(Article published in the Jun 9,2003 issue of TODAY, Business Section)
Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange
Commission (SEC) on May 6, further fine-tuned their campaign against
pseudo investment or borrowing schemes by entering into a memorandum
agreement of operational cooperation and coordination that addressed the
issues which were not adequately dealt with in their earlier attempt made
on June 7, 2001.
previous agreement, which by itself reflected the two institutions felt
need to work as a team, set the stage for prompt reporting from one to the
other of suspected violations of the laws they respectively administer,
exercise of their functions, and the conduct of joint audit by the BSP and
the SEC of suspected companies. Thus,
among other things, the June 2001 memorandum of agreement committed the
SEC to report to the BSP financial institutions which were suspected to be
engaging in activities without proper license required by the General
Banking Law (GBL) and the new Central Bank Act (BSP Charter) from the BSP,
like banking, quasibanking, trust and/or investment management functions.
In turn, BSP was committed to report to the SEC any suspicion of
violation by the institutions under its regulatory power of the provision
of the Securities Regulation Code (SRC).
addition, where allowed by law, the two institutions were bound to furnish
each other with the necessary documents and data that were gathered in the
examinations and investigations of companies under their respective
jurisdictions as well as with their respective reports of examination and
the possibility of conducting a joint audit whenever practicable or
deputizing by BSP and by the Sec of each other to do the audit for the two
of them, was agreed upon. Obviously,
this last was a measure triggered by the collapse of Urban Bank Inc. and
its investment house affiliate, Urbancorp Investment Inc. in 2000.
With benefit of the 20-20 vision of hindsight, it was realized that
the fiasco could have been prevented, or at least earlier warning signs of
the impending disaster detected, if the two institutions audited the bank
and the investment house at the same time during the two or three years
before the collapse, thereby detecting how, if not preventing, the two
companies from shifting their assets and liabilities to each other to
prevent the regulatory authorities from getting a consolidated picture of
their true exposure to risk.
need to refine the June 2001 memorandum agreement surfaced when the
cumulated experience of the two institutions showed that the majority of
the modus operandi of the pseudo investment and borrowing scam
perpetrators permutated, like a virus, into forms that did not exactly fit
the legal categories that defined the respective areas of responsibility
the BSP and the SEC under their charters.
Not being easily recognizable either as under the supervision and
regulation of either the BSP or the SEC, the scams, at least for a while,
were able to avoid showing up in the radar screen of both.
situation is similar to the familiar scene in many volleyball games among
weekend athletes: the serving player of one team directs the ball to that
point across the net that is between two players of the opposing team.
Each one of the two players thinks the other will return the serve
and does not move to take it. Sometimes, both might even step away from the ball, each one
mistakenly thinking that stepping back would provide his or her teammate
more space. The result is
that the ball falls unattended to the ground.
despite the equivocal mien of many investment and borrowing scams, the SEC
nevertheless detected some common patterns that enabled the agency to
categorize their modus operandi five major categories.
The first category consists in soliciting funds from the public and
not relending them, thus making it appear as covered by the Investment
Company Act (ICA) or the SRC. The second is soliciting funds from the public under the
representation that the funds will be relent, seeming to be in the
quasibanking business. The
third is advertising itself as an investment company and this appearing to
be covered by the ICA. The
fourth is soliciting funds and advertising as lending investors engaged in
the business of relending, purchase of receivables and other obligations,
this seeming to be engaged in quasibanking.
And the fifth, is pyramiding schemes and other sales schemes
masquerading as legitimate multilevel marketing.
with these categories, the BSP and the SEC agreed on a process flow chart
that clearly determines which agency of government will take the ball.
Subject to compliance with the governing laws of their respective
competencies, the flow chart indicates the steps that they will take to
coordinate their investigations of the various types of scams and pinpoint
which agency will take primary responsibility for investigating a
new memorandum, agreement requires the BSP and the SEC, upon receiving an
information or complaint, “tip” or discovery of a possible investment
or borrowing scam to (a) immediately inform the other party and (b) make
its own preliminary characterization of the scam, i.e. determine under
which of the five categories the particulars scam falls.
the scam is clearly a soliciting of funds without any relating or an
advertising of itself as an investment company, then the case is
considered an SEC matter and is dealt with by the SEC following its
internal procedures. If the
scam is clearly soliciting of funds with a representation of relending or
a soliciting of funds with advertising or public representations of being
a lending investor engaged in quasibanking, then the case is considered
BSP matter and is dealt with by the BSP following its own internal
procedures. If the scam is
clearly a pyramiding scheme or other sales scheme masquerading as
legitimate multilevel marketing, the case is forwarded to the Department
of Trade which has jurisdiction to look into it on the authority of the
Consumer Act of the Philippines.
cases which are not clearly under one of the five categories, i.e. those
that are more effectively camouflaged, are to be subjected to a joint
investigation until such time that it becomes apparent, based on the
cumulative evidence gathered in the course of the joint investigation,
which of either the BSP or the SEC or the Department of Trade should be
the agency to continue to conduct the full and thorough investigation.
completion of the investigations of the scams referred to each of them in
accordance with the foregoing, the BSP and the SEC will provide each other
with a copy of the final report and will make the proper referral, if
warranted, to the Antimoney Laundering Council, the National Bureau of
Investigation, the Department of Justice, the Bureau of Internal Revenue
and other government agencies as the evidence warrants.
effect, the May 2003 memorandum of agreement will enable the BSP to say
“your” and the SEC to say “mine,” or vice versa, or, say together,
“Department of Trade,” every time a scam shows up on their radar
campaign, of course, against pseudo investment or borrowing scheme cannot
be won simply by the execution and even by the implementation alone of the
May memorandum agreement. Just
as a volleyball team does not win the game simply by putting in place a
system by which those inside the court can determine, as the serve sails
into the air, who will take the serve.
The success of scams is due to not merely to the modus operandi of
the scam operators, but also to the weakness of the victims themselves.
Driven as they are by greed (which is essentially, at least to me,
hope gone awry) or helpless as they are to resist the high pressure
tactics of their relatives and friends, they do flirt in their heart of
hearts with the thought of getting rich very quickly and painlessly.