The Bangladesh Heist:

Corporate Criminal Liability

for the Philippine Bank’s Money Laundering Activities1

Introduction

On February 4, 2016, hackers broke into Bangladesh Bank's account with the Federal
Reserve Bank of New York and ordered 35 unauthorized transfers worth $951 Million. Before
the Federal Reserve Bank received instructions from Bangladesh Bank to stop the payments, the
Federal Reserve Bank had already transferred $81 Million to four bank accounts in Rizal
Commercial Banking Corporation (RCBC), Jupiter branch, a commercial Bank in the Philippines,
from where it was thereafter withdrawn and released to local casinos.

Section 4 of Republic Act 9610 or the Anti-Money Laundering Act of 2001 provides that
money laundering is a crime whereby the proceeds of an unlawful activity are transacted, thereby
making them appear to have originated from legitimate sources.2 However, under Philippine law,
only natural persons can be held criminally liable as there is no criminal liability for corporations.
This paper evaluates the adequacy of the civil liability imposed by Philippines law on the Bank
for the money laundering activities of its officers and employees and explores the legal
transplantation to the Philippines of United States criminal liability laws and jurisprudence.

On February 4, 2016, $81 Million was deposited to four bank accounts under the following
names: Michael Francisco Cruz - $6 Million; Alfred Santos Vergara - $19.99 Million; Enrico
Teodoro Vasquez -$25 Million; and Jesus Christopher Lagrosas - bulk or $30 Million. Thereafter,
the $81 Million was consolidated and deposited to another account in the name of William So
Go.3 RCBC Jupiter branch manager Maia Santos-Deguito (“Deguito”) admitted to opening all
these bank accounts, which after investigation, all turned out to be fake.

1
By Marian Ivy F. Reyes-Fajardo, in compliance with the requirements of Corporate Criminal Law class
under Professor Joshua Kleinfield, Executive LL Chicago Program, July 2018.
2
SEC. 4. Money Laundering Offense. – Money laundering is a crime whereby the proceeds of an unlawful
activity are transacted, thereby making them appear to have originated from legitimate sources. It is
committed by the following:
(a) Any person knowing that any monetary instrument or property represents, involves, or relates to, the
proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property.
(b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful
activity, performs or fails to perform any act as a result of which he facilitates the offense of money
laundering referred to in paragraph (a) above.
(c) Any person knowing that any monetary instrument or property is required under this Act to be
disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so.
3
At the televised senate hearing called by the Philippine Senate on the incident, the real William So Go
testified that on February 23, RCBC Jupiter branch manager Maia Santos-Deguito disclosed to him that she
opened a fictitious dollar and peso bank accounts for his company DBA Trading Centurytex..

1
 On February 5, $428,000.00 (P20 Million Pesos) was withdrawn from the account of
William So Go and loaded into the car of Deguito. She drove off with the money.4 The rest of the
stolen funds were transferred to the bank account of Philrem Services Corporation (“Philrem”).

On February 9, RCBC received a SWIFT code from Bangladesh Bank requesting for a
refund of the funds or putting it on hold or freeze them for proper investigation.5 Deguito ignored
this request.6 Deguito instead instructed Philrem to transfer the funds to certain entitles, one of
which is a casino company whose President is a man known as Kim Wong.7

Deguito testified before the senate investigation of the Phillippine Senate that the four
accounts into which the $81 Million were first transferred were opened in 15 May 2015, a little
less than one year prior to the hacking, through the intercession of Mr. Kim Wong. Mr. Kim Wong
introduced Ms. Deguito to five gentlemen who presented Identification Cards. Because Deguito
trusted Mr. Kim Wong, she opened the bank accounts.

Deguito said she met Wong through Jason Go, a valued client of RCBC. Go is also reported
to be the one who recommended the hiring of Deguito to the Bank President and Chief Executive
Lorenzo Tan as branch manager of the RCBC Jupiter branch. Go and Wong are friends of Lorenzo
Tan. In a senate hearing on April 5, Deguito accused Lorenzo Tan of allowing the incident to push
through, saying “If I had made mistakes, it is these: That I believed and trusted the bank president
Mr. Lorenzo Tan; that I followed him when he said I should ‘take care’ of his friend (referring to
Wong) x x”.

Aftermath of the Bangladesh heist.

The BSP’s Monetary Board slapped a record P1 Billion fine against RCBC in Aug. 5, 2016
for non-compliance with banking laws and regulations in connection with the money laundering
scandal.

