall be subject to apenalty of six (6) months to four (4) years imprisonment anda fine of not less than One hundred thousand Philippine pesos(Php100, 000.00) but not more than Five hundred thousandPhilippine pesos (Php500, 000.00), at the discretion of the court:Provided, That the offender is not entitled to avail the benefitsof the Probation Law.

RRRRRULEULEULEULEULE 14.4. 14.4. 14.4. 14.4. 14.4. WWWWWherherherherhere Ofe Ofe Ofe Ofe Offffffender is a Jender is a Jender is a Jender is a Jender is a Juridical Puridical Puridical Puridical Puridical Person.erson.erson.erson.erson. – If theoffender is a corporation, association, partnership or any juridical



person, the penalty shall be imposed upon the responsible officers,as the case may be, who participated in, or allowed by their grossnegligence the commission of the crime. If the offender is ajuridical person, the court may suspend or revoke its license. Ifthe offender is an alien, he shall, in addition to the penalties hereinprescribed, be deported without further proceedings after servingthe penalties herein prescribed. If the offender is a public officialor employee, he shall, in addition to the penalties prescribed herein,suffer perpetual or temporary absolute disqualification from office,as the case may be.

RRRRRULEULEULEULEULE 14.5. 14.5. 14.5. 14.5. 14.5. R R R R Refusal befusal befusal befusal befusal by a Puby a Puby a Puby a Puby a Public Oflic Oflic Oflic Oflic Offfffficial or Emploicial or Emploicial or Emploicial or Emploicial or Employyyyyee toee toee toee toee toTTTTTestifyestifyestifyestifyestify..... – Any public official or employee who is called upon totestify and refuses to do the same or purposely fails to testify shallsuffer the same penalties prescribed herein.

RRRRRULEULEULEULEULE 14.6. 14.6. 14.6. 14.6. 14.6. PPPPPenalties fenalties fenalties fenalties fenalties for Bror Bror Bror Bror Breaceaceaceaceach ofh ofh ofh ofh of Conf Conf Conf Conf Confidentialityidentialityidentialityidentialityidentiality..... –The punishment of imprisonment ranging from three (3) to eight(8) years and a fine of not less than Five hundred thousandPhilippine pesos (Php500,000.00) but not more than OneMillion Philippine Pesos (Php1,000,000.00), shall be imposedon a person convicted for a violation under Section 9(c). In caseof a breach of confidentiality that is published or reported bymedia, the responsible reporter, writer, president, publisher,manager and editor-in-chief shall be liable under this Act.

RRRRRULEULEULEULEULE 15 15 15 15 15PPPPPRRRRROHIBITIONSOHIBITIONSOHIBITIONSOHIBITIONSOHIBITIONS A A A A AGAINSTGAINSTGAINSTGAINSTGAINST P P P P POLITICALOLITICALOLITICALOLITICALOLITICAL H H H H HARASSMENTARASSMENTARASSMENTARASSMENTARASSMENT

RRRRRULEULEULEULEULE 15.1. 15.1. 15.1. 15.1. 15.1. Pr Pr Pr Pr Prohibition agohibition agohibition agohibition agohibition against Painst Painst Painst Painst Political Political Political Political Political Persecution.ersecution.ersecution.ersecution.ersecution. –The AMLA and these Rules shall not be used for politicalpersecution or harassment or as an instrument to hamper


competition in trade and commerce. No case for money launderingmay be filed to the prejudice of a candidate for an electoral officeduring an election period.

RRRRRULEULEULEULEULE 15.2. 15.2. 15.2. 15.2. 15.2. PrPrPrPrProoooovisional Rvisional Rvisional Rvisional Rvisional Remedies Aemedies Aemedies Aemedies Aemedies Application;pplication;pplication;pplication;pplication;ExExExExExcecececeception. –ption. –ption. –ption. –ption. –

RRRRRULEULEULEULEULE 15.2. 15.2. 15.2. 15.2. 15.2.AAAAA. . . . . The AMLC may apply, in the course of thecriminal proceedings, for provisional remedies to prevent themonetary instrument or property subject thereof from beingremoved, concealed, converted, commingled with otherproperty or otherwise to prevent its being found or taken bythe applicant or otherwise placed or taken beyond thejurisdiction of the court. However, no assets shall be attachedto the prejudice of a candidate for an electoral office duringan election period.

