Clients who swindle their banks not liable for syndicated estafa

By: Asisclo A. Castañeda III

          The Philippine Supreme Court limited the extent of the possible criminal liability of the fraud foisted by the accused individuals in the case of Galvez vs. Court of Appeals (G.R. No. 187919, February 20, 2013) from syndicated estafa under Presidential Decree No. 1689  to simple estafa under Article 315 (2)(a) of the Revised Penal Code. 

          PD 1689 imposes capital punishment for swindling committed by five or more persons where the defraudation results in the misappropriation of moneys contributed by stockholders, or members of rural banks, cooperative, "samahang nayon(s)", or farmers’ associations, or of funds solicited by corporations/associations from the general public.

          In the Galvez case, Asia United Bank (AUB) granted a P250 Million Omnibus Credit Line in favor of Radio Marine Network, Inc. (RMSI). Subsequently, this credit line was increased to P452 Million. RMSI was doing business under the name Smartnet Philippines and/or Smartnet Philippines, Inc. (SPI).

          A group of directors and officers of RMSI then created a separate subsidiary and named it “SPI.” This group represented to AUB that their subsidiary was the same as Smartnet Philippines in order to secure a US$29,300 worth of irrevocable letter of credit from AUB when in fact, this company had only P62,500 of paid-up capital.

          AUB filed a criminal complaint for syndicated estafa under PD 1869 against the bogus “SPI” group.  The Supreme Court however ruled that this “SPI” group can only be charged simple estafa under Article 315 (2) (a) of the Revised Penal Code. Under the Penal Code, estafa is committed by any person who shall defraud another by, among others, false pretenses or fraudulent acts executed prior to or simultaneous with the commission of fraud.

          The Court noted that PD 1689 speaks of a syndicate of five or more individuals who are members of the association or corporation formed with the intention of carrying out the unlawful scheme for the misappropriation of the money contributed by the members of the same association or corporation or the money collected from the general public.

          In the case of the spurious “SPI” group, the individuals were not in any way related either by employment or ownership to AUB. They were outsiders who, by their machinations, were able to defraud a corporation, which is AUB in this case. If they had been members or officers of AUB, then syndicated estafa would have been the proper charge.

          The Court summarized how PD 1689 should be interpreted:

  1. PD 1689 also covers commercial banks;
  2. The swindling must be committed through the association or corporation, which operates on funds solicited from the general public;
  3. When the number of the accused are five or more, the crime is syndicated estafa and the penalty is capital punishment;
  4. When the number of accused is less than five, the criminal liability is reclusion temporal (12 years and 1 day to 20 years) to reclusion perpetua (20 years and 1 day to 40 years); and
  5. PD 1689 does not apply regardless of the number of the accused, when, (a) the entity soliciting funds from the general public is the victim and not the means through which the estafa is committed, or (b) the offenders are not owners or employees who used the association to perpetrate the crime, in which case, Article 315 (2)(a) of the Revised Penal Code applies.


          In 2005, the Philippine Congress passed a law prohibiting the imposition of the death penalty. Instead, the maximum penalty that can be imposed is forty years without the benefit of parole.

(March 12, 2013)

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