Still on guaranteed unconditional transferability

In a previous piece on this topic, I examined the conduct and allegations of the Senate in their investigation into the remittances from Nigeria by a telecommunications company to its parent company abroad. The piece has been criticised on all fronts apart from the legal issues that formed its premise. It therefore seemed appropriate to consider the legal issues in fuller detail.

The crux of the aggrieved senators’ complaints is that the length of time between the date capital was purportedly imported into Nigeria and the date a certificate was issued in respect of the importation was so wide as to render the repatriation of capital suspect. I am going to argue against this and demonstrate that it is not a relevant consideration, given the applicable law and the actual mechanics of importation and repatriation of capital.

The 2 key pieces of legislation are the Nigerian Investment Promotion Commission Act (‘NIPC Act’) and the Foreign Exchange (Monitoring and Miscellaneous) Provisions Act (‘FEP Act’). The NIPC Act was passed in 1995, initially as a decree, to correct the negative impact that Nigeria’s nationalisation policy of the previous decade had had on the economy. Crying out for foreign investment, something the country is still doing, the country needed to give prospective investors the assurance that their companies would not again be taken from them and that they could do with the profits, to a large extent, as they pleased. It was the guarantee of a favourable investment climate.

The NIPC Act gives foreign investors exactly the same rights as Nigerians, to participate in any enterprise apart from those restricted (even to Nigerians) on the so-called ‘negative list’. The NIPC Act explicitly states that no enterprise will be nationalised or expropriated by any government of the Federation. In addition, to now quote from the Act extensively, section 24 states –
“Subject to this Section, a foreign investor in an enterprise to which this Act applies shall be guaranteed unconditional transferability of funds through any authorised dealer in freely convertible currency of
(a) dividends or profits (net of all taxes) attributable to the investment;
(b) payments in respect of loan servicing where a foreign loan has been obtained; and
(a) the remittance of proceeds (net of all taxes), and other obligations in the event of a sale or liquidation of the enterprises or any interest attributable to the investment.”

The ordinary reading of this excerpt is clear and this is next to no ambiguity. If, as a foreign investor, I have brought in investment funds, then I am guaranteed unconditional transferability of my dividends and profits, as long as I have paid my taxes. If you invest, the Federal Government has said, there will be no obstacle to your repatriation of profits or dividends once you have paid us the tax to which we are entitled.

However, trading in convertible currency, receiving and repatriating it are activities regulated by the Central Bank and not the NIPC. Enter, the FEP Act. As a matter of trivia, it is the FEP Act that stipulates the $5,000 declaration limit that we see on departure and arrival cards at international airports in Nigeria and provides the framework for the operation of foreign currency domiciliary accounts (‘dom accounts’). With regard to foreign investors, here is what the Act says, in section 15–

15. (1) Any person may invest in any enterprise or security, with foreign currency or capital imported into Nigeria through an Authorised Dealer either by telegraphic transfer, cheques or other negotiable instruments and converted into the naira in the Market in accordance with the provisions of this Act.

(2) The Authorised Dealer through which the foreign currency or capital for the investment referred to in subsection (1) of this section is imported shall, within 24 hours of the importation, issue a Certificate of Capital Importation to the investor and shall, within 48 hours thereafter, make returns to the Central Bank giving such information as the Central Bank may, from time to time, require.

(3) The Central Bank shall furnish to the Minister, on a quarterly basis, detailed reports on the returns furnished to the Central Bank under subsection (2) of this section for information and statistical purposes only.

(4) Foreign currency imported into Nigeria and invested in any enterprise pursuant to subsection (1) of this section shall be guaranteed unconditional transferability of funds, through an Authorised Dealer in freely convertible currency, relating to— (a) dividends or profits (net of taxes) attributable to the investment; (b) payments in respect of loan servicing where a foreign loan has been obtained; and (c) the remittance of proceeds (net of all taxes) and other obligations in the event of sale or liquidation of the enterprise or any interest attributable to the investment.

(5) The repatriation referred to in subsection (4) of this section shall be communicated by an Authorised Dealer to the Central Bank, within fourteen days of the repatriation and the Central Bank shall furnish same to the Minister on a monthly basis for information and statistical purposes only.

‘Authorised Dealer’ means a bank licensed under the Banks and Other Financial Institutions Act.

Subsection 4 here is virtually identical to Section 24 of the NPIC Act. However, with relevance to the instant case, subsection 2 shows whose responsibility it is to ensure that a Certificate of Capital Importation is issued. The responsibility is the Authorised Dealer’s. For the record, a certificate of capital importation is a document issued by the bank showing the following information –
i. the date the funds were received
ii. the company in whose favour the funds were received
iii. how much was received
iv. the exchange rate at which the bank converted the funds
v. the value in local currency credited to the company’s account.

To rehash the key information about Nigeria’s investment regulations –
i. a foreigner/foreign company can invest in Nigeria and own up to 100% of the shareholding.
ii. foreign owned shares or investments in Nigeria are explicitly protected by law from nationalisation or expropriation.
iii. as long as a foreign investor pays all relevant taxes, he or she is guaranteed unconditional transferability of dividends and profits attributable to that investment.
iv. the Certificate of Importation for the imported capital is to be issued by the bank through which the funds were received in Nigeria.

The words ‘guaranteed’ and ‘unconditional’ raise a nearly impregnable shield for the foreign investor. The sum of the regulations limits any investigations on repatriations to a very narrow set of questions, 2 by my reckoning – (1) did a foreign investor import capital for investment; and (2) has the company paid its taxes on the dividends and profits it wants to repatriate?

Harping on the amount repatriated goes to no issue. It is a fundamental notion to investment that in a successful business, returns or profits will be in many multiples of whatever is invested. The applicable regulations do not place a limit on how much of a company’s profits can be repatriated.

What is the effect of a non-timely issuance of a CCI? In my opinion, it should be a regulatory issue between the bank and the Central Bank, treated in the same manner that returns filed out of time should be. It cannot have the effect of erasing imported funds, especially when there are records in the bank’s books and the CBN’s monitoring protocols showing that funds were indeed imported. This goes back to the first of the 2 relevant questions, that is, were funds, in fact, imported?

The issues seem fairly clear and free of controversy beyond that which the Senate has introduced. It is hoped that the Senate understands the impact of such misadventures on the regulatory climate, especially at this time when the Presidency is working hard at improving FDI flows, and that the current quiet around the matter is a permanent one.