Republic v. Bloomberry Resorts and Hotels, Inc.

A freeze order under Section 10 of R.A. 9160, as amended, may not be effective for more than six months, and a petition seeking its extension or re-issuance becomes moot and academic once that maximum period has lapsed, regardless of whether the lower court erred in lifting the order.

The AMLC is the government agency tasked with investigating and prosecuting money laundering activities under R.A. 9160 (the Anti-Money Laundering Act of 2001, or AMLA), as amended. BRHI operates Solaire Resort and Casino at the Entertainment City in Parañaque and, at the time of the incident, was not a "covered institution" under the AMLA, meaning it was not required to inquire into the source of its customers' funds. The case arises from the February 2016 Bangladesh Bank heist, in which an unauthorized user issued SWIFT payment instructions to the Federal Reserve Bank of New York, resulting in the fraudulent transfer of US$81 million into the Philippine banking system through Rizal Commercial Banking Corporation (RCBC).

In February 2016, news outlets reported the hacking of Bangladesh Bank's account with the Federal Reserve Bank of New York (New York Fed), through which US$81,000,000.00 found its way into the Philippine banking system. On February 16, 2016, Bangladesh Bank Governor Atiur Rahman sought the assistance of Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr., reporting fraudulent payment transactions to the New York Fed in favor of Rizal Commercial Banking Corporation (RCBC) involving US$81,000,000.00. The beneficiaries of the fraudulent transfers, all holding accounts with RCBC, were Michael F. Cruz (US$6,000,039.12), Jessie Christopher M. Lagrosas (US$30,000,039.12), Alfred S. Vergara (US$20,000,000.00), and Enrico T. Vasquez (US$25,001,583.88). On the same day, officials of the Bangladesh Financial Intelligence Unit visited the AMLC Secretariat, presented the facts of their case, and sought assistance.

Investigation revealed that on February 4, 2016, an unauthorized user issued 35 SWIFT payment instructions to the New York Fed involving US$951,000,000.00. The New York Fed did not execute 30 payment instructions for lack of beneficiary details; the remaining five, including the transfers to the four RCBC account holders, were cleared. On February 8, 2016—a public non-working holiday in the Philippines due to Chinese New Year—Bangladesh Bank sent "stop payment" requests to RCBC. RCBC was able to respond only on February 9, 2016, placing on hold the remaining proceeds amounting to just US$68,305.00. The remittances to the four RCBC account holders had already been either transferred or withdrawn on February 5 or on the next working day, February 9. The withdrawals from the four RCBC accounts were eventually transferred to the account of a certain William So Go (Go), amounting to US$65,668,664.37, which was credited to PhilRem Service Corporation's (PhilRem) account upon Go's instructions. Another US$15,215,977.26 was also credited to PhilRem's account on the same day. The entire US$81,000,000.00 thus moved from the four RCBC account holders, to Go's account, and eventually to PhilRem.

PhilRem was informed by Go that he intended to take advantage of the influx of Chinese casino players for the Chinese New Year. Upon Go's instructions, PhilRem delivered US$29,000,000.00 to Bloomberry Resorts and Hotels, Inc.'s (BRHI) BDO Account No. 6280225150, US$21,245,500.00 to Eastern Hawaii Leisure Company, and US$30,639,141.63 to Weikang Xu. The AMLC conducted initial investigations and, upon finding probable cause that BRHI's BDO account was related to the unlawful activity of hacking, issued a resolution authorizing the filing of an ex parte petition for a freeze order. On March 15, 2016, the CA issued the freeze order, effective for 30 days; at that time, BRHI's BDO account contained P1,377,354,671.23. The CA was convinced there was ample basis to believe the account was related to money laundering under R.A. 9160, as amended, but limited the freeze order's duration to 30 days given BRHI's status as a legitimate business entity.

For its part, BRHI explained that the subject BDO account is used for peso payments or deposits/remittances to BRHI, with account details given to junket operators and premium players to enable them to deposit front money for gaming at Solaire. On February 5, 2016, a Chinese national from Macau named Ding Zhize advised BRHI that he and his companions would remit millions of dollars to Solaire for a group of Chinese players intending to play during the Chinese New Year; Ding had been introduced to BRHI by known high rollers Wang Xin and Gao Shuhua. On February 5 and 10, 2016, BRHI received from PhilRem's BDO account the total amount of P1,365,000,000.00, which the Ding group used as front money to play in Solaire. When the amount was deposited, it was exchanged for non-negotiable chips; by February 29, 2016, the whole amount had been fully used to play and converted to non-negotiable chips. BRHI maintained that there was no reason to suspect the funds were related to any unlawful activity, as the deposit was received in the regular course of business and coincided with the Chinese New Year, a known season for Chinese high rollers. On March 10, 2016, after news articles linked Solaire to the Bangladesh Bank hack, BRHI froze the Ding group's remaining balance of P107,350,602.00 plus cash in various currencies amounting to P1,347,069.00, and barred the group's members from playing.

