JURISTS BAR REVIEW CENTER™

BANKING LAWS AND ELECTRONIC COMMERCE ACT

Jurists Bar Review Center
Pre-Week Bar 2023
Atty. Ronel U. Buenaventura1

A. GENERAL BANKING LAW [R.A. No. 8791]

[1] Definition and Classification of Banks.

[1.1] Definition. Banks are entities engaged in the lending of funds obtained in the form of deposits.
Banks perform two basic functions: acceptance of deposits from the public, which shall mean
twenty (20) or more persons, and lending of funds obtained from deposits.

[1.2] Classification. Banks are classified into the following:

[1.2.1] Universal bank. A universal bank has the authority to exercise, in addition to the
powers granted to a commercial bank, the powers of an investment house and to invest in
non-allied enterprises.

[1.2.1.1] Power of investment house. An investment house is an enterprise that

engages in the underwriting of securities of other corporations.

[1.2.1.2] Power to invest in non-allied enterprise. A universal bank is the only kind
of bank authorized to invest in non-allied enterprises or businesses that are not
connected with banking.

[1.2.2] Commercial bank. A commercial bank is a bank that has, in addition to the general
powers incident to corporations, all such powers as may be necessary to undertake the
business of commercial banking, such as accepting deposits and granting loans, accepting
drafts, issuing letters of credit, discounting and negotiating negotiable instruments, buying
and selling foreign exchange and gold or silver bullion, and acquiring marketable bonds
and other debt securities.

[1.2.3] Thrift bank. Specially governed by R.A. No. 7906 or the Thrift Banks Act, a thrift
bank is established to meet the needs for capital, personal, and investment credit or
medium- and long-term loans for Filipino entrepreneurs and encourage industry, frugality,
and the accumulation of savings among the public.

[1.2.4] Rural bank. Specially governed by R.A. No. 7353 or the Rural Banks Act, a rural
bank is organized to make needed credit available and readily accessible in the rural areas
on reasonable terms.

[1.2.5] Cooperative bank. A cooperative bank is organized for the primary purpose of
providing a wide range of financial services to cooperatives and its members, as well as
non-members.

[1.2.6] Islamic bank. The Al-Amanah Islamic Investment Bank of the Philippines, other
Islamic banks, designated Islamic banking units of conventional banks, and foreign banks
that are authorized to conduct business in accordance with the principles of Shari’ah shall
be referred to collectively as “Islamic banks”. The establishment of an Islamic bank plays
a vital role in creating opportunities for greater financial inclusion especially for the
underserved Muslim population.

1
Atty. Ronel U. Buenaventura is the Acting Deputy Director of the Commitments and Policy Group of the Anti-Money Laundering
Council. He has served as Legal Officer of Bangko Sentral ng Pilipinas and worked as Associate Solicitor of the Office of the Solicitor
General. He is a member of the faculty of the colleges of law of the Bulacan State University, Tarlac State University, Tomas Claudio
Colleges, Wesleyan University, and University of Sto. Tomas. He is a Mandatory Continuing Legal Education lecturer and a bar
reviewer at the Jurists Bar Review Center and Carl Balita Review Center. He authored the jurisprudence reviewer Brief Case series.
He graduated Class Valedictorian and Magna Cum Laude from Bulacan State University College of Law Class of 2015 and ranked
tenth (10th) in the 2015 Bar Examinations. He finished MA Philosophy and BA Psychology from the University of the Philippines –
Diliman. He will pursue graduate study in the University of Cambridge under the Master of Corporate Law 2023-2024 program.

2023 Pre-week Notes on Banking Laws and Electronic Commerce Act by Prof. Ronel Buenaventura.
Unauthorized copying, dissemination, sharing, uploading, downloading, and storage are strictly prohibited
and will be prosecuted to the full extent of the law, including the filing of administrative complaints with the
Office of the Bar Confidant, IBP, and SC as well as the filing of criminal charges. Page 1 of 21
 [1.2.6.1] Subject to Islamic Shari’ah. All the business dealings and activities of
Islamic banks are subject to the basic principles and rulings of Islamic Shari’ah.
The business of Islamic banking is one whose objectives and operations do not
involve interest (riba) that is prohibited by the Islamic Shari’ah principles.

[1.2.7] Digital bank. A digital bank offers financial products and services that are processed
end-to-end through a digital platform and/or electronic channels with no physical branch or
sub-branch offering financial products and services.

[1.2.8] Foreign bank. A foreign bank is one formed, organized, or existing under laws other
than those of the Philippines. A branch of foreign bank in the Philippines has no separate
legal personality but is considered an extension of its head office.

[2] Distinction of Banks from Quasi-Banks and Trust Entities.

[2.1] Banks and quasi-banks distinguished. A quasi-bank is an entity that is engaged in the
borrowing of funds through the issuance, endorsement, or assignment with recourse or acceptance
of deposit substitutes for purposes of relending or purchasing of receivables and other obligations.
Banks and quasi-banks are distinguished as follows:

[a] As to manner of obtaining funds from the public, banks obtain funds through deposits
while quasi-banks obtain funds through deposit substitutes. Deposit substitutes are
alternative form of obtaining funds from the public through issuance, endorsement, or
acceptance of debt instruments for the borrower’s own account, for the purpose of
relending or purchasing of receivables.

[b] As to the evidence of transaction, bank transactions involving deposits are evidenced
by passbook or certificates of deposits while quasi-bank transactions are evidenced by
debt instruments.

[c] As to purpose, banks obtain funds to lend the same to the public while a quasi-bank
obtain funds for relending and purchase of receivables.

[2.2.] Banks and trust entities distinguished. A trust entity is one engaged in the trust business,
which results from a trusteeship involving the appointment of a trustee by a trustor for the
administration, holding, and management of funds and properties for the benefit of beneficiaries.
Banks and trust entities are distinguished as follows:

[a] As to relationship, there is a debtor-creditor relationship between the bank and its
depositor while the relationship between a trustee and its trustor is fiduciary.

[b] As to basic duties, in case of bank, as debtor, its duty merely involves an obligation to
pay a sum of money with agreed interest to its creditor while in case of trust entity, in the
discharge of fiduciary responsibility, the interests of clients shall be placed above those of
the trust entity.

[c] As to liabilities, the bank that receives a loan of money acquires ownership thereof and
hence, in case of loss, the bank as debtor bears the loss while the money held in trust, if
lost without fault, will not make the trustee liable.

[d] As to insurance, unlike deposits with banks, which are covered by the Philippine Deposit
Insurance Corporation, investor’s money in trust accounts is not insured by the Philippine
Deposit Insurance Corporation.

[e] As to ownership of property, in deposits, the bank acquires ownership of the sum of
money while in a trust relationship, the legal title is vested in the trustee while equitable
ownership is vested in the beneficiary.

[3] Nature of Bank Funds and Bank Deposits.

[3.1] Bank deposits. Bank deposits are in the nature of irregular deposits. They are not true deposits
but are in the nature of simple loan or mutuum. Hence, banks where monies are deposited are

2023 Pre-week Notes on Banking Laws and Electronic Commerce Act by Prof. Ronel Buenaventura.
Unauthorized copying, dissemination, sharing, uploading, downloading, and storage are strictly prohibited
and will be prosecuted to the full extent of the law, including the filing of administrative complaints with the
Office of the Bar Confidant, IBP, and SC as well as the filing of criminal charges. Page 2 of 21
 considered the owners. The ownership of the amount deposited is transmitted to banks upon the
perfection of the contract and they can make use of the amount deposited for their banking
operations, such as to pay interests on deposits and to pay withdrawals.

[3.2] Debtor-creditor relationship. The relationship between a bank and depositor is that of a debtor
and creditor. The depositor lends the money and the bank, as debtor, has the obligation to pay a
certain sum of money to the depositor, as creditor.

[3.2.1] Consequences. The relationship of a bank and its depositor has the following
consequences:

[a] The bank can make use of the money deposited for its ordinary transactions
without the necessity of the depositor’s consent.

[b] As ownership of funds is transferred to bank, its officers cannot be held liable
for estafa or deceit for using the same.

[c] The bank has the right to invoke the rules on compensation. It can set-off the
deposits in its hands for the payment of any indebtedness to it on the part of a
depositor.

[4] Diligence Required of Banks.

