V. BANKING LAWS

Question 1

V. BANKING LAWS

A. The New Central Bank Act (R.A. No. 7653, as amended by R.A. No. 11211)
1. Banks in Distress – Sections 29-30

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A bank in distress is typically subject to rehabilitation or liquidation proceedings by the Bangko Sentral ng Pilipinas (BSP) to protect depositors and creditors, as exemplified by the closure of Banco Filipino Savings and Mortgage Bank.
**A bank can be considered in distress when:
** This typically occurs when a bank faces significant losses, liquidity problems, or regulatory compliance issues.
Liquidity: Short-term ability to meet financial obligations. BSP appoints Conservator
Solvency: Long-term ability to meet financial obligations. BSP upon determination, declares Bank as Insolvent & notifies PDIC to assume Receivership

Answer 1

Key Points on Philippine Laws Regarding Banks in Distress

The Bangko Sentral ng Pilipinas (BSP) has a framework to deal with banks or quasi-banks (institutions providing some banking functions) facing financial difficulties:

A.
Conservatorship (Section 29):
* Appointed by the BSP Monetary Board when a bank experiences liquidity issues and struggles to meet depositor and creditor needs.
* Goal: Restore the bank’s viability through management reorganization, debt collection, and regaining financial health.
* Limited duration (max. 1 year).
* Conservator is appointed by the BSP and receives compensation.
* Example: If a bank experiences a surge in customer withdrawals due to rumors, the BSP might appoint a conservator to manage the situation, collect outstanding loans, and rebuild trust.

B.
## Key Points on Philippine Laws Regarding Bank Closure and Liquidation (Section 30)

This section outlines the process for placing a bank or similar financial institution under receivership and liquidation by the Bangko Sentral ng Pilipinas (BSP). Here’s a breakdown:

1) Triggers for Receivership and Liquidation:
* Bank closure or dormancy: This includes a unilateral closure by the bank, dormancy exceeding 60 days, or suspension of deposit/substitute liability payments (excluding situations caused by temporary financial panic).
* Insufficient assets: The bank doesn’t have enough readily available assets to cover its debts.
* Continued operations risk losses: The BSP determines the bank’s continued operation would likely harm depositors and creditors.
* Violation of cease and desist order: The bank willfully violated a final order from the BSP to stop specific activities, potentially involving fraud or asset misuse.

2) Process:
* The BSP Monetary Board can summarily (without prior hearing) order the bank to cease operations in the Philippines.
* For banks, the Philippine Deposit Insurance Corporation (PDIC) is typically designated as the receiver.
* The receiver takes control of the bank’s assets and liabilities.
* The BSP notifies the bank’s board of directors about the closure.

3) Legal Challenges:
* The BSP’s decision is final and can only be challenged through a petition for certiorari.
* Only stockholders representing a majority of the capital stock can file the petition within 10 days of receiving the closure order.
* The petition can only claim the BSP acted beyond its authority or with extreme misuse of discretion.

4) Distinction from Conservatorship (Section 29):
* Receivership and liquidation are a more severe step than conservatorship.
* Conservatorship aims to rehabilitate a struggling bank, while liquidation involves dissolving the bank.
* Designation of a conservator isn’t required before receivership.

• Current Event Example (Hypothetical):
  Imagine a small rural bank experiencing significant loan defaults due to a crop failure. This leads to a shortage of available funds, causing the bank to suspend payments to depositors. The BSP, after investigating, might determine the bank has insufficient assets to recover and continued operation would likely result in losses for depositors. Based on these factors, the BSP could order the bank’s closure, appoint the PDIC as receiver, and initiate liquidation to distribute remaining assets to creditors (following a priority order) and potentially compensate insured depositors.

Note:
This is a simplified example for educational purposes. Real-world scenarios would involve a more complex analysis by the BSP.

C.
Current Event Considerations:
* It’s important to note that these are legal frameworks, and specific details of any intervention would depend on the actual circumstances.
* The BSP prioritizes protecting depositors’ interests and maintaining financial system stability.

Remember: This information is for educational purposes only and shouldn’t be considered financial advice.

Question 2

V. BANKING LAWS

A. The New Central Bank Act (R.A. No. 7653, as amended by R.A. No. 11211)

2. Remedy of Closed Banks – Section 30

Question 3

V. BANKING LAWS

B. Secrecy of Bank Deposits (R.A. No. 1405 and R.A. No. 6426, as amended)
1. Prohibited Acts

Answer 3

Prohibited Acts Regarding Bank Deposit Secrecy in the Philippines (R.A. 1405 & R.A. 6426)

R.A. 1405 (Law on Secrecy of Bank Deposits) and R.A. 6426 (Foreign Currency Deposit Act) establish strong limitations on disclosing information about bank deposits in the Philippines.

1) General Prohibition:
* Banks and their employees are generally prohibited from disclosing information about any deposit (peso or foreign currency) to anyone except:
* The depositor themself, their authorized representatives, or legal heirs.
* Government entities in specific situations with a court order (e.g., AML investigations, tax evasion cases).

Examples of Prohibited Disclosures:
* A bank employee revealing a customer’s account balance to a friend or family member.
* A bank sharing a company’s deposit details with a competitor.
* A bank providing information about a politician’s accounts to the media without proper authorization.

Exceptions Allowing Disclosure:
1) Court Order:** Upon a valid court order, a bank can disclose information related to:
* Anti-Money Laundering (AML) investigations.
* Tax evasion investigations.
* Corruption cases (e.g., bribery, dereliction of duty).
* Impeachment proceedings.
* Civil or criminal lawsuits (with limitations).
2) Bangko Sentral ng Pilipinas (BSP) Regulations:
The BSP, as the central bank, can issue regulations requiring disclosure in specific circumstances related to financial system stability.

• Current Event Example (Hypothetical):
  Imagine a news story about a celebrity facing tax evasion charges. The Bureau of Internal Revenue (BIR) might obtain a court order to access the celebrity’s bank accounts to verify income and identify any undeclared deposits. In this scenario, R.A. 1405’s general prohibition wouldn’t apply due to the legal order.
• Important Notes:
• These laws don’t prevent banks from having internal controls to identify and report suspicious transactions that might be linked to money laundering or other illegal activities.
• The burden of proof lies with the government to demonstrate a legitimate reason for requesting disclosure through a court order.
• Conclusion:
  The Philippines prioritizes bank deposit secrecy to encourage people to use the banking system. However, there are safeguards to balance this with the need to investigate financial crimes and ensure tax compliance.

Question 4

V. BANKING LAWS

B. Secrecy of Bank Deposits (R.A. No. 1405 and R.A. No. 6426, as amended)

2. Exceptions from Coverage

Answer 4

Exceptions to Secrecy of Bank Deposits in the Philippines (R.A. 1405 & R.A. 6426)

While
(1) R.A. 1405 (Secrecy of Bank Deposits) and
(2)
R.A. 6426 (Foreign Currency Deposit Act) promote strong confidentiality for bank deposits,

there are exceptions where information can be disclosed.
Here’s a breakdown of these exceptions:

1. Court Order:
   * A court order issued by a competent authority can override secrecy for various legal proceedings.
   * Examples:
   
   • Anti-Money Laundering (AML) Investigations: If authorities suspect a depositor is involved in money laundering activities, they can seek a court order to examine their bank accounts to track suspicious transactions.
   • Tax Evasion Investigations:

The Bureau of Internal Revenue (BIR) might obtain a court order to access a taxpayer’s accounts to verify income and identify any undeclared deposits.
* Corruption Cases: In cases involving bribery or dereliction of duty by public officials, a court order can authorize examining their bank accounts to investigate the source of suspicious funds.

