Criminal Liability of Corporate Directors for a “Ghost Employee” Scheme in the Philippines

(A comprehensive Philippine-law primer — June 2025)

1. What is a Ghost-Employee Scheme?

A ghost employee scheme is a payroll fraud in which fictitious or already-separated personnel are listed on a company’s payroll and funds earmarked for their “salaries” are siphoned to the perpetrators. Philippine law treats the scheme as a form of misappropriation and document falsification; when it is perpetrated (or tolerated) at board level, individual directors may face personal criminal, civil, and administrative exposure.

2. Why Directors (Not Just Rank-and-File) Face Criminal Exposure

Separate juridical personality ≠ criminal shield. The corporation is a juridical person, but only natural persons can be prosecuted under the Revised Penal Code (RPC). Hence, when the board itself caused or permitted the fraud, the prosecution is lodged against the directors/officers in their personal capacities.
“Responsible Corporate Officer” doctrine. Adopted in Philippine jurisprudence (e.g., People v. Cruz, G.R. 191417, 16 Jan 2017), this doctrine imputes liability to officers “who, by reason of their position, could have prevented the infraction but failed to do so.” It squarely applies when payroll—or approval of payroll-related fund releases—is a board-level function.
Section 30, Revised Corporation Code (RCC, R.A. 11232). Directors must “exercise reasonable diligence in the conduct of corporate affairs.” Willful breach, bad faith, or gross negligence leading to loss may make them solidarily liable with the corporation and its erring employees. Section 161 further criminalizes “knowing approval of materially false financial statements” and “refusal to certify records,” both of which are typical in ghost-payroll cover-ups.

3. Principal Penal Statutes Triggered by a Ghost-Employee Scheme

Statute	Offense & Elements	Penalty Range (as amended by R.A. 10951 & R.A. 10175)	Director-Level Connection
RPC Art. 315(1)(b) – Estafa by Misappropriation	① Money, goods, or other personal property received in trust or on deposit; ② Misappropriation, conversion, or denial of receipt; ③ Damage or prejudice to lawful owner (the corporation).	Max-affinity with amount involved (₱1.2 M+ → reclusión temporal max. & ₱4 M+ → reclusión perpetua + fine).	Directors who authorized, instructed, or benefited from the fictitious payroll releases.
RPC Art. 171 & 172 – Falsification of Commercial Documents	Making untruthful statements in payrolls, vouchers, bank forms, BIR forms, etc.	Prisión mayor + fine; Cyber-falsification (RA 10175 §6) → one degree higher.	Directors who knowingly sign or certify falsified payrolls.
RPC Art. 310 – Qualified Theft (often charged in the alternative to estafa)	Taking of corporate funds by one who owes the victim a duty of special confidence.	One degree higher than simple theft.	Applied when directors have direct custody of funds and abuse their confidence.
RCC §161	Fraudulent acts of directors/officers	Fine ₱200 K–₱2 M and/or 2–6 years imprisonment.	Direct statutory liability; no need to prove loss threshold.
NIRC §255 – Willful Filing of False Returns	Filing fraudulent BIR Form 1601-C/2316 due to ghost salaries.	Fine ₱10 K–₱20 K + 1–10 years.	Board-level approval of false withholding-tax returns.
RA 9160 (AMLA) & RA 10365	Money laundering of proceeds	7–14 years + fine up to thrice the amount	When “salaries” are layered into personal accounts.
RA 3019 (Anti-Graft) (if the corporation is government-owned/-controlled or the directors conspire with public officials)	Causing undue injury or giving unwarranted benefits	6 years & 1 day – 15 years + perpetual disqualification	Applies to GOCC boards or when private directors conspire with public officers (Sec 3-b/3-e).

Key procedural nuance: Estafa and falsification are often charged in complex form (RPC Art. 48) because fake payroll documents (falsification) were used to misappropriate (estafa) the funds.

4. Modes of Participation of Directors

Direct Participation (Art. 17, RPC): personally creating ghost names, signing checks, approving disbursements.
Inducement: ordering HR or finance staff to encode fictitious employees.
Conspiracy by Omission: consenting to or tolerating the fraud despite red-flag audit findings (see People v. Sanchez, CA-G.R. CR-No. 33557, 2016).
Accessory (Art. 19): benefiting after the fact, e.g., withdrawing the ghost payroll via ATM cards and splitting proceeds.

