By Melinda Nyakudanga
The Presidential Powers (Temporary Measures) (Financial Laws Amendment) Regulations, 2021 (the Regulations), came into effect on the 28th of May 2021. These Regulations were made in terms of section 2 of the Presidential Powers (Temporary Measures) Act [Chapter 10:20], which allows the President to make urgent regulations when it appears that a situation has arisen which needs to be dealt with urgently in the interests of defense, public safety, public order, public morality, public health, the economic interests of Zimbabwe or the general public interest.
With the prevailing multicurrency environment in Zimbabwe, the government has placed civil penalties for contravention of the Exchange Control Act [Chap 22:05] and the Bank Use Promotion Act [Chapter 24:24] as a way to control market prices and create a fair business environment and protect consumers. This article details the amendments and their implications.
AMENDMENTS TO EXCHANGE CONTROL ACT
- Broadening of Offences and Penalties for all transactions
The Regulations repeal section 5(4)(e) of the Exchange Control Act to the effect that a contravention of any regulations made by the President in terms of the Regulations, or the commission of an act that is similar to any of the offences listed in the Regulations, may be penalised in addition to or alternatively to any other act that attracts a penalty in terms of the Regulations. The essence of the repeal is to broaden the scope for which civil penalties can attach, unlike before where it applied to Regulations relating to Zimbabwe dollar/domestic transactions, it now allows penalties to be imposed on USD transactions as well.
- Ministers Regulatory Powers
The new section 11 gives the Minister powers to make amendments to the Civil Penalty Orders that may be given where there has been a contravention of exchange control laws (section 11 (2) and (3). In essence, this broadens the powers of the Minister of Finance, however it also states that the Minister may only make amendments in consultation with the President, and after placing the proposed changes to the National Assembly. This new provision means that any amendments made by the Minister relating to the new offences will be subject to Parliamentary oversight, whereas before only the resident had Regulatory powers.
- Specified Offences
While the specific offences have been introduced to address abuses in the foreign currency auction system and the interconnectedness with the parallel market, the listed offences apply to all persons and businesses, including businesses that are not beneficiaries of the auction system. The following are the listed offences:
- Unauthorized Use of Foreign Currency
Section 11(3)(1) imposes a fine of one million Zimbabwe Dollars or an amount equivalent to the value of the foreign currency obtained if a person without Exchange Control authority, uses the foreign currency obtained directly or indirectly from a foreign exchange auction or an Authorised Dealer for a purpose other than that specified in the application to partake in the auction or in the application for foreign currency. This means if one obtains foreign currency from the exchange control auction system, then one must use it for the stated purposes.
- USD Sale of Goods and Services
Section 11(3)(3) makes it a civil infringement if one sells goods or services exclusively in foreign currency and or refuses to allow payment for them in Zimbabwe dollars at the ruling exchange rate.
- Tendering False Information
Section 11(3)(5) holds banks or any institution or person facilitating foreign exchange transactions liable if one obtains foreign currency through them for a reason other than that stated in applications for foreign currency. Banks are mandated to verify the correctness of information in an application, return or document and exercise due diligence. If a bank or institution submits an application containing false information with the Reserve Bank of Zimbabwe which it ought to have known to be false in any material respect, would be guilty of a civil infringement and will be penalised for an amount of five million Zimbabwe dollars.
- Official Exchange Rate
Section 11(3)(7) makes it an offence to sell, display or offer goods or services for sale at an exchange rate above the ruling exchange rate, or impose (for the predominant purpose of encouraging payment in a foreign currency) a premium on Zimbabwe dollar payments or allow a discount on foreign currency payments. A fixed penalty of fifty thousand Zimbabwe dollars or an amount equivalent to the value of the foreign currency charged is pegged to these offenses. This effectively means that if discounts are applied, they must not be for USD payments only.
- False Receipting
Section 11 (3)(9) makes it an offense to issue a receipt in Zimbabwean Dollars, for USD/foreign currency payments. This was implemented for taxation purposes as taxes are levied in the currency of trade, the provision is meant to avoid misuse of foreign currency obtained from the forex auctions as well as fraudulent reporting.