[4.1] Fiduciary nature of banking. Banking is a business that is impressed with public interest. It
affects economies and plays a significant role in businesses and commerce. Due to the nature of
their transactions and functions, a fiduciary relationship is created between banks and their
depositors. Banks are under the obligation to treat with meticulous car and utmost fidelity the
accounts of those who have reposed their trust and confidence in them.

[4.2] Diligence required of banks. The fiduciary nature of banking requires high standard of integrity
and performance. A bank is obliged to exercise the highest degree of diligence as well as high
standards of integrity and performance in all its transactions. This obligation has the following
consequences:

[4.2.1] Recording to the last centavo. A depositor expects the bank to treat his account with
utmost fidelity. The bank must record every single transaction accurately, down to the last
centavo, and as promptly as possible.

[4.2.2] Conduct of ocular inspection. Generally, a mortgagee can rely on what appears on
the certificate of title presented by the mortgagor and an innocent mortgagee is not
expected to conduct an exhaustive investigation on the history of the mortgagor’s title.
Since a bank keeps in trust money belonging to its depositors, which it should guard against
loss by not committing any act of negligence, the rule that persons dealing with registered
lands can rely solely on the certificate of title does not apply to a bank. Hence, it should be
customary and prudent for the bank to adopt certain standard operating procedures, such
as conduct of ocular inspection, to ascertain and verify the genuineness of the titles.

[4.2.3] Non-waiver of bank liability. Any broad and all-encompassing disclaimer of legal
liability on the part of banks for any losses incurred by their customers is not allowed. The
banks cannot arbitrarily shift the obligation to their clients and hide behind their policy to
renege on their explicit and clear obligation under the law.

[4.2.4] Liability for disregard of own banking policy and procedures. A bank’s disregard of
its own banking policy amounts to gross negligence. For instance, payment of the amounts
of checks without previously clearing them with the drawee bank, especially so where the
drawee bank is a foreign bank and the amounts involved were large, is contrary to ordinary
banking practice.

[4.2.5] Liability for inadvertence of employees. Banks must bear the blame for failing to
discover the mistake of its employee despite the established procedure requiring banks
papers to pass through bank personnel whose duty it is to check and countercheck them
for possible errors.

2023 Pre-week Notes on Banking Laws and Electronic Commerce Act by Prof. Ronel Buenaventura.
Unauthorized copying, dissemination, sharing, uploading, downloading, and storage are strictly prohibited
and will be prosecuted to the full extent of the law, including the filing of administrative complaints with the
Office of the Bar Confidant, IBP, and SC as well as the filing of criminal charges. Page 3 of 21
 [4.2.6] Liability for willful acts of employees. A bank is liable to innocent third persons where
the representation is made in the course of its business by an agent acting within the
general scope of his authority even though, in the particular case, the agent is secretly
abusing his authority and attempting to perpetrate a fraud upon his principal or some other
person, for his own ultimate benefit.

[5] Stipulation on Interests. Essential in banking transactions is the imposition of interests, whether
deposit or loan. The two kinds of interests are conventional and compensatory interests.

[5.1] Conventional or monetary interest. In case of onerous loans, the compensation to be paid by
the borrower is referred to as conventional interest, as it is the interest agreed to by the parties
themselves in writing. Hence, no conventional interest shall be due unless it has been expressly
stipulated in writing. If the borrower pays interest when there has been no stipulation therefor, the
Civil Code provisions concerning solutio indebiti, or natural obligations, shall be applied, as the
case may be.

[5.1] Simple and compound interests. The general rule is that interest is paid on the
principal only (simple interest). Interest on interest is not demandable. It is demandable if
there is conventional interest and any or both of the following instances are applicable:

[a] When by stipulation of the parties, compounding is agreed upon, where

previously accumulated interest is added as principal and earns interest as such;
or

[b] When interest that is due and unpaid is judicially demanded, whether or not
there is an agreement to this effect. The rate of interest shall be the legal rate
applicable to loans or forbearance of money.

[6.1.1] Legal rate. The Monetary Board fixed the legal rate of interest from 12% to
6% per annum pursuant to BSP Circular No. 799 s. 2013, effective 01 July 2013.

[5.2] Compensatory interest. Compensatory interest is the indemnity for damages arising from the
debtor’s delay in an obligation to pay sum of money. Although compensatory interest need not be
expressly stipulated in writing, parties may freely stipulate on compensatory interest through a
penalty or penal clause. Interest on interest is also applicable to compensatory interest. If the debtor
were in delay, then compensatory interest, as a matter of law, will accrue in addition to conventional
interest.

[5.3] Unconscionable interest stipulation. Stipulated interest rates, whether conventional or

compensatory, are subject to the “unconscionability” standard, which is a matter of law and equity.
Since the usury is suspended, contracting parties are free to stipulate the rate of interest for loan
or forbearance of money, goods, or credits. Courts, however, have the power to reduce interest in
loan transactions if they find it excessive, iniquitous, unconscionable, or exorbitant, which is
dependent upon factual circumstances of each case.

[5.3.1] Unconscionable conventional interest rate. Where the conventional interest rate is
found to be unconscionable, only the rate is nullified and deemed not written into the
contract; the parties’ agreement on the payment of interest remains. In such instance, the
legal rate of interest prevailing at the time the agreement was entered into is applied by the
courts, e.g., 6% from 01 July 2013 onwards.

[5.3.2] Unconscionable compensatory interest rate. As for compensatory interest, the

question as to whether it is reasonable or iniquitous can be partly subjective and partly
objective. Its resolution would depend on the type, extent, and purpose of the penalty, the
nature of the obligation, the mode of breach and its consequences, the supervening
realities, the standing and relationship of the parties, and the like, the application of which,
by and large, is addressed to the sound discretion of the court.

[5.4] Escalation clause. Parties to an agreement pertaining a loan or forbearance of money, goods,
or credits may stipulate that the rate of interest agreed upon may be increased if the applicable
maximum rate of interest is increased by the Monetary Board. This stipulation shall be valid only if
there is a stipulation in the agreement that rate of interest agreed upon shall be reduced if the

2023 Pre-week Notes on Banking Laws and Electronic Commerce Act by Prof. Ronel Buenaventura.
Unauthorized copying, dissemination, sharing, uploading, downloading, and storage are strictly prohibited
and will be prosecuted to the full extent of the law, including the filing of administrative complaints with the
Office of the Bar Confidant, IBP, and SC as well as the filing of criminal charges. Page 4 of 21
 applicable maximum rate of interest is reduced by law or by the Monetary Board.

[5.4.1] Violation of mutuality of contracts. A bank is not given unrestrained freedom to

charge any rate other than that which was agreed upon, notwithstanding a provision in a
loan contract authorizing the bank to change from time to time the rate of interest or bank
charges without advance notice. There is violation of mutuality of contracts where the
monthly upward or downward adjustment of interest rate is left to the will of the bank alone.

B. NEW CENTRAL BANK ACT [R.A. No. 7653, as amended by R.A. No. 11211]

[1] State Policies.

[1.1] Governing law. The law governing central bank is R.A. No. 7653, or The New Central Bank
Act, which was signed into law on 14 June 1993 and became effective on 03 July 1993. The law
provides for the establishment of an independent central monetary authority known as the Bangko
Sentral ng Pilipinas (BSP) to carry out the constitutional provision requiring Congress to establish
an independent central monetary authority. On 14 February 2019, signed into law R.A. No. 11211
embodying amendments to R.A. No. 7653 in response to globalization and evolution of the
operations of financial institutions.

[1.2] Mandates of the BSP. The BSP shall provide policy directions in the areas of money ,banking,
and credit. It shall have supervision over the operations of banks and exercise regulatory and
examination powers over quasi-banks, money service businesses, credit granting businesses, and
payment system operators.

[2] Monetary Board and its Powers and Functions.

[2.1] Composition of the Monetary Board. The powers and functions of the BSP are exercised by
the Monetary Board composed of seven (7) members, appointed by the President for a term of six
(6) years. The seven (7) members are as follows: the Governor, a member of the Cabinet, and five
(5) members from the private sector. The Governor is the Chairman of the Monetary Board. As to
the Cabinet member, the President has the discretion on who among his Cabinet members shall
sit as a member of the Monetary Board. Consistent with the constitutional edict to maintain
independence, five (5) members of the Monetary Board, all serving full-time, shall come from the
private sector.

