Legislative Decree 12/2010 of 8 November Restricting the Use of Checks Amending Legislative Decree 12/95 of 26 December

Legislative Decree No. 12/2010 of 8 November

Since a check is a negotiable instrument constituting an order for immediate payment, it is understood that to effectively achieve its utility and confidence as a payment instrument, it is essential to adopt measures coherent and consistent with the current context of dynamizing the payment system, in order to make it more credible and to avoid the fraudulent issuance thereof.

With the publication of Legislative Decree No. 12/95 of 26 December, the regime for restricting the use of checks was instituted in our legal system with the aim of, on the one hand, preventing access to checks by users who undermine the spirit of trust inherent in their normal circulation, and, on the other hand, severely repressing cases of criminal issuance of checks without sufficient funds.

More than a decade after its publication, experience shows that the promotion of trust in checks as a payment instrument established in the aforementioned restrictive regime suffers from certain shortcomings, namely regarding the adequacy of the responsibilities of credit institutions to the new challenges imposed by the current socio-economic context of Cabo Verde. On this basis, the requirements and impulses arising from the recent classification of the country as a Middle-Income Country, as well as its entry into the World Trade Organization (WTO), with direct repercussions on the paradigm of commercial relations, and consequently, on the increase in traffic in various sectors of activity, where checks circulate not only as a payment instrument but also as a facilitator, must not be neglected, imposing that the level of trust placed in them be high and progressively increasing.

This decree thus aims to complement the aforementioned, while essentially maintaining the provisions then introduced, adding and modifying certain provisions regarding the criminalization for failure to pay due to irregularity of the withdrawal in bad faith, the voluntary creation by the drawer or a third party of obstacles to the payment of the issued and delivered check, whether by closing the account or altering the conditions of its operation, as well as the return of the check for the second time due to lack or insufficiency of funds, but which, however, translate into facts of analogous relevance to those already provided for in letters b) and c) of Article 14 of the aforementioned decree.

With these amendments, it is also intended to strengthen the role of credit institutions in preventing checks without sufficient funds through greater selectivity in the delivery of the so-called "check modules", through a careful assessment of the risks, conditions and guarantees offered by their respective clients, and to increase trust in honest holders and users, thereby updating the minimum value to which the drawee credit institutions are obliged to pay, regardless of lack or insufficiency of funds, currently fixed at 2,000$00 (two thousand escudos), to 10,000$00 (ten thousand escudos).

The currently available statistics on the phenomenon reveal strong indications of a growing decline in trust in checks as a payment instrument, making it necessary to require the mandatory procedural collaboration of credit institutions, while check holders are obliged to double their care in accepting them.

It should be noted that the underlying nature of this crime causes patrimonial damage, a fact that obliged the establishment of the filing of a complaint as a condition for criminal proceedings.

Without prejudice to what has already been stated above, and with a view to promoting greater openness and a spirit of collaboration among the various authorities, credit institutions are obliged to provide judicial authorities with all information and evidentiary elements in their possession, necessary for investigating the non-payment of the check presented for payment in accordance with the Uniform Law on Checks resulting from the Geneva Convention of 7 June 1930, approved by Decree-Law No. 23721 of 29 March and extended to the then colony of Cabo Verde by Ordinance No. 15017 of 31 August 1954 and published in the Official Gazette No. 41 of the same year.

Furthermore, to achieve the prescribed purposes and equip the current regime with preventive control mechanisms aimed at imprinting and maintaining the credibility required and exigible in the use of checks, it is necessary to authorize access by all credit institutions indicated in Articles 2, 3 and 4 of Law No. 3/V/96 of 1 July, which regulates the constitution, operation and activity of credit and paracredit institutions, to information from the Bank of Cabo Verde regarding check users who pose a risk, with a view to assessing the credit risk of natural and legal persons. Identical access authorization must be granted to Commercial Associations and equivalent bodies, in order to enable them to create and maintain a database to support the prior analysis of a user or potential risky user, observing data protection standards.

Another aspect worthy of consideration is the fact that the current regime does not contemplate the obligation for entities covered by the decision to rescind the check use agreement to return the check module in their possession within 10 (ten) days following the notification of the rescission of the check agreement. Although this requirement is enshrined in the norms issued by the Bank of Cabo Verde on the restriction of check use, it must also be adopted by this decree, in order to strengthen and harmonize the legislative structure in this matter, expressly and uniformly enshrining the legal obligation to return check forms in modules or books in the possession of the notified party, thereby avoiding the illegal issuance, delivery and circulation of checks after the imposed restriction.

