Legal Enforcement Against Business Crimes (PDF)

LECTURE 6 Legal Enforcement Against Business Crimes 3.1 Prosecution Authorities / Powers There are generally two stages to a criminal prosecution: ➔ Preliminary Investigation – this is an inquiry or proceeding to determine whether there...

LECTURE 6 Legal Enforcement Against Business Crimes 3.1 Prosecution Authorities / Powers There are generally two stages to a criminal prosecution: ➔ Preliminary Investigation – this is an inquiry or proceeding to determine whether there is probable cause to engender a well-founded belief that an offense has been committed and that the respondent is probably guilty of the offense and should be held for trial ➔ Court Proceedings – this occurs when the preliminary investigation results in a finding of probable cause and a formal criminal indictment (called an “information”) is filed in court. Here, the accused will undergo trial where the prosecution is tasked to prove the accused’s guilt beyond reasonable doubt The main authorities are: ➔ Various provincial, city, regional, and national prosecutors – the officers of these institutions are authorized to conduct preliminary investigations of crimes cognizable by the proper court in their respective territorial jurisdictions ◆ These authorities will investigate and hear the case during the preliminary investigation. Once they find probable cause, they will file the Information with the court. The Ombudsman or his deputies also conduct the preliminary investigation with respect to offenses cognizable by the Sandiganbayan (usually offenses involving public officials in higher ranking positions) ➔ Prosecution Division of the Bureau of Internal Revenue (BIR) – the BIR may also institute criminal actions against persons violating internal revenue laws and other tax laws administered by the BIR ➔ National Bureau of Investigation (NBI) & the Philippine National Police (PNP) – these law enforcement agencies can also assist in the investigation of alleged violations of the law ◆ Once the case is already filed in court, the public prosecutor may authorize a private prosecutor (counsel of the private complainant/victim) to prosecute the case, insofar as the civil aspect of the criminal case is concerned Power of Interview ➔ The prosecution authorities referred to above (and their deputies) can conduct interviews during the hearings of the case or during the course of their investigations. They can receive statements under oath or take oral evidence of witnesses. Through subpoenas, the prosecuting authorities can also summon witnesses to appear and testify under oath, and the attendance or evidence of an absent and recalcitrant witness can be enforced by application to any trial court. ➔ For violations of the Tax Code, the Commissioner of Internal Revenue can summon those liable for tax or those required to file a return (as well as other related officers/employees) to appear before the Commissioner or his representative at a time and place specified in the summons and produce such books, papers, records, or other data, and give testimony Powers of search/to compel disclosure/to obtain evidence ➔ The prosecution authorities referred to above can invite/subpoena witnesses or respondents for interview/investigation, and ask them to produce evidence. However, the prosecution authorities do not have powers of contempt and cannot compel such persons to appear and/or bring evidence  ➔ A court may issue a search warrant, which can be enforced to legally search a certain place to look for personal property. Such a warrant may be issued if there is probable cause in connection with a specific offense to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses that he/she may produce. The search warrant should contain a description of the place to be searched and the things to be seized ➔ For violations of the Tax Code, the Commissioner of Internal Revenue can also issue subpoena and subpoena duces tecum (for the provision of evidence), and can examine any book, paper, record, or other data which may be relevant or material in determining the tax liability of a person. The Commissioner is empowered to obtain any information from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from any office or officer of the national and local governments, government agencies and instrumentalities. The Commissioner can also inquire into bank deposit accounts and other related information held by financial institutions. Power of Arrest ➔ Arrests cannot be made for administrative sanctions. However, an arrest can be made where both: ◆ A warrant of arrest has been issued, on the personal determination of a judge based on the evidence submitted ◆ It is a necessary to place the accused in custody in order to not frustrate the ends of justice ◆ The officers to whom the warrant of arrest was delivered for execution must ensure the warrant is executed within ten days of receipt ➔ A peace officer or private person can also arrest a person without warrant when either (among other things): ◆ The person to be arrested, has committed, is actually committing, or is attempting to commit an offense ◆ An