RCBC readily accepted the fine imposition and immediately paid it within a one-year
period. RCBC President and CEO Lorenzo Tan resigned on May 6. No charges was filed against
Lorenzo Tan. Instead, The Department of Justice (DOJ) indicted Deguito for money laundering.

4 Romualdo Agarrado, the bank branch's customer service manager revealed this at the televised hearing
called by the Philippine Senate on the incident.
5
On February 8, 2016, Bangladesh Bank sent a "stop payment" order to RCBC. February 8 is a Chinese New
Year non-working holiday for the Philippines and the stop payment order was received the next day,
February 9,2016.
6 Customer service head Romualdo Agarrado, in a March 17 Senate hearing, said that Deguito was aware

of the request for recall of funds but defied it, telling him that she would rather do it than get killed.
Agarrado also accused Deguito of offering him a 5 million pesos ($107,000) bribe and of ignoring his Feb.
recommendation to heed an email from the bank's head office ordering a recall of the funds.
7 The money was transferred to money to two casinos. as well as to an account owned by a businessman

named Weikang Xu. Xu reportedly received $30 million; $29 million passed to a casino resort called Solarie.
The rest went to Eastern Hawaii Leisure Company Limited, of which Kim Wong was President.

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Need for corporate criminal liability

Although the Anti-Money Laundering Act was thereafter amended as an offshoot of the
Bangladesh heist, the Senate did not contemplate the amendment of the law to make a
corporation criminally liable.8 However, given the scale of the money laundering in this case,
there is a strong policy reason for corporate criminal liability as this satisfies the need for moral
condemnation. Criminal statutes have two principal purpose, namely, retribution and/or
deterrence (Kansas v. Hendricks, Unites States Supreme Court, US Supreme Court, 521 U.S. 346
[1997]).

A statute is retributive if it affixes culpability for prior criminal conduct. A punishment is

imposed. The administrative fine of P1 Billion imposed on RCBC was touted by the BSP media
as “the largest amount ever approved”. However, the business community believes that the fine
was a mere slap on the wrist. RCBC paid the fine in two tranches of P500 Million each, which is
roughly just 10 to 15 percent of the bank’s annual profit. In 2015, the bank’s net income was P5.1
billion and P4.41 Billion in 2014 and in 2013, P5.31 Billion.

As in the US experience, corporate criminal liability would have allowed the DOJ to enter
into deferred prosecution agreement (DPA) or a non-prosecution agreement (NPA) with RCBC.
Criminal penalties, on top of civil penalties could have been imposed against RCBC. In a recent
case of a DPA entered into by the DOJ of the United States, Volkswagen AG (VW) paid a $2.8
Billion criminal penalty, in addition to $1.5 Billion civil penalties arising from VW’s cheating of
the emission tests mandated by the US environmental agencies. In an DPA or NPA, the Philippine
Department of Justice can also impose a term of probation which “could be fashioned in a manner
to serve the public interest and address the accountability concerns.”9

The DPA and NPA could impose criminal penalties that should be painful enough for
RCBC to learn a lesson but not to kill the bank, mindful that corporate criminal prosecution could
lead to corporate death penalty like what happened in the collapse of Arthur Andersen after the
indictment and conviction of Arthur Andersen. The Supreme Court later overturned the
conviction (Arthur Andersen LLP vs. US Supreme Court, 544 U.S. 696 [2005]).

Tan-Responsible Corporate Officer

One of the most effective ways to combat corporate misconduct is by holding accountable
all individuals who engage in wrongdoing. Such accountability deters future illegal activity,
incentivizes changes in corporate behavior, ensures that the proper parties are held responsible
for their actions, and promotes the public’s confidence in our justice system.10

8
In 2011, President Duterte signed the proposed amendments to the Anti-Money Laundering, specifically
to include casinos under the law.
9
United States v. Guidant LLC, 709 F Supp 2d 903 (D. Minn. 2010).
10 9-28.010 - Foundational Principles of Corporate Prosecution of the United States Attorneys'

Manual (USAM)

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 It is clear that Deguito was criminally liable. However, there was also reason to hold Tan
criminally liable. While the general rule is that there is no vicarious liability for corporate agents,
the US Supreme Court in United States v. Park, US Supreme Court, 421 U.S. 658 (1974), enunciates
the “Responsible Corporate Office Doctrine” which is a partial exception to the “no vicarious
liability for corporate agents” rule. In the Park Case11 the Supreme Court held a responsible
corporate officer may be held criminally liable for the illegal acts of a corporation which the officer
had the ability to prevent before the occurrence and had the ability to correct after the fact. If a
defendant claims that he was “powerless” to prevent and correct the violation, he has the burden
of showing the evidence.

