BSR: Critique of the Mandatory Declaration of Assets Directive
Earlier this week, the government announced a new policy of mandatory declaration of assets (MDA) by senior public officers when the Chief Secretary to the President and Cabinet issued a directive to senior public officers to declare their assets. According to the directive, public officers ranging from Ministers to heads of state enterprises are now required to submit a written declaration of their assets to the Office of the President and Cabinet (OPC).
On the face of it, the directive represents a good policy initiative. It is a direct response to calls for public officers to be more accountable. For years, the opposition and civil society, including organisations like Transparency International Zimbabwe, have called upon government to introduce an assets declaration policy. However, as with any policy, effectiveness depends on its design and the political will to implement it. It’s too soon to judge whether the political will to implement exists, but the design can be examined to determine whether or not it is fit for the task it is supposed to accomplish.
It is important to remember that it is not the first time that a ZANU PF government has announced a high-sounding policy. Back in the 1980s, the party had a Leadership Code, which listed a large number of prohibitions on ownership of property or businesses by senior leaders. The Leadership Code was not worth the paper it was written on because the majority of them quickly embarked on personal programmes of asset accumulation. The hope is that this will not be the fate of the MDA. But hope is not enough, which is why the design of the policy and directive must be examined at this early stage.
The first point is that the MDA is merely a directive and is not anchored in a specific law. The administrative directive has no force of law. This means the requirement to declare assets is non-legal. At best, it might be referred to as “soft law”. It is a political statement which does not have legally-binding force, which is a big disadvantage. There are advantages of flexibility and adaptability but they are outweighed by the disadvantages. It is better for the MDA to be anchored in a specific law. When a policy is implemented through law, it has legally-binding force and can be enforced against public officers in a court of law.
Furthermore, a law will have specific enforceable penalties for breaches and non-compliance. Public officers must know the penalties for non-compliance. This directive only calls for public officers to submit written declarations but there are no legal sanctions for non-compliance. The possible incentive to comply is political. This is not good enough. This can easily be rectified by converting this MDA directive into a proper legal instrument. The light-touch soft law approach must give way to the firm hand of hard law.
High minimum threshold
Another criticism is that the minimum threshold of the value of a movable asset that must be declared is exceedingly high. A public officer is required to declare “any item of movable property, exceeding one hundred thousand dollars ($100,000) in value owned or leased by the individual concerned or in which he or she has an interest.” One hundred thousand is not for the collective value of assets. It is for each individual item of movable property. This is an exceedingly high threshold. One can only imagine a few movable assets that could individually meet that minimum threshold. Movable items which may be subject to unlawful accumulation are generally those falling fall below that high threshold. The result is that the high minimum threshold will be exclusionary in a way that benefits public officers as they won’t be required to declare most if not all of the movable assets that they own since they are likely to fall below $100,000. The result is that most public officers may never have to declare any movable assets at all.
In addition, the directive takes a one-size-fits-all approach in that it applies to all types of public officers, without any variation whatsoever to take into account their different circumstances and access to opportunities. Ministers, Board members of parastatals, CEOs of local authorities, a category which includes modest rural provincial and district councils are all subjected to the same rules. This is absurd given the wide discrepancies in the circumstances of these offices. For example, a motor-cycle is way below the minimum threshold, but it could be one of the biggest assets to someone working in a rural district council. At $100,000, the minimum threshold of the value of assets to be declared is probably higher than the collective assets of a rural district council. The figure might make sense in the case of Minister or CEO of a parastatal, but it does not make sense for public officers at lower levels. The MDA directive must be more nuanced, taking into account the differences in the opportunities that are available to public officers at different levels of the public sector. The threshold certainly can’t be the same for all public officers.
Definition of interest
The MDA directive requires a public officer to make a declaration where they have “an interest” in property or a business, but it does not define the meaning of this “interest”. One of the advantages of anchoring the policy in law is that legislation usually has clear definitions provisions so that the meaning of a word in that context is clear. At present, without a contextual definition, it is so broad that it is vague and therefore subject to multiple interpretations. The directive or law must therefore have a clear definition of the nature of interest required for this MDA policy. In this regard, the definition of interest must be clear that it can be direct or indirect. Indirect interest could be where a public officer is not directly involved by has some connection to a business or property, possibly through a proxy (third party).
The need to define “interest” to include indirect interest means it is important to include property or businesses owned or controlled by persons who are connected to the public officer. This is because a public officer who wishes to distance himself from an asset may transfer it to a family member, a company or other corporate vehicle such as a trust. It is necessary therefore to include a definition of who qualifies as a “connected person”. Lessons can be borrowed from the field of corporate law, which already defines persons who are regarded as connected persons in relation to directors of companies. Connected persons may include members of the public officer's family, a body corporate with which the public officer is connected, a trustee of a trust whose beneficiaries include the public officer or a person who is connected with him, etc. The scope of this definition must be wide enough to prevent the mischief of disguising ownership of assets and distancing them from the public officer to avoid declaration under the MDA.
