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CHAPTER I
BACKGROUND OF THE STUDY

A. HISTORY OF THE COMPANY

The Metropolitan Bank and Trust Company, commonly known as

Metrobank, is the second largest bank in the Philippines. It offers various

financial services, from regular banking to insurance. It is the banking

arm of tycoon George Ty. Founded in September 5, 1962, Metropolitan

Bank & Trust Co. (Metrobank) has since become the premier universal

bank and among the foremost financial institutions in the Philippines. It

offers a full range of banking and other financial products and services,

including corporate, commercial and consumer banking, as well as credit

card, remittances, leasing, investment banking and trust banking.

Metrobank was incorporated in Binondo, Manila by a group of

Filipino businessmen principally to provide financial services to the

Filipino-Chinese community. It opened its first local branch in 1963, then

expanded beyond Philippine shores only a few years after its

establishment. Metrobank rolled out its first international branch in Taipei

in 1970 and a representative office in Hong Kong in 1973. In 1975,

Metrobank became the first of the private banks to move into American

territory when it opened its office in Guam. It later established branches

in the United States mainland cities of Los Angeles and New York.

In 1981, Metrobank was listed in the Philippine Stock Exchange and

acquired its universal banking license, gaining significant equity

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ownerships in local and international subsidiaries. In 1990, Metrobank

launched the country's first and only talking ATM, Metrobank E.T. In

1995, Metrobank became the first billion dollar bank with total capital of

Php22.8 billion, the largest in the industry in the country.

Metrobank has also been steadily expanding internationally. In the

late 1990s, Metrobank opened branches and offices in London, Taichung,

Tokyo, and Seoul. Metrobank was the first to be granted a banking license

by the Japanese Ministry of Finance. It was also the first Philippine bank

in Korea. In 2001, Metrobank became the first Philippine bank in China

when it opened its branch in Shanghai. In 2010, Metrobank inaugurated

its wholly-owned subsidiary, Metropolitan Bank (China) Limited, the first

foreign bank headquarters to be established in Nanjing. The new bank

serves as the base for Metrobank's operations in China, with three

branches located in Nanjing and Shanghai.

As of December 31, 2017, on a consolidated basis, MBT had over

950 domestic branches and over 2,300 automated teller machines. MBT's

international presence includes over 30 branches, subsidiaries and offices,

over 130 remittance tie-ups and over 180 remittance agents.

B. NATURE OF BUSINESS

Metrobank offers Financial services which are the economic services

provided by the finance industry, which encompasses a broad range of

businesses that manage money, including credit unions, banks, credit-

card companies, insurance companies, accountancy companies,

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consumer-finance companies, stock brokerages, investment funds,

individual managers and some government-sponsored enterprises.

Financial services companies are present in all economically developed

geographic locations and tend to cluster in local, national, regional and

international financial centers. Some services that Metrobank offers are

the following:

 Keeping money safe while also allowing withdrawals when

needed

 Issuance of chequebooks so that bills can be paid and other

kinds of payments can be delivered by the post

 Provide personal loans, commercial loans, and mortgage loans

(typically loans to purchase a home, property or business)

 Issuance of credit cards and processing of credit card

transactions and billing

 Issuance of debit cards for use as a substitute for cheques

 Allow financial transactions at branches or by using Automatic

Teller Machines (ATMs)

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CHAPTER II
DISCUSSION OF THE PROBLEM

A. STATEMENT OF THE PROBLEM

Metropolitan Bank and Trust Co. (Metrobank) has filed criminal

charges against one of its ranking officials responsible for allegedly

fraudulent loan transactions amounting to P1.75 billion.

The Vice President of Metrobank's Corporate Service Unit, Maria

Victoria Lopez, reportedly falsified a manager's check to an individual, to

defraud a client via two loans—one worth ₱900 million, and another worth

₱850 million.

