WHY
PCGG IS UNABLE TO RECOVER
ILL-GOTTEN
WEALTH IN 200 FORFEITURE CASES:
IT
FAILED TO THINK OUTSIDE THE BOX?
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:
- 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.
- 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:
- 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.
- 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.
MARCELO L. TECSON
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
==================================
ANNEX A
FIRST FOLLOW-UP EMAIL:
Sent: Tuesday, November 13,
2012 6:33 AM
Subject: 1st Follow Up: Fw: WHY DIDN'T PCGG RUN ALL-OUT AFTER
MARCOS' & CRONIES' ILL-GOTTEN
WEALTH THROUGH BIGGER
DEFICIENCY TAX ASSESSMENTS???
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.
MARCELO L. TECSON
A Concerned Citizen
San Miguel, Bulacan
November 13, 2012
=======================================
ANNEX B
EXCERPTS FROM:
AL CAPONE TRIAL (1931): AN
ACCOUNT
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….
A series of prosecution witnesses presented evidence
of Capone's lavish lifestyle….
(In the end), Judge (James) Wilkerson imposed a prison sentence of eleven
years, the longest term ever handed down for tax evasion….
=================================
ANNEX C
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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