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Anti-Dummy Law (CA 108 as amended by PD 715)

- An act to punish evasion of the laws on the nationalization


of certain rights, franchises, or privileges
- Purpose is to prevent circumvention of the nationalization
laws of the country

Nationalization or Filipinization law one which limits a certain


economic activity, or the exercise or enjoyment of a certain
right, privilege, property, or business only to Filipino citizens,
or to corporations or associations at least a certain
percentage of the capital of which is owned by Filipino
citizens

e.g. constitutional provision on operation of public utilities


Anti-Dummy Law
The law bans employment of aliens in all entities engaged in
nationalized activities and the ban includes even minor or
clerical or non-control positions
In King v. Hernaez (1962), the SC held that the employment of
Chinese nationals as purchaser and salesman in a grocery
business, which is required by the then Retail Trade
Nationalization Law to be wholly Filipino owned, was a
violation of the Anti-Dummy Law
The reason is obvious: to plug any loophole or close any
avenue that an unscrupulous alien may resort to flout the law
or defeat its purpose, for no one can deny that while one may
be employed in a non-control position who apparently is
harmless, he may later turn out to be a mere tool to further
the evil designs of the employer.
Anti-Dummy Law
Under Sec. 2a of the law, the prohibition against employment
by any person, corporation, or association, of an alien, who
shall intervene in the management, operation, administration,
or control thereof, whether as officer, employee or laborer,
applies where the exercise or employment of the property or
of the franchise, privilege, or business engaged in by such
person, corporation, or association is expressly reserved by
the Constitution or by law to citizens of the Philippines or
corporations or associations at least 60% of the capital of
which is owned by such citizen.
In Luzon Stevedoring v. Anti-Dummy Board (1972), the SC held
that Sec. 2a applies to a public utility the capital of which by
law, may be owned by aliens up to 40%
Anti-Dummy Law

Completely nationalized activities those the exercise and


enjoyment of which are expressly reserved by the Constitution
and/or laws to citizens of RP or to corporations or associations
wholly owned by such citizens.

Partially nationalized activities if the enjoyment of exercise of


the undertaking or activity is limited by the Constitution or law
to corporations or associations at least 60% of the capital of
which is Filipino owned
Anti-Dummy Law

To what extent may foreign investors participate in the governing


body of a partially nationalized business or industry?

As amended by PD 715, the Anti-Dummy Law now allows the


election of aliens as members of the board of directors or
governing body of corporations or associations engaged in
partially nationalized activities, in proportion to their allowable
participation or share in the capital of such entities. This is in line
with Art. 14, Sec. 5 of the Constitution which provides that
participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate
share in the capital thereof.
Exceptions to the ban on alien employment:
1) Where the Secretary of Justice specifically authorizes the
employment of the alien as technical personnel;
2) The election of aliens as members of the board of directors
engaged in partially nationalized activities in proportion to
their allowable participation in the capital of such entities

May an alien stockholder in a real estate firm who is elected as


director, pursuant to PD 715, hold any other position like
president, vice-president, or treasurer in such entity?

No. PD 715 was merely intended to give alien stockholders


limited representation in the governing board in proportion to
their equity. Thus, alien directors may not hold any other
position in said entity. (Op. of Sec. of Justice, No. 36, s. 1976)
Anti-Dummy Law

Is the authority to approve the employment of aliens, as


technical personnel in a nationalized trade, business, or industry,
exclusively vested in the Sec. of Justice?
No. When there are special laws authorizing the entry and
employment of foreign nationals in certain nationalized areas of
investment, this should be deemed exceptions to Sec. 2a of the
Anti-Dummy Law, in that prior authority from the Sec. of Justice
need not be obtained. When there is a special law empowering
another govt office, the authority of the Sec. of Justice need
not be secured because the special law is deemed to prevail over
the general provisions of the Anti-Dummy Law (Ops. No.s 82 &
94 s. 1976)
Ex. Omnibus Investments Code
Anti-Dummy Law

Technical personnel includes any person who has special,


extraordinary, or practical knowledge, especially of a mechanical
or scientific occupation

Note: The designation that a position is technical, for example, of


a technical consultant, is not controlling. An evaluation has to
be made as to whether the duties require expertise of a
technical nature.
SEC Opinion no. 08-06, January 23, 2008
Facts: X Co. is a PEZA-registered corporation engaged in
wholesale and retail trading. It has an authorized capital stock of
P20 million, 60% of its outstanding capital stock is owned by a
foreign national who is reported in X Co.s general information
sheet for 2007 as holding the positions of chairman of the board,
assistant corporate secretary, and treasurer.
Issue: May the foreign shareholder of such entity concurrently
act as chairman of the board, assistant corporate secretary, and
treasurer?
Ruling: A foreign national cannot act as corp sec. The RP Corp
Code requires that the corp sec must be a Filipino citizen. On
concurrently acting as chairman and treasurer, the Anti-Dummy
Law prohibits foreigners from being elected or appointed to
mgmt positions where there is a constitutional provision
imposing a specific nationality reqt for the exercise or enjoyment
of a right.
Anti-Dummy Law
However, the Secretary of Justice has opined that when there is
a special law allowing employment of foreigners in nationalized
activities, the special law supersedes the Anti-Dummy Law.

