Client Alert : Equatorial Guinea and CEMAC MEMBER STATES

 

REVISED FOREIGN EXCHANGE REGULATIONS

What happened?

The Bank of Central African States (“BEAC”) submitted for adoption a new set of foreign exchange regulations to the Ministerial Committee of the Union Monétaire de L’Afrique Centrale (UMAC), which is the entity responsible for the harmonization of monetary policy in the CEMAC. On December 21, 2018 The UMAC approved CEMAC Regulation 02/18/CEMAC/UMAC/CM of 21 December 2018 (hereinafter the “FX Regulation”), which repeals the 2000 Regulation (“Old Regulation”).

CEMAC is comprised of six central African countries: Cameroon, the Republic of Congo, Central African Republic, Chad, Gabon and Equatorial Guinea. The organisation was founded in 1994 to create a common market amongst its member states through the implementation of a harmonized commercial, customs and monetary framework.

While the new FX Regulation enters into force on 1 March 2019, in accordance with section 193 of the FX Regulation, economic operators and financial intermediaries have a six-month grace period to comply. In other words, banks and other economic actors have until 1 September 2019 to conform with the FX Regulations or face possible sanctions.

The FX Regulation introduces some new rules and is applicable to all economic actors. Pursuant to section 184 of the FX Regulation, neither CEMAC member States nor the BEAC can carve out exceptions to its provisions through the enactment of local laws or by entering into contracts.

It is worth noting that the legal currency within the CEMAC is still the CFA Franc (FCFA), which is pegged to the euro at 0.001524 euros to 1 FCFA. Furthermore, the transfer of funds from CEMAC to other countries is subject to administrative fees charged by local banks. These fees are charged by the intermediary banks and left to be determined by the free market.

What are the consequences?

Travel Cash

While there is no legal limit to the amount of currency that a physical person can possess at any time, persons traveling into or out of a CEMAC member State are permitted to have up to the equivalent of XAF 5,000,000, without the need for a declaration. Any sums above the permitted limit need to be declared with the customs administration. The failure to justify the source of the sums above the authorized limit can result in the confiscation of the cash. It is worth noting that under the Old Regulation the sums were capped at XAF 10,000,000 for business travel and XAF 4,000,000 for touristic travel.

A Branch is considered a Resident

The FX Regulation makes a subtle change to the definition of a “Resident.” Under section 1 of the FX Regulation, a Resident is any physical person or legal entity that has a habitual residence in the CEMAC zone, or persons staying even for discontinuous periods of time for a minimum of one year, or persons carrying out economic activity for a least one year, including refugees, personnel and non-diplomat employees of international organizations, as well as branches of multinational companies. Therefore, special purpose vehicles (e.g. branches) incorporated to perform exploration and production activities, as well as any of their employees that work in the country for at least one year qualify as Residents under the FX Regulation. It is worth noting that the Old Regulation did not expressly state that branches of multinational companies would be considered Residents for the purposes of foreign exchange regulation.

The above is especially important given that the use of foreign bank accounts for settlements related to transactions between two Resident entities is expressly prohibited, in accordance with section 30 of the FX Regulation.

Foreign Currency Accounts

With the exception of banking establishments, in accordance with section 41 of the FX Regulation, Residents are not permitted to open foreign currency accounts outside of CEMAC without the express prior approval of the BEAC. Under the Old Regulation, the Minister of Finance was given the power to authorize the creation of foreign currency accounts by Residents.

Similarly, Residents are not permitted to open foreign currency onshore bank accounts, without the express approval of the BEAC. This approval is not available for physical persons.

Repatriation of Export Proceeds

The exportation of goods requires the submission of an undertaking to the customs administration or its designated authority, committing to the repatriation of export proceeds within one hundred and fifty (150) using the same bank where the transaction was domiciled, in accordance with section 55 of the FX Regulation.

It is worth noting that there is an increased effort by the BEAC and the Central African Banking Commission to bring enforcement actions with respect to the new FX Regulation, including calling for the repatriation and surrender of foreign assets by all public entities.

Both the BEAC and Ministry of Finance can determine if a company is in breach of the FX Regulation and sanction the company accordingly. Likewise, both the BEAC and Ministry of Finance can request information from banks concerning their clients.

Domiciliation for Importation of Goods

The importation of goods into the CEMAC zone can be done without limitation, except in the case of gold and goods subject to special regimes. All importation of goods of an amount equal to or exceeding XAF 5,000,000 must be domiciled with a credit establishment in the country of final destination, in accordance with section 63 of the FX Regulation.

