August 8, 2018
Over the years, the issue of regulatory infraction has become more worrisome as companies continue to dole out billions of naira to settle fines imposed for various regulatory breaches. In 2015, the Nigerian Communications Commission (NCC) imposed a fine of $5.2 billion (albeit negotiated downwards) on a foremost telecommunications company. This sanction led to the replacement of some key members of the Board of Directors of the company.
Similarly, the Central Bank of Nigeria (CBN) fined four banks for various regulatory breaches in November 2016 – one of the banks was fined ₦4 billion. The global terrain is also not spared in this tsunami of regulatory sanctions. Since 2008 to date, banks globally have paid over $321 billion in fines according to data from Boston Consulting Group.
It is exacerbating where cash that should have been employed as capital to run the business is paid out in penalties or fines. This can lead to value erosion and loss of investors’ confidence in the business. Keeping track of compliance requirements is therefore essential for companies in order to avoid penalties that could affect their business operations.
This article considers the effect of non-compliance with statutory regulations and explains the need for companies to take proactive steps to comply with laws and regulations relevant to their business.
The business environment in Nigeria is highly regulated with many permits and applications required in order to carry out business operations. Some of these permits need to be obtained prior to the commencement of business operations and others in the course of operations. For example, a start-up outsourcing recruitment company with foreign shareholders which provides services to companies in the oil & gas industry would require a number of regulatory registrations/approvals in order to get started with its business.
Apart from incorporation at the Corporate Affairs Commission (CAC) and the attendant requirement to file annual returns at the CAC, the company would be required to register with the Nigerian Investment Promotion Commission (NIPC), obtain a business permit from the Ministry of Interior, obtain a recruiters’ license from the Federal Ministry of Labour and Productivity and obtain a permit from the Department of Petroleum Resources (DPR). For taxes, there would also be a requirement to register with the Federal Inland Revenue Service (FIRS) and the State Internal Revenue Service (SIRS) for tax remittances.
In order to repatriate interest on loans and dividends, the Company would need to have obtained a Certificate of Capital Importation (CCI). Failure to obtain a CCI at initial capital inflow can be detrimental as the ability to obtain a CCI retrospectively may be impossible. Similarly, assuming that there is a technology transfer agreement with a foreign partner, there is a requirement to register the agreement with the National Office for Technology Acquisition and Promotion (NOTAP) in order to repatriate service fees via the official foreign exchange market.