offense has just been committed, when the person arresting has probable cause to believe, based on personal knowledge of facts or circumstances, that the person to be arrested has committed it ◆ The person arrested must be delivered to the nearest police station or jail ➔ Arrests can be made by both the PNP officers and NBI officer LECTURE 7 Legal Enforcement Against Business Crimes 3.3 Court Orders or Injunctions ➔ Provisional remedies can be used in a civil action that has been initiated in conjunction with a criminal action. These remedies include: ◆ Attachment ◆ Receivership ◆ Preliminary injunction ➔ For violations of the Tax Code, on the issuance of a ruling, order or decision by the Court of Tax Appeals (CTA) favorable to the national government, the CTA will issue an order authorizing the BIR to: ◆ Seize and distraint any personal property or interests in/rights to personal property  ◆ Levy the real property of such persons as sufficient to satisfy the tax or charge ➔ For criminal offenses, the details of the offenses charged are indicated in the Information. The decision on whether to charge an accused with an offense is recommended by the investigating prosecutor and approved by the provincial/city prosecutor or chief state prosecutor ➔ The Ombudsman or their deputy makes this determination for offenses cognizable by the Sandiganbayan (usually for offenses involving public officials in higher ranking positions) ➔ For violations of the Tax Code, the Commissioner of Internal Revenue is authorized to issue assessments for any deficiency tax and has the power to divide on protests filed by taxpayers ◆ The CTA has exclusive appellate jurisdiction to review, on appeal, the decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, related penalties, or other matters arising under the National Internal Revenue or other laws administered by the BIR, and over all criminal offenses arising from violations of the National Internal Revenue Code and other laws administered by the BIR ➔ An injunction writ cannot be issued by a court to delay an investigation being conducted by the Ombudsman, unless there is a prima facie evidence that the subject matter of the investigation is outside the jurisdiction of the Office of the Ombudsman. Furthermore, no court can hear an appeal or application for a remedy against the decision or findings of the Ombudsman, except the Supreme Court, on a pure question of law 3.4 Civil/Administrative Proceedings or Sanctions Proceeds of the crime and the instruments or tools with which it was committed are subject to forfeiture by the government 3.5 Criminal Proceedings Right to Bail ➔ Generally, the right to bail is only available post-detention/before conviction and will depend on the offense. An accused has a right to bail unless the offense is punishable by more than 20 years imprisonment and the evidence of guilt is strong ➔ Bail is discretionary when the accused has already been convicted by the Regional Trial Court of an offense not punishable by death, or more than 20 years imprisonment, or when the accused is charged with an offense punishable by more than 20 years imprisonment ➔ Bail will be denied if an accused is charged with imprisonment for a term exceeding six years and any of the following applies: ◆ He is a repeat offender ◆ He has previously escaped from legal confinement, evaded sentence or violated condition of his bail without justification ◆ He has committed the offense while under probation, parole or conditional pardon ◆ He is a flight risk ◆ He is likely to commit another crime during the pendency of the appeal Penalties ➔ Estafa – penalty depends on the amount involved and ranges from imprisonment of one month and one day to 20 years ➔ Prohibited acts under the Access Devices Law – penalty depends on the actual act committed and ranges from a fine of P10,000 or twice the value obtained from the offense (whichever is  greater) and imprisonment of ten to 20 years ➔ Computer-related fraud under Cybercrime Act – penalty is imprisonment of six to 12 years and/or fine of at least P200,000 ➔ Swindling committed through the use of information and communications technologies under Cybercrime Act – penalty is one degree higher than the penalty prescribed under the Penal Code (and will depend on the amount involved) ➔ Under the Cybercrime Act, corporations are fined the equivalent of at least double the amount of fine imposed on individuals, up to a maximum of P10 million, if: ◆ The act is knowingly committed on behalf of, or for the benefit of, the corporation by an individual who has a leading position within the corporation; and ◆ The act falls within the scope of authority of such individual ➔ For violations of the Tax Code in connection with fraud – penalty depends on the actual act committed and ranges from a fine of P10,00 to P100,000 and imprisonment of one to ten years. ◆ For corporations, the Tax Code provides that the penalties will apply to the corporation’s officers or employees who committed the offense. LECTURE 8 Legal Enforcement Against Business Crimes 3.6 Civil Suits (Corporate Fraud) ➔ The Civil Code also contains provisions