* **Impeachment Proceedings:** 

During impeachment proceedings against government officials, a court order might be issued to access their bank accounts if relevant to the charges.
* Civil or Criminal Lawsuits: In some civil or criminal cases (with limitations), a court order might allow access to specific deposit information deemed crucial for the case.

2. Written Permission of the Depositor:
   * Depositors can authorize the bank to disclose information about their accounts to specific individuals or entities (e.g., accountants, lawyers).
3. Bangko Sentral ng Pilipinas (BSP) Regulations:
   * The BSP, as the central bank, can issue regulations requiring banks to disclose specific information about deposits in certain situations.
   * These regulations might be related to:
   
   • Maintaining financial system stability (e.g., monitoring systemic risks).
   • Implementing new government policies (e.g., gathering data for economic analyses).
4. Authorized Government Inquiries (Limited Scope):
   * In specific situations, some government agencies have limited authority to inquire about bank deposits without a court order. However, this is heavily regulated and applies only in specific circumstances, such as:
   
   • Monetary Board investigations related to potential violations of banking laws.

• Important Notes:
• The burden of proof lies with the requesting party (government agency or individual) to demonstrate a legitimate reason for disclosure.
• Even with exceptions, banks are still obligated to maintain the confidentiality of deposit information unless a valid justification exists.
• Examples (Hypothetical):
• A news report details a government official suspected of corruption. Authorities might seek a court order to access their bank accounts to investigate the source of any suspicious deposits exceeding their declared income.
• A company owner facing a lawsuit might authorize their bank to disclose specific financial information to their lawyer for legal defense purposes.
• Conclusion:
  The secrecy of bank deposits plays a vital role in the Philippines’ financial system. However, the exceptions ensure a balance between protecting depositors’ privacy and allowing for legitimate investigations and legal proceedings.

Question 5

V. BANKING LAWS

B. Secrecy of Bank Deposits (R.A. No. 1405 and R.A. No. 6426, as amended)

3. Garnishment of Deposits - court authorization (to seize funds to satisfy an obligation)

Answer 5

R.A. No. 1405 (Secrecy of Bank Deposits) and R.A. No. 6426 (Foreign Currency Deposit Act) prioritize the confidentiality of bank deposits. However, there are provisions allowing for garnishment of deposits under specific circumstances. Here’s a breakdown:

Garnishment of Deposits:
* A legal process where a court order authorizes the seizure of funds from a debtor’s bank account to satisfy a financial obligation (debt).
* R.A. 1405 and R.A. 6426 generally don’t prevent garnishment with a valid court order.

• Key Points:
• **Court Order Required:
  Secrecy of deposits can be overridden with a court order issued for legitimate reasons.
• **Debt Obligation:
  The garnishment must be to settle a proven debt owed by the depositor (e.g., unpaid loan, court-ordered judgment).

How?
* **Procedures:
The creditor typically files a petition with the court, specifying the amount owed and requesting a garnishment order. The court, upon review, issues the order if justified.
* Foreign Currency Deposits: While R.A. 6426 protects confidentiality, foreign currency accounts can also be subject to garnishment with a court order.

• Current Event Example (Hypothetical):
  Imagine a news report about a celebrity found guilty of plagiarism and ordered by the court to pay damages to the original author. The author, as the creditor, could potentially obtain a court order to garnish funds from the celebrity’s bank accounts (including foreign currency accounts) to recover the awarded damages.
• Important Notes:
• The court order typically specifies the amount to be garnished, ensuring the depositor isn’t stripped of all their funds.
• Exceptions to garnishment might exist depending on the type of deposit (e.g., some retirement accounts might have limited garnishment possibilities).
• Conclusion:
  While R.A. 1405 and R.A. 6426 prioritize secrecy, they acknowledge the need for enforcing court orders and resolving debt obligations. Garnishment with a valid court order offers a mechanism to achieve this balance.

Question 6

V. BANKING LAWS

C. General Banking Law (R.A. No. 8791)
1. Nature of Bank Funds and Bank Deposits

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Answer 6

Nature of Bank Funds and Bank Deposits under R.A. No. 8791 (General Banking Law)

The General Banking Law (R.A. No. 8791) differentiates between Bank Funds and Bank Deposits:

A.
Bank Funds:
* Broad term encompassing various sources of a bank’s financial resources.
* Include:
1) Capital: The initial investment made by the bank’s shareholders. This represents ownership and serves as a buffer against losses.
2) Surplus: Profits retained by the bank after dividends are paid to shareholders. This strengthens the bank’s financial reserves.
3) Undivided Profits: Current year’s profits not yet distributed as dividends.
4) Subordinated Debt: Loans or borrowings from other institutions where creditors have a lower claim on assets compared to regular depositors in case of liquidation.
5) Other Liabilities: Can include items like taxes payable and accrued expenses.

B.
Bank Deposits:
* Funds entrusted by individuals and entities to a bank for safekeeping and potential interest earnings.
* Represent a DEBT OBLIGATION FROM the Bank TO the Depositor.
* Include:
1) Demand Deposits:** Allow immediate withdrawal (e.g., checking accounts, savings accounts with ATM access).
2) Time Deposits:** Deposits with a fixed maturity period (e.g., certificates of deposit) offering higher interest rates than demand deposits.
3) Savings Deposits:** Accounts designed for regular deposits and withdrawals, often with interest earned.

• Example: ABC Bank News Case Scenario
  Imagine a news report about ABC Bank facing financial difficulties. Depositors are worried about the safety of their money.
• Bank Funds: In this scenario, ABC Bank’s capital, surplus, and retained profits would be crucial to absorb potential losses and maintain solvency.
• Bank Deposits: Depositors’ money in checking, savings, or time deposit accounts with ABC Bank would be considered bank deposits. These are liabilities for the bank, and depositors are creditors with a claim to their funds.
• Key Points:
• Bank funds are the resources a bank uses to operate, while bank deposits are liabilities (debt) owed to customers.
• The distinction is important for understanding a bank’s financial health and how different sources of funds contribute to its stability.
• Depositors have a contractual right to withdraw their funds (subject to account terms), while bank capital provides a cushion for unexpected losses.

