Economy

Authority Stealing: A Second Look at the Finance Act 2020

The Finance Act 2020 was signed into law on 31 December 2020 by President Muhammadu Buhari and took effect on 1 January 2021. One major aspect of the Finance Act 2020 is the Unclaimed Funds Trust Fund.

According to the Finance Act 2020, any unclaimed dividend of a public limited liability company quoted on the Nigerian Stock Exchange, as well as any unutilised amount in a dormant bank account which has remained unclaimed or unutilised for a period of not less than six years from the date of declaring the dividends or domiciling the funds in a bank account, shall be transferred immediately to the Trust Fund.

Such unclaimed dividends and unutilised funds are to be treated as a special debt owed by the Federal Government to the shareholders and dormant bank account holders.

As a Crisis Intervention Fund under section 77 (1) of the Act, the Trust Fund will act as a “go-to” option for government to access more funds for major national projects pending when the owners lay claim to it. As the Minister of Finance, Budget and National Planning, Zainab Ahmed noted, the Federal Government could access as much as N850 billion to be realised from payments into the Trust Fund.

However, critics opposed to the establishment of the Trust Fund, insist that the unclaimed dividends and the unutilised funds are private wealth of investors (whether individuals or corporate entities), and the idea of converting such private wealth to a source of revenue for the government negates the provisions of the 1999 Constitution (as amended) which guarantee the right to own property and assets.

By virtue of the constitution, no government can act beyond its powers. The right to own property in Nigeria ensures that no government, person, institution or group within and outside the country can take over the property of any citizen by force or fraud.

The Finance Act 2020 however mandates banks to transfer the monies to the Trust Fund, and where failure to do so constitutes an offence. It is noteworthy that banks and parties involved are liable upon conviction to a fine of not less than five times the value of the unclaimed dividends and unutilised funds in a dormant bank account, as well as accumulated interest at the Central Bank of Nigeria Monetary Policy Rate.

Interestingly, funds owned by the government, which fall within the same category, are exempted from being transferred to the Trust Fund. The Act expressly provides that official bank accounts owned or belonging to the Federal Government, State Governments, Local Governments, or any of the Ministries, Departments or Agencies shall not be affected or paid into the Trust Fund.

It is thus evident that the Finance Act is unconstitutional. Apart from this, it is undemocratic and fraught with backhand politics. For instance, the government said it established the Trust Fund to protect and preserve unclaimed dividends of shareholders of Public Liability Companies quoted on the Nigerian Stock Exchange.

All the unclaimed dividends in the Unclaimed Funds Trust Fund are thus kept in trust by the Federal Government, and managed by the Debt Management Office (DMO).

Meanwhile, six out of nine members of the governing council of the Trust Fund are government affiliates. The six members include the Minister of Finance; Governor of the Central Bank; Director General of the Securities and Exchange Commission; Managing Director of the National Deposit Insurance Corporation; Representative of the Registrar General of the Corporate Affairs Commission; and Director General of the Debt Management Office.

The other three are from the private sector and their appointments are influenced by the government. For example, the co-chairperson of the governing council from the private sector is to be appointed by the President on the recommendation of the same Minister of Finance who is heading the council.

What then can one make of this arrangement, the intentions behind it, and the fact that government will essentially be lending to itself other people’s money? Ordinarily, the creditor determines the rules of engagement in a debt situation. Before the creditor who is the main player chooses to lend his money, he evaluates a proposed debtor on reputation and ability to pay back.

In this case, it is the opposite. Firstly, the debtor is the one setting the terms for borrowing money from the creditor. Secondly, the terms of repayment are being set after the debtor has taken possession of the creditor’s money. Thirdly, the debtor who has little reputation of being good managers of financial resources, is carrying this out with threats of a heavy fine upon failure to comply.

The Finance Act failed to acknowledge that these are people’s private property and the fact that they are yet unclaimed or in dormant account does not mean the owners do not have a right as to determine who and who not to lend it to.

In fact, it is not really about lending. The main trouble is entrusting the unclaimed dividends and dormant accounts into the hand of a debtor that is always in the habit of borrowing in the face of increasing debt profile, and has no history of efficient fund management.

Moreover, the government does not come under the protection of the law of trust and cannot constitute itself into a trustee of a property that belongs to her citizenry. This is in view of the fact that an entity, government, or person who has no level of claim as owner or co-owner of a property cannot create a trust over someone else’s property.

Dividends and shares remain property of their respective owners (shareholders and their representatives), and the fact that they are unclaimed does not make them ownerless.

The least any government can do is to protect an unclaimed property, publicise its existence, and consolidate efforts so that its owners can make claims and recover them, even if such owners are to pay a safe keeping fee to the government.

While the Finance Act 2020 frustrates efforts by shareholders to recover any outstanding unclaimed dividend following the tedious processes involved in making that claim as contained in the Act, banks are also at the receiving end as the targeted funds are part of the credit balances in the banks.

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Findings show that the government anticipates a reported borrowing of not less than N850 billion from the funds, meaning that such huge amount will, by fiat, be withdrawn from the banks.

Economic experts posit that this will threaten the liquidity position of some of the banks and put them at grave risk, possibly prompting a round of distress, with serious adverse effects for the larger economy. The government will as such be shooting itself in the leg after all its efforts to bridge the unemployment gap in the country, which has seen a surge in kidnapping, banditry, and other criminal adventures.

The Finance Act 2020 equally discourages savings and investment in the country, which pundits say poses additional challenges for capital formation needed to drive the economy upward.

The Government has a responsibility to the people and should not in trying to live up to it suffocate them. Arrogating people’s money under the pretext of creating a trust is anti-democratic.