Behest Loans and the Statute of Limitations: When Does the Clock Start Ticking

The Supreme Court has settled an important question about behest loans: when does the prescriptive period for prosecuting these offenses begin to run? In Presidential Commission on Good Government v. Desierto (G.R. No. 139296, November 23, 2007), the Court ruled that for offenses committed before the 1986 EDSA Revolution, the clock starts ticking not from the date the loan was granted, but from the date the government discovered the violation. The ruling also clarifies what evidence is needed to prove that a loan is a behest loan.

The Facts of the Case

In 1992, President Fidel V. Ramos issued Administrative Order No. 13, creating the Presidential Ad Hoc Committee on Behest Loans. The Committee was tasked to inventory alleged behest loans, identify the parties involved, and recommend actions to recover these loans. Memorandum Order No. 61 later expanded its functions to cover all non-performing loans, and laid down eight criteria for identifying a behest loan, including under-collateralization, undercapitalization, endorsement by high government officials, and extraordinary speed in loan release.

The Committee investigated loan transactions between Bagumbayan Corporation and the Development Bank of the Philippines (DBP). It found that the loans bore the characteristics of behest loans, noting that Bagumbayan was under-collateralized and undercapitalized, and that there was undue haste in the approval of the loans. The Committee also noted that Bagumbayan's chairman, Dr. Pacifico Marcos, was the brother of then President Ferdinand Marcos.

In 1998, the PCGG filed a complaint with the Office of the Ombudsman for violation of Sections 3(e) and (g) of Republic Act No. 3019, the Anti-Graft and Corrupt Practices Act, against the DBP officials and others involved.

The Ombudsman's Dismissal

The Ombudsman dismissed the complaint on two grounds: insufficiency of evidence and prescription. The Ombudsman ruled that the loans were properly secured and that the processing period of about five months was not extraordinary. The only behest loan criterion present was that Dr. Marcos was a relative of the President, which alone was insufficient.

On prescription, the Ombudsman noted that the loans were obtained between 1974 and 1981, and the complaint was filed only in 1998. Since offenses under RA 3019 prescribe in fifteen years, the Ombudsman concluded that the offenses had already prescribed.

The Supreme Court's Ruling on Prescription

The Supreme Court disagreed with the Ombudsman on the prescription issue. The Court cited its earlier ruling in Presidential Ad-Hoc Fact-Finding Committee on Behest Loans v. Desierto (375 Phil. 697 [1999]), which held that it was "well-nigh impossible" for the State to have known of the violations at the time the transactions were made, because the public officials concerned allegedly connived with the loan beneficiaries.

The Court explained that for violations of RA 3019 committed before the February 1986 EDSA Revolution, the government could not have known of the violations at the time the transactions were made. No one would have dared to question the legality of those transactions during that period. Thus, the prescriptive period commenced from the date of discovery of the offense in 1992, after the Committee's investigation.

In this case, the complaint was filed on February 28, 1998, less than six years from the presumptive date of discovery on October 8, 1992, when the Committee was created. The offense had not yet prescribed.

The Supreme Court's Ruling on the Merits

On the substantive issue, the Court affirmed the Ombudsman's dismissal. The Court noted that the determination of probable cause during a preliminary investigation is a function that belongs to the Office of the Ombudsman, and courts should not interfere unless there is grave abuse of discretion.

The Court found no grave abuse of discretion. The petitioners failed to show that the loans were behest loans. To characterize a loan as a behest loan, at least two of the eight criteria in Memorandum Order No. 61 must be present. The Court found that:

• The approval of the original loan took over four months, which is inconsistent with undue haste.
• The claim that Bagumbayan was undercapitalized was not supported by convincing evidence.
• The loans were not under-collateralized. The original loan was secured by assets to be acquired, with values higher than the loan amount, plus additional security from officers and stockholders.
• The additional loan of P40 million was secured by a first mortgage on assets valued at P78.8 million, plus a pledge of at least 67% of voting shares.

The only criterion present was that Dr. Marcos was a brother of the late President. But the Court noted that Dr. Marcos assumed chairmanship of Bagumbayan only on May 31, 1978, long after the approval of the original and first additional loans. The subsequent loans were granted pursuant to a restructuring policy adopted in 1977, before his chairmanship.

The Court also noted that the petitioners did not specify the precise role of each respondent in the alleged violation, and there was no evidence of a common criminal design.

Practical Takeaways

• Prescription for pre-EDSA offenses runs from discovery, not commission. For behest loan offenses committed before February 1986, the prescriptive period begins when the government discovers the offense, which is presumed to be no earlier than the creation of the Presidential Ad Hoc Committee on Behest Loans in October 1992.
• At least two behest loan criteria must be proven. A single criterion, such as the borrower being related to a public official, is insufficient to characterize a loan as a behest loan.
• Evidence matters. The government must present concrete proof of under-collateralization, undercapitalization, or undue haste, not just bare allegations.
• The Ombudsman has wide discretion. Courts will respect the Ombudsman's findings on probable cause unless there is grave abuse of discretion amounting to lack of jurisdiction.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.