"x x x.
After an evaluation of the respective positions of the parties, the Court is of the view that the Monetary Board approval is not required for PDIC to conduct an investigation on the Banks.
The disagreement stems from the interpretation of these two key provisions of the PDIC Charter. The confusion can be attributed to the fact that although “investigation” and “examination” are two separate and
distinct procedures under the charter of the PDIC and the BSP, the words seem to be used loosely and interchangeably.
distinct procedures under the charter of the PDIC and the BSP, the words seem to be used loosely and interchangeably.
It does not help that indeed these terms are very closely related in a generic sense. However, while “examination” connotes a mere generic perusal or inspection, “investigation” refers to a more intensive scrutiny for a more specific fact-finding purpose. The latter term is also usually associated with proceedings conducted prior to criminal prosecution.
The PDIC was created by R.A. No. 3591 on June 22, 1963 as an insurer of deposits in all banks entitled to the benefits of insurance under the PDIC Charter to promote and safeguard the interests of the depositing public by way of providing permanent and continuing insurance coverage of all insured deposits. It is a government instrumentality that operates under the Department of Finance. Its primary purpose is to act as deposit insurer, as a co-regulator of banks, and as receiver and liquidator of closed banks.[71]
Section 1 of the PDIC Charter states:
SECTION 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter referred to as the “Corporation” which shall insure, as herein provided, the deposits of all banks which are entitled to the benefits of insurance under this Act, and which shall have the powers hereinafter granted.
The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits.
Section 1 of R.A. No. 9576 further provides: An Act Increasing the Maximum Deposit Insurance Coverage, and in connection therewith, to Strengthen the Regulatory and Administrative Authority, and Financial Capability of the Philippine Deposit Insurance Corporation (PDIC), amending for this purpose R.A. No. 3591, as Amended, otherwise known as the PDIC Charter.
SECTION 1. Statement of State Policy and Objectives. - It is hereby declared to be the policy of the State to strengthen the mandatory deposit insurance coverage system to generate, preserve, maintain faith and confidence in the country’s banking system, and protect it from illegal schemes and machinations.
Towards this end, the government must extend all means and mechanisms necessary for the Philippine Deposit Insurance Corporation to effectively fulfill its vital task of promoting and safeguarding the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits, and in helping develop a sound and stable banking system at all times.
Under its charter, the PDIC is empowered to conduct examination of banks with prior approval of the Monetary Board:
Eighth – To conduct examination of banks with prior approval of the Monetary Board: Provided, That no examination can be conducted within twelve (12) months from the last examination date: Provided, however, That the Corporation may, in coordination with the Bangko Sentral, conduct a special examination as the Board of Directors, by an affirmative vote of a majority of all its members, if there is a threatened or impending closure of a bank; Provided, further, That, notwithstanding the provisions of Republic Act No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other laws, the Corporation and/or the Bangko Sentral, may inquire into or examine deposit accounts and all information related thereto in case there is a finding of unsafe or unsound banking practice; Provided, That to avoid overlapping of efforts, the examination shall maximize the efficient use of the relevant reports, information, and findings of the Bangko Sentral, which it shall make available to the Corporation; (As amended by R.A. 9302, 12 August 2004, R.A. 9576, 1 June 2009)
xxx. [Underlining supplied]
Section 9(b-1) of the PDIC Charter further provides that the PDIC Board shall have the power to:
POWERS AND RESPONSIBILITIES AND PROHIBITIONS
SECTION 9. xxx
(b) The Board of Directors shall appoint examiners who shall have power, on behalf of the Corporation to examine any insured bank. Each such examiner shall have the power to make a thorough examination of all the affairs of the bank and in doing so, he shall have the power to administer oaths, to examine and take and preserve the testimony of any of the officers and agents thereof, and, to compel the presentation of books, documents, papers, or records necessary in his judgment to ascertain the facts relative to the condition of the bank; and shall make a full and detailed report of the condition of the bank to the Corporation. The Board of Directors in like manner shall appoint claim agents who shall have the power to investigate and examine all claims for insured deposits and transferred deposits. Each claim agent shall have the power to administer oaths and to examine under oath and take and preserve testimony of any person relating to such claim. (As amended by E.O. 890, 08 April 1983; R.A. 7400, 13 April 1992)
(b-1) The investigators appointed by the Board of Directors shall have the power on behalf of the Corporation to conduct investigations on frauds, irregularities and anomalies committed in banks, based on reports of examination conducted by the Corporation andBangko Sentral ng Pilipinas or complaints from depositors or from other government agency. Each such investigator shall have the power to administer oaths, and to examine and take and preserve the testimony of any person relating to the subject of investigation.(As added by R.A. 9302, 12 August 2004 )
xxx. [Underscoring supplied]
As stated above, the charter empowers the PDIC to conduct an investigation of a bank and to appoint examiners who shall have the power to examine any insured bank. Such investigators are authorized to conduct investigations on frauds, irregularities and anomalies committed in banks, based on an examination conducted by the PDIC and the BSP or on complaints from depositors or from other government agencies.
The distinction between the power to investigate and the power to examine is emphasized by the existence of two separate sets of rules governing the procedure in the conduct of investigation and examination. Regulatory Issuance (RI) No. 2005-02 or the PDIC Rules on Fact-Finding Investigation of Fraud, Irregularities and Anomalies Committed in Banks covers the procedural requirements of the exercise of the PDIC’s power of investigation. On the other hand, RI No. 2009-05 sets forth the guidelines for the conduct of the power of examination.
