Ethiopia: NBE Outlaws Pending Under-Invoiced Import Clearance

The central bank has prohibited banks from authorising imports with under-invoiced transactions and documentation filed before last December, when the directive that monitors under-invoiced imports was issued.

Following an appeal from the banks, the National Bank of Ethiopia (NBE) had allowed the banks to clear and give permits for imports made with under-invoiced transactions until the end of last July 2018. However, a circular recently issued by the NBE directs the banks to stop processing imports with under-invoiced transactions. The central bank has also invalidated the permits and purchase orders given by the banks, even of those in the process of importing.

"As of now, processing any import with under-invoiced document is not allowed," reads the letter signed by Yenehasab Tadesse, director of foreign exchange monitoring and reserve management at the central bank. "And banks will be held accountable if they do so."

Last year the central bank issued a directive with the main goal of monitoring under-invoicing by setting a minimum price for the imported items as a preventative method. The directive also required the banks to submit the copy of import applications on a weekly basis and summary reports of the list of approved applications on a monthly basis.

In the process of approving letters of credit and purchase orders, the banks are required to check the eight digits of the HS code of the items, brand name, origin, FOB value and type of currency. The banks are also directed not to accept the proforma invoices of import items with the price that is less than the minimum indicated prices set on the directive. However, it also gave the banks room to accept less than five percent discount from the indicative price.

Following the new procedure, the banks are overwhelmed by pending import cases executed before the issuance of the directive. The banks have forwarded their requests to National Bank for a settlement.

National Bank has requested that the banks send copies of the files of pending cases. After reviewing the documents, the bank gave them the green light to approve the documents. However, the Bank's letter issued three weeks ago, has ordered them to refrain from processing these documents. The letter also cancelled the approval it granted previously.

"The approvals you made, so far, are cancelled," reads the letter. "Thus, the imports shipped into the country with these approvals shouldn't be processed by your bank."

The letter also notified the banks that failure to comply would be subject to punitive fines.

An importer and a bank who are involved, in under-invoicing and a bank that issues import permits for under-invoiced transactions will be subject to a penalty of 10,000 Br for every transaction, according to the directive.

The new order from the NBE has an adverse effect on both importers and banks, according to industry insiders.

"We will be subjected for fines in failing to settle the payments to the foreign banks, where the importers were processing the purchase," said a senior bank executive who commented under the condition of anonymity.

The banks that cancel their letters of credit will be put on the blacklist of the foreign banks, according to this executive.

"This could affect our future relationship with these banks," he told Fortune.

Abdulmenan Mohammed, a financial expert for the past 15 years, recommends the lifting of the recent prohibition.

"The directive shouldn't apply to imports started before the issuance of the directive," he said, "therefore, it should be lifted."

If the ban is triggered with a suspected abuse of the permission, the NBE may investigate to trace the abusers, according to Abdulmenan.

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