In a case concerning alleged behest loans, the Supreme Court affirmed the Ombudsman’s dismissal of criminal complaints, underscoring critical principles of due process and statutory interpretation. The Court held that administrative orders defining “behest loans” cannot be applied retroactively to transactions completed before the orders were issued. This decision protects individuals from being penalized under laws or regulations that did not exist at the time of their actions, safeguarding against ex post facto application and ensuring fairness in legal proceedings. The ruling clarifies the boundaries of governmental power in investigating and prosecuting financial transactions, emphasizing the importance of adhering to established legal standards and respecting the rights of the accused.

Behest Loans and Retroactivity: Can New Rules Apply to Old Deals?

The case of Presidential Ad Hoc Fact-Finding Committee on Behest Loans vs. Desierto arose from the investigation into loans granted by the Development Bank of the Philippines (DBP) to Integrated Circuits Philippines, Inc. (ICPI) in the 1980s. The Presidential Ad Hoc Fact-Finding Committee on Behest Loans, created in 1992, identified these loans as potentially falling under the category of “behest loans,” which are loans granted under questionable circumstances, often involving government influence or favoritism. The Committee filed a complaint with the Ombudsman, alleging that DBP officials and ICPI directors violated the Anti-Graft and Corrupt Practices Act. The central legal question was whether administrative orders issued in 1992, defining the characteristics of behest loans, could be applied retroactively to transactions that occurred in 1980, before these orders were in effect. The Ombudsman dismissed the complaint, citing prescription and lack of probable cause, and the Committee appealed to the Supreme Court.

The Supreme Court addressed several key issues, beginning with a procedural matter. It noted that certain individuals were improperly included as respondents in the petition before the Court, as they had not been named in the original complaint before the Ombudsman. Thus, the Court dismissed the petition against them, emphasizing the importance of adhering to proper legal procedure. This procedural aspect underscores the necessity of ensuring that all parties involved in a legal action are properly identified and notified from the outset, adhering to principles of due process. This prevents individuals from being subjected to legal scrutiny without having the opportunity to defend themselves at all stages of the proceedings.

On the substantive issues, the Court first addressed the question of prescription. It cited prior rulings establishing that the prescriptive period for offenses related to behest loans begins to run from the date of discovery of the offense, not from the date of the transaction. This is because, in many cases, the government was unaware of the alleged wrongdoing at the time the transactions occurred, especially those before the EDSA Revolution. The Court noted that the complaint was filed within three years of the Committee’s creation in 1992, and thus, the offenses had not yet prescribed. This application of the discovery rule highlights the challenges in prosecuting historical financial crimes, where evidence may be concealed or difficult to uncover.

Next, the Court considered the Ombudsman’s ruling that Administrative Order No. 13 and Memorandum Order No. 61 could not be applied retroactively, as this would violate the constitutional prohibition against ex post facto laws. The Court agreed with the Ombudsman’s assessment, clarifying the nature of ex post facto laws and their constitutional prohibition:

An ex post facto law has been defined as one — (a) which makes an action done before the passing of the law and which was innocent when done criminal, and punishes such action; or (b) which aggravates a crime or makes it greater than it was when committed; or (c) which changes the punishment and inflicts a greater punishment than the law annexed to the crime when it was committed; or (d) which alters the legal rules of evidence and receives less or different testimony than the law required at the time of the commission of the offense in order to convict the defendant.

The Court emphasized that the constitutional proscription of ex post facto laws is aimed against the retrospectivity of penal laws. Since Administrative Order No. 13 and Memorandum Order No. 61 are not penal laws, they cannot be considered ex post facto. Administrative Order No. 13 merely created the Presidential Ad Hoc Fact-Finding Committee, while Memorandum Order No. 61 provided a frame of reference for identifying behest loans. However, the Court also noted that the Ombudsman acted in excess of its jurisdiction by delving into the constitutionality of these administrative and memorandum orders, as this power is generally reserved for the courts.

Turning to the merits of the case, the Court examined whether there was probable cause to indict the private respondents for violating Section 3(e)(g) of the Anti-Graft and Corrupt Practices Act, which states:

Sec. 3. Corrupt practices of public officers. — In addition to acts or omissions of public officers already penalized by existing law, the following shall constitute corrupt practices of any public officer and are hereby declared to be unlawful:

(e) Causing any undue injury to any party, including the Government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official, administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence. This provision shall apply to officers and employees of officers or government corporations charged with the grant of licenses or permits or other concessions.