The definitions provided under the two aforementioned regulatory issuances elucidate on the distinction between the power of examination and the power of investigation.
Section 2 of RI No. 2005-02 states that its coverage shall be applicable to “all fact-findinginvestigations on fraud, irregularities and/or anomalies committed in banks that are conducted by PDIC based on: [a] complaints from depositors or other government agencies; and/or [b] final reports of examinations of banks conducted by the Bangko Sentral ng Pilipinas and/or PDIC.”
The same issuance states that the Final Report of Examination[72] is one of the three pre-requisites to the conduct of an investigation, in addition to the authorization of the PDIC Board[73]and a complaint.[74] Juxtaposing this provision with Section 9(b-1) of the PDIC Charter, since an examination is explicitly made the basis of a fact-finding examination, then clearly examination and investigation are two different proceedings. It would obviously defy logic to make the result of an “investigation” the basis of the same proceeding. Thus, RI No. 2005-02 defines an “investigation” as a “fact-finding examination, study or inquiry for determining whether the allegations in a complaint or findings in a final report of examination may properly be the subject of an administrative, criminal or civil action.”[75]
The Banks cite the dictionary definitions of “examination” and “investigation” to justify their conclusion that these terms refer to one and the same proceeding. It is tempting to use these two terms interchangeably, which practice may be perfectly justified in a purely literary sense. Indeed, a reading of the PDIC Charter shows that the two terms have been used interchangeably at some point. However, based on the provisions aforecited, the intention of the laws is clearly to differentiate between the process of investigation and that of examination.
In 2009, to clarify procedural matters, PDIC released RI No. 2009-05 or the Rules and Regulations on Examination of Banks. Section 2 thereof differentiated between the two types of examination as follows:
Section 2. Types of Examination
a. Regular Examination - An examination conducted independently or jointly with the BSP. It requires the prior approval of the PDIC Board of Directors and the Monetary Board (MB). It may be conducted only after an interval of at least twelve (12) months from the closing date of the last Regular Examination.
b. Special Examination – An examination conducted at any time in coordination with the BSP, by an affirmative vote of a majority of all the members of the PDIC Board of Directors, without need of prior MB approval, if there is a threatened or impending bank closure as determined by the PDIC Board of Directors. [Underscoring supplied]
Section 3 of RI No. 2009-05 provides for the general scope of the PDIC examination:
Section 3. Scope of Examination
The examination shall include, but need not be limited to, the following:
a. Determination of the bank’s solvency and liquidity position;
b. Evaluation of asset quality as well as determination of sufficiency of valuation reserves on loans and other risk assets;
c. Review of all aspects of bank operations;
d. Assessment of risk management system, including the evaluation of the effectiveness of the bank management’s oversight functions, policies, procedures, internal control and audit;
e. Appraisal of overall management of the bank;
f. Review of compliance with applicable banking laws, and rules and regulations, including PDIC issuances;
g. Follow-through of specific exceptions/ violations noted during a previous examination; and
h. Any other activity relevant to the above.
Rule 2, Section 1 of PDIC RI No. 2005-02 or the PDIC Rules on Fact-Finding Investigation of Fraud, Irregularities and Anomalies Committed in Banks provides for the scope of fact-finding investigations as follows:
SECTION 1. Scope of the Investigation.
Fact-finding Investigations shall be limited to the particular acts or omissions subject of a complaint or a Final Report of Examination.
From the above-cited provisions, it is clear that the process of examination covers a wider scope than that of investigation.
Examination involves an evaluation of the current status of a bank and determines its compliance with the set standards regarding solvency, liquidity, asset valuation, operations, systems, management, and compliance with banking laws, rules and regulations.
Investigation, on the other hand, is conducted based on specific findings of certain acts or omissions which are subject of a complaint or a Final Report of Examination.
Clearly, investigation does not involve a general evaluation of the status of a bank. An investigation zeroes in on specific acts and omissions uncovered via an examination, or which are cited in a complaint.
An examination entails a review of essentially all the functions and facets of a bank and its operation. It necessitates poring through voluminous documents, and requires a detailed evaluation thereof. Such a process then involves an intrusion into a bank’s records.
In contrast, although it also involves a detailed evaluation, an investigation centers on specific acts of omissions and, thus, requires a less invasive assessment.
The practical justification for not requiring the Monetary Board approval to conduct an investigation of banks is the administrative hurdles and paperwork it entails, and the correspondent time to complete those additional steps or requirements. As in other types of investigation, time is always of essence, and it is prudent to expedite the proceedings if an accurate conclusion is to be arrived at, as an investigation is only as precise as the evidence on which it is based. The promptness with which such evidence is gathered is always of utmost importance because evidence, documentary evidence in particular, is remarkably fungible. A PDIC investigation is conducted to “determine[e] whether the allegations in a complaint or findings in a final report of examination may properly be the subject of an administrative, criminal or civil action.”[76] In other words, an investigation is based on reports of examination and an examination is conducted with prior Monetary Board approval. Therefore, it would be unnecessary to secure a separate approval for the conduct of an investigation. Such would merely prolong the process and provide unscrupulous individuals the opportunity to cover their tracks.
Indeed, while in a literary sense, the two terms may be used interchangeably, under the PDIC Charter, examination and investigation refer to two different processes. To reiterate, an examination of banks requires the prior consent of the Monetary Board, whereas an investigation based on an examination report, does not.
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