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Law, unclaimed funds and the Financial Act 2020

Law’s empire is a resplendent mansion. It covers all those rules, institutions and norms that define the legal order of a society. Economics, on the other hand, is the science of reconciling scarcity and wants to enhance the wealth of nations.

Richard Posner at Chicago Law School was a pioneer in the study of law as a social tool to promote economic efficiency. The Nobel laureate Joseph Stiglitz has argued that the structural challenges facing the American economy, for example, have to do with the inefficient rule-making that underpins American capitalism. Daron Acemoglu and James Robinson, in their book, Why Nations Fail (Crown Publishing 2012), underline the system of rules governing institutions, markets and property rights as being key critical success factors for the prosperity of nations.

The normative framework for macroeconomic policy management derives from both fiscal and monetary policy. Fiscal policy is about government revenue mobilisation, taxation, budgeting and public expenditure. Monetary policy, on the other hand, has to do with the work of the central bank in controlling monetary aggregates, moderating inflation and ensuring a sound monetary and payments system. In an ideal world, the fiscal and monetary side must work in tandem to ensure financial balance, macroeconomic equilibrium and long-term prosperity. Economic policy efficiency is critical in sending the right signals by which market players and other economic actors can anchor their rational expectations for the future.

The Financial Act 2020 is a 26-page documented that was signed into law by General Muhammadu Buhari on 13 January 2020 and was gazetted on the following day of 14 January, 2020. Several factors brought it into being. First, as of June last year, our economy entered into another recession; coming at the wake of the generalised and unprecedented lockdown occasioned by the novel coronavirus global pandemic.

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Attention has been drawn to the fact that the Finance Act never uses the word “borrow” with regards to those funds. This implies that FGN can commandeer those funds without obligation to pay back

The collapse of global oil prices following Covid-19 led to rather severe fiscal challenges for our decision-makers. Something needed to be done.

During 2018-2020, the Bill and Melinda Gates Foundation Fiscal Commission was working quietly to improve the fiscal space for economic policy. I was a member of that team. The Financial Act 2020 was partly a response to that advice.

The new Act expressly aims to promote fiscal equity; reform existing tax laws to put them in tune with global best practices; provide incentives for investors; and enhance Ease of Doing Business while boosting government revenue at federal and state levels.

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The key innovations introduced under the new Act cover the Companies Income Tax Act (CITA); Personal Income Tax (PIT); Stamp Duties Act; Custom and Excise Tariff; Petroleum Profit Tax; Capital Gains Tax; and the Value Added Tax (VAT).

Our primary focus today is on the twin issues of unclaimed dividends and the question of dormant accounts in commercial banks. The essence of the new policy is that FGN plans to securitize unclaimed dividends and dormant account balances that have existed for up to 6 years will be pooled into a trust fund to be managed by the Debt Management Office (DMO).

Unclaimed dividends and dormant accounts in Nigeria currently exceed N1 trillion. This new policy raises several issues. Attention has been drawn to the fact that the Finance Act never uses the word “borrow” with regards to those funds. This implies that FGN can commandeer those funds without obligation to pay back. There is also the fact that it seems to ignore a provision in CAMA that allows for a period of 12 years for unclaimed dividends before such funds can be passed back to the issuing company.

It appears to be offering a carte blanche for government to commandeer people’s money in the name of a “Crisis Intervention Fund”. So, far, according to some sources, total looted funds recovered over the past decade total a staggering $31.98 billion. Government has never been transparently accountable for how these moneys have been spent.

The UK has important lessons for us. In 2008 the British government passed the Dormant Bank and Building Society Accounts Act. A commission was established comprising both government and the private sector to a review all dormant assets, both public and private. Unclaimed dividends in the UK range between £3 to £4 billion while dormant accounts amount to a staggering £15 billion in commercial banks and building society vaults. An account is considered dormant when there have been no activities on it for a period of 15 years. In terms of principles, the fundamental objective is to link assets with owners. And even if this cannot be achieved, the principle is maintained that the right of owners to reclaim assets must exist in perpetuity.

The new approach on dormant accounts and unclaimed dividends under our new Financial Act 2020 is bad policy both in spirit and in law. It sends the wrong signal that government can commandeer the private assets for purposes that may never be clear or legitimate. Property rights are a cornerstone of economic and political freedom. In a free-market economy and in a constitutional democracy, it is the bounden duty of government to protect the rights of individual property. It is a right that is as old as John Locke, al-Farabi and de Tocqueville.

When we enact any legislation that seems to arrogate powers to the state to confiscate private assets, then we are treading on dangerous ground. In a time of war, generals can commandeer private property in the service of the war effort. In a time of peace, however, such a policy sends the wrong message to local economic actors and foreign investors alike.

In the words of the legal philosopher Ronald Dworkin, “We are subjects of law’s empire, liegemen to its methods and ideals, bound in spirit while we debate what we must therefore do.” And what we have to do is to revise that bad law!

(Being the Text of a Lecture Delivered at a Webinar Organised by the Rule of Law Development Foundation, Kaduna, on Monday 22 February, 2021)