When is a Loan Considered a ‘Behest Loan’ and What are the Implications?

G.R. Nos. 217417 & 217914, August 07, 2023

Imagine a scenario where a bank, influenced by powerful figures, grants a loan to a company with questionable credentials. This is the essence of a ‘behest loan,’ a term that carries significant weight in Philippine law, particularly concerning corruption and abuse of power. The recent Supreme Court decision in People of the Philippines vs. Reynaldo G. David, et al. sheds light on the complexities of these cases and underscores the importance of due diligence in government financial transactions.

This case revolves around loans granted by the Development Bank of the Philippines (DBP) to Deltaventures Resources, Inc. (DVRI). The central legal question is whether these loans qualified as ‘behest loans,’ and whether the involved DBP officials violated Section 3(e) of Republic Act No. 3019 (RA 3019), the Anti-Graft and Corrupt Practices Act, in granting them.

Legal Context: The Anti-Graft Law and Behest Loans

Section 3(e) of RA 3019 is crucial in understanding this case. It penalizes public officials who, through manifest partiality, evident bad faith, or gross inexcusable negligence, cause undue injury to the government or give unwarranted benefits, advantage, or preference to a private party. The law states:

“Section 3. Corrupt practices of public officers. — In addition to acts or omissions of public officers already penalized by existing law, the following shall constitute corrupt practices of any public officer and are hereby declared to be unlawful:

(e) Causing any undue injury to any party, including the Government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence. This provision shall apply to officers and employees of offices or government corporations charged with the grant of licenses or permits or other concessions.”

A key issue is the definition of a ‘behest loan.’ While not explicitly defined in RA 3019, Memorandum Order No. 61 provides criteria to determine if a loan granted by a government-owned or -controlled institution qualifies as such. These criteria include:

• The loan is undercollateralized.
• The borrower corporation is undercapitalized.
• There is direct or indirect endorsement by high government officials.
• Stockholders, officers, or agents of the borrower corporation are identified as cronies.
• There is a deviation of use of loan proceeds from the purpose intended.
• Corporate layering is used.
• The project for which financing is being sought is not feasible.
• There is extraordinary speed in which the loan release was made.

Imagine a scenario where a government official pushes for a loan to be approved for a company owned by their friend, despite the company having minimal assets and a dubious business plan. If the loan is approved quickly and with little scrutiny, it raises red flags of a potential behest loan.

Case Breakdown: DBP Loans to DVRI

The case unfolds with DBP filing a complaint against several of its officials, along with individuals from DVRI, alleging that two loans, amounting to PHP 660,000,000, were granted under questionable circumstances. The Ombudsman found probable cause to indict several individuals for violating Section 3(e) of RA 3019.

Here’s a step-by-step breakdown:

1. DBP files a complaint with the Ombudsman.
2. The Ombudsman conducts a preliminary investigation.
3. The Ombudsman finds probable cause and files Informations with the Sandiganbayan.
4. The Sandiganbayan initially determines probable cause and issues warrants of arrest.
5. Accused individuals file Motions to Quash.
6. The Sandiganbayan, reconsidering the evidence, grants the Motions to Quash and dismisses the case.

The Sandiganbayan’s decision to dismiss the case was based on the fact that DVRI had fully paid the loans. However, the Supreme Court reversed this decision, stating that the full payment of the loans does not negate the possibility that the loans were initially granted with evident bad faith or manifest partiality, thereby giving unwarranted benefits to DVRI.

The Supreme Court emphasized that:

“[L]ack of probable cause during the preliminary investigation is not one of the grounds for a motion to quash. A motion to quash should be based on a defect in the information, which is evident on its face. The guilt or innocence of the accused, and their degree of participation, which should be appreciated, are properly the subject of trial on the merits rather than on a motion to quash.”

Furthermore, the Court stated:

“[E]ven assuming arguendo that the Sandiganbayan could re-do its judicial determination of probable cause against the accused in the resolution of the motions to quash, there is no showing of a ‘clear-cut absence‘ of probable cause against the accused.”

Notably, during the pendency of the case, key individuals like Miguel L. Romero, Reynaldo G. David, and Roberto V. Ongpin passed away. The Supreme Court, in accordance with Article 89 of the Revised Penal Code, dismissed the case against them due to their deaths, which extinguished their criminal liability.

Practical Implications: Due Diligence and Preventing Corruption

This case underscores the critical importance of due diligence and ethical conduct in government financial institutions. It serves as a reminder that even if a loan is eventually paid, the initial granting of the loan under suspicious circumstances can still constitute a violation of anti-graft laws.

For businesses and individuals interacting with government financial institutions, it’s crucial to ensure transparency and compliance with all regulations. Any hint of impropriety or undue influence should be avoided to prevent potential legal repercussions.

Key Lessons:

• Due diligence in government financial transactions is paramount.
• Full payment of a loan does not automatically negate potential violations of anti-graft laws.
• Public officials must act with utmost transparency and ethical conduct.
• Corporate layering and cronyism raise red flags in loan transactions.

Frequently Asked Questions (FAQs)

What is a behest loan?

A behest loan is a loan granted by a government-owned or -controlled financial institution under suspicious circumstances, often involving cronyism, undercapitalization, and lack of proper collateral.

What is Section 3(e) of RA 3019?

Section 3(e) of RA 3019, the Anti-Graft and Corrupt Practices Act, penalizes public officials who cause undue injury to the government or give unwarranted benefits to private parties through manifest partiality, evident bad faith, or gross inexcusable negligence.

Does the payment of a loan negate a violation of RA 3019?

No, the full payment of a loan does not automatically negate a violation of RA 3019 if the loan was initially granted under suspicious circumstances or with evident bad faith or manifest partiality.

What is the role of the Ombudsman in these cases?

The Ombudsman is responsible for investigating complaints against public officials and determining whether there is probable cause to file criminal charges.

What happens if an accused individual dies during the pendency of a criminal case?

Under Article 89 of the Revised Penal Code, the death of the accused extinguishes their criminal liability and the civil liability based solely on the offense committed.

What should businesses do to ensure compliance with anti-graft laws?

Businesses should ensure transparency in all transactions with government financial institutions, avoid any hint of impropriety or undue influence, and comply with all relevant regulations.

What factors indicate that a loan may be a behest loan?

Factors include undercapitalization of the borrower, inadequate collateral, direct or indirect endorsement by high-ranking government officials, cronyism, and extraordinary speed in loan release.

Can private individuals be held liable under Section 3(e) of RA 3019?

Yes, private individuals can be held liable if they conspire or confederate with public officials in violating Section 3(e) of RA 3019.

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