[3] The Bangko Sentral ng Pilipinas and Banks in Distress. In the course of supervision by the BSP
over banks, it may take certain courses of actions in dealing with banks in distress. These are the following:

[3.1] Conservatorship. Conservatorship is a tool in restoring the viability of banks. It consists of

carrying out a package of administrative, organizational, financial, and other measures to address
the state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate
to protect the interest of depositors and creditors.

[3.1.1] Requisites for placing a bank under conservatorship. The following are the
requisites:

[a] There must be a report by the appropriate supervising or examining department

submitted to the Monetary Board.

[b] There must be a finding by the Monetary Board based on the report that a bank
is in a state of continuing inability or unwillingness to maintain a condition of
liquidity deemed adequate to protect the interest of depositors and creditors.

[c] The board of directors of banks must be informed in writing of the order of the
Monetary Board directing conservatorship.

[3.1.2] Liquidity. Liquidity is the ability to pay off obligations when they fall due. It refers to
the condition wherein a high percentage of the assets can be quickly converted into cash
without involving any considerable loss by accepting sacrifice prices.

[3.1.3] Appointment and qualifications of a conservator. Upon placing the bank under

2023 Pre-week Notes on Banking Laws and Electronic Commerce Act by Prof. Ronel Buenaventura.
Unauthorized copying, dissemination, sharing, uploading, downloading, and storage are strictly prohibited
and will be prosecuted to the full extent of the law, including the filing of administrative complaints with the
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 conservatorship, the Monetary Board designates a conservator, who must be competent
and knowledgeable in bank operations and management.

[3.1.5] Period and termination. The conservatorship shall not exceed one (1) year. The
Monetary Board, however, at any time before expiration of said period, terminate the
conservatorship either: (a) the bank can continue to operate on its own; or (b) on the basis
of the report of the conservator or findings of the Monetary Board, the continuance in
business of the bank will involve probable loss to its depositors and creditors, or there is a
ground for receivership, in which, the provision on the law on receivership shall apply.

[3.1.6] Judicial review. The action of the Monetary Board taken to place the bank under
conservatorship shall be final and executory and may not be restrained or set aside by the
court except on petition for certiorari with the Court of Appeals on the ground that the action
taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to
lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders
of record representing the majority of the capital stock within ten (10) days with from receipt
by the board of directors of the institution of the order directing the conservatorship.

[3.2] Closure. Whenever the Monetary Board finds the existence of any of the grounds for placing
a bank under receivership, it may summarily and without need of prior hearing forbid the bank from
further doing business and place the institution under receivership.

[3.2.1] “Close Now, Hear Later” Principle. The provision that the Monetary Board may
summarily and without need of prior hearing close the bank is also known as the “Close
Now, Hear Later” Principle. This is grounded on practical and legal considerations to
prevent unwarranted dissipation of the bank’s assets and a valid exercise of police power
to protect the depositors, creditors, stockholders, and the general public.

[3.3] Receivership and liquidation. When a bank is closed, it is placed under receivership, and the
Philippine Deposit Insurance Corporation (PDIC), as the statutory receiver, shall proceed with
takeover and liquidation of bank. Banks closed by the Monetary Board shall no longer be
rehabilitated.

NOTE: Previously, once a bank is forbidden to do business, the PDIC shall be designated
as a receiver and within 90 days from takeover, the PDIC determines whether the institution
may be rehabilitated. In 2016, R.A. No. 10846 amended the PDIC Charter by providing
that whenever a bank is closed by the Monetary Board, the PDIC shall proceed with the
liquidation and the bank cannot be reopened and permitted to resume banking business.
Consistently, R.A. No. 11211 removed the distinction between receivership and liquidation.
Consequently, the terms “receiver” and “liquidator” may be used interchangeably for
purposes of bank closure and involuntary liquidation. The same is true for “receivership”
and “liquidation”.

[3.3.1] Requisites for placing a bank under receivership. The following are the requisites:

[a] Report of the head of the supervising or examining department of BSP to the
Monetary Board.

[b] Finding of the Monetary Board of the existence of any of the legal grounds for
receivership based on the report.

[c] Decision of the Monetary Board to forbid the institution from doing business,
which decision may be done summarily and without need for prior hearing.

[d] Notice in writing from the Monetary Board, through PDIC, to the bank’s board
of directors informing the bank of the order directing receivership.

[3.3.2] Grounds for receivership. A bank may be placed under receivership if any of the
following grounds is present:

[a] Notice to the BSP of unilateral closure or public announcement of closure.

2023 Pre-week Notes on Banking Laws and Electronic Commerce Act by Prof. Ronel Buenaventura.
Unauthorized copying, dissemination, sharing, uploading, downloading, and storage are strictly prohibited
and will be prosecuted to the full extent of the law, including the filing of administrative complaints with the
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 [b] Dormancy for at least 60 days.

[c] Suspension of payment of deposit/deposit substitute liabilities.

[d] Inability to pay liabilities as they become due in the ordinary course of business,
unless the inability to pay is caused by extraordinary demands induced by financial
panic in the banking community.

[e] Insufficiency of realizable assets, as determined by the BSP, to meet its

liabilities.

[f] Inability to continue in business without involving probable loss to its depositors
or creditors.

[g] Willful violation of a cease and desist order issued in relation to an

administrative case under the New Central Bank Act that has become final
involving acts or transactions which amount to fraud or a dissipation of the assets
of the institution.

[h] Persistence in conducting business in unsafe and unsound manner.

[3.3.3] Judicial review. The action of the Monetary Board taken to place the bank under
receivership shall be final and executory and may not be restrained or set aside by the
court except on petition for certiorari with the Court of Appeals on the ground that the action
taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to
lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders
of record representing the majority of the capital stock within ten (10) days with from receipt
by the board of directors of the institution of the order directing the receivership.

C. SECRECY OF BANK DEPOSITS [R.A. No. 1405, as amended, and R.A. No. 6426, as amended]

[1] Purpose. The law governing secrecy of bank deposits are R.A. No. 1405, or the Law on Secrecy of
Bank Deposits, for peso-currency deposits and R.A. 6426, or the Foreign Currency Deposit Act, for foreign-
currency deposits.

[1.1] Purpose of R.A. 1405.R.A. No. 1405, which was enacted in September 1955, was primarily to
encourage the public to invest their money in government securities and deposit them in banks,
discourage private hoarding, and enhance protection of privacy rights. Note that during those times,
the country needed enough capital to boost the economy after the ravage of World War II, yet
people then preferred to privately store their money, due to the apprehension that bank deposits
and investments will be subject to government inquiry of taxation investigations.

[1.2] Purpose of R.A. No. 6426. R.A. No. 6426 was enacted in 1983 or at a time when the country's
economy was in a shambles; when foreign investments were minimal and presumably, this was
the reason why said statute was enacted [Salvacion v. Central Bank of the Philippines, August 21,
1997].

[2] Prohibited Acts.

[2.1] R.A. No. 1405. Noting the confidentiality of deposits, the following are the prohibited acts and
liable under this law:

[a] Any person or government official who, or any government bureau or office that,
examines, inquires, or looks into a bank deposit or government bond investment in any of
the instances not allowed under the law; and

[b] Any official or employee of a banking institution who makes a disclosure concerning
bank deposits to another in any instance not allowed by law; and

[2.2] R.A. No. 6426. Noting the confidentiality of deposits, the following are the prohibited acts and
liable under this law:

2023 Pre-week Notes on Banking Laws and Electronic Commerce Act by Prof. Ronel Buenaventura.
Unauthorized copying, dissemination, sharing, uploading, downloading, and storage are strictly prohibited
and will be prosecuted to the full extent of the law, including the filing of administrative complaints with the
Office of the Bar Confidant, IBP, and SC as well as the filing of criminal charges. Page 7 of 21
 [a] Any person or government official, who, or any government bureau or office that,
examines, inquires, or looks into a foreign currency deposit without the written permission
of the depositor;

[b] Any official or employee of a banking institution who makes a disclosure concerning
foreign currency deposits to another in any instance not allowed by law; and

[c] Anyone who shall attach, garnish, or subject the foreign currency deposit to any other
order or process of any court, legislative body, government agency, or any other
administrative body.

[2.3] Extent of prohibition. It is not required that all the details of a bank deposit be examined,
inquired, or looked into. The prohibition applies even if the disclosure pertains only to the mere
existence of a bank deposit, without revealing the bank or amount.

[2.4] Admissibility. R.A. No. 1405 does not provide that an unlawful examination of bank accounts
shall render the evidence obtained therefrom inadmissible. Hence, the “fruit of the poisonous tree”
principle does not apply.

