Bank of Tanzania Tightens Foreign Exchange Laws, Invites New Licence Applications
As part of the nation’s ongoing battle against currency speculation, tax evasion, and money laundering, the Bank of Tanzania is enforcing a new set of regulations which tightens Tanzania’s foreign exchange laws.
The enactment of the regulations published on 24 June 2019 doesn’t come as a surprise after government investigations uncovered as many as seven unregistered shops owned by many operators. It was also found that the TRA records did not reflect all of the money exchanged through forex bureaux, with both of these issues seen as a way to create room for tax evasion.
Another contributing factor to these new regulations will have been the massive raid on the foreign exchange bureau industry, which saw the Bank of Tanzania close nearly 100 bureaux for money laundering and tax evasion as well as shut down a newspaper for publishing unofficial exchange rate data.
President John Magufuli has made it very clear that he is emphasising close control on the Tanzanian economy. Since taking office in 2015, Magufuli has preached his battle against corruption, taking a direct and what some describe as a heavy-handed approach to policy-making. Some see the new regulations on foreign exchange as also being a bit heavy-handed, but they certainly adhere to his plans for close control.
Claiming that the Bank of Tanzania had previously licensed too many bureaux for the central bank to keep tabs on their activities, so many of the bureaux didn’t abide by the law. These new regulations are aimed at ensuring that any forex bureau that does establish itself in Tanzania will meet very stringent and lofty criteria.
The new regulations allow foreign exchange bureaux to gain a licence again, but they must meet the new minimum capital requirement of TSh1 billion, which more than triples the previous minimum capital requirement of TSh300 million. Bureaux shall also be required to maintain a working capital of 75 per cent of paid-up capital as a minimum. Along with this, bureaux must substantiate a space of demand in the location where they plan to set up shop by performing and submitting a detailed feasibility study.
When established, the forex operator must also collect identity information from their customers looking to exchange money as well as gather details on the source of the money to be exchanged and the person’s planned use of the exchanged cash. Some exchanges are also requiring plane tickets or proof of travel for people travelling to other countries who want to get some foreign currency for their trip. This is to help curb the funding of terrorism and money laundering activities.
The government, in collaboration with the Bank of Tanzania, has taken a hard-nosed approach to ensure that the foreign exchange market in Tanzania doesn’t, once again, invite criminal activities. However, in demanding such lofty capital and working capital requirements, the nation may create a space where smaller operators simply cannot operate. With these demanding tools in place, small operators will likely lose their business to those who have the muscle to remain. Those big companies will then reap the benefits of being among the few businesses in operation and may then earn a lot more because of the reduced competition.
Since the beginning of the year and then after the government’s move to revoke the licences of close to 100 bureaux in February, the Tanzanian shilling has been mostly stable. With so many foreign exchange bureaux shut down, the commercial banks have been conducting the lion’s share of foreign currency trading. The Bank of Tanzania governor, Professor Florens Luoga, has stated that around $10 million has been traded daily by the commercial banks due to them culling the number of exchange bureaux, which he remarks has improved the inflow of hard currency as well as delivered increased transparency in the sector.
On 24 June, the Bank of Tanzania announced that now that new regulations are in place, the doors are open for foreign exchange businesses to apply for a new licence. The applicants need to adhere to the new regulations, but if a bureau under investigation wishes to apply for a new licence, they will be rejected, with the central bank’s manager for bureaux de change, Mr Victor Tarimu, saying that those being investigated shouldn’t even attempt to apply. While the businesses under investigation will have to wait for the conclusion of their investigations to attempt to set up shop in Tanzania again, others not under government or legal scrutiny can apply for the new licence.
The government, through the Bank of Tanzania, are delivering on the President’s promise to battle corruption in the country, with the new foreign exchange regulations being the latest step towards achieving close control over the economy.