Regulatory Framework for Business Transactions

RA 3591 Philippine Deposit Insurance Corporation Act

Philippine Deposit Insurance Corporation Act (PDIC)

Overview

PDIC was created in 1963 by Republic Act 3591. It insures deposits of all banks to protect depositors and promote financial stability.

Mandate

1. Safeguarding the depositing public.
2. Strengthening mandatory deposit insurance coverage.

Functions

1. Deposit Insurer: Covers legitimate deposits up to PHP 1,000,000. Risk of loss due to theft, fire, strike, public disorder, or war are not covered by PDIC
2. Co-regulator of banks: Examines and investigates banks.
3. Receiver and liquidator: Controls, manages, and administers the affairs of closed banks.

Board Composition

• Chairperson: Governor of Bangko Sentral ng Pilipinas.
• Vice Chair and Member: Secretary of Finance.
• President: President of PDIC.
• Members: Four members from the private sector, appointed by the President of the Philippines, serving six-year terms.

Membership

Mandatory for all banks licensed by the BSP to operate in the Philippines, including:

• Banks incorporated under Philippine laws.
• Domestic branches of foreign banks.

Maximum Deposit Insurance Coverage

• Up to PHP 1,000,000.
• May be adjusted based on inflation and other economic indicators without the need for legislation.
• Reviewed every three years and may be increased by the Board of Directors if necessary.

Insured Deposit

Legitimate deposits by a bonafide depositor up to PHP 1,000,000, including foreign currency deposits. A deposit is considered bonafide if there is an authentic document or record of the issuing bank.

Deposits Not Insured

1. Investment products.
2. Deposit accounts which are unfunded, fictitious, or fraudulent.
3. Deposits emanating from unsafe and unsound banking practices.
4. Proceeds of an unlawful activity as defined under the Anti-Money Laundering Act (AMLA).
5. Splitting of deposits (120 days before bank closure or bank holiday).
6. Deposit in the Head office of a Foreign Bank in its branch.
7. Deposits payable outside the Philippines.

Account Name Formats

• By Account:
  • Juan by Pedro - Legal Owner (Depositor): Juan
• In Trust For (ITF Account):
  • Juan ITF Pedro - Pedro
• For the account of (FAO) Account:
  • Juan FAO Pedro - Pedro

Joint Accounts

• Insured separately from individually owned deposit accounts.
• Held jointly by two or more natural or juridical persons.
• Divided into equal shares unless otherwise stipulated in the deposit document.
• Accounts held more than one name.
• The aggregate of each co-owner over several joint accounts is subject to MDIC of $1,000,000$.
• The $1,000,000$ entitlement to joint deposits is separate from the $1,000,000$ applicable to individually owned accounts, providing a maximum of $2,000,000$ insurance coverage.

Payment of Insured Deposits

• Cash; or
• Transferred deposit in another insured bank of an equal amount.

Periods for Claims

• To file claim: 2 years from the actual takeover of the closed bank.
• To enforce claim: 2 years after the 2-year period to file a claim.
• PDIC to settle claim: 6 months after the date of filing of claim.

Filing of Claims

Required:

• Depositors with valid deposit accounts with balances of more than $P100,000$.
• Those with outstanding obligations with the bank.
• Those with incomplete mailing addresses.
• Accounts under the name of business entities
• Accounts not eligible for early payment
• Depositors who are deceased (claim is filed through his legal heirs)

Not Required:

• Depositors with valid deposit accounts with balances of $P100,000$ and below, provided they:
  • Have no obligation with the closed bank.
  • Have a Complete mailing address.
  • Have not maintained the account under the name of business entities.
• PMOs will be sent to these depositors at their respective mailing addresses found in the bank records or indicated in the MAUF.

RA 1405 Bank Secrecy Law

Purpose

• Discourage private hoarding.
• Encourage people to deposit in banks.

Prohibitions

• Bank disclosing information concerning deposits to any person.
• Any person inquiring into bank deposits or bonds by the government.

Penalties for Violations

• Imprisonment of not more than 5 years.
• Fine of not more than $P20,000$, or both.

Coverage

• Deposits of whatever nature, including trust accounts.
• Investments in bonds issued by the government.

Exceptions

• Written permission of the depositor.
• Impeachment cases.
• Order of a competent court.
• Garnishment of execution.
• Unclaimed balances law (dormant for 10 years or more).
• Unexplained wealth under RA 3019 (Anti-Graft and Corrupt Practices Act).
• PDIC/BSP on finding of unsafe/unsound banking practice.
• Ombudsman law (must have a pending case).
• Commissioner of Internal Revenue (CIR) on deposits.
• Anti-Money Laundering Council (AMLC) to inquire into deposits related to an unlawful activity.
• AMLC either upon its own initiative or at the request of the Anti-Terrorism Council.
• Examination by Monetary Board (BSP) on reasonable ground.
• Examination by COA.
• Examination by the Presidential Commission on Good Government (PCGG) on Marcos wealth.
• Examination by an independent auditor hired by the bank.

