Waiver of unclaimed assets: who benefits?
I am not a supporter of administrative systems that grant bureaucrats and politicians discretionary powers to grant exemptions and waivers from penalties for non-compliance with laws and regulations.
I believe that an organization that gives broad and discretionary powers to officials and ministers to grant exceptions, waivers and waivers breeds corruption.
I make these opening comments to a discussion of changes recently proposed by Treasury Cabinet Secretary Ukur Yatani to the existing regime governing the transfer of assets and cash to the Unclaimed Assets Authority (UFAA).
According to the latest statistics in the public domain, the assets on the books of UFAA have grown rapidly. Currently, the fund has assets amounting to 55 billion shillings – 23 billion shillings in cash and the rest in equities and government securities.
What explains the rapid growth of the fund in just 10 years of existence? Entities holding unclaimed assets, mainly banks, insurance companies and companies listed on the capital market, are not able to bear the risk of non-compliance.
The biggest deterrent is the penalty regime stipulated in the current law. Each day you refuse to pay, you must first pay a daily fine of between 5,000 shillings and a maximum of 50,000 shillings.
Second, a penalty of 25% of the unremitted amount and finally, interest calculated against the average central bank rate.
Obviously, the founding fathers of the framework designed the regime in 2010 to have very punitive consequences for non-compliance. No bureaucrat or minister was given the power to grant exemptions, penalties or waivers.
It is indeed disconcerting that 10 years after this framework was put in place, the minister is proposing to tinker with the regime by introducing a system of government by derogation. In short, here is what the minister has proposed in the finance bill.
First, given the authority and power of the Treasury to waive penalties and fines for non-delivery of unclaimed assets. Second, apply the in dup lum rule by introducing a cap stipulating that interest should not exceed the original amount of undelivered money.
Who benefits the most from the proposals contained in the finance bill? In my view, banks, insurance companies and entities listed on the capital market will now have the freedom to hold and trade undelivered financial assets without having to face the consequences of non-compliance.
The proposals will also allow holding entities to retain accrued income generated by assets owned by orphans and widows. On Thursday, I called the UFAA offices to hear their side of the story even as I sought to understand the rationale for the no-consequences scheme for non-compliance proposed in the budget bill.
A spokesperson for the authority wanted to explain to me that the main objective of the finance bill proposals is to establish a moratorium on sanctions in order to encourage holding companies to release the sums they hold.
He said the authority had faced legal challenges by detaining institutions opposing both their audits and the payment of fines and argued that the legal challenges were delaying the reunification of assets at their owners. He pointed out that reuniting unclaimed assets with their owners was the authority’s primary mandate.
Regarding the in dup lum rule, the spokesperson for the UFAA authority said that it was necessary to unblock the cases where compliance was difficult due to the cases where the penalties and interest accumulated well over beyond the amount claimed and therefore delay reunification.
The arguments of the UFAA spokesperson are not entirely without merit. Clearly, the capabilities of the fledgling authority to manage and administer this massive fund are still being developed.
The problem is that what the Finance Bill seeks to do amounts to an attempt to totally change the existing framework from one where the surrender of unclaimed assets is mandatory to a voluntary framework. Parliament must reject the proposed changes.