[3] Deposits Covered.

[3.1] R.A. No. 1405. Covered deposits are [a] peso-currency deposits of whatever nature in banks;
[b] trust accounts, as the term “deposit of whatever nature” is construed broadly to include accounts
that may be used by banks for authorized loans to third persons, though there is no creditor-debtor
relationship; and [c] investments in government bonds, which are debt securities that are
unconditional obligations of the State and backed by its full taxing power.

[3.2] R.A. No. 6426. Covered deposits are foreign currency deposits. Foreign currency deposits
refer to funds in foreign currencies that are accepted and held by authorized banks in the regular
course of business with the obligation to return an equivalent amount to the owner thereof, with or
without interest.

[4] Exceptions from Coverage.

[4.1] Exceptions from coverage of R.A. No. 1405. The following are the exceptions:

[4.1.1] Exceptions provided under R.A. No. 1405:

[a] Upon written permission or consent in writing by the depositor.

[b] Impeachment cases.

[c] Upon order of competent court in cases of bribery or dereliction of duty of public
officials.

[d] Cases where the money deposited or invested is the subject matter of litigation.
The money deposited should be the very thing in dispute.

[4.1.2] Exceptions under other laws and jurisprudence:

[a] Ombudsman authority under the Ombudsman Act to subpoena deposit

information and inspect in camera bank accounts and records under the following
conditions:

[i] There must be a pending case before a court of competent jurisdiction.

[ii] The account must be clearly identified.

[iii] The inspection must be limited to the subject matter of the pending
case.

[iv] The bank personnel and the account holder must be notified to be

2023 Pre-week Notes on Banking Laws and Electronic Commerce Act by Prof. Ronel Buenaventura.
Unauthorized copying, dissemination, sharing, uploading, downloading, and storage are strictly prohibited
and will be prosecuted to the full extent of the law, including the filing of administrative complaints with the
Office of the Bar Confidant, IBP, and SC as well as the filing of criminal charges. Page 8 of 21
 present during the inspection, and such inspection may cover only the
account identified in the pending case.

[b] Cases of unexplained wealth of public officials or violations of Anti-Graft and

Corrupt Practices Act and of Plunder Law.

[c] Borrowings of Directors, Officers, Stockholders, and Their Related Interests

(DOSRI) who are required by the New Central Bank Act to execute a written waiver
of secrecy of bank deposits.

[d] Commissioner of Internal Revenue’s authority to inquire bank deposits in

relation to application for compromise of tax liability, determination of decedent’s
gross estate, and exchange of tax information under the National Internal Revenue
Code.

[e] Distraint as a remedy for collection of delinquent taxes or duties under the
National Internal Revenue Code.

[f] Garnishment of deposits in satisfaction of judgment under the Rules of Court.

[g] Inquiry of deposits or investments related to unlawful activities and money

laundering by the Anti-Money Laundering Council under the Anti-Money
Laundering Act (AMLA) [see discussion in D.6].

[h] Annual testing of numbered accounts under the AMLA to be conducted by the
Bangko Sentral ng Pilipinas (BSP), which is limited to the determination of the
existence and true identity of the owners of numbered accounts.

[i] Authority of the Philippine Deposit Insurance Corporation (PDIC) and BSP under
the PDIC Charter to inquire into or examine bank deposits when there is finding of
unsafe and unsound banking.

[j] Examination by the AMLC of bank accounts related to terrorism and terrorism
financing pursuant to the Anti-Terrorism Act and Terrorism Financing Prevention
and Suppression Act.

[k] Investigation by the Philippine Commission on Good Governance to recover ill-

gotten wealth under Executive Order 1.

[l] Review of records by a rehabilitation receiver under the Financial Rehabilitation

and Insolvency Act.

[m] Escheat proceedings of dormant accounts under the Unclaimed Balances Act.

[m] Reporting of covered persons of covered or suspicious transactions to AMLC

under the AMLA.

[4.2] Exceptions from coverage of R.A. No. 6426. The following are the exceptions:

[4.1.1] Exception provided under R.A. No. 1405: Upon written permission or consent in
writing by the depositor.

[4.1.2] Exceptions under other laws and jurisprudence:

[a] Borrowings of Directors, Officers, Stockholders, and Their Related Interests

(DOSRI) who are required by the New Central Bank Act to execute a written waiver
of secrecy of bank deposits.

[b] Commissioner of Internal Revenue’s authority to inquire bank deposits in

relation to application for compromise of tax liability, determination of decedent’s
gross estate, and exchange of tax information under the National Internal Revenue
Code.

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 [c] Inquiry of deposits or investments related to unlawful activities and money
laundering by the Anti-Money Laundering Council under the Anti-Money
Laundering Act (AMLA) [see discussion in D.6].
[d] Annual testing of numbered accounts under the AMLA to be conducted by the
Bangko Sentral ng Pilipinas (BSP), which is limited to the determination of the
existence and true identity of the owners of numbered accounts.

[e] Authority of the Philippine Deposit Insurance Corporation (PDIC) and BSP
under the PDIC Charter to inquire into or examine bank deposits when there is
finding of unsafe and unsound banking.

[f] Examination by the AMLC of bank accounts related to terrorism and terrorism
financing pursuant to the Anti-Terrorism Act and Terrorism Financing Prevention
and Suppression Act.

[g] Investigation by the Philippine Commission on Good Governance (PCGG) to

recover ill-gotten wealth under Executive Order 1.

[h] Reporting of covered persons of covered or suspicious transactions to AMLC

under the AMLA.

[i] On the basis of equity as in a co-payee of a check, who filed a suit for recovery
of sum of money was considered, in a pro hac vice ruling, as a co-depositor, and
hence, no written consent was necessary [China Bank v. Court of Appeals,
December 16, 2006].

[5] Garnishment of Deposits, including Foreign Deposits. Unlike in R.A. No. 1405, R.A. No. 6426
provide that foreign currency deposits are exempt from attachment, garnishment, or any order or process
issued by any court, legislative body, government agency or any administrative body. This includes court
processes such as escheat proceedings for unclaimed deposits under the Unclaimed Balances Act.

[5.1] Exceptions to exemptions from garnishment and other court processes. The following are the
exceptions:

[a] Bank inquiry orders issued by the Court of Appeals or the AMLC under the AMLA.

[b] Freeze orders issued by the Court of Appeals under the AMLA and the Terrorism
Financing Prevention and Suppression Act.

[c] Freeze orders issued by the AMLC under the Anti-Terrorism Act and the Terrorism
Prevention and Suppression Act.

[d] Subpoena issued by the PCGG in the course of its investigation to recover ill-gotten
wealth.

[e] Writ of garnishment and attachment can be enforced on the basis of equity against
foreign currency deposits of a non-resident alien, who is a transient or a tourist, who was
charged with crimes of rape serious illegal detention of a Filipino woman, as foreign
currency deposits made by a transient or tourist are not the kind of deposits encouraged
and given protection by R.A. No. 6426 [Salvacion v. Central Bank, August 21, 1997].

D. ANTI-MONEY LAUNDERING ACT [R.A. No. 9160, as amended by R.A. No. 9194, 10167, 10365,
10927, and 11521]

[1] Policy.

[1.1] Governing law. The law governing anti-money laundering is the Anti-Money Laundering Act
of 2001 (AMLA) or R.A. No. 9160. It underwent several amendments, as follows: R.A. No. 9194
(2003), R.A. No. 10167 (2012), R.A. No. 10365 (2013), R.A. No. 10927 (2017) and R.A. No. 11521
(2021).

[1.2] Reasons for criminalizing money laundering. Criminalizing money laundering will ensure that

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 criminals cannot enjoy the proceeds of the crime and deprive them of using these proceeds to
further their criminal acts. Money laundering may also have economic and social consequences
such as weakening financial institutions, economic distortion and instability, undermining the
legitimate private sector, loss of tax revenue, and risks of international sanctions.

[1.3] State policy. In passing the AMLA and its amendments, the State declares the following as its
policy: (a) protect and preserve the integrity and confidentiality of bank accounts; (b) ensure that
the Philippines shall not be used as a money laundering site for the proceeds of any unlawful
activity; (c) extend cooperation in transnational investigations and prosecutions of persons involved
in money laundering activities wherever committed; and (d) implement targeted financial sanctions
related to the financing of the proliferation of weapons of mass destruction, terrorism, and financing
of terrorism, pursuant to the resolutions of the United Nations Council.