declaring a person liable for fraud in a corporate/business setting, for example: ◆ Parties who are guilty of fraud in the performance of their obligations are liable for damages (Article 1170) ◆ Any waiver of an action for future fraud is void (Article 1171) ◆ Creditors are protected where contracts are intended to defraud them (Article 1313) ◆ Contracts are voidable where the consent of one of the parties is obtained by fraud (Article 1344) ➔ All cases involving insider trading must be brought before the regional trial court, which will have exclusive jurisdiction to hear the lawsuit. The regional court is authorized to award damages up to three times the amount of the transaction plus actual damages ◆ Exemplary damages can also be awarded in cases of bad faith, fraud, malevolence, or wantonness in violation of the SRC or the SRC IRR, or any other rules or regulations issued pursuant to these laws ➔ In the Philippines, the main laws relevant to fraud/corporate fraud are contained in: ◆ Article 315 on Swindling/Estafa of the RPC ◆ Civil Code of the Philippines ◆ National Internal Revenue Code ◆ Cybercrime Prevention Act ◆ Doctrines/precedents established in cases of the Supreme Court of the Philippines also operate as law in the Philippines 3.7 Regulatory Provisions and Authorities The main regulatory provisions and legislation relevant to insider dealing and market abuse The Securities Regulation Code (SRC) and its Revised Implementing Rules and Regulations (SRC IRR) are the governing laws in the Philippines relevant to insider trading and market abuse LECTURE 9 Market and Corporate Liability 4.1 Due Diligence ➔ Every broker dealer must act with due skill, care, and diligence, in the best interest of his clients and for the integrity of the market. In so doing, every registered person must: ◆ Take all reasonable steps to promptly execute client orders in a way that conforms with the client’s instructions ◆ Execute client orders on the best available terms ◆ Ensure that transactions executed on behalf of clients are promptly and fairly allocated on whose behalf the transactions were executed ➔ The SRC IRR provides that a registrar (for example, banks, brokers, dealers, investment houses, investment company advisers, and issuer companies with respect to offerings of own securities) must establish their own internal procedures of guiding their personnel in relation to evaluating whether a buyer of securities has the necessary qualifications to satisfy a “qualified buyer” status, provided only registered persons (salesman, fixed income market salesman, certified investor solicitor and associated person) will conduct such evaluation ◆ In conducting the evaluation, the registrar must act with due diligence in the conduct of the evaluation and ensure that the required supporting documents are submitted to it at the time of registration. Such documents will be considered and treated as records of the registrar in accordance with the applicable provisions of the SRC ➔ In relation to money laundering, covered persons must: ◆ Establish and record the true identities of their clients (based on official documents, as defined under the AMLA RIRR) ◆ Maintain a system of verifying the true identity of their clients based on reliable, independent source data, documents of information and, in the case of corporate clients, require a system of verifying their legal existence and organizational structure, as well as the authority and identification of all persons purporting to act on their behalf ◆ Establish appropriate systems and methods and adequate internal controls that comply with the AMLA, AMLA RIRR, other AMLC issuances, the guideline issued by other supervising authorities and all internationally accepted anti-money laundering standards, for verifying and recording the true and full identity of their customers ➔ In conducting customer due diligence, a risk-based approach may be undertaken depending on the type of customer, business relationship or nature of the product, transaction or activity ➔ Generally, unless the relevant laws provide otherwise, a corporate entity is not subject to criminal liability, except for the imposition of the fine and penalties imposed directly against the corporate entity ➔ The corporation’s employees/representatives who performa or are responsible for the punishable acts will be subject to criminal liability 4.2 Corporate Liability ➔ Generally, and unless the relevant laws provide otherwise, a corporate entity is not subject to criminal liability, except for the imposition of the fine and penalties imposed directly against the corporate entity ◆ The corporation’s employees/representatives who perform or are responsible for the punishable acts will be subject to criminal liability 4.3 Cartels ➔ The main regulatory provisions relevant to cartels are set out in the Competition Act (Republic Act No. 10667). The term “cartel” is not specifically referred to or defined, but the Competition Act prohibits anti-competitive agreements ➔ The following agreements between or among competitors are considered anti-competitive and are generally prohibited: ◆ Restricting competition