At its ordinary session held on 21 December 2018 in Yaounde, the Ministerial Committee of the Central African Monetary Union (CAMU) adopted, after approval by the Board of Directors of the Bank of Central African States (BCAS) on 18 December 2018, Regulation No. 02/18/CAEMC/CAMU/MC on exchange rate regulation in the Central African Economic and Monetary Community (CAEMC) (the New Regulation).
The New Regulation
The New Regulation which entered into force on 1 March 2019 thus repeals Regulation No. 02/CAEMC/CAMU/CM of 29 April 2000 (the Former Regulation). It sets a period of six months from the date of its entry into force for economic agents to comply with the new provisions, i.e. until 1 September 2019.
There is no doubt that the New Regulation is marked by austerity in currency management. To be convinced of this, it is enough to review the sources of inspiration that precede the adoption, in this case, the recent exchange between the International Monetary Fund (IMF) and the BCAS (the Central Bank) concerning the economic recovery and reforms undertaken by member countries. As a reminder, in a letter addressed to the General Manager of the International Monetary Fund dated 5 December 2018 following the regional consultations held from 23 October to 3 November 2018, the Governor of the Central Bank was already announcing as a corrective measure, the hardening of the monetary policy and the strengthening of the application of exchange regulation. The New Regulation materialises these objectives.
From a purely formal point of view, the New Regulation – with its 192 articles compared to 129 for the Former Regulation – is more structured than the former one. With no appendices, it defines the relevant terms and acronyms beforehand. The drafters opted for a more rational and coherent presentation of the previously scattered provisions, grouping them into 19 chapters.
In essence, the reform of the foreign exchange legal regime aims to promote the replenishment of member states' foreign exchange reserves, limit illegitimate transactions, guarantee the return by commercial banks of their assets, ensure the repatriation of export earnings and strengthen the powers of the BCAS and the Central African Banking Commission (CABC) in terms of monitoring and enforcing sanctions.
In view of the above, we will first present the substantial innovations contained in the New Regulation (1), before considering the mechanisms for monitoring and sanctioning its application (2).
The Substantial Innovations of The New Regulation
The New Regulation introduces substantial innovations in the exercise of foreign exchange activity in the CAEMC zone. We note the institution of restrictions affecting access to currencies (1.1.), their subsequent circulation (1.2.) and their purchase finally (1.3.).
1.1. Restrictions affecting access to currencies
Among the restrictions affecting access to currencies, we can list first of all the prohibition of the opening of currencies accounts outside CAEMC (1.1.1.), then the obligation to transfer currencies to BCAS (1.1.2.) and finally the increased complexity of the procedure for granting loans to non-residents (1.1.3.).
1.1.1. Prohibition of the opening of currencies accounts outside the CAEMC zone
The New Regulation prohibits resident legal persons, with the exception of credit institutions, from opening an account in currencies outside CAEMC.
This prohibition in principle may, however, be amended by the Central Bank, which has the power to authorise a legal person to open a currency account outside the CAEMC, under terms and conditions to be determined by it by Instruction. It shall immediately inform the Ministry in charge of currency and credit.
In addition, natural persons holding accounts opened abroad are subject to the obligation to declare them to the Central Bank.
1.1.2. The obligation to transfer currencies to BCAS
Currencies held in a CAEMC member state must now be transferred or deposited by their owners, whoever they may be, alongside a credit institution. In turn, credit institutions are required to return to the Central Bank, the currencies received from residents.
In the opinion of a subsidiary manager of a pan-African banking group: “In this respect, CAEMC [was] the most lax zone in the world”. Taking advantage of the absence of a monitoring system for the conservation/management/etc. of currencies, some banks in the CAEMC zone held large quantities of currencies for speculative purposes, as revealed by the CABC Secretary General during control missions in the identified banks during the months of June and July 2018. At the end of this audit, CABC was going to inflict, on 22 September 2018, reprimands on the presidents and directors of the subsidiaries of six banks and one microfinance institute.
These currencies proceed from export revenues from goods and services, borrowings, current account, advances, income, donations, direct or portfolio investments, and unrequited transfers.
However, credit institutions are granted a residual right to hold foreign currencies, the exclusive purpose of which is to cover the current needs of their customers.
1.1.3. The increased complexity of the procedure for granting loans to non-residents
The granting of loans to non-residents by resident authorised banks will now be subject to prior authorisation by the Central Bank, and no longer to a simple declaration to the Minister responsible for Finance and the Central Bank, as previously required by Article 81 of the Former Regulation.
The multiplicity of documents making up the documentary package that must accompany the application for a loan authorisation attests to the legislator's desire to make access by non-resident entities to financing from resident banks more rigid. The significant reduction in capital movements, backed by loans to borrowers who are fundamentally unstable, seems to be the objective of such a measure.
