Ombudsman’s Discretion in Probable Cause Determinations Upheld in Anti-Graft Case

The Office of the Ombudsman has the constitutional power to investigate and prosecute public officers. When it finds no probable cause to charge a respondent, the courts will generally not interfere. In Republic v. Ombudsman (G.R. No. 198366, June 26, 2019), the Supreme Court applied this rule and affirmed the Ombudsman’s dismissal of anti-graft charges against officers of the Development Bank of the Philippines (DBP) and ALFA Integrated Textile Mills, Inc. (ALFA). The case underscores that a complainant’s disagreement with the Ombudsman’s findings is not enough to justify judicial review.

The Behest Loan Complaint

The case arose from loans DBP extended to ALFA from 1979 to 1981. After the EDSA Revolution, the Presidential Commission on Good Government (PCGG) investigated these transactions and later filed a complaint before the Ombudsman for violations of Section 3(e) and (g) of the Anti-Graft and Corrupt Practices Act (R.A. No. 3019).

The PCGG alleged that six loans obtained by ALFA from DBP were “behest loans” – loans granted at the behest of former President Ferdinand Marcos to cronies, to the government’s disadvantage. It relied heavily on findings of the Presidential Ad Hoc Fact-Finding Committee on Behest Loans, which had examined the loan accounts using criteria such as undercollateralization, undercapitalization, crony ownership, and extraordinary speed in loan release.

The respondents were ALFA’s corporate officers and DBP’s board members who approved the loans. The PCGG claimed the loans were extended despite ALFA’s mounting losses and inadequate collaterals, and that DBP later sold ALFA’s assets to a company owned by an alleged Marcos crony for a fraction of their appraised value.

The Ombudsman’s Dismissal

In a July 31, 2006 Resolution, the Ombudsman dismissed the complaint for lack of probable cause. It found that the loans were not behest loans. According to the Ombudsman, PCGG failed to prove that the collaterals were insufficient. The fourth to sixth loans were additionally secured, and the later loans were approved when ALFA was already under a DBP-controlled board.

The Ombudsman also ruled that the rehabilitation plan and the asset sale to Cape Industries, Inc. were not manifestly disadvantageous to the government. It emphasized that bank officials exercised sound business judgment and acted under existing banking regulations. There was no showing of manifest partiality, evident bad faith, or gross inexcusable negligence, which are required for liability under Section 3(e). Neither was there a grossly disadvantageous contract under Section 3(g).

PCGG moved for reconsideration, but the Ombudsman denied it. PCGG then went to the Supreme Court on certiorari, arguing that the Ombudsman committed grave abuse of discretion.

The Issue: Grave Abuse of Discretion

The sole issue was whether the Ombudsman gravely abused its discretion in finding no probable cause. The Supreme Court reiterated the settled rule: the Ombudsman’s determination of probable cause is an executive function that courts respect. Judicial intervention is allowed only upon a clear showing of grave abuse of discretion – that is, a capricious, whimsical, or arbitrary exercise of power amounting to lack or excess of jurisdiction.

The Court stressed that mere disagreement with the Ombudsman’s findings is not sufficient. A petitioner must show that the Ombudsman conducted the preliminary investigation in a way that amounted to a virtual refusal to perform its duty under the law.

The Court’s Ruling

The Supreme Court dismissed the petition and affirmed the Ombudsman’s resolutions. It found that PCGG failed to prove grave abuse of discretion.

The Court acknowledged that the findings of the Ad Hoc Committee on Behest Loans deserve great weight due to its expertise in banking. However, it noted that the Committee itself made contradictory statements about ALFA’s loans. While a Fortnightly Report said the loans were not behest, a later Terminal Report allegedly said otherwise. PCGG did not reconcile these contradictions and merely brushed aside the finding it disagreed with. This weakened its own argument.

The Court also observed that the Ombudsman independently evaluated the evidence, not merely relying on the Committee’s statements. The records supported the Ombudsman’s conclusion that DBP exercised sound business judgment. For Section 3(e) liability, there must be manifest partiality, evident bad faith, or gross inexcusable negligence, plus undue injury. For Section 3(g), the contract must be