Economic Governance Watch 04-2021 - SI 127 of 2021

ECONOMIC GOVERNANCE WATCH  4/2021

3rd June 2021

SI 127 of 2021

SI 127 of 2021 – or the Presidential Powers (Temporary Measures) (Financial Laws Amendment) Regulations, 2021, to give it its full name [link] – was published on the 26th May and has caused consternation in the business community, with fears that it will lead to price controls, shortages and economic collapse.  In this bulletin we shall not try to predict its economic effects but shall simply outline its provisions and explain their legal implications.  We shall also express our doubts about the validity of the SI.

The SI was made under the Presidential Powers (Temporary Measures) Act, which empowers the President to make regulations amending Acts of Parliament.  Regulations expire after six months, by which time it is to be supposed that Parliament will have enacted permanent legislation to replace the regulations.  Later in this bulletin we shall go into the question whether the President really can amend Acts of Parliament in this way.

If SI 127/2021 is valid, in broad terms, it amends the Exchange Control Act and the Bank Use Promotion Act, inserting a Schedule into each Act permitting heavy administrative penalties to be imposed for breaches of specified provisions of the Act.  We shall deal with the amendments to each Act in turn.

Amendments to the Exchange Control Act

The SI amends the Exchange Control Act by inserting a new section 5(4e) which states that a breach of any provision of the Act, or of any regulation made under the Act, or a breach of any condition of a permit or authority issued under the Act, will not only be a criminal offence but will also be a “civil default” for which a civil penalty may be imposed under the new Schedule which the SI inserts in the Act.

The new Schedule is not so far-reaching however, and provides for designated officers of the Reserve Bank to impose civil penalties for only five “civil infringements” [the difference, if any, between a civil default and a civil infringement is not explained].  These civil infringements, and the civil penalties that may be imposed for them, are:

  1. Using foreign currency obtained from a RBZ foreign exchange auction for a purpose different from the one specified in the application to take part in the auction.

Civil penalty:  a fixed penalty of ZW$1 million or an amount equal to the value of foreign currency obtained, whichever is greater, plus an additional 5 per cent of the fixed penalty for each day it is unpaid, up to a maximum of 90 days.

  1. A seller of goods or a provider of services refusing to accept payment for the goods or services in Zimbabwe dollars at the official exchange rate, unless the seller is authorised to charge for them exclusively in foreign currency.

Civil penalty:  a fixed penalty of ZW$50 000 or an amount equivalent to the foreign currency value of the goods or services, whichever is greater, plus an additional 5 per cent of the fixed penalty for each day it is unpaid, up to a maximum of 90 days.

  1. An authorised dealer (i.e. a bank or bureau de change) submitting an application for foreign currency to the Reserve Bank without exercising “reasonable due diligence” to verify that the information in the application is correct, if the application contains information which the dealer knew or should have known was false.

Civil penalty:  a fixed penalty of ZW$5 million plus an additional 5 per cent of the fixed penalty for each day it is unpaid, up to a maximum of 90 days.

  1. Selling goods or providing services at an exchange rate above the official rate, or imposing a premium of Zimbabwe dollar payments or giving a discount on foreign currency payments.

Civil penalty:  a fixed penalty of ZW$50 000 or an amount equivalent to the foreign currency charged for the goods or services, whichever is greater, plus an additional 5 per cent of the fixed penalty for each day it is unpaid, up to a maximum of 90 days.

  1. A seller of goods or provider of services issuing a receipt in Zimbabwe dollars for a payment that was made in foreign currency, or recording sales in a different currency from that in which they were conducted.

Civil penalty:  a fixed penalty of ZW$50 000 or an amount equivalent to the foreign currency value of the goods or services, whichever is greater, plus an additional 5 per cent of the fixed penalty for each day it is unpaid, up to a maximum of 90 days.

Civil penalty orders are issued and served on defaulters by the Reserve Bank’s designated officers, and defaulters are given 48 hours in which to show cause why the orders should not have been issued.  If a defaulter satisfies a designated officer that he or she needs more time to show cause, the 48-hour period can be extended and a formal meeting held to decide whether or not the order should be issued.  Civil penalties are debts due to the Reserve Bank and must be paid within 90 days;  if they are not the defaulters – and in the case of a company all its officers – are guilty of a criminal offence.

Points to note:

Civil penalties are fixed, as indicated above, and are enormous.  There is no provision for smaller penalties to be imposed for less serious defaults.

Civil penalties can be imposed irrespective of whether defaulters are prosecuted criminally for their defaults, so a defaulter who is prosecuted may be liable to pay a fine as well as a civil penalty.

If a company or other corporate entity commits a civil default, a civil penalty can, at the discretion of a designated officer, be imposed on all the officers of the entity.  In that event the officers are all deemed to be in default and are jointly and severally liable to pay the penalty.  There is no provision for them to avoid liability by showing they were not involved in the default.

