The recent developments on the Philippine rules on foreign equity restrictions have inevitably altered the landscape for the implementation of the country’s Anti-Dummy Law.
As may be recalled, the Philippines liberalized its restrictions on foreign ownership in a series of legal reforms designed to boost the country’s economic recovery. These amendments affected enterprises engaged in retail, domestic market, and most notably, in public service. On 27 June 2022, Executive Order No. 175, series of 2022 was issued to promulgate the Twelfth Regular Foreign Investment Negative List that reflected the latest amendments on foreign equity restrictions.
The liberalization of foreign ownership prods us to take a look at its consequences on the implementation of the Anti-Dummy Law.
The Anti-Dummy Law (Commonwealth Act 108, as amended) criminalizes “the evasion of any constitutional or legal provision requiring Philippine citizenship as a prerequisite for the exercise or enjoyment of a right, franchise or privilege, and the profiting of any alien thereby. It punishes the evasion of nationalization laws (by the use of dummies) and prohibits aliens from intervening in the management, operation, administration or control of any nationalized activity, wholly or partially but to an extent of not less than 60 percent, whether as an officer, employee or laborer, as well as imposing criminal sanctions on the president, managers, board members or persons in charge of the violating entity and causing the latter to forfeit its privileges, rights and franchises.”(Pua v. Court of Appeals, G.R. 134992, [November 20, 2000], 398 PHIL 1064-1081)
As repeatedly declared by the Supreme Court in Macario King, et. al. v Pedro S. Hernaez, et. al. (G.R. L-14859, 31 March 1962) and Universal Corn Products, Inc. v Rice and Card Board (G.R. L-21013 dated 17 August 1967), the Anti-Dummy Law “complements” the laws on foreign equity restrictions as it is designed to make effective the aims and purposes of the laws on foreign equity restrictions. Further, both laws tend to accomplish the same objective either by excluding aliens from owning or by banning their employment if the trade is owned by Filipino. Thus, the Supreme Court declared that the pronouncement on the constitutionality of the laws on foreign equity restrictions or on the Anti-Dummy Law “applies equally if not with greater reason to the other both being complementary one to the other.”
It bears to note that the Anti-Dummy Law only makes reference to the restrictions as provided for in relevant “constitutional or legal provisions”. Thus, the Anti-Dummy Law must be read together with and is made contingent to the Philippine nationalization laws. Any amendment on nationalization laws has significant bearing on the application and enforceability of the Anti-Dummy Law. Without needing any amendment or repeal of the Anti-Dummy Law, enterprises which were removed from foreign equity restrictions by virtue of the amendments should consequentially be removed from the ambit of the Anti-Dummy Law. Of course, economic activities which the law reserves to Filipino citizens or corporations at least 60 percent owned by Filipinos remain subject to the application of this law.
For instance, and I take this opportunity to restate the rules on allowable foreign equity in domestic market enterprises, if the paid up capital of domestic market enterprises is at least US$ 200,000 (or US$ 100,000) for start-up, start up enablers and those which involve advanced technology or with Filipinos as majority of its direct employees but not less than 15, the Anti-Dummy Law ceases to be relevant because these enterprises can be fully owned by foreigners.
However, if the paid-up capital is less than US$ 200,000 (or US$ 100,000, as the case may be), foreigners are allowed to invest but cannot own more than 40 percent equity. In which case, the Anti-Dummy Law still applies.
Similarly, enterprises engaged in public service and are not classified as public utility, retail enterprises with capital of at least P25M should be excluded from the application of this law, given statutory amendments liberalizing foreign ownership in these industries. As a complement to laws on foreign equity restrictions, the Anti-Dummy Law progresses as the government policies on foreign participation in the Philippine market evolves.
The Daily Tribune
