• Impact of the centralized economy on foreign currency transfers.
• Roles and Responsibilities of the Banks, Financial Institutions and Authorized Cash Dealers.
• Bureau De Change vested with a new role of foreign currency transfer.
• Transfer of Foreign Currency by Investors.
• Limit of Foreign Currency to Residents travelling abroad.
• Financial Crimes related to foreign currency transfers.
Payment, clearing and settlement systems in Tanzania have been, for a long time, largely dependent on cash payments. This was attributed to low development of the banking sector due to state controlled economy which continued to be embraced until 1990s. After liberalization of the economy the banking sector developed and cash transactions decreased paving way to national and international monetary transfers.
In January 1992 the Foreign Exchange Act, 1992 was enacted providing for, among other things, the management and control of foreign currency in the country. Transfer of foreign currency has now been regularized following an increase in external trade and foreign investments in Tanzania.
It is important to note that transfer of foreign currency may facilitate criminal conducts across the globe as a result of money laundering and terrorism financing. In that regard, the Government has enacted the Anti-Money Laundering Act, 2006, the National Payment Systems Act, 2015, the Banking and Financial Institutions Act, 2006 and the Bank of Tanzania Act, 2006 which, among other things, regulate monetary transfers by banks and other authorized agents and cash dealers. In addition, the Tanzania Investment Act, 1997 governs, among other things, transfer of foreign capital by investors to and from Tanzania.
This article seeks to highlight the law and procedure relating to transfer of foreign currency in Tanzania. The research team at Breakthrough Attorneys has noted that there is limited understanding by the public on foreign currency transfers and its limitations. This article shall enlighten the public on foreign currency transfers and incidental matters thereto.
1.1 What is foreign currency?
Foreign currency is defined as any currency other than the currency of the United Republic. This definition is provided for under Section 4 of the Foreign Exchange Act, 1992.
2.0 Money Transfers via Commercial Banks and Money Transfer Organizations
All licensed commercial banks are mandated to transfer foreign currency in Tanzania. Money transfer organizations include, among others, Western Union and MoneyGram. There is no limit of the amount to be transferred by commercial banks in a single transaction. However, the Bank of Tanzania (‘the Bank’) has set up a limit on which commercial banks and financial institutions have to comply with in foreign currency transfers. Regulation 7(1) of the Banking and Financial Institutions (Foreign Exchange Exposure Limits) Regulations, 2014 (‘the Foreign Exchange Limits Regulations, 2014’) requires all banks to abide by the foreign exchange exposure limit provided by the Bank. The limit provided by the Bank is 10% of the bank’s core capital calculated by shorthand method.
Commercial banks are required to deliver a report of foreign exchange transactions to the Bank in the form and frequency determined by the Bank as per Regulation 12 of the Foreign Exchange Exposure Limits Regulations, 2014. Failure to deliver a report to the Bank leads to liability on the part of the commercial bank at a fine of TZS. 1 Million per each day of delayed report submission.
For purposes of ensuring compliance with the foreign exchange exposure limit; commercial banks have put in a place own limits on foreign exchange transfers on daily basis. This is provided for under Regulation 7(2) of the Foreign Exchange Exposure Limits Regulations, 2014.
3.0 Money Transfers by Bureau De Change
As already stated the transfer of foreign currency is vested with commercial banks and money transfer institutions. Bureau De Change were mandated to deal with spot transactions only. Spot transactions are defined as immediate and over the counter sale of foreign currency as per Regulation 3(1) of the Foreign Exchange (Bureau De Change) Regulations, 2015 (‘Foreign Exchange Regulations, 2015). The provisions of Regulation 20(2) of the Foreign Exchange Regulations, 2015 extends monetary transfer function to Class B Bureau De Change. It provides:
“A Class B bureau de change shall conduct spot transactions involving cash and other approved payment instruments, and money transfer business as sub agents of international money transfer agencies or mobile network operators or nay other activity as may be approved by the Bank”
The above provision means that now bureau de change with Class B license may provide money transfer services including foreign transfers. Regulation 20(3) of the Foreign Exchange Regulations, 2015 requires bureau de change with Class B license to conduct their money transfer services through banks, financial institutions, international monetary transfer agents and mobile network operators.