Foreign Currency Deposit Act (RA No. 6426)

Absolute Confidentiality

All foreign currency deposits (FCD) are absolutely confidential and cannot be examined, inquired, or looked into. Exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency, or any administrative body whatsoever.

Exceptions to Confidentiality

1. Pro hac Vice (for that instance only) case.
2. Civil Forfeiture Suit brought by the AMLC.
3. Freeze Order pursuant to AMLA and Anti-Terror Law.

Prohibited Acts

1. Examining, inquiring, or looking into a FCD without the written permission of the depositor.
2. Making a disclosure.
3. Attaching, garnishing, or subjecting the foreign currency deposit to any other order or process of any court, legislative body, government agency, or any other administrative body.

Exceptions to Prohibited Acts

1. When there is written permission of the depositor.
2. Authority of AMLC to inquire into any particular deposit.
3. Authority of Commissioner of Internal Revenue to inquire.
4. PDIC on finding of unsound/unsafe banking practices.
5. AMLC on the request of Anti-Terrorism Council.
6. Authority of Bangko Sentral to inquire and examine bank deposit account.

Penalties

1. Imprisonment of not less than one (1) year but not more than five (5) years; or
2. Fine of not less than Five Thousand Pesos ($P5,000.00$) but not more than Twenty Five Thousand Pesos ($P25,000.00$); or
3. Both imprisonment and fine.

Comparison Between RA No. 6426 and RA No. 1405

Anti-Money Laundering Act (RA 9160 as amended)

Definition

Activities intended to disguise the origins of proceeds of a crime.

Stages of Money Laundering

1. Placement: Dirty cash enters the financial system.
2. Layering: Distance the money from the crime source.
3. Integration: Money re-enters the economy in legitimate-looking form.

Money Laundering Offense

Money laundering is committed if any person knowing that any monetary instrument or property represents, involves, or relates to proceeds of an unlawful activity:

• Performs or fails to perform an act that facilitates the offense.
• Uses said monetary instrument or property.
• Transacts said monetary instrument or property.
• Attempts to commit offenses referred to above.
• Conceals the true nature, source, location, disposition, or movement of the monetary instrument or property (MIP).
• Aids the commission of offenses referred to above.

Unlawful Activities

That needs court order to inquire into deposits

• Graft and corrupt practices
• Plunder
• Robbery and extortion
• Jueteng and masiao
• Piracy on the high seas
• Qualified theft
• Swindling (or estafa)
• Smuggling
• E-commerce act violations
• Bribery
• Frauds and illegal exactions
• Malversation
• Forgeries and counterfeiting
• Anti-trafficking in persons viol
• Forestry law violations
• Fisheries law violations
• Mining laws violations

That does not need court order to inquire into deposits

• Kidnapping for ransom
• Drug offenses
• Hijacking, arson, murder
• Terrorism and conspiracy to commit
• Financing of terrorism
• Similar foreign offenses
• Wildlife resources conservation and protection act viol
• Caves law violations
• Carnapping
• Firearms violations
• Anti-fencing law violations
• Migrant workers and OFWs
• IP Law violations
• Photo and video voyeurism
• Child pornography
• Child abuse
• Securities fraud
• Strategic trade management act violations
• Tax code violations (tax evasion)
• RA 11930 violations (anti- online sexual abuse of children)

Covered Persons

• Financial Institutions: Persons supervised/regulated by the BSP, IC, and SEC.
• Designated Non-Financial Businesses and Professions (DNFBPs):
  • Jewelry dealers
  • Dealers in precious metals and stones
  • Company service providers (including CPAs and lawyers)
  • Casinos
  • Real estate brokers and developers
  • Offshore gaming operators

Obligations of Covered Persons

1. Customer Identification
2. Customer Due Diligence
3. Record Keeping
4. Safe Harbor
5. Transaction Reporting

Covered Transactions

• Transaction in cash/monetary instrument exceeding $500,000$.
• Transaction involving jewelry dealers exceeding $1,000,000$.
• Transaction involving casino cash exceeding $5,000,000$.
• Single cash transaction in real estate exceeding $7,500,000$.

Suspicious Transactions

• No underlying legal/trade obligation, purpose, or economic justification.
• The client was not properly identified.
• The amount is not commensurate with the client's business/capacity.
• Structured to avoid being subject to reportorial requirements.
• Deviates from the client's profile and/or past transactions.
• Involve an unlawful activity, including that about to be committed.
• Similar transactions.

Reporting Requirements

• File covered transactions within 5 working days from occurrence (unless AMLC prescribes a different period, not to exceed 15 working days).
• File suspicious transaction reports within the next working day from occurrence.
• If both covered and suspicious, report as a suspicious transaction.

