Issues about Amanah Islamic Bank

By Abdel Aziz Dimapunong
Chancellor, Islamic Banking Research Institute
Founding Chairman and Chief Executive Officer, Amanah Islamic Bank

In the Philippines, there are three legal issues about the Islamic Bank that are still being debated on. These controversies have been investigated by the Department of Justice upon an alleged complaint of the Monetary Board. The complaint, however, was not actually initiated by any member of this Board. The low ranking lawyers of the Bangko Sentral who filed the case had to admit in the course of investigation that they were actually acting on their own private capacities – and not on behalf of the Monetary Board. The case was filed in 1999. Until this date the complainants failed to secure the Resolution of the BSP Monetary Board authorizing the filing of a case in its own name. In the absence of the required Resolution, the lawyers who filed the case are said to be misrepresenting the Monetary Board. It has been almost seven years and the case is unsettled. In fact, the source of the complaint, Farouk Carpizo died some years ago. The once Deputy Governor of the Bangko Sentral who initiated the malicious complaint is no longer with the Bangko Sentral

In the meanwhile, malicious publicity about the case is still on the Internet. It is for this reason that the Islamic Banking Research Institute has been requested to shed light on the lingering controversy. The Institute is the only private entity that is held to be the most authoritative source of information about Islamic banking in the Philippines.

The issues are as follows:

1) Whether or not the Al Amanah Islamic Investment Bank of the Philippines needs a license to be issued by the Monetary Board.

The unauthorized Bangko Sentral lawyers charged the officers of the original Islamic Bank for not having been granted a license by the Monetary Board. The Islamic bankers maintained that they do not need a license from the Monetary Board.

2) Whether or not the Monetary Board has the prerogative not to recognize the legitimacy of the Islamic Bank

The unauthorized lawyers claimed that the original Islamic Bank is not recognized by the Bangko Sentral Ng Pilipinas. The officers of the original Islamic Bank maintain that the Bangko Sentral Ng Pilipinas has no choice but to recognize the Islamic Bank.

3) Whether or not the Monetary Board has the power to qualify or disqualify directors of the Islamic Bank.

The unauthorized lawyers claimed that the officers of the original Islamic Bank have not been qualified by the Monetary Board. The officers of the original Islamic Bank asseverate that they do not have to pass through the Monetary Board concerning the elections of directors of the Islamic Bank

All of the foregoing issues are discussed below. They are argued upon not in the legalese format of the justices of the Supreme Court but only in layman’s terms. They are presented just in the way of a blogger in Cyberspace. After all, the case that was allegedly filed by the Monetary Board in 1999 was not authorized by the Monetary Board. The case was not acted upon by any Court of law. The case is buried in what the law profession calls ‘archive’. It seems that nobody wants to stand for the malicious complaints. It is already about seven years since then. And even for any reason, the malicious complaint breaks into any honorable court, and the founders of the Islamic Bank welcome it in that unlikely event.

After our research and review, we asseverate as follows:

1) The Al Amanah Islamic Investment Bank of the Philippines does not need a license to be issued by the Monetary Board of the Bangko Sentral Ng Pilipinas in order to operate as a bank.

2) The Monetary Board has no prerogative to disregard the legitimacy of the Islamic Bank

3) The Monetary Board has no power to pass upon judgment on the qualifications and or disqualifications of directors of the Islamic Bank.

DISCUSSION

Undoubtedly, the Monetary Board has authority to regulate and supervise the Islamic Bank. This mandate, however, is subject to certain legal limitations. These restrictions are set by laws and jurisprudence. Some limitations are very much obvious even to laymen.

