While it has been made clear that buy­ing forex from a rel­a­tive can land you in trou­ble with the law ac­cord­ing to the Ex­change Con­trol Act, pre­vent­ing this kind of bar­ter­ing is sim­ply im­pos­si­ble in T&T.

This from econ­o­mist Dr Vaalmik­ki Ar­joon who told the Busi­ness Guardian that even if more vis­i­tors ex­change forex at banks, in­stead of with fam­i­ly and friends, the ad­di­tion­al US dol­lar in­flow in the bank­ing sys­tem would be neg­li­gi­ble and does noth­ing to re­solve T&T’s forex is­sues.

Ac­cord­ing to the Ex­change Con­trol Act, at sec­tion 6(1): “Ex­cept with the per­mis­sion of the bank, no per­son (oth­er than an au­tho­rised deal­er) shall in T&T, buy or bor­row any gold or for­eign cur­ren­cy from, or sell or lend any gold or for­eign cur­ren­cy to, any per­son oth­er than an au­tho­rised deal­er.”

The is­sue of il­le­gal trans­ac­tions was raised dur­ing a Joint Se­lect Com­mit­tee on Fi­nance and Le­gal Af­fairs on No­vem­ber 22. That hear­ing dis­cussed an in­quiry in­to the per­for­mance of the Fi­nan­cial In­tel­li­gence Unit of T&T (FIU) in re­la­tion to im­prov­ing an­ti-mon­ey laun­der­ing and com­bat­ing the fi­nanc­ing of ter­ror­ism (AML/CFT) com­pli­ance.

JSC mem­ber Gov­er­nor Sen­a­tor Lau­rence His­lop asked, “If I am a reg­u­lar cit­i­zen and a fam­i­ly mem­ber comes from the US or from Cana­da and they have for­eign cur­ren­cy, are you say­ing to the pub­lic they are breach­ing the Ex­change Con­trol Act by pur­chas­ing that for­eign cur­ren­cy from that fam­i­ly mem­ber?”

In re­sponse, the FIU’s di­rec­tor, Nigel Stod­dard, said the leg­is­la­tion was clear with re­gards to a per­son who does not have an au­tho­rised li­cence from the Cen­tral Bank for the buy­ing and sell­ing for­eign ex­change.

“Know­ing our cul­ture, that as­pect of it, if some­one is re­turn­ing, as the ex­am­ple you gave in the case of a fam­i­ly mem­ber, gen­er­al­ly that per­son is not, in my view, in the busi­ness of buy­ing or sell­ing for­eign ex­change.

“How­ev­er, once some­one in that ca­pac­i­ty goes to the fi­nan­cial in­sti­tu­tion, as in the ex­am­ple you would have giv­en, the banks have their cus­tomer due dili­gence re­quire­ments that they would per­form, and in­clud­ed in that would be the source of funds, and an hon­est per­son would in­di­cate where they would get their funds from. Again it comes back to the leg­is­la­tion, and the view is if they de­ter­mine it is con­sid­ered sus­pi­cious, they can file a re­port with the FIU,” Stod­dard said.

Not­ing the prac­tice of buy­ing forex from friends and rel­a­tives has per­sist­ed for decades, Ar­joon ad­vised that the Ex­change Con­trol Act be up­dat­ed to make al­lowances for this prac­tice and pro­tect peo­ple buy­ing US dol­lars from vis­i­tors from be­ing ex­ploit­ed.

He rec­om­mend­ed that the Cen­tral Bank con­sid­er set­ting a le­gal lim­it on the amount that can be pur­chased from vis­i­tors and stip­u­late that this must be at the of­fi­cial pre­vail­ing ex­change rate.

“But even this has its lim­i­ta­tions, as it can­not be mon­i­tored ef­fec­tive­ly and giv­en the ur­gency which many place on hold­ing the US dol­lars, they will still be in­clined to buy over this lim­it and pay what­ev­er rate the sell­er is ask­ing for,” Ar­joon said.

Not­ing that the prac­tice of pur­chas­ing for­eign ex­change from rel­a­tives or vis­i­tors has be­come more wide­spread since 2014 due to in­creas­ing­ly lim­it­ed ac­cess to US cur­ren­cy through the bank­ing sys­tem, Ar­joon stat­ed this lack of avail­abil­i­ty con­tin­ues to dri­ve peo­ple to se­cure forex when­ev­er pos­si­ble.