Ignorance of the law and impossibility of complying with it are not excuses justifying withdrawing a civil penalty order.

The decision to impose a civil penalty order and on whom to impose it, and the decision to withdraw it because the alleged defaulter has shown cause why it should not be imposed, are all made by a designated officer – apparently the same one.  There is no provision for an appeal from or review of his or her decisions.

The Minister of Finance can amend the Schedule by statutory instrument, but before doing so he must lay the draft SI before the National Assembly and must not publish it if the Assembly resolves he should not do so.

Amendments to the Bank Use Promotion Act

The SI makes very similar amendments to the Bank Use Promotion Act.  A schedule is inserted in the Act allowing designated officers of the Reserve Bank to impose civil penalty orders on people who contravene provisions of the Act.  In this case the provisions are:

  1. Failing to open a bank account in contravention of section 10 of the Act, which requires traders registered under the Value Added Tax Act, parastatals and moneylenders (not banks) to open bank accounts.

Civil penalty:  a fixed penalty of ZW$20 000 plus ZW$10 000 for each day the defaulter fails to pay the fixed penalty, and a further ZW$20 000 for each day, up to 90 days, that the defaulter fails to open a bank account.

  1. Failing to allow customers to pay by electronic means in contravention of section 10A of the Act, which requires State agencies, local authorities, traders registered under the VAT Act and moneylenders to accept payment for goods and services by electronic means.

Civil penalty:  a fixed penalty of ZW$100 000 plus ZW$10 000 for each day the defaulter fails to pay the fixed penalty, and a further ZW$20 000 for each day, up to 90 days, that the defaulter fails to provide facilities for electronic payments.

  1. Failing to bank surplus cash in contravention of section 11 of the Act, which requires parastatals and traders registered under the VAT Act to bank their surplus cash daily.

Civil penalty:  a fixed penalty equal to the average day’s banking of cash plus, for each day the defaulter fails to pay the fixed penalty, an amount equal to the unpaid amount of the fixed penalty.

  1. Failing to keep records in contravention of section 13 of the Act, which requires parastatals and traders registered under the VAT Act to record their cash transactions.

Civil penalty:  a fixed penalty of ZW$200 000 plus ZW$10 000 for each day the defaulter fails to pay the fixed penalty, and a further ZW$20 000 for each day, up to 90 days, that the defaulter fails to open a bank account.

  1. Failing to comply with a disclosure order under section 18 of the Act, which empowers a unit of the Reserve Bank to issue orders requiring traders, parastatals, financial institutions including banks, and moneylenders to disclose their records and (in the case of financial institutions) their customers’ records.

Civil penalty:  a cumulative penalty of ZW$20 000 for each day the defaulter fails to make the required disclosure.

The provisions for serving civil penalty orders, for showing cause why an order should not be issued, and for enforcing orders, are the same as we mentioned above in regard to the new Schedule inserted in the Exchange Control Act.

Is SI 127 of 2021 Valid?

There are several grounds on which the provisions of the SI can be challenged – and, in Veritas’s view, validly challenged:

First of all, the SI is made under the Presidential Powers (Temporary Measures) Act, which is itself unconstitutional in that it gives plenary or primary law-making power to the President, something which is not allowed by section 134 of the Constitution.

Secondly, in so far as the SI purports to amend the Exchange Control Act, that Act is itself unconstitutional in that it too gives the President plenary or primary law-making powers.

Thirdly, the SI purports to amend two Acts of Parliament, something which at least one judgment of the High Court has held to be illegal.

Fourthly, the civil penalties are imposed without a court being involved at any stage.  They arguably amount to a compulsory deprivation of property in breach of section 71 of the Constitution.

Next, the provisions for civil penalty orders in both the new schedules can be challenged as grossly unreasonable on any of the first five grounds we set out above under the heading “points to note” when we were dealing with the new schedule in the Exchange Control Act.  To summarise those points:

The civil penalties are fixed and excessive, and make no allowance for minor defaults.  Moreover, they can be imposed in addition to criminal penalties.

All employees of a company that commits a civil default can have civil penalty orders imposed on them individually, regardless of whether they had anything to do with the default.

Impossibility of complying with the law is no defence to a civil penalty order, nor is ignorance of the law.

The same Reserve Bank designated officer who imposes a civil penalty order decides whether or not he or she was justified in imposing it:  the officer is judge in his or her own cause.  There is no appeal against his or her decision.

Comment

SI 127 of 2021 is yet another example of the Ministry of Finance’s fondness for legislating by statutory instrument, which is just one step away from legislating by decree.  Important changes to the laws regulating our economy are published in the Gazette without warning and often without adequate thought about their long-term consequences.  By enacting the changes as statutory instruments the Ministry avoids going to Parliament, where his proposals may be subjected to scrutiny, debate and criticism.  The result, all too often, is bad law.  SI 127 is certainly bad law, as we have shown – and we have not even considered its possible effect on the economy.

 

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2021