UNIVERSITY OF SOUTHER PHILIPPINES FOUNDATION ATTY.

NEL EDIZA
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- ANSWERS TO THE 2ND LONG EXAM- BANKING LAW –

I. Discuss the Fit and Proper Rule and its purpose [5%]
ANSWER:
Section 16 of the GBL provides the “Fit and Proper Rule” which states that “to maintain the quality
of bank management and afford better protection to depositors and the public in general, the
Monetary Board shall prescribe, pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and disqualify those found unfit.”
“After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend
or remove any bank director or officer who commits or omits an act which render him unfit for the
position.”
“In determining whether an individual is fit and proper to hold the position of a director or officer of
a bank, regard shall be given to his integrity, experience, education, training, and competence.”
Sec. 19 of the GBL prohibits appointive or elective public official, whether full-time or part-time,
from serving as officer of any private bank, save in cases where:
1. Such service is incident to financial assistance provided by the government or a
GOCC to the bank;
2. Unless otherwise provided in the Rural Banks Act; or
3. Unless otherwise provided under existing laws.

II. Give the two prohibited acts under the Law on Secrecy of Bank Deposits [5%]

1. Examination/inquiry/looking into all deposits of whatever nature with banks or banking

institutions in the Philippines (including investment in bonds issued by the government) by any
person, government official or office (RA 1405, Sec. 2).
2. Disclosure by any official or employee of any banking institution to any unauthorized person of
any information concerning said deposit (RA 1405, Sec. 3).
III.
CATANA COMPANY opened a savings/current and dollar savings account PNB at its Timog
Avenue Branch. Its President Felipe and Secretary- Treasurer Angelita were the named
signatories for the said accounts. While Felipe and Angelita were thus out of the country,
applications for cashiers and managers checks bearing Felipe’s signature were presented
to and both approved by the PNB. When Angelita returned to the country, she noticed the
deductions of P9,950,000.00 and P3,260,500.31. Claiming that these were unauthorized and
fraudulently made, CATANA COMPANY requested PNB to credit back and restore to its
account the value of the checks. PNB refused, and thus constrained [CATANA COMPANY]
filed the instant suit for damages against the PNB and its own accountant Aurea Caparas.
On its part, PNB alleged that it exercised due diligence in handling the account of CATANA
COMPANY; that the applications for managers check have passed through the standard
bank procedures and it was only after finding no infirmity that these were given due course;
that In fact, it was no less than Caparas, the accountant of CATANA COMPANY, who
confirmed the regularity of the transaction. Is PNB guilty of negligence in handling CATANA
COMPANY’s account?
ANSWER:
As between a bank and its depositor, where the bank’s negligence is the proximate cause of the
loss and the depositor is guilty of contributory negligence, the greater proportion of the loss shall
be borne by the bank. The bank was negligent because it did not properly verify the genuineness
of the signatures in the applications for manager’s checks while the depositor was negligent
because it clothed its accountant/bookkeeper with apparent authority to transact business with the
Bank and it did not examine its monthly statement of account and report the discrepancy to the

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Bank. The court allocated the damages between the bank and the depositor on a 60-40 ratio
(Philippine National Bank v. FF Cruz and Company, G.R. No. 173259, July 25, 2011, in Divina,
2014).
IV.
Instances where examination or disclosure of information about deposits can be allowed:

ANSWERS:
1. Upon written consent of the depositor (RA 1405,Sec. 2)
2. In cases of impeachment (ibid)
3. Upon order of competent court in cases of bribery or dereliction of duty of public officials
(ibid)
4. In cases where the money deposited or invested is the subject matter of the litigation (ibid)
5. Upon order of the Commissioner of Internal Revenue in respect of the bank deposits of a
decedent for the purpose of determining such decedent’s gross estate (NIRC, Sec. 6[F][1])
6. Upon the order of the Commissioner of Internal Revenue in respect of bank deposits of a
taxpayer who has filed an application for compromise of his tax liability by reason of financial
incapacity to pay his tax liability (ibid)
7. The Commissioner of Internal Revenue is authorized to inquire into bank deposits of a
specific taxpayer upon request for tax information from a foreign tax authority pursuant to an
international convention or agreement on tax matters to which the Philippines is a party (ibid)
8. In case of dormant accounts/deposits for at least 10 years under the Unclaimed Balances
Act (Act No. 3936, Sec. 2)
9. The prohibition against examination of bank deposit does not preclude its garnishment to
satisfy a judgment against the depositor (Oñate v. Abrogar, G.R. No. 107303, February 21, 1994)
10. Presidential Commission on Good Government (PCGG) may require the production of
bank records material to its investigation (Opinion of the Secretary of Justice, February 27, 1987)
11. The Anti-Money Laundering Council (AMLC) may inquire into any deposit with any bank in
case of violation of the RA 9160 or the AMLA if there is probable cause that it is related to an
unlawful activity (RA 9160, as amended, Sec. 11)
12. The PDIC and the BSP may examine deposit accounts and all information related to them
in case of a finding of unsafe or unsound banking practices (RA 3591, as amended, Sec. 8)
13. With court order:
a. In cases of unexplained wealth under Sec. 8 of the Anti-Graft and Corrupt Practices Act
(PNB v. Gancayco, L-18343, September 30, 1965)
b. In cases filed by the Ombudsman and upon the latter’s authority to examine and have
access to bank accounts and records (Marquez v. Desierto, GR 138569, September 11, 2003)
14. Without court order: If the AMLC determines that a particular deposit or investment with
any banking institution is related to the following (HK-MADS):
a. Hijacking,
b. Kidnapping,
c. Murder,

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d. Destructive Arson, and
e. Violation of the Dangerous Drugs Act.
f. Acts of Terrorism or in violation of Human
Security Act.
15. In case the law is repealed, superseded or modified by any law to the contrary.
V.
GIL NOTHING, a special customs agent is charged before the Ombudsman with having
acquired property out of proportion to his salary, in violation of the Anti-Graft and
Corrupt Practices Act. The Ombudsman issued a subpoena duces tecum to the Banco
De Cinco commanding its representative to furnish the Ombudsman records of
transactions by or in the name of GIL NOTHING, his wife and children. A second
subpoena was issued expanding the first by including the production of records of
friends of GIL NOTHING in said bank and in all its branches and extension offices,
specifically naming them, GIL NOTHING moved to quash the subpoenas arguing that
they violate the Secrecy of Bank Deposits Law. In addition, he contends that the
subpoenas are in the nature of – fishing expedition or general warrants and are
constitutionally impermissible with respect to private individuals who are not under
investigation. Is GIL NOTHING’s contention tenable? [5%]

ANSWER:

NO. The contention of GIL NOTHING is not tenable. In the case of Banco Filipino v. Purisima, it
was held that the inquiry into illegally acquired property-or property not legitimately acquired-
extends to cases where such property is concealed by being held or recovered in the name
of other persons. This proposition is made clear by RA 3019 which quite categorically states that
the term “legitimately acquired property of a public officer or employee shall not include property
unlawfully acquired by the respondent, but its ownership is concealed by its being recorded in the
name of, or held by, respondent’s spouse, ascendants, descendants, relatives or any other
persons. To sustain the petitioner’s theory, and restrict the inquiry only to property held by or in the
name of the government official or employee, or his spouse and unmarried children is unwarranted
in the light of the provisions of the statutes in question, and would make available to persons in
government who illegally acquire property an easy and fool-proof means of evading investigation
and prosecution; all they have to do would be to simply place the property in possession or name
of persons other than their spouse and unmarried children. This is an absurdity that we will not
ascribe to the lawmakers.
VI.
Bonnie Richards is suspected jueteng lord who is rumored to be enjoying police and
military protection. The envy of many drug lords who had not escaped the dragnet of the
law, Bonnie was summoned to a hearing of the Committee on Racketeering and Other
Syndicated Crimes of the House of Representatives, which was conducting congressional
investigation-in aid of legislation on the involvement of police and military personnel, and
possibly even of local government officials, in the illegal activities of suspected gambling
and drug lords. Subpoenaed to attend the investigation were officers of certain identified
banks with a directive to them to bring the records and documents of bank deposits of
individuals mentioned in the subpoenas, among them Bonnie.
Bonnie and the banks opposed the production of the bank records of deposits on the
ground that no such inquiry is allowed under the Law on Secrecy of Bank Deposits (R.A.
1405 as amended). Is the opposition of Bonnie and the banks valid? Explain.
ANSWER:

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YES. The opposition is valid. Bonnie is not a public official. The investigation does not involve one
of the exceptions to the prohibition against the disclosure of any information concerning bank
deposits under the Law on Secrecy of Bank Deposits. The Committee conducting the investigation
is not a competent court or the Ombudsman authorized under the law involving such disclosure.
VII.
An insurance company is deluded into releasing a check to CENELYN for P35th pay for
Treasury Bills (T-Bills) which CENELYN claims to be en route on board an armored truck
from a government bank. The check is delivered to CENELYN who deposits it to his account
with BANK OF ANTONIO before the insurance company realizes it as a scam. Upon such
realization, the insurance company files an action against CENELYN for recovery for the
amount defrauded and obtains a writ of preliminary attachment. In addition to the writ, the
Bank is also served a subpoena to examine the account records of CENELYN. The BANK
OF ANTONIO declines to provide any information in response to the writ and moves to
quash subpoena in invoking secrecy of bank deposits under R.A. 1405 and a) not respond
to the writ b) quash the subpoena for examination?
ANSWER:
YES. Whether the transaction is considered a sale of money placement does not make the money
subject matter of litigation within the meaning of Section 2 of R.A. 1405 which prohibits the
disclosure or inquiry into bank deposits except “in cases where the money deposited or invested
is the subject matter of litigation” nor will it matter whether the money was “swindled”.
VIII.
SILVER withdrew without authority funds of the partnership in the amounts of P500th and
US$50th for services he claims rendered for the benefit of the partnership. He deposited
the P 500th in his personal peso current account with Prosperity Bank and the US$50th in
his personal foreign currency savings account with Eastern Bank. The partnership
instituted an action in court against SILVER, Prosperity, and Eastern to compel SILVER to
return the subject funds to the partnership and pending litigation to order both banks to
disallow any withdrawal from his accounts. At the initial hearing of the case, the court
ordered Prosperity to produce the records of his SILVER’S peso current account and
Eastern to produce the records of his foreign currency savings account. Can the court
compel Prosperity and Eastern to disclose the bank deposits of SILVER? Discuss fully.
ANSWER:
YES, with regard to SILVER’s peso current account. This is pursuant to Section 2 of RA 1405
which allows the disclosure of bank deposits in case where the money deposited is the subject
matter of litigation. However with regard to his foreign currency savings account, the disclosure
cannot be allowed. Pursuant to the Foreign Currency Law, the exemption to the prohibition against
disclosure of information concerning foreign bank deposits is to acquire the written consent of the
depositor.