Senator Sergio Osmeña, one of the senators investigating the money laundering scandal,
believes that among the testimonies of resource persons, that of Deguito is "closer to the truth."
Deguito positively testified that it was Tan who hired him specifically for the Jupiter branch and
who introduced Deguito to and instructed her to take care of Wong, one of the ultimate recipients
of the laundered money. The request from Bangladesh Bank to stop the payment of $81 Million
is a red flag that arguably should have caught the attention of Tan. Under the Park doctrine, Tan
is liable since as President and Chief Executive Officer of the Bank he had the responsibility and
authority to prevent or could have promptly corrected the violations and failed to do so.

If only corporate criminal liability was imposed under the Anti-Money Laundering Act,
the DOJ could have required that the Bank, as a condition in the DPA or NPA, to initiate charges
against Lorenzo Tan, or at the very least terminate Tan’s employment and not allow for a graceful
exit.12

Corporate Criminal Liability

Deeply rooted in criminal jurisprudence is the notion that criminal guilt is personal to the
accused and that willfulness or a guilty mind is an essential ingredient of a punishable offense.
A person cannot intend an act in which he did not consciously participate, acquiesce, or have
guilty knowledge (See Morissette v. United States, 342 U.S. 246).13 The existence of a scienter
requirement is customarily an important element in distinguishing criminal from civil statutes.
(Kansas v. Hendricks, United States Supreme Court, 521 US 346 [1997]). It is for this reason, that the
Philippines does not punish a corporation, it being an artificial person not having an intent from
a mind of its own.

However, imposing criminal liability against the corporation under Anti-Money

Laundering Act may be palatable since there is no mens rea required for the prosecution of money
laundering. Under Philippine law, money laundering is mala prohibita (it is criminal because it is
prohibited by law) as differentiated from mala in se (it is criminal because it is wrong in itself).
Intent or the mens rea need not be proven; the actus rea being enough. This can belong to the class
of strict liability statutes which does not specify intent as a required element. 14

11
citing United States v. Dotterweich, 320 US 277 (1943).
12
In the case of VW, Six Volkswagen Executives and Employees are indicted.
13 Cited in Gordon v. United States, United States Court of Appeals for the Tenth Circuit, 203 F. 2d 248
(1953)
14 Morissette vs. United States, United States Supreme Court, 342 U.S. 246 (1952).

4
 As in the Philippines, in United Kingdom it is well established principle that that a
corporation is recognized as a distinct and separate legal entity which is not criminal liable. What
United Kingdom does instead is to enact specific offenses which provide for corporate criminal
liability, corporate manslaughter (corporate manslaughter and corporate homicide Act of 2007)
failure to prevent bribery (Bribery Act of 2010)15.Hence, the Philippines need not explore the
wholesale acceptance of corporate criminal liability in all of its criminal laws. It can start corporate
criminal liability with the Money Laundering Act as it has already been demonstrated that only
corporate criminal liability or penalty that can meet the retribution and deterrence requirements.

References

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https://en.wikipedia.org/wiki/2016_Bangladesh_Bank_heist

Anti-Money Laundering Act of 2001 (RA 9160). Retrieved December 01, 2016, from,
http://www.bsp.gov.ph/regulations/laws_aml.asp

Butuyan, J.R. ( 2016, March 21). Senators treating RCBC with kid gloves. Retrieved December
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Dela, Paz, C. (2016, April 2). 6 things we know about RCBC money-laundering scam. Retrieved
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Dela Paz, C. (2016, March 30). Casino junket operator gives new leads in Bangladesh bank heist.
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15
Of late, The U.K. Ministry of Justice is considering extending the existing offences of “failing to prevent”
bribery and tax evasion to other economic crimes such as money laundering and fraud. The proposals were
announced by David Cameron at the recent Anti-Corruption Summit hosted by the United Kingdom on
May 12, 2016 and confirmed that same day by the Ministry of Justice.

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Gavilan, J. ( 2016, March 31). Network: Who’s who in the RCBC money-laundering scam.
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Gutierrez, N. (2016, March 29). RCBC money-laundering scam mirror sins of the past. Retrieved
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How $81 million slipped through Philippine cracks. (2016, March 22). Retrieved December
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http://www.pctc.gov.ph/papers/MoneyLaundering.htm

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laundering-case-treasurer-resigns.html

Villanueva, M.A. ( 2016, April 15). Money-laundering “business”. Retrieved December 1, 2016,
from http://www.philstar.com/opinion/2016/04/25/1576557/money-laundering-business

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