RRRRRULEULEULEULEULE 15.2. 15.2. 15.2. 15.2. 15.2.BBBBB..... Where there is conviction for moneylaundering under Section 4 of the AMLA, the court shallissue a judgment of forfeiture in favor of the Governmentof the Philippines with respect to the monetary instrumentor property found to be proceeds of one or more unlawfulactivities. However, no assets shall be forfeited to the prejudiceof a candidate for an electoral office during an election period.

RRRRRULEULEULEULEULE 16 16 16 16 16RRRRRESTITUTIONESTITUTIONESTITUTIONESTITUTIONESTITUTION

RRRRRULEULEULEULEULE 16. 16. 16. 16. 16. R R R R Restitution.estitution.estitution.estitution.estitution. – Restitution for any aggrieved partyshall be governed by the provisions of the New Civil Code.



RRRRRULEULEULEULEULE 17 17 17 17 17IIIIIMPLEMENTINGMPLEMENTINGMPLEMENTINGMPLEMENTINGMPLEMENTING R R R R RULESULESULESULESULES ANDANDANDANDAND R R R R REGULAEGULAEGULAEGULAEGULATIONSTIONSTIONSTIONSTIONS ANDANDANDANDAND

MMMMMONEYONEYONEYONEYONEY L L L L LAAAAAUNDERINGUNDERINGUNDERINGUNDERINGUNDERING P P P P PREVENTIONREVENTIONREVENTIONREVENTIONREVENTION P P P P PRRRRROGRAMSOGRAMSOGRAMSOGRAMSOGRAMS

RRRRRULEULEULEULEULE 17.1. 17.1. 17.1. 17.1. 17.1. Implementing RImplementing RImplementing RImplementing RImplementing Rules and Rules and Rules and Rules and Rules and Reeeeegulations.gulations.gulations.gulations.gulations.–

(a) Within thirty (30) days from the effectivity of RepublicAct No. 9160, as amended by Republic Act No. 9194,the Bangko Sentral ng Pilipinas, the Insurance Commissionand the Securities and Exchange Commission shallpromulgate the Implementing Rules and Regulations ofthe AMLA, which shall be submitted to the CongressionalOversight Committee for approval.

(b) The Supervising Authorities, the BSP, the SEC and theIC shall, under their own respective charters and regulatoryauthority, issue their Guidelines and Circulars on anti-money laundering to effectively implement the provisionsof Republic Act No. 9160, as amended by Republic ActNo. 9194.

RRRRRULEULEULEULEULE 17.2. 17.2. 17.2. 17.2. 17.2. Money Laundering Prevention Programs.Money Laundering Prevention Programs.Money Laundering Prevention Programs.Money Laundering Prevention Programs.Money Laundering Prevention Programs. –

RRRRRULEULEULEULEULE 17.2. 17.2. 17.2. 17.2. 17.2.AAAAA..... Covered institutions shall formulate theirrespective money laundering prevention programs inaccordance with Section 9 and other pertinent provisions ofthe AMLA and these Rules, including, but not limited to,information dissemination on money laundering activities andtheir prevention, detection and reporting, and the training ofresponsible officers and personnel of covered institutions,subject to such guidelines as may be prescribed by theirrespective supervising authority. Every covered institutionshall submit its own money laundering program to thesupervising authority concerned within the non-extendible


period that the supervising authority has imposed in theexercise of its regulatory powers under its own charter.

RRRRRULEULEULEULEULE 17.2. 17.2. 17.2. 17.2. 17.2.BBBBB..... Every money laundering program shallestablish detailed procedures implementing a comprehensive,institution-wide “know-your-client” policy, set-up an effectivedissemination of information on money laundering activitiesand their prevention, detection and reporting, adopt internalpolicies, procedures and controls, designate compliance officersat management level, institute adequate screening andrecruitment procedures, and set-up an audit function to testthe system.