3.1 Prerequisites for International Money Transfers by Bureau De Change
The Bureau De Change is required to seek from the customer the following prior to effecting any monetary transfers:
i. Relevant invoice, in the case of importation;
ii. Letter or invoice from respective educational or medical institution, in the case of medical or education expenses;
iii. Employment contract, in the case of expatriate proceeds;
iv. Pension award letter and employment contract, in the case of retirement benefits;
v. Contractual documents, invoices or fee note and certification of settlement of tax obligations in case of consultancy management or royalty agreements;
vi. In the case of dividends and profits to foreign shareholders, audited reports indicating declared dividends or profits to be repatriated and documents confirming payments of all relevant taxes; or
vii. Any other relevant document depending on the nature of the request.
The rationale behind seeking the above information from the customer is for the Bureau De Change to be in a position to report any anti-money laundering transaction or financing of terrorism as per the provisions of Regulation 32(1) of the Foreign Exchange Regulations, 2015.
3.2 Limit of Foreign Currency to Residents Travelling Abroad
Residents travelling abroad are allowed to be issued with foreign currency by the Bureau De Change to the limit of USD 10,000.00. This shall be issued after production of documentary evidence of residence and valid travelling documents. This limitation is provided for under Regulation 20(4) of the Foreign Exchange Regulations, 2015.
The above stated limit is viewed as a significant increase from the previous limit of USD 50 which was provided for under Section 10(2)(i) of the Foreign Exchange Act, 1992. An excess amount beyond USD 50 would require approval of the Governor of the Bank of Tanzania. An increase of the amount of foreign currency on travel abroad by residents has been welcome by the business community conducting business abroad. However, it is still argued that the same be increased further to cater for business needs.
4.0 Compliance with Anti-Money Laundering Act, 2006
As stated earlier international monetary transfers are prone to be used by criminals to perpetrate and finance their criminal transactions worldwide. In that regard, many countries have laid down control and regulatory mechanisms of international monetary transfers with a view of combating financial crimes such as money laundering and terrorism financing in their respective jurisdictions and across the globe.
Banks, financial institutions and cash dealers are among the listed reporting persons under Section 3 of the Anti-Money Laundering Act, 2006 (‘the Act’). The role of reporting persons include, among others, conducting a due diligence of their customers, identifying their customers and reporting any suspicious transactions by their customers.
Banks and financial institutions are enjoined to record particulars of their customers by requiring documents such as birth certificates, passport and letter of identification from local government authorities. In case of corporate customers, banks are required to obtain their certificate of incorporation, copies of memorandum and articles of association and particulars of directors. Failure by a bank or financial institution to report suspected transactions or fulfil its reporting obligations under the Act is an offence punishable at a fine not exceeding TZS. 10 Million.
5.0 Foreign currency transfers by Investors
In a view of enhancing transfer of foreign capital by investors in and outside Tanzania, investors are guaranteed unconditional transferability of foreign capital through authorized dealer bank. This is provided for under Section 21 of the Tanzania Investment Act, 1997. Foreign investors are guaranteed to transfer foreign currency involving the following:
a. Net profits or dividends attributable to the investment;
b. Payments in respect of a loan servicing where a foreign loan has been obtained;
c. Royalties, fees and charges in respect of any technology transfer agreement registered under the Act;
d. Remittance of proceeds (net of all taxes and other obligations) in the event of sale or liquidation of the business enterprise or any interest attributable to the investment; and
e. Payment of emoluments and other benefits to foreign personnel employed in Tanzania in connection with the business enterprise.
Foreign investors are ranked in priority to be issued with foreign exchange credit by banks and financial institutions. No lending in foreign currency shall be made unless borrowers investing in Tanzania are provided with foreign currency credit (Regulation 6(b) of the Foreign Exchange Exposure Limits Regulations, 2014).
Transfer of foreign currency in Tanzania is increasing its usage now as opposed to the time of centralized economy. This is due to adoption of the liberalized economic policies which have led to an increase of commercial banks and financial institutions. Above all, the liberalized economy has led to an influx of foreign direct investments in Tanzania, thus necessitating the need for having an efficient payment, clearing and settlement system involving foreign currency.
Laws and respective regulations have been enacted to regulate and monitor foreign currency transfers. The procedures and limitations on foreign currency transfers have been highlighted above. The enactment of the national payment system has been aligned to cater for foreign currency transfers. The challenges related to foreign transfers have been addressed through enactment of legislation such as the Anti-Money Laundering Act, 2006, the Foreign Exchange Act, 1992 and Foreign Exchange Exposure Limits Regulations, 2015 and other legislation as highlighted above.
Breakthrough Attorneys commends the efforts made by the Government in combating anti-money laundering and terrorism financing. However, institutions vested with enforcement and administration of the legislation cited above such as the Financial Intelligence Unit (FIU) have to put much more efforts and device new mechanisms of combating financial crimes which keep on changing due to advancement of technology.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it