[2] Covered Institutions and Their Obligations.

[2.1] Covered institutions. Covered institutions, also referred to as “covered persons” and which
may be natural or juridical persons, are so-called as such because the AMLA enumerates them as
being covered by law and imposes upon them duties and responsibilities relating to money
laundering. They are those supervised or regulated by the Bangko Sentral ng Pilipinas (BSP), the
Insurance Commission (IC), or the Securities and Exchange Commission (SEC), and those
designated by AMLA.

[2.1.1] BSP-Supervised Financial Institutions (BSFIs). As covered persons, BSFIs include

banks, non-banks, quasi-banks, trust entities, foreign exchange dealers, pawnshops,
money changers, remittance and transfer companies and other similar entities and all other
persons and their subsidiaries and affiliates supervised or regulated by the BSP.

[2.1.2] IC Regulated Entities (ICREs). As covered persons, ICREs include insurance

companies, pre-need companies, and all other persons supervised or regulated by the IC.

[2.1.3] SEC regulated entities. As covered persons, these entities include (i) securities
dealers, brokers, salesmen, investment houses and other similar persons managing
securities or rendering services as investment agent, advisor, or consultant; (ii) mutual
funds, close-end investment companies, common trust funds, and other similar persons;
and (iii) other entities administering or otherwise dealing in currency, commodities or
financial derivatives based thereon, valuable objects, cash substitutes and other similar
monetary instruments or property supervised or regulated by the SEC.

[2.1.4] Designated Non-Financial Businesses and Professions (DNFBPs). While not

regulated by either BSP, IC, or SEC, these DNFBPs, which are non-financial in nature, are
covered persons by reason of their being designated by law as such. These include the
following:

[a] Jewelry dealers in precious metals.

[b] Jewelry dealers in precious stones.

[c] Company service providers which, as a business, provide any of the following
services to third parties: (i) acting as a formation agent of juridical persons; (ii)
acting as (or arranging for another person to act as) a director or corporate
secretary of a company, a partner of a partnership, or a similar position in relation
to other juridical persons; (iii) providing a registered office, business address or
accommodation, correspondence or administrative address for a company, a
partnership or any other legal person or arrangement; and (iv) acting as (or
arranging for another person to act as) a nominee shareholder for another person.

[d] Persons, including lawyers, accountants, and other professionals, who provide
any of the following services: (i) managing of client money, securities, or other
assets; (ii) management of bank, savings or securities accounts; (iii) organization
of contributions for the creation, operation or management of companies; and (iv)
creation, operation or management of juridical persons or arrangements, and
buying and selling business entities.

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 [e] Casinos, including internet and ship-based casinos, with respect to their casino
cash transactions related to their gaming operations.

[f] Real estate developers and brokers.

[g] Offshore gaming operators, as well as their service providers, supervised,

accredited, or regulated by the PAGCOR or any government agency.

[2.2.] Obligations of covered persons. Specific obligations of covered persons are as follows:

[2.2.1] Customer identification. Covered persons shall establish and record the true identity
of its clients based on official documents. They shall maintain a system of verifying the true
identity of their clients and, in case of corporate clients, require a system of verifying their
legal existence and organizational structure, as well as the authority and identification of
all persons purporting to act on their behalf. This procedure is also known as Know-Your-
Customer (KYC) procedure.

NOTE: Covered persons shall maintain customers’ account only in the true and
full name of the account owner or holder. Anonymous accounts, accounts under
fictitious names, and all other similar accounts shall be absolutely prohibited. Peso
and foreign currency non-checking numbered accounts shall be allowed.

[2.2.2] Record keeping. All records of all transactions of covered persons shall be
maintained and safely stored for five (5) years from the dates of transactions. With respect
to closed accounts, the records on customer identification, account files and business
correspondence, shall be preserved and safely stored for at least five (5) years from the
dates when they were closed. If a case has been filed in court involving the account,
records must be retained and safely kept beyond the five (5)-year period, until it is officially
confirmed by the AMLC that the case has been resolved, decided, or terminated with
finality.

[2.2.3] Implementation of freeze order. Upon receipt of the notice of the freeze order, the
covered person shall immediately freeze the monetary instrument or property subject
thereof and shall immediately desist from and not allow any transaction, withdrawal,
transfer, removal, conversion, other movement, or concealment thereof. The freezing shall
include related accounts if the freeze order so directs. The covered person shall
immediately furnish a copy of the freeze order upon the owner or holder of the monetary
instrument or property or related accounts subject thereof. Within twenty-four (24) hours
from receipt of the freeze order or freezing of the related account, the covered person shall
submit, by personal delivery, to the Court of Appeals and to the AMLC, a written detailed
return on the freeze order. The return shall contain the details of the implementation of the
freeze order, such as the names of the account holders, value of the monetary instrument,
property, or proceeds frozen, and all relevant information as to the status and nature of the
monetary instrument, property, or proceeds.

[2.2.4] Compliance with bank inquiry orders. The concerned covered persons shall
immediately, upon receipt of the bank inquiry order, give the AMLC full access to all
information, documents or objects pertaining to the deposit, investment, account and/or
transaction. The covered persons shall keep the confidentiality of the inquiry and ensure
that the owner of any monetary instrument or property or other unauthorized personnel
shall not be informed about the inquiry, to prevent tipping-off.

[2.2.5] Implementation of Targeted Financial Sanctions (TFS). TFS refers to both asset
freezing and prohibition to prevent funds or other assets from being made available, directly
or indirectly, for the benefit of any individual, natural or legal persons or entity designated
pursuant to relevant United Nations Security Council (UNSC) resolutions and its
designation processes.

[2.2.5.1] Duties of covered persons. Immediately upon receipt or knowledge of the

TFS issued by the AMLC, covered persons shall observe the same obligation in
implementing freeze order and is required to report to the AMLC any assets frozen
or actions taken in compliance with the prohibition requirements of the relevant

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 UNSC Resolutions, including attempted transactions.

[3] Covered and Suspicious Transactions.

[3.1] Reporting of covered and suspicious transactions. Covered persons shall report to the AMLC
all covered transactions and suspicious transactions. These reports are called covered transaction
reports (CTRs) and suspicious transaction report (STRs).

[3.1.1] Covered transactions. Generally, a covered transaction is a transaction in cash or

other equivalent monetary instrument involving a total amount in excess of five hundred
thousand pesos (P500,000.00) within one (1) banking day.

[3.1.1.1] For jewelry dealers in precious metals and precious stones, the covered
transaction is a transaction in cash or other equivalent monetary instrument
involving a total amount in excess of one million pesos (P1,000,000.00).

[3.1.1.2] For casinos, including internet and ship-based casinos, the covered
transaction is a single casino cash transaction involving an amount in excess of
five million pesos (P5,000,000.00) or its equivalent in any other currency.

[3.1.1.3] For real estate brokers and developers, the covered transaction is a single
cash transaction involving an amount in excess of seven million five hundred
thousand pesos (7,500,000.00) or its equivalent in any other currency.

[3.1.2] Suspicious transactions. Suspicious transactions are transactions with covered

persons, regardless of the amounts involved, where any of the following circumstances
exist:

[i] There is no underlying legal or trade obligation, purpose or economic

justification;

[ii] The client is not properly identified;

[iii] The amount involved is not commensurate with the business or financial
capacity of the client;

[iv] Taking into account all known circumstances, it may be perceived that the
client’s transaction is structured in order to avoid being the subject of reporting
requirements (structuring);

[v] Any circumstance relating to the transaction which is observed to deviate from
the profile of the client and/or the client’s past transactions with the covered
person;

[vi] The transaction is in any way related to an unlawful activity or offense that is
about to be, is being or has been committed; or

[vii] Any transaction that is similar or analogous to any of the foregoing.

NOTE: An individual’s transaction which is reported as CTR or STR does not

necessarily mean that said individual is liable for money laundering, absent the
elements for the crime of money laundering.

NOTE: Lawyers and accountants acting as independent legal professionals are

not required to report covered and suspicious transactions if the relevant
information was obtained in circumstances where they are subject to professional
secrecy or legal professional privilege.

NOTE: Should a transaction be determined to be both a covered transaction and

a suspicious transaction, the covered person shall be required to report the same
as a suspicious transaction.

[3.2] Timing of reporting. Under the IRR, CTRs shall be filed within five (5) working days, while

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 STRs shall be filed within the next working day from occurrence thereof, which shall be the date of
establishment of suspicion or determination of the suspicious nature of the transaction.