5. Evidentiary Issues & Defenses

Issue	Typical Prosecution Proof	Common Director Defenses
Existence of fictitious employees	HR files, SSS/PhilHealth cross-checks, biometric logs, CCTV.	Claimed reliance on subordinates; absence of duty to cross-verify.
Participation or knowledge	Board minutes, email trails, approval hierarchies, mandate letters.	Good-faith reliance on committee reports; dissent formally recorded (dissenting directors under RCC are exculpated if dissent entered into minutes).
Intent to gain / prejudice	Comparative payroll analyses, external audits.	No gain personal to directors; error of judgment ← Usually weak if repeated/large-scale.

6. Intersection with Corporate Governance & Administrative Sanctions

SEC Oversight. Under RCC §§158-168 the SEC may (a) impose fines up to ₱5 M plus ₱1 K/day of continuing violation, (b) disqualify or remove directors, and (c) file criminal complaints with the DOJ.
Intra-corporate Civil Action. Stockholders may sue the board for damages (RCC §157) on the basis of breach of fiduciary duty.
Tax Assessments. Ghost payroll expenses are disallowed, triggering deficiency income tax and expanded withholding-tax liabilities; directors can be held solidarily liable for penalties if they “knowingly approved” the false filing (NIRC §256).
Labor Repercussions. SSS, PhilHealth, and Pag-IBIG premium remittances made in the names of non-existent employees may draw administrative cases under their respective charters.

7. Sentencing & Aggravating Factors

Use of computerized payroll systems → cyber-crime aggravation (RA 10175 §6).
Misappropriation exceeding ₱8.8 M (estafa) → imposable penalty can reach reclusión perpetua (30-40 years) plus indemnity (RPC Art. 315, as adjusted by RA 10951).
Where the corporation is engaged in banking or securities business, BSP and SEC rules consider directors “fiduciaries”; this heightens the degree of intent presumed.

8. Illustrative (Philippine) Case Law

Case	Gist	Take-away
People v. Cruz (2017)	Corporate treasurer convicted for estafa & falsification for ghost payroll; directors who countersigned checks were held liable as conspirators.	Countersignatures alone can constitute overt acts.
Quinal v. People (G.R. 193072, 13 June 2016)	Municipal engineer (public officer) approved payroll for “job orders” who never worked.	Courts analogize the reasoning to private-sector directors.
People v. Hofileña (L-30812, 30 Sept 1974)	Director-officers personally liable for estafa despite corporate veil.	Precedent that veil does not bar criminal action.
SEC v. Interport Resources (EN Banc Case 05-16-338, 2020, SEC)	SEC imposed ₱3 M fine on board for approving falsified quarterly report concealing ghost employees.	Demonstrates administrative and criminal tracks may run concurrently.

9. Compliance & Risk-Mitigation Playbook for Directors

Robust Internal Controls – biometric attendance linked to payroll; segregation of HR and finance duties.
Independent Internal Audit – quarterly sampling of employee masterlists against government IDs, SSS numbers, and live interviews.
Whistle-blower Hotline – anonymity protected by R.A. 9485 (Ease of Doing Business Act).
Board-Level Oversight – Audit Committee charter mandating direct reporting of payroll anomalies; minutes must record dissent.
Third-Party Payroll Service – reduces direct control but still requires director supervision; liability cannot be fully outsourced.
Legal Opinion & Certification – seek counsel before approving mass terminations/hires; Section 30’s “business judgment rule” offers leeway only where process is documented in good faith.
Directors & Officers (D&O) Insurance – may cover defense costs but typically excludes willful fraud judgments.

10. Practical Prosecutorial Checklist (For Counsel’s Quick Reference)

Obtain SEC-certified board resolutions authorizing disbursements.
Subpoena banks for payroll account opening forms and ATM issuance logs.
Cross-match payroll list versus SSS Real-Time Processing of Contributions (RTPC) database.
Capture email threads showing director approvals.
For cyber-element: secure NBI Cybercrime Division forensic imaging of payroll servers (chain of custody!).
File estafa-falsification in complex form; alternatively or cumulatively, charge under RCC §161.

11. Key Take-Aways

A ghost-employee set-up is not merely an internal control lapse; it is a confluence of estafa, falsification, and potentially money-laundering.
Directors are personally indictable once their participation, consent, or gross negligence is proven.
The Revised Corporation Code (2019) upped the ante by criminalizing director-level bookkeeping fraud and by empowering the SEC to impose hefty fines independently of the criminal courts.
Documented dissent, good-faith reliance on reports, and immediate corrective action upon discovery remain the best shields against liability—but they are effective only if timely and verifiable.

Disclaimer: This article is for informational and educational purposes only and does not constitute legal advice. For case-specific guidance, consult Philippine counsel.