Domiciliation for Importation of Services

Any import of services must be documented by a contract whereby a non-resident agrees to provide services or technical assistance to a Resident or grants the Resident a trademark license or other benefit.  All expenditures for the import of services must be declared to the BEAC, and those of an amount equal to or exceeding XAF 5,000,000 must be domiciled with a CEMAC bank, in accordance with section 72 of the FX Regulation. Banks are required to check transaction to ensure that service imports are not fictitious, nor overpriced — especially in the case of intra-group transactions which must be made under arm’s length terms, pursuant to section 74 of the FX Regulation.

Loans

Similar to the Old Regulation, loans obtained from non-Residents must be declared to the Ministry of Finance and the BEAC 30 days prior to the effective disbursement date, in accordance with section 105 of the FX Regulation. Thereafter, the borrower is required to transmit the supporting documents relating to the loan transaction to the Ministry of Finance and the BEAC 30 days after the transaction.

Other Current Account Transactions 

Current account transactions have to be declared by credit establishment to the BEAC and the Ministry of Finance. A transfer of funds to a non-CEMAC country for an amount exceeding XAF 100,000,000 must be notified thirty (30) days in advance to the BEAC and the Ministry of Finance, in accordance with section 88 of the FX Regulation.

The transfer of revenues of non-Residents to a non-CEMAC country in the form of profits, dividends, interest, rents and other proceeds from supply and service contracts, as well as of a portion of the wages, fees, and per diems is without limitation, but still subject to the presentation of required supporting documents.

BEAC Escrow Accounts

The FX Regulation allows CEMAC member States, public entities and organizations to have escrow or similar accounts with the BEAC. Under section 183, the FX Regulation allows companies operating in the oil and gas industry, to open escrow accounts at the BEAC in the name of a CEMAC State and the company (in Francs CFA or foreign currency) for the deposit of abandonment funds or other purposes in compliance with a legal or contractual obligation.

It is also worth noting that in case of depletion of CEMAC States’ foreign reserves, the BEAC can also require public and private entities within member States to transfer foreign currency to the BEAC, in exchange for Francs CFA, in accordance with section 187 of the FX Regulation. This measure can be limited first to public entities and banks, as well as circumscribed to the member State responsible for the lack of foreign currency in the first place.

Violations and Sanctions

Both the BEAC and Ministry of Finance can determine if a company is in breach of the FX Regulation and sanction the company accordingly. Likewise, both the BEAC and Ministry of Finance can request information from banks concerning their clients.
 
Violations of the FX Regulation can be punished with fines and other sanctions. Some of the noteworthy sanctions include the following:  

  • 10% of the amount of the transaction for the failure to domicile with a local bank the import or export of goods or services;
  • 100% of the amount concerned if a service import is fictitious;
  • 10% of the proceeds from the exportation of goods or services that were not repatriated, in addition to 1 to 9 months of suspension of transfer operations within the CEMAC banking system;
  • 2% of amount of the export in the case of repatriation of proceeds to a bank other than the bank of domiciliation;
  • 15% of amounts not declared by travellers at customs exceeding the applicable threshold in addition to the confiscation of such sums;
  • XAF 5,000,000 per day of delay in addition to a suspension of transfers within the CEMAC banking system, if adequate, for the refusal to provide the BEAC with contracts leading to FX operations;
  • 10% of the amount withdrawn or paid through electronic means of payment for capital operations outside the CEMAC; and
  • 20% of the amount of payments made by FX residents to other residents using foreign bank accounts.

Does my company need to take any action?

Businesses that may be affected ought to contact their external advisors promptly to request a copy of the FX Regulation and seek further advice with regards to its ramifications and implement measures to ensure compliance. As a minimum, businesses ought to consider the below measures:

Regulatory Mapping

Read and understand all the requirements imposed by the FX Regulation..

Inform Stakeholders

The Finance department ought to perform an assessment of the affected expatriate personnel and their families, if applicable, and inform them about the new rules and their ramifications.

Internal Assessment

To the extent that the company is operating in the CEMAC region, the Finance department would need to assess the impact of its new status as a CEMAC Resident, as described under the FX Regulation.

ABOUT THE AUTHOR
Abraham Abia is the Managing Partner of Clarence Abogados & Asociados. Abraham holds a BA (Hons) in History from SOAS, University of London and a LLB and LPC from the University of Law (“formerly the College of Law of England and Wales). Abraham worked as a regional in-house counsel for Schlumberger and Centurion Law Group before founding Clarence. For enquiries, please contact us at info@clarenceabogados.com.