NC targets foreign fronting and illegal investments with felony of fourth degree

Only violation proposed for domestic fronting involving two Bhutanese parties

The last session of the National Assembly saw a lot of debate around the introduction of a new section in the Penal Code Amendment Bill that criminalized fronting as a fourth degree felony apart from the cancellation of license and seizure of any benefits.

A Fourth degree felony means a minimum jail time with no Thrim-thue of three years and a maximum of five years.

The main debate was on the Fourth Degree felony and how it could end up locking thousands of Bhutanese business people who even shared business licenses within the family. The matter was not voted on and differed for the current session.

The National Council which is currently deliberating the Penal Code Amendment Bill has come up with an innovative solution that targets the more harmful foreign fronting with a fourth degree felony.

The national council in its new section had proposed that the offence of fronting shall be a maximum of a misdemeanor (less than three years for which Thrim-thue can be paid) if the defendants are Bhutanese nationals and a felony of a fourth degree or a value based sentencing, whichever is higher, if one of the defendants is a person other than a Bhutanese national.

This simply means that if one Bhutanese shares his or her license with another Bhutanese then the maximum charge is a misdemeanor but if a Bhutanese leases his or her license to a foreigner then both parties will face a fourth degree felony.

This is the outcome of the discussions on 17th and 20th January.

However, given that the Bill is scheduled to be discussed again on 7th February the NC in its discussions wanted to further soften the sentencing for Bhutanese defendants further from misdemeanor to a violation for the first time, which is a fine, and violation and cancellation of licenses for the second offence. The Legislative Committee is currently working on the exact wording. The NC has defined Fronting as, ‘A defendant will be guilty of an offence fronting, if the defendant leases or subleases, hires or otherwise permits another person to use or operate one’s license, unless otherwise permitted by laws or policies. For the purpose of this section, license includes any clearance, approval, consent, no objection, registration, concession and the likes issued by a competent authority.’

Another more specific and new section that deals with illegal foreign fronting and also foreign investments is called ‘Clandestine foreign investment.’ This section has already been passed.

The section says, ‘A defendant shall be guilty of an offence of clandestine foreign investment in Bhutan, if the defendant who is a foreign national makes and a Bhutanese receives, an investment in any manner or form in any sector or field not permitted by laws, or policies. For the purpose of this section, “Investment” includes any expenditure to acquire property or assets to produce revenue in the future.’

The offence of ‘Clandestine foreign investment’ is a felony of the fourth degree, or a value based sentencing, whichever is higher.

The NC brought in this section as such practices are believed to exist in many sectors but is rampant in the hotel and tourism sectors. There is also no current law dealing with such an offence.

It was also felt that national security would be jeopardized in the long run if this is unchecked.

In the case of the fronting section the NC’s justification in bringing in this clause was that it was believed to be rampant in many sectors in border towns, foreign currency loss, employment issues, impact on national security and no law dealing with such an offence.

Earlier the Minister for Economic Affairs Lyonpo Loknath Sharma had said fronting would be defined in the Trade and Investment Bill but since it is unlikely to be tabled soon the NC went ahead to insert it in the Penal Code.

Background

The National Law Review Taskforce (NLRT) first recommended a new section on penalizing fronting.

This was then taken up by the National Assembly in the last session as part of the amendment of the Penal Code Bill.

In the NA the Bill defined Fronting as “A person shall be guilty of the offence of fronting if the person; a) has acquire a business license from the competent authority and leases the business license to any person to run the business on any term; or b) sub contracts a government work without the written approval of the procuring agency.”

It said the offence of fronting shall be a felony of fourth degree and, in addition to the cancellation of license; any benefits accrued or gained from fronting shall be seized or restituted to Government.

The bill came as a major shock to the business community of Bhutan and businesspeople from all over the country including BCCI said it was not consulted. They said that this provision of a fourth degree felony would mean that thousands of Bhutanese would be locked up as even a father giving his license to his son to run a shop would count as fronting.

The NA discussed the issue and opted to not vote on its ‘deferring’ it to the winter session.

However, given that the Bill was already passed and there is no provision for such deferment the Bill came to the NC without the fronting clause.

This is when the NC introduced a modified version.

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