Moreover, statistics indicate an increase in recidivism in the improper use of checks, which recommends that the deadline, methodology and competence for the renewal of the agreement provided for in Article 4 of Legislative Decree No. 12/95 of 26 December be amended, increasing it to 2 (two) years and, at the same time, harmonizing it with the deadline provided for in Article 7 of the aforementioned decree.

Without prejudice to other measures to be adopted in due course, this decree aims to equip the Cabo Verdean legal system with a comprehensive, structuring and innovative restrictive regime for the use of checks, which protects honest check users from the nefarious effects of their improper and abusive use, and maintains firm and unyielding the trust of users in checks as a payment instrument.

Thus, under the legislative authorization granted by Law No. 67/VII/2010 of 9 August; and

In the exercise of the power conferred by letter b) of paragraph 2 of Article 204 of the Constitution, the Government decrees the following:

Article 1.
Alteration of Legislative Decree No. 12/95 of 26 December

Articles 1, 2, 3, 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15, 17, 18, 21 and 22 of Legislative Decree No. 12/95 of 26 December are amended, which shall henceforth read as follows:

“Article 1.
[…]

1. Credit institutions must terminate any agreement granting the right to issue checks, whether in their own name or on behalf of another, by anyone whose improper use reveals a undermining of the spirit of trust that must govern their circulation.
2. It is presumed to undermine the spirit of trust that must govern the circulation of checks any entity that, acting in its own name or on behalf of another, upon verification of the non-payment of a check presented for that purpose, fails to regularize the situation within 30 (thirty) days following receipt of the notification of the fact by the credit institution, in accordance with the terms provided for in the following paragraph.
3. Upon verification of the non-payment of a check presented for that purpose, credit institutions must, in accordance with the terms and deadlines of the Uniform Law on Checks, notify the drawer to, within a consecutive period of 30 (thirty) days, regularize the situation, and the notification must necessarily mention:
   a) The indication of the deadline and location for regularizing the situation; b) The warning that failure to regularize within the indicated deadline implies the termination of the check agreement, and consequently, the prohibition of issuing new checks on the drawee institution, the prohibition of concluding or maintaining a check agreement with other credit institutions, in accordance with the provisions of Article 6, and inclusion in the listing of check users who pose a risk.
4. The regularization referred to in the preceding paragraph is effected by depositing in the drawn account, to the order of the check holder, or direct payment to them, proven before the drawee credit institution, the value of the check and default interest calculated at the maximum interest rate practiced, at the time of payment, by the drawee banking entity for active credit operations.
5. Without prejudice to the provisions of the preceding paragraphs, in situations where the non-payment of the check is due to lack or insufficiency of funds, the drawee credit institution is obliged to declare the fact immediately, by means of its respective inscription on the check itself.

Article 2.
[…]
In the case of accounts with more than one holder, the termination of the check agreement extends to all co-holders, but may, however, be annulled with respect to those who demonstrate that they were unaware of the acts that motivated the termination.

Article 3.
[…]

1. […]
2. The entities referred to in the preceding paragraph shall cease to be able to issue or subscribe checks on the credit institution that issued the decision, from the date on which the notification is considered to have been effected.
3. The decision to terminate the check agreement orders the return, within a period of 10 (ten) business days, of the check modules or books supplied and unused, and the credit institution must notify all covered entities of this decision in accordance with Article 8.
4. The failure to return the check modules or books after notification for that purpose, in accordance with the terms and deadline referred to in the preceding paragraph, constitutes the crime of qualified disobedience.

Article 4.
[…]
A credit institution that has terminated a check agreement may not conclude a new agreement of the same nature with the same entity before 2 (two) years have elapsed from the date of notification of the decision to terminate the agreement, unless authorized by the Bank of Cabo Verde and upon proof of the regularization of payment of all checks or the suppression of other irregularities that constituted the basis of the decision.

