May Red Cross be audited by the Government?

In an article by the ABS-CBN News, it is reported that: "President Rodrigo Duterte wants the Commission on Audit (COA), an independent constitutional body, to look into the finances of the Philippine Red Cross, a non-government humanitarian organization. This, after Duterte lashed out at PRC chairman Sen. Richard Gordon, and accused him of using the Red Cross for his political career."[1]It is argued by many that the Philippine National Red Cross (PNRC) cannot be audited by the Government, especially through COA, because it "cannot be owned or controlled by the government. Indeed, the Philippine government does not own the PNRC," citing a 2009 decision by the Supreme Court. However, this conclusion may be inaccurate.

In a 2011 resolution involving the same case,[2] the Supreme Court held that the PNRC is "not strictly in the nature of a private corporation contemplated by the [xxx] constitutional ban" on creation of private corporations via a special law.[3] In fact, the dispositive portion of said 2011 resolution states: "WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution."

Note that the resolution says: "for purposes of" which limits the extent to which the PNRC can be considered not a government-owned and controlled corporation (GOCC).

The flaw in the sweeping argument that the PNRC absolutely cannot be audited by the Government stems from a misunderstanding of the main issue and the ratio decidendi in the 2011 case of Liban v. Gordon.[4] In that case, the issue was whether the PNRC can be considered a GOCC for purposes of the constitutional proscription against incompatible offices,[5] not for audit and other purposes. Although the Supreme Court may sooner or later decide that the PNRC cannot be audited by the Philippine Government, the 2009 decision cannot at this moment be used as a basis in concluding so or in making sweeping statements about the issue.

The 2009 decision stemmed from a petition that petitioners Dante Liban, et al (Liban, et al) filed with the Supreme Court to declare respondent Senator Richard J. Gordon (Sen. Gordon) as having forfeited his Senate seat under Section 13, Article VI of the 1987 Constitution. Sen. Gordon had been elected Chairman of the Board of Governors of the PNRC, which the Court classified in Camporedondo v. NLRC[6] as a GOCC. Consequently, it was argued that Sen. Gordon automatically forfeited his Senate seat for holding an incompatible office in a GOCC.

On July 15, 2009, the Court rendered a decision partially voiding Republic Act 95 (R.A. 95), the charter that created the Philippine National Red Cross (PNRC) as amended by Presidential Decrees 1264 and 1643 (P.D. 1264 and 1643). The Court ruled that Congress enacted the PNRC Charter in violation of Section 7, Article XIV of the 1935 Constitution, which states:
SEC. 7. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof.[7]
The Court based its decision on a finding that the PNRC is a private corporation which Congress could not create by special law. According to the Court, like any other private corporation, the PNRC can only be formed and organized under a general enabling law like the Corporation Code.

Prompted by a motion for reconsideration, however, in 2011, the Supreme Court modified its decision and deleted the second sentence of the fallo in the 2009 decision that says: "We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC as a private corporation or grant it corporate powers." Therefore, what is left in the 2011 decision's fallo is: "WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution."

In the 2011 decision, the Supreme Court recognized the special (sui generis) status of the PNRC under international humanitarian law. The Court did not declared the PNRC as a private corporation. In fact, it was held that: "The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can neither be classified as an instrumentality of the State, so as not to lose its character of neutrality as well as its independence, nor strictly as a private corporation since it is regulated by international humanitarian law and is treated as an auxiliary of the State."[8]

Based on the above, it was established that the PNRC was of a sui generis status. "Although it is neither a subdivision, agency, or instrumentality of the government, nor a government-owned or -controlled corporation or a subsidiary thereof [xxx], so much so that [Sen. Gordon], under the 2009 Decision, was correctly allowed to hold his position as Chairman thereof concurrently while he served as a Senator, such a conclusion does not ipso facto imply that the PNRC is a "private corporation" within the contemplation of the provision of the Constitution, that must be organized under the Corporation Code. As correctly mentioned by Justice Roberto A. Abad, the sui generis character of PNRC requires us to approach controversies involving the PNRC on a case-to-case basis."

Therefore, not being strictly a part of the Government and not being strictly a private corporation, it cannot be concluded with finality that any issue involving the PNRC is one way or another. As mentioned, the approach must be on a case-to-case basis. As to the audit by the Government of the PNRC, being a creation of Republic Act No. (RA) 95 repealed by RA 10072,[9] there is enough room to argue that the same can be done because the PNRC is an "auxiliary of the State." 

Justice Nachura has offered the view that, at the very least, the PNRC should be regarded as a government instrumentality under the 1987 Administrative Code. An instrumentality "refers to any agency of the National Government not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter." The PNRC's organizational attributes, said Justice Nachura, are consistent with this definition.[10]

Although Section 3 of the Philippine Red Cross Act of 2009 states that the PNRC is an "independent and autonomous nongovernmental society," the same provision recognizes that it is "auxiliary to the authorities of the Republic of the Philippines." Moreover, the authority of the COA to audit extends to "the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters."[11] It is undisputed that a law (original charter) created the PNRC.

On the other hand, an argument can be made for the view that the PNRC cannot be audited by the Government because of its independent and autonomous as recognized by law and the fact that it "does not have government assets and does not receive any appropriation from the Philippine Congress."[12] The PNRC is financed primarily by contributions from private individuals and private entities obtained through solicitation campaigns organized by its Board of Governors, as provided under Section 11 of the PNRC Charter.[13]

But then again, to say that the PNRC cannot be audited by the Philippine Government because it is a private corporation may open a can of worms. "Justice Nachura finally warns against the PNRC's ultimate demise if it were regarded as a private corporation. Because of possible violations of the equal protection clause and penal statutes, the PNRC may no longer be extended tax exemptions and official immunity or be given any form of support by the National Government, local government units, and the Philippine Charity Sweepstakes Office (PCSO). If the PNRC is consequently obliterated, the Philippines will be shirking its obligations under the Geneva Conventions."[14]
[1] Duterte wants COA to audit Philippine Red Cross. ABS-CBN News. Posted at Sep 03 2021 01:08 AM | Updated as of Sep 03 2021 02:40 AM. https://news.abs-cbn.com/spotlight/09/03/21/duterte-wants-coa-to-audit-philippine-red-cross.


[3] Section 16 of Article XII of the 1987 Constitution which says: "The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability."

[4] Supra note 2.

[5] Section 13, Article VI of the 1987 Constitution

[6] Camporedondo v. National Labor Relations Commission, 370 Phil. 901 (1999).

[7] A provision that still exists under the 1987 Constitution. See note 3.

[8] Philippine Red Cross Act of 2009.

[9] Id.

[10] Justice Abad's concurring opinion in supra note 2.

[11] Section 2, Article IX-D, 1987 Constitution.

[12] G.R. No. 175352, July 15, 2009.

[13] Id.

[14] Supra note 10.