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FATF, belittle not our courts of law

(Article published in the February 12, 2002 issue of TODAY, Business Section)

If we are to rely on the sketchy reports we read from the newspapers, it seems that one of the issues raised by the Financial Action Task Force (FATF) about our anti-money laundering law (R.A. No. 9160) is its perception that our judiciary is incapable of doing its part in the fight against dirty money. Undoubtedly taking media bashing of our judicial system at face value and unmindful of our national propensity for self-flagellation that tends to overstate our defects and understate our strengths, the FATF apparently believes that money launderers would have no difficulty in running circles around our judges.

I have a surprise for the FATF. A decision rendered last year by the second division of the Court of Appeals, with Ateneo Law School graduate Justice Jose L. Sabio, Jr. as ponente, demonstrates the ability of our judicial system to deal with money laundering. In the case of Stanley Durka v. Theodore Kulongoski, CA-GR CV No. 44975, promulgated September 6, 2001, our magistrates easily recognized dirty money when they saw it and, for that matter, did not even need a specific law on money laundering to restore stolen money to its rightful owner.










 
The money-laundering misadventure began, ironically, in the birthplace of anti-money laundering movement, the United States of America. The First Colonial Bank (FCB) in the State of Oregon and was then headed by a certain David Hunt. Records show that the Circuit Court of the State of Oregon has been found FCB guilty of illegal operations. David Hunt was convicted of securities and mail fraud and was placed under detention in a federal prison.

Before the long arm of American law put a stop to their illegal activities, David Hunt, sometime in the first half of 1984, connived with Bernard Kelly and Marvin Guon to purchase debt instruments issued by the then Central Bank of the Philippines, known as CB Bills, using funds of FCB. It seems that the misappropriation was intended to be only temporary since the conspirators agreed to return the money eventually to FCB, but it was a misappropriation nonetheless. The CB Bills were to be used as collateral to secure a transaction in Germany.

The funds were drawn from FCB’s checking account with the Seattle First National Bank and were ordered by David Hunt to be sent to a branch of a multinational bank in Manila. Since the Seattle First National Bank did not have a corresponding relationship directly with the Manila Branch, the money had to be coursed through the multinational bank’s branch in New York. In Manila, Bernard Kelly, with the funds thus remitted, purchased CB Bills from a local securities dealer and delivered the certificates to David Hunt to be used, as stated above, to secure a transaction in Germany. David Hunt, in turn delivered them to Marvin Guon for that purpose but since the transaction fell through, the CB Bills were kept in a safety deposit box in the United States.

Bernard Kelly tried to retrieve the value of the CB Bills by reporting them lost to the Central Bank and asking for replacement certificates. He was, however, unable to comply with the Central Bank’s transfer requirements. He thus tried to sell the CB Bills to a certain Stanley Durka by simply executing a bill of sale on December 27, 1985 but without, obviously, being able to deliver the certificates.

The Central Bank of the Philippines was thus confronted with two claimants over the same CB Bills: first was Stanley Durka (who claimed to have bought them in good faith from Richard Kelly) and the receiver of the closed FCB, Theodore Kulongoski, who insisted that the money used to purchase them belonged to the Oregon bank. The Central Bank of the Philippines filed an action in interpleader in court, in effect asking the judiciary to determine who ought to be paid the proceeds of the CB Bills.

Both the trial court and the Court of Appeals found no difficulty in ruling that the CB Bills belonged to the closed Oregon bank and therefore the proceeds should be paid to Kulongoski, the receiver of its assets. The Philippine courts pointed out that in trying to recover personal property, the claimant must, as required by Philippine law (Article 435 of the Civil Code), rely on the strength of its title and not on the weakness of the defendant’s claim. Stanley Durka had only a self-serving affidavit of Richard Kelly who swore that he (Kelly) owned the CB bills and therefore could transfer them to Durka. At the same time, Durka’s mode of acquisition was itself ineffective. He was not an innocent purchaser since, despite being a lawyer and knowing that delivery of the certificates was essential, under the relevant commercial law, to his being a holder in good faith, he nevertheless bought the bills without even seeing the certificate.

At the same time, the Philippine courts, following the rules of court, found convincing evidence of the provenance of the funds that were used by Kelly to purchase the contested CB bills. Among them were the agreement signed by Kelly himself, together with his co-conspirators, admissions of David Hunt himself, corroborative testimonies from the teller of Seattle First National Bank and from FCB, as well as a dovetailing of presumptions in Philippine law that were not successfully rebutted by the other claimant.

What is most significant in this case, for purposes of the FATF, is the undeniable capability of the Philippine judges and justices to draw from various threads that make up the tapestry of our legal system in order to restore stolen money to its rightful owners. If the anti-money laundering regime that the FATF is seeking to establish globally is to have a meaning beyond the vindictive mode that is presently emblazoned in the penal statutes it advocates and is to eventually rest on the fundamental notion that stolen money must be returned to its true owner, then Philippine law is not wanting and Philippine judges and justices are up to their tasks. The anti-money laundering law that we have now may have its warts and blemishes; but underneath what is skin deep, our system of justice will deliver in the end what is right and what is fair.

     

 As a postscript, I feel proud that in recognition of his brilliant career in international litigation, my partner at Romulo Mabanta Buenaventura Sayoc & De Los Angeles law firm and long time friend, Atty. Jacinto D. Jimenez, was appointed as Assistant Attorney General of the State of Oregon to handle the case.

   

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