The main challenge is to guarantee their repayment by borrowers. This is evidenced, among other things, by the requirement to produce the financial statements of the borrowing company for the last three financial years, the repayment schedule of the loan, as well as the commitment to repatriate the income from the loan and the principal at the end of the authorisation.
This measure hardly conceals the laudable objective pursued by the sub-regional monetary authorities, which is to preserve the banking ecosystem from systemic failures that it could suffer as a result of compromising the recovery of certain debts of a single credit institution.
1.2. The restrictions affecting circulation of currencies between member states
The restrictions related to the circulation of currencies refer to the modification of the threshold of the amount to be declared when crossing the border (1.2.1.), to the prohibition of the export of coins (1.2.2.), to the recognition, for the benefit of customs officials, of a right to confiscate certain sums (1.2.3.) and to the submission of direct and portfolio investments to the prior authorisation of the BCAS (1.2.4.).
1.2.1. The modification of the threshold of the amount to be declared to customs at the CAEMC border
Previously, travellers crossing the CAEMC borders, on entry or exit, had to declare to customs any currency, securities of an amount exceeding XAF 1,000,000. Under the New Regulation, they are authorised to hold by them, without declaration, amounts of less than XAF 5,000,000 in cash.
From now on, only amounts exceeding XAF 5,000,000 or the equivalent in currency, as well as negotiable instruments and securities corresponding to this threshold, will be declared to the customs services, subject to penalties.
1.2.2. The prohibition of the export of coins
Article 12 of the New Regulation prohibits in principle the export of XAF coins. However, it recognises the right of residents to hold by them a maximum amount of coins equal to XAF 5,000 in their possession during their travels.
The violation of the prohibition is punishable both administratively and criminally.
This measure follows the recent denunciation by economic agents of the scarcity of coins. For the record, on the margins of the session of the BCAS’s Monetary Policy Committee held on 18 December 2018 in Yaounde, the opening of an investigation was announced “[...] to determine the extent of this phenomenon in order to provide us with the means to limit it”. The Central Bank thus hopes to reduce the extent of the phenomenon of coin evasion abroad.
1.2.3. The right to confiscate, at the border, sums of money of undetermined origin
When identifying travellers during border checks, customs officers are authorised to confiscate any sum transported, whose origin has not been established by the bearer.
The right of confiscation also extends to sums exceeding XAF 5,000,000 (i) carried by non-residents, (ii) whose origin has not been justified (iii) and which they did not declare when entering the CAEMC zone.
The confiscated currencies are returned to the Central Bank.
This deterrent measure is intended to oblige potential offenders to make the necessary declarations in respect of the transport of currency before crossing the border of the community.
1.2.4. Prior authorisation of direct investments and outgoing portfolio
Unlike the Former Regulation, which made direct investments of residents abroad of more than XAF 100,000,000 subject to a declaration to the Ministry of Finance prior to their implementation, the New Regulation requires prior authorisation from the Central Bank, which informs the Ministry of Money and Credit.
However, when they constitute a capital increase resulting from the reinvestment of undistributed profits, they are simply declared to the competent authorities within 30 days following their completion.
The New Regulation highlights the objectives of tightening monetary policy in the CAEMC region, driven by the governing bodies. We can synthetically remember that it:
- reinforces the obligation of credit institutions to return the currency in their possession to them in a timely manner;
- significantly restricts access to loans by non-residents;
- increases the threshold for the amount to be declared by persons when crossing the border by granting customs officials a power of confiscation;
- prohibits the export of coins when the amount exceeds XAF 5,000;
- subjects credit institutions to a periodic obligation to provide correspondent account statements;
- strengthens the prerogatives of the monetary authorities to control the exercise of foreign exchange activity; and
- builds a strict regime for punishing all breaches in relation to the exchange regulation.
However, the main instructions for the full and effective application of the New Regulation are still awaited by both taxable entities and consulting professionals.
Dentons takes this opportunity to thank Aurélie Chazai, Lawyer at the Cameroon and Paris Bars, Managing Partner of Chazai & Partners law firm for the contribution to this month’s newsletter.
- Article 41 of the New Regulation.↩
- Article 42 of the New Regulation.↩
- Articles 36, 37 and 38 of the New Regulation.↩
- Article 81 of the Former Regulation: “Loans granted by authorized banks to non-residents and their repayments must be declared to the Ministry in charge of Finance and the Central Bank within 30 days of their completion”.↩
- Article 112 of the New Regulation. ↩
- Article 56 of the Former Regulation.↩
- Article 78 of the New Regulation.↩
- Declaration of the Governor of BCAS.↩
- Article 78 sub 3 of the New Regulation.↩
- Article 79 of the New Regulation.↩
- Article 123 of the New Regulation.↩
- Article 125 of the New Regulation.↩