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NBE asks ERCA to unblock insurance firms bank accounts

The financial and insurance supervisory body, National Bank of Ethiopia (NBE), asked the Ethiopian Revenue and Customs Authority (ERCA) to unblock bank accounts of insurance companies that were blocked in relation to a dispute over customs guaranteed bond settlements.
The insurance companies and the revenue authority have been in disagreement since ERCA requested one billion birr from insurance firms who sold a customs guarantee bond to clients for the import of duty free equipment, mostly vehicles and construction machines, over the past decade.
Reliable sources operating in the sector told Capital that the NBE governor Teklewold Atnafu wrote a letter to the Authority asking ERCA to lift its account freeze at banks until an amicable understanding could occur on the issue through the government’s involvement.
Experts said that the central bank does not have the right to order or become involved in the Authority’s operation but it has asked ERCA to diffuse the situation until a solution can be given by the relevant government agency.
“The disagreement intensified over the past few months and we have talked to NBE,” Hadush Hintsay, secretary general of the Ethiopian Insurance Association (EIA), told Capital.
“A few weeks ago, through the involvement of NBE we met with officials from ERCA and an agreement was reached to alleviate the problem. However, ERCA has continued confiscating equipment, blocking accounts and taking money from insurer’s accounts,” Hadush claimed.
He argued that the authority is undertaking the action based on invalid documents, settled issues and on bonds that closed many years ago.
The solution may not come from ERCA because it is the body that is asking for the funds at the same it is a judge for the case, according to the expert at the insurance industry. “They are using their power,” Hadush claimed.
Experts in the insurance industry who requested anonymity told Capital that some of the payments demanded from ERCA goes back over 15 years. For example, it has asked an insurance firm to settle a customs guarantee bond issued about 19 years ago.
The issue has now affected the insurance business and pushed them to run under liquidity. Some of the insurance leaders told Capital that they are now having difficulty conducting business as usual because the Authority froze their finance at banks.
“We have to settle the claim and at the same time collect premiums from clients but we have not been able to run these operations,” a leader of one of the pioneer insurance companies told Capital.
A customer at another insurance company told Capital that he cannot access his claim, even though the insurance company gave him a cheque to settle it. “I have tried to go to the bank to secure finance for the insurance claim but the bank told me that the account of the client’s insurance company was blocked by ERCA,” an insurance customer who demanded anonymity added.
Hadush agreed with the insurance customer, he said that some of the insurance companies are unable to operate as usual.
He added that the money insurers hold is not their money. “ERCA should understand that it is the assets of the public that insurance companies use,” the association head said.
In its letter NBE said that despite the fact that an agreement was reached during a meeting held 4 weeks ago ERCA is continuing to take action against the insurers. The central bank has expressed its concerns that the action of ERCA may affect the activity of the insurance industry.
The central bank insisted that the authority halt its measures until the government hands down a final decision about the issue.
Even though Capital got confirmation from the association and insurers that NBE wrote a letter to ERCA, it is unable to confirm this from ERCA.
Ephrem Mekonnen, Public Relations Head of ERCA, told Capital the letter was not received by relevant offices at ERCA, but he did confirm that one of the insurance firms sued ERCA in relation to the issue.
Insurers claimed the actions of ERCA are completely unacceptable since most of the cases have expired.
Experts said that ERCA can claim bonds within a specified period, but it is now is requesting expired bonds. In addition, some of the claims have already cleared and the companies who got the guarantee left the country.
Asseged Gebremedhin, expert on the insurance industry and deputy CEO of operations at the National Insurance Company of Ethiopia, told Capital that the current actions taken  by ERCA may affect investment and development in the country. He said that a time bar is given for all bonds, while ERCA is requesting claims that have already passed their statute of limitations.  “These actions also impact the country’s hard currency generation since investment and business are affected,” he argued.
According to the procedure, the equipment or machines, which are mainly imported by multinational companies with projects in the country, are imported duty free via a customs guarantee bond where they have to re-export within 180 days after the end of the statute of limitations of the bond.  Experts said that ERCA is responsible for following the process and making claims on time and ensuring that the imported equipment was not re-exported within 180 days after the end of the guarantee.
However, if the importer sold the equipment here before the expiration of the agreement, then the customs duty has to be settled. According to the usual trend the maximum customs guarantee bond time bar is less than 10 years.
The customs proclamation issued in 2014 in its article 117, sub article 2 stated that the authority shall demand a security bond ‘to ensure the re-exportation of goods imported on a temporary basis without payment of duties and taxes or, in case of default, to ensure the payment of the duties and taxes’.
The proclamation article 119 sub article 3 indicates that where the debtor fails to discharge his or her obligations the guarantor shall immediately effect the payment.
“We claimed that we are not liable for the claims when time frame has expired,” Asseged told Capital.
“The authority is responsible for making claims legally through the courts as opposed to confiscating  the property of individuals and blocking bank accounts,” according to Zafu Eyessueswork, a prominent expert on the insurance and finance industry.
He says that the current operation is illegal since they haven’t followed appropriate legal procedures. He agreed  that some members of the private sector are involved in illegal activities, but at the same time the bond is crucial for the development of the country.
“As far I know most equipment is re-exported during the allowed time frame, and bonds are usually given during the appropriate time frame,” he added.
Some of the insurance leaders claimed that the operation of ERCA goes against Customs Proclamation no. 859/2014 issued four years ago. “According to the proclamation ERCA is only able to block the bank account for ten days and it must obtain court authorization but now this is not happening,” a CEO of an insurance company told Capital.
“Before their claim they have to come up with their proof that the debtors have not settled the duty or re-exported or damaged the products,” he added.


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