Obviously, the Monetary Board has no power to, revise, modify or reject any provisions of law such as those provided in the charter of the Islamic Bank. Obviously, it is rather wrong for any officers of the Bangko Sentral, including the Monetary Board to require the Islamic Bank an authority to operate as Islamic Bank. The charter of the Islamic Bank, RA 6848, already authorized it to operate as Islamic bank. The charter is very clear. It provides:

“SEC. 50. Statutory Articles of Incorporation. - This Act, upon its effectivity, shall be deemed accepted for all legal intent and purposes as the Statutory Articles of Incorporation of the Al Amanah Islamic Investment Bank of the Philippines; and that notwithstanding the provision of any existing law to the contrary, said Islamic Bank shall be deemed registered and duly authorized to do business and operate as an Islamic Bank as of the date of approval of this Act.” [Emphasis mine]

Another limitation of the powers of the Monetary Board is the fact that it has no legislative authority. It has no power of prosecution. The Supreme Court of the Philippines had already defined certain forbidden grounds in the case of Reformina vs. Tonol, Jr., L-59096, Oct. 11, 1985. In this case, the Supreme Court rules: “The Monetary Board may not tread on forbidden grounds. It cannot rewrite other laws. That function is vested solely with the legislative authority. It is axiomatic in legal hermeneutics that statutes should be construed as a whole and not as a series of disconnected articles and phrases. In the absence of a clear contrary intention, words and phrases in statutes should not be interpreted in violation from one another, xxx”

The Monetary Board has no authority to rule on matters of intra-corporate controversy among shareholders and investors of the Islamic Bank (Such as the case of Dimapunong Group vs. Carpizo Group). Matters of intra-corporate controversies are already assigned by law to the Board of Arbitration of the Islamic Bank. Arbitration is clearly stated in the charter and even in the Rules and Regulation of the Bangko Sentral Ng Pilipinas. It does not appear from the new Central Bank Act, the new General Banking Law of 2000, and other banking laws in the Philippines that the Monetary Board has the authority to proclaim who among contending directors are legitimate and who are bogus. If the controversy does not fall within the jurisdiction of the Board of Arbitration, then it should be under the regular courts pursuant to the Securities and Regulation Code, RA 8799.

Is also does not appear from the new Central Bank Act and the new GBL of 2000 that the Monetary Board is part of the judicial branch of government. It has also no power of a fiscal under Philippine jurisprudence. In the words of the Hon. Supreme Court of the Philippines: “The Central Bank is a government corporation created principally to administer the monetary and banking system of the Republic, not a prosecution agency like the fiscal’s office. Being an artificial person, the Central Bank is limited to its statutory powers and the nearest power to which prosecution of violators of banking laws maybe attributed is its power to sue and be sued. But this corporate power of litigation evidently refers to civil cases only.” (Damaso P. Perez vs. the Monetary Board, G.R. No. L-23307, June 1967)

In relation to the Islamic Bank, the limited supervisory power of the Monetary Board is tokenized by Republic Act 6848. This was so because the authority and influence of the Monetary Board are limited only to its jurisdiction in the Philippines. On the other hand, the Islamic Bank was conceptualized to be an international bank. Its charter provides for Series “C” shares for foreign investors, equivalent to forty (40%) percent of its authorized capital stock (Sec. 8, RA 6848).

To assure foreign investors, the charter provides “protection against nationalization, sequestrations, or expropriation proceedings”. Thus section 10 of the charter provides: “… the provisions of the Investment Code on the basic rights and guarantees of investors are made applicable to the commercial operations of the Islamic Bank in respect to repatriation or remittance of profits from investments, and to protection against nationalization, sequestrations, or expropriation proceedings. Any proceedings of judicial or administrative seizure may not be taken against the said property or investment except upon a final court judgment.” Section 10 of the charter is restated in the BSP Implementing Rules and Regulations under section 11.

For more attraction to foreign investors, the charter also provides that the board of directors of the Islamic Bank may sit as a board of arbitration. This provision is also found in the BSP Rules and Regulations These provisions on arbitration also offer an international appeal to foreign stockholders and investors. This is because, as early as the 1950’s, foreign arbitration as a system of settling commercial disputes was recognized when the Philippines adhered to the United Nations” Convention on the Recognition and the Enforcement of foreign Arbitral Awards of 1958” under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement of international arbitration agreements between parties of different nationalities within a state. [Cited by the Supreme Court in the case of Del Monte Corporation-USA, vs. Court of Appeals, Judge Bienvenido L. Reyes, et al. (G.R. No. 136154, February 7, 2001)

Clearly, the Islamic Bank was intended to be the Philippines’ entry to the world of global banking. This is why the charter provides the Islamic Bank with so much legal leverage. The Islamic Bank is not just a bank in the ordinary sense. Aside from a bank pursuant to its charter, it is also an Investment House pursuant to PD 129, and it is also a Venture Capital Corporation pursuant to PD 1688 (Section 17, RA 6848). Should it operate as a venture capital corporation, the Islamic Bank would be under the supervision of the Securities and Exchange Commission – rather than the BSP.