Question 7

V. BANKING LAWS

C. General Banking Law (R.A. No. 8791)

2. Required Diligence of Banks; Liability as Drawee Bank

Answer 7

Required Diligence of Banks and Liability as Drawee Bank under R.A. No. 8791 (General Banking Law)

The Philippines’ General Banking Law (R.A. No. 8791) emphasizes the responsibilities of banks and the potential consequences for failing to uphold those duties. Here’s a breakdown of two key concepts:

1. Required Diligence of Banks:
   * Banks are expected to exercise a high standard of care in managing their operations and safeguarding customer deposits. This includes:
   1) Know Your Customer (KYC) Procedures:
   Properly identifying customers, understanding their financial activities, and monitoring for suspicious transactions to prevent money laundering or terrorist financing.
   2) Competent Staff:
   Ensuring employees are adequately trained and have the necessary expertise to handle customer accounts and transactions accurately.
   3) Internal Controls:
   Implementing robust systems and procedures to minimize errors, prevent fraud, and maintain accurate financial records.
   4) Compliance with Laws and Regulations:
   Adhering to relevant banking laws, Bangko Sentral ng Pilipinas (BSP) regulations, and best practices.

• Example (Current Event - Global Money Laundering Scandal):
  In the 2016 Panama Papers scandal, several banks were criticized for failing to adequately identify high-risk customers and prevent them from using their institutions for money laundering. This highlights the importance of required diligence in KYC procedures and transaction monitoring to prevent banks from being misused for illegal activities.

2. Liability as Drawee Bank:
   * A drawee bank is the financial institution on which a check or similar instrument (like a bill of exchange) is drawn, meaning it’s the bank that is supposed to pay the funds if the check is valid.
   * The General Banking Law outlines situations where a drawee bank can be held liable for improper payment on a check:
   
   • Insufficient Funds: If the drawer’s account doesn’t have sufficient funds to cover the check amount, the bank can be liable for paying it anyway (except in specific situations like stop-payment orders).
   • Material Alteration: If the check has been tampered with in a way that affects the amount or payee, the bank could be liable if it honors the fraudulent check.
   • Forgery: The bank can be liable if it pays a check with a forged drawer’s signature.

• Example (Current Event - Fake Check Scam):
  Imagine a news story about a company falling victim to a scam involving fake checks. The scammers might have used stolen account information to forge checks and attempt to withdraw funds. In such a scenario, the company could potentially hold the drawee bank liable if the bank failed to detect the forgery and accidentally processed the fraudulent checks.
• Key Points:
• Required diligence protects both banks and depositors by ensuring responsible banking practices.
• Liability as a drawee bank emphasizes the importance of accurate verification and proper check processing procedures.
• Understanding these concepts helps maintain trust in the banking system and protects all parties involved in financial transactions.

Note: This explanation is for informational purposes only. The specific legal aspects of required diligence and drawee bank liability would depend on the details of each situation.

Question 8

V. BANKING LAWS

C. General Banking Law (R.A. No. 8791)

3. Prohibited Transactions by Bank Directors and Officers

Answer 8

Prohibited Transactions by Bank Directors and Officers under R.A. No. 8791 (General Banking Law)

The General Banking Law (R.A. No. 8791) aims to prevent conflicts of interest and promote responsible banking practices.
Here are some key prohibited transactions for bank directors and officers, :

1) BORROW (Direct or Indirect):
* Directors and officers Can NOT borrow money from the bank they work for, either directly or by acting as a representative for someone else (e.g., spouse, family member).
* Example: A bank director cannot secure a personal loan from their own bank.

2) GUARANTEE (Debts of Others):
* Directors and officers cannot act as guarantors, endorsers, or sureties for loans taken by others from the bank.
* Example: A bank manager cannot co-sign a loan application for a friend at their bank.

3) OWNERSHIP (Significant Interest):
* Directors and officers cannot have significant ownership interests (e.g., owning a large percentage of shares) in companies that borrow heavily from their bank. This helps prevent self-dealing and ensures loans are granted based on merit.
* Example: A bank president cannot own a controlling stake in a company that secures a substantial loan from their bank.

4) RELATIVE (Transactions with Close Family):
* Directors and officers cannot enter into significant financial transactions (e.g., loans, large deposits) with their close relatives (spouse, children, parents) through the bank.
* Example: A bank loan officer cannot approve a significant loan for their child’s business through their bank.

• Additional Tips:
• Banks typically have internal policies that expand on these prohibitions.
• Directors and officers should always disclose potential conflicts of interest to avoid any ethical or legal issues.

By understanding and adhering to these regulations, bank directors and officers can maintain a high standard of conduct and promote public trust in the banking system.

Question 9

V. BANKING LAWS

D. Anti-Money Laundering Act
(R.A. No. 9160, as amended by R.A. Nos. 9194,
10167, 10365, 10927, and 11521)

1. Policy – Section 2

Answer 9

Anti-Money Laundering (AML) Policy under R.A. No. 9160 (as amended)

The Philippines’ Anti-Money Laundering Act (AMLA), Republic Act No. 9160, as amended by subsequent laws including R.A. Nos. 9194, 10167, 10365, 10927, and 11521, outlines a comprehensive policy to combat money laundering activities. Here’s a breakdown of the key points in Section 2:

1) Policy Objectives:
* Protect the integrity and confidentiality of bank accounts. This ensures trust in the banking system and discourages criminals from using Philippine banks for illicit activities.
* Prevent the Philippines from being used as a money laundering site. This safeguards the country’s reputation and financial stability.
* Extend cooperation with international efforts to fight money laundering. The Philippines recognizes the global nature of financial crime and the need for collaboration with other nations.

Example: 1MDB Scandal (Global Case Scenario)
The 1MDB scandal, involving billions of dollars allegedly misappropriated from a Malaysian sovereign wealth fund, shocked the world. Money laundering was a key concern, with funds suspected of being channeled through various financial institutions worldwide. The Philippines, as a signatory to international AML agreements, would have a responsibility to cooperate in investigations and prevent its financial system from being used for laundering illicit funds from 1MDB.

2) Additionally, the AML policy aims to:
* Deter criminals from engaging in money laundering activities through the risk of detection, investigation, and prosecution.
* Identify and freeze suspicious transactions that might be linked to criminal activity.
* Forfeit ill-gotten gains derived from crime and prevent them from being reintegrated into the legal economy.

Remember:
This is a simplified explanation. The AML Act has detailed provisions regarding covered institutions, reporting requirements, covered transactions, and the powers of the Anti-Money Laundering Council (AMLC).

Question 10

V. BANKING LAWS

D. Anti-Money Laundering Act
(R.A. No. 9160, as amended by R.A. Nos. 9194,
10167, 10365, 10927, and 11521)

2. Covered Institutions and their Obligations – Section 3

Answer 10

Covered Institutions and Obligations under R.A. No. 9160 (AMLA)

The Anti-Money Laundering Act (AMLA), Republic Act No. 9160 (as amended), designates several categories of institutions as “covered institutions.” These institutions have specific obligations to help prevent money laundering and terrorist financing. Here’s a breakdown:

Covered Institutions:

1. BSP-Supervised Financial Institutions (BSFIs):
   
   • Banks (universal, commercial, thrift, rural)
   • Offshore banking units
   • Quasi-banks (investment houses, trust entities)
   • Non-stock savings and loan associations
   • Pawnshops
   • Money changers
   • Remittance transfer companies
   • Electronic money issuers
   • Other institutions supervised by the Bangko Sentral ng Pilipinas (BSP)

• Obligations:
• Implement a Customer Identification Program (CIP) to verify customer identities and understand their financial activities. (e.g., requiring valid IDs, understanding source of funds)
• Report suspicious transactions to the Anti-Money Laundering Council (AMLC). (e.g., large cash deposits without clear source, frequent high-value transfers)
• Maintain records of customer identification information and transactions for a specified period.
• Develop and implement AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) programs that include risk assessments, internal controls, and employee training.
  Example:
  A bank teller (BSP-Supervised Financial Institution) notices a customer making frequent large cash deposits without a clear explanation for the source of funds. The teller is obligated to report this suspicious activity to the bank’s AML compliance officer, who might then file a report with the AMLC.

