Corporate Liability in Philippines

By Miguel Galvez (Baker McKenzie Philippines)

I.              Corporate liability deriving from criminal activity

1.             Nature of the liability (criminal, administrative) and basis (crimes committed by directors or representatives, in the interest of or for the advantage of the company)

Criminal liability

Philippine law generally does not impose corporate liability for the commission of crimes. Rather, it is the directors, officers or employees of the corporation who are held responsible for crimes and therefore also charged and penalized for the same.[1]

However, if the penal law creates an offense for which a corporation may be punished and then prescribes a fine, or both fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined.[2]

On the other hand, if the statute defines a crime that may be committed by a corporation but prescribes that the penalty be imposed on the officers, directors or employees of such corporation or other persons responsible for the offense, only such individuals will suffer such penalty.[3]

Administrative liability

The primary registration or business license of a Philippine corporation or a foreign corporation doing business in the Philippines may be revoked if it is proven that the corporation committed serious violations of Philippine law or otherwise performed acts that would render it unfit to transact business in the Philippines.

Some laws impose this administrative penalty in addition to a criminal penalty for a violation of its provisions.

2.             Type of crimes/administrative offenses from which corporate liability may arise

The felonies penalized under the Revised Penal Code of the Philippines do not provide corporate criminal liability. Corporate criminal liability is found in various special laws, such as the following:

  • Evasion of the laws on the nationalization of certain rights, franchises or privileges (Sections 2-A and 3, C.A. 108 as amended, otherwise known as “The Anti-Dummy Law”)
  • Failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt or to return the said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt (Section 13, P.D. 115, otherwise known as “The Trust Receipts Law”)
  • Illegal recruitment and other violations of The Labor Code (Articles 39 and 289 of P.D. 442. otherwise known as “The Labor Code of The Philippines”)
  • Insurance-related offenses, such as acting as a general agent of any insurance company without a written power of attorney that is duly executed by such insurance company and registered with the commissioner in order to receive notices, summons and legal processes for and on behalf of the insurance company concerned (Section 317 and 442, P.D. 612 as amended, otherwise known as the “Insurance Code”)
  • Violations of the Revised Forestry Code, such as cutting, gathering and collecting timber or other forest products without license, and illegal occupation of national parks system and recreation areas and vandalism therein (Chapter IV, P.D. 705, otherwise known as the “Revised Forestry Code”)
  • Fencing, which refers to the act of any person who, with intent to gain for himself or for another, shall buy, receive, possess, conceal, sell or dispose of, or in any other manner, deal in anything of value, which he knows or should be known to him, to have been derived from the proceeds of a crime of robbery or theft (Section 4, P.D. 1612, otherwise known as “The Anti-Fencing Law”)
  • Operation of schools and educational programs without authorization and/or the operation thereof in violation of the terms of recognition (Section 28, B.P. 232, otherwise known as “Education Act of 1982”)
  • Election-related offenses, such as vote-buying and vote-selling and coercion of subordinates (Article XII, B.P. 881, otherwise known as “The Omnibus Election Code”)
  • Violations of the National Code of Marketing of Breastmilk Substitutes, Breastmilk Supplements and Other Related Products, such as the unauthorized distribution to pregnant women or mothers of infants any gifts or articles or utensils that may promote the use of breast milk substitutes or bottle feeding (Section 13, E.O. 51 s. 1986, otherwise known as the “Milk Code”)
  • Violations of the Food and Drug Administration (FDA) Act of 2009, such as the manufacture, sale, offering for sale or transfer of any food, drug, device or cosmetic that is adulterated or misbranded, and the adulteration or misbranding of any health product (Section 11, R.A. 3720 as amended, otherwise known as “Food and Drug Administration (FDA) Act of 2009”)
  • Violations relating to agrarian reform, such as the ownership or possession of agricultural lands in excess of the total retention limits or award ceilings, etc. (Sections 73 and 74, R.A. 6657, otherwise known as the “Comprehensive Agrarian Reform Law”)
  • Discrimination against disabled persons (Section 46, R.A. 7277, otherwise known as “Magna Carta for Persons with Disability”)
  • Consumer-related offenses, such as manufacture for sale, offer for sale, distribute in commerce, or import into the Philippines any consumer product which is not in conformity with an applicable consumer product quality or safety standard; and manufacture for sale, offer for sale, distribute in commerce, or import into the Philippines any consumer product which has been declared as banned consumer product (Article 18, R.A. 7394 as amended, otherwise known as “Consumer Act of the Philippines”)
  • Violations of the Price Act, such as the illegal price manipulation and violation of price ceiling (Section 17, R.A. 7581, otherwise known as the “Price Act”)
  • Commercial dealings in laundry and industrial detergents containing hard surfactants (Section 6, R.A. 8970, otherwise known as “An Act Prohibiting the Manufacture, Importation, Distribution and Sale of Laundry and Industrial Detergents containing Hard Surfactants and Providing Penalties for Violation thereof”)
  • Violations of the Ecological Solid Waste Management Act of 2000, such as littering, throwing, dumping of waste matters in public places, such as roads, sidewalks, canals, esteros or parks and establishment, or causing or permitting the same, and undertaking activities or operating, collecting or transporting equipment in violation of sanitation operation and other requirements or permits set forth and established pursuant to this act (Section 48, R.A. 9003, otherwise known as the “Ecological Solid Waste Management Act of 2000”)
  • Malicious reporting of money laundering (Section 14[c], R.A. 9160, otherwise known as the “Anti-Money Laundering Act”)
  • Violations in relation to dangerous drugs, such as the importation, sale, trading, administration, dispensation, delivery, distribution, transportation, or manufacture of dangerous drugs or controlled precursors and essential chemicals (Section 30, R.A. 9165, otherwise known as “The Comprehensive Dangerous Drugs Act”)
  • Violations in relation to bidding in government procurement contracts, such as submitting eligibility requirements that contain false information or falsified documents and participating in a public bidding using the name of another or allowing another to use one’s name for the purpose of participating in a public bidding (Section 65, R.A. 9184, otherwise known as the “Government Procurement Reform Act”)
  • Trafficking in persons (Section 10, R.A. 9208, otherwise known as the “Anti-Trafficking in Persons Act”)
  • Tobacco-related offenses, such as the sale or distribution of tobacco products to minors by means of a vending machine or any self-service facility or similar contraption or device that is prohibited, except at point-of-sale establishments (Section 32, R.A. 9211, otherwise known as “Tobacco Regulation Act of 2003”)
  • Violations of the Optical Media Act of 2003, such as engaging in the importation, exportation, acquisition, sale or distribution of, or possession or operation of manufacturing equipment, parts and accessories without the necessary licenses from the Optical Media Board, and engaging in the mastering, manufacture, replication, importation or exportation of optical media without the necessary license from the Optical Media Board (Section 19, R.A. 9239, otherwise known as “Optical Media Act of 2003”)
  • Violations of the Meat Inspection Code, such as slaughtering or handling of any food animal in a manner not considered humane, as well as the unlawful trading of meat and meat products (Section 56, R.A. 9296, otherwise known as “Meat Inspection Code”)
  • Violations of the National Metrology Act, such as manufacturing or offering to sell, distributing in commerce or importing any product that is not measured in conformity with the weight standards (Section 16, R.A. 9326, otherwise known as the “National Metrology Act”)
  • Refusal or failure without lawful cause or with fraudulent intent to comply with the provisions of the Home Development Mutual Fund Law, particularly with respect to the registration of employees, the collection and remittance of employee-savings as well as the employer counterparts, or the correct amount due within the time set (Section 25, R.A. 9679, otherwise known as the “Home Development Mutual Fund Law”)
  • Violations of the Pre-need Code of the Philippines, such as selling or offering to sell a pre-need plan by unregistered persons and selling or offering to sell an unregistered pre-need plan or any product that has pre-need plan features (Section 54, R.A. 9829, otherwise known as “Pre-need Code of the Philippines”)
  • Violations of the Philippine Red Cross Act, such as soliciting, collecting or receiving money, materials or property of any kind by falsely representing himself to be a member, agent or representative of the Philippine Red Cross (Section 10, R.A. 10072, otherwise known as the “Philippine Red Cross Act”)
  • Unauthorized manufacture, sale, distribution, use, application, feature, portrayal of badges, uniforms, insignias or scouting paraphernalia, photos or visuals of a Girl Scout or Girl Scouts in uniform, or the logo, seal or corporate name of the Girl Scouts of the Philippines in any audio, visual, audiovisual or any form of presentation or advertisement or to use the name of the Girl Scouts of the Philippines for any illegal purpose or personal gain (Section 12, R.A. 10073, otherwise known as the “Girl Scouts of the Philippines Charter”)
  • Violations of the Philippine Disaster Risk Reduction and Management Act, such as preventing the entry and distribution of relief goods in disaster-stricken areas, including the appropriate technology, tools, equipment, accessories, disaster teams/experts, and buying, for consumption or resale, from disaster relief agencies any relief goods, equipment or other aid commodities that are intended for distribution to disaster affected communities (Section 20, R.A. 10121, otherwise known as “Philippine Disaster Risk Reduction and Management Act”)
  • Violations of data privacy, such as unauthorized processing of personal information and sensitive personal information, disclosing unwarranted or false information relative to any personal information or sensitive personal information obtained (R.A. 10173, “Data Privacy Act”)
  • Cybercrimes, such as illegal access, illegal interception and computer-related fraud (Section 9, R.A. 10175, otherwise known as the “Cybercrime Prevention Act”)
  • Illegal practice of the interior design profession by a foreign firm (Section 34, R.A. 10350, otherwise known as “Philippine Interior Design Act”)
  • Misuse of the Red Cross, the Red Crescent or the Red Crystal Emblem as protective device in times of armed conflict or as indicative device in peacetime and in times of armed conflict (Sections 11 and 12, R.A. 10530, otherwise known as the “Red Cross and Other Emblems Act”)
  • Undertaking activities under the Chemistry Profession Act without a valid authority to operate the same (Section 39, R.A. 10657, otherwise known as the “Chemistry Profession Act”)
  • Violations of the Strategic Trade Management Act (Section 19, R.A. 10697, otherwise known as the “Strategic Trade Management Act”)
  • Violations of the National Athletes and Coaches Benefits and Incentives Act, such as failure to provide the proper benefits and privileges to national athletes and coaches under the act, and abuse by any national athlete or coach of the privileges granted under the act (Section 11, R.A. 10699, otherwise known as “National Athletes and Coaches Benefits and Incentives Act”)

