ln18CuuC1lCn

n1luuMM? LJ
law LhaL penallzes llllplnos who
permlL allens Lo use Lhem as
nomlnees or dummles Lo en[oy
prlvlleges reserved for llllplnos or
llllplno CorporaLlons
Crlmlnal sancLlons are lmposed on
W resldenL
W Manager
W 8oard member
W ersons ln charge of Lhe vlolaLlng
enLlLy
88lLl PlS1C8?
C 108
s amended by 8 421
8 134 8 6084
LaLesL amendmenL u
713
u 713
dded a provlso expressly allowlng
Lhe elecLlon of allens as
W members of Lhe board of dlrecLors
W Covernlng bodles of corporaLlons
W ssoclaLlons engaged ln parLlally
naLlonallzed acLlvlLles
nC1L ln proporLlon Lo Lhelr allowable
parLlclpaLlon or share ln Lhe caplLal
urpose of Lhe amendmenL
SeLLle lssue ln Luzon SLevedorlng
Corp v nLluummy 8oard
held LhaL Lhe nLluummy Law
covered only employmenL ln wholly
naLlonallzed buslnesses and noL ln
Lhose LhaL are only parLly
naLlonallzed
urpose of Sect|on 2A of the Ant|
Dummy Law
W SecLlon 2 of Lhe nLluummy
Law ls lnLended Lo punlsh
evaslon of Lhe laws on Lhe
naLlonallzaLlon of cerLaln rlghLs
franchlses or prlvlleges
adges of "dummy status"
% 1haL Lhe forelgn lnvesLor provldes pracLlcally
all Lhe funds for Lhe [olnL lnvesLmenL
underLaken by llllplno buslnessmen and Lhelr
forelgn parLner
% 1haL Lhe forelgn lnvesLors underLake Lo
provlde pracLlcally all Lhe Lechnologlcal
supporL for Lhe [olnL venLure
% 1haL Lhe forelgn lnvesLors whlle belng
mlnorlLy sLockholders manage Lhe company
and prepare all economlc vlablllLy sLudles
1he ueparLmenL of !usLlce Cplnlon no 163 Serles of 1984
ConLrol 1esL vs CrandfaLher 8ule
ConLrol 1esL
W based on a 1989 oplnlon of Lhe [usLlce
deparLmenL ln esLabllshlng Lhe
naLlonallLy of corporaLe sLockholders
W lL means LhaL lf llllplno clLlzens own aL
leasL 60 of Lhe corporaLlon's caplLal
all Lhe shares of Lhe corporaLlon
lncludlng Lhose owned by forelgners
shall be consldered of hlllpplne
naLlonallLy
ConLrol 1esL vs CrandfaLher 8ule
CrandfaLher 8ule
W lf llllplno clLlzens own 60 of Lhe corporaLlon's
caplLal and forelgners own Lhe remalnlng 40
Lhen lL's a sLralghLforward 6040 venLure
W 1hus whenever Lhe 6040 corporaLlon lnvesLs ln
anoLher company LhaL ls also covered by Lhe 60
40 ownershlp rule Lhe forelgn componenL ln Lhe
cascade company ls aggregaLed
W 1he grandfaLher rule ls sLrlcLer ln allowlng
forelgn companles Lo organlze an ownershlp
sLrucLure LhaL could mask Lhelr effecLlve sLake
lorelgn lnvesLmenL cL
W 1he SecurlLles and Lxchange Commlsslon
had sLaLed LhaL Lhe ConLrol 1esL rules
W SLC had sald LhaL Lhe uo!'s 1989 oplnlon
has galned leglslaLlve accepLance Lhrough
Lhe lorelgn lnvesLmenL cL (or 8epubllc
cL no 7042)
W 1he lmplemenLlng rules of Lhe lorelgn
lnvesLmenL cL caLegorlcally sald Lhe
conLrol LesL shall be applled" when
deLermlnlng cerLaln flnanclal prlvlleges for
Lhe hlllpplne naLlonal
Coodbye CrandfaLher 8ule?
W 1he SLC has also polnLed ouL LhaL Lhe
grandfaLher rule wlll noL apply ln cases
where Lhe 6040 llllplno equlLy
ownershlp ls noL ln doubL"
8ased on Lhe above Lhe followlng Lhus