IX.
R.A. 6832 creating a Commission to conduct a Thorough Fact-Finding Investigation of the
failed Coup d’etat of December 1989, recommend measures to prevent the occurrence of
similar attempts at a violent seizure of power and for other purposes, provides that the
Commission may ask the Monetary Board to disclose information on and/or to grant
authority to examine any bank deposits, trust or investment funds, or banking transactions
in the name of and/or utilized by a persons, natural or juridical, under investigation by the
Commission, in any bank or banking institution in the Philippines, when the Commission
has reasonable ground to believe that said deposits, trust or investment funds, or banking
transactions have been used in support or in furtherance of the objectives of the said coup

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d’etat. Does the above provision not violate the Law on Secrecy of Bank Deposits (R.A.
1405)?
ANSWER:
The above provision does not violate RA 1405 because the enactment of RA 6832 is valid exercise
of police power. RA 1405 is in itself a statutory enactment which can be validly modified, amended
or repealed by a subsequent law. The Secrecy of Bank Deposits Act did not amount to a contract
between the depositors and depository banks within the meaning of the non-impairment clause of
the Constitution. Even if it did, the police power of the State is superior to the non-impairment
clause.
X.
Give the Policy of the state behind the General Banking Act (RA 8791)
ANSWER:
The State recognizes the vital role of banks in providing an environment conducive to the
sustained development of the national economy and the fiduciary nature of banking that requires
high standards of integrity and performance. In furtherance thereof, the State shall promote and
maintain a stable and efficient banking and financial system that is globally competitive, dynamic
and responsive to the demands of a developing economy (RA 8791, Sec 2).
XI.
LASTIMOSA Pawnshop, Inc. (Pawnshop) contests the deficiency value-added and
documentary stamp taxes imposed upon it by the Bureau of Internal Revenue (BIR) for the
year 2000. The core of petitioner's argument is that it is not a lending investor within the
purview of Section 108(A) of the National Internal Revenue Code (NIRC), as amended, and
therefore not subject to value-added tax (VAT). Is LASTIMOSA Pawnshop’s contention
correct?
ANSWER:
NO. The tax treatment of pawnshops as non-bank financial intermediaries is not without basis.
Financial intermediaries are defined as persons or entities whose principal functions include the
lending, investing or placement of funds or evidences of indebtedness or equity deposited with
them, acquired by them, or otherwise coursed through them, either for their own account or for the
account of others. It need not be elaborated that pawnshops are non-banks/banking
institutions. Moreover, the nature of their business activities partakes that of a financial
intermediary in that its principal function is lending.
That pawnshops are to be treated as non-bank financial intermediaries is further bolstered by the
fact that pawnshops are under the regulatory supervision of the Bangko Sentral ng Pilipinas and
covered by its Manual of Regulations for Non-Bank Financial Institutions. (First Planters
Pawnshop, Inc. v. CIR, G.R. No. 174134, July 30, 2008).
XII.

[a] What is Money Laundering? [5%]

[b] Give the composition of the Anti- Money Laundering Council [5%]
ASNWER:
“Money laundering is also committed by any covered person who, knowing that a covered or
suspicious transaction is required under this Act to be reported to the Anti-Money Laundering
Council (AMLC), fails to do so.” (Sec. 4, RA 10365, amending Sec. 4, RA 9160).
The Anti-Money Laundering Council is hereby created and shall be composed of:

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1. The Governor of the Bangko Sentral ng Pilipinas (BSP) as Chairman,
2. The Commissioner of the Insurance Commission and
3. The Chairman of the Securities and Exchange Commission (SEC) as members. (RA
9160, as amended by RA
9194, Sec. 7).
XIII.
[a] Define Covered Transaction [7%]
[b] Define and Give examples of a Suspicious Transaction [8%]
ANSWER:
'Covered transaction' is a transaction in cash or other equivalent monetary instrument involving a
total amount in excess of Five hundred thousand pesos (PhP 500,000.00) within one (1) banking
day. (RA 9160, Sec. 3 [b]).
'Suspicious transaction' are transactions with covered institutions, regardless of the amounts
involved, where any of the following circumstances exist:
1. There is no underlying legal or trade obligation, purpose or economic justification;
2. The client is not properly identified;
3. The amount involved is not commensurate with the business or financial capacity of the
client;
4. 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 under the
Act;
5. Any circumstances 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 institution;
6. The transactions is in a way related to an unlawful activity or offense under this Act that is
about to be, is being or has been committed; or
7. Any transactions that is similar or analogous to any of the foregoing." (RA 9160, Sec. 3[b-
1]).