2. SEC-Supervised Non-Bank Financial Institutions (NBFIs):
   
   • Securities dealers, brokers, and investment houses
   • Mutual funds, investment companies
   • Pre-need companies

• Obligations:
• Similar to BSFIs, NBFIs also have customer identification and reporting requirements.
• They need to be vigilant about transactions involving securities or investments that might be used for money laundering.

Example: An investment house (SEC-Supervised NBFI) observes a client attempting to purchase a large amount of bearer bonds (anonymously owned securities) with cash. This could be a red flag, and the investment house might need to report it to the authorities if they suspect money laundering.

3. Other Covered Persons:
   * Casinos
   * Jewelers and Precious Metals Dealers
   * Real Estate Brokers and Developers (when dealing with transactions exceeding a certain threshold)
   * Offshore Gaming Operators

• Obligations:
• These institutions also have customer identification and reporting requirements tailored to their specific industries.
• They need to be aware of potential money laundering risks associated with their business activities (e.g., large cash transactions in real estate, bulk purchases of precious metals).
  Example:
  A casino (Covered Person) detects a high roller using chips purchased with large amounts of cash and exhibiting unusual betting patterns. The casino should report this suspicious activity to the AMLC.

Remember: This is not an exhaustive list, and the AMLC can issue additional regulations regarding covered institutions and their obligations.

Question 11

V. BANKING LAWS

D. Anti-Money Laundering Act
(R.A. No. 9160, as amended by R.A. Nos. 9194,
10167, 10365, 10927, and 11521)

3. Covered Transactions – Section 3

Answer 11

Covered Transactions under R.A. No. 9160 (AMLA) - Easy-to-Memorize List (Section 3)

The Anti-Money Laundering Act (AMLA), Republic Act No. 9160 (as amended), identifies specific transactions that covered institutions (banks, money changers, etc.) must report to the Anti-Money Laundering Council (AMLC). Here’s a breakdown for easy memorization using the acronym CASH DETECT :

1) C - Cash Transactions
* All cash transactions exceeding a threshold set by the AMLC (currently PHP 500,000 for single transactions and PHP 150,000 for cumulative transactions within a month).
* This includes deposits, withdrawals, and exchanges of large amounts of cash.
Example:
A bank customer deposits PHP 800,000 in cash. The bank is obligated to report this transaction to the AMLC.

2) A - Acquisitions and Dispositions of Bearer Negotiable Instruments
* This covers transactions involving bearer bonds, checks payable to the bearer (unidentified person), and similar instruments that can be easily transferred anonymously.
Example:
A client purchases a large amount of bearer bonds with cash at a bank. The bank needs to report this to the AMLC.

3) S - Sale or Purchase of Real Estate Properties
* This applies to transactions exceeding a threshold set by the AMLC (currently PHP 10 million).
* It aims to monitor large cash payments used in real estate deals, which can be a channel for money laundering.
Example:
A real estate broker facilitates the sale of a luxury property for PHP 15 million with a significant cash component. The broker must report this transaction to the AMLC.

4) H - High-Value Transfers of Funds
* This covers electronic fund transfers, wire transfers, and similar transactions exceeding a threshold set by the AMLC (currently PHP 1 million for domestic transfers and PHP 10 million for cross-border transfers).
Example:
A company transfers PHP 1.2 million electronically to a foreign beneficiary. The bank is obligated to report this to the AMLC.

5) D - Donations
* This applies to charitable donations exceeding a threshold set by the AMLC (currently PHP 100,000 for a single donation and PHP 500,000 for cumulative donations within a year).
* The focus is on monitoring large anonymous donations that could be used to finance terrorism or other criminal activities.
Example:
A foundation receives a PHP 200,000 cash donation from an anonymous source. They should report this transaction to the AMLC.

6) E - Precious Metals and Gemstones Transactions
* This covers purchases and sales of precious metals (gold, diamonds) and gemstones exceeding a threshold set by the AMLC (currently PHP 3 million).
* These valuables can be easily smuggled and used to launder money.
Example:
A jewelry store sells a rare diamond necklace for PHP 4 million in cash. The store needs to report this transaction to the AMLC.

7) T - Cross Border Movement of Currency and Bearer Negotiable Instruments
* This covers the physical transport of cash or bearer instruments (like bearer bonds) across Philippine borders exceeding a threshold set by the Bangko Sentral ng Pilipinas (BSP).
Example:
A traveler attempts to leave the Philippines with PHP 8 million in cash. This would be flagged by customs and reported to the AMLC.
Remember:
This is a simplified overview. The AMLC can adjust reporting thresholds and issue guidelines for covered institutions.

Question 12

V. BANKING LAWS

D. Anti-Money Laundering Act
(R.A. No. 9160, as amended by R.A. Nos. 9194,
10167, 10365, 10927, and 11521)

4. Suspicious Transactions – Section 3

Answer 12

suspicious transactions under R.A. No. 9160 (AMLA), Section 3, with easy-to-memorize acronyms and fictional examples to help you prepare for the bar exam:

CASH DETECT - Use this acronym to remember the key categories of suspicious transactions:

1) C - Cash Transactions
* Exceeding thresholds set by the AMLC (currently PHP 500,000 for single transactions and PHP 150,000 for cumulative transactions within a month).
* Frequent large cash deposits or withdrawals without a clear explanation for the source or purpose of funds.
* Structuring transactions (breaking down large sums into smaller amounts to avoid reporting requirements).
Example:
A customer walks into a bank and deposits PHP 700,000 in cash with no explanation for the source of funds. This large cash transaction might be flagged as suspicious.

2. A - Acquisitions and Dispositions of Bearer Negotiable Instruments
   * Purchases or sales of bearer bonds, cashier’s checks payable to the bearer (unidentified person), or similar instruments that can be easily transferred anonymously.
   Example:
   A client attempts to buy a large amount of bearer bonds with cash at a bank. This anonymity raises suspicion about the source of funds.

3) S - Sale or Purchase of Real Estate Properties
* Transactions exceeding a threshold set by the AMLC (currently PHP 10 million).
* Payments made primarily in cash for high-value properties.
Example:
A real estate broker facilitates the sale of a luxury condo for PHP 12 million with the buyer paying most of the amount in cash. This large cash payment for a real estate transaction could be a red flag.

