SB 181: Foreign Exchange (Control and Monitoring) Bill 2015

Bill Analysis:

SHORT TITLE

Foreign Exchange (Control & Monitoring) Bill, 2016 

OBJECTIVES OF THE BILL

The objectives of the Bill are as follows: -

• Repeal the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, CAP F34 LFN 2004;
• Establish a Foreign Exchange Market;
• Provide for the control and monitoring of the transactions conducted in the foreign exchange market and related matters;
• Contribute to the sound development of the national economy by striving to facilitate foreign transactions.

These are expected to maintain an equilibrium of balance of international payments, stabilize the value of currency by ensuring the liberalization of foreign exchange transactions and of other foreign transactions, and by revitalizing market functionality.

NUMBER OF CLAUSES/PARTS

The Bill has 12 parts and 50 clauses, including the interpretation clause and the explanatory memo

CONTENTS

The Bill has the following contents: -

• Bill objectives, scope and application
• Establishment of Foreign Exchange Market; determination of basic exchange rates; non-disclosure of sources of foreign currency; Sources of foreign currency to be sold in the Exchange market
• Grant of license to deal with foreign exchange; Application process, approval or refusal of license; Suspension and revocation licenses; Notification process of suspension, revocation and variation of license
• Appointment of authorized dealer or buyer, and revocation of appointment of dealer or buyer; the right to review and appeal a decision; appointment of authorized dealer or buyer, and Revocation of the appointment of authorized dealer or buyer
• Mode of transaction between the public and authorized dealers or buyer; between authorized buyers and dealers; Market operations, permitted transactions in the market and importation and exportation of currencies
• Operation of foreign currency domiciliary accounts in Nigeria; operation of domiciliary accounts; regulations, supervision and monitoring; preservation of records
• Investment in foreign currencies and capital imported into Nigeria through authorized dealers
• Offences when dealing in securities by authorized dealers, corporate bodies and power of the Central Bank to compound offences; directives of the Central Bank

SCOPE AND APPLICATION

The Bill shall apply to foreign exchange transactions performed in the Federal Republic of Nigeria by private persons domicile in the country or in any foreign country, or government officials acting in their capacity, and transactions, payments, receipts between Nigeria and any foreign country, including those performed in foreign countries that have effect in Nigeria.

IMPLICATIONS OF THE BILL

1. Repeal of the Foreign Exchange Act 2004: - The Bill seeks to repeal the existing Act on foreign exchange regulation and monitoring and replace it. When the Bill is passed into law, the 2004 Act ceases to have effect and the new law will govern all matters related to foreign exchange in Nigeria.

2. Establishment of the Foreign Exchange Market: - Clause 3(1) of the Bill provides that a foreign exchange market (the Market) will be established where transactions in foreign exchange will be conducted. The implication is that trading in foreign currency shall be done in this ‘Market’.

3. Regulation of Procedures and Transactions in the Market: - The Bill provides that the Central Bank shall from time to time issue guidelines to regulate procedures and transactions in the Market subject to the provisions of this Bill (when passed into law).

The Bill further provides that the Central Bank shall have and exercise powers relating to the administration, control and management of all dealings and transactions in relation to foreign exchange matters subject to this Bill (when passed into law) and written directions by the Minister of Finance.

4. Determination of Basic Exchange Rates: -

Clause 4 of the Bill provides that the Central Bank may determine the basic exchange rates, rate of purchase and sale of foreign exchange and arbitrated exchange rate if it is necessary to do so for harmonious and orderly exchange transactions in Nigeria. This Clause simply reiterates the Central Bank’s duty to regulate the price of currencies exchanged at the Market, which it is currently doing.

5. Non-disclosure of the Source of Foreign Currencies: – The Bill requires under Clause 6 that a person shall not be obliged to disclose the source of the foreign currencies that they are exchanging at the Market. Nevertheless, authorized dealers must disclose the source(s) of their currencies if they are in excess of $10,000 and provide information of utilization.

In effect, persons including authorized dealers carrying out exchanges in currencies at the Market must not disclose the source or use of the currencies; but will be under an obligation to do so if the total cash, irrespective of the currency is worth more than $10,000.

Imported currencies in line with the provisions of this Bill (when passed into law) shall not be subjected to forfeiture or seizure or any form of expropriation by the government, except otherwise provided.

6. Sources of Foreign Currencies: - Clause 7 of the Bill provides a list of the sources of foreign currencies legally acceptable to be traded in the Market. The listing of the sources in the Bill could be to cover a wide range of bases available to traders or dealers in foreign exchange.

