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(Article published in the December 27, 2000 issue of TODAY, Opinion Today Section)

What the trust industry has been trying to do for many years through its yearly celebration of Trust Consciousness Week, will be accomplished in grand fashion as soon as the impeachment defense team of Mr. Joseph Ejercito Estrada, a.k.a. Jose Velarde starts its cross-examination, if at all it so does, of Equitable PCI Bank trust officer, Clarissa Ocampo. The nation which hardly knows what an investment management account is will be given, in the questions and answers between the defense counsels and the senator judges, on the one hand, and Kissa Ocampo on the other, a picture in living color of what that particular relationship with a bank is. To provide those outside of the small circle of trust practitioners with a basic understanding, here is a primer to prime them up.

The Trust Officer and Not the Branch Manager

An investment management account with a bank is opened not where you deposit money in a savings, time or checking account but instead with the bank's trust department. A deposit is essentially a loan and therefore one where the client does business with a bank. A trust account, on the other hand, is primarily one where you ask the bank to do business for you. In a deposit, the client is a creditor; in a trust account, the client is a principal or a trustor. These two roles of a bank are required by law to be conducted by separate organizations within the bank and run distinctly from each other. That is why it was Kissa, the Trust Officer, and not any one of the Branch Managers who went to see the valued client. Going to a valued client, of course, is not irregular. It is legal and normal practice, since, big money, like the mountain, does not go to Muhammad; the bank officers go to the valued client.

Why the True Name was Necessary

To establish a particular relationship with a bank, be it a deposit or a trust account, it is necessary to have some writing that will evidence the existence and the terms of the agreement. The regulations governing investment management accounts of banks with a trust license require that voluntary written agreement to contain "the legal capacities, in noticeable print, of the parties to be covered" (X411.1(3), Manual of Regulations for Banks). It is important that document contains the true name of the principal because the agreement is required to contain, among other items, provisions on "reports to the client" (X411.1(9), Ibid.). Moreover, in the course of administering the account, the Bank would have to hold the promissory notes held in the account either "in the name of the principal" or of the Bank, with an indication that the Bank is "acting in a representative capacity and that the principal's name is disclosed thereat" (X411.6, Ibid.). That is why Kissa Ocampo, at the execution of Mr. Joseph Ejercito Estrada's investment management agreement, was taken aback when she saw her client sign as "Jose Velarde". Of course, all that astonishment could have been avoided if it was explained to her that her client was embarking on a new movie career and was accordingly adopting a new screen name or that her client, the great actor that he is, was simply impersonating a certain Jaime Dichaves who, according to Atty. Manuel Lazaro, was the "holder/owner" of a checking account in the same bank in the name of Jose Velarde.

Complete Control by the Client

Of the various services rendered by the trust department, the relationship established by an investment management agreement is less fiduciary than others. It is a merely an agency and the account is in the complete control of the client. It is not a trust where the bank must assume some responsibility of looking after the benefit of the trustor. After all, the client remains to be owner of the funds, and losses, if any, are for the account, not of the Bank, but of the client himself. This complete control by the client makes it imperative on the part of the bank, as investment manager, to place the funds in the account in loans and other outlets as soon as the funds are available (without taking time to thoroughly evaluate the placement). The Civil Code makes it the primary responsibility of an agent "to carry out the agency" (Art. 1884). In fact, undue delay in executing the investment instructions of the principal renders the bank liable for damages which the client suffers on account of non-performance. There is therefore nothing unusual with funds being placed in a loan within eighteen hours from the time the account was opened.

The Need for a Debit/Credit Authorization

The bank, as an agent, cannot invest the money in an investment management account until the funds are cleared. If the account is funded by a check, the investment manager has to wait until the check is cleared by the drawee bank. In the meantime, the money does not earn any interest because, as pointed out earlier, the arrangement is not a deposit. Thus, for a client who already has money on deposit with the same bank, the most advantageous way of funding the investment management account is to authorize the bank, acting as agent, to get the funds from deposit account or accounts with the same bank. This is done through the execution of a debit/credit authorization which tells the bank to take funds from other accounts in the bank and transfer them to the investment management account. There is no need to wait for clearing since the debit/credit authorization is not a check. Of course, the deposit account or accounts from which the money will taken should be owned or at least under the control of the principal.

The debit/credit authorization signed by Kissa's client was in the form of a letter authorizing the bank to debit Php 500,000,000.00 from his SA/CA No. 0160-62501-5 maintained at the bank's Pacific Star Branch and to credit the same amount to his investment management account. The account number 0160-62501-5 is the same account number mentioned in the signature card of the current account 0110-25495-4 which was opened, as was shown during the opening of the first sealed envelop turned over by the Bank on 15 December 2000 to the impeachment court, on 26 August 1999. Incidentally, since Kissa's client described SA/CA No. 0160-62501-5 as "my" account, whatever the balance of that account was as of 31 December 1999 should have been reported as part of assets in said client's statement of assets and liabilities for the year 1999.

The Need to Sign Investment Guidelines

Ordinarily, a client puts money in an investment management account with bank precisely to avail himself of the bank's investment expertise. For this reason, such a client grants the bank broad discretion on the matter of investing his money. The law, Section 63 of the old General Banking Act and now Section 88 of R.A. No. 8791, and regulations, however, limit that discretion, unless otherwise specifically directed by the client (411.4, Manual of Regulations for Banks), to a short list of permissible investments which many consider, and rightly so, to be ultra conservative and therefore low income earning. Invariably, therefore, banks ask their investment management clients to sign at the time they open the account and periodically thereafter a document called "Investment Guidelines" which authorizes investments outside of the restricted legal list. Without such guidelines, a trust officer investing discretionary funds outside of the legal list would easily find himself in trouble with the Bangko Sentral. That is why Kissa Ocampo had to make sure her client signed the "Investment Guidelines".

The Need for the Directional Letter

In some cases, the client has strong opinions about where his money should be placed. If it happens that the client wants his funds to be lent to a borrower who is not among those outlets authorized in the Investment Guidelines, or even if in the list, the amount desired by the client to be placed in a particular outlet is in excess of the levels or without the security considered by the investment manager to be prudent, then the investment manager seeks a specific direction to do so in writing. This specific directive is commonly known as a "Directional Letter" and was needed by Kissa Ocampo to pave the way for the lending of her client's funds to the company he had specifically chosen.

Why an IMA and Not Some Other Trust Account

There are many legitimate reasons why a client would be willing go through the process of opening an investment management account with a bank only to direct the investment to a particular borrower. One is to avoid the inevitable hassles of dealing with the borrower directly, such as, making sure that the loan documents are in order. Another is tax-saving. If one were to lend directly to a corporation, interest income on the loan would have to be reported as part of the lender's gross income and taxed, most likely, at the top rate of 32% on the lender's net income. But if the lending is done through an investment management account, the principal pays, based on an old ruling of the Bureau of Internal Revenue, only the 20% final tax on the interest that is withheld by the investment manager and remitted directly to the government. The third is to avoid the reserves required by the Bangko Sentral to be set up for trusts similarly structured. Likewise, there are also many illegitimate reasons for such a convoluted arrangement. But, we can leave that matter, I suppose, to the impeachment prosecution team.

Many have lamented how trust operations in our country is over-regulated and, to borrow a description from Robert Bolt's Man for All Seasons, is "planted with laws, from coast to coast" making a trust officer's duties very tedious and his client's business too cumbersome. But there are reasons for those laws. Kissa's testimony demonstrates how they, with unerring objectivity, not only protect those who follow but also just as surely ensnare those who do not.