4) H - High-Value Transfers of Funds
* Electronic fund transfers, wire transfers, or similar transactions exceeding thresholds set by the AMLC (currently PHP 1 million for domestic transfers and PHP 10 million for cross-border transfers).
* Transfers to or from countries identified by the AMLC as high-risk jurisdictions for money laundering or terrorism financing.
Example:
A company transfers PHP 1.5 million electronically to a beneficiary in a country known for money laundering activities. This high-value transfer to a high-risk jurisdiction raises suspicion.

5) D - Donations
* Charitable donations exceeding thresholds set by the AMLC (currently PHP 100,000 for a single donation and PHP 500,000 for cumulative donations within a year).
* Donations from anonymous sources, especially for large amounts.
Example:
A foundation receives a PHP 250,000 cash donation from an anonymous source. This large anonymous donation might be suspicious, especially if the foundation doesn’t typically receive such contributions.

6) E - Precious Metals and Gemstones Transactions
* Purchases or sales of precious metals (gold, diamonds) and gemstones exceeding a threshold set by the AMLC (currently PHP 3 million).
Example:
A jewelry store observes a customer buying a large quantity of loose diamonds with cash, totaling PHP 4 million. This large cash purchase of valuable gemstones could be a red flag.

7) T - Cross Border Movement of Currency and Bearer Negotiable Instruments
* Physical transport of cash or bearer instruments (like bearer bonds) across Philippine borders exceeding a threshold set by the Bangko Sentral ng Pilipinas (BSP).
Example:
A traveler attempts to leave the Philippines with PHP 9 million in cash without declaring it to customs. This large undeclared amount of cash being smuggled out of the country is suspicious.

Question 13

V. BANKING LAWS

D. Anti-Money Laundering Act
(R.A. No. 9160, as amended by R.A. Nos. 9194,
10167, 10365, 10927, and 11521)

5. Safe Harbor Provision – Section 9

Answer 13

Safe Harbor Provision under R.A. No. 9160 (AMLA) - Protection for Covered Institutions (Section 9)

The Anti-Money Laundering Act (AMLA), Republic Act No. 9160 (as amended), offers a “safe harbor provision” in Section 9 to protect covered institutions (banks, money changers, etc.) from civil and criminal liability for reporting suspicious transactions to the Anti-Money Laundering Council (AMLC).

1) Protection:
* Covered institutions are generally immune from civil lawsuits and criminal prosecution if they report suspicious transactions to the AMLC in good faith and based on reasonable grounds.

2) Good Faith and Reasonable Grounds:
* This means the covered institution should have a genuine suspicion of money laundering or terrorist financing based on objective factors.
* They should follow their AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) compliance programs and report activity that raises red flags.

• Examples of Protection:
• A bank teller observes a customer making frequent large cash deposits without a clear explanation for the source of funds. The teller reports this to the bank’s AML compliance officer, who then files a Suspicious Transaction Report (STR) with the AMLC. Even if the customer sues the bank for blocking their account or reporting them, the bank can be protected under the safe harbor provision if they acted in good faith based on reasonable suspicion.
• A money changer detects a customer attempting to exchange a large amount of foreign currency for Philippine pesos using multiple small transactions to avoid reporting requirements (structuring). The money changer reports this suspicious activity to the AMLC. Even if the customer claims the money changer wrongly accused them, the safe harbor provision can offer protection if the money changer had reasonable grounds for suspicion.
• Important Notes:
• The safe harbor provision doesn’t shield covered institutions from liability for:
  
  • Intentionally filing false or misleading reports.
  • Failing to implement a proper AML/CFT compliance program.
  • Not reporting suspicious transactions due to negligence or lack of proper procedures.
• Remember:
  The safe harbor provision encourages covered institutions to be vigilant in reporting suspicious activity without fear of legal repercussions as long as they act in good faith and follow AML/CFT regulations.

Question 14

V. BANKING LAWS

D. Anti-Money Laundering Act
(R.A. No. 9160, as amended by R.A. Nos. 9194,
10167, 10365, 10927, and 11521)

6. Money Laundering
   a. How Committed – Section 4
   b. Predicate Crimes – Section 3

Question 15

V. BANKING LAWS

D. Anti-Money Laundering Act
(R.A. No. 9160, as amended by R.A. Nos. 9194,
10167, 10365, 10927, and 11521)

7. Authority to Inquire; Freezing and Forfeiture – Sections 10-12

Question 16

MCQ on Philippine Bank Conservatorship (Bar Prep)

Question:

A bank experiences a sudden increase in customer withdrawals due to rumors of financial instability. The bank has sufficient assets to cover its liabilities but faces a temporary liquidity issue. In this scenario, which of the following actions can the Bangko Sentral ng Pilipinas (BSP) MOST LIKELY take to address the situation?

A. Immediately order the bank’s closure and appoint the Philippine Deposit Insurance Corporation (PDIC) as receiver.
B. Impose stricter capital adequacy requirements on the bank.
C. Appoint a conservator to manage the bank and restore its liquidity.
D. Recommend a merger with another stronger bank.

Answer 16

Answer: C. Appoint a conservator to manage the bank and restore its liquidity.

Legal Reasoning:

• The scenario describes a temporary liquidity issue, not insolvency or long-term financial problems.
• Section 29 of the relevant law allows the BSP to appoint a conservator when a bank faces “continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors.”
• The goal of conservatorship is to restore the bank’s viability through measures like management changes, debt collection, and rebuilding trust. This targeted approach is more suitable for temporary liquidity issues compared to the harsher measures of closure and liquidation under Section 30.
• Options A and D are more appropriate for severe financial distress. Option B addresses capital adequacy, not immediate liquidity concerns.

Question 17

Imagine a recent case where “XYZ Bank” faced financial difficulties. The bank had been experiencing a high number of loan defaults and a decrease in deposits. The Bangko Sentral ng Pilipinas (BSP) conducted an investigation and discovered evidence of mismanagement by the bank’s directors, leading to significant losses. The BSP determined XYZ Bank was unable to meet its obligations to depositors and creditors.

1. Receivership and Liquidation Trigger

Question: Based on the scenario, which of the following MOST LIKELY justifies the BSP placing XYZ Bank under receivership and liquidation?

A. Suspension of deposit payments due to a temporary financial panic.
B. Violation of a cease and desist order related to minor reporting irregularities.
C. Insufficient assets to cover debts due to mismanagement by the bank’s directors.
D. Unilateral closure of the bank by its management team.

Answer 17

Answer: C. Insufficient assets to cover debts due to mismanagement by the bank’s directors.

Legal Reasoning:

• The scenario describes a situation where XYZ Bank lacks sufficient assets to meet its liabilities, likely due to mismanagement. This aligns with Section 30(b) of the relevant law, which allows the BSP to initiate receivership and liquidation if a bank has “insufficient realizable assets…to meet its liabilities.”
• Option A excludes the scenario as a temporary panic wouldn’t be a trigger.
• Option B describes a minor offense unlikely to warrant such a severe step.
• Option D, while a trigger under Section 30(a), isn’t the most compelling reason in this case with evidence of mismanagement.

