Sunday, July 30, 2017


Once again, there is a move to abolish the Presidential Commission on Good Government (PCGG) owing to its prolonged inability to recover multi-billion-peso martial law ill-gotten wealth in some difficult to prosecute 200 forfeiture cases before the Sandiganbayan. This move is not advisable because it is the prelude to burying the ill-gotten wealth cases into oblivion. What is needed at present is not to abolish PCGG but to compel it to do its job right—that is, do what it really takes to recover the ill-gotten wealth.     
To Begin With, Why PCGG Is Unable
to Recover the Martial Law Ill-Gotten Wealth
To address the problem, we have to know its root. PCGG seems unable to achieve its mission of recovering all martial law ill-gotten wealth because of the following:
  1. Either gross incompetence or outright intention to lose in the forfeiture cases, which could have deserved not only the stinging rebuke already done by the Supreme Court in one of its decisions but also disbarment.
  1. Failure to think outside the box: since inception to the present, PCGG officials appear to have been boxed in or trapped by the recovery method provided in Executive Order (EO) No. 1 dated February 28, 1986 which created PCGG, as well as by the implementing rules issued by the first PCGG Chairman. They failed to think of sanctions against tax evasion and other legal remedies provided in the Tax Code, such as issuance of warrants of distraint and levy on the not only ill-gotten but also UNTAXED wealth. Invoking the legal remedies in the Tax Code would have been more feasible, expeditious, and fruitful had it been initiated right after EDSA I.      
On Gross Incompetence or
Intention to Lose in the Case
PCGG’s seeming gross incompetence if not intention lose in its forfeiture cases before the Sandiganbayan can be deduced from the following quote from the final note in a Supreme Court decision on the P200-BILLION PCGG forfeiture case against the Marcos heirs: 
“As earlier adverted to, the best evidence rule has been recognized as an evidentiary standard since the 18th century. For three centuries, it has been practiced as one of the most basic rules in law. It is difficult to conceive that one could have finished law school and passed the bar examinations without knowing such elementary rule. Thus, it is deeply disturbing that the PCGG and the Office of the Solicitor General (OSG) the very agencies sworn to protect the interest of the state and its people could conduct their prosecution in the manner that they did. To emphasize, the PCGG is a highly specialized office focused on the recovery of ill-gotten wealth, while the OSG is the principal legal defender of the government. The lawyers of these government agencies are expected to be the best in the legal profession.
“However, despite having the expansive resources of government, the members of the prosecution did not even bother to provide any reason whatsoever for their failure to present the original documents or the witnesses to support the governments claims. Even worse was presenting in evidence a photocopy of the TSN of the PCGG proceedings instead of the original, or a certified true copy of the original, which the prosecutors themselves should have had in their custody. Such manner of legal practice deserves the reproof of this Court. We are constrained to call attention to this apparently serious failure to follow a most basic rule in law, given the special circumstances surrounding this case.” (Republic of the Philippines vs. Ma. Imelda Imee R. Marcos-Manotoc, Ferdinand Bongbong Marcos, Jr., et al, G.R. No. 171701, February 8, 2012.) 
The Supreme Court decision which rebuked PCGG and OSG lawyers was promulgated on February 8, 2012. In the same year, or on September 2, 2012, I issued my first email to PCGG on the probable expeditious means of recovering the ill-gotten wealth—the Al Capone or tax evasion method. As shown on ANNEX A, I followed it up on November 13, 2012 but I got no reply. One of my subsequent repeated follow ups was even published in the Letter-to-the-Editor section of the Philippine Daily Inquirer on July 27, 2015, but neither PCGG nor the “Daang Matuwid” Aquino administration bothered to respond let alone act on my suggestion.     
On Failure to Think Outside the Box
EO No. 1 and its implementing rules provided for recovery of martial law ill-gotten wealth through PCGG sequestration then forfeiture through the court or Sandiganbayan. This scheme is anchored on the ground that the wealth is ill-gotten or illegally acquired. Consequently, all of PCGG’s recovery efforts were devoted to the difficult and tedious process of proving that the sequestered assets were unlawfully acquired—the very reason why to this day some 200 forfeiture cases are still unsuccessful and struggling with  Sandiganbayan.
In effect, PCGG has unwisely imposed upon itself the difficult role of proving that the wealth  is illegally acquired, which needs airtight evidences that are difficult to muster. It has wittingly or unwittingly failed to pursue the approach where the difficult burden of proof is easily shifted to defendants—filing of tax evasion criminal and civil cases, the method which nailed down Al Capone in the US in the 1930s, not prosecution on his alleged racketeering activities.
Instead of focusing alone on the recovery of martial law loot as ill-gotten wealth as provided in EO No. 1 and its implementing rules, PCGG should have noted and followed the subtle import of other provisions of the Executive Order.  As stated in its reply to me, PCGG’s excuse in not pursuing the Al Capone method in attaining its objective—that its mission is recovery of ill-gotten wealth and that the filing of tax evasion cases toward collection of unpaid taxes is the job of the Bureau of Internal Revenue (BIR)—is untenable.
