Nature of Corporations Surrendered to PCGG by Jose Y. Campos

DOJ OPINION NO. 014, s. 2016 March 30, 2016 Commissioner Ronald C. Chua Presidential Commission on Good Government IRC Building, 82 EDSA Mandaluyong City Dear Commissioner Chua : This refers to your request for legal opinion on the nature of the corporations surrendered to the Presidential Commission on Good Government (PCGG) by Mr. Jose Y. Campos ("Subject Corporations") and of the positions held by the officers and employees of these Subject Corporations. These Subject Corporations have been sequestered by/surrendered to the PCGG pending its complete privatization. The query has been raised in view of (a) the findings of the PCGG's Resident Auditor on the hiring of external auditors and (b) the subpoena issued by the Office of the Ombudsman requiring the submission of the Statement of Assets Liabilities and Networth of one of the General Managers of these companies. Preliminarily, allow us to state the general policy of this Department relating to our observance and respect to the decisions or findings of administrative authorities, especially to those constitutionally created like the Commission on Audit ("COA") and the Office of the Ombudsman ("OMB").This policy not only proceeds from the absence of revisory authority of the Department over the COA and OMB, but also from their presumed expertise in the laws they are entrusted to enforce. Notwithstanding the foregoing, and in view of the importance of your queries, please find below our considered views to your queries. On the engagement of external auditors In resolving the issue raised, it is imperative to revisit the powers vested in the COA by the laws. Article IX-D, Sections 2 and 3 of the 1987 Constitution has made the COA the guardian of public funds, vesting it with broad powers over all accounts pertaining to government revenue and expenditures and the uses of public funds and property. Section 11, Chapter 4, Subtitle B, Title I, Book V of the Administrative Code of 1987 1 reaffirm this constitutional mandate given to COA. Here, you have stated that since 1986, proceeds of the privatized assets of the Subject Corporations have been remitted to the Bureau of Treasury. Since the Bureau of Treasury is the principal custodian of all national government funds, 2 this indicates that the proceeds of the privatized assets are public funds. As such, the proceeds of the privatized assets are within the audit jurisdiction of the COA. Notwithstanding the COA's jurisdiction over the income ( i.e., proceeds from privatization) of the Subject Corporations, the Subject Corporations are not precluded from engaging additional, concurrent services of external auditors. As held in the case of Development Bank of the Philippines vs. Commission on Audit, 3 COA's audit jurisdiction is not exclusive, and subject entities are not precluded from engaging external counsel: "The power of the COA to examine and audit government agencies, while non-exclusive, cannot be taken away from the COA. Section 3, Article IX-D of the Constitution mandates that: Sec. 3. No law shall be passed exempting any entity of the Government or its subsidiary in any guise whatsoever, or any investment of public funds, from the jurisdiction of the Commission on Audit. The mere fact that private auditors may audit government agencies does not divest the COA of its power to examine and audit the same government agencies. The COA is neither by-passed nor ignored since even with a private audit the COA will still conduct its usual examination and audit, and its findings and conclusions will still bind government agencies and their officials. A concurrent private audit poses no danger whatsoever of public funds or assets escaping the usual scrutiny of a COA audit. Manifestly, the express language of the Constitution, and the clear intent of its framers, point to only one indubitable conclusion the COA does not have the exclusive power to examine and audit government agencies. The framers of the Constitution were fully aware of the need to allow independent private audit of certain government agencies in addition to the COA audit, as when there is a private investment in a government-controlled corporation, or when a government corporation is privatized or publicly listed, or as in the case at bar when the government borrows money from abroad. In these instances the government enters the marketplace and competes with the rest of the world in attracting investments or loans. To succeed, the government must abide with the reasonable business practices of the marketplace. Otherwise no investor or creditor will do business with the government, frustrating government efforts to attract investments or secure loans that may be critical to stimulate moribund industries or resuscitate a badly shattered national economy as in the case at bar. By design the Constitution is flexible enough to meet these exigencies. Any attempt to nullify this flexibility in the instances mentioned, or in similar instances, will be ultra vires, in the absence of a statute limiting or removing such flexibility." (Emphasis and underscoring supplied.) SDAaTC On the submission of SALNs The submission of a SALN is mandated by the Constitution, and reiterated in the Administrative Code of 1987, 5 Republic Act No. 3019, 6 otherwise known as the Anti-Graft and Corrupt Practices Act and Republic Act No. 6713, 7 otherwise known as the Code of Conduct and Ethical Standards for Public Officials and Employees. The relevant provisions read: Section 17, Art. XI of the 1987 Philippine Constitution "A public officer or employee shall, upon assumption of office and as often thereafter as may be required by law, submit a declaration under oath of his assets, liabilities, and net worth. .... xxx xxx xxx. Section 34, Chapter 9, Book 1 of the Administrative Code of 1987 "A public officer or employee shall upon assumption of office and as often thereafter as may be required by law, submit a declaration under oath of his assets, liabilities, and net worth." xxx xxx xxx. Section 8 of R.A. No. 6713 "Statements and Disclosure Public officials and employees have an obligation to accomplish and submit declarations under oath of, and the public has the right to know, their assets, liabilities, net worth and financial and business interests including those of their spouses and of unmarried children under eighteen (18) years of age living in their households." Public officials and employees under temporary status are also required to file under oath their SALNs and Disclosure of Business Interests and Financial Connections in accordance with the guidelines provided under these rules. xxx xxx xxx. Section 7 of R.A. No. 3019 "Statement of assets and liabilities. Every public