Recent developments

The Philippine Securities and Exchange Commission (“SEC”), in an En Banc decision dated 11 January 2018 (“SEC Decision”), found the internet news media entity Rappler, Inc. (“Rappler”) and its parent company Rappler Holdings Corporation (“Rappler Holdings”) liable for violating the foreign equity prohibition on mass media under the Constitution.

Implications for entities engaged in nationalized activities

The SEC Decision confirms the SEC's previous opinions that "mass media" covers internet and mobile technology platforms that disseminate information, and must be 100% owned and managed by Filipino nationals. It also invalidated the Philippine Depositary Receipts ("PDRs") that Rappler Holdings issued in favor of Omidyar Network Fund LLC ("ON"), a foreign entity, as the SEC considered the PDRs as granting ON some degree of control over Rappler. The SEC declared the ON PDRs void, and revoked the incorporation of Rappler and Rappler Holdings.

While the SEC Decision is not yet final and executory pending review by the appellate court, it reflects the SEC's position that Internet and online media platforms are a form of "mass media", and foreign nationals are prohibited from intervening in the policies, operation and control of an entity that is engaged in a fully nationalized activity in the Philippines.

What the SEC Decision says

Mass Media

Under the Constitution, the ownership and management of mass media are limited to Filipino citizens. However, the Constitution does not define the term "mass media".

Taking into consideration the dynamic characteristic of our Constitution and the intent of the law to dispel foreign influence over public opinion, the SEC interpreted mass media as including internet or online media platforms that disseminate information. It based its position partly on the definition of "mass media" in the Tobacco Regulation Act of 2003, which refers to "any medium of communication designed to reach a mass of people" including "print media such as but not limited to, newspapers, magazines, and publications; broadcast media such as, but not limited to, radio, television, cable television, and cinema; electronic media such as but not limited to the internet.”

While there is no Supreme Court decision on the definition of "mass media" and other existing laws, such as the Mass Media Law and the Consumer Act do not expressly include online media as part of mass media, opinions of administrative agencies such as the SEC carry great weight, and are persuasive in case the issue is brought before the Supreme Court.


The SEC considered the provision in the ON PDRs requiring the approval of PDR Holders holding at least 2/3 of all issued and outstanding PDRs for any amendment to the Articles of Incorporation and By-Laws of Rappler,1 as a form of influence or control by ON, a foreign entity, over Rappler.

According to SEC, control is not limited to stock ownership or management. Even if a nationalized entity is 100% Filipino owned and does not issue dividends to foreign investors, the latter will be considered as having control if it can influence the corporate policies and actions of the former. Such control by a foreign national over the policies and operations of a nationalized corporation violates the Constitution and Philippine laws, including the Anti-Dummy Law and the Foreign Investments Act.

While the ON PDRs were issued by Rappler Holdings, the SEC "pierced the corporate veil" between Rappler and Rappler Holdings and considered both corporations as alter egos of each other, on the grounds that Rappler Holdings owns 98.84% of Rappler, the PDRs were negotiated by their President-in-common, they have interlocking directors and officers, and operate within the same office. Because of this, both corporations were held liable for the violation.

The SEC also found that both Rappler and Rappler Holdings were guilty of securities fraud, as it considered the issuance of the PDRs as an elaborate scheme to circumvent the foreign equity restriction on mass media. The SEC noted that Rappler Holdings was incorporated after the negotiations with ON regarding the PDRs. Rappler then increased its authorized capital stock and sold almost 100% of the shares to Rappler Holdings, to be used by the latter as underlying securities for the ON PDRs.

While the appeal with the Court of Appeals, filed on 29 January 2018, is pending, the SEC Decision does not take into effect. The decision of the Court of Appeals is further appealable to the Supreme Court.

Note on procedure

At the start, the SEC's Company Registration and Monitoring ("CRMD") handled the investigation of Rappler, but eventually a Special Panel was created by the SEC En Banc to conduct a formal investigation. Instead of deciding the issue, it appears that the Special Panel endorsed its findings to the SEC En Banc which ruled on the administrative action at the first instance. Under the Rules, the Operating Department or the Special Hearing Panel is to render a decision on an administrative action. Its decision may be appealed to the SEC En Banc. It is notable that the SEC En Banc did not give Rappler or Rappler Holdings a curing period to remedy the violations.

Actions to consider

In view of the SEC Decision, corporations that are engaged in fully nationalized activities, such as mass media, must be mindful of the prohibition on management, intervention, or control by foreign nationals over their business and operations. In this connection, the Anti-Dummy Law expressly prohibits such intervention by a foreign national, whether as an officer or employee, except as technical personnel whose employment may be specifically authorized by the Department of Justice. For corporations that are engaged in partially nationalized activities, foreign nationals may also become members of the board of directors or governing body of the corporation, in proportion to their allowable participation or share in the capital. Violations of the Anti-Dummy Law are punishable with imprisonment of up to 15 years, fines and forfeiture of the right, franchise or privilege previously granted. Criminal liability may be imposed against presidents, managers or persons in charge of juridical entities.

Any contract or arrangement between foreign entities and Philippine enterprises engaged in nationalized activities (such as mass media) must be reviewed to ensure that they do not grant rights to foreign nationals that are similar to those found in the ON PDRs, which the SEC has considered as amounting to some form of control. It is important to note, nonetheless, that the SEC Decision may not squarely apply to entities engaged in partially nationalized activities (i.e. where a limited foreign equity participation is allowed).

Further, companies that are engaged in nationalized activities must review their disclosures and representations as regards the nature and structure of their business, to ensure that they do not show any foreign control over their activities and operations, except to the extent allowed by law (e.g., participation as members of the board of directors, for partially nationalized entities).

Companies involved in similar proceedings before the SEC should be mindful that the SEC En Banc may rule on an administrative action at the first instance, without waiting for the decision of the concerned operating department / special panel as provided under its Rules of Procedure. They should also not expect that a "curing period" will be given by the SEC after a finding of violations, as it did in this case.


The SEC Decision expands the definition of "mass media" to cover online media and Internet platforms that are used to disseminate information. It strictly interprets when "control" is deemed to exist in the context of a full nationalized entity, and highlights the SEC's power to revoke the registration of corporations that violate the foreign equity restrictions under Philippine law. While opinions and decisions of administrative agencies, such as the SEC, do not have the force of law, they are given high probative value over matters of foreign investments, which are subject to the SEC's regulation. Companies that are engaged in nationalized activities in the Philippines must be mindful of the risks associated with their arrangements that may be shown as allowing foreign participation or control over their activities and operations, in excess of what is allowed under Philippine law.

1The ON PDRs contained the following provision:

    12.2 [Rappler Holdings] undertakes to cause [Rappler] from the date hereof and while the ON PDRs are outstanding: xxx

    12.2.2 not to, without prior good faith discussion with ON PDR Holders and without the approval of PDR Holders holding at least two thirds (2/3s) of all issued and outstanding PDRs, alter, modify or otherwise change [Rappler's] Articles of Incorporation or By-laws or take any other action where such alteration, modification, change or action will prejudice the rights in relation to the ON PDRs;

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