Upon receipt of the CA freeze order, BRHI filed an Urgent Motion to Lift Freeze Order while the AMLC filed an Urgent Motion for Additional Period of Freeze Order. On April 15, 2016, the CA granted BRHI's motion and directed BDO to unfreeze the account, finding that the AMLC's argument that the proceeds formed part of the stolen funds "remains within the realms of speculation" and that the AMLC failed to establish a link connecting the subject account to the stolen funds. The CA accorded credence to BRHI's explanation that the funds had already been converted to non-negotiable chips and utilized in the normal and regular operation of its casino business. BDO complied with the CA resolution and unfroze the account even before receiving the Supreme Court's TRO.

• Not a Fait Accompli: The AMLC maintained that the assailed CA resolution was not a fait accompli because, upon receipt of the Supreme Court's TRO, BDO should have re-frozen BRHI's subject account.
• Probable Cause Stands: The AMLC argued that the initial finding of probable cause should stand because the verified petition for freeze order and its supporting documents were unrebutted by BRHI.
• Clear Money Trail: The AMLC chronologically presented every transfer of funds—from the unauthorized payment instructions triggering the remittance of US$81,000,000.00 to four spurious RCBC accounts, consolidated in Go's spurious account, credited to PhilRem, and then transferred as P1,365,000,000.00 to BRHI's BDO account—leading to no other conclusion but that the subject account is related to an unlawful activity.
• Tainted Funds Doctrine: The AMLC argued that money is essentially fungible and can easily be commingled with other moneys; a deposit traceable to an unlawful activity is considered tainted and, despite the passage of time or further commingling with other funds, remains tainted.
• Failure to Prove Ding's Ownership: The AMLC countered that BRHI failed to present any evidence supporting its claim that a certain Ding owned the money deposited in the subject account as front money.
• Lack of Due Diligence: The AMLC faulted BRHI for failing to exercise due diligence and sound business practice by not taking necessary steps to scrutinize the money deposited in its account and confirm the legitimacy and accuracy of incoming transactions.

• Mootness Due to Six-Month Limit: BRHI submitted that the petition is moot because a freeze order cannot be issued or extended for a period longer than six months; since the freeze order was issued on March 15, 2016, more than six months had elapsed, making a disquisition on the merits serve no practical or legal purpose.
• Failure to Establish Probable Cause: BRHI argued that the AMLC failed to proffer proofs supporting its allegations, presenting only a supposed letter from the Governor of the Central Bank of Bangladesh without testimony from the persons who allegedly met with the AMLC Secretariat.
• Non-Covered Entity: BRHI countered that, being a non-covered entity under the AMLA, it is not required to inquire as to the source of its customer's funds; the law forces it to rely upon the integrity of the banking system that is supposed to release only clean money into the economy.
• Funds No Longer With BRHI: BRHI argued that assuming the amounts received are laundered money, the same is no longer with BRHI, as the money was used by the Ding group to purchase non-negotiable chips which were transferred to junket operators or played in Solaire's premium program—specifically, P331,270,000.00 played under the chip sharing program, P903,730,000.00 in non-negotiable chips transferred to Sun City, P100,000,000.00 transferred to Gold Moon, and P31,195,000.00 transferred to Lau Ka Wai.

• Mootness: Whether the petition has become moot and academic owing to the lapse of the six-month maximum period for freeze orders under Section 10 of R.A. 9160, as amended.
• Merits of the CA Resolution: Whether the CA erred in lifting the freeze order on the ground that the AMLC failed to establish probable cause that the subject account was related to an unlawful activity.

• Mootness: Yes. The petition became moot and academic because more than six months had elapsed since the freeze order's issuance on March 15, 2016, and BDO had already unfrozen the account in compliance with the CA resolution.
• Merits of the CA Resolution: Not reached. The Court declined to rule on the merits, the petition having been rendered moot and academic by the lapse of the statutory maximum period.

• Mootness: Section 10 of R.A. 9160, as amended by R.A. 10365, expressly provides that a freeze order "shall not exceed six (6) months depending upon the circumstances of the case." Even prior to the amendment, A.M. No. 05-11-04-SC (the Rules of Procedure in AMLA cases) had already specified that any extension of a freeze order should not exceed six months. The rationale, as explained in Ligot vs. Republic, is that a freeze order is an extraordinary and interim relief—pre-emptive in character—meant to temporarily preserve monetary instruments while the State builds its case, not to serve as a punitive measure or indefinite restraint. Indefinite freeze orders violate due process and the presumption of innocence, as they effectively deny the owner the use of property before final conviction. In this case, the freeze order was issued on March 15, 2016. Even assuming the CA erred in denying the extension, more than six months had already elapsed by the time of adjudication—over four years, in fact. BDO had already unfrozen the account upon receipt of the CA's April 15, 2016 resolution. The AMLC's argument that the case was not yet fait accompli because BDO could re-freeze the account upon granting of the petition was rejected as specious: re-freezing would unfairly place BRHI in a situation where its account is frozen for a transaction that occurred over four years prior, without proof that it participated in money laundering activities. The case squarely falls under the moot and academic principle, as adjudication would be of no practical use or value.