Article 5.
[…]

1. Credit institutions are obliged to communicate to the Bank of Cabo Verde, within the deadline and by the form it determines, all cases of:
   a) […]; b) Issuance of a check drawn on them, on a date subsequent to the notification referred to in paragraph 3 of Article 3, by entities with whom they have terminated the check agreement, notifying the drawer and the other co-holders of the drawn account thereof; c) Non-payment of a check, which had been presented for payment, in accordance with the terms and deadlines of the Uniform Law on Checks, due to lack of funds, irregularity of the withdrawal, alteration of the conditions of operation of the drawn account, closure of the account consummated voluntarily by the issuer in order to provoke obstacles to payment, prohibiting the drawee institution from paying or presenting a check returned for the second time due to lack or insufficiency of funds; d) Non-payment of a check with a value not exceeding 10,000$00 (ten thousand escudos), issued through a module supplied by them, in accordance with Article 11; e) Refusal to pay checks, in disregard of the provisions of Article 12.
2. Based on the communications from credit institutions, the Bank of Cabo Verde registers all cases of entities covered by the termination.

Article 6.
[…]

1. Entities that have been subject to termination of a check agreement or that have violated the provisions of paragraphs 2 and 3 of Article 3 are included in a listing of check users who pose a risk, to be communicated by the Bank of Cabo Verde to all credit institutions.
2. Inclusion in the listing referred to in the preceding paragraph determines for any other credit institution the immediate termination of an agreement of identical nature, as well as the prohibition of concluding a new check agreement during the following 2 (two) years, counted from the date of the decision to terminate the agreement.
3. The provisions of Articles 3, 4 and 5 shall apply, with the necessary adaptations.
4. Access to all information made available by the Bank of Cabo Verde regarding check users who pose a risk is expressly authorized:
   a) To the credit institutions indicated as such in Articles 2, 3 and 4 of Law No. 3/V/96 of 1 July, which regulates the constitution, operation and activity of credit and paracredit institutions, with a view to assessing the credit risk of natural and legal persons; b) To Commercial Associations and equivalent bodies aiming to create and maintain an updated database accessible among their respective members, enabling them, through information cross-referencing, to conduct a prior analysis of a user or potential risky user.
5. It is incumbent upon the Bank of Cabo Verde to regulate the form and terms of access to information when these are intended for the purpose of the preceding paragraph, observing data protection standards and upon prior opinion of the National Data Protection Commission.
6. All information provided by the Bank of Cabo Verde must be eliminated, as well as any references or indicators of equivalent effect, as soon as the 2 (two) year stay period ceases, or there is a decision to remove from the listing or the term of a judicial decision is verified, unless the holder expressly consents thereto.

Article 8.
[…]

1. The notifications referred to in Articles 3 and 5 are made by registered letter or by any other suitable means of communication, including electronic, to be dispatched to the last domicile recorded in the individual registry of the notified party at the notifying credit institutions, and are considered to have been effected, unless proven otherwise, on the fifth day following the registration or on the first business day following, if that is not one.
2. The refusal of correspondence or the absence of the notified party from the declared domicile does not prejudice the effectiveness of the notification and its respective effects, in the terms and deadlines referred to in the preceding paragraph.

Article 9.
Movement of deposit accounts

1. […].
2. […].

Article 10.
[…]
It is incumbent upon the Bank of Cabo Verde to fix the requirements to be observed by credit institutions in the opening of deposit accounts and in the supply of check modules, namely regarding the identification of their respective holders and representatives, and to transmit to credit institutions instructions aimed at the uniform application of the provisions of this decree.

Article 11.
[…]

1. The drawee credit institution is obliged to pay, notwithstanding the lack or insufficiency of funds, any check issued through a module supplied by it with an amount not exceeding 10,000$00 (ten thousand escudos).
2. The provisions of the preceding paragraph do not apply when the drawee institution justifiably refuses payment of the check for reasons other than lack or insufficiency of funds.
3. The grounds for the refusal to pay referred to in the preceding paragraph include, in particular, the existence of serious indications of forgery, theft, abuse of trust or illegal appropriation of the check.

Article 12.
Other cases of mandatory payment by the drawee

1. Credit institutions are also obliged to pay, notwithstanding the lack or insufficiency of funds:
   a) […]; b) […]; c) […]; d) […].
2. In case of refusal to pay, the drawee credit institution must prove that it observed the legal prescriptions regarding the obligation to terminate the check agreement and the requirements fixed by the Bank of Cabo Verde referred to in Article 10.

Article 13.
[…]
The drawee who pays a check in observance of the provisions of this chapter is subrogated in the rights of the holder up to the limit of the amount paid.