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 said monetary instrument or property;
b. converts, transfers, disposes of, moves, acquires, possesses or uses said monetary
instrument or property;
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 money laundering offenses referred to in paragraphs (a),
(b) or (c);
e. aids, abets, assists in or counsels the commission of the money laundering offenses
referred to in paragraphs (a),
(b) or (c) above; and

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f. performs or fails to perform any act as a result of which he facilitates the offense of money
laundering referred to in paragraphs (a), (b) or (c) above.

XIV.
DENIZ LUCERO PADILLA is the president of Western Bank. His wife applied for a loan with
the said bank to finance an internet cafe. The loan officer told her that her application will
not be approved because the grant of loan to related interests of bank directors, officers,
and stockholders is prohibited by the General Banking Law. Explain whether the loan
officer is correct.
ANSWER:
NO. The loan officer should have advised the wife to ask her husband to secure approval of the
bank’s Board of Directors for the intended loan and to limit the same in an amount not to exceed
its unencumbered deposits and book value of its paid in capital contribution in the bank; if the
intended loan should exceed the foregoing limit, the borrower should have the same secured by a
non- risk assets determined by the Monetary Board, unless the loan shall be in the form of a fringe
benefit. (GBL, Sec. 36)
A bank officer violates the DOSRI law when he acquires bank funds for his personal benefit, even
if such acquisition was facilitated by a fraudulent loan application. Directors, officers, stockholders,
and their related interests cannot be allowed to interpose the fraudulent nature of the loan as a
defense to escape culapability or their circumvention of the law. The prohibition under the law
covers loan by a bank director or officer which are made directly, indirectly, for himself or as the
representative or agent of others. At the same time, he is liable for estafa through falsification of
commercial documents. The bank money which came to his possession as a result of the
fraudulent loan application was not his. He remained bank’s fiduciary with respect to that money,
which makes it capable of misappropriation or conversion in his hands (Soriano v. People of the
Philippines, et al., G.R. No. 162336, February 1, 2010, in Divina, 2014).
XV.
[REPEATED] REFER TO THE 1ST LONG EXAM
a. UNIVERSAL BANKS – these used to be called expanded commercial banks and their
operations are primarily governed by the General Banking laws. They can exercise the powers of
an investment house and invest in non-allied enterprises. They have the highest capitalization
requirement.
b. COMMERCIAL BANKS – these are ordinary or regular commercial banks, as distinguished
from a universal bank. They have a lower capitalization requirement than a universal bank and
cannot exercise the powers of an investment house and invest in non-allied enterprises.
c. THRIFT BANKS – shall include savings and mortgage banks, private development banks, and
stock savings and loans association organized under existing laws.
d. RURAL BANKS - banks which are designed to make needed credit available and readily
accessible in the rural areas on reasonable terms.
e. COOPERATIVE BANKS – one organized, the majority share of which is owned and controlled
by cooperatives, primarily to provide financial and credit services to cooperatives.
XVI.
What is the “Truth in Lending Act”?
Who are covered under the Truth in Lending Act? [5%]
ANSWERS:

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What is the “Truth in Lending Act”?

It is Republic Act No. 3765, which is an act requiring the disclosure of finance charges in connection
with the extension of credit.

What is the policy behind the Truth in Lending Act?

The declared policy behind the law is to protect the people from lack of awareness of the true cost
of credit by assuring full disclosure of such cost, with a view of preventing the uninformed use of
credit to the detriment of the national economy.

Who are covered under the Truth in Lending Act?

The law covers any creditor, which is defined as any person engaged in the business of extending
credit (including any person who as a regular business practice make loans or sells or rents
property or services on a time, credit, or installment basis, either as principal or as agent) who
requires as an incident to the extension of credit, the payment of a finance charge.

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