B. EVENTS OF THE CASE

The suspect, Maria Victoria Lopez, was arrested on July 17, 2017

after she allegedly attempted to shift P2.25 million in interest from

unauthorized loans. The interest payment was for one of 2 borrowings

from a P25-billion pool. It was one of the policies of the bank that every

quarter of the year reprises and renegotiates with the corporate client the

interest rate it has to pay for its loans. This policy enables the authority to

conduct the entrapment on July 17, 2018 in which the client should pay

the interest worth P2.25 million which resulted to the arrestment of the

suspect. According to the authorities, Lopez allegedly falsified a letter

directing the issuance of a manager's check to an individual payee, a "red

flag" because such checks are issued only to corporate clients.

"There were irregularities in the documents itself, indicating falsification

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such as different fonts, dubious signatures," according to one of the

officials who conducted the investigation. After having knowledge about

the issuance of manager’s check to an individual payee, the bank

conducted an internal inquiry, confirmed that the client has a loan with

the bank or if they have draw-downs. Much to their dismay, they

discovered such loans were unknown to the client.

On August 1, 2017, in a 17-page complaint affidavit, Metrobank filed

charges of qualified theft through the falsification of commercial

documents as well as violation of the General Banking Law before the

Makati City Prosecutor’s Office against Metrobank’s corporate service

management division head and account service manager Ma. Victoria

Lopez, together with Hubert Co and Sue Sai. The bank stated in the

complaint that Lopez, using her position in the bank in conspiracy with

the other respondents, made it appear that one of the bank’s larger clients

issued a promissory note in the amount of P900 million last June 16 in

favor of Metrobank, resulting in the crediting of the amount to the client’s

savings account. Lopez made it appear that the client subsequently

requested the issuance of several cashier’s checks to be debited from the

client’s account. The bank stated in the complaint that Sai’s name was

written at the back of the cashier’s checks in the endorsement portion,

thereby facilitating the deposit and subsequent transfer of the funds.

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C. PERSON’S INVOLVED

Maria Victoria Lopez-

- Vice President of the Corporate Service Unit at Metrobank’s

Makati head office.

- Lopez had worked for the bank for 3 decades and was earning

around P250,000 per month as head of corporate services.

- Lopez, who is a year short of retirement from the bank, lives in a

posh village in Quezon City.

- She owns nine cars, the “cheapest” of which, according to NBI

officials, is a Range Rover.

Hubert Co and Sue Sai. Co was named as payee of the manager's

checks

- Sai's name was identified as the person who facilitated the

check's deposit and the fund transfer into another bank account.
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CHAPTER III
OBJECTIVES OF THE STUDY

The objectives of the study aim to identify and determine the

particular provisions of the General Banking Law of 2000 and the

Negotiable Instruments law violated by the perpetrators on the issuance

of falsified check and the possible effects and consequences of such

fraudulent act not only to the company but also to their clients.

The study also aims to assess on the level of effectiveness on the

company’s systems of internal control particularly to the adherence to the

applicable laws and the management's assignment of the authorities,

duties and responsibilities.

The study would also like to give possible recommendations and

courses of actions that should have been taken in order to avoid such

problem of Unauthorized loans.

Lastly, the study aims to give the students the knowledge about

possible situations in the corporate world that would challenge their

integrity as a certified public accountant and on how they would be able

to overcome such challenges.

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CHAPTER IV
FINDINGS AND DISCUSSION

A. CRITICAL ISSUES

The problem in the given case gravitates towards the following on which

critical issues underlie:

1. Negotiable Instruments Law and the Civil Code

The Suspect, Maria Victoria Lopez, allegedly using her

position in the bank in conspiracy with the other respondents, made

it appear that one of the bank’s larger clients issued a promissory

note.

2. Falsification of Commercial Documents

As stated in the first issue, Maria Victoria Lopez made it

appear that one of the bank’s larger clients issued a promissory note

which is a commercial document.

3. General Banking Law of 2000

REPUBLIC ACT NO. 8791 also known as General Banking

Law of 2000 which is an act providing for the regulation of the

organization and operations of banks, quasi-banks, trust entities

and for other purposes including prohibited transactions of a bank

or its officers.