The following significant laws prescribe administrative sanctions for violations thereof:

  • Violations of the provisions of the Insurance Code (Section 438, P.D. 612, as amended)
  • Violations of the Milk Code (Section 13[b], E.O. 51 s. 1986)
  • Violations of the provisions of the Food and Drug Administration (FDA) Act of 2009 (Section 29-A, R.A. 3720, as amended)
  • Violation of the provisions of the Toxic Substances and Hazardous and Nuclear Wastes Control Act (Section 15, R.A. 6969)
  • Violations of the provisions of the Foreign Investments Act (Section 14, R.A. 7042)
  • Violations of the provisions of the Consumer Act of the Philippines (Article 39, R.A. 7394)
  • Violations of An Act Prohibiting the Manufacture, Importation, Distribution and Sale of Laundry and Industrial Detergents containing Hard Surfactants and Providing Penalties for Violation thereof (Section 5, R.A. 8970)
  • Violations of the provisions of the Government Procurement Reform Act (Section 69, R.A. 9184)
  • Violations of the provisions of the Pre-need Code of the Philippines (Section 53, R.A. 9829)
  • Violations of the Strategic Trade Management Act (Section 22, R.A. 10697)

3.             Identification of companies and entities to which liability may apply

The liabilities above apply to all types of companies and entities.

4.             Corporate liability for crimes committed abroad by its representatives or subsidiaries

As a general rule, a corporation cannot be held liable for crimes committed abroad by its representatives or subsidiaries.[4] An exception is when the penal law itself specifically provides that the crime is punishable even if committed outside the Philippine territory,[5] such as crimes in violation of the Data Privacy Act[6] and the Anti-Trafficking in Persons Act.[7]

5.             Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)

The surviving corporation, in case of merger, or consolidated corporation, in case of consolidation, shall assume corporate liability for crimes committed by its constituent corporations prior to the merger or consolidation. Any pending claim, action or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation.[8]

II.            Applicable sanctions

1.             Type of sanctions applicable to the company

Fines are generally imposed on the corporation in statutes providing criminal or administrative liability. However, other laws also prescribe: (i) the dissolution of a corporation (as provided under Section 3 of The Anti-Dummy Law); (ii) the forfeiture of a right, franchise, privilege and the property or business enjoyed or acquired in violation of the law (as provided under Section 2-A, The Anti-Dummy Law); or (iii) the suspension or revocation of the rights acquired under the law (as provided under Section 34, the Data Privacy Act).

