[Analysis] The debate on Rappler's ownership

ARCHIVE: Rappler X will be closing down, and articles there will be transferred here.

Updated January 23rd 2018, 2:41:25 am​

Here's why freedom of the press is still a valid argument in the case of Rappler

MANILA, Philippines — Philippine online news agency Rappler's license to operate was revoked on January 11, facing allegations that they are "fully owned by Americans," which is a violation of the Constitution.

The Securities and Exchange Commission (SEC) claimed that Rappler violated the Constitutional restriction on foreign ownership of media entities. The en banc decision came out only a day after NBI sent 3 subpoenas to Rappler resulting from cybercrime complaints from a businessman.

The Department of Justice (DOJ) on the other hand is formulating a case grounded on the Anti-Dummy Law, as well as "other laws." Justice secretary Vitaliano Aguirre II authorized the National Bureau of Investigation (NBI) to probe Rappler for other violations and possibly file criminal charges against the news agency.

In the meantime, Rappler resumes its operations as it appeals to reverse the SEC's decision.

Here's where the two sides clashed: the provision in Omidyar's Philippine Depository Receipts (PDR), and SEC's highly prioritized decision to revoke its Certificate of Incorporation.

Philippine Depository Receipts

Financial instruments called PDRs are used by Philippine companies to gain foreign investments without granting them ownership, voting rights, or influence in corporate management.

An analogy was presented about PDRs: Rappler CEO Maria Ressa said in a presscon that it is like betting in a horseracing competition. Foreign investors are the bettors and companies are the horses. Bettors do not have a say in what a horse eats and who rides it.

However, SEC pointed out a particular clause in the Omidyar PDR that they believe violated the Costitution: Rappler has to seek approval of the Omidyar Network (ON) PDR Holders on corporate matters.

“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, modify, alter, or otherwise change the Company 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; xxx”

Rappler's lawyer Francis Lim clarified that the 12.2.2 clause only gives Omidyar a ground to give up its investments in case of changes in Rappler's corporate matters. The provision does not give the foreign investor a veto power. A lawyer said that the SEC might have exaggerated the implications of the provision. Another lawyer said that the basis of the decision is “unduly indiscriminate.”

Former SEC Commissioner Raul Palabrica wrote an Inquirer piece explaining the nature of PDRs. He clarified that the provision in the Omidyar PDR is standard in financial agreements to assure the investor that the debtor will refrain from "engaging in acts that may impair its ability to meet its financial obligations."

"The clear intent of this clause is to bar [Rappler Holdings Corp.] (RHC) from doing anything that may prejudice the financial interests of Omidyar or make it difficult for RHC to comply with its obligations under the PDR agreement, not to exercise any modicum of control over RHC," said Palabrica.

Simply put, Omidyar is given the "power to leave" if they do not like what Rappler is doing.

It should also be considered that Omidyar Network was willing to waive the provision in their PDR, but the SEC decision stated that they received only a photocopy of the waiver, and it was not subscribed by a notary or a Philippine consulate yet.

"It is obviously inadmissible, a mere scrap of paper… Therefore, the purported waiver is of no substantial value to the formal proceedings against the respondents," the decision stated.

SEC had already accepted the Omidyar-related documents in 2015, and Rappler questioned why a case is being pursued only now, inferring that the decision is politically motivated.

Philippine President Rodrigo Roa Duterte had accused the news agency of being foreign-owned, and the SEC received a letter on December 22, 2016 from the Office of the Solicitor General requesting to investigate “any possible contravention of the strict requirements of the 1987 constitution.” Now, DOJ is building on a case to prove that Rappler circumvented the Constitution, and NBI summons Ressa and a former Rappler reporter over a cybercrime complaint. (READ: Lies about foreign ownership a form of harassment)

“Even influential media outfits cannot skirt restrictions set forth in the Constitution. Rappler is free to seek redress before our courts. OSG is ready to defend the SEC Decision in any forum," Solicitor General Jose Calida said.

Circumvention of 1987 Constitution

The ongoing jingle of Aguirre as well as The Manila Times and two of its pro Duterte columnists Antonio Contreras and Sass Rogando Sasot, says that this is a case of Rappler maneuvering through loopholes in the Constitution.

In its defense, Rappler mentioned the Gamboa v. Teves case in 2011, where SC decided that in the ownership requirement stipulated in the 1987 Constitution, “capital” only meant shares of stock entitled to vote in the election of directors.

When SEC imposed standards on the term “foreign ownership,” it cited Rule 3.1.8 of the 2015 Implementing Rules and Regulations of the Securities Regulation Code that defined “Control” as the power to determine the financial and operating policies of an entity in order to benefit from its activities. The SEC decision argued that the broad definition was intentional and is not referring to only (a) ownership of shares of stock, and (b) management as director or officer.

However, the SEC Memorandum Circular No. 8 series of 2013 specified that “Filipino ownership” percentage covers: (a) total number of outstanding shares of stock entitled to vote in the election of directors, and (b) total number of outstanding shares of stock, whether or not entitled to vote in the election of directors.

Therefore, it affirmed the Supreme Court (SC) decision in 2011 that “capital” as mentioned in the Constitution refers “only to shares of stock entitled to vote in the election of directors.”

Moreover, it was SEC’s decision that corporations that are non-compliant to the ownership requirement must be given a one-year period to comply.

Rappler, then, is 0% owned by foreigners.

Conclusion

It must be celebrated that the SEC is doing its responsibility fairly well, but nonetheless should have exercised a balanced ruling that maintains a healthy relationship between the government and the media. (FAQs: Rappler's SEC case)

As respect to the Constitution, SEC should have taken into consideration Article 3 of the Bill of Rights, which states:

Article III. Bill of Rights. Section 4. No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people peaceably to assemble and petition the government for redress of grievances.

On the other hand, Rappler should also address the other provisions in the PDR that, according to SEC, grants control to Omidyar Network Fund LLC. These provisions are not contained in North Base Media’s PDRs, another foreign investor. And as also stipulated in the Constitution:

Article XVI. General Provisions. Section 11 (1). The ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations, wholly owned and managed by such citizens.

But then again, how can an online news agency be assured that local investments do not have vested interests? Facing issues of underpaid journalists and bribed reporters, support for globally expanding and technologically advanced independent journalism is imperative for the growth of democracy and the free press.(READ: Why Would Anyone Invest in Rappler if it's Losing Money?)

One question that floats in the still water is: who are the local investors that the SEC — and the Philippine government for that matter — expect to fund Rappler?

SEC should have allowed Rappler to fix what it sees as irregularities. It remains that Rappler is a news organization protected by the country’s pro-democracy Constitution. Given the political climate and consistent government propaganda against the media, it is evident that the SEC decision is motivated by political agendas. (EXPLAINER: How SEC's Rappler decision is a test case for press freedom)

Once Rappler closes down, it becomes an issue of press freedom.