News / National
18 forex abusers to pay penalties
16 Jun 2021 at 08:16hrs | Views
The Reserve Bank of Zimbabwe yesterday listed the first 18 firms facing civil penalties under the new Statutory Instrument 127 after being caught abusing the foreign exchange auction system, with Zimbabwe Stock Exchange listed company National Foods the most prominent on the list.
RBZ governor Dr John Mangudya said in an interview after the publication of the notice that the foreign currency abuse differed between the abusers, but abuses uncovered included sponsoring of shelf companies that misuse auction money, double dipping from the auction, transfer pricing, and participating on the auction market without the requisite regulatory licences.
Dr Mangudya said there is now a legal instrument, SI 127, which prescribes severe civil penalties for the offenders whose actions have the net effect of driving economic instability.
Previously, the Governor said, offenders got away with unlawful conduct because while the law was there, there was no instrument to operationalise it, which SI 127 now provides.
"SI 127 is about penalties. The law was there but there was no instrument to punish offenders. SI 127 was promulgated to provide civil penalties for offenders," Dr Mangudya said.
While the bank has previously named and shamed companies that violate national laws, this did not have the desired effect as the offenders would still walk away scot free.
Under SI 127, businesses found after investigation to have breached the rules face penalties ranging from $50 000 to $1 million or a penalty equivalent to the value of the foreign currency abused.
These are not criminal sanctions or fines, and are imposed under civil law, which requires a finding on the balance of probability rather than proof beyond reasonable doubt.
Those found in breach of the rules can also be charged in criminal courts if they have allegedly breached tax or other laws.
A brief background check of the culprits revealed that the majority are shelf companies, some of which are either serial offenders or have previously been found having committed other transgressions.
According to the list, headlined by Zimbabwe Stock Exchangelisted National Foods, some firms caught offside are in the retail sector, milling, steel business and petroleum among other key sectors.
National Foods is one of Zimbabwe's biggest food manufacturers.
The company was established in 1920 and produces a broad range of basic foods including maize meal, flour, cooking oil, margarine, rice, salt, snacks, biscuits, pasta, sugar beans, baked beans, popcorn, as well as soap and a full range of animal feed.
Westville Investments, which is listed among the offenders named by RBZ, was once found in 2012 breaching an advertising agreement and was made to pay nearly US$40 000.
Duo Valley Commodity Brokers, one of the entities named and shamed by the central bank last year, was caught in the dragnet of hundreds of firms and individuals that abused mobile phone lines to trade in forex.
The central bank then ordered the closure of all the mobile phone lines of all the culprits involved.
Another offender, Flicknik Enterprises (Pvt) Ltd, is involved in wholesaling and retailing of groceries including cooking oil, rice and pastas and is a regular beneficiary of the auction.
The other companies listed are Georgia Petroleum (Pvt) Ltd, Tettola Investments (Pvt) Ltd, Africa Steel (Pvt) Ltd, Faircclot Investments, GlenuLas Trading, Natural Stone Export Company, Nuvert Trading, Phirebrook Investments, Classic Energy, Clorex Energy, Explochem, Mutare Mart & Exchange, Souzcre Fuels and Kimya Investments.
Sources allege the majority of the companies exposed by the RBZ have at times speculated in forex or have raised dubious overpriced invoices or have charged large premiums for goods imported using auction currency. But the bank has not listed the actual rules breached by each of the 18.
The RBZ introduced weekly foreign currency auctions in June last year to allow businesses easy access to foreign currency.
The foreign currency auction system has been largely commended for price, exchange rate and stability as well as declining inflation. It has since emerged arguably the most sustainable source of foreign currency for many formal businesses.
"The bank has a duty of care to ensure that the significant progress that the economy made since the introduction of the foreign exchange auction system in June 2020 continues on an unabated positive trajectory whilst at the same time protecting consumers and fostering compliance to engender fair play in the economy.
"It is against these noble objectives that SI 127 was put in place to provide for penalties against errant entities that were at the forefront of abusing the foreign exchange auction system to the detriment of the stability of the economy," Dr Mangudya said in an earlier statement yesterday.
The central bank governor said the bank has held several engagements with business entities on the main import of SI 127, and they now fully appreciate its thrust.
