The Supreme Court Clarifies the Maximum Duration of Freeze Orders in Money Laundering Investigations

Republic of the Philippines v. Bloomberry Resorts and Hotels, Inc., G.R. No. 224112, September 02, 2020

In the bustling world of international finance, the security of bank accounts is paramount. Imagine waking up to find your bank account frozen due to a suspected money laundering operation. This is not just a hypothetical scenario but a real issue that the Supreme Court of the Philippines tackled in the case of Republic of the Philippines v. Bloomberry Resorts and Hotels, Inc. The central legal question was whether a freeze order issued under the Anti-Money Laundering Act (AMLA) could be extended indefinitely, and what impact this would have on the rights of account holders.

The case originated from a massive cyber heist where hackers stole $81 million from Bangladesh Bank, some of which found its way into the Philippine banking system. The Anti-Money Laundering Council (AMLC) sought to freeze a bank account linked to these funds, sparking a legal battle that reached the highest court in the land.

Legal Context: Understanding Freeze Orders and Money Laundering

Freeze orders are a critical tool in the fight against money laundering. Under the AMLA, as amended by Republic Act No. 10365, the Court of Appeals can issue a freeze order upon a verified ex parte petition by the AMLC if there is probable cause that the funds are related to an unlawful activity. Section 10 of the AMLA states that such orders are effective immediately but “shall not exceed six (6) months” depending on the case’s circumstances.

Money laundering involves disguising the origins of illegally obtained money, typically by transferring it through a complex web of transactions. The AMLA defines unlawful activities, including hacking, which was the basis for the freeze order in this case. The term “probable cause” refers to a reasonable belief, based on facts, that a crime has been committed.

For example, if a business unknowingly receives funds from a criminal enterprise, a freeze order might be issued to prevent the money from being moved or hidden. This legal mechanism aims to preserve assets for potential forfeiture or as evidence in criminal proceedings.

Case Breakdown: The Journey of the Stolen Funds and Legal Proceedings

The saga began when hackers illicitly transferred $81 million from Bangladesh Bank to various accounts in the Philippines, including those at Rizal Commercial Banking Corporation (RCBC). The funds were then funneled through several intermediaries, eventually landing in a Banco de Oro (BDO) account owned by Bloomberry Resorts and Hotels, Inc. (BRHI), the operator of Solaire Resort and Casino.

The AMLC, suspecting the funds were proceeds of hacking, obtained a freeze order from the Court of Appeals on March 15, 2016. This order was initially set for 30 days, but the AMLC sought an extension, arguing that the funds were still linked to the Bangladesh Bank heist.

BRHI countered that the funds had been converted into non-negotiable casino chips and were no longer in their possession. They argued that as a casino operator, they were not covered by the AMLA at the time and should not be held responsible for the source of their customers’ funds.

The Court of Appeals lifted the freeze order, stating that the AMLC failed to establish a clear link between the funds in BRHI’s account and the stolen money. The AMLC appealed to the Supreme Court, but by the time the case was heard, more than six months had passed since the initial freeze order.

The Supreme Court’s ruling emphasized the importance of the six-month limit on freeze orders, citing previous cases like Ligot v. Republic, which highlighted the potential for abuse if freeze orders were extended indefinitely. The Court stated, “A freeze order may not be issued indefinitely, lest the same be characterized as a violation of the person’s right to due process and to be presumed innocent of a charge.”

The Court also noted, “The adjudication of this case has no practical use and value owing also to the fact that as manifested by the BDO, upon receipt of the CA Resolution dated March 15, 2016 granting BRHI’s motion to lift the freeze order, BDO has complied with the order to unfreeze BRHI’s Account No. 6280225150.”

Practical Implications: Navigating Freeze Orders and Business Operations

This ruling sets a clear precedent that freeze orders under the AMLA cannot be extended beyond six months. This is crucial for businesses, especially those in industries like gaming and finance, where large transactions are common.

Businesses must be vigilant about the sources of their funds and maintain robust compliance programs to avoid being implicated in money laundering schemes. If a freeze order is issued, companies should act swiftly to challenge it if they believe it is unjustified, as delays could lead to significant operational disruptions.

Key Lessons:

• Understand the legal framework governing freeze orders to protect your business interests.
• Implement thorough due diligence processes to verify the legitimacy of transactions.
• Seek legal advice immediately if a freeze order is issued against your accounts.

Frequently Asked Questions

What is a freeze order under the AMLA?

A freeze order is a temporary measure that prevents the use of funds suspected to be related to unlawful activities, such as money laundering.

How long can a freeze order last?

According to the Supreme Court ruling, a freeze order cannot exceed six months.

What should a business do if it receives a freeze order?

Immediately consult with legal counsel to assess the validity of the order and explore options for lifting it.

Can a casino be held liable for money laundering if it receives suspicious funds?

At the time of this case, casinos were not covered by the AMLA, but they must still exercise due diligence to avoid facilitating illegal activities.

What are the consequences of a freeze order for a business?

A freeze order can disrupt operations, affect cash flow, and damage the business’s reputation if not addressed promptly.

ASG Law specializes in Anti-Money Laundering compliance and litigation. Contact us or email hello@asglawpartners.com to schedule a consultation.