Anti-Money Laundering Council (AMLC)

• Composition:
  • Chairman: Governor of BSP
  • Member: Commissioner of IC
  • Member: Commissioner of SEC

Powers of AMLC

1. Power to inquire into deposits and investments
   • G.R. under Bank Secrecy Law: No one can examine bank deposits in the Philippines without the necessary court order.
   • AMLA: AMLC may inquire upon order of competent court based on ex parte applications with established probable cause.
   • 24 hrs for CA to resolve

• non-meritorious – dismiss
• grants application be effective for a period of 120-day period from the date of receipt of the AMLC.

1. Power to issue a freeze order
   • Effective immediately for a period of 20 days.
   • The total period of freeze order shall not exceed 6 months.
2. Power to forfeit asset
   • File a verified petition for civil forfeiture to the RTC, through the OSG

Additional Powers Granted Under RA 11521

• Require, receive, and analyze covered/suspicious transactions.
• Issue subpoena and conduct search and seizure.
• Preserve, manage, or dispose of assets of a freeze order.
• Implement sanctions in relation to the proliferation of weapons.
• File complaints with DOJ for prosecution of offense
• Investigate covered and suspicious transactions
• Receive and take action in request from foreign states
• Develop education programs on effects of laundering
• Enlist assistance of any branch in undertaking ops
• Impose administrative sanctions

AMLA Implementation

• Customer Due Diligence
• Customer Identification
• Prohibited Accounts (Anonymous, Numbered, Fictitious Names)
• Record Keeping (5 years)
• Transaction Reporting to AMLC
• Safe Harbor Provision
• Freeze Order
• Bank Inquiry with/without Court Order
• Asset Forfeiture
• Non-issuance of TRO against asset preservation order

Criminal Cases

• AMLC shall file criminal case:
  • Private Individuals - Regional Trial Court
  • Public Officers - Sandiganbayan

Truth in Lending Act (RA 3765)

Purpose

• Protect citizens from a lack of awareness of the true cost of credit.
• Requires creditors to disclose full information incident to a credit transaction.

Required Disclosures

1. Cash price or delivered price of the property or service to be acquired.
2. Amounts to be credited as down payment and/or trade-in.
3. Difference between amounts in (1) and (2).
4. Charges, individually itemized, not incident to the extension of credit.
5. Total amount to be financed.
6. Finance charge expressed in terms of pesos and centavos.
7. Percentage that the finance charge bears to the total amount to be financed, expressed as a simple annual rate on the outstanding unpaid balance of the obligation.

Registration with BSP

Under Section 3 of BSP Circular No. 755, Series of 2012, a Credit-Granting Entity (CGE) may register its lending or financing facility with the BSP to ensure compliance with the act.

To register, they shall submit the following minimum information to the BSP:

• Business Name
• Directors, Key Officers and Substantial Stakeholders
• Principal Place of Business and Contact Details
• Notarized Deed of Undertaking to strictly and continuously comply with the requirements of all relevant laws, rules, and regulations, signed either by the owner, partner, president, or officer of equivalent rank and
• Such other information or documents that may be required by the BSP.

Penalties for Non-Compliance

• Credit transactions remain valid and enforceable.
• Debtor may recover damages, the higher of $P100$ or twice the amount of the finance charged, with a maximum of $P2,000$. Such recovery must be brought one (1) year from the date of the violation.
• If non-disclosure is willful, a criminal case may be filed, with a penalty of $P1,000$ to $P5,000$, or imprisonment of six (6) months to one (1) year, or both.
• No punishment or penalty provided by this Act shall apply to the Philippine Government or any agency or any political subdivision thereof.

Batas Pambansa 22 (Bouncing Check Law)

Elements of Violation

1. The making, drawing, and issuing of a check to apply for account/value.
2. Knowledge of insufficient funds (MDI) at the time of issue.
3. Subsequent dishonor of the check for insufficiency of funds; or dishonor because the drawer ordered the bank to stop payment.

Knowledge of Maker/Drawer

Refusal by the drawee due to insufficient funds, presented within 90 days from the date of the check, is prima facie evidence of knowledge of insufficiency.

Valid Defense

The maker or drawer is given notice by the bank and pays the holder of the amount due thereon or makes an arrangement to pay in full within 5 banking days (BD).

Duty of Drawee

The reason for the drawee's dishonor or refusal to pay must be written, printed, or stamped in plain language. If no sufficient funds, it shall be explicitly stated in the notice.

Proof of Violation

1. Making or issuance of said check.
2. Due presentment to drawee for payment.
3. The dishonor thereof.
4. That it was properly dishonored for the reason stated.

Consequences

• Acquittal does not extinguish civil liability; it does not preclude the award of civil damages.
• An arrangement with the bank for payment of the check
• Imprisonment: 30 days - 1 year
• Fine: Amount of the check to double its amount, up to $200,000$, or both, at the discretion of the court.
• Prescriptive period: 4 years from the commission or discovery of the offense.

BP 22 vs. Estafa