Question 18

Imagine a recent case where “XYZ Bank” faced financial difficulties. The bank had been experiencing a high number of loan defaults and a decrease in deposits. The Bangko Sentral ng Pilipinas (BSP) conducted an investigation and discovered evidence of mismanagement by the bank’s directors, leading to significant losses. The BSP determined XYZ Bank was unable to meet its obligations to depositors and creditors.

2. Legal Challenge to Receivership and Liquidation

Question: Considering the scenario, could the stockholders of XYZ Bank successfully challenge the BSP’s decision to place the bank under receivership and liquidation?

A. Yes, as the BSP did not hold a prior hearing before the closure.
B. Yes, if they can prove the BSP acted with grave abuse of discretion.
C. No, the BSP’s decision is final and cannot be challenged.
D. No, only depositors can challenge the BSP’s decision.

Answer 18

Answer: B. Yes, if they can prove the BSP acted with grave abuse of discretion.

Legal Reasoning:

• While Section 30 allows the BSP to act summarily, it doesn’t preclude legal challenges. Stockholders can file a petition for certiorari (Section 30).
• Option A is incorrect; the law allows for a summary decision.
• Option C is incorrect; stockholders can challenge under specific circumstances.
• Option D is incorrect; stockholders have the right to challenge under Section 30.

Note: These MCQs are based on a hypothetical scenario and don’t represent any specific legal case.

Question 19

Challenging MCQs on Exceptions to Secrecy of Bank Deposits (Bar Prep) - Current Event Scenarios

Scenario 1:Suspicious Activity and Legislative Inquiry

Imagine a recent case where a senator, known for advocating for stricter environmental regulations, has received significant deposits into their bank account. A public interest group raises concerns about the source of these deposits, potentially linked to corporations lobbying against the environmental bills. The Senate Ethics Committee initiates an inquiry into the senator’s finances.

Question:

Can the Senate Ethics Committee obtain the senator’s bank deposit information without a court order?

A. Yes, because the Committee has oversight authority over its members.
B. Yes, if the Committee convinces the Bangko Sentral ng Pilipinas (BSP) that the deposits are a threat to financial system stability.
C. No, the Committee needs a court order citing suspicion of money laundering.
D. No, the Committee cannot inquire into the senator’s finances without their consent.

Answer 19

Answer: C. No, the Committee needs a court order citing suspicion of money laundering.

Legal Reasoning:

• While the Senate Ethics Committee has oversight authority, this doesn’t automatically grant them access to confidential bank deposit information.
• Option B is incorrect; the BSP’s role in regulating disclosures is for maintaining financial system stability, not legislative inquiries.
• Option D is too restrictive; legitimate legislative inquiries can occur.

In this scenario, the most relevant exception is a court order. The Committee would need to demonstrate a legitimate reason for seeking the information, such as suspicion of corruption or financial impropriety linked to the senator’s legislative work. Simply questioning the source of deposits wouldn’t be enough without a connection to a crime.

Question 20

Scenario 2: Tax Evasion and Foreign Currency Accounts

A news report alleges that a wealthy social media influencer has been living a lavish lifestyle but not paying taxes in the Philippines. The Bureau of Internal Revenue (BIR) suspects the influencer might be holding undeclared income in foreign currency accounts.

Question:

Can the BIR access the influencer’s foreign currency bank deposit information without their consent?

A. Yes, the BIR can request the information directly from the banks.
B. Yes, if the influencer is a resident alien, foreign currency accounts lose secrecy protection.
C. No, the BIR needs a court order based on probable cause of tax evasion.
D. No, foreign currency accounts have absolute secrecy and cannot be investigated.

Answer 20

Answer: C. No, the BIR needs a court order based on probable cause of tax evasion.

Legal Reasoning:

• Option A is incorrect; the BIR cannot directly access confidential information.
• While residency status can affect certain aspects of taxation, R.A. No. 6426 (Foreign Currency Deposit Act) still protects the secrecy of foreign currency accounts. (Option B is incorrect)
• Option D is too extreme; exceptions exist for legitimate investigations.

The BIR can investigate the influencer’s tax filings and gather evidence. If they have probable cause to believe the influencer has undeclared income in foreign currency accounts, they can petition for a court order to access that specific information. This demonstrates the balance between secrecy and the government’s ability to enforce tax laws.

Question 21

Challenging MCQs on Garnishment of Deposits and Secrecy of Bank Deposits (Bar Prep)

Scenario 1: Tax Delinquency and Foreign Investments

A businessman has significant investments in foreign currency accounts. The Bureau of Internal Revenue (BIR) discovers discrepancies in his tax filings and suspects tax delinquency. Can the BIR directly access his foreign currency bank deposit information without a court order to investigate the source of the funds?

A. Yes, the BIR has the authority to investigate potential tax violations without requiring a court order.
B. Yes, under R.A. No. 6426, foreign currency deposits lose secrecy protection in cases of suspected tax evasion.
C. No, the BIR needs a court order citing probable cause of tax delinquency to access the information.
D. No, the secrecy of foreign currency deposits is absolute and cannot be breached under any circumstances.

Answer 21

Answer: C. No, the BIR needs a court order citing probable cause of tax delinquency to access the information.

Legal Reasoning:

• While the BIR has investigative powers for tax purposes, R.A. No. 1405 and R.A. No. 6426 generally protect the confidentiality of bank deposits, including foreign currency accounts (Option B is incorrect).
• Option A is too broad; a court order is necessary to override secrecy protections.
• Absolute secrecy (Option D) is not the case. There are exceptions for legitimate purposes with proper legal procedures.

The BIR can conduct its initial investigation using available information. If they gather evidence suggesting probable cause of tax delinquency, they can petition the court for a warrant to access the businessman’s foreign currency bank deposit information to verify the source of funds and determine the potential tax liability.

Question 22

Scenario 2: Court Judgment and Celebrity Savings

A social media influencer is sued by a clothing brand for breach of contract and ordered by the court to pay a hefty sum in damages. The influencer claims they don’t have sufficient funds to comply with the judgment. The clothing brand suspects the influencer might be hiding money in a savings account.

Question:

Can the clothing brand, as the judgment creditor, access the influencer’s savings account information without a court order?

A. Yes, because the influencer is a public figure and has a lessened expectation of privacy.
B. Yes, if the clothing brand can convince the bank that the influencer is attempting to evade the judgment.
C. No, the secrecy of deposits protects the influencer’s savings account information.
D. No, but the clothing brand can request a court order to freeze the account to prevent withdrawals.

Answer 22

Answer: D. No, but the clothing brand can request a court order to freeze the account to prevent withdrawals.

Legal Reasoning:

• Public figures don’t lose their right to bank deposit secrecy (Option A is incorrect).
• Banks cannot directly disclose information based on suspicion (Option B is incorrect).
• While R.A. 1405 protects secrecy, exceptions exist for enforcing court orders.

The clothing brand, as the judgment creditor, cannot directly access the influencer’s savings account information. However, they can leverage the court judgment and file a petition to:

1. Freeze the Account: This prevents the influencer from withdrawing funds, potentially forcing them to comply with the judgment.
2. Garnishment Order: If the court finds sufficient evidence (like past spending habits suggesting hidden funds), they might issue a garnishment order to seize a specific amount from the account to satisfy the judgment.