EO No. 1 provides that PCGG shall assist the President in the recovery of martial law ill-gotten wealth. It can also seek and secure the assistance of any office, agency, or instrumentality of the government. This means that, as part of assistance to the President in the recovery of ill-gotten wealth, PCGG has the obligation to inform the President of all feasible means of recovery. If the more expeditious and feasible method—filing of tax evasion cases—falls under the primary responsibility of the BIR than of PCGG, as part of PCGG’s primary duty to recover the ill-gotten wealth, it should either request the President to instruct BIR to file the needed tax evasion cases, or, as stated in EO No. 1, PCGG can go directly to the BIR for assistance and have it file the necessary tax evasion cases.        
Sample Result of PCGG’s Failure
To Do What it Really Takes to Recover
Martial Law Ill-Gotten Wealth
“The government has lost its decades-old bid to recover from the two brothers of former First Lady Imelda Romualdez-Marcos more than 60 assets that were allegedly acquired illegally during the term of former President Ferdinand Marcos. The Sandiganbayan dismissed the P11-billion civil forfeiture case against Alfredo T. Rolmualdez, Armando T. Romualdez and his wife Vilma, after state lawyers failed to prove that the properties had been acquired unlawfully.” (DJ Yap, “Gov’t loses forfeiture case vs Imelda kin,” Philippine Daily Inquirer, August 25, 2016, page A4)   
Has the Filing of Tax Evasion Cases
Prescribed Due to the Failure of PCGG
to Pursue it on a Timely Basis?
Legal experts in PCGG and in the Duterte administration should explore the feasibliity of pursuing at present the Al Capone or tax evasion method in the recovery of discovered and identified martial law ill-gotten wealth, but the illegal acquisition of which is difficult to prove before Sandiganbayan. There may be no forum shopping on still existing forfeiture cases or double jeopardy on already decided and lost cases. Reason:  the tax evasion cases will not be running after the ill-gotten wealth per se but on the evaded and still unpaid taxes on it—and tax evasion is a continuing crime for as long as the delinquent taxes, interest charges, and penalties are not yet paid, therefore filing of cases may still be explored.
Forfeiture of the ill-gotten wealth is only incidental and will only follow as and when the BIR wins in the tax evasion cases. It will be resorted to only if the losing defendants will not voluntarily comply to the order of the court to pay the income and estate taxes due. If the defendants will not voluntarily pay, that will be the only time that the court sheriff have to run after the ill-gotten wealth to enforce the decision of the court.      
In Brief, Why is Ill-Gotten Wealth Recovery
Through Tax Evasion Charges Under the Tax Code
More Feasible and Less Cumbersome than Forfeiture
as Ill-Gotten Wealth Under Executive Order No. 1
Under EO No. 1, forfeiture of the PCGG-sequestered wealth would have been easy if the defendants would not claim ownership of the wealth as lawfully acquired because by doing so, they would be at risk of criminal prosecution as tax evaders under the Tax Code. However, this did not happen as the defendants came forward and claimed lawful ownership of the wealth. As a result, the difficult burden of proving that the wealth is illegally acquired has rested on PCGG, something which it has failed to successfully do over the years.
Under the legal remedies in the Tax Code, especially the filing of tax evasion charges, PCGG and the BIR do not need battalion of witnesses and truckloads of documentary evidences to successfully prosecute the tax evasion cases. As was done in the successful prosecution for tax evasion of Al Capone in the US in the 1930s (ANNEX B), they have to simply follow two expeditious steps in prosecution:
  1. Proving that there is wealth owned by the defendants, and the best evidence is the claim of ownership promptly presented by defendants when PCGG sequestered the assets and have it forfeited in favor of the government through Sandiganbayan.  In the US, proving that Al Capone had untaxed income was the hard part because there was no similar ownership claim for supposedly legally acquired wealth in a forfeiture court case.
  2.  Have the BIR testify that that there are no income tax returns (and later estate tax returns as well) filed by the defendants. If the wealth is ill-gotten, it would be kept secret and obviously no income tax returns would be filed on it.
As illustrated in ANNEX C, the government’s total claim for unpaid income tax, interest charges, and penalties in the tax evasion cases will be much bigger than the amount of the untaxed wealth itself—because of the much higher income tax rates applicable to the wealth during its unlawful acquisition in the martial law years.   
* * *
For the information and appropriate action of all concerned.
A Concerned Citizen
July 29, 2017
San Miguel, Bulacan
C/o San Juan and Associates
27S Midland Manor 2
Ortigas Avenue
Greenhills, San Juan City 1500
----- Forwarded Message -----
From: Marcelo Tecson <>
To: PCGGChair Andres Bautista <
DBMSec Butch Abad<>; etc...
