Unclaimed assets waiver: Who benefits?

I am not a supporter of administrative systems which grant bureaucrats and politicians discretionary powers to grant exemptions and waivers on penalties for non-compliance on laws and regulations.

I believe that a set-up that gives wide and discretionary powers to civil servants and ministers to grant exceptions, dispensations and waivers, breeds corruption.

I make these opening comments to a discussion on recently proposed changes by Treasury Cabinet Secretary Ukur Yatani on the existing regime governing remittance of assets and liquid cash to the Unclaimed Assets Authority (UFAA).

According to the latest statistics in the public domain, the assets sitting in the books of the UFAA have been growing rapidly. Currently, the fund has assets amounting to Sh55 billion — Sh23 billion in cash and the rest in shares and government securities.

What explains the rapid growth of the fund in just after 10 years of existence? Entities holding the unclaimed assets, primarily banks, insurance companies and capital market-listed firms are not able to bear the risk of non-compliance.

The biggest deterrence is the regime of penalties stipulated in the existing law. Every day you refuse to remit, you have to pay — first — a daily penalty of between Sh,5000 and a maximum of Sh50,000.

Secondly, a penalty of 25 percent of the unremitted amount and finally, interest calculated against the average of the Central Bank Rate.

Clearly, the founding fathers of the framework crafted the regime in 2010 to make non-compliance attract very punitive consequences. No bureaucrat or minister was given powers to grant exemptions, penalties or waivers.

It is confounding indeed that 10 years after this framework has been in place, the minister is proposing to tinker with the regime by introducing a system of government by waiver. In brief, here is what the minister has proposed in the Finance Bill.

First, given the authority and the Treasury powers to waive penalties and fines for non–delivery of unclaimed assets. Secondly, apply the in dup lum rule by introducing a cap dictating that interest must not exceed the original amount of the unremitted money.

Who stands to benefit most from the proposals contained in the Finance Bill? In my view, banks, insurance companies and capital market-listed entities who will now have the leeway to hold and trade with unremitted financial assets without having to face the consequences for non-compliance.

The proposals will also allow holding entities to keep cumulated earnings generated from assets that belong to orphans and widows. On Thursday, I called the offices of the UFAA to hear their side of the story even as I sought to understand the justification for the no- consequences for non- compliance regime being proposed in the Finance Bill.

A spokesman for the authority sought to explain to me that the main objective of the proposals in the Finance Bill is to introduce a moratorium on penalties as a means of incentivising holding companies to release the monies they were holding.

He said the authority had found itself facing legal challenges by holding institutions opposing both their audits and payment of penalties and argued that the legal challenges were delaying re-unification of the assets to their owners. He stressed that re-unification of unclaimed assets with their owners was the core mandate of the authority.

On the in dup lum rule, the spokesman for the UFAA authority said that it was necessary to unlock cases where compliance was difficult because of cases where penalties and interest have accumulated way beyond the claimed amount and therefore delaying re-unification.

The arguments by the UFAA spokesman are not entirely without merit. Clearly, the capacities of the nascent authority to run and administer this massive fund is something that is still a work in progress.

The problem is that what the Finance Bill is seeking to do amounts to an attempt at totally changing the existing framework from one where remitting unclaimed assets is mandatory to one that is voluntary. Parliament must reject the proposed changes.