[3.3] Confidentiality of reporting. When reporting covered or suspicious transactions, covered

persons, and their officers and employees, are prohibited from communicating, directly or indirectly,
in any manner or by any means, to any person or entity, or the media, the fact that a covered or
suspicious transaction has been or is about to be reported, the contents of the report, or any other
information in relation thereto. Any information about such reporting shall not be published or aired,
in any manner or form, by the mass media, or through electronic mail, or other similar devices. In
case of violation thereof, the concerned officer, and employee, of the covered person and media
shall be held criminally liable for Breach of Information Security and Confidentiality.

[3.3.1] Rationale. The prohibition applies to institutions and persons that, under the law and
by reason of their business, possess information on covered and suspicious transactions.
It supports the functions of the AMLC and other prosecuting agencies. If these institutions
were allowed to disclose information to anyone, especially to persons subject of the report,
their investigatory functions will be rendered ineffective. [Republic v. Sandiganbayan,
February 15, 2021]

[3.4] Failure to report. Money laundering is committed by a covered person who, knowing that a
covered or suspicious transaction is required to be reported to the AMLC, fails to do so.

[3.5] Malicious reporting. There is malicious reporting where any person who, with malice, or in bad
faith, reports, or files a completely unwarranted or false information relative to money laundering
transaction against any person.

[3] Safe Harbor Provision. No administrative, criminal or civil proceedings shall lie against any person for
having made a CTR or an STR in the regular performance of his duties and in good faith, whether or not
such reporting results in any criminal prosecution under the AMLA or any other Philippine law. Similarly, no
administrative, criminal, or civil proceedings shall lie against any person or entity for acting in good faith
when implementing the TFS as provided under pertinent UNSC Resolutions.

[4] The Crime of Money Laundering. Money laundering is any act or attempted act to conceal or disguise
the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.
[Republic v. Eugenio, February 14, 2008] Essentially, the crime is so named as “money laundering”
because it seeks to clean or “launder” dirty money to make it appear “clean” and have originated from
legitimate sources. Under the AMLA, there are two modes by which money laundering is committed, each
with separate elements.

[4.1] First mode. Money laundering is committed by any person who, knowing that any monetary
instrument or property represents, involves, or relates to the proceeds of any unlawful activity: (a)
transacts or (b) converts, transfers, disposes of, moves, acquires, possesses or uses; or (c)
conceals or disguises the true nature, source, location, disposition, movement or ownership of or
rights with respect to said monetary instrument or property; (d) attempts or conspires to commit or
(e) aids, abets, assists in or counsels the commission of or (f) performs or fails to perform any act
as a result of which he facilitates the offense of money laundering. The elements are as follows.

[4.1.1] Existence of unlawful activity. The term “unlawful activity” is not to be used in its
generic sense but in its strict sense as referring only to crimes enumerated under the
AMLA. Thus, not all crimes are treated as unlawful activity. The unlawful activities may be
classified and enumerated:

[i] Corruption-related crimes: (a) violation of Anti-Graft and Corrupt Practices Act;
(b) plunder; (c) bribery; (d) frauds and illegal exactions and transactions; and (e)
malversation.

[ii] Trafficking/exploitation-related crimes: (a) violation of Anti-Trafficking in

Persons Act; (b) violation of Anti-Photo and Video Voyeurism Act; (c) Violation of
Anti-Child Pornography Act; and (d) violation of Special Protection of Children
Against Abuse, Exploitation, and Discrimination.

[iii] Property crimes: (a) robbery and extortion; (b) qualified theft; (c) violation of

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 Intellectual Property Code; (d) violation of Anti-Carnapping Act; and (e) violation of
Anti-Fencing Law.

[iv] Environmental crimes: (a) violation of Revised Forestry Code; (b) violation of
Philippine Fisheries Code; (c) violation of Philippine Mining Act; (d) violation of
Wildlife Conservation and Protection Act; and (e) violation of National Caves and
Cave Resources Management Protection Act.

[v] Fraud crimes: (a) swindling; (b) smuggling; (c) violation of Electronic Commerce
Act; (d) forgery and counterfeiting; (e) violation of Migrant Workers and Overseas
Filipino Act; and (f) violation of Securities Regulation Code.

[vi] Terrorism and proliferation financing-related crimes: (a) terrorism and

conspiracy to commit terrorism; (b) financing of terrorism; and (c) violation of
Strategic Trade Management Act in relation to proliferation financing.

[vii] Other financial crimes: (a) kidnapping for ransom; (b) violation of
Comprehensive Dangerous Drugs Act; (c) jueteng and masiao; (d) piracy on the
high seas; (e) hijacking and other violations of Anti-Hijacking Law, Destructive
Arson, murder; (e) illegal possession of firearms; and (f) tax evasion.

NOTE: For tax evasion to be considered as unlawful activity, the deficiency basic
tax due in the final assessment must be in excess of twenty-five million pesos
(P25,000,000.00) per taxable year, for each tax type covered. There must be a
finding of probable cause by the competent authority and a finding of fraud, willful
misrepresentation or malicious intent on the part of the taxpayer.

[viii] Felonies or offenses of a nature similar to the aforementioned unlawful

activities that are punishable under the penal laws of other countries.

[4.1.1.1] Predicate offense. The unlawful activities are also known as “predicate
offenses” because money laundering cannot be established if the existence of
these crimes is not established. Simply put, money laundering is predicated on the
commission of the unlawful activity. Accordingly, money laundering is said to be a
derivative offense, being derived only after there is finding of the existence of the
unlawful activity.

[4.1.1.2] Participation. Participation of money launderer in the commission of

unlawful activity is not required. There is no requirement under the law that the
money launderer is the one who committed the unlawful activity.

[4.1.2] Proceeds. The proceeds are the amount derived or realized from an unlawful
activity. If the unlawful activity does not produce proceeds, then this element is absent.

[4.1.3] Acts/Transactions. The monetary instrument or property is subjected to certain acts

enumerated in the law:

[i] transacts said monetary instrument or property;

[ii] converts, transfers, disposes of, moves, acquires, possesses or uses said
monetary instrument or property;

[iii] conceals or disguises the true nature, source, location, disposition, movement
or ownership of or rights with respect to said monetary instrument or property;

[iv] attempts or conspires to commit money laundering offenses referred to

in paragraphs [i], [ii], and [iii];

[v] aids, abets, assists in or counsels the commission of the money

laundering offenses referred to in paragraphs [i], [ii], and [iii] above; and
[vi] performs or fails to perform any act as a result of which he facilitates the
offense of money laundering referred to in paragraphs [i], [ii], and [iii] above.

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 [4.1.3.1] Stages of money laundering. Traditional money laundering consists of
three stages:
[4.1.3.1.1] Placement. Placement is the physical disposal of cash or other
assets derived from criminal activity. During this phase, the money
launderer introduces the illicit proceeds into the financial system.

[4.1.3.1.2] Layering. Layering is the separation of illicit proceeds from their

source by layers of financial transactions intended to conceal the origin of
the proceeds. This second stage involves converting the proceeds of the
crime into another form and creating complex layers of financial
transactions to obfuscate the source and ownership of funds.

[4.1.3.1.3] Integration. Integration is supplying apparent legitimacy to illicit

wealth through the reentry of the funds into the economy in what appears
to be normal business or personal transactions. This stage entails using
laundered proceeds in seemingly normal transactions to create the
perception of legitimacy.

NOTE: The three stages of money laundering is not required to be accomplished

or consummated for there can be money laundering. Money laundering is
committed as soon as the offender transacts the monetary instrument or property
even if the same has not yet been layered or reintroduced to the legitimate
economy.

[4.1.4] Knowledge. The offender must have knowledge that the monetary instrument or
property being transacted is proceeds of an unlawful activity.

[4.2] Second mode. The second mode of money laundering is committed by a covered person who,
knowing that a covered or suspicious transaction is required to be reported to the AMLC, fails to
do so. This mode of money laundering is not a derivative offense as it does not require any
predicate offense to be committed first.

[4.2.1] Covered person. The offender must be a covered person.

[4.2.2.] Presence of reportable transaction. There must be a covered or a suspicious

transaction.

[4.2.3] Knowledge of covered or suspicious transaction. The covered person must have
knowledge that there is a covered or suspicious transaction that must be reported to the
AMLC.