4. Internal Control Weakness

The bank and its officers did not verify the loans to their client

resulting to an unauthorized loan granted to them. Maria Victoria

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Lopez, the Vice President of the Corporate Service Unit, takes too

much control to the extent that she was able to manipulate the

processing of loans. Lastly, the internal control of the company was

not enough to identify falsified documents.

B. FINDINGS

The study reveals as to the reason on how Maria Victoria Lopez

violates different laws and regulation. It as well gives an importance of

having a strong internal control that would decrease the chances of

committing fraud of an employee.

B.1. Negotiable Instruments Law and the Civil Code

A falsified promissory note violates the definition of a Contract

in our Civil code in which a promissory note is a kind of contract

whereby there should be a meeting of the minds between two

persons whereby one binds himself, with respect to the other, to give

something or to render some services. According also to Article 1317

of the Civil Code, “No one may contract in the name of another

without being authorized by the latter, or unless he has by law a

right to represent him. A contract entered into in the name of

another by one who has no authority or legal representation, or

acted beyond his powers, SHALL BE UNENFORCEABLE, unless it

is ratified, expressly or impliedly, by the person on whose behalf it

has been executed, before it is revoked by the other contracting

party”. One of the elements of a contract is consent, in accordance

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with Article 1318 par 2 of the Civil Code, which is not present.

Therefore, the loans issued by the bank turned out to be fictitious

and unenforceable, since it is not ratified and as confirmed by the

Universal Robina Corporation. The promissory note cannot be

negotiated. Section 23 of the Negotiable Instruments Law also states

that “When a signature is forged or made without the authority of

the person whose signature it purports to be, it is wholly inoperative,

and no right to retain the instrument, or to give a discharge therefor,

or to enforce payment thereof against any party thereto, can be

acquired through or under such signature unless the party against

whom it is sought to enforce such right is precluded from setting up

the forgery or want of authority”. Since Lopez forged the signature,

it is wholly inoperative and so no right can be acquired from URC

through the forged signature. It is the unauthorized signature that

is declared inoperative. In other words, rights may still exist and be

enforced by virtue of such instrument as to those whose signatures

thereto are found to be genuine. Therefore, these facts would result

to the promissory note being considered as unenforceable contract

due to the fact that it is an unauthorized contract. Consequently,

the promissory note falsified by Maria Victoria Lopez is

unenforceable. The promissory note is not binding against Universal

Robina Corporation and the corporation is not obliged to pay the

sum of money worth Php 900 million and Php 850 million.
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B.2. Falsification of Commercial Documents

The falsification of promissory note also violates Article 172 of

Revised Penal Code of the Philippines which includes acts such as

Counterfeiting or imitating any handwriting, signature or rubric and

causing it to appear that persons have participated in any act or

proceeding when they did not in fact so participate which are

enumerated in Article 171 that would qualify as an act of

falsification. Maria Victoria Lopez together with her companion

clearly violates this article.

B.3. General Banking Law of 2000

The principle of good banking conduct is rooted in public trust

and confidence. This is why Metrobank believes that compliance is

the responsibility of everyone in the organization. Consistent with

its mandate to create a robust compliance culture, the Bank ensures

that the entire organization from the Board of Directors, Senior

Management and employees consistently complies with applicable

laws, rules, regulations and standards. Maria Victoria Lopez failed

to showcase this trait. The accused persons violated the Professional

Code of Ethics and the business’s code of conduct – Integrity and

Conflict of Interest, wherein a professional/employee must maintain

the integrity at work at all times and must free himself/herself from

any conflicts of interest. The company also violated its policies and

core values which is to serve a unique banking experience in a clean,

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comfortable, orderly and safe environment, contrary to their tagline

“You’re in Good Hands”. She violated the General Banking Law of

2000 which contains the prohibited transactions that a bank or its

officers should not enter into such transaction. According to Sec

55.1(a) of R.A. 8791, “No director, officer, employee, or agent of any

bank shall make false entries in any bank report or statement or

participate in any fraudulent transaction, thereby affecting the

financial interest of, or causing damage to, the bank or any person”.