• Merits of the CA Resolution: The Court did not reach the merits of whether the CA erred in lifting the freeze order, having determined that the petition was moot and academic. The Court noted that the CA's finding—that the AMLC's argument that the proceeds formed part of stolen funds "remains within the realms of speculation"—was not disturbed, but no ruling was issued on its correctness.

• Moot and Academic Doctrine — A case or issue is considered moot and academic when it ceases to present a justiciable controversy by virtue of supervening events, so that an adjudication would be of no practical value or use. Courts generally decline jurisdiction over such cases, save when: (a) a compelling constitutional issue requires formulation of controlling principles; (b) the case is capable of repetition yet evading review; (c) there is a grave violation of the Constitution; or (d) the exceptional character of the situation and paramount public interest is involved. The Court found none of these exceptions applicable and dismissed the petition.

• Six-Month Maximum Period for Freeze Orders — Under Section 10 of R.A. 9160, as amended by R.A. 10365, a freeze order issued by the Court of Appeals shall not exceed six months, depending on the circumstances of the case. If no case is filed against the person whose account has been frozen within the period determined by the court, the freeze order is deemed ipso facto lifted. This rule was already reflected in A.M. No. 05-11-04-SC as early as 2005. The maximum period ensures that freeze orders remain interim, pre-emptive measures and do not become indefinite restraints that violate due process and the presumption of innocence.

• Nature of Freeze Orders as Interim Relief — A freeze order is an extraordinary and interim relief issued by the CA to prevent the dissipation, removal, or disposal of properties suspected to be proceeds of or related to unlawful activities. Its primary objective is to temporarily preserve monetary instruments by preventing the owner from utilizing them during the order's duration. It is pre-emptive in character, meant to prevent disposal of property while the State builds its case for civil forfeiture or criminal prosecution. It is not intended as a punitive measure, and indefinite extension borders on inflicting punishment in violation of the right to be presumed innocent.

• "A case or issue is considered moot and academic when it ceases to present a justiciable controversy by virtue of supervening events, so that an adjudication of the case or a declaration on the issue would be of no practical value or use." — This is the Court's adopted definition of mootness from Osmeña III vs. SSS, applied to conclude that the lapse of the six-month maximum period rendered the petition devoid of practical value.

• "A freeze order is an extraordinary and interim relief issued by the CA to prevent the dissipation, removal, or disposal of properties that are suspected to be the proceeds of, or related to, unlawful activities as defined in Section 3(i) of RA No. 9160, as amended." — This passage from Ligot vs. Republic defines the essential character of a freeze order and underpins the rationale for limiting its effectivity to six months.

• "Assuming that the petition is meritorious, We cannot order the re-freezing of the subject account for to do so would be to put BRHI in an unfair situation where its bank account is being frozen for a transaction that has happened four years ago and where it was not yet proven that it indeed participated in money laundering activities." — This is the decisive passage rejecting the AMLC's argument that the case was not fait accompli, articulating the equitable barrier to re-freezing after the statutory maximum period has lapsed.

• Osmeña III vs. SSS, 559 Phil. 723 (2007) — Cited for the definition of a moot and academic case; the Court adopted its formulation to conclude that the petition no longer presented a justiciable controversy.

• David vs. Macapagal-Arroyo, 522 Phil. 705 (2006) — Cited for the additional exceptions to the moot and academic principle: grave violation of the Constitution, and exceptional character of the situation with paramount public interest; the Court found none applicable here.

• Ligot vs. Republic, 705 Phil. 477 (2013) — Cited for the nature and purpose of freeze orders as interim, pre-emptive relief and for the rationale behind the six-month maximum period; the Court relied on its discussion of the inequity resulting from unlimited freeze order extensions.

• Section 10, Republic Act No. 9160 (Anti-Money Laundering Act of 2001), as amended by R.A. 10365 — Governs the freezing of monetary instruments or property. Provides that upon a verified ex parte petition by the AMLC and after determination of probable cause, the Court of Appeals may issue a freeze order effective immediately and not exceeding six months, depending on the circumstances. If no case is filed within the period determined by the court, the freeze order is deemed ipso facto lifted. The Court applied this provision to hold that the six-month maximum had elapsed, rendering the petition moot.

• A.M. No. 05-11-04-SC (Rules of Procedure in Cases of Civil Forfeiture, Asset Preservation, and Freezing of Monetary Instrument, Property, or Proceeds Under R.A. 9160, as amended) — The procedural rules governing AMLA cases, which as early as 2005 already specified that any extension for the issuance of a freeze order should not exceed six months. The Court cited this to show that the six-month limitation predates the statutory amendment.

Leonen (Chairperson), Gesmundo, Zalameda, and Gaerlan, JJ., concurred. No separate concurring opinions were written.