TOPIC:

Suspension of the Philippine Charity Sweepstakes Office’s Gaming Operations

INTRODUCTION:

Police power has been characterized as the most essential,

insistent and the least limitable of powers, extending as it does to all
the great public needs. It is founded largely on the legal maxims,
“salus populi est suprema lex” (the welfare of the people is the
supreme law) and “sic utere tuo ut alienum non laedas” (so use your
own as not to injure another’s property).1

This study aims to educate and inform the public who are not
aware of the power vested by the President of the Philippines.

I. LEGAL BASIS:

 Police Power2

i. Definition:

“Mark Anthony V. Zabal, et.al., vs. President Rodrigo Duterte,

G.R. No. 238467, February 12, 2019”3

Police power, amongst the three fundamental and inherent

powers of the state, is the most pervasive and comprehensive. It has
been defined as the “state authority to enact legislation that may
interfere with personal liberty or property in order to promote general
welfare.” As defined, it consists of (1) imposition or restraint upon
liberty or property, (2) in order to foster common good. It is not
capable of exact definition but has been, purposely, veiled in general
terms to underscore its all-comprehensive embrace. The police power
“finds no specific Constitutional grant for the plain reason that it
does not owe its origin to the Charter since it is inborn in the very
fact of statehood and sovereignty. It is said to be the “inherent and
1
Philippine Constitution 2017 Edition, Vol. I, page 677, De Leon
2
https://www.rappler.com/nation/236484-pcso-gaming-suspension-police-power-guevarra
3
https://lawphil.net/judjuris/juri2019/feb2019/pdf/gr_238467_2019.pdf

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 plenary power of the State which enables it to prohibit all things
hurtful to the comfort, safety and welfare of society. (emphasis
supplied)

ii. Alleged “massive corruption” as basis.

It must be emphasized that the President Rodrigo Duterte’s

order to shut down PCSO’s gaming operation was prompted by the
alleged massive corruption in the agency and reports about the grand
conspiracy among major players and enforcers of these government-
sanctioned gaming activities.

Based on a Commission on Audit (COA) report, some small

town lottery (STL) outlets had been under-remitting to the
government, which in turn, the government is being deprived of its
rightful share.

Apparently, the order was grounded on the preservation of the

resources of the nation. Adverse COA findings disclosed that PCSO
failed to remit billions worth of dividends involving at least seven (7)
irregularities, to wit:

“These adverse findings of COA on the PCSO include:

a. failure to remit P8.426 billion worth of dividends to the

national government from 1994 to 2016 in violation of Republic
Act 7656 requiring government-owned or -controlled
corporations (GOCC) to declare and remit at least 50 percent
of their annual net earnings as cash, stock or property
dividends to the national government;

b. posting of P4.6 billion Presumptive Monthly Retail Receipts

(PMRR) or STL proceeds shortfall as of December 2018;

c. failure to settle P1.036 billion worth of transactions already

disallowed by COA from 2016 to 2018;

d. accumulating P1.031 billion of unsettled amounts disallowed

by COA from 2013 to 2015;

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 e. failure to transfer P684 million to charity fund (The amount is
broken down to P184 million worth of forfeited prizes in PCSO-
sanctioned lottery Keno Games and P500 million unutilized
operating fund in 2017);

f. the amount of unclaimed Keno prizes increasing over the last

three years, reaching P45.3 million in 2016, P57.4 million in
2017, and as high as P81.5 million in 2018 for a total of P184
million; and

g. PCSO-sanctioned Keno Game incurring a total deficit of

P2.719 billion under its prize fund.”

Under its charter, the PCSO is mandated to raise and provide

for funds for health programs, medical assistance and services, and
charities of national character by conducting charity sweepstakes
races, lotteries, and other similar activities “as shall be determined and
subject to such rules and regulations as shall be promulgated by the
Board of Directors.”

The same law mandates that the allocation of PCSO’s gross

receipts—which covers sale of sweepstakes tickets, whether for
sweepstakes races, lotteries, or similar activities—will be deducted the
printing cost of such tickets, which in no case shall exceed two
percent of such gross receipts to arrive at the net receipts.

The net receipts, on the other hand, will be allocated as follows:

a. 55 percent a prize fund for the payment of prizes, including

those for the owners, jockeys of running horses, and sellers of
winning tickets;

b. 30 percent for as contributions to the charity fund for payments

or grants for health programs, including the expansion of
existing ones, medical assistance and services and/or charities
of national character, such as the Philippine National Red
Cross, under such policies and subject to such rules and
regulations as the Board may from time establish and
promulgate; and

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 c. 15 percent for contributions to the operating expenses and
capital expenditures of the Office.4

Thus, failure to remit to the government its rightful share will

impair its subsidies to the people through medical assistance and
health programs.

