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The limits of megaphone central banking
Alex Magaisa, New Zimbabwe
January 24, 2008

http://www.newzimbabwe.com/pages/magaisa59.17453.html

When future students of banking look back at the tenure of Dr Gideon Gono as Governor of the Reserve Bank of Zimbabwe (RBZ), they may draw a key lesson of central banking.

It is that whilst megaphone central banking might draw short-term applause and placate a few, it eventually succumbs to the old truth -- that in the process of covering shortfalls and raising expectations which cannot be met, the proverbial horns will, invariably, manifest in very ugly ways.

Most recently, the Governor announced, publicly, that he was ready to testify before a Parliamentary Committee, to name and shame members of high society, who are allegedly involved in unlawful cash hoarding and thereby jeopardising the financial system. The RBZ introduced the term "cash barons" to Zimbabwean vocabulary.

Subsequently, the much-anticipated hearing did not materialise, amid claims that the ruling Zanu PF party caused it to be called off, fearful of exposing dirty linen prior to a key election in March 2008.

But there is a question that has not been answered satisfactorily. It is the question why the Governor of the RBZ, itself an important statutory body, would prefer to expose alleged wrongdoers at a parliamentary forum rather than use his own powers provided for under statute?

One reason may be that the Governor sought to find protection from the privilege that attaches to the proceedings of Parliament. This would be, perhaps, on the understanding that the Governor himself does not enjoy comparable privileges under the Reserve Bank of Zimbabwe Act (RBZ Act), the law under which he holds office. But that proposition is incorrect.

It is submitted, with respect, that the Governor has, at his disposal, powers that he can deploy to achieve the result that he sought on the platform of the Parliamentary Committee. That these statutory powers have not been used, in preference for the political platform of Parliament, has given rise to suggestions that this is motivated by factors that have little to do with the execution of the statutory functions of central banking.

It is, perhaps, part of the unsavoury megaphone approach to central banking that is by and large inimical to the commonly recognised modus operandi of central banking.

Admittedly, the RBZ Act is an odd piece of statute. It confers powers to the RBZ under Section 53, to require any person to furnish it with information and documents and also to require any person to appear before it at a specified time and place to answer specific questions. Yet these powers are exercisable where the RBZ is providing assistance to a foreign regulatory authority. These are very strong powers, entitling the RBZ to assume the powers of a commissioner conferred under the Commissions of Inquiry Act, meaning it can call witnesses to testify before it on any matter concerning the specific inquiry.

But whilst these powers specifically relate to provision of foreign assistance, there does not seem to be a corresponding provision conferring similar powers to the RBZ in respect of its own specific investigations. It is odd, that one can have such strong powers to assist foreign regulators yet lacking the same powers for its own investigations. It needs to be rectified.

Nevertheless, the RBZ is entitled under Section 7(1)(s) of the RBZ Act, to exercise functions conferred on it by any other law. One such law is the Banking Act. It confers power on the RBZ to continuously monitor and supervise banks and their "associates", a term that is given a fairly wide definition under the law.

Crucially, it can investigate them to prevent or detect contravention of the Banking Act or any other law. Further, Section 45(2) states clearly that in performing its duties, the RBZ can use any lawful means which it considers appropriate - again a very wide discretionary power. To facilitate the supervision and investigation, the RBZ is entitled to appoint supervisors and inspectors.

A very important provision is Section 49(1)(e) of the Act, which enables the RBZ to investigate a banking institution where it has reasonable grounds for believing that a bank or any person connected with a bank has committed an offence under the Banking Act. The phrase "any person connected" with a bank is not defined in precise terms and could, therefore, be subject to a wide definition to include persons having substantial dealings with a bank.

This could, presumably, include where such dealings are of an unlawful nature and therefore necessary to be investigated by the regulator. This provision states, further, that where the RBZ considers that an investigation is necessary for the purpose of preventing, investigating or detecting a contravention of the Banking Act or any other law, the RBZ may direct an inspector to conduct an investigation into the banking institution.

Significantly, under Section 49(5) of the Banking Act, the inspector also has "the same powers, rights and privileges as are conferred upon a commissioner by the Commissions of Inquiry Act" granting him wide powers to call upon witnesses to testify. One of the powers of the inspector so appointed is, "to examine, whether under oath or otherwise, any person who is or was a director, officer, employee, agent, auditor, legal adviser, valuator, debtor, creditor, policy-holder, shareholder or partner of the banking institution concerned" (S. 49(3)(b)).

The categories of persons mentioned in this provision are not strictly defined and could, arguably, cover debtors, creditors, partners or agents, or indeed any number of persons who are supposedly hoarding cash or doing other unlawful activities, in collusion with banking institutions.

Surely, if the Governor is in possession of names of cash barons, as he says he does, it is likely that he holds vital information that would connect their activities to one or more banks. This would, therefore, provide a reasonable basis for the RBZ to mount an investigation into the bank's activities and in the process call upon them to testify.

What these provisions show is that there is, surely, some statutory power, which is available to the Governor to do more or less the same job that he intends to do through the Parliamentary Committee. The RBZ's ability to regulate Zimbabwe's monetary system and to foster the proper functioning of the financial system should not be dependent upon whether or not a Parliamentary Committee is available and willing to give him audience.

The point here is that the RBZ does not have to outsource its responsibilities to Parliament. It has the powers to deploy its own investigatory arsenal against banks and any persons that it considers to be involved in the allegedly unlawful activities. If these people are moving their ill-gotten gains through the banking system, it is likely that they are committing money-laundering offences.

If the banks are colluding in the unlawful activities, it follows that they may also be committing offences, allowing the barons to clean their dirty money through their systems. If they are getting money in bulk from the banks in order to carry out other illegal activities, there is a possibility that the banks are aiding and abetting the commission of offences.

This means, in any language, in light of the selected laws discussed above, that the RBZ is perfectly entitled to mount investigations of its own, without seeking the cover of Parliament. If indeed criminal offences are detected, the RBZ can always make a referral to the Attorney General to consider prosecution.

If, therefore, the RBZ has such and other statutory powers, the question has to be why the Governor would, instead, seek to use the Parliamentary platform to name and shame so-called perpetrators. And when Parliament fails to respond, does it mean that the RBZ can no longer carry out its functions? This raises concerns that this is not about regulation but smacks of a well-calculated political stunt.

The credibility of the RBZ as the chief financial regulator rests on its ability and willingness to use its statutory powers, following laid down procedures that meet the requirements of Due Process. This requires caution, not haste. It requires adherence to principles of natural justice, not approaches that are bound to be interpreted as politically motivated, permitting in the process, suspected individuals to escape the net alleging political persecution.

The Governor does not need parliament to do his work. He has powers to do it and if he genuinely wants to uncover the activities of so-called culprits he ought to assign his strong team of legal advisers to scour the legislation for tools and instruments to enable him to do so. If they search carefully, they will find them. If not, they can always recommend legislation to confer the RBZ with specific investigatory powers which are generally available to financial regulators elsewhere in the world.

Otherwise, one is left to ponder, whether this whole charade is another chapter in the long-running megaphone approach to central banking.

Dr Magaisa is based at Kent Law School, UK and can be contacted at wamagaisa@yahoo.co.uk or a.t.magaisa@kent.ac.uk

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