This concerns in particular delegations of payment, pledges of receivables, or any other similar mechanism resulting in the extinguishment of an obligation by offsetting when the extinguished obligation relates to a transaction subject to foreign exchange regulations.
Since 1 March 2019, new exchange regulations are in force in CEMAC countries. Adopted on 21 December 2018 by the Ministerial Committee of the Monetary Union of Central Africa, the legislative body of this organisation, the provisions of this Regulation are mandatory and directly applicable in all CEMAC countries. However, different deadlines for compliance are provided for economic operators, including approved intermediaries (local credit institutions):
- a general deadline for compliance set at 1 September 2019,
- a specific deadline for bringing offshore accounts into compliance set at 10 December 2019, and
- a specific deadline for compliance for CEMAC resident companies operating in the mining and hydrocarbon sectors set at 31 December 2020.
This new foreign exchange regulation provides for the mandatory use of a licensed intermediary for any transaction between a resident of the CEMAC zone and a non-resident. Article 30 of the Regulation provides that settlement of external transactions shall be carried out exclusively through approved intermediaries (credit institutions in the CEMAC zone and, where appropriate, their correspondent banks abroad).
It should be noted that article 31 of the Regulation provides that outbound transfers of funds may be subject to a transfer fee. Instruction no. 002/GR/2019 of 10 June 2019 on the pricing of transfer operations specifies that the transfer commission rate to be charged on outgoing transfers may not exceed 1% exclusive of tax of the amount of the operation, excluding the commission received by the Bank of Central African States (BEAC).
The settlement of outbound transactions must also be declared to the BEAC, this declaration being ensured in particular by the approved intermediary referred to above.
The involvement of an approved intermediary in all transactions between a resident of the CEMAC zone and a non-resident is a translation of the general obligation weighing on credit institutions of the zone, since they are responsible for ensuring the compliance of the said transactions with foreign exchange regulations.
Certain payment mechanisms or the realisation of certain securities result in the settlement of outbound transactions without the intervention of an authorised intermediary. This is the case when, in the context of financing granted by a non-resident of the CEMAC zone to a resident, a delegation of payment is set up as a method of payment or as a security. The resident borrower (the Delegator) delegates his debtor (the Delegatee) to the payment of the sums owed to the lender (the Delegate). The diagram below illustrates this situation:
In the delegation of payment illustrated above, any payment made by the Delegatee to the Delegate will, as from the said payment, release (i) the Delegatee from his obligations towards the Delegator and (ii) the Delegator from his obligations towards the Delegate with regard to the loan, in each case up to the amount of the payment thus made. By paying the lender, the Delegatee extinguishes both his debt to the borrower and the sums owed by the borrower to the lender.
This method of settling the sums owed by the CEMAC resident borrower to the non-resident lender does not comply with the provisions of Article 30 of the Regulation, in that it is carried out without the intermediary of an approved intermediary.
The same non-compliance is likely to be raised if, instead of the delegation of payment referred to above, the CEMAC resident borrower consents to a pledge of claims in favour of the lender. The same is true of any scheme resulting in the allocation of a claim (on a resident or a non-resident) to the payment of a debt vis-à-vis a non-resident, or in the extinction of an obligation to pay by compensation when this obligation fell within the scope of the CEMAC zone exchange regulations.
The BEAC could call into question these types of payment schemes on several grounds:
(i) the absence of an approved intermediary in the settlement of an outbound transaction is contrary to Article 30 of the Regulation;
(ii) these schemes risk distorting the balance of payments of the CEMAC zone insofar as the obligations extinguished by compensation (reimbursement of interest and principal up to the amount of the payments made) will not be reflected therein;
(iii) when the Delegate or the debtor of the debt given as guarantee is a non-resident, these schemes prevent the entry of foreign exchange into the CEMAC zone (such would be the case of foreign exchange relating to export debts delegated or given as guarantee in favour of a non-resident); and
(iv) these schemes result in the non-payment of transfer fees that should have applied to obligations extinguished by set-off (foreign currency debt service payments in our example), resulting in a financial shortfall for authorised intermediaries and the BEAC.
The sanctions provided for by the exchange regulations in the CEMAC zone and likely to apply to these schemes would essentially concern non-financial administrative sanctions (warning, reprimand, prohibition to carry out certain transfer operations, suspension of activities, etc.). These sanctions would be imposed on residents involved in the operation. Financial sanctions could also be imposed depending on the nature of the claim assigned to the payment of the debt vis-à-vis the non-resident.
At the date of publication of this newsletter, we are not aware of any questioning by the BEAC of the schemes analysed above. However, given the context in which the new foreign exchange regulations for the CEMAC zone were adopted (tougher obligations on operators and a strong desire to replenish foreign exchange reserves), the risk seems high. Special attention should therefore be paid to these payment mechanisms or securities when developing investment projects in CEMAC countries. In particular, if securities have been put in place in these countries and whose realisation is likely to entail the risks described above, it would be advisable to assess opportunities for their compliance or replacement by other mechanisms in line with the foreign exchange regulations in force.
This legal update is not intended to be and should not be construed as providing legal advice. The addressee is solely liable for any use of the information contained herein and the Law Firm shall not be held responsible for any damages, direct, indirect or otherwise, arising from the use of the information by the addressee.