SI127 working well to stop cheats

THE civil penalty system introduced in Statutory Instrument 127 allowing the Reserve Bank of Zimbabwe to hit abusers of foreign currency, and especially the foreign currency auction system, where it hurts - in their pocket - is being applied robustly.

Another 21 companies and other entities, which could include banks, have been found breaching the foreign currency rules, which added to last month's batch of 18 and brings the total to 39. Of those, a dozen appear to have been given the benefit of the doubt and have got away with a stern warning and been told to reform, instantly.

Although Reserve Bank governor Dr John Mangudya declines to give details of who did what, there were fears when the Statutory Instrument was introduced that accidental errors or minor mistakes could be unduly penalised.

Presumably the warnings, rather than the imposition of penalties, on the 12 will moderate those fears. The "dirty dozen" obviously have to take their warnings incredibly seriously and become examples of how a compliant bidder needs to work. This means their own internal systems need to be squeaky clean as well as their managers erring on the side of caution, if they reckon there is some ambiguity.

The other 27 have been assessed with penalties. Again we do not know how much each has to pay, but the penalties laid out in SI 127 were alarming for those who took big chances or decided on systematic cheating.

Dr Mangudya has banned those liable from the auctions until he sees their money in his penalty account. In effect, their penalty is the price they need to pay to return to the auctions.

Not all might be allowed back, mind you. Dr Mangudya still has his earlier powers that allow him to ban anyone from the auctions if he reckons after a decent investigation that they are an abuser. He had in fact thrown out a small group of bidders well before SI 127. The introduction of the Statutory Instrument and civil penalties appeared to answer the need for something effective between a warning and an expulsion. As he is still giving warnings, where appropriate, he has mentioned that he will use the ultimate sanction, as necessary.

Removing the profits of cheating, plus a bit more, does seem an effective way of deterring the act and even of persistent sloppiness, although from the sort of activity that has been attracting penalties, it appears that there must have been some determination in some circles to ignore the regulations and take a chance.

The main gain from civil penalties is that the action by the authorities can be swift, and the pure financial penalty can bear a strong relation to the seriousness of the breach.

There was nothing new in the long list of undesirable behaviour spelt out in SI 127. A lot of it remains barred in criminal law and what is not is at least barred in Reserve Bank Regulations.

As we are aware from other cases, the criminal law can be time-consuming and with good lawyers, the sort that a major company can hire, delays can be generated that postpone the day of reckoning for months and sometimes for years. Reserve Bank regulations with an all or nothing choice, to ban the malefactors or just warn them, are not really effective without the teeth of SI 127.

The civil penalty system needs a proper investigation, that is looking at bank records and other documents and picking up evidence on visits. Once all this is laid out, there is not much the company in breach of the regulations can do. It is a bit like what happens when you forget to pay taxes. Zimra checks the records, and they lay down quite detailed rules of how your data is automatically accessed by the tax collectors, and then ask you to pay quickly, with the penalties and interest imposed.

One of the more interesting points is that none of the 27 has launched a legal challenge. SI 127 is administrative law, rather than criminal law, but could in theory have been challenged on constitutional grounds, which no one has thought worthwhile, probably because they reckoned they would lose, or on the basis that the particular decision was not reasonable.

This second form of challenge is in fact the safeguard of the system. If a penalised company reckons the Reserve Bank investigator has been biased or totally unreasonable, and the appeal system within the bank has not fixed that, it is possible to challenge the decision in court. The court would not be looking at the truth or otherwise of the decision, but would rather be assessing if on the basis of the evidence before the investigator a reasonable decision was made. The onus is on the objector. But so far those hit appear to feel it was a fair cop.

The other helpful point when using civil penalties is that civil law rules are used, so the standard of proof is on the balance of probabilities, not the standard of proof beyond reasonable doubt required in a criminal action. There have been cases in other jurisdictions where someone has been found not guilty under criminal law and then been nailed for damages under civil law.

While 39 companies found in breach of the regulations sounds a lot, and even one would be unpleasant, we also need to remember that hundreds of companies have bid on the auctions. So an overwhelming majority feel they can and do follow the rules.

Admittedly some might have cleaned up their act after SI 127 was gazetted, since it cannot legally apply to activity before that point, but that still means that the statutory instrument has been deterring, and that is good enough since the idea is not to have breaches in the first place.