The said provision is one of the Prohibited Transactions involving

personnel/s of a bank. Maria Victoria Lopez used the name of

Universal Robina Corporation without any authorization to get a

loan from Metro Bank. It is a clear indication of self-interest on the

part of Lopez. It caused damage to Universal Robina Corporation

due to unawareness that the account is being used for fraud and

having the loan under its name without any proceeds or benefits

gained from the transaction. If there are connivance with other

employees, those employees are also liable for the fraud.

B.4. Internal Control Weakness

Furthermore, the bank president, Fabian S. Dee, along with

the bank officer who was in charge in opening the bank accounts

where the proceeds of the fictitious loans were transferred to, failed

to perform adequate oversight that led to the embezzling of the

P1.75B. This is a clear indication that there is negligence especially

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on the part of the bank officer in monitoring and evaluating whether

the transaction is valid or not.

SEC 40 of R.A. 8791 states that “Before granting a loan or

other credit accommodation, a bank must ascertain that the debtor

is capable of fulfilling his commitments to the bank. Toward this

end, a bank may demand from its credit applicants a statement of

their assets and liabilities and of their income and expenditures and

such information as may be prescribed by law or by rules and

regulations of Monetary Board to enable the bank to properly

evaluate the credit application which includes the corresponding

financial statements submitted for taxation purposes to the Bureau

of Internal Revenue. Should such statements prove to be false or

incorrect in any material detail, the bank may terminate any loan or

other credit accommodation granted on the basis of said statements

and shall have the right to demand immediate repayment or

liquidation of the obligation”. Though Universal Robina Corporation

is one of the largest food and beverage companies in the Philippines,

it is not safe to assume that it has liquid assets to sustain the

requirement of R.A. 8791. As stated, banks may require financial

statements to see the capabilities of the client. As an addition,

financial statements are also evidence of interest in the company.

Therefore, the company’s rules with regards to verification is weak.

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C. RECOMMENDATION

Metrobank should put in place stricter internal controls to

prevent crime and untoward incidents that may disrupt operations or

may harm the clients. They should also look into the adequacy and

effectiveness of the controls being used by the bank to prevent

electronic fraud.

In our case, in order to prevent such fraud to happen again, the

bank should establish a stricter policy regarding the verification of

loans of large corporation especially the use of promissory note which

is susceptible to falsification.

The bank must also hire a more competent and knowledgeable

officer in order to prevent, detect or at least minimize fraudulent

transactions arising from falsification or forging of checks and other

bank documents. Lastly the bank should enhance their protocols to

improve corporate governance, credit administration, internal controls

and audit, risk management, and customer onboarding and monitor to

prevent a repeat of the case.

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CHAPTER V
SUMMARY AND CONCLUSION

The Metropolitan Bank & Trust Co. (Metrobank) was founded and

incorporated in Binondo, Manila by George Ty and a group of Filipino

businessmen for a purpose of providing financial services to the Filipino-

Chinese community. The services of Metrobank are safekeeping money,

provision of checkbooks as an alternative mode of payment, loaning and

ATM services. As of December 31, 2017, on a consolidated basis,

Metrobank has over 950 domestic branches, over 2,300 ATMs and over 30

international branches, subsidiaries and offices in Hong Kong, London,

Tokyo, Seoul and many more.

Last July 17, 2017 the vice president of Metrobank's Corporate

Service Unit, Maria Victoria Lopez, was arrested for allegedly embezzling

two loans amounting to P1.75 billion. The fraudulent act was done through

falsification of commercial documents such as manager's check,

promissory notes and others.

The findings gathered in this study are as follows:

The accused person violated the Article 1403 and 1317 of the Civil

Code, Article 172 of Revised Penal Code of the Philippines and Republic

Act No. 8791. She also engaged in the activity of forgery which is against

our law

For our conclusion, we believe that there's a possibility of

connivance between the accused person and one or more of the employees

of defrauded entity or the Metrobank itself. At present, this case is not yet
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been resolved and the findings in the investigation is note disclosed in

public.