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Those Disappointing Foreign lawyers

(Article published in the Nov. 7, 2007 issue of Manila Standard Today)     

Those foreign lawyers must think we in the Philippine legal profession are very gullible, as easy to gull as the victims of Performance Investment Products Corporation (PIPC).  This is how I read some of the lawyerly responses received by those who sought to recover the money that they were deceived into sending to PIPC’s  bank accounts abroad.  Along the lines I outlined in this column of 19 September 2007 they claimed to be the beneficiaries of either an express trust or a constructive trust over funds handed over to PIPC and thus requested, information as to their money’s whereabouts.

 Uniformly, foreign lawyers speaking for PIPC’s partner institutions stonewalled attempts of the scam victims to trace the funds embezzled from them by invoking the dark cloak of confidentiality of the banking relation their clients have with PIPC. Instead of defending the legitimacy, to the extent known to them, of the activities of PIPC thereby giving some assurance that their clients had done their due diligence and complied with their know-your-client responsibilities, some foreign lawyers unabashedly claim for the latter what is equivalent to the executive privilege that was recently raised by Secretary Neri during the recent Senate investigation of the ZTE deal.  Consequently, as in the case of Neri, they unwittingly reinforce the belief that PIPC had plenty to hide and, worse, their client banks knew that, too.

   For instance, the foreign lawyer of a bank operating in Hong Kong, in response to a request by the victims’ Philippine counsel to give information on what PIPC did to the money remitted to said bank claimed that its client was bound by duties of confidentiality to PIPC and therefore could disclose such information to the victims. 


            Similarly, another bank’s lawyers, also in response for information on what happened to the funds obtained by PIPC from them through the cajolery of its local arm, the PIPC Corporation, maintained that their client is subject to duties of confidentiality to its clients, including PIPC.   These duties allegedly prevent their client’s providing the victims with information regarding its customers.  Hence, their bank client cannot provide the information sought.

 Obviously, by mouthing the mantra of confidentiality, those foreign lawyers expect the victims’ Philippine lawyers to give up or, at least go away and look elsewhere.  Maybe some will; but then, again, perhaps, others won’t.  As in the case of hunting hounds running after a rabbit, some will undoubtedly give up.  But others will continue until the rabbit is caught.  The first are those who simply joined the pack upon seeing their fellows go on the chase.  But the second who persevere are those who had actually seen the rabbit. 

 What was there to see, in the responses of the foreign lawyers, that will keep Philippine victims and their local advocates in the chase?  The fact that confidentiality is a bogus defense for PIPC and its partners.  Everywhere in the world, particularly in places where the legal systems have institutionalized principles of equity and fairness,  confidentiality can never be properly used to cover up a crime.  And crime it was that was committed when PIPC run away with the victims’ money.

 The foreign lawyer’s, the claim of confidentiality of banking relation assumes that the person it is being invoked against is a stranger to the bank account in question.  That is not so in the case of victims remitting their money to PIPC’s foreign bank accounts.  Based on the papers I have seen, PIPC’s local operatives specifically instructed their victims to remit their money directly to the foreign bank accounts of PIPC abroad and in the process gave out the foreign bank accounts’ numbers.

 This directive had two tactical purposes: first, to distance the local arm, PIPC Corp. from what PIPC was to subsequently do with the embezzled money thus paving the way for the defense in litigation sure to come that the latter was a mere “broker”; and second, on account of the fact that bank accounts were maintained in foreign banks with names familiar to the Philippine financial elite, to reinforce the mirage that the scheme was legitimate. 

 The tactic, of course, has backfired on PIPC.  By disclosing its foreign bank accounts to its Philippine victims and giving them the ability to deposit funds into those accounts, PIPC, had ipso facto made the victims privy to the account.  Not just privity of knowledge as to existence of the banking relationship which the disclosure of the bank account numbers implied.  But, more important, also privity of access to information about the disposition by the receiving bank of the funds remitted.

 Putting the principle under a more familiar scenario, if A sells his property to B and tells B to remit the payment to A’s account in Bank C, numbered 1234, A has himself lifted the veil of confidentiality of his bank numbered 1234 with Bank C and constituted B as his agent, as it were, in accessing the account.  Bank C then is under an obligation to B, who in so far as the remitted payment is concerned, acts both on and in behalf of A, to inform B, when so asked, that the remitted funds had fallen into the control of A.  Obviously, in any fair court of justice, Bank C cannot keep mum on that point particularly when the fact of receipt and control by A of the remitted funds are in issue.

 As Anti-Money Laundering Council executive director, Vic Aquino, says, there is no need to invoke any specific text of the statute to establish the PIPC’s victims right to know the whereabouts of the money they remitted, at the instance of PIPC’s local representatives, to PIPC’s accounts abroad.

 Coupled with the claim of confidentiality are the attempts of the foreign lawyers to shoo away PIPC’s victims from their banking clients’ doorsteps, by asserting that the trust relation between PIPC and its victims over the money, is limited to PIPC and its victims.  That assertion is simply not correct. 

         The stance that the right of the beneficiary is merely a right in personan against the trustee has already been abandoned in modern times.  The weight of authority is now that “while the right of the beneficiary was purely in personam against the trustee, it has become increasingly a right in rem and is now substantially equivalent to equitable ownership of the trust res.” (Bogert, § 37). 

       Thus, again in a scenario we are familiar with a lease contract does not merely create a personal relation between the lessor and the lessee.  It does create a relation that requires the rest of the world, i.e. third parties, to respect the rights of the lessee in the property leased.

       For the foreign lawyers to have the gall to assert that the trust, express or constructive, that the victims claim was impressed in the moneys they remitted on account of false pretenses by PIPC ,is purely a matter between the PIPC  and its victims is terribly disappointing.  That many of those lawyers are based in the land where St. Thomas More once claimed to be the king’s good servant but God’s first makes the affront to Filipino lawyers in fact most appalling.