“In an im­port-de­pen­dent econ­o­my, when au­tho­rised deal­ers can­not meet de­mand, peo­ple nat­u­ral­ly turn to al­ter­na­tive sources. Small busi­ness own­ers some­times re­ly on rel­a­tives abroad to pay their sup­pli­ers in US dol­lars, re­im­burs­ing them in TT dol­lars dur­ing vis­its or, in some ex­treme cas­es, through as­set trans­fers. Many for­eign res­i­dents al­so pay lo­cal rel­a­tives in US dol­lars when they vis­it for ser­vices per­formed, like main­tain­ing and re­pair­ing any prop­er­ties they own lo­cal­ly,” Ar­joon ex­plained.

He said vis­i­tors of­ten pre­fer to sell forex to lo­cals as it is more con­ve­nient than hav­ing to wait for lengthy pe­ri­ods at the bank and fill out forms to get TT dol­lars. Vis­i­tors can get more TT dol­lars for their US dol­lars from lo­cals than the rate the banks are of­fer­ing.

“At the same time, de­clin­ing con­fi­dence in the TT dol­lar as a store of val­ue has dri­ven many to buy from vis­i­tors and hoard US dol­lars. In­deed, the TT econ­o­my is rid­dled with much un­cer­tain­ly giv­en our woe­ful eco­nom­ic per­for­mance hav­ing de­clined by 20 per cent since 2015, in­creas­ing crim­i­nal ac­tiv­i­ties, a litany of ob­sta­cles hin­der­ing the pri­vate sec­tor’s ex­port com­pet­i­tive­ness and re­duced en­er­gy pro­duc­tion. It is nat­ur­al that when eco­nom­ic con­fi­dence fails, the lo­cal cur­ren­cy los­es in­her­ent val­ue and many flock to a safe-haven as­set – the US dol­lar,” Ar­joon added.

Al­so, for years he added there has been much un­cer­tain­ty about a po­ten­tial de­val­u­a­tion, caus­ing many to buy US dol­lars when­ev­er pos­si­ble, in­clud­ing from vis­i­tors, and build their hold­ings, giv­en that it will be­come more ex­pen­sive to ac­quire US cur­ren­cy af­ter a de­val­u­a­tion and their stock of US dol­lars will be more valu­able in lo­cal cur­ren­cy terms.

“Ris­ing prices over time has fur­ther weak­ened con­fi­dence in the TT dol­lar as a store of val­ue. In­fla­tion erodes pur­chas­ing pow­er–the same amount of TT dol­lars buys few­er goods. This is con­cern­ing in an im­port-de­pen­dent econ­o­my, where ris­ing glob­al prices for es­sen­tials like food, med­i­cine, and fu­el di­rect­ly trans­late in­to high­er lo­cal costs. To pro­tect their wealth from be­ing erod­ed by in­fla­tion, many seek refuge in the US dol­lars, which they per­ceive as more sta­ble and less prone to val­ue de­te­ri­o­ra­tion. Any ra­tio­nal­ly mind­ed per­son will there­fore seek to hold as much US dol­lars as they can,” Ar­joon said.

How­ev­er, he said buy­ing forex from vis­i­tors is not the cause of this coun­try’s forex woes, stat­ing, “This is noth­ing more than noise in the equa­tion by the au­thor­i­ties, and at­tempt­ing to ad­dress it does not in­crease our ex­port po­ten­tial and cer­tain­ly does not in­crease gas pro­duc­tion.

“The re­al so­lu­tion is to change this lazy eco­nom­ics that we prac­tice, and in­stead im­ple­ment strate­gies that re­move the litany of ob­sta­cles to do­ing busi­ness, stim­u­late non-en­er­gy pro­duc­tiv­i­ty to low­er our de­pen­dence on the rest of the world to feed us and boost ex­port earn­ings, while al­so plug­ging forex leak­ages from trans­fer pric­ing, cap­i­tal flight and trade mis-in­voic­ing. The con­ver­sa­tion should al­so con­sid­er the pos­si­bil­i­ty of dol­lar­i­sa­tion—for­mal­ly adopt­ing the US dol­lars as le­gal ten­der for do­mes­tic trans­ac­tions along­side the TT dol­lars. This, how­ev­er, can­not re­place the im­por­tance of in­creas­ing ex­port com­pet­i­tive­ness to earn more US dol­lar rev­enues.”