This demonstrates the balance between deposit secrecy and the need to enforce court judgments regarding financial obligations.

Question 23

Challenging MCQs on Required Diligence and Drawee Bank Liability (Bar Prep)

Scenario 1: Cybercrime and KYC Failures

A company becomes a victim of a cyberattack where hackers steal customer login credentials and initiate fraudulent bank transfers from various accounts. The company claims the bank failed to identify the suspicious activity despite unusual transfer patterns.

Question:

Can the company hold the bank liable for the stolen funds based solely on the unusual transfer patterns, even if the login credentials were compromised?

A. Yes, the bank’s failure to detect suspicious activity constitutes a breach of required diligence.
B. Yes, the company is automatically entitled to a full refund as the victims of a cybercrime.
C. No, the compromised login credentials shift liability to the company for failing to safeguard customer data.
D. No, the bank is only liable if the fraudulent transfers involved forged checks or account alterations.

Answer 23

Answer: A. Yes, the bank’s failure to detect suspicious activity constitutes a breach of required diligence.

Legal Reasoning:

• While compromised login credentials are a concern for the company’s data security, the bank also has a duty under R.A. No. 8791 to exercise required diligence.
• KYC procedures include monitoring customer transactions for suspicious activity that might indicate unauthorized access or fraud. Unusual transfer patterns could be a red flag. (Option D is incorrect)
• Option B is too broad; the specific circumstances would be considered.
• The company can potentially argue that the bank’s failure to identify and potentially block the suspicious transfers despite red flags constitutes a breach of required diligence, potentially making the bank liable for at least part of the stolen funds.

Question 24

Scenario 2: Forged Checks and Internal Fraud

A bank employee, in cahoots with an external party, uses stolen company checks with forged signatures to withdraw funds from the company’s account. The bank, unaware of the forgery, processes the checks.

Question:

Who is ultimately liable for the stolen funds: the company, the bank, or both?

A. The company is solely liable as the checks were stolen and the forgeries weren’t detected.
B. The bank is entirely liable for failing to identify the forged signatures despite the employee’s involvement.
C. Both the company and the bank share liability depending on the specific circumstances.
D. The external party involved in the fraud is solely liable.

Answer 24

Answer: C. Both the company and the bank share liability depending on the specific circumstances.

Legal Reasoning:

• The bank has a responsibility to verify the authenticity of checks before processing them. Failing to detect forged signatures could be considered a breach of their duty under R.A. No. 8791 (Option B is not entirely accurate).
• However, the company also has a responsibility to safeguard its checks and prevent them from being stolen.

The court would likely consider factors like:

• The sophistication of the forgeries.
• Any internal controls the company had in place to prevent check theft.
• Whether the bank had previously flagged the employee for suspicious activity.

Based on these factors, the court might determine that both parties share some degree of liability for the stolen funds. (Option D focuses only on the external party)

Question 25

Scenario 1: Family Business and Loan Approvals

The president of a local bank discovers their child recently started a new business. The child approaches the bank for a significant loan to expand their operations. The bank president is excited to support their child’s venture.

Question:

Can the bank president directly approve the loan application for their child’s business without violating R.A. No. 8791?

A. Yes, the bank president can approve the loan if they believe their child’s business is a good credit risk.
B. Yes, with proper disclosure to the board of directors and recusal from final approval discussions.
C. No, approving the loan directly would be a violation of R.A. No. 8791 due to transactions with RELATIVES.
D. No, the bank president cannot be involved in any aspect of the loan application process for their child’s business.

Answer 25

Answer: C. No, approving the loan directly would be a violation of R.A. No. 8791 due to transactions with RELATIVES.

Legal Reasoning:

• The General Banking Law prohibits bank directors and officers from engaging in significant financial transactions with close relatives (RELATIVES) through the bank.
• Approving a significant loan for their child’s business would fall under this category. (Option A is incorrect)
• While disclosure can be important for transparency, it doesn’t eliminate the conflict of interest. (Option B is partially correct)

To comply with R.A. No. 8791, the bank president should:

• Recuse themselves from any discussions or decisions regarding their child’s loan application.
• Allow another qualified officer to handle the application process objectively.

Question 26

Scenario 2: Business Partnerships and Stock Ownership

A bank director is also a major shareholder in a company applying for a substantial loan from their bank. The director believes the company has strong financials and deserves the loan.

Question:

Can the bank director participate in the approval process for the loan application from their company without violating R.A. No. 8791?

A. Yes, the director can participate as long as they disclose their ownership interest.
B. Yes, if they can demonstrate they don’t control the company’s decision-making.
C. No, the director’s ownership interest creates a conflict and necessitates recusal.
D. No, bank directors are entirely prohibited from owning shares in companies that borrow from the bank.

Answer 26

Answer: C. No, the director’s ownership interest creates a conflict and necessitates recusal.

Legal Reasoning:

• R.A. No. 8791 restricts directors and officers from having significant OWNERSHIP interests in companies borrowing heavily from the bank. This prevents self-dealing and ensures loans are based on merit. (Option D is an overreach)
• Even if the director doesn’t control the company, their ownership interest creates a potential conflict of interest. (Option B is not enough)

Following R.A. No. 8791, the director should recuse themselves from the loan approval process to avoid any ethical or legal issues. (Option A partially addresses disclosure but doesn’t eliminate the conflict)

Question 27

Challenging MCQs on Covered Institutions and AML Obligations (Bar Prep)

Scenario 1: Art Auction andSuspicious Buyer

A high-value art auction house (not currently classified as a covered institution under AMLA) facilitates the sale of a famous painting for a suspiciously low price in cash. The buyer remains anonymous and reportedly has no prior auction history.

Question:

Should the auction house be obligated to report this transaction to the AMLC under R.A. No. 9160 (AMLA)?

A. Yes, because all high-value cash transactions are considered suspicious under AMLA.
B. Yes, if the auction house has reason to suspect money laundering based on the red flags (low price, anonymous buyer).
C. No, auction houses are not covered institutions under AMLA as currently written.
D. No, the anonymity of the buyer protects their privacy rights and overrides AML concerns.

Answer 27

Answer: B. Yes, if the auction house has reason to suspect money laundering based on the red flags (low price, anonymous buyer).

Legal Reasoning:

• While the scenario mentions the auction house not being explicitly listed under AMLA, the AMLC has the authority to issue regulations expanding the definition of covered institutions.
• The presence of red flags like an unusually low price and an anonymous buyer with no auction history suggests potential money laundering.

AMLA emphasizes a risk-based approach. Even if not explicitly a covered institution, if the auction house deals with high-value transactions and identifies suspicious activity, they would likely have a duty to report it to the AMLC based on the principles of preventing money laundering and terrorist financing. (Option C is incorrect but highlights a potential regulatory gap)
* Option D prioritizes privacy over AML compliance, which isn’t the case.

Question 28

Scenario 2: Cryptocurrency Exchange and Cross-Border Transfers

A cryptocurrency exchange (not currently a covered institution under AMLA) observes a surge in international money transfers using cryptocurrency, with some originating from countries listed by the AMLC as high-risk jurisdictions.

