Penal Code amendment on Fronting could lock up thousands of Bhutanese business people

Bhutan’s lawmakers appear to not have learnt their lessons from the originally draconian Tobacco Act that locked up dozens of ordinary Bhutanese for even possessing small amounts of tobacco.

Now, the National Assembly is on the verge of brining in a new section into the Penal Code of Bhutan that not only makes fronting a criminal offense but also makes it a fourth degree felony which means imprisonment from three to four years without the possibility of paying Thrim-thue.

Members of the business community across the country -who only learned of such an amendment when it was introduced to Parliament on 29th May are alarmed that such a development could turn many business people into overnight criminals.

All of them said that neither the BCCI nor they were consulted when such a provision was being drafted.

The Business community members that The Bhutanese talked to from various Dzongkhags say that while the aim of the law is to restrict fronting in border towns by foreigners, what law-makers don’t realize is that a large numbers of businesses in Bhutan run by Bhutanese- use licenses of family members, friends and other Bhutanese unable to do business.

Some have been inherited, others have been given away and in some cases some have been rented them from one Bhutanese to another.

The amendment was proposed by the National Law Review Taskforce (NLRT) which, looking at the ACC investigation on fronting in 2016, said that fronting has increased ‘tremendously’ and around half the businesses in border towns were engaged in fronting.

It said fronting is currently an administrative offence under the Trade rules and regulations and the fines have not had a deterrent effect.

Currently the license and all other licenses gets cancelled, future licenses are not issued to the person and there is a fine of Nu 10,000.

The NLRT has recommended a new section which says, ‘A person shall be guilty of the offence of fronting if the person has acquired a business license from the competent authority and leases the business license to any person to run the business on any terms or sub-contracts a government work without the written approval of the procuring agency.’

The BCCI President Aum Phub Zam said that one Bhutanese giving a license to another cannot be classified as fronting. She said that the imprisonment clause should only be applied in the case of running of local businesses by foreign nationals.

Thinley Dorji, 45 who is the BCCI’s Thimphu Thuemi representing all shops and small businesses in Thimphu said, “The impact of such a law will be very heavy and everyone will be in a big soup. There are numerous business establishments where the license is in the name of the father but he has retired and the wife, children or other family members are running it. Technically these are all fronting since the license is not in their name.”

He also gave the example of taxis which Bhutanese owners are renting out to other Bhutanese.

He said that Bhutan has around 40,000 private business licenses and a large number of them would become criminalized.

Karma Chophel, 48 is the elected BCCI representative for Mongar, Trashigang and Lhuntse.

Speaking for the business community of the three eastern Dzongkhags, he said, “In case such a law is passed everyone will have problems. I can say that very few Bhutanese businesses in these three Dzongkhags have their own licenses as it is either shared, borrowed and some like bar licenses which are no longer issued are even rented out.”

Phurba, 59 who is the BCCI Theumi from Bumthang said that even in Bumthang there are many licenses of Bhutanese shops that are not in the name of those running the shops. He said that would be a problematic and the Parliament should not pass the law.  He said people, to make a living, rent our bar licenses and those who rent them are also Bhutanese trying to make a living. He said that they are not criminals.

Tshering the BCCI Theumi from Phuentsholing also expressed complete surprise with the amendment but declined to comment.

Bringing up an important point Rinchen Khandu who is the President of the Wood-based Industries Association and a BCCI Board member said that the current rules of canceling the license, not giving future licenses and imposing monetary fines is strong enough to tackle fronting.

“The main problem is implementation as no one is monitoring this issue and even if a tougher law is made nothing will happen until there is no monitoring and implementation,” said Rinchen.

The final decision on whether to have this section or not will boil down to the deliberations of the legislative committee of the National Assembly where the matter has been referred to for further discussion followed by a third reading of the Penal Code on 11th June.

A committee member who is also an MP, on the condition of anonymity, said there is much discussion on the issue. He said that there are MPs in the committee who are aware that this new section could criminalize many innocent Bhutanese business people.

There is debate to lower the charges from fourth degree felony but for this the committee will have to also get the consent of the legislative committee of the National Council since the NLRT had submitted its recommendations to the Parliament as a whole.

The MP said that there is some discussion in the committee that this section could become like the Tobacco Act where large numbers of people where imprisoned.

One idea is also categorizing different types of fronting but then this would again mean a long list.

ACC Act

This, however, is not the first attempt to criminalize ‘fronting’ as the ACC in 2016 had asked the OAG to apply apply section 66 of the ACC Act of ‘active commercial bribery’ and section 67 for ‘passive commercial bribery’. Both these sections are value based sentencing going up to a second degree felony that carries a minimum of nine-year imprisonment and a maximum of 15-year imprisonment.

This basically meant that anyone giving or receiving a fronting commission or rent at or above the three years’ minimum wage of Nu 125 a day coming to Nu 136,875 will be imprisoned. Under the penal code any sentence at or above three years will lead to imprisonment and so Thrim-thue cannot be paid for it.

ACC, at the time, had sent 29 fronting cases to the OAG all involving Bhutanese individuals in Phuentsholing who took trade licenses and then gave it to non-national traders for a monthly commission or ‘rent’.

The OAG at the time did its own legal due diligence based on the ACC request and it had come up with some legal and past precedent arguments against applying section 66 and 67 of the ACC Act that it put forward in a letter to the ACC sent at the time.

The OAG based on its legal reasoning decided not to charge the 23 cases that it filed with the ‘commercial bribery’ clause. Instead it had filed a civil suit to recover the commission money and interest on the rupee used.

It cited various Trade rules and regulations that were put in place at various times in 1988, 1995, 1997 and 2005 by the government to deal with fronting.

The OAG letter pointed out that as a result there are already penalties like cancellation of the license along with any other licenses held by the violator, a Nu 10,000 fine and that violators shall not be issued any licenses thereafter.

It said that the ACC Act itself does not mention or define fronting which would become a legitimate defense for the defense under section 77(a) of the Penal code.

The OAG at the time said that it is a constitutional right of all persons to be accorded “non-discriminatory, effective and equal protection of the law” under Article 7(15) of the Constitution. Hence, selective prosecution of individuals, especially in the then fronting cases, is in itself aberration from constitutional norms.

Given the OAG’s own detailed legal arguments in the past against the ACC to criminalize fronting with prison terms, it comes as a surprised that the NLRT headed by the OAG has recommended a fourth degree felony charge.

A major issue of additional discomfort is that all the past 346 cases of fronting cases caught in the border towns have only been small shops. Major big businesses or industries that actually engaged in large scale fronting involving billions have never been caught.

About Tenzing Lamsang

One comment

  1. With the pace of economic development in the country, more business opportunities have emerged at all levels from 2000 on wards. However, as a developing