as to price, the price of components, or other terms of trade ◆ Fixing price at an auction or in any form of bidding including cover bidding, bid suppression, bid rotation and market allocation and other analogous practices of bid manipulation ➔ In addition, the following agreements between and among competitors are prohibited for having the object or effect of substantially preventing, restricting or lessening competition: ◆ Setting, making, or controlling production, markets, technical development, or investment ◆ Dividing or sharing the market, whether by volume or sales or purchases, territory, type of goods or services, buyers or sellers or any other means ➔ Other agreements which have the object or effect of substantially preventing, restricting or lessening competition are also prohibited ➔ The Office for Competition under the Department of Justice (DOJ-OFC) is tasked with conducting preliminary investigations into cartel behavior and the prosecution of all criminal offenses covered by the Competition Act and other competition-related laws ➔ In the enforcement of the competition law, the Competition Commission, on its own, or on the filing of a verified complaint has the sole and exclusive authority to initiate and conduct a fact-finding or preliminary inquiry. After the Competition Commission considers the statements, documents or articles produced during the fact-finding or preliminary inquiry, ti will conclude its investigation by either: ◆ Issuing a resolution ordering closure of the investigation, if no violation is found ◆ Issuing a resolution to proceed to the conduct of a full administrative investigation ➔ The Competition Commission can issue an order for the respondent entity to cease and desist the carrying out of acts of cartel behavior, the continued performance of which would result in a material and adverse effect on consumers or competition in the relevant market. The issuance of the order must be done following due notice and hearing, and on the basis of facts and evidence presented ➔ The Competition Commission can file criminal complaints to the Department of Justice (DOJ) for violations of the Competition Act or relevant laws for preliminary investigation and prosecution before the proper court if the evidence so warrants. The DOJ will then conduct the preliminary investigation in accordance with the Revised Rules of Criminal Procedure ➔ The Competition Commission can conduct inquiries by: ◆ Administering oaths ◆ Issuing subpoena duces tecum ◆ Summoning witnesses ◆ Commissioning consultants or experts ➔ The Commission is responsible for determining whether any provision of the Competition Act has been violated. The Commission is empowered to enforce its orders and carry out its resolutions by making use of any available means, provisional or otherwise, under existing laws and procedures including the power to punish for contempt and to impose fines ➔ Entities participating in cartels which may qualify as anti-competitive agreements under the Competition Act can be subjected to administrative and criminal penalties. The Commission can impose administrative fines on any entity found to have violated the provision on anti-competitive agreement. The range of administrative penalties are as follows: ◆ First offense – a fine up to P100 million] ◆ Second offense – a fine of P100 million to P250 million ➔ With respect to criminal liability, an entity that enters into any anti-competitive agreement will be subject to imprisonment of two to seven years, and a fine of P50 million to P250 million. The law imposes the penalty of imprisonment on the company’s officers, directors, or employees holding managerial positions, who are knowingly and wilfully responsible for the violation when juridical entities are involved LECTURE 10 Market and Corporate Liability 4.4 Immunity and Leniency ➔ The Competition Commission may grant immunity from the lawsuit or a reduction to the fine which would otherwise be imposed on a participant in an anti-competitive agreement. Immunity would be granted in exchange for the voluntary disclosure of information regarding the agreement if it satisfied specific criteria prior to or during the fact-finding or preliminary investigation stage. Immunity from a lawsuit will be granted to the entity if all of the following conditions are met: ◆ At the time the entity comes forward, the Competition Commission has not received information about the activity from any other source ◆ Upon the entity’s discovery of illegal activity, the entity took prompt and effective action to terminate its participation in the agreement ◆ The entity reports the wrongdoing with candor and completeness and provides full, continuing, and complete cooperation throughout the investigation ◆ The entity did not coerce another party to participate in the activity and clearly was not the leader in, or the originator of, the activity ➔ Even where the Competition Commission has received information about the illegal activity after commencing a fact-finding or preliminary inquiry, the reporting entity will be granted leniency, provided the second and third conditions listed above