7. Requirement of License to Deal in Foreign Currency: - Clause 8 of the Bill prohibits anyone not issued a license by the Central Bank from trading in the Market as a dealer. It shall be the duty of the Central Bank to prescribe anyone or corporate body competent to engage in dealing in foreign exchange; therefore no person or corporate body not declared competent by the Central Bank shall engage in the business of dealing in foreign exchange in the Market.

8. Procedure for Granting License: - The Central Bank shall grant a license to an applicant within 60 days after the receipt of the application with complete documentation, the required conditions and prescribed fees. Under Clause 10(2), the license shall enable the dealer to buy or sell foreign currencies, settle payments in the Market electronically and engage in any other business prescribed by the Central Bank from time to time. This Clause lays out the procedure to follow when applying for a license to do business in the Market, whether buying or selling or related matters pursuant to the provisions of the Bill.

The Central Bank also will publish in the Gazette and any other national media outlet, the names of licensees and the license shall be valid only for one year. Anyone carrying out business in the Market may check for legally authorized dealers from the Gazette or any other media platform the Central Bank may use to publish names of licensed dealers. Also dealers may have to renew their licenses annually if they intend to continue their business in the Market, on the condition that they meet all requirements.

9. Refusal of License: - The Bill provides that an applicant shall be informed in writing within 3 (three) months after receipt of the application if the license is denied. This Clause is another provision on the procedure involved in applying for a license.

10. Suspension of License: - Under Clause 13(1) of the Bill, the Central Bank may suspend a license where the licensee fails to utilize the license within 90 days of issuance; fails to disclose a material information required for disclosure; provides false information; fails to comply with a directive pursuant to a regulation; ceases to qualify for a grant of license; engages in malpractice; recedes into bankruptcy or is placed under liquidation or receivership; contravenes the provisions of the Bill (when passed into law); or breaches any Central Bank regulation. The suspension may be for a specified period of time or until the Central Bank determines conditions.

Any licensed individual or corporate entity found to be in breach of any of the conditions listed above, shall have their licenses suspended.

11. Notice of Suspension, Revocation or Variation of License: - The Bill under Clause 14 requires the Central Bank, before the suspension of a dealer’s license, to issue a 14-day notice prior to the suspension, revocation or variation of the license. The Central Bank is also required to provide reasons for the suspension, revocation or variation license as well as an opportunity for the licensee to make either an oral or written representation within 14 days of receipt of the notice. Failure to make a representation orally or in writing as required may lead to a revocation, suspension or variation of a license.

Furthermore, the Central Bank shall within 30 days after the representation take a decision and inform the licensee of the decision as well. The Clause is merely procedural and informs intending dealers of some of the processes involved in obtaining a license.

12. Right of Review and Appeal: - Where a licensee is aggrieved either by the refusal of the Central Bank to renew or vary a license, the Bill under Clause 15 allows them the right of review and appeal. The aggrieved person or corporate entity may submit a petition to the Central Bank to review its decision. Though a conflict of interest may be perceived here, as the Central Bank gets to review its own decision, it is actually an opportunity to give the licensee another chance at presenting their case.

The Central Bank shall review and respond to the petition within 30 days, after which the petitioner, if still dissatisfied, may appeal the decision at the Court (Federal High Court).

13. Appointment of Authorized Dealer or Buyer: - The Bill under Clause 16 empowers the Central Bank to appoint any bank or non-banking corporate organization which shows evidence of adequate resources and meets specified conditions as an authorized dealer or buyer of foreign currency. This authorized dealer or buyer may operate in accordance to the terms and conditions specified in their letter of appointment.

Conversely, the Central Bank may revoke the appointment of an authorized dealer or buyer, if it has reason to believe that it is not in the national interest. The Central Bank may notify the authorized buyer or dealer of its intention to revoke their license and the authorized buyer or dealer may make a representation in respect thereof within 28 days.

The actions to be taken by an aggrieved dealer or buyer are not explicitly stated in the Bill, however a procedure for appealing the decision of the Central Bank may be communicated to the dealer or buyer.

14. Transactions and Operations in the Market: - Clause 18 grants the Central Bank supervisory powers over the operation of the Market to ensure efficient performance. Conduct of parties transacting business or operating in the Market therefore, would be subject to the guidelines, rules and regulations of the Central Bank.

15. Eligible Transactions in the Market: - The Bill under Clause 21 provides that only lawful transactions adequately supported by appropriate documentation shall be an eligible transaction for the purchase of foreign exchange in the Market. However, the Central Bank shall have the power to determine transactions for which foreign exchange can be sourced from the Bank. This Clause simply gives the Central Bank powers to define which transactions or operations that qualify to receive foreign currencies from it.