Unscrupulous public officers can get around the MDA not only by transferring assets to relatives but also by creating corporate vehicles and complex corporate structures both within and outside the country. At law, companies, trusts and similar vehicles have their own separate legal personalities. They are regarded as separate persons with the capacity to own, possess or transfer assets separately from their shareholders or directors. In some cases, especially in offshore finance centres, information on such corporate vehicles is so secret that tracing the beneficiaries is very difficult. It is easy to disguise the true beneficial ownership of a business by creating a chain of corporate vehicles or complex group structures. The MDA directive will be ineffective unless it is alive to these realities that beneficial ownership of corporate is often concealed. It is therefore important to ensure that there is a policy which ensures information on beneficial ownership of corporate vehicles is clear and that the MDA requires the disclosure of beneficial ownership. Companies House must be modernised to ensure that information on shareholders and directors is up to date and accurate at all times.
To be effective, the asset declaration process must be open and transparent and also subject to review and audit. The public must be able to challenge under-declaration of assets or misrepresentations by public officers. If the process is conducted secretly, there is no way of knowing whether they are telling the truth. An open and public process will give public officers an incentive to be truthful because they would know that their declaration will be scrutinised and could be challenged by members of the public. Some may argue that this is too intrusive and an invasion into the privacy of public officers. However, there is a counter-argument that this is the price that must be paid in order to occupy public office and those who are uncomfortable with it have no business taking such offices. The need to curtail the vice of corruption is greater than the privacy of persons who wish to take public office. Those who take public office must be prepared to make sacrifices in order to gain the trust and confidence of the citizens.
The MDA is based on trust that public officers will make honest and accurate valuations of their assets for purposes of declaration. There is no requirement for independent valuation. This leaves room for undervaluation which may or may not be deliberate. Here again, lessons can be borrowed from the field of corporate law, where there are strict rules regulating payment for shares using non-cash instruments. The rules require that in certain cases non-cash means of payment must be independently valued. Likewise, there must be a mechanism to ensure that certain categories of declared assets must be independently valued. Alternatively, the government itself should have a facility for random independent valuations of declared assets. There must be severe penalties for under-declarations. If public officers know that their declarations can be subject to random independent valuations, they will have an incentive to submit more truthful declarations.
Declaring under oath
The asset declaration will have more weight if it is done under oath. Since lying under oath is a criminal offence, the threat of legal sanctions should also provide an incentive for public officers to make truthful declarations and prevent under-declarations. Merely asking them to list their assets on a piece of paper without the risk of breaking the oath is unlikely to be a deterrent against false declarations or under-declarations. If prospective voters are required to declare their place of residence under oath, why should public officers declaring their assets not be subject to a similar requirement?
Sanctions for fraud and concealment
Whenever a minimum threshold is set, there is always the risk of under-declaration, fraud and concealment of assets. This can be done through transfer of assets to other persons, which as we have seen can be covered by including assets owned or controlled by connected persons. It can also be achieved through breaking up or separating assets to ensure they fall below the minimum threshold. There should be legal sanctions against this type of behaviour. Again, this is best set out in a legal instrument not in a two page policy directive.
The current directive is exclusionary because it only covers public officers up to the level of Ministers. It does not include the President and his two deputies. It also excludes chiefs. In fact, the President and his Vice Presidents must lead by example. They should be the ones to make the first asset declarations so that others can follow their lead. Furthermore, given their role in society as senior traditional leaders and the fact that they have access to state resources and rent-seeking opportunities, there is no reason why chiefs should be excluded from the assets declaration requirements.
The current call does not have a clear enforcement mechanism. It simply calls for a declaration of assets to be submitted to the OPC. If this is to work, there is need for an Assets Declaration Unit which has the capacity to carry out audits and verification of the declarations and to carry out investigations where there are grey areas or discrepancies. This mechanism must be able to enforce sanctions against offenders working alongside other law enforcement agencies such as the Anti-Corruption Commission, the police and the National Prosecuting Authority.
Declaration of gifts
The assets declaration policy would be more complete if it also includes the declaration of gifts received by public officers. Corruption and bribery offences are often conveyed through “gifts” from interested parties. The definition of gifts in this context is wide enough to include goods and services rendered or any perks given to public officers by any person. There must be a clear requirement at law to ensure that public officers declare the gifts they receive, even if they don’t have to give them up. This would enhance the levels of transparency in the public sector.
This was a quick assessment of the policy directive on asset declarations by the OPC. In principle, the policy represents a good idea. However, the design is weak and contains too many loopholes. In this article, I have identified the more apparent weaknesses and suggested means of plugging the holes. To work effectively, this policy must be anchored in a specific law. The definitions and penalties for non-compliance must be clear. Above all, care must be taken to ensure that this noble idea does not become a mere act of symbolism.