SEC. 55.

OF GBL -
PROHIBITED
TRANSACTIONS

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A. Prohibited Transactions by a Bank Director, Officer,
Employee, or Agent
1. False Entries in Bank Report or Statement – which
a. affected the financial interest of the bank or any person, or
b. caused damage to the bank or any person,

OR, Participating in Fraudulent Transaction –

Fraud in its general sense, is deemed to comprise anything calculated to deceive . . .
resulting in damage to another. (or breach of legal duty trust or confidence justly
reposed,  causing damage to another)

It is a generic term embracing all multifarious means which human ingenuity can
devise, and which are resorted t by one individual to secure an advantage over
another by false suggestions or by suppression of truth and includes all surprise,
trick, cunning, dissembling and any unfair way by which another is cheated. (Allele
VS. C.A., 240 SCRA 500, [1995])
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2. Disclosure of Information - disclosing to any unauthorised person
any information relative to the funds or properties in the custody of
the bank belonging to private individuals, corporations or any other
entity.

(NOTE: The prohibition covers all funds and properties in the

possession of the bank. With regard to bank deposits & investment in
gov’t. bonds - The Secrecy of Bank Deposits Law shall govern.)

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3. Accepting Gifts, Fees or Commissions - the Acceptance of any gifts, . . . in
connection with the approval of a loan is strictly prohibited and is a kin to
commercial bribery in other jurisdictions. A conflict of interest-personal gain
at the expense of the institution.

4. Overvaluation or Aiding in Overvaluation of Security- this section intends to

protect the funds of the bank. (There is the opinion that actual damage or
reliance is not an essential element of the offense.)

It is the obligation of the bank’s officials and employees that before they
approve a loan application of their customers, they must investigate the
existence and valuation of the properties being offered s loan security. The
recent rush of events where collaterals for bank loans turn out to be non-
existent or grossly over-valued underscore the importance of this
responsibility. (Central Bank of the Phil. VS. C.A., 139 SCRA 55 [1985])
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5. Outsourcing of Inherent Banking Functions - this section was added to
prevent the possible violation of R.A. No. 1405, the Law on Secrecy of
Bank Deposits. It means that a bank allows a service provider to supply
the manpower to service certain banking functions such as placements of
deposits and withdrawals or actual opening of deposit accounts or
deposit-taking services.

BUT outsourcing of non-inherently banking duties may be allowed. These

are Management Functions; Information Technology; Credit Investigation
& Collection; Credit Card Services and Call Center Operations for Credit.

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B. Prohibited Acts of Borrowers
1. Fraudulent Overvaluation of Property- aside from the automatic
cancellation of the loan application, a borrower who fraudulently
overvalued the property offered as security may also be prosecuted
under this section. There must be “intent to deceive” and not by
mere inadvertence or an honest mistake.

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2. False Statement or Information, Misrepresentation, Suppression of
Material Facts
- false statement means untrue statement knowingly made with
intent to mislead.
- misrepresentation refers to the act of making a false or
misleading assertion about something, usually with intent to
deceive.
- the purpose is to obtain, renew or increase a loan or other
credit accommodation

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3. Attempt to Defraud the Bank in a Court Action - the court action
filed by the Bank against a borrower to recover a loan or other credit
accommodation. Illegal disposition of properties in fraud or to the
prejudice of creditors is one example.

The transfer of property by a borrower after a suit has begun and while
it is pending, is denominated a “badge of fraud” and satisfies this
section

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4. Offer to Influence Approval of Loan - the borrower will be liable
under Sec. 55.2 (d) while the bank officer will be liable under Sec.
55.1 (c) This provision is similar to Section 3 of R.A. No. 3019
which enumerates the corrupt practices of public officers and
employees. The person giving the gift is punished together with the
offending public officer.

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 C. Prohibited Acts of Examiners, Officers or Employees of
the Bangko Sentral or of Any Department or Bureau,
Office, Branch or Agency of The Government

1. False Entries in Bank Report or Statement OR Participating in any

Fraudulent Transaction causing damage to the bank or any person.

2. Disclosure of Information - without order of a court of competent

jurisdiction, disclosing to any unauthorized person

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3. Accepting Gifts, Fees or Commissions or any other form of
remuneration

4. Overvaluation or Aiding in the Overvaluation of Security

5. Outsourcing Inherent Banking Functions

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6. False Statement or Information, Misrepresentation, Suppression
of Material Facts
- the BSP personnel shall be subject to administrative and
criminal sanctions under Secs. 34 - 37 of the. New Central Bank
Act.

7. Attempt to Defraud the Bank in Court Action

8. Offer to Influence Approval of a Loan

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NOTE: The prohibition under this section also applies to other public
officers or employees of any department, bureau, office, etc. like the
PDIC which under its charter is authorized to supervise, examine a bank
under danger of closing.

Non-Employment of Casual, Non regular or Probationary Personnel -

     This is consistent with the Law on Secrecy of Bank Deposits on the.
On-disclosure to any person any information concerning bank deposits.

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 Insurance Business
     Banks are prohibited from engaging in insurance business which under the
Insurance Code include among others the following:

a) making or proposing to make as insurer, any insurance contract

b) making or proposing to make as surety, any contract of suretyship as a
vocation
c) doing any other kind of insurance business as recognized under the
Insurance Code, including reinsurance.

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The prohibition relates to direct engagement in the insurance business. Universal
banks, commercial banks & thrift banks may invest in equities of insurance agencies/
brokerages as this is not considered as directly engaging in insurance business.
Universal banks are also allowed to invest up to 100% equity in insurance companies.
(MORB, s x380 [2009])
        
Sanctions -

     “ . . . the violation of any of the provisions of this Section shall be subject to
Sections 34, 35, 36 and 37 of the New Central Bank Act. If the offender is a director or
officer of the bank, quasi-bank or trust entity, the Monetary Board may also suspend or
remove such director or officer. If the violation is committed by a corporation, such
corporation may be dissolved by quo warranto proceedings instituted by the Solicitor
General” (Section 66, GBL)
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“Quo Warranto” - a prerogative writ by which the Government
can call upon any person to show by what warrants he holds a
public office or exercises a public franchise. (Divinagracia vs.
Consolidated Broadcasting System, Inc., [584 SCRA 213]). This
is a special civil action.

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