[4.2.4] Failure to report. The act involved is the failure of the covered person to report
covered or suspicious transaction to the AMLC.

[4.3] Prosecution of money laundering. The AMLC is tasked to be the investigator and complainant
in money laundering cases, [Republic v. Sandiganbayan, February 15, 2021] where the complaint
is to be filed before the Department of Justice (DOJ) or the Office of the Ombudsman, as the case
may be.

[4.3.1] Money laundering and unlawful activity. Any person may be charged with and
convicted of both the offense of money laundering and the unlawful activity. The elements
of money laundering are separate and distinct from the elements of the associated unlawful
activity. The elements of the unlawful activity, including the identity of the perpetrators and
the details of the commission of the unlawful activity, need not be established by proof
beyond reasonable doubt in the case for money laundering. The prosecution of any money
laundering offense or violation shall proceed independently of any proceeding relating to
the unlawful activity.

[4.3.2] Jurisdiction. The regional trial courts designated as Special Commercial Courts shall
have jurisdiction to try money laundering cases committed by private individuals, and public
officers not covered by the jurisdiction of the Sandiganbayan. The Sandiganbayan shall
have jurisdiction to try money laundering cases committed by public officers under its
jurisdiction, and private persons who are in conspiracy with such public officers.

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[5] Anti-Money Laundering Council and its Functions.
[5.1] Anti-Money Laundering Council (AMLC). It is composed of the Governor of the BSP as
chairman, the Commissioner of the Insurance Commission (IC), and the Chairman of the Securities
and Exchange Commission (SEC), as members. The AMLC shall act unanimously in the discharge
of its functions. To support the AMLC, a secretariat is established headed by an Executive Director
who shall be appointed by the Council for a term of five (5) years. He must be a member of the
Philippine Bar, at least thirty-five (35) years of age and of good moral character, unquestionable
integrity and known probity. All members of the Secretariat must have served for at least five (5)
years either in the BSP, IC, or SEC, and shall hold full-time permanent positions within the BSP.

[5.2] Functions. It is the financial intelligence unit tasked to analyze the covered transaction reports
and suspicious transaction reports submitted to it. [Republic v. Sandiganbayan, February 15, 2021]
The AMLC is the independent government instrumentality mandated to implement the AMLA, from
intelligence, investigation and prosecution of money laundering and civil forfeiture cases, and until
management of forfeited assets.

[6] Authority to Inquire Into Bank Deposits. The AMLC is authorized to inquire into or examine any
particular deposit or investment, including related accounts, with any banking institution or non-bank
financial institution, notwithstanding bank secrecy laws. This authority is used as part of the financial
investigation conducted by the AMLC for the purpose of establishing money laundering.

[6.1] Probable cause. The AMLC can inquire into or examine any particular deposit or investment
if there is probable cause. In the context of bank inquiry, probable cause refers to such facts and
circumstances which would lead a reasonably discreet, prudent, or cautious man to believe that
any monetary instrument or property sought to be inquired into is in any way related to any unlawful
activity and/or money laundering offense.

[6.1] Not a search warrant or warrant of arrest. A bank inquiry order does not necessitate
a finding of probable cause similar to that in search warrant or warrant of arrest. The
Constitution and the Rules of Court prescribe particular requirements attaching to search
warrants that are not imposed by the AMLA with respect to bank inquiry orders. A
constitutional warrant requires that the judge personally examine under oath or affirmation
the complainant and the witnesses he may produce, such examination being in the form of
searching questions and answers. Those are impositions which the legislative did not
specifically prescribe as to the bank inquiry order under the AMLA. Simply put, a bank
inquiry order is not a search warrant or warrant of arrest as it contemplates a direct object
but not the seizure of persons or property. [Republic v. Eugenio, February 14, 2008]

[6.2] With court order. As a rule, the AMLC can inquire into or examine any particular deposit or
investment upon order of the Court of Appeals based on an ex parte application, filed through the
Office of the Solicitor General, when it is established that there is probable cause. The Court of
Appeals shall act on the application to inquire into or examine any deposit or investment with any
banking institution or non-bank financial institution within twenty-four (24) hours from filing of the
application.

[6.2.1] Not condition precedent. No prior criminal charge, pendency of a case, or conviction
for an unlawful activity or money laundering offense is necessary for the filing or the
resolution of an application for issuance of bank inquiry order. If the contrary position is
adopted, then the bank inquiry order would be limited in purpose as a tool in aid of litigation
of live cases, and wholly inutile as a means for the government to ascertain whether there
is sufficient evidence to sustain an intended prosecution of the account holder for violation
of the AMLA. [Republic v. Eugenio, February 14, 2008]

[6.3] Without court order. The AMLC shall issue an ex parte order authorizing the AMLC Secretariat
to inquire into or examine any particular deposit or investment account, including related accounts,
with any banking institution or non-bank financial institution and their subsidiaries and affiliates
when it has been established that probable cause exists that the deposits or investments involved,
including related accounts, are in any way related to any of the following unlawful activities:

[i] kidnapping for ransom;

[ii] violation of Comprehensive Dangerous Drugs Act;

2023 Pre-week Notes on Banking Laws and Electronic Commerce Act by Prof. Ronel Buenaventura.
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 [iii] hijacking and other violations of Anti-Hijacking Law, destructive arson, and murder;

[iv] felonies or offenses of a nature similar to those mentioned in [i], [ii], and [iii] which are
punishable under the penal laws of other countries.

[v] terrorism, conspiracy to commit terrorism, and financing of terrorism.

[7] Freezing of Monetary Instrument or Property.

[7.1] Freeze order. A freeze order is a provisional remedy aimed at blocking or restraining monetary
instruments or properties in any way related to an unlawful activity from being transacted,
converted, concealed, moved, or disposed without affecting the ownership thereof. It is an
extraordinary and interim relief to prevent the dissipation, removal, or disposal of properties that
are suspected to be the proceeds of, or related to, unlawful activities. [Ligot v. Republic, March 6,
2013]

[7.1.1] Probable cause. A freeze order shall only issue if it is established that there is
probable cause. In the context of freeze order, probable cause refers to such facts and
circumstances which would lead a reasonably discreet, prudent, or cautious man to believe
that any monetary instrument or property sought to be frozen is in any way related to any
unlawful activity and/or money laundering offense. Otherwise stated, probable cause refers
to the sufficiency of the relation between an unlawful activity and the property or monetary
instrument. [Ligot v. Republic, March 6, 2013] Clearly, a freeze order is not dependent on
a separate criminal charge, much less does it depend on a conviction. [Yambao v.
Republic, January 26, 2021]

[7.1.2] With court order. The Court of Appeals may issue a freeze order upon a verified ex
parte petition by the AMLC, through the Office of the Solicitor General, and after
determination that probable cause exists that any monetary instrument or property is in any
way related to an unlawful activity. The Court of Appeals should act on the petition to freeze
within twenty-four (24) hours from filing of the petition. If the application is filed a day before
a nonworking day, the computation of the twenty-four (24)-hour period shall exclude the
nonworking days. Clearly, there are only two requisites for the issuance of a freeze order:
[a] the application ex parte by the AMLC and [2] the determination of probable cause by
the Court of Appeals. [Ligot v. Republic, March 6, 2013]

[7.1.2.1] Ex parte. That a freeze order can be issued upon the AMLC’s ex parte
application further emphasizes the law’s consideration of how critical time is in
these proceedings. [Ligot v. Republic, March 6, 2013] To make such freeze order
anteceded by a judicial proceeding with notice to the account holder would allow
for or lead to the dissipation of such funds even before the order could be issued.
[Republic v. Eugenio, February 14, 2008]

[7.1.2.2] Effectivity. The freeze order shall be effective for a period of twenty (20)
days. Within the twenty (20)-day period, the Court of Appeals shall conduct a
summary hearing, with notice to the parties, to determine whether or not to modify
or lift the freeze order or extend its effectivity. The total period of the freeze order
issued by the Court of Appeals shall not exceed six (6) months.

[7.1.2.3] Motion to lift. A person whose account has been frozen may file a motion
to lift the freeze order and the Court of Appeals must resolve this motion before
the expiration of the freeze order.
[7.1.2.4] Automatic lifting. The freeze order shall be deemed ipso facto lifted after
its expiration, unless a money laundering complaint against the person whose
monetary instrument or property was frozen, or a petition for civil forfeiture against
the frozen monetary instrument or property, has been filed, in which case the
freeze order shall remain effective until the money laundering case is terminated
or an asset preservation order is issued, respectively. Should a money laundering
case or civil forfeiture case was filed, the Court of Appeals will remand the case
and its records in that court where said case was filed.