- Enforcement of Penalty Orders
In terms of section 11(4)(1), the above-stated offenses cannot be enforced, nor a penalty order issued twenty-four months after the alleged default has occurred. A civil penalty order is issued by the Reserve Bank of Zimbabwe (RBZ) to any defaulter in terms of the section 11(4)(2). The duty to serve the civil penalty orders is upon Designated Officers who are appointed by the Governor of the RBZ in terms of section 11(8).
A civil penalty order can be suspended for 48 Hrs after the date of its issuance to enable the alleged defaulter to show cause to the Designated Officer that the order should not have been issued or that there was an error. If there is no error shown, the order starts taking effect and if the alleged defaulter manages to prove the error, the Designated Officer withdraws the order and make the appropriate notation of withdrawal in the civil penalty register.
AMENDMENTS TO BANK USE PROMOTION ACT
- Ministers Regulatory Power
The amendments broadened the powers of the Minister of Finance confer him the power to amend or replace the Schedule that outlines the Civil Penalty Orders in terms of the Bank Use Promotion Act, by a notice in a statutory instrument. Proposed amendments are subject to Parliamentary oversight as the Minister must present them to be decided on by the National Assembly in terms of section 22A (3), and thereafter gazetted if there are no resolutions against the proposed changes
2. Freezing Orders
Section 41(1) was amended to the effect that it now extends a Freezing Order that is issued by the Director General of the Financial Intelligence Unit (FIU) from 14 to 90 days. The Director can still serve a Freezing Order upon a person or institution reasonably suspected of violating any provisions of the Bank Use Promotion Act without necessarily serving a notice on the concerned person.
3. Civil Penalty Orders
The amendments introduce a new Schedule on Civil Penalty Orders, that provide a new list of penalties for infringements, and which also gives the FIU enforcement powers. The following table is a summary of the new penalties:
| CIVIL INFRINGEMENT | PENALTY | PROVISION |
| Failure to Open a Bank Account i.t.o section 10 | Z$20,000 and a cumulative penalty. | Section 3(1) |
| Failure to avail electronic payment means i.t.o section 10A. | Z$100,000 and a cumulative penalty. | Section 3(2) |
| Failure to bank surplus cash in a bank account in a period no later than the close ofnormal business hours on the day following that on which the cash is received or on the next banking day i.t.o section 11. | Fixed penalty of the amount equivalent to a single day’s banking of cash, being the estimated average daily banking of cash in a continuous period of seven business days within the last twenty-one days preceding the issuance of the order; and a cumulative penalty over a period not exceeding ninety days of five per centum of the outstanding amount. | Section 3(3) |
| Failure to keep records | Z$200,000 and cumulative penalty. | Section 3(4) |
| Failure to comply with Disclosure Order i.t.o section 18. | Cumulative penalty of Z$20,000 for each day that the person fails to make the disclosures for a period not exceeding 90 days. | Section 3(5) |
4. Enforcement of Penalty Orders
A Designated Officer serves the Civil Penalty Order on a defaulter by hand, commercial courier service or electronic mail. If a defaulter does not pay the civil penalty within a period of 90 days in terms of section 4(7), he or she will be guilty and liable to a fine not exceeding level six or to imprisonment for a period not exceeding one year or to both.
In Summary
The regulations did not ban the use of foreign currency in Zimbabwe, it is still legal to charge in forex, but one has to record and receipt such sales in foreign currency and not in Zimbabwean dollar.
It also forces all businesses, big and small to accept transactions in both foreign currency and Zimbabwean dollar at the official exchange rate. Pricing that is pegged in a manner that encourages payment in foreign currency, or at parallel market rates is therefore not permitted.
Businesses have been given a period of 2 weeks to regularise their systems so that they can comply with the Regulations on the receipting of goods & services in either foreign currency or local currency.
Banks are to be penalised as well if companies apply through them for foreign currency and thereafter violate the law by misusing foreign currency for purposes other than their state purpose. Banks are therefore mandated to verify that their client are not misusing foreign currency obtained through them.
Offences relating to mandatory use of the banking system now have specific penalties attached and the FIU may issue a Civil Penalty Order in addition to Freezing Orders.