 President’s Power of control over the executive branch

Pursuant to Sec. 17, Art. VII of the 1987 Philippine

Constitution, it is mandated that the President has control over the
executive branch of the government. It provides that, to wit:

“The President shall have control of all the

executive departments, bureaus, and offices.
He shall ensure that the laws be faithfully
executed.”

As administrative head, the duty of the President is to see it that

every department, bureau and office under the executive branch is
managed and maintained properly by the person in charge of it in
accordance with pertinent laws and regulations.5

In Rufino vs. Endriga6, the Honorable Supreme Court held that

the presidential power of control over the executive branch is self-
executing and does not require any implementing law. Congress
cannot limit of control this power of the President. Any government
office, entity or agency must fall under the Executive, Legislative or
Judicial branch, or must belong to one of the independent
constitutional bodies, or must be a quasi-judicial body or local
government unit. If an entity does not fall under any specific branch
of office, it must fall under the executive branch.

The Philippine Charity Sweepstakes Office is a government-

owned and controlled corporation of the Philippines under direct
4
https://www.gmanetwork.com/news/news/nation/702792/before-lotto-suspension-coa-flagged-pcso-for-
irregularities-involving-billions/story/
5
Philippine Constitutional Law, De Leon, p. 392.
6
G.R. No. 139554, 139565, July 21, 2016

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 supervision of the Office of the President of the Philippines. It is
mandated to do fund raising and provide funds for health programs,
medical assistance and services, and charities of national character.
The raised collections go to the President’s Presidential Social Fund to
improve country’s social welfare.7

II. DUE PROCESS OF LAW

 Gaming license, not contractual right but a mere privilege.

Sec. 10, Art. III of the 1987 Philippine Constitution states that,
“no law impairing the obligation of contracts shall be passed.” The
purpose of the prohibition is to protect creditors, to assure the
fulfillment of lawful promises and to guard the integrity of contractual
obligations against unwarranted interference by the State in the form
of laws.

The state’s grant of gaming franchises through the PCSO, does

not constitute contractual rights considering that gaming license is not
a contractual right but a mere privilege that may be revoked at any
time by the government.

Granting arguendo, the state, in the exercise of its police power,

may not be precluded by the constitutional restriction on non-
impairment of the obligation of contract from altering, modifying or
revoking the same.8 Hence, as long as a contract affects the public
welfare one way or another so as to require the interference of the
State, the police power must prevail over the right against impairment
of the obligation of contract secured in Section 10.9

 Contract vs. License

The obligation of a contract is the law or duty which binds the

parties to perform their agreement according to its terms or intent if it
is not contrary to law, morals, good customs, public order or public

7
https://en.wikipedia.org/wiki/Philippine_Charity_Sweepstakes_Office#cite_note-1
8
Miners Ass’n of the Phil., Inc., vs. Factoran, Jr., 240 SCRA 100 (1995)
9
Juarez vs. CA, 214 SCRA 475 (1992)

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 policy.10 A valid contract is entitled to protection against impairment.
Thus, the contract being referred to include contracts entered into by
the government, the obligation of which is secured against impairment
under the Constitution.

In Carlos Superdrug Corp., vs. DSWD, the Honorable Supreme

Court pronounced that ‘while the Constitution protects property
rights, the State, in the exercise of police power, can intervene in the
operation of a business which may result in impairment of property
rights in the process.11

On the contrary, a license is not a contract, property or property

right in the constitutional sense, as to which the prohibition against
impairment may extend. It may be validly revoked and rescinded by
executive action whenever dictated by public interest or public
welfare.12

III. COVERAGE OF SUSPENSION

 Mandate of the Philippine Charity Sweepstakes Office

PCSO shall be the principal government agency for raising and

providing funds for health programs, medical assistance and services,
charities of national character, and as such shall have the general
powers conferred in Sec. 13 of Act No. 1459, as amended.

 Coverage of suspension order

On 26 July 2019, President Rodrigo Duterte, in a televised

message, ordered the closure of all gaming schemes operated,
licensed, and franchised by the PCSO due to massive corruption.
Further, he added that beginning Saturday, 27 July 2019, all
transactions and gaming, wager of bets, becomes illegal.

10
Art. 1306, Civil Code of the Philippines
11
526 SCRA 130 (2007)
12
Gonzalo SY Trading vs. Central Bank, 84 SCRA 533 (1979)

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 A careful perusal of the above order would show the apparent
limitation of the order to the gaming operations of PCSO, such as
lotto, STL, and the like.