It said in line with the recommendations from the business community on the need to continue to enhance stability in the economy, the bank's efforts to foster compliance in terms of SI 127 will now be limited to "outliers that wantonly abuse the foreign exchange auction system, exchange rate manipulation and non-compliance with anti-money laundering rules and regulations."
RBZ governor Dr John Mangudya said in an interview after the publication of the notice that the foreign currency abuse differed between the abusers, but abuses uncovered included sponsoring of shelf companies that misuse auction money, double dipping from the auction, transfer pricing, and participating on the auction market without the requisite regulatory licences.
Dr Mangudya said there is now a legal instrument, SI 127, which prescribes severe civil penalties for the offenders whose actions have the net effect of driving economic instability.
Previously, the Governor said, offenders got away with unlawful conduct because while the law was there, there was no instrument to operationalise it, which SI 127 now provides.
"SI 127 is about penalties. The law was there but there was no instrument to punish offenders. SI 127 was promulgated to provide civil penalties for offenders," Dr Mangudya said.
While the bank has previously named and shamed companies that violate national laws, this did not have the desired effect as the offenders would still walk away scot free.
Under SI 127, businesses found after investigation to have breached the rules face penalties ranging from $50 000 to $1 million or a penalty equivalent to the value of the foreign currency abused.
These are not criminal sanctions or fines, and are imposed under civil law, which requires a finding on the balance of probability rather than proof beyond reasonable doubt.
Those found in breach of the rules can also be charged in criminal courts if they have allegedly breached tax or other laws.
A brief background check of the culprits revealed that the majority are shelf companies, some of which are either serial offenders or have previously been found having committed other transgressions.
According to the list, headlined by Zimbabwe Stock Exchangelisted National Foods, some firms caught offside are in the retail sector, milling, steel business and petroleum among other key sectors.
National Foods is one of Zimbabwe's biggest food manufacturers.
The company was established in 1920 and produces a broad range of basic foods including maize meal, flour, cooking oil, margarine, rice, salt, snacks, biscuits, pasta, sugar beans, baked beans, popcorn, as well as soap and a full range of animal feed.
Westville Investments, which is listed among the offenders named by RBZ, was once found in 2012 breaching an advertising agreement and was made to pay nearly US$40 000.
Duo Valley Commodity Brokers, one of the entities named and shamed by the central bank last year, was caught in the dragnet of hundreds of firms and individuals that abused mobile phone lines to trade in forex.
The central bank then ordered the closure of all the mobile phone lines of all the culprits involved.
Another offender, Flicknik Enterprises (Pvt) Ltd, is involved in wholesaling and retailing of groceries including cooking oil, rice and pastas and is a regular beneficiary of the auction.
The other companies listed are Georgia Petroleum (Pvt) Ltd, Tettola Investments (Pvt) Ltd, Africa Steel (Pvt) Ltd, Faircclot Investments, GlenuLas Trading, Natural Stone Export Company, Nuvert Trading, Phirebrook Investments, Classic Energy, Clorex Energy, Explochem, Mutare Mart & Exchange, Souzcre Fuels and Kimya Investments.
Sources allege the majority of the companies exposed by the RBZ have at times speculated in forex or have raised dubious overpriced invoices or have charged large premiums for goods imported using auction currency. But the bank has not listed the actual rules breached by each of the 18.
The RBZ introduced weekly foreign currency auctions in June last year to allow businesses easy access to foreign currency.
The foreign currency auction system has been largely commended for price, exchange rate and stability as well as declining inflation. It has since emerged arguably the most sustainable source of foreign currency for many formal businesses.
"The bank has a duty of care to ensure that the significant progress that the economy made since the introduction of the foreign exchange auction system in June 2020 continues on an unabated positive trajectory whilst at the same time protecting consumers and fostering compliance to engender fair play in the economy.
"It is against these noble objectives that SI 127 was put in place to provide for penalties against errant entities that were at the forefront of abusing the foreign exchange auction system to the detriment of the stability of the economy," Dr Mangudya said in an earlier statement yesterday.
The central bank governor said the bank has held several engagements with business entities on the main import of SI 127, and they now fully appreciate its thrust.
It said in line with the recommendations from the business community on the need to continue to enhance stability in the economy, the bank's efforts to foster compliance in terms of SI 127 will now be limited to "outliers that wantonly abuse the foreign exchange auction system, exchange rate manipulation and non-compliance with anti-money laundering rules and regulations."
Source - the herald