RRRRRULEULEULEULEULE 17.2. 17.2. 17.2. 17.2. 17.2.CCCCC..... Covered institutions shall adopt, as part oftheir money laundering programs, a system of flagging andmonitoring transactions that qualify as suspicious transactions,regardless of amount or covered transactions involvingamounts below the threshold to facilitate the process ofaggregating them for purposes of future reporting of suchtransactions to the AMLC when their aggregated amountsbreach the threshold. All covered institutions, including banksinsofar as non-deposit and non-government bond investmenttransactions are concerned, shall incorporate in their moneylaundering programs the provisions of these Rules and suchother guidelines for reporting to the AMLC of all transactionsthat engender the reasonable belief that a money launderingoffense is about to be, is being, or has been committed.

RRRRRULEULEULEULEULE 17.3. 17.3. 17.3. 17.3. 17.3. TTTTTraining ofraining ofraining ofraining ofraining of P P P P Personnel. ersonnel. ersonnel. ersonnel. ersonnel. – Covered institutionsshall provide all their responsible officers and personnel withefficient and effective training and continuing education programsto enable them to fully comply with all their obligations underthe AMLA and these Rules.



RRRRRULEULEULEULEULE 17.4. 17.4. 17.4. 17.4. 17.4. Amendments.Amendments.Amendments.Amendments.Amendments. – These Rules or any portion thereofmay be amended by unanimous vote of the members of theAMLC and submitted to the Congressional Oversight Committeeas provided for under Section 19 of Republic Act No. 9160, asamended by Republic Act No. 9194.

RRRRRULEULEULEULEULE 18 18 18 18 18CCCCCONGRESSIONALONGRESSIONALONGRESSIONALONGRESSIONALONGRESSIONAL O O O O OVERSIGHTVERSIGHTVERSIGHTVERSIGHTVERSIGHT C C C C COMMITTEEOMMITTEEOMMITTEEOMMITTEEOMMITTEE

RRRRRULEULEULEULEULE 18.1. 18.1. 18.1. 18.1. 18.1. Composition Composition Composition Composition Composition of of of of of Congressional OversightCongressional OversightCongressional OversightCongressional OversightCongressional OversightCommittee. Committee. Committee. Committee. Committee. – There is hereby created a Congressional OversightCommittee composed of seven (7) members from the Senateand seven (7) members from the House of Representatives. Themembers from the Senate shall be appointed by the SenatePresident based on the proportional representation of the partiesor coalitions therein with at least two (2) Senators representingthe minority. The members from the House of Representativesshall be appointed by the Speaker also based on proportionalrepresentation of the parties or coalitions therein with at leasttwo (2) members representing the minority.

RRRRRULEULEULEULEULE 18.2. 18.2. 18.2. 18.2. 18.2. PPPPPooooowwwwwers ers ers ers ers ofofofofof the Congthe Congthe Congthe Congthe Congrrrrressional Ovessional Ovessional Ovessional Ovessional OversightersightersightersightersightCommittee. Committee. Committee. Committee. Committee. – The Oversight Committee shall have the powerto promulgate its own rules, to oversee the implementation ofthis Act, and to review or revise the implementing rules issued bythe Anti-Money Laundering Council within thirty (30) days fromthe promulgation of the said rules.

RRRRRULEULEULEULEULE 19 19 19 19 19AAAAAPPRPPRPPRPPRPPROPRIAOPRIAOPRIAOPRIAOPRIATIONSTIONSTIONSTIONSTIONS F F F F FOROROROROR ANDANDANDANDAND B B B B BUDGETUDGETUDGETUDGETUDGET OFOFOFOFOF THETHETHETHETHE AML AML AML AML AMLCCCCC

RRRRRULEULEULEULEULE 19.1. 19.1. 19.1. 19.1. 19.1. BudgBudgBudgBudgBudget. et. et. et. et. – The budget of Php25,000,000.00appropriated by Congress under the AMLA shall be used to defray


the initial operational expenses of the AMLC. Appropriationsfor succeeding years shall be included in the General AppropriationsAct. The BSP shall advance the funds necessary to defray the capitaloutlay, maintenance and other operating expenses and personnelservices of the AMLC subject to reimbursement from the budgetof the AMLC as appropriated under the AMLA and subsequentappropriations.