applles
W % ConLrol 1esL ls Lhe sLandard for
deLermlnlng Lhe naLlonallLy of
corporaLlons
W % CrandfaLher 8ule applles when Lhere
are lssues abouL conformlng wlLh Lhe 60
40 requlremenL
enalLles
W lmprlsonmenL for noL less Lhan flve nor more
Lhan flfLeen years and by a flne of noL less Lhan
Lhe value of Lhe rlghL franchlse or prlvllege
en[oyed or acqulred ln vlolaLlon of Lhe
provlslons hereof buL ln no case less Lhan flve
Lhousand pesos
W 1he presldenL managers or persons ln charge of
corporaLlons assoclaLlons or parLnershlps
vlolaLlng Lhe provlslons of Lhls secLlon shall be
crlmlnally llable ln lleu Lhereof
enalLles
W ny person corporaLlon or
assoclaLlon shall ln addlLlon Lo Lhe
penalLy lmposed hereln forfelL such
rlghL franchlse prlvllege and Lhe
properLy or buslness en[oyed or
acqulred ln vlolaLlon of Lhe
provlslons of Lhls cL
W xxx 1bot tbe electloo of olleos os
membets of tbe bootJ of
Jltectots ot qovetoloq boJy of
cotpototloos ot ossoclotloos
eoqoqloq lo portio//y
notiono/ited octivities sboll be
olloweJ lo ptopottloo to tbelt
ollowoble pottlclpotloo ot sbote
lo tbe copltol socb eotltles
Jhat |s a nat|ona||zat|on or
I|||p|n|zat|on |aw?
W naLlonallzaLlon law ls one whlch
llmlLs a cerLaln economlc acLlvlLy or
Lhe exerclse or en[oymenL of a
cerLaln rlghL franchlse prlvllege
properLy or buslness only Lo llllplno
clLlzens or Lo corporaLlons or
assoclaLlons aL leasL a cerLaln
percenLage of Lhe caplLal of whlch ls
owned by llllplno clLlzens
ow does the Ant|Dummy Law comp|ement these
nat|ona||zat|on |aws?
W 8y lLself a llllplnlzaLlon law does
noL necessarlly enLall resLrlcLlon on
Lhe employmenL of allens ln Lhe
naLlonallzed enLerprlse
W buL Lhe nLluummy Law
complemenLs Lhese naLlonallzaLlon
laws by naLlonallzlng employmenL ln
Lhese enLerprlses %Dolvetsol coto
ltoJocts loc v klce coto 8ootJ
ptom Aoq 17 1967 20 5ckA
1048)
Jhat |s the extent of the nat|ona||zat|on of emp|oyment |n
nat|ona||zed enterpr|ses under the Ant|Dummy Law?
W 1he nLluummy Law bans Lhe
employmenL of allens ln all enLlLles
engaged ln naLlonallzed acLlvlLles and Lhe
ban on allen employmenL lncludes even
mlnor or clerlcal or nonconLrol poslLlons
W ln Lhe case of klng v Pernaez (rom
March 31 1962 4 SC8 792) Lhe Supreme
CourL held LhaL Lhe employmenL of Lhree
Chlnese naLlonals as purchaser and
salesmen ln a grocery buslness whlch ls
requlred by Lhe 8eLall 1rade naLlonallzaLlon
Law Lo be wholly owned by llllplno clLlzens
or llllplno enLlLles was a vlolaLlon of Lhe
nLluummy Law
81lCnLL
ln Lhe words of Lhe Supreme CourL
W Jhen Lhe law says LhaL you connot emp/oy on o/ien
|n any pos|t|on perLalnlng Lo managemenL
operaLlon admlnlsLraLlon and conLrol wheLher as
an offlcer employee or laborer Lhereln lL only
means one Lhlng Lhe employmenL of a person who
ls noL a llllplno clLlzen even in o minor or c/erico/ or
noncontro/ position is prohibited 1he reason ls
obvlous Lo plug any loophole or close any avenue
LhaL an unscrupulous allen may resorL Lo flouL Lhe
law or defeaL lLs purpose for no one can deny LhaL
whlle one may be employed ln a nonconLrol
poslLlon who apparenLly ls harmless he may laLer
Lurn ouL Lo be a mere Lool Lo furLher Lhe evll deslgns
of Lhe employer lL ls lmperaLlve LhaL Lhe law be
lnLerpreLed ln a manner LhaL would sLave off any
aLLempL aL clrcumvenLlon of Lhls leglslaLlve purpose
(klng v Pernaez supra)
W 1he ban on employmenL of allens ln
naLlonallzed acLlvlLles ls appllcable Lo
allens already employed aL Lhe Llme
Lhe prohlblLlon came lnLo force
W 1he CourL held ln Lhe case of Dolvetsol
coto ltoJocts loc v klce ooJ coto
8ootJ sopto LhaL slnce Lhe
prohlblLlon refers Lo conLlnuance ln
offlce afLer Lhe law wenL lnLo effecL
and noL before lLs effecLlvlLy Lhere ls
no reLroacLlvlLy Lo Lhe consLrucLlon of
Lhe sLaLuLe
Jhat are comp|ete|y nat|ona||zed
act|v|t|es?
W CompleLely naLlonallzed acLlvlLles
refer Lo Lhose Lhe exerclse and
en[oymenL of whlch are expressly
reserved by Lhe ConsLlLuLlon and/or
laws Lo clLlzens of Lhe hlllpplnes or
Lo corporaLlons or assoclaLlons
wholly owned by such clLlzens
Lxample
W 8eLall Lrade under 8 no 1180
reLall Lrade buslness ls llmlLed Lo
llllplno clLlzens or [urldlcal persons
wlLh 100 llllplno caplLal
Jhat |s a part|a||y nat|ona||zed act|v|ty?
W n underLaklng or acLlvlLy ls parLly
naLlonallzed wlLhln Lhe meanlng of
SecLlon 2 of Lhe nLluummy Law lf
lLs en[oymenL or exerclse ls llmlLed by
Lhe ConsLlLuLlon or any law Lo
corporaLlons or assoclaLlons aL leasL
60 of Lhe caplLal of whlch ls owned by
llllplno clLlzens LhaL ls Lo say Lhe
mlnlmum equlLy parLlclpaLlon requlred
Lo be owned by llllplnos ls 60
Lxample
W ubllc uLlllLles under rL xlv SecLlon 3 of
Lhe new ConsLlLuLlon Lhe operaLlon of a
publlc uLlllLy ls llmlLed Lo llllplno clLlzens or Lo
corporaLlons or assoclaLlons 60 of Lhe caplLal
of whlch ls owned by llllplno clLlzens
W s amended by u no 713 Lhe nLl
uummy Law now allows Lhe electloo of
olleos os membets of tbe bootJ of
Jltectots ot qovetoloq boJy of
cotpototloos ot ossoclotloos eoqoqeJ lo
pottlolly ootlooollzeJ octlvltles lo
ptopottloo to tbelt ollowoble pottlclpotloo
ot sbote lo tbe copltol of socb eotltles
1hls decree ls ln llne wlLh rLlcle 14
SecLlon 3 of Lhe new ConsLlLuLlon whlch
provldes LhaL Lhe parLlclpaLlon of forelgn
lnvesLors ln Lhe governlng body of any
publlc uLlllLy enLerprlse shall be llmlLed Lo
Lhelr proporLlonaLe share ln Lhe caplLal
Lhereof
@o what extent may fore|gn |nvestors part|c|pate |n the
govern|ng body of a part|a||y nat|ona||zed bus|ness or
|ndustry?
W ,ay an a||en be e|ected as a
d|rector |n a who||y nat|ona||zed
act|v|ty?
no
W ,ay an a||en be e|ected as a
d|rector |n a part|a||y nat|ona||zed
bus|ness?
?es
Jhat are the except|ons to the ban on a||en
emp|oyment?
W llrsL where Lhe SecreLary of !usLlce
speclflcally auLhorlzes Lhe employmenL of
Lhe allen as Lechnlcal personnel
W nd second Lhe elecLlon of allens as
members of Lhe board of dlrecLors or
governlng body of Lhe enLerprlse
engaged ln parLlally naLlonallzed acLlvlLles
ln proporLlon Lo Lhelr allowable
parLlclpaLlon ln Lhe caplLal of such
enLlLles
Jhat |s the scope of term techn|ca|
personne|?
W any person who has speclal exLraordlnary or
pracLlcal knowledge especlally of a
mechanlcal or sclenLlflc occupaLlon
W Lach appllcaLlon for employmenL ls
referred Lo Lhe offlce concerned for
example ln Lhe case of banklng
lnsLlLuLlons Lhe offlce havlng
supervlsory [urlsdlcLlon ls Lhe CenLral
8ank for commenL and
recommendaLlon as Lo wheLher Lhe
parLlcular poslLlon applled for ln Lhe
llghL of Lhe duLles lnvolved and Lhe
quallflcaLlons Lherefore may be
consldered Lechnlcal ln naLure
ow does the Department of Iust|ce determ|ne
whether a part|cu|ar pos|t|on app||ed for wou|d be
cons|dered techn|ca| |n nature?
W 1he ueparLmenL of !usLlce has Lo
rely on Lhe [udgmenL of Lhe
governmenL agency concerned as
Lo wheLher a parLlcular poslLlon ls
Lechnlcal ln naLure and rely heavlly
upon Lhe recommendaLlons lL
recelves slnce Lhese agencles
would be more cognlzanL of Lhe
manpower resources and needs of
Lhe lndusLry or of Lhe glven
economlc acLlvlLy
nLluummy 8aps galnsL Lhe laLco
and lrapco offlclals
ackground
W ln 1997 laLco won Lhe rlghL Lo bulld and
operaLe nl3 Lhe counLrys maln
gaLeway lraporL whlch manages Lhe
lrankfurL alrporL laLer [olned Lhe
consorLlum as Lhe forelgn parLner 1he
rroyo governmenL volded Lhe nl3
conLracL afLer allegaLlons of wrongdolngs
lncludlng Lhe breach of anLldummy law
surfaced 1he Supreme CourL upheld Lhls
CrafL charges were Lhen flled agalnsL
governmenL offlclals who Look parL ln
approvlng Lhe quesLlonable conLracL and
succeedlng amendmenLs
x|st|ng badges of fraud
W 1) lL was found ouL LhaL Lhe llllplno flrms ln
Lhe laLco consorLlum and Lhelr Cerman
counLerparLs ln lraporL have execuLed
secreL shareholder agreemenLs LhaL would
effecLlvely allow lraporL Lo have
managerlal operaLlonal and flnanclal
conLrol of nl3 once commerclal
operaLlons sLarL
W 1he secreL shareholder agreemenLs were
resorLed Lo slnce lL was lraporL LhaL ended
up maklng Lhe flnanclng arrangemenLs wlLh
mulLllaLeral credlLors Lo ralse Lhe much
needed funds afLer consLrucLlon of Lhe 10
parL alrporL faclllLy has been well underway
W 2) uC! sald lraporL lLself admlLLed
aL a JashlngLonbased arblLraLlon
Lrlbunal LhaL lLs dlrecL and lndlrecL
sLake ln laLco and cascade
companles has reached 61
W 1he hlllpplne ConsLlLuLlon and Lhe
nLluummy Law bar forelgners
from ownlng more Lhan 40 of key
faclllLles ln Lhe counLry lncludlng
alrporL Lermlnals
CCnCLuSlCn
MnlL hlllpplnes llnanclng companles
are no longer covered by Lhe nLldummy Law
Lhe ueparLmenL of !usLlce declared on 1uesday
ln a 4page legal oplnlon uC! SecreLary
Lella de Llma agreed wlLh Lhe poslLlon of lawyer
!uan de Zunlga !r asslsLanL governor and
general counsel of 8angko SenLral ng lllplnas
(8S) LhaL Lhe passage of Lhe llnanclng
Company cL of 1998 has Laken flnanclng
lnsLlLuLlons ouL of Lhe coverage of SecLlon 2
of CommonwealLh cL no 108 also known as
Lhe nLluummy Law

ue Llma noLed LhaL SecLlon 6 of 8epubllc cL

no 8336 whlch amended 8 3980 (llnanclng
Company cL) effecLlvely llberallzed Lhe conducL
of flnanclng buslness ln Lhe hlllpplnes by
allowlng forelgn naLlonals Lo own up Lo 60 of
Lhe equlLy of a flnanclng company
Jhlle SecLlon 6 of 8 3980 lmposed a
60 llllplnoowned caplLal requlremenL SecLlon
6 of 8 8336 amendlng Lhe sald SecLlon 6 of
8 3980 reduced Lhe percenLage requlremenL
for Lhe flrm's organlzaLlon from 60 Lo 40 of
Lhe corporaLe sLocks and changed Lhe
organlzaLlons requlremenL from 'caplLal' Lo
'voLlng sLock' Lhe uC! chlef noLed

ue Llma explalned LhaL as applled Lo

corporaLlons caplLal" refers Lo Lhe enLlre
properLy or asseLs of Lhe corporaLlon whlch
lnclude Lhe amounL lnvesLed by Lhe
sLockholders plus Lhe undlsLrlbuLed earnlngs
less losses and expenses
Cn Lhe oLher hand a voLlng sLock"
enLlLles Lhe holder Lhe rlghL Lo voLe ln Lhe
elecLlon of Lhe dlrecLors of Lhe corporaLlon and
on maLLers LhaL are puL Lo voLe

1he uC! chlef added LhaL Lhe

amendmenL does noL only Lake ouL
flnanclng companles from Lhe coverage of
SecLlon 2 of Lhe nLluummy Law buL
also dlspenses Lhe requlremenL of prlor
auLhorlzaLlon from Lhe [usLlce deparLmenL
for Lhe employmenL of forelgn naLlonals ln
sald flnanclng companles

1he followlng are some of Lhe

rullngs of Lhe SecreLary of !usLlce
on Lhe employmenL of allens ln
enLlLles engaged ln wholly or parLly
naLlonallzed acLlvlLles
a n allen may conLlnue as dlrecLor of a mlnlng flrm
provlded he ls an equlLy parLlclpanL ln sald enLlLy 1hls ls
speclflcally sancLloned by Lhe laLesL amendmenL Lo Lhe
nLluummy Law (C no 108 as amended by u no
713)
Powever hls elecLlon as presldenL of sald flrm would
vlolaLe Lhe nLluummy Law
Pls employmenL as a Lechnlcal consulLanL requlres Lhe
approval of Lhe ulrecLor of Mlnes ln accordance wlLh
u no 463 whlch empowers Lhe ulrecLor of Mlnes Lo
approve Lhe employmenL of nonllllplnos for Lechnlcal
or speclallzed work"
b 1he SecreLary of !usLlce does noL lssue clearance for
Lhe LermlnaLlon of Lhe servlces of allen Lechnlclans
already employed ln a naLlonallzed buslness or acLlvlLy
under SecLlon 2 of Lhe nLluummy Law (C no
108) as lasL amended by u no 713 Lhe auLhorlLy
vesLed ln Lhe SecreLary of !usLlce refers only Lo Lhe
granLlng of permlsslon for Lhe employmenL of allen
Lechnlclans ln a naLlonallzed Lrade buslness or acLlvlLy
and does noL lnclude Lhe lssuance of clearances for Lhe
LermlnaLlon of Lhe servlces of allen Lechnlclans already
employed ln a naLlonallzed buslness acLlvlLy
c n allen may conLlnue as a dlrecLor buL noL as
Lreasurer of a mlnlng company
d lf Lhe allen Lechnlcal personnel wlll be employed by a
logglng concesslonalre permlsslon wlll have Lo be
secured from Lhe SecreLary of !usLlce pursuanL Lo Lhe
nLluummy Law Jhere however Lhe allen ls Lo be
e CorporaLlons engaged ln Lhe buslness of boLh
lnLernaLlonal and domesLlc LelecommunlcaLlons are
covered by Lhe provlslons of Lhe ConsLlLuLlon
naLlonallzlng Lhe operaLlon of publlc uLlllLles (rL
xlv Sec 3) and Lherefore SecLlon 2 of Lhe nLl
uummy Law barrlng Lhe employmenL of allens ln
naLlonallzed enLerprlses ls appllcable
Lnu
28
8ernasor Lou Jella
Ca[ucom Monlca
CrlsosLomo Mary 8ose
anlaque Charmalne
Sabrldo 8elle
n1luuMM? LJ
8eporLlng for SLLS
LLy labella