Article 14.
[…]

1. Whoever causes patrimonial damage to the check holder or to a third party is punishable with imprisonment of up to 3 (three) years or a fine of 80 to 200 (eighty to two hundred) days, observing the general regime for punishing the crime of fraud, who:
   a) Issues and delivers to another person a check with a value exceeding 10,000$00 (ten thousand escudos), which is not fully paid due to lack of funds or irregularity of the withdrawal, verified in accordance with the terms and deadlines of the Uniform Law on Checks resulting from the Geneva Convention of 7 June 1930, approved by Decree-Law No. 23721 of 29 March and extended to the then colony of Cabo Verde by Ordinance No. 15017 of 31 August 1954, published in the Official Gazette No. 41 of the same year; b) Withdraws, before or after delivery to another of a check drawn by oneself or by a third party, the funds necessary for its full payment, in accordance with the terms and for the purposes of the preceding letter; c) Prohibits the drawee institution from paying the check, closes the drawn account or, for any reason, alters the conditions of its operation, in order to prevent the full payment of the issued and delivered check.
2. The penalty of imprisonment is, however, 2 to 6 (two to six) years, if:
   a) […]; b) […]; c) […].
3. The same penalties referred to in the preceding paragraphs, observing the aggravations provided for in paragraph 2, with the necessary adaptations, apply to whoever endorses a check that they received, knowing the causes of non-full payment referred to in the letters of paragraph 1, and the check is presented for payment in the terms and deadlines established by the Uniform Law on Checks, and thereby causes patrimonial damage to another person.
4. The provisions of the preceding paragraphs do not apply to checks issued with a date subsequent to their delivery to the holder.
5. Liability for the commission of the crime is extinguished by the regularization of the situation referred to, in the terms and deadline stipulated in Article 1.
6. The penalty may be mitigated if the regularization of the patrimonial damage referred to in the preceding paragraph is made up to the beginning of the trial hearing.
7. Criminal proceedings for the crime provided for in this article depend on a complaint.

Article 15.
[…]
Whoever issues checks on a credit institution that has terminated its respective check agreement is punishable with the crime of qualified disobedience, corresponding to 2 (two) years of imprisonment or a fine of 60 to 200 (sixty to two hundred) days, in accordance with the Penal Code.

Article 17.
[…]
Principals, even if legal entities, companies or mere de facto associations, are civilly and jointly liable for the payment of fines and compensation in which their representatives are convicted for the commission of the crime provided for in Article 14, provided that these acted in that capacity and in the interest of the represented.

Article 18.
[…]

1. Whoever is convicted of the crime of issuing a check without sufficient funds may, by the court, be applied, individually or cumulatively, according to the cases, the following accessory sanctions, to those provided for in Article 14:
   a) Temporary prohibition on the use of checks; b) Publicity of the convicting decision.

Article 21.
[…]

1. The court of the district where the establishment of the credit institution where the check is initially delivered for payment is located is competent to hear the crime provided for in this decree.
2. Credit institutions must provide competent judicial authorities with all elements necessary to prove the reason for the non-payment of the check presented to them for payment in the terms and deadlines of the Uniform Law on Checks, by issuing a statement of insufficient balance, indicating the respective value, the identification elements of the drawer and sending a copy of the respective signature card, and inform entities with whom they conclude check agreements of this duty regarding the information pertaining to them.

Article 22.
Administrative Offences

1. It constitutes an administrative offence, punishable by a fine of 50,000$00 (fifty thousand escudos) to 1,500,000$00 (one million five hundred thousand escudos):
   a) […]; b) […]; c) […]; d) […]; e) […].
2. […].
3. […].
4. The proceeds from the fines applied are distributed as follows:
   a) 50% (fifty percent) to the Bank of Cabo Verde; b) 50% (fifty percent) to the State.”

Article 2.
Alteration of Designation

The designations of “banking institution” or “banking institutions”, contained in the articles of Legislative Decree No. 12/95 of 26 December, are amended to “credit institution” or “credit institutions”, in accordance with Law No. 3/V/96 of 1 July, which regulates the constitution, operation and activity of credit and paracredit institutions.

Article 3.
Republication

Legislative Decree No. 12/95 of 26 December is republished in full in the annex, with the amendments introduced by this decree, henceforth constituting the regime for restricting the use of checks.

Article 4.
Entry into Force

This decree enters into force 90 (ninety) days after its publication.

Reviewed and approved in the Council of Ministers.
José Maria Pereira Neves - Cristina Isabel Lopes da Silva Monteiro Duarte - Marisa Helena do Nascimento Morais Promulgated on 4 November 2010 Publish.
The President of the Republic, PEDRO VERONA RODRIGUES PIRES Countersigned on 4 November 2010 The Prime Minister, José Maria Pereira Neves