Law No. 2006-008 on the Foreign Exchange Code

LOI N° 2006-008 OF AUGUST 2, 2006

EXPLANATORY STATEMENT
Law No. 67-028 of December 28, 1967 and its implementing texts, supplemented and amended by Ordinance No. 73-053 of September 10, 1973 and Ordinance No. 93-010 of March 30, 1993, constitute the fundamental texts governing Madagascar's financial relations with foreign countries. Starting in September 1996, Madagascar took measures to lift restrictions on current payments abroad and, consequently, adhered to the provisions of Article VIII of the IMF Statutes. Strategically, this reform required the repeal of all foreign exchange restrictions on current external payments and the adoption of new texts to create an incentive environment for imports and exports. The coexistence of the old legal and regulatory provisions with the new texts adopted to fulfill obligations arising from our adherence to Article VIII of the IMF Statutes constitutes a source of inconsistency and diverse interpretations of the regulations. A review of the foreign exchange laws and regulations currently in force in Madagascar has been conducted. The main objectives of the development of this Code are to:

• clarify the legislation and regulations concerning foreign exchange currently in force, and
• allow for its evolution vis-à-vis the country's economic policy to facilitate its integration into the global economy.
  It aligns with a political strategy of gradual liberalization.
  The main innovations of this Code are the definition of the most commonly used terms regarding Madagascar's financial relations with foreign countries, as well as the possibility of opening capital transactions and introducing forward market instruments in Madagascar. Such is the object of this law. The National Assembly and the Senate adopted it in their respective joint sessions on July 13, 2006. THE PRESIDENT OF THE REPUBLIC, Having regard to the Constitution, Having regard to Decision No. 12-HCC/D3 of July 27, 2006 by the High Constitutional Court; Promulgates the law whose text follows:

CHAPTER I: GENERAL PROVISIONS
Article 1: For the purposes of this law, the following terms are defined as:
Foreign country: all countries other than Madagascar.
Approved intermediaries: primary banks and authorized Post Office offices empowered by decree of the Ministry in charge of Finance to perform, under their responsibility, all foreign exchange operations authorized and specified by the implementing texts. Exchange offices: companies or establishments that have obtained a license issued by the Banking and Financial Supervision Commission and are authorized to:
o buy and sell foreign currencies in cash or traveler's checks; o collect checks denominated in foreign currency drawn on bank accounts or bank checks; o buy or sell currencies held in a foreign currency account opened at a Malagasy bank. Capital transactions: the establishment, modification of composition, transfer, and liquidation of assets of a Malagasy resident abroad or the assets of a non-resident in Madagascar. Payments for current operations: payments that do not aim to transfer capital. They include in particular:

1. all payments due for foreign trade and other current operations, including services, as well as normal short-term banking and credit facilities;
2. payments due for interest on loans or net income from other investments;
3. moderate amount payments for the amortization of loans or depreciation of direct investments;
4. Remittances for family expenses.
   Residents: natural persons whose main center of interest is in Madagascar and Malagasy or foreign legal entities for their establishments in Madagascar. Natural persons, except foreign civil servants posted in Madagascar, acquire the status of resident upon their installation in Madagascar. Natural persons whose main center of interest is in Madagascar are all natural persons who have their principal domicile in Madagascar, i.e., the place of residence they occupy most frequently. Natural persons acquire the status of resident as soon as they can prove their effective installation in Madagascar. Non-residents: natural persons whose main center of interest is abroad and Malagasy or foreign legal entities for their establishments abroad. Natural persons, except Malagasy civil servants posted abroad, acquire the status of non-resident upon their installation abroad. Illicit exchange: a foreign exchange operation not carried out through approved intermediaries, exchange offices, or any other authorized entity. Currencies: any currency other than the Ariary. Foreign exchange market: a currency market on which operations involving the exchange of the national currency against foreign currencies take place. Monetary gold: minted gold, whether Malagasy or foreign, as well as bars and ingots of gold admitted by the Central Bank of Madagascar. Foreign direct investments: the creation of a new enterprise and the acquisition of all or part of an activity branch or shares of a Malagasy law company by a foreign law company or by a non-resident natural person. Article 2: Financial relations between persons residing in the Republic of Madagascar and those residing abroad are free. This freedom is exercised according to the provisions provided by this law and in compliance with the international commitments undertaken by the Republic of Madagascar. Article 3: The Government may, for the defense of national interests and by decree taken in Council of Ministers upon proposal of the Minister in charge of Finance:
   1° Submit to declaration, prior authorization or control:
   a. foreign exchange operations and settlements of any nature between persons residing in the Republic of Madagascar and those residing abroad. b. capital transactions as defined in Article 1, with the exception of foreign direct investments in Madagascar;
   c. the import and export of monetary gold as well as all other material movements of valuables between the Republic of Madagascar and foreign countries.
   2° Order the repatriation of claims abroad arising from exports of goods, remuneration for services, and, in general, all income or products arising from financial relations with foreign countries; 3° Authorize approved intermediaries to carry out the operations referred to in paragraphs 1a, 1b, and 1c above. Article 4: The Government may decide by decree taken in Council of Ministers upon proposal of the Minister in charge of Finance:

• the opening of one or more capital transaction(s),
• the introduction of forward market instruments in Madagascar.
  Article 5: Subject to the provisions of Article 3 above, this law makes no modification to the regime applicable to regulations concerning insurance, reinsurance, and capitalization.
  Article 6: The Minister in charge of Finance has the initiative for drafting the foreign exchange law and its implementing texts. He ensures their application and compliance with the related provisions. He may conduct controls at approved intermediaries and all other natural or legal persons performing foreign exchange operations. Approved intermediaries and exchange offices are obligated to submit statistical reports to the competent authorities, namely:
• The Ministry in charge of Finance,
• The Ministry in charge of Commerce,
• The Central Bank of Madagascar,
• The Banking and Financial Supervision Commission.

CHAPTER II: ON THE ESTABLISHMENT OF OFFENSES Article 7: Offenses or attempts to commit offenses against the regulations concerning financial relations between persons residing in the Republic of Madagascar and those abroad are established, prosecuted, and penalized under the conditions set by this law. This applies in particular to:
o non-compliance with declaration or repatriation obligations; o failure to observe prescribed procedures or required formalities; o failure to obtain required authorizations or failure to meet the conditions attached to these authorizations, and o total or partial non-execution or delay in executing commitments undertaken with monetary authorities in exchange for certain authorizations they issue; o illicit exchange, offers and acceptances of services provided as intermediaries, either to match buyers and sellers or to facilitate negotiations even when such an enterprise is not remunerated, o any operation involving false cash or valuables. Article 8: The agents designated below are authorized to establish offenses against foreign exchange regulations:

• the Governor of the Central Bank of Madagascar or his qualified representatives;
• agents of the Treasury Administration;
• agents of the Customs Administration.
  These agents must be sworn in and carry a commission card.
  Article 9: Judicial police officers are authorized to establish facts concerning offenses related to illicit exchange and operations involving false cash or valuables.
  Article 10: In accordance with Articles 110 and following of the Code of Criminal Procedure, the agents referred to in Article 8 above are authorized to conduct domiciliary visits they deem necessary in all locations for the search of any offense concerning Madagascar's financial relations with foreign countries. Controls at any approved intermediary are carried out upon presentation of a mission order or judicial requisition, subject to compliance with the indicated hours. Furthermore, for the application of foreign exchange regulations, customs agents have the right to control all postal shipments, except correspondence and diplomatic shipments. Article 11: The agents referred to in Article 8 above are authorized to seize and place under seal the corpus or products of the offense in foreign exchange matters in accordance with common law rules. Article 12: The agents referred to in Article 8 above may request information from all public services necessary for the performance of their mission without professional secrecy being opposable. Any obstruction to these verification rights is recorded by a formal report and prosecuted as opposition to the regular exercise of control functions. Article 13: All persons called, by reason of their functions or duties, to intervene in the application of foreign exchange regulations are bound by professional secrecy and subject to the penalties provided by Article 378 of the Penal Code. However, when a judicial prosecution has been initiated, these same persons may not invoke professional secrecy except in cases provided by specific laws. Article 14: Proof of offenses may be established by all means, even if no seizure could have been carried out. All records of foreign exchange offenses are recorded in formal reports that serve as proof until contrary evidence is produced when drafted by at least two sworn agents. Article 15: These formal reports state the date, location of the controls and investigations carried out, the nature of the observations made and information collected, the seizure of documents, if applicable, as well as the names, titles, and administrative residence of the reporting agents. They further indicate that the offenders at whom the investigation or control was directed have been informed of the date and place of drafting this report and that a summons has been made to assist in its drafting. If these persons are present at the drafting, they specify that a reading has been made to them and that they have been requested to sign it.