Sec. 1 of the PEZA Law IRR allows ecozone enterprises to employ


foreign nationals in executive positions such as president, vice-
president, treasurer, and general manager, or their equivalents.

Sec. 2 provides that when majority of the capital stock of such


ecozone enterprise is owned by foreign nationals, the positions
of president, treasurer, and general manager or their equivalents
may be retained by foreign nationals.
Anti-Dummy Law
Issue: Is a PEZA-registered entity engaged in retail trade and is
majority-owned by a foreign national exempt from the
provisions of the Retail Trade Liberalization Act of 2000?
Ruling: No. RA 7916 or the PEZA Law and its IRR provide that any
corporation may apply for registration as a PEZA enterprise,
provided that if the corporation seeking registration is engaged
in a business covered by the negative list of the FIA, then the
nationality, ownership, or control requirements of the FIA must
be observed.
- The RTLA and the 7th negative list of the FIA allows foreign
participation in an enterprise engaged in retail trade if the paid-
up capital of said enterprise is $2.5M or more. Thus, X Co. will
have to comply with the required minimum capital to be allowed
to engage in retail trade.
SEC Opinion No. 09-03 (Jan. 21, 2009)
Facts: Scanasia is a domestic corporation incorporated under RP
laws. It is alleged that all of Scanasias issued and outstanding
capital (formerly 99.82% foreign and 0.18% Filipino) have been
sold to Aboitiz One, a publicly listed domestic corporation,
99.13% of the issued and outstanding capital stock of which is
owned by Philippine nationals.

The board of directors of Scanasia want to elect at least one


foreign national to the board. After the election, the foreigner
shall be appointed as president. In addition, Aboitiz One wants
to appoint a foreign national as its sales and marketing director
compliant with the visa, immigration and employment
requirements of the Philippines.
Scanasia
Issues:

1) Are the restrictions in Sec. 2a of the Anti-Dummy Law


inapplicable to Scanasia?
2) Can a foreign national who holds in his name one nominee
share in a domestic corporation that is not engaged in a
nationalized activity be elected as one of its directors and as
its president?
3) Can a foreign national be appointed as sales and marketing
director of a domestic corporation that is not engaged in any
nationalized activity?
Scanasia
On the first issue:
Sec. 2a of the Anti-Dummy Law is inapplicable to Scanasia
considering that: (1) it is engaged in the importation, distribution
and wholesale of food products which is neither a nationalized
or partly nationalized industry; (2) it does not own real estate in
RP. The requirement under Sec. 2a specifically refers only to
partially nationalized activities.

On the second issue:


The President must be a director. To qualify as a director of a
domestic corporation, he should be a stockholder or should own
at least one share of the capital of the corporation.
Scanasia

On the third issue:


-In firms engaged in wholly or partially nationalized activities,
aliens are banned from being appointed to mgt positions of the
same companies, although they can be elected directors in
proportion to their allowable participation or share in the
capital. Thus, a foreigner cannot be elected as president of a
domestic corporation engaged in nationalized or partially
nationalized activities.
-Considering that the business of the company is neither
nationalized nor partially nationalized, such foreigner may be
elected president, subject to the qualification provided for under
the Corporation Code. Being a non-resident, he cannot be
elected treasurer. (not a CC reqt but dictated by good corporate
practice due to nature of function)
Anti-Dummy Law
Sec. 2-A.

1)Any person, corporation, or assn which, having in its name or


under its control, a right, franchise, privilege, property, or
business the exercise of enjoyment of which is expressly
reserved by the Constitution or the laws to citizens of RP or of
any other specific country, or to corporations or assns at least 60
per centum of the capital of which is owned by such citizens.
2)Permits or allows the use, exploitation or enjoyment thereof
by a person, corporation, or association not possessing the
requisites prescribed by the Constitution or the laws of the
Philippines
Anti-Dummy Law Sec. 2A
3) Or leases, or in any other way, transfers or conveys said right,
franchise, privilege, property or business to a person,
corporation or association not otherwise qualified under the
Constitution, or the provisions of existing laws;
4) Or in any manner permits or allows any person, not
possessing the qualifications required by the Constitution, or
existing laws to acquire, use, exploit, or enjoy a right, franchise,
privilege, property or business, the exercise and enjoyment of
which are expressly served by the Constitution or existing laws to
citizens of the Philippines or to any specific country, or intervene
in the management, operation, administration or control
thereof, whether as an officer, employee or laborer therein with
or without renumeration, except technical personnel whose
employment may be specifically authorized by the Secretary of
Justice.
Anti-Dummy Law Sec. 2A

5) And any person who knowingly aids, assists or abets in the


planning, consummation or perpetration of any of the acts
enumerated shall be punished by imprisonment for not less than
5 nor more than 15 years and a fine of not less than the value of
the right, franchise or privilege enjoyed or acquired in violation
of the provisions hereof but in no case less than P5000.
-The president, manager, or persons in charge of corporations,
assns or partnerships violating the provisions of this section shall
be criminally liable in lieu thereof.
-In addition, any person, corporation or assn shall forfeit such
right, franchise, privilege or property or business enjoyed or
acquired in violation of this Act
Anti-Dummy Law Sec. 2a

5) the election of aliens as members of the board of directors


or governing body of corporations or associations engaging in
partially nationalized activities shall be allowed in proportion to
their allowable participation or share in the capital of such
entities.