(g) Entering, on behalf of the Government, into any contract or transaction manifestly and grossly disadvantageous to the same, whether or not the public officer profited or will profit thereby.

The Court reiterated that the determination of probable cause is a function of the Ombudsman and that courts should not interfere unless there is grave abuse of discretion. To establish a violation of Section 3(e), it must be shown that the accused acted with manifest partiality, evident bad faith, or inexcusable negligence, and that this resulted in undue injury to the government or unwarranted benefits to a private party. To be liable under Section 3(g), it must be demonstrated that the respondents entered into a grossly disadvantageous contract on behalf of the government.

In this case, the Court found that the Committee failed to meet these criteria. The DBP officers had studied and evaluated ICPI’s loan applications and were convinced of the project’s viability. The Court found no evidence that DBP did not exercise sound business judgment or that the loan conditions were designed to favor ICPI. The Court also emphasized that good faith is presumed in the performance of official duties, and mistakes by public officers are not actionable absent malice or gross negligence amounting to bad faith. Petitioners failed to show that private respondents’ actions constituted bad faith or that the contracts were grossly disadvantageous to the government or provided unwarranted benefits to ICPI. The Court referenced the Civil Code, stating, “The Chapter on Human Relations of the Civil Code directs every person, inter alia, to observe good faith, which springs from the fountain of good conscience.”

The Court noted that ICPI was not under-capitalized and the loan was not under-collateralized at the time of approval. The company’s stockholders had converted substantial liabilities into equity, increasing its paid-up capital. The loan was secured by the assets to be acquired, a guarantee from the Philippine Export and Foreign Loan Guarantee Corporation (PEFLGC), and joint and several liabilities of ICPI’s majority stockholders. The court determined there was a valid set of collaterals and ICPI complied with the requirements. Thus the court affirmed the Ombudsman decision and stated that it could hardly be faulted for not wanting to proceed with the prosecution of the offense, convinced that he does not possess the necessary evidence to secure a conviction.

In conclusion, the Supreme Court’s decision in this case underscores the importance of due process and the limitations on the retroactive application of laws and regulations. By affirming the Ombudsman’s dismissal of the complaint, the Court protected the respondents from being penalized under standards that were not in place at the time the transactions occurred, ensuring fairness and upholding constitutional principles.

FAQs

What was the key issue in this case?	The key issue was whether administrative orders defining “behest loans” could be applied retroactively to transactions that occurred before the orders were issued. The Supreme Court ruled against retroactive application.
What is an ex post facto law?	An ex post facto law is one that criminalizes an action that was legal when committed, aggravates a crime, or inflicts a greater punishment than was prescribed at the time of the offense. The Constitution prohibits such laws.
What is a “behest loan”?	A “behest loan” refers to a loan granted under questionable circumstances, often involving government influence or favoritism, to the detriment of the lending institution or the public interest.
What is the role of the Ombudsman in this case?	The Ombudsman is responsible for investigating and prosecuting public officials for corruption and other offenses. In this case, the Ombudsman dismissed the complaint due to prescription and lack of probable cause.
What is probable cause?	Probable cause is a reasonable ground to suspect that a crime has been committed and that the accused is likely responsible. It is a lower standard than proof beyond a reasonable doubt, required for conviction.
What is the prescriptive period for offenses under the Anti-Graft and Corrupt Practices Act?	The prescriptive period for offenses under the Anti-Graft and Corrupt Practices Act generally begins to run from the date of discovery of the offense, especially in cases involving hidden or concealed wrongdoing.
What is the significance of “good faith” in this case?	The Court presumed that public officials acted in good faith in the performance of their duties. To overcome this presumption, there must be clear evidence of malice, bad faith, or gross negligence.
Was the loan to ICPI considered under-collateralized?	The Supreme Court found that the loan to ICPI was not under-collateralized at the time of its approval, considering the assets to be acquired, the PEFLGC guarantee, and the liabilities of ICPI’s stockholders.

This case provides essential guidance on the application of laws and regulations to past transactions and reinforces the importance of respecting due process rights. The decision clarifies the boundaries within which governmental investigations must operate, ensuring that individuals are not unfairly penalized under new rules for actions taken in the past. This ruling serves as a reminder that fairness and adherence to established legal principles are paramount in the pursuit of justice.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: PRESIDENTIAL AD HOC FACT-FINDING COMMITTEE ON BEHEST LOANS vs. DESIERTO, G.R. No. 145184, March 14, 2008