Sent: Tuesday, November 13, 2012 6:33 AM
Subject: 1st Follow Up: Fw: WHY DIDN'T PCGG RUN ALL-OUT AFTER
Pursuant to Section 5 (a) of RA No. 6713, this is to respectfully follow up PCGG's reply to the question raised in the herein forwarded email (dated September 2, 2012).  
Thank you.
A Concerned Citizen
San Miguel, Bulacan
November 13, 2012
By Douglas O. Linder (2011)
Al Capone, head of the most profitable crime syndicate of the Prohibition Era and mastermind of the notorious 1929 "Valentine's Day Massacre," seemed above the law.  In the end, however, Capone would be brought to justice not for murder, extortion, or bootlegging, but for failing to pay his income tax. 
Capone in 1929 might have been worth about $30 million, but no income tax return had ever been filed in his name…. While successful in tracking down evidence of expenses, investigators encountered considerable difficulty in finding direct evidence of income….  

The Trial of Alphonse Capone opened on the morning of October 5, 1931 at the federal courthouse in downtown Chicago …. After…Assistant U. S. Attorney Dwight Green outlined the 23 charges of tax evasion against Capone in the government's opening statement, (US Attorney) George Johnson called his first witness. Charles W. Arndt, a tax collector for the United States , told jurors that Al Capone failed to file any tax return at all for the years 1924 through 1929….
The prosecution presented evidence that Capone owned gambling halls and derived substantial profits from those businesses…. Leslie Shumway, the cashier at the Hawthorne Smoke Shop, presented the most damning evidence of the day.  Shumway described the accounting procedures used at the gambling hall and estimated that the profits for the two years he worked there were over $550,000…. 
A series of prosecution witnesses presented evidence of Capone's lavish lifestyle….  
Prosecutor Jacob Grossman noted in his summation that Capone… lived "like a bejeweled prince" and "spent thousands of dollars without thinking twice." (Prosecutor) Samuel Clawson… added that "even a child" could deduce from Capone's lavish lifestyle that he had a huge income. 

(In the end), Judge (James) Wilkerson imposed a prison sentence of eleven years, the longest term ever handed down for tax evasion….  
Owing to much higher income tax rates during martial law years when the ill-gotten wealth was acquired out of hidden taxable income, the total  TAX ASSESSMENT—had tax evasion cases been pursued by the government—would have been much bigger than the entire amount of the ill-gotten wealth itself.     
The Marcos’ and cronies’ untaxed wealth is subject to income tax rates during martial law years, or the time the wealth was “earned” through legal or illegal means. During martial law, our income tax rates were very high. As of 1976, the top personal income tax rate for top personal income bracket of more than P500,000 was a whopping 70%, reduced to 60% by 1985, then adjusted further to 32% shortly after EDSA I.   
Following are calculations of total TAX ASSESSMENT for deficiency income tax and penalties based on applicable income tax and penalty rates during martial law period, when the hidden taxable income was “earned” and now exposed as untaxed ill-gotten wealth:
(1) In percent or relative terms:
Top personal income tax rate on income over P500,000 .............   70%
Add:  Penalties:
    Surcharge for willful neglect to file income tax returns 
        or for filing false and fraudulent returns, 
        50% x 70% income tax .......................................................  35%
     Interests at 14% per annum but not to exceed 3 years,
        or total of 42% x 70% income tax  ......................................  29%
     Total Percent of Deficiency Income Tax & Penalties,
       to be Claimed by PCGG against the Ill-Gotten Wealth  ....... 134%  
(Note: If the top income tax rate used is 60%, the total unpaid tax and penalties will be 115%, still more than enough for PCGG to claim the whole amount of ill-gotten wealth as assessed deficiency income tax, surcharge, and interests.)    
As can be seen, if the Tax Code is strictly followed, the government's total TAX ASSESSMENT would have been much bigger than the amount of ill-gotten wealth itself.  
(2) In absolute amount or absolute terms:
To illustrate, using hypothetical amount of $10 billion as ill-gotten wealth and applying the foregoing actual income tax and penalty rates during martial law, the TAX ASSESSMENT would be calculated as follows: 
If the ill-gotten wealth in excess of P500,000 is say 
$10 billion, then the income tax is:
70% X $10 billion……………………………..……. =   $7.0 billion
Add:  Surcharge for willful neglect to file
          income tax returns:   50% X $7 billion  ......  =     3.5 billion
         Interest charge at 14% per annum for
         maximum of 3 years (for conservatism
         in this example, interest calculation is
         based just on basic tax, exclusive of
         surcharge):  42% X $7 billion  ………...........  =     2.9 billion
 Total Deficiency Income Tax & Penalties (134%)... =  $13.4 billion         
Thus, the total TAX ASSESSMENT of $13.4 billion is much bigger than the UNTAXED WEALTH of $10 billion.

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