RRRRRULEULEULEULEULE 19.2. 19.2. 19.2. 19.2. 19.2. Costs and ExpensesCosts and ExpensesCosts and ExpensesCosts and ExpensesCosts and Expenses. . . . . – The budget shall answerfor indemnification for legal costs and expenses reasonably incurredfor the services of external counsel in connection with any civil,criminal or administrative action, suit or proceedings to whichmembers of the AMLC and the Executive Director and othermembers of the Secretariat may be made a party by reason of theperformance of their functions or duties. The costs and expensesincurred in defending the aforementioned action, suit or proceedingmay be paid by the AMLC in advance of the final disposition ofsuch action, suit or proceeding upon receipt of an undertakingby or on behalf of the member to repay the amount advancedshould it be ultimately determined that said member is not entitledto such indemnification.

RRRRRULEULEULEULEULE 20 20 20 20 20SSSSSEPEPEPEPEPARABILITYARABILITYARABILITYARABILITYARABILITY C C C C CLALALALALAUSEUSEUSEUSEUSE

RRRRRULEULEULEULEULE 20. 20. 20. 20. 20. SeSeSeSeSeparability Clause.parability Clause.parability Clause.parability Clause.parability Clause. – If any provision of theseRules or the application thereof to any person or circumstance isheld to be invalid, the other provisions of these Rules, and theapplication of such provision or Rule to other persons orcircumstances, shall not be affected thereby.



RRRRRULEULEULEULEULE 21 21 21 21 21RRRRREPEALINGEPEALINGEPEALINGEPEALINGEPEALING C C C C CLALALALALAUSEUSEUSEUSEUSE

RRRRRULEULEULEULEULE 21. 21. 21. 21. 21. RRRRReeeeepealing Clause. pealing Clause. pealing Clause. pealing Clause. pealing Clause. – All laws, decrees, executiveorders, rules and regulations or parts thereof, including the relevantprovisions of Republic Act No. 1405, as amended; Republic ActNo. 6426, as amended; Republic Act No. 8791, as amended, andother similar laws, as are inconsistent with the AMLA, are herebyrepealed, amended or modified accordingly.

RRRRRULEULEULEULEULE 22 22 22 22 22EEEEEFFECTIVITYFFECTIVITYFFECTIVITYFFECTIVITYFFECTIVITY OFOFOFOFOF TTTTTHEHEHEHEHE R R R R RULESULESULESULESULES

RRRRRULEULEULEULEULE 22.1. 22.1. 22.1. 22.1. 22.1. EfEfEfEfEffffffectiectiectiectiectivityvityvityvityvity..... – These Rules shall take effect afterapproval by the Congressional Oversight Committee and fifteen(15) days after complete publication in the Official Gazette or ina newspaper of general circulation.

RRRRRULEULEULEULEULE 23 23 23 23 23TTTTTRANSITRANSITRANSITRANSITRANSITORORORORORYYYYY P P P P PRRRRROOOOOVISIONSVISIONSVISIONSVISIONSVISIONS

RRRRRULEULEULEULEULE 23.1. 23.1. 23.1. 23.1. 23.1. TTTTTransitorransitorransitorransitorransitory Pry Pry Pry Pry Prooooovisions.visions.visions.visions.visions. – Existing freeze ordersissued by the AMLC shall remain in force for a period of thirty(30) days after effectivity of this Act, unless extended by theCourt of Appeals.

RRRRRULEULEULEULEULE 23.2. 23.2. 23.2. 23.2. 23.2. EfEfEfEfEffffffect ofect ofect ofect ofect of R R R R Reeeeepubpubpubpubpublic Act Nolic Act Nolic Act Nolic Act Nolic Act No. 9194. 9194. 9194. 9194. 9194 on Caseson Caseson Caseson Caseson Casesfffffor Extension ofor Extension ofor Extension ofor Extension ofor Extension of F F F F Frrrrreeeeeeeeeeze Orze Orze Orze Orze Orders Rders Rders Rders Rders Resolvesolvesolvesolvesolved bed bed bed bed by the Coury the Coury the Coury the Coury the Courtttttofofofofof A A A A Appeals. ppeals. ppeals. ppeals. ppeals. – All existing freeze orders which the court ofappeals has extended shall remain effective, unless otherwisedissolved by the same court.

APPROVED, this 6th day of August, 2003 in the City of Manila.