In an interview, the Department of Justice Secretary, Menardo

Guevarra confirmed that the suspension was only limited to the
gaming operations and not the entire PCSO charter. Further, he stated
that said office has other sources of revenue apart from its gaming
operations and will continue to perform its mandate, though limited
resources.13

In view of the foregoing, suffice it to state that PCSO will

continue to perform and provide subsidies to the people in terms of
medical assistance and services as well as health programs.

IV. SUSPENSION’S AFTERMATH14

The suspension order has held in abeyance licensed lotto

operators and workers including the fate of the government’s
multibillion-peso charity operations that ordinary Filipinos rely on for
medical subsidy.

Republic Act No. 11223 or the Universal Health Care (UHC)

Act was enacted and is aimed to expand the Philhealth coverage
which provides no limit to primary care treatment conditions wherein
its budget is sourced from the lottery proceeds, among others.
Nonetheless, the temporary closure will have a minimal impact in the
UHC since it contributes only to nearly 1.2% of the funding needed
for UHC’s implementation next year, per the Department of Finance.

In aid for the affected workers, the Department of Labor and

Employment is ready to aid laid off workers affected by the
suspension as it was able to provide emergency employment and
financial aid to almost 18,000 displace workers from the Boracay
Island closure.

13
https://www.rappler.com/nation/236484-pcso-gaming-suspension-police-power-guevarra
14
https://businessmirror.com.ph/2019/07/29/fallout-from-shutdown-of-pcso-lotto-weighed/

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 On the other hand, the solons are appealing to the Philippine
National Police to boost their anti-jueteng since high bets are
projected in these illegal gambling operations. Further, more jueteng
money means more funds for crime lords, warlords, smugglers drug
lords and their protectors.

V. LIFTING OF THE SUSPENSION

On 30 July 2019, Malacañang announced that lotto outlets

licensed by the PCSO may now resume its operation. However, the
lifting of the suspension order was limited to lotto operations only and
the rest of its gaming operations are still pending investigation, such
as Small-Town Lottery (STL), Keno and Peryahan ng Bayan (PNB),
and thus remain suspended.

With this, the government will need to look into other avenues
where it can generate revenues in order to sustain its programs which
are chiefly dependent to it.

As such, the Philippine Amusement and Gaming Corp.

(PAGCOR) may also be required to boost its income generation to
meet the deficiencies, if any. Local government units can also extend
medical and health aids to residents within their areas.

This notwithstanding, beneficiaries of PCSO who may be

affected by the suspension of its gaming schemes could still receive
assistance from the other government agencies, such as PAGCOR, the
Department of Social Welfare and Development, Office of the
President and the local government units.

VI. CONCLUSION

In view of the foregoing, it can be adduced that the President’s

suspension order of the PCSO operations apparently emanated its
authority in the unwritten, inherent and plenary power of the state,
which is the police power, with the end in view of promoting the
general welfare of the people by curtailing and restraining
momentarily its operations over the alleged massive corruption of its
officers and employees.
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 The suspension order and subsequent lifting thereof engraved a
significant mark that the government is closely monitoring operations
of its offices including its owned and controlled corporations,
especially with the scant allegations of corruption and other
irregularities, and will do drastic and by any means necessary to
curtail the same.

VII. REFERENCES

Philippine Constitution 2017 Edition, Vol. I, page 677, De Leon

https://www.rappler.com/nation/236484-pcso-gaming-suspension-
police-power-guevarra

https://lawphil.net/judjuris/juri2019/feb2019/pdf/gr_238467_2019.pdf

https://www.gmanetwork.com/news/news/nation/702792/before-lotto-
suspension-coa-flagged-pcso-for-irregularities-involving-billions/story/

Philippine Constitutional Law, De Leon, p. 392.

G.R. No. 139554, 139565, July 21, 2016

https://en.wikipedia.org/wiki/Philippine_Charity_Sweepstakes_Office#ci
te_note-1

Miners Ass’n of the Phil., Inc., vs. Factoran, Jr., 240 SCRA 100 (1995)

Juarez vs. CA, 214 SCRA 475 (1992)

Art. 1306, Civil Code of the Philippines

526 SCRA 130 (2007)

Gonzalo SY Trading vs. Central Bank, 84 SCRA 533 (1979)

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 https://www.rappler.com/nation/236484-pcso-gaming-suspension-
police-power-guevarra

https://businessmirror.com.ph/2019/07/29/fallout-from-shutdown-of-
pcso-lotto-weighed/

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