the following additional requirements are complied with: ◆ The entity is the first to come forward and qualify for leniency ◆ At the time the entity comes forward, the Commission does not have evidence against the entity that is likely to result in a sustainable conviction ◆ The Commission determines that granting leniency would not be unfair to others ➔ The DOJ-OFC may also grant leniency or immunity when there is already a preliminary investigation pending before it 4.5 Cross-border Cooperation Obtaining Evidence ➔ The Corruption Convention mandates for international cooperation requiring member state parties to cooperate in criminal matters in accordance with the Convention. The Convention provides that states must consider assisting each other in investigations and proceedings on civil and administrative matters relating to corrupt where appropriate and consistent with their domestic legal system ➔ The Corruption Convention requires states to provide each other with the widest possible mutual legal assistance in investigations, prosecutions and judicial proceedings in relation to the offenses covered under the Convention. Mutual legal assistance to be afforded may be requested for the purpose of (among other things): ◆ Taking evidence or statements of persons ◆ Effecting service of judicial documents ◆ Executing searches and seizures, and freezing orders ◆ Examining object and sites ◆ Providing information, evidentiary items and expert evaluations ◆ Providing originals or certified copies of relevant documents ➔ The parties (both prosecution and defense) may likewise obtain evidence abroad through discovery procedures or the modes of discovery sanctioned by the Rules of Court. These discovery procedures include the taking of depositions. The Rules of Court provide that depositions can be taken outside of the Philippines before: ◆ A secretary of embassy or legation, consul general, consul, vice-consul, or consular agent of the Republic of the Philippines ◆ A person or officer as may be appointed by the commission or under letters rogatory ◆ A person authorized to administer oaths by written stipulation of the parties ➔ With respect to money-laundering, the AMLA provides for mutual assistance among states. The Anti-Money Laundering Council (AMLC) can obtain assistance from a foreign country. The AMLA provides that the AMLC may make request to any foreign state for assistance: ◆ Tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity ◆ Obtaining information needed in relation to nay covered transaction, money laundering offense or any other matter directly or indirectly related to such offense ◆ To the extent allowed by the laws of the foreign state, applying with the proper court of the foreign jurisdiction for an order to enter any premises belonging to or in the possession or control of, any or all of the persons named in the request, and/or search any or all such persons named in the request and/or remove any document, material or object named in the request Seizing Assets ➔ The Corruption Convention requires states to provide each other with the widest possible measures of mutual legal assistance in investigations, prosecutions and judicial proceedings in relation to offenses covered under the Convention. The mutual legal assistance to be afforded can be requested for the purpose of executing searches and seizures, and freezing orders (among others) ➔ The Corruption Convention provides for measures for the direct recovery of property. For example, the Convention requires parties to take such measures as necessary to permit another state party to initiate a civil action in its courts to establish title to or ownership of property acquired through the commission of an offense established in accordance with this Convention, in accordance with its domestic law. The Corruption Convention provides that it will apply to the prevention, investigation and prosecution of corruption to the freezing, seizure, confiscation and return of any proceeds of offenses established in accordance with the Convention.  ➔ The proceeds of the crime, as well as the instruments or tools with which it was committed, can also be seized under local laws Sharing Information ➔ As to the sharing of information, the AMLA provides for mutual assistance among states. The AMLC may execute the request where a foreign state makes a request for assistance in the investigation or prosecution of a money laundering offense. The AMLC may also refuse to execute the request and will inform the foreign state of any valid reason for not executing the request or for delaying its execution. The AMLC may execute a request for assistance from a foreign state by providing the state with information requested through the procedures set out in the AMLA Domestic Courts Asserting Extra-Territorial Jurisdiction ➔ Under the Penal Code, domestic criminal courts can assert extra-territorial jurisdiction for crimes committed by those who: ◆ Commit an offense while on a Philippine ship or airship ◆ Forge or counterfeit any coin or currency note of the Philippine Government or obligations and securities issued by the government ◆ Are liable