CHAPTER III: ON THE PROSECUTION OF OFFENSES Article 16: The prosecution of offenses against foreign exchange regulations can only be exercised upon the complaint of the Minister in charge of Finance.
In all proceedings resulting from offenses against foreign exchange regulations, the Minister in charge of Finance or his authorized representatives have the right to present and support the case before the court and to be heard in support of their conclusions. Article 17: When the presumed author of an offense against foreign exchange regulations dies before the filing of the complaint, or upon the intervention of a final judgment or the signing of a settlement, the Minister in charge of Finance or his authorized representatives are entitled to exercise, before the civil jurisdiction, an action against the estate seeking a court order for the confiscation of the corpus or products of the offense, or, if it cannot be seized, a monetary penalty fixed in accordance with Article 20 below. Article 18: When offenses against foreign exchange regulations are committed by administrators, managers, or directors of a legal entity, or by one of them acting in the name and on behalf of the legal entity, the latter may be prosecuted and sentenced to monetary penalties provided by this law. Article 19: When offenses against foreign exchange regulations simultaneously constitute offenses under customs legislation or any other legislation, they are, independently of the sanctions provided by this law, established, prosecuted, and penalized as in foreign exchange matters or in accordance with the procedure provided by the legislation to which it is contravened. In all cases not provided for by this law, common law applies.

CHAPTER IV: ON PENALTIES
Article 20: Whoever has contravened or attempted to contravene the measures referred to in Article 7 above shall be punished by imprisonment of one month to five years and a fine ranging from half to triple the corpus of the offense. In case of recidivism, the provisions of the Penal Code apply. The penalties shall be doubled and imprisonment shall be mandatory. Article 21: Independently of the penalties provided in Article 20 of this law, the court is required to order the confiscation of the corpus or products of the offense for all offenses provided in Article 7 above. The agents referred to in Article 8 above may petition the President of the competent Court to order by way of an ordinance conservatory measures, including the freezing of capital or financial operations on assets subject to seizure or confiscation, regardless of their nature. The lifting of these measures may be ordered upon request by the competent administration. When the offending operation involves several natural or legal persons, the corpus of the offense, whether it can be represented or not, is constituted by the total of services provided by each of the concerned persons, if their complicity is established, including remuneration for services. Each natural or legal person is held jointly liable for the monetary penalties imposed. Article 22: In addition to the prohibitions provided by Article 42 of the Penal Code, persons convicted for offenses against foreign exchange legislation and regulations are further declared incapable of exercising for 5 years the functions of stockbrokers, and of being voters and/or elected to any professional organization.

CHAPTER V: ON SETTLEMENTS
Article 23: The Minister in charge of Finance, or his authorized representatives for this purpose, may settle with the offender and fix himself the conditions of this settlement.
Article 24: If the offender opts for the settlement route, the amount of the settlement cannot exceed twice that of the corpus of the offense, with a minimum of Ar 500,000.

CHAPTER VI: MISCELLANEOUS PROVISIONS
Article 25: All prior provisions contrary to this law are and remain repealed, in particular:

• those of Law No. 67-028 of December 18, 1967 concerning the financial relations of the Malagasy Republic with foreign countries;
• those of Ordinance No. 73-053 of September 10, 1973 amending and supplementing the provisions of Law No. 67-028;
• those of Ordinance No. 93-010 of March 30, 1993 supplementing Articles 9, 10, 12 and 16 of Ordinance No. 73-053 and Law No. 67-028.
  Article 26: Regulatory texts will be adopted as necessary for the application of this law.
  This law shall be published in the Official Journal of the Republic. It shall be executed as a law of the State.
  Antananarivo, August 2, 2006