16. Exportation and Importation of Currencies: - It is a requirement under Clause 22 to declare at the port of entry or exit from Nigeria, any foreign currency in excess of $10,000 or its equivalent. Sub-clause (2) then included that imported or exported foreign currency in excess of $5000 or its equivalent has to be declared on the prescribed form.

However any foreign currency purchased from the Market for the purposes of eligible transaction, may be repatriated from Nigeria, and shall not be subject to any further approval. 

17. Operating a Domiciliary Account: - Clause 25 of the Bill permits any individual to open a domiciliary account in an internationally convertible currency with an authorized dealer. The individual shall not be obliged to disclose the source of the foreign currency, except as provided under any enactment. An individual can also operate multiple accounts in different currencies and in different banks.

Clause 25(5) provides that foreign currencies imported in accordance to the provisions of this Bill (when passed into law) shall not be liable to seizure or forfeiture or suffer any form of expropriation by the Federal or State government. Where the funds were imported in accordance with the provisions of this Bill (when passed into law), there shall be no basis for seizure or forfeiture.

18. Export Proceeds Domiciliary Account: - The Bill under Clause 27 provides that an exporter shall repatriate the proceeds of the goods exported into export proceeds domiciliary account within such period and under such conditions as the Central Bank may prescribe from time to time. In line with Clause 27, the Central Bank or any authorized government body should have the a of exporters in Nigeria and their banking information to be able to monitor their transactions and ensure that they repatriate their proceeds. Also every exporter must have a designated account for exports proceeds only to enable effective tracking.

The penalty for not repatriating proceeds from exports according to Clause 27(3) is a fine of 25% of the Free on Board (FOB) value of the export, upon conviction. The Central Bank may impose an administrative fine of not less than 10% of the FOB value of the export on the commercial bank that processed the export transaction.

19. Regulation and Monitoring: - The Central Bank, under the Bill is charged with the responsibility to monitor, regulate and supervise the general operations of this Bill (when it is passed into law)

20. Payment for Certain Goods: - Clause 30 provides that cash payment shall not be made for goods such as landed properties, securities (stocks, bonds, debentures, etc.), cars or vehicles of any description. Bank transfers or checks drawn on banks in Nigeria only shall only pay for the listed items. In effect, proof of payment for any of the listed goods should be inspected by any authorized government agency to ensure that cash was not used for payment.

21. Prohibition of Foreign Currency for Payment in Nigeria: - The Bill provides that except as prescribed by the Bank, goods and services in Nigeria shall not be paid for in foreign currency. The value of the Naira, being the legal tender in Nigeria is protected when goods and services are traded with it.

22. Certificate of Capital: - Any authorized dealer through which capital for any investment is imported into Nigeria, shall within 48 hours of importation issue a Certificate of Capital Importation to the investor and within 72 hours thereafter make returns to the Central Bank

Foreign currency imported into Nigeria and invested shall be guaranteed repatriation of proceeds and capital through an authorized dealer in a freely convertible currency. This repatriation shall be communicated to the Central Bank within 14 days of the repatriation. This Clause seeks to protect foreign investors who shall be guaranteed repatriation of funds from their investment in Nigeria.

23. Failure to Comply: - Part VIII provides that any person or authorized dealer who defrauds, forges, mutilates, or defaces any passbook with the intention of converting proceeds from a domiciliary account to a use for which it was not intended; negotiates any draft or negotiable instrument; permits the withdrawal of foreign currencies contrary to the provision of the Bill (when passed into law), shall be liable upon conviction to a term not more than 2 years in the case of an individual; 5 years in the case of an official at the port of entry or bank official; 10 (ten) times the amount of foreign currency involved in the case of a corporate entity. A corporate body may be wound-up with its assets seized.

24. Jurisdiction: - The Federal High Court shall have jurisdiction to try matters under the Bill (when passed into law)

COMPARATIVE ANALYSIS OF THE ACT AND THE BILL

CONCLUDING ISSUES

The Foreign Exchange (Control and Monitoring) Bill, 2016 exhaustively covers foreign exchange transactions and operations in Nigeria, however certain gaps need to be filled, and certain provisions amended or removed

The Bill is clear on the powers to the Central Bank to make policies from time to time and the oversight functions it has over commercial banks as a regulator; however, the current Central Bank’s policies in Nigeria have raised concerns due to the state of the economy and the value of the Naira. This may tell on Foreign Direct Investment (FDI) as investors may prefer more stability than constant changes in banking policies.

Apparently, there are several distinctions between the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act and the Foreign Exchange (Control and Monitoring) Bill, 2016, which seeks to repeal it. The above analysis shows that the Bill introduced several matters that are clearly major gaps in the Act. Passage of the Bill will aid foreign exchange business in Nigeria as well as improvement in the functions of Nigeria’s apex Bank.

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