2.             Interim measures, cease and desist orders, bans and confiscatory measures

The provisional remedies in civil actions, such as preliminary attachment, preliminary injunction, receivership, and replevin insofar as they are applicable may be availed of in connection with the civil action deemed instituted with the criminal action.[9]

However, some laws, such as The Foreign Investments Act of 1991[10] and the Anti-Trafficking in Persons Act, specifically provide forfeiture or confiscation as penalty.[11]

3.             Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime

The Corporation Code generally imposes liability on the directors, trustees or officers who willfully and knowingly vote for or assent to patently unlawful acts of the corporation[12] or who are guilty of gross negligence or bad faith in directing the affairs of the corporation.[13]

The liability consists in being jointly and severally liable for all resulting damages suffered by the corporation, its stockholders or members and other persons.[14] The guilty director, trustee or officer must also account for the profits, which otherwise would have accrued to the corporation, in addition to being guilty of an offense punishable under the Corporation Code.[15]

There are also certain crimes that impose the criminal penalty on: (i) officers who failed to prevent the commission of a crime, such as malicious reporting of money laundering;[16] or (ii) officers who, due to the lack of supervision or control, made possible the commission of a crime, such as cybercrimes.[17]

III.           Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions

1.             Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)

We are unaware of any law or regulation that provides a compliance model that corporations may adopt in order to exempt themselves from liability or mitigate the same.

2.             Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)

We are unaware of any law or regulation that provides for a compliance model that corporations may adopt in order to exempt themselves from liability or mitigate the same.

3.             Monitoring independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; mode of operation of such person or body

We are unaware of any law or regulation that provides for a compliance model that corporations may adopt in order to exempt themselves from liability or mitigate the same.

IV.          Judicial proceedings to determine corporate liability

1.             Court competent to decide the liability of and penalties applicable to the company

If the crime is punishable by imprisonment or fine, or both, the court competent to decide the liability and penalties applicable to the company depends on the term of imprisonment imposable under the penal law involved, irrespective of the fine.[18] In cases where the term of imprisonment does not exceed six years, the proper metropolitan trial courts, municipal trial courts, and municipal circuit trial courts have jurisdiction, as the case may be. Otherwise, the regional trial courts have jurisdiction.

If the crime is punishable only by a fine and the fine imposed does not exceed PHP 4,000, the proper metropolitan trial courts, municipal trial courts, and municipal circuit trial courts have jurisdiction.[19] When the fine exceeds PHP 4,000, the regional trial courts have jurisdiction.[20]

2.             Possibility of the application of interim measures

The provisional remedies in civil actions, such as preliminary attachment, preliminary injunction, receivership and replevin insofar as they are applicable may be availed of in connection with the civil action deemed instituted with the criminal action.[21]

In addition, when the civil action is properly instituted with the criminal action, the offended party may have the property of the accused as security for the satisfaction of any judgment in the following cases:[22]

  • When the accused is about to abscond from the Philippines
  • When the criminal action is based on a claim for money or property embezzled or fraudulently misapplied or converted to the use of the accused who is a public officer, officer of a corporation, attorney, factor, broker, agent or clerk in the course of his employment as such, or by any other person in a fiduciary capacity or for a willful violation of duty
  • When the accused has concealed, removed or disposed of his property or is about to do so
  • When the accused resides outside the Philippines

3.             Plea bargains and related effects on the corporate liability

Plea bargains, with the consent of the offended party and the prosecutor, may be made at the arraignment, or after arraignment but before trial is commenced and only after a plea of not guilty is withdrawn.[23] However, corporate liability, or in some cases, the liability of the officers or employees upon whom the penalty is imposed, would still remain because a plea bargain involves pleading guilty to a lesser offense, which is necessarily included in the offense charged.[24]

4.             Permanence of corporate liability if the crime is extinguished

Under the Revised Penal Code, criminal liability is totally extinguished by the following:[25]

  • Death of the convict (However, as to the personal and pecuniary penalties, liability therefor is extinguished only when the death of the offender occurs before final judgment.)
  • Service of the sentence
  • Amnesty
  • Absolute pardon
  • Prescription of the crime
  • Prescription of the penalty

Once the criminal liability is extinguished, corporate liability is also necessarily extinguished because the corporate liability is derived from the criminal liability.

