July 25th 2017

Business / Economy

Experts sound alarm on proposed finance law that would 'auction' Kenya

In comments to the international NGO Tax Justice Network, anti-corruption campaigner John Githongo has said that the proposed centre "would be like a financial crime aircraft carrier, self-contained and able to cause considerable damage”.

By Free Press Reporternewsdesk@kenyafreepress.comSaturday, 10 Dec 2016 15:16 EAT

The cabinet secretary for the Treasury, Henry Rotich.

The government could soon introduce a Bill in Parliament that experts have criticised as unconstitutional. The Nairobi International Financial Centre Bill aims to “provide a framework to facilitate and support the development of an efficient and globally competitive financial services sector in Kenya that generates high levels of national savings and investments through the establishment of the Nairobi International Financial Centre the Nairobi International Financial Centre Authority, and for connected purposes.”

However, as presently drafted, the Bill would turn Kenya into a tax haven, experts fear, by creating a financial market over which national authorities have no power or control. Kenyan and international tax justice and anti-corruption advocates first sounded the alarm over the Bill early in the year, following which the government withdrew it from the agenda of public participation. According to confidential sources, the government is keen to introduce the Bill before Parliament any time from now.

Experts have three main concerns with the Bill. First, in Section 3 which says that: "Where there is any conflict or inconsistency between this Act and the provisions of any other Act in matters relating to the purpose of this Act, this Act shall prevail." They say the law and the Authority created under it shall not be subject to any other law, including laws governing finance industry such as the Central Bank Act, Banking Act, Income Tax Act and others.

According to this view, institutions like the Central Bank, Kenya Revenue Authority, Capital Markets Authority and Insurance Regulatory Authority among others will not have power over the authority created under the Act. "This means that the centre is an authority unto itself. Kenyan tax laws would be rendered redundant and any proceeds from the Centre would benefit only foreigners and well-connected local businessmen," said a law expert.

In comments to the international NGO Tax Justice Network, anti-corruption campaigner John Githongo has said that the proposed centre "would be like a financial crime aircraft carrier, self-contained and able to cause considerable damage”. Given the nature of Kenya's National Assembly where a majority of members don't do due diligence to understand the kind of laws they are passing, many fear the Bill is likely to go through and create a tax haven in Kenya.

The second concern with the Bill is Section 8 which gives the president immense powers over the Authority. The president appoints the key management officers of the authority. Connected to Section 3 which ousts other laws inconsistent with Act, the law would render meaningless the principle of separation of powers and neuter the role of oversight authorities checking excesses of the executive.

"In a country where corruption is entrenched in the office of the president, giving the president such powers is a cause for worry," said Hassan Kulundu, a media and legal scholar with interest in regulatory laws, adding, "With this law, if it passes just know that the country has been auctioned."

The third issue with the Bill is Section 17, with the following provisions. (1) A director, officer, employee or agent of the Authority or any person who for any reason has access to any record, document, material or information relating to the affairs of the Authority which that person acquires through the performance of his or her duties or the exercise of his or her functions shall not divulge, use for personal gain, publish or otherwise disclose to any person such document, material or information unless the disclosure is required-

(a) to be disclosed under any law;

(b) for the performance of his duties or the exercise of his functions under the Act; or

(c) when lawfully required to do so by a court of law.

(2) This section shall not apply to any document, material or information which at the time of disclosure is, or has already been made lawfully available to the public.

(3) A person who has any document, material or information which to his knowledge has been disclosed in contravention to subsection (1) shall not disclose, in any manner, the same to any other person.

(4) A person who contravenes subsection (1) or (3) shall be liable on conviction to a fine not exceeding two hundred thousand shillings or to an imprisonment to a term not exceeding three years or to both.

The Authority to be created under the Act would have immense powers and functions including the formulation of its own policies, which by dint of Section 3 will not be subjected to other authorities. For example, the Authority would certify firms to conduct activities under the centre. In the case of a bank, the authority's powers would preclude those of the Central Bank, in insurance of IRA since the Acts of these institutions would have been ousted.

Other powers of the Authority point to a powerful institution which would run its own economic and legal show outside the purview of national laws. "How does anyone expect that a centre to 'facilitate and support the development of an efficient and globally competitive financial services sector in Kenya' when even tax, which is the number one source of income for the government, is not guaranteed?" posed Mr Kulundu.

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