for introducing forged or counterfeit obligations and securities into the Philippines ◆ While being public officers or employees, commit offenses in the exercise of their functions ◆ Commit any of the crimes against national security and the law of nations ➔ Furthermore, the Competition Act is enforceable against any person or entity engaged in any trade, industry and commerce in the Philippines. The Competition Act also applies to international trade that has direct, substantial, and reasonably foreseeable effects in trade, industry, or commerce in the Philippines, including acts done outside the Philippines The statutes aimed at blocking the assertion of foreign jurisdictions within their territory ➔ The Constitution will take precedence if a conflict with international law arises. If the international law conflicts with domestic law, both will be given effect, but if they are inconsistent, the law which is later in date will prevail ➔ Furthermore, even if the parties agree that laws other than Philippine laws will govern their contract/transactions, the Civil Code limits the applicability of the stipulated foreign law if any provision conflicts with the prohibitive laws of the Philippines, public order, public policy or good customs ➔ The Philippines also adheres to the principles of conflict of laws in cases involving parties or acts belonging to different jurisdictions. For example, a stipulation on the choice of forum is generally recognized and respected under Philippine law. However, such stipulation may be set aside and the parties may be compelled to litigate before a court other than the one specified, based on the principle of forum non-conveniens. Under this principle, a Philippine court may assume jurisdiction over a dispute if the following requisites are met: ◆ The court is one to which the parties may conveniently resort to ◆ The court is in a position to make an intelligent decisions as to the law and the facts ◆ The court has, or is likely to have, the power to enforce its decision ➔ The Philippines also adheres to the territoriality principle (where the penal law punishes crimes committed within Philippine territory). Crimes committed outside the Philippines are not within the country’s jurisdiction to be penalized, except only for certain crimes ➔ There is no Philippine employment law dealing specifically with whistleblowers within private business establishments. There is also no statutory definition of a whistleblower or a statutory  comparison between a whistleblower and a leaker. ➔ Issues relating to whistleblower protection within private employers are subject to general Philippine employment and contract laws ➔ To illustrate, an employer can only dismiss the employee if both: ◆ There is a legal (that is, a just or authorized) cause for the dismissal as defined in the Labor Code of the Philippines ◆ The employer has observed the procedures required for the cause of the termination ➔ “Just” causes are those arising form wrongful acts or omission of the employee, while “authorized” causes are based on economic considerations of the employer or health condition of the employee ➔ Whistleblowing made in good faith should not be considered as a ground to discipline an employee. However, malicious and/or baseless accusations may constitute misconduct, which may merit the imposition of disciplinary sanctions up to and including dismissal, depending on the gravity of the offense and other circumstances surrounding the malicious and/or baseless accusations 4.6 Whistleblowing Other broad protections arising from Philippine employment laws include rules against discrimination of employees and non-diminution of benefits. For example, it is “unlawful for an employer to refuse to pay or to reduce wages and benefits, discharge or in any manner discriminate against any employee who has filed any complaint or instituted any proceeding under [the Labor Code, Title on Wages] or has testified or is about to testify in such proceedings.” Moreover, it is considered unfair labor practice for an employer to “dismiss, discharge, or otherwise prejudice or discriminate against an employee for having given or being about to give testimony under the Labor Code.” Under the general laws on contract, the employer and employee may agree on the type of riughts and protections afforded to whistleblowers through their employment agreement and company policies or practices on whistleblowing, provided such rights and protections are not contrary to law, morals, good customs, public order, or public policy. Under the general laws on contract, the employer and employee may agree on the type of rights and protections afforded to whistleblowers through their employment agreement and company policies or practices on whistleblowing, provided such rights and protections are not contrary to law, morals, good customs, public order, or public policy From a criminal law perspective, a person involved in an offense may be excluded from a criminal charge if he becomes a state witness in accordance with the law. However, the accused who appears the most guilty will be disqualified from being a state witness