V.           Corporate liability in multinational groups

1.             Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company

We are not aware of any law or regulation that provides that a parent company located abroad may be held liable for offenses committed in the Philippines by representatives of the local company.

2.             Basis of liability and applicable sanctions

We are not aware of any law or regulation that provides that a parent company located abroad may be held liable for offenses committed in the Philippines by representatives of the local company.

VI.          Significant case law concerning corporate liability arising from crimes and draft laws under discussion

1.             Significant case law, if any

Ching vs. Secretary of Justice, supra is the landmark case discussing criminal liability of corporations. In that case, the Supreme Court explained, thus:

“If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of the crime and the penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime punishable by imprisonment. However, a corporation may be charged and prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined.

A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands. A necessary part of the definition of every crime is the designation of the author of the crime upon whom the penalty is to be inflicted. When a criminal statute designates an act of a corporation or a crime and prescribes punishment therefor, it creates a criminal offense which, otherwise, would not exist and such can be committed only by the corporation. But when a penal statute does not expressly apply to corporations, it does not create an offense for which a corporation may be punished. On the other hand, if the State, by statute, defines a crime that may be committed by a corporation but prescribes the penalty therefor to be suffered by the officers, directors, or employees of such corporation or other persons responsible for the offense, only such individuals will suffer such penalty. Corporate officers or employees, through whose act, default or omission the corporation commits a crime, are themselves individually guilty of the crime.”

2.             Proposed or contemplated new legislation

Senate Bill No. 1280 (the “Bill”) seeks to amend the Corporation Code and proposes, among others, the imposition of corporate criminal liability for graft and corruption,[26] specifically the following:

  • Acting as intermediaries for graft and corrupt practices — Fine ranging from PHP 1 million to PHP 5 million[27]
  • Engaging intermediaries for graft and corrupt practices — Fine of PHP 1 million[28]

Furthermore, under the Bill, a corporation’s failure to install the following measures: (1) safeguards for the transparent and lawful delivery of services; and (2) policies, code of ethics and procedure against graft and corruption, when coupled with a finding that any of its directors, officers, employees, agents, or representatives are engaged in graft and corrupt practices shall be prima facie evidence of corporate liability.[29]

[1] Ching vs. Secretary of Justice, G.R. 164317, 6 February 2006.

[2] Ching vs. Secretary of Justice, supra.

[3] Ching vs. Secretary of justice, supra.

[4] Article 2, The Revised Penal Code.

[5] Article 2, The Revised Penal Code.

[6] Section 6.

[7] Section 26-A.

[8] Section 80, The Corporation Code of the Philippines.

[9] Rule 127, Rules of Criminal Procedure.

[10] Section 14.

[11] Section 14.

[12] Section 31, Corporation Code.

[13] Section 31, Corporation Code.

[14] Section 31, Corporation Code.

[15] Section 31, Corporation Code.

[16] Section 14[c], Anti-Money Laundering Act.

[17] Section 9, Cybercrime Prevention Act.

[18] Supreme Court Administrative Circular No. 9-84, 14 June 1994.

[19] Supreme Court Administrative Circular No. 9-84, 14 June 1994.

[20] Supreme Court Administrative Circular No. 9-84, 14 June 1994.

[21] Section 1, Rule 127, Rules of Criminal Procedure.

[22] Section 2, Rule 127, Rules of Criminal Procedure.

[23] Section 2, Rule 116, Rules of Criminal Procedure.

[24] Section 2, Rule 116, Rules of Criminal Procedure.

[25] Article 89, Revised Penal Code.

[26] Senate of the Philippines, Drilon pushes amendments to Corporation Code, 13 December 2016, available at http://www.senate.gov.ph/press_release/2016/1213_drilon2.asp (last accessed 23 January 2017).

[27] Senate Bill No. 1280, 17th Congress, Sec. 60.

[28] Senate Bill No. 1280, 17th Congress, Sec. 60.

[29] Senate Bill No. 1280, 17th Congress, Sec. 60.