The Islamic Bank is even allowed by its charter to deal with governments of other nations. The law provides under Sec, 11 that “… Under special circumstances in which the Board of Directors considers it advisable to promote or facilitate Islamic banking business and commercial operations, the Islamic Bank may seek financing from governments, organizations, individuals or banks…” This mandate of the charter is also restated under Section 12 of the BSP Rules and Regulations. Stated in other words, the Islamic Bank may seek financial assistance from sovereign countries, including the so-called “super powers”. The Islamic Bank may seek financial assistance from the governments of the United States, Canada, Australia, United Kingdom, Japan, Saudi Arabia, and others. There is no limit under the charter. For this purpose, therefore, the Islamic Bank may have its representatives to any of these countries, subject to their respective laws.

The Islamic Bank is a chartered bank. This means that its Articles of Incorporation is not a mere agreement among corporators and incorporators. It means that the charter is a law, i.e. RA 6848. In the Philippines, there are only two banks with charters of their own. These are: 1) the Bangko Sentral Ng Pilipinas that is chartered by the New Central Bank Act, RA 7653, and 2) the Al Amanah Islamic Investment Bank of the Philippines that is chartered by RA 6848. Like other legislative acts, charters have the full force of the law. Violation of the Central Bank Act is a violation of law. In like manner, violation of the charter of the Islamic Bank is a violation of law. No one is exempted from the law, not even the governor of the Bangko Sentral.

The Islamic Bank charter shall remain to be a law even now that the Islamic Bank has been privatized. This is an explicit official opinion of the Secretary of Justice in the Philippines [Opinion No. 42, Opinion of the Secretary of Justice 2001. Confirmation that RA No. 6848, the Charter of Al-Amanah Islamic Investment Bank of the Philippines (Islamic Bank), remains in effect if the bank is privatized, unless said law is repealed by Congress.] This is another guarantee to the stockholders, domestic and foreign investors.

That the Islamic Bank, as part of the banking and financial system, should have international features is reiterated in the new GBL 2000 when it provides and declares, as a matter of policy, that the state shall promote this system to be “globally competitive.”

Indeed, even the mandate of the Monetary Board to formulate the rules and regulations was envisioned by Congress to be of an international character, regulation being the basis of supervision. Thus, the law provides: “The Monetary Board of the Central Bank of the Philippines shall formulate the necessary rules and regulations to carry out the provisions of this Charter… and to supervise the operation of the Islamic Bank in accordance with the universal principle of the Islamic Shari'a. (Sec. 43, RA 6848)

The Islamic Bank is also mandated to employ foreign experts, agents and representatives. SEC. 40 provides that “the Islamic Bank may employ foreign nationals in supervisory, technical or advisory positions for a period not extending five (5) years, extendible for limited periods upon the recommendation of the Governor of the Central Bank.

While the Monetary Board has the power to regulate (i.e. promulgate rules and regulation) and supervise (i.e. monitor) the Islamic Bank, The charter, makes it very clear that not all of the provisions of the Central Bank Act (now the New Central Bank Act) and the General Banking Act (now the New General Banking Law) are applicable to the Islamic Bank. That is one of the legal mechanics of tokenism. In reality, only provisions of special laws are applicable to the Islamic Bank (Sec. 71, new GBL 2000).

There is one more issue that is building up. Why would not anyone touch the case? Is it a Pandora’s Box?

This article entitled “Issues in the Islamic Bank” Sept.2000 Ed., by Abdel Aziz Dimapunong, is a property of the Islamic Banking Research Institute. 2006 All rights reserved.