Giv­ing his take on the mat­ter econ­o­mist Dr Vanus James said the ur­gency that prompt­ed the Cen­tral Bank’s re­sponse is the con­tin­u­ing high pres­sure on the of­fi­cial re­serves, which is dra­mat­i­cal­ly in­creased around high spend­ing sea­sons like Christ­mas.

James not­ed that an im­por­tant form of this pres­sure is the flood of com­plaints about for­eign ex­change short­age by the im­porters of the coun­try, many of whom are sure to have the ears of the Min­is­ter of Fi­nance.

“The Cen­tral Bank is nec­es­sar­i­ly vig­i­lant. The coun­try is high­ly im­port de­pen­dent. We im­port cap­i­tal goods to or­gan­ise pro­duc­tion, like air­craft for Caribbean Air­lines and the cars and truck that fa­cil­i­tate dis­tri­b­u­tion. We im­port food and con­sumer sup­plies to sus­tain work­ers and their fam­i­lies who put the cap­i­tal to work. Even the re­lief we pro­vide to vul­ner­a­ble per­sons in the name of so­cial pro­tec­tion trans­lates im­me­di­ate­ly in­to large-scale im­ports of con­sumer sup­plies. We im­port knowl­edge and skills, like those de­ployed by the Chi­nese build­ing the air­port in To­ba­go,” James added.

What is the penal­ty for breach­ing the Ex­change Con­trol Act?

Part II

Gen­er­al Pro­vi­sions as to Of­fences

(1) Any per­son in or res­i­dent of T&T who con­tra­venes any re­stric­tion or re­quire­ment im­posed by or un­der this Act, and any such per­son who con­spires or at­tempts, or aids, abets, coun­sels or pro­cures any oth­er per­son, to con­tra­vene any such re­stric­tion or re­quire­ment as afore­said, is guilty of an of­fence pun­ish­able un­der this part.

(2) Where an of­fence pun­ish­able un­der this part has been com­mit­ted by a body cor­po­rate, any per­son who at the time of the com­mis­sion of the of­fence was a di­rec­tor, gen­er­al man­ag­er, sec­re­tary or oth­er sim­i­lar of­fi­cer of the body cor­po­rate, or was pur­port­ing to act in any such ca­pac­i­ty, shall be deemed to be guilty of that of­fence, un­less he proves that the con­tra­ven­tion was com­mit­ted with­out his con­sent or con­nivance and that he ex­er­cised all such dili­gence to pre­vent the com­mis­sion of the of­fence as he ought to have ex­er­cised hav­ing re­gard to the na­ture of his func­tions in that ca­pac­i­ty and to all the cir­cum­stances.

(3) Any per­son who com­mits an of­fence pun­ish­able un­der this part is li­able—

a) on sum­ma­ry con­vic­tion to a fine and to im­pris­on­ment for two years;

(b) on con­vic­tion on in­dict­ment to a fine and to im­pris­on­ment for five years, and where the of­fence is con­cerned with any cur­ren­cy, any se­cu­ri­ty, any gold, any goods or any oth­er prop­er­ty, the court may if it thinks fit, or­der the cur­ren­cy, se­cu­ri­ty, gold, goods or prop­er­ty to be for­feit­ed.

(4) Ex­cept in the case of a body cor­po­rate con­vict­ed on in­dict­ment, the max­i­mum fine which may be im­posed for an of­fence pun­ish­able un­der this part is— (a) on sum­ma­ry con­vic­tion five thou­sand dol­lars; and

(b) on con­vic­tion on in­dict­ment ten thou­sand dol­lars,

how­ev­er, where the of­fence is con­cerned with any cur­ren­cy, any se­cu­ri­ty, any pay­ment, any gold, any goods or any oth­er prop­er­ty, and does not con­sist on­ly of a fail­ure to give in­for­ma­tion or pro­duce books, ac­counts or oth­er doc­u­ments with re­spect there­to when re­quired to do so un­der Part I of this Sched­ule, a larg­er fine may be im­posed not ex­ceed­ing three times the amount or val­ue of the cur­ren­cy, se­cu­ri­ty, pay­ment, gold, goods or prop­er­ty.