officer , within thirty days after the approval of this Act or after assuming office, and within the month of January of every other year thereafter, as well as upon the expiration of his term of office, or upon his resignation or separation from office, shall prepare and file with the office of the corresponding Department Head, or in the case of a Head of Department or chief of an independent office, with the Office of the President, or in the case of members of the Congress and the officials and employees thereof, with the Office of the Secretary of the corresponding House, a true detailed and sworn statement of assets and liabilities, including a statement of the amounts and sources of his income, the amounts of his personal and family expenses and the amount of income taxes paid for the next preceding calendar year: Provided, That public officers assuming office less than two months before the end of the calendar year, may file their statements in the following months of January." (Emphasis supplied.) Thus, it is essential to determine whether the General Manager, and other officers or employees of the Subject Corporations are public officers or employees. In this regard, the Supreme Court has looked into the nature of the employer to determine the nature of the employment. If the employer is not a government agency, a government owned and controlled corporation ("GOCC"),or a government entity, then the employee is not a public officer or employee. The rationale for this line of reasoning is that a public officer or employee holds a public office. Quoting Mechem, the Supreme Court writes: 8 A public office is the right, authority, and duty created and conferred by law, by which, for a given period, either fixed by law or enduring at the pleasure of the creating power, an individual is invested with some portion of the sovereign functions of the government, to be exercised by him for the benefit of the public. The individual so invested is a public officer. In Leyson v. Office of the Ombudsman , 9 the Supreme Court ruled that Tirso Antiporda, the Chairman of the United Coconut Planters Bank (UCPB) and CIIF Oil Mills, and Oscar Torralba, President of the Coconut Industry Investment Fund (CIIF) companies were not public officers because the CIIF companies, namely Legaspi Oil, Granexport, and UCPB were not GOCCs. The Supreme Court provided a three (3)-requisite definition of a GOCC: But these jurisprudential rules invoked by petitioner in support of his claim that the CIIF companies are government owned and/or controlled corporations are incomplete without resorting to the definition of "government owned or controlled corporation" contained in par. (13), Sec. 2, Introductory Provisions of the Administrative Code of 1987, i.e., any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock. The definition mentions three (3) requisites, namely, first, any agency organized as a stock or non-stock corporation; second, vested with functions relating to public needs whether governmental or proprietary in nature; and, third, owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock. In the present case, all three (3) corporations comprising the CIIF companies were organized as stock corporations. The UCPB-CIIF owns 44.10% of the shares of LEGASPI OIL, 91.24% of the shares of GRANEXPORT, and 92.85% of the shares of UNITED COCONUT. Obviously, the below 51% shares of stock in LEGASPI OIL removes this firm from the definition of a government owned or controlled corporation. Our concern has thus been limited to GRANEXPORT and UNITED COCONUT as we go back to the second requisite. Unfortunately, it is in this regard that petitioner failed to substantiate his contentions. There is no showing that GRANEXPORT and/or UNITED COCONUT was vested with functions relating to public needs whether governmental or proprietary in nature unlike PETROPHIL in Quimpo . The Court thus concludes that the CIIF companies are, as found by public respondent, private corporations not within the scope of its jurisdiction. (Emphasis supplied) In Carandang v. Sandiganbayan, 10 the Supreme Court also ruled that Antonio Carandang, the General Manager and Chief Operating Officer of Radio Philippines Network, Inc. (RPN) was not a public officer because RPN was not a GOCC following the test provided in Leyson. Significantly, RPN like the Subject Corporations is a sequestered/surrendered corporation. acEHCD In view of the foregoing Supreme Court decisions, it is our position that the Subject Corporations are not GOCCs, and accordingly its officers/employees are not public officials/employees. Applying the three (3)-requisite test, and based on PCGG's determination that the Subject Corporations are involved in real estate and investment and not in any way related to a public need, we find that despite being fully-owned by the Republic, the Subject Corporations are not GOCCs. Accordingly, its officers/employees, who were neither appointed nor elected 11 into a public office, cannot be deemed to have been vested with a sovereign, government function. We further add that in Leyson, the government respectively held 91.24% and 92.85% of the shares in UCPB and GRANEXPORT, but this notwithstanding, the Supreme Court ruled that since these CIIF companies did not fulfill a public need, these could not be characterized as GOCCs. We also add that in Carandang, the Supreme Court deferred to the interpretation of the PCGG and the Office of the President that RPN was not a GOCC because of the competence of these administrative agencies in the matter. Here, a determination by PCGG that the Subject Corporations do not perform functions relating to public need, and therefore are not GOCCs would be given similar weight. All told, and guided by the Supreme Court's decisions in Leyson and Carandang, we conclude that since the Subject Corporations are not GOCCs, nor can its officers/employees be considered public officers/employees, there is basis to clarify with the Ombudsman that the requirement on the submission of SALNs does not apply here. We trust that this is useful. (SGD.) EMMANUEL L. CAPARAS Secretary of Justice Footnotes 1. Executive Order No. 292, s. 1987. 2. Administrative Code, Book IV, Title II, Section 29. 3. G.R. No. 88435. January 16, 2002. 4. Note from the Publisher: Copied verbatim from the official document. Missing footnote text and reference. 5. E.O. No. 292. 6. Anti-Graft and Corrupt Practices Act. 7. Code of Conduct and Ethical Standards for Public Officials and Employees. 8. Khan v. Office of the Ombudsman, G.R. No. 125296, July 20, 2006. 9. G.R. No. 134990, April 27, 2000. 10. G.R. No. 148076, January 12, 2011. 11. RA 6713 and RA 3019 define public officers/employees as having been elected or appointed to public office.