Question:

Is the cryptocurrency exchange obligated to report these international cryptocurrency transfers to the AMLC under R.A. No. 9160 (AMLA)?

A. Yes, all international cryptocurrency transfers must be reported to the AMLC.
B. Yes, if the exchange identifies any suspicious activity related to the transfers, such as large volumes or links to known criminals.
C. No, cryptocurrency exchanges are not covered institutions under AMLA as currently written.
D. No, the anonymous nature of cryptocurrency transactions makes AML reporting for them impossible.

*

Answer 28

*Answer:** B. Yes, if the exchange identifies any suspicious activity related to the transfers, such as large volumes or links to known criminals.

Legal Reasoning:

• Similar to the previous scenario (Scenario 1), cryptocurrency exchanges are not explicitly mentioned in AMLA’s current list of covered institutions. (Option C is correct but limited)
• However, the AMLC can issue regulations to adapt to new technologies and risks.
• The surge in international transfers from high-risk jurisdictions could be a red flag.

AMLA’s focus on risk assessment applies here. The exchange should monitor for suspicious activity and report it to the AMLC if they have reasonable grounds to believe the transfers might be linked to money laundering or terrorism financing. (Option D exaggerates the anonymity issue; some tracing is possible)

These scenarios highlight the evolving nature of AML regulations and the importance for institutions, even those not explicitly listed under AMLA, to be vigilant about money laundering risks and adapt their procedures accordingly.

Question 29

Challenging MCQs on Covered Transactions and AML Reporting (Bar Prep)

Scenario 1: Crypto Donations and Charity Transparency

A well-known non-profit organization receives a significant donation in cryptocurrency from an anonymous source. The donation value exceeds the AMLC threshold for reporting cash donations.

Question:

Is the non-profit organization obligated to report this cryptocurrency donation to the AMLC under R.A. No. 9160 (AMLA)?

A. Yes, because all donations exceeding the threshold must be reported regardless of the form (cash or cryptocurrency).
B. Yes, if the non-profit organization has concerns about the anonymity of the donor and potential money laundering.
C. No, cryptocurrency donations are not explicitly covered under the current definition of covered transactions in AMLA.
D. No, reporting cryptocurrency donations would violate the donor’s privacy rights.

Answer 29

Answer: A. Yes, because all donations exceeding the threshold must be reported regardless of the form (cash or cryptocurrency).

Legal Reasoning:

• While AMLA doesn’t explicitly mention cryptocurrency, the focus is on reporting large donations exceeding a threshold (currently PHP 100,000 for a single donation).
• The AMLC’s objective is to prevent money laundering, and anonymity can be a risk factor. (Option D is incorrect; AML has a higher public interest)

AMLA emphasizes a risk-based approach. The non-profit organization should report the donation to comply with AMLA and allow the AMLC to assess any potential money laundering risks associated with the anonymity of the cryptocurrency transaction. (Option C is partially correct but doesn’t consider the evolving interpretation)

*

Question 30

*Scenario 2: Art Auction andSuspicious High Roller**

A foreign high roller purchases a famous painting at a high-end art auction house (a covered institution under AMLA) for a suspiciously high price using a series of cashier’s checks from various banks, all seemingly below the individual reporting threshold.

Question:

Should the auction house report this transaction to the AMLC under R.A. No. 9160 (AMLA)?

A. Yes, because the total purchase price exceeds the threshold for cash transactions.
B. Yes, due to the suspicious nature of using multiple cashier’s checks to possibly circumvent reporting requirements.
C. No, the use of cashier’s checks avoids the cash transaction reporting threshold.
D. No, the auction house cannot investigate the source of the buyer’s funds without violating privacy laws.

Answer 30

Answer: B. Yes, due to the suspicious nature of using multiple cashier’s checks to possibly circumvent reporting requirements.

Legal Reasoning:

• While the individual cashier’s checks might be below the reporting threshold, structuring transactions to avoid reporting requirements is a red flag in AML. (Option C is incorrect)
• The high purchase price and the use of multiple checks raise suspicions about the source of funds.

AMLA principles encourage covered institutions to report suspicious activity. The auction house should report this transaction to the AMLC to allow them to investigate further and determine if money laundering is a concern. (Option D prioritizes privacy over AML compliance, which isn’t the case)

Question 31

Scenario 1: Leaked Casino Transactions andSuspicious Activity

A data leak exposes high-value transactions by politically connected individuals at a casino (covered institution under AMLA). The casino did not report any suspicious activity to the AMLC.

Question:

Can the casino rely on the safe harbor provision of R.A. No. 9160 (AMLA) to protect itself from liability for failing to report these transactions?

A. Yes, because the information about the transactions was leaked without the casino’s knowledge.
B. Yes, if the casino can demonstrate they were unaware of any suspicious activity by these individuals.
C. No, the safe harbor provision doesn’t apply to transactions involving politically connected persons.
D. No, failing to report suspicious transactions due to negligence negates safe harbor protection.

Answer 31

Answer: D. No, failing to report suspicious transactions due to negligence negates safe harbor protection.

Legal Reasoning:

• The safe harbor provision protects covered institutions that report suspicious activity in good faith. (Option B is partially correct but doesn’t address the reporting failure)
• The casino’s lack of reporting suggests negligence in identifying or reporting suspicious activity, regardless of the source of the information about the transactions. (Option A is irrelevant)
• AMLA applies to all covered institutions and doesn’t exempt transactions involving politically connected individuals. (Option C is incorrect)

Question 32

Scenario 2: Cryptocurrency Exchange and Anti-Terror Financing Concerns

A cryptocurrency exchange (covered institution under AMLA) observes a surge in anonymous cryptocurrency transactions originating from a country designated by the AMLC as a high-risk jurisdiction for terrorism financing.

Question:

Can the cryptocurrency exchange rely on the safe harbor provision of R.A. No. 9160 (AMLA) if they report these suspicious transactions to the AMLC?

A. No, reporting anonymous cryptocurrency transactions is a privacy violation and negates safe harbor protection.
B. No, the safe harbor provision only applies to traditional banking transactions.
C. Yes, reporting suspicious activity based on red flags like anonymity and high-risk origin is protected by the safe harbor provision.
D. Yes, but only if the cryptocurrency exchange can identify the source of the funds.

Answer 32

Answer: C. Yes, reporting suspicious activity based on red flags like anonymity and high-risk origin is protected by the safe harbor provision.

Legal Reasoning:

• The safe harbor provision encourages reporting suspicious activity, and anonymity can be a red flag for money laundering or terrorism financing. (Option A prioritizes privacy over AML compliance, which isn’t the case)
• AMLA applies to covered institutions regardless of the type of transaction (cash, cryptocurrency). (Option B is incorrect)

The cryptocurrency exchange can report the transactions while disclosing the limitations of their ability to identify the source of the funds due to the anonymous nature of cryptocurrency. (Option D emphasizes full identification, which might not always be possible)

These scenarios highlight the importance for covered institutions to understand their AML/CFT obligations and utilize the safe harbor provision to protect themselves from liability while fulfilling their role in preventing money laundering and terrorist financing.