What do banking and logistics (delivery) companies have in common?
It ain’t easily obvious for sure, but essentially both are business services that specialize in the temporary keeping, care, and transport of resources.
Money in the case of banks and physical goods in the case of logistics.
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Both types of businesses are supposed to be heavily regulated by the government to ensure that money and goods are not stolen, misused, damaged, or lost. Moreover, government regulators are supposed to ensure that these businesses are not used for criminal activities such as money laundering in the case of banks and the transport of contraband in the case of logistics.
However, events in recent days show how vastly different these businesses are subjected to regulation.
Almost within the same period, China Bank Corporation and logistics company J & T caught the public’s attention for apparent mishandling of the resources within their care.
On one hand, a businessman by the name of Wilbert Lee used the BSP Citizen’s Charter to call on the BSP to investigate China Banking Corporation officials for using illegal loans. (How and why these loans are illegal will be discussed later in this post.)
On the other, thousands of netizens went into an uproar over the video of J & T employees mishandling (and possibly damaging) packages they were supposed to deliver.
Thing is, between the alleged criminal mishandling of a bank’s resource worth billions and the mauling of packages worth a couple of thousands, President Rodrigo Roa Duterte chose to bring the full regulatory might of government on J & T rather than China Bank Corporation.
To be fair to President Duterte and his hundreds of thousands of die hard supporters, it is easier to be outraged by video of packages being thrown carelessly around than a complaint filed by some obscure businessman against China Bank for violating an esoteric banking law.
Most people understand damaged packages but hardly anyone outside of finance and banking understand how illegal self dealing led Banco Filipino to shutdown, virtually leaving its depositors investors in a lurch.
The key issue and what makes China Bank’s loan illegal is the transaction term called DOSRI or Directors, Officers, Stockholders, and Related Interests and the rules that govern such transactions.
Essentially, a DOSRI transaction is one wherein a bank funds within its care for a business activity with an entity over which it has control or substantial interests in.
By BangkoSentral’s (BSP) regulation, the threshold for “related interest” is 20-percent equity and this amounts to control over the entity.
A DOSRI transaction per se is not illegal and thus not forbidden. It, however, becomes criminal if the stringent requirements of the central monetary authority, BSP, are not met.
These requirements are, namely:
A) Approval by majority of the bank’s board minus the director, or who has a related business entity, benefitting from the loan
B) Full reports characterizing the loan as DOSRI
C) Waiver of secrecy of bank deposits of the borrower
The BSP should be ferreting out illegal DOSRI transactions without having to be prompted by a complaint, viber messages, and articles going around in traditional as well as social media.
It is, after all, mandated to scrutinize transactions made by all banks all the time to make sure that illegal practices do not imperil the money coursing through our banking system.
This, however, was not the case and it had to take a certain Wilbert Lee to tip off the BSP and even then, the BSP took its sweet time to even acknowledge the existence of the complaint.
If it weren’t for viber messages and articles in traditional as well as social media, BSP Governor Benjamin Diokno wouldn’t even have admitted to the existence of the complaint.
Then, even when BSP Governor Diokno told the press that BSP’s Office of the General Counsel and Legal Services (OGCLS) was investigating the complaint, the OGCLS responded by saying that it could not investigate it because it was criminal in nature and the Department of Justice should be the one to look into it.
This was so unlike how the BSP treated the illegal DOSRI transaction of Banco Filipino where it launched a full investigation into the matter and then had the erring members of the defunct bank prosecuted.
In China Bank’s case, the BSP won’t even look into the allegations and WORSE! It downgraded the complaint to an administrative case instead of the possible criminal case that it is.
Moreover, the BSP’s OGCLS didn’t even compel the China Bank officials involved in the illegal DOSRI transaction to answer to the allegations and instead had China Bank, as an institution, to answer the allegations — thereby shielding the officials.
But why would the BSP OGCLS keep itself from performing a mandated duty to look into illegal and criminal DOSRI allegations, label the allegations as administrative in nature and even shield China Bank’s erring officials?
Nonfeasance is one thing, but how about hiding the fact of a crime?
Just like how the BSP OGCLS is trying to keep details of the illegal DOSRI complaint under wraps, the crux of an ILLEGAL and CRIMINAL DOSRI transaction is the fact that it is a transaction whose nature is HIDDEN.
DOSRI transactions have to be VERY TRANSPARENT and OPEN TO SCRUTINY. It has to be reported to the board, fully characterized as a DOSRI transaction and the BORROWER MUST WAIVE HIS/HER BANK SECRECY.
Thing is, China Bank through its information officer misrepresented his company’s DOSRI transaction in a disclosure statement to the Disclosure Department of the PSE and the Philippine Dealing and Exchange Corporation said:
We would like to confirm that we have a non-paying client whose case has been referred to our Lawyers.
We would like to emphasize that the said obligation has been properly classified and reported to the BSP.
Except, it wasn’t properly classified and reported.
The loan being referred to by China Bank’s information officer was treated by China Bank as an ordinary loan. It wasn’t classified and reported to the BSP as a DOSRI transaction.
Ordinary loans can be seen in the bank’s financial statements but not reported on specific or per borrower basis to the BSP ujlike loans to a related party or related interest. By regulation, DOSRI is required to be reported on a per borrower basis.
Wilbert Lee’s company, Primark, is a related interest to China Bank. Their common owner or nexus is SMIC.
In its 2018 Annual Financial and Sustainability Report, China Bank disclosed several related parties and three related interests WHICH EXCLUDED PRIMARK.
China Bank can claim that Primark’s loans were not treated as DOSRI and reported to the BSP because documents submitted by Primark did not show it was a related interest to China Bank. However, SMIC hid its interest in Primark through dummy corporations CORPORATE ASSETS INVESTMENT LIMITED and PREMIER TOWNCENTER HOLDINGS INC.
There is much, much more that can be said about this illegal DOSRI transaction which will mention the names of Hans Sy, Herbert Sy, and Harley Sy. But for the moment, I will end this post here and leave these details to stew a little until they’re ripe.
The sea – you either learn to swim in it, or drown.