[7.1.3] Without court order.

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 [7.1.3.1] Terrorism and terrorism financing. The AMLC, either upon its own
initiative or at the request of the ATC, is authorized to issue an ex parte order to
freeze without delay against property or funds that are in any way related to
terrorism and financing of terrorism.

[7.1.3.1.1] Effectivity and extension. The freeze order shall be effective for
a period not exceeding twenty (20) days. Upon a petition filed by the AMLC
before the expiration of the period, the effectivity of the freeze order may
be extended up to a period not exceeding six (6) months upon order of the
Court of Appeals. The twenty (20)-day period shall be tolled upon filing of
a petition to extend the effectivity of the freeze order.

[7.1.3.2] TFS. Freeze orders issued by the AMLC in relation to TFS shall be
effective until the basis for the issuance thereof shall have been lifted. During the
effectivity of the freeze order, an aggrieved party may, within twenty (20) days from
issuance, file with the Court of Appeals a petition to determine the basis of the
freeze order according to the principle of effective judicial protection.

E. ELECTRONIC COMMERCE ACT [R.A. No. 8792]

[1] Introduction. Republic Act No. 8792, also known as the Electronic Commerce Act of 2000, was signed
into law on 14 June 2000.

[1.1] Objective. The law aims to facilitate domestic and international dealings, transactions and
exchanges and storage of information through the utilization of electronic, optical and similar
medium, mode, instrumentality and technology to recognize the authenticity and reliability of
electronic documents related to such activities.

[1.2] Sphere of application. The law applies to any kind of data message and electronic document
used in the context of commercial and non-commercial activities to include domestic and
international dealings, transactions, arrangements, agreements, contracts and exchanges and
storage of information.

[2] Legal Recognition of Electronic Data Messages, Documents, and Signatures.

[2.1] Electronic data message and electronic document. Electronic data message refers to
information generated, sent, received, or stored by electronic, optical or similar means. Electronic
document refers to information or the representation of information, data, figures, symbols, or other
modes of written expression, by which a right is established or an obligation extinguished, or by
which a fact may be proved and affirmed, which is received, recorded, transmitted, stored,
processed, retrieved or produced electronically.

[2.1.1] Interchangeable. As a concept, electronic document is narrower in scope;

nevertheless, the term electronic document may be used interchangeably with the term
electronic data message.

[2.1.2] Examples. Examples of electronic document include computer-stored/generated

documents, emails, social media communications, and text messages.

[2.2.] Printout. Electronic document includes digitally signed documents and any printout or output,
readable by sight or other means, which accurately reflects the electronic data message or
electronic document.

[2.2.1] Not electronic document. Original printout of a facsimile transmission is not an

electronic document or electronic data message under the Electronic Commerce Act. The
law focuses on “paperless” transactions. Facsimile transmissions are not “paperless,” but
are paper based. [MCC Industrial Sales Corporation v. Ssangyong Corporation, October
17, 2007]

CASE: Photocopies of documents submitted to the court where not all of the contents
therein, such as the signatures of the persons who purportedly signed the documents, may
be recorded or produced electronically cannot be considered as electronic documents. By
no stretch of the imagination can a person's signature affixed manually be considered as
information electronically received, recorded, transmitted, stored, processed, retrieved or
produced. Having thus declared that the offered photocopies are not tantamount to

2023 Pre-week Notes on Banking Laws and Electronic Commerce Act by Prof. Ronel Buenaventura.
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 electronic documents, it is consequential that the same may not be considered as the
functional equivalent of their original. (National Power Corporation v. Codilla Jr., April 3,
2007)

[2.3] Electronic Signature. Electronic Signature refers to (a) any distinctive mark, characteristic
and/or sound in electronic form, representing the identity of a person and attached to or logically
associated with the electronic data message or electronic document or (b) any methodology or
procedures employed or adopted by a person and executed or adopted by such person with the
intention of authenticating or approving an electronic data message or electronic document. An
electronic signature includes digital signature.

[2.4] Legal Recognition of Electronic Data Messages/Documents. Information shall not be denied
legal effect, validity, or enforceability solely on the grounds that it is in the data message form.
Electronic documents shall have the legal effect, validity or enforceability as any other document
or legal writing.

[2.4.1] Requirement in writing. Where the law requires a document to be in writing, that
requirement is met by an electronic document if the said electronic document maintains its
integrity and reliability and can be authenticated to be usable for subsequent reference.

[2.4.1.1] Integrity. The electronic document has remained complete and unaltered,
apart from the addition of any endorsement and any authorized change, or any
change which arises in the normal course of communication, storage and display.

[2.4.1.2] Reliability. The electronic document is reliable in the light of the purpose
for which it was generated and in the light of all relevant circumstances, e.g.,
trustworthiness as a full and accurate representation of the transactions, activities,
or facts to which it attests.

[2.4.2] Functional equivalent. For evidentiary purposes, an electronic document shall be

the functional equivalent of a written document. Whenever a rule of evidence refers to the
term writing, document, record, instrument, memorandum or any other form of writing, such
term shall be deemed to include an electronic document.

[2.5] Legal Recognition of Electronic Signatures. An electronic signature on the electronic

document shall be equivalent to the signature of a person on a written document if that 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 bound and to indicate said party's
access to the electronic document necessary for his consent or approval through the
electronic signature;

[b] Said method is reliable and appropriate for the purpose for which the electronic
document was generated or communicated, in the light of all circumstances, including any
relevant agreement;

[c] It is necessary for the party sought to be bound, in or order to proceed further with the
transaction, to have executed or provided the electronic signature; and

[d] The other party is authorized and enabled to verify the electronic signature and to make
the decision to proceed with the transaction authenticated by the same.

[3] Presumption Relating to Electronic Signatures. In any proceedings involving an electronic signature, it
shall be presumed that:

[a] The electronic signature is the signature of the person to whom it correlates; and

[b] The electronic signature was affixed by that person with the intention of signing or approving
the electronic document unless the person relying on the electronically signed electronic document
knows or has noticed of defects in or unreliability of the signature or reliance on the electronic
signature is not reasonable under the circumstances.

[4] Admissibility and Evidential Weight of Electronic Data Message or Electronic Document.

[4.1] Admissibility of electronic data message and electronic document. An electronic document is
admissible in evidence if it complies with the rules on admissibility and is authenticated in the

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 manner prescribed by the rules of court and relevant laws.
[4.1.1.] Non-denial of admissibility. Nothing in the application of the rules on evidence shall
deny the admissibility of an electronic data message 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.

[4.1.2] Authentication of electronic data message and electronic document. The person
seeking to introduce an electronic document in any legal proceeding has the burden of
proving its authenticity. The authenticity may be proved by the following:

[a] by evidence that it had been digitally signed by the person purported to have
signed the same;

[b] by evidence of other appropriate security procedures or devices as may be

authorized by the rules or by law for authentication; or

[c] by other evidence showing its integrity and reliability to the satisfaction of the
judge.

[4.2] Evidential weight of electronic data message and electronic document. In assessing the
evidential weight of an electronic data message or electronic document, the following factors may
be considered:

[a] The reliability of the manner in which it was generated, stored or communicated;

[b] The reliability of the manner in which its originator was identified;

[c] The integrity of the information and communication system in which it is recorded or
stored, including but not limited to the hardware and computer programs or software used
as well as programming errors;

[d] The familiarity of the witness or the person who made the entry with the communication
and information system;

[e] The nature and quality of the information which went into the communication and
information system upon which the electronic data message or electronic document was
based; or

[f] Other factors which the court may consider as affecting the accuracy or integrity of the
electronic document or electronic data message.

[4.3] Method of proof. All matters relating to the admissibility and evidentiary weight of an electronic
document may be established by an affidavit stating facts of direct personal knowledge of the affiant
or based on authentic records. The affidavit must affirmatively show the competence of the affiant
to testify on the matters contained therein.

[5] Obligation of Confidentiality. Any person who obtained access to any electronic data message or
electronic document, book, register, correspondence, information, or other material pursuant to any powers
conferred under the Electronic Commerce Act, shall not convey to or share the same with any other person.

--o0o0o—

For questions: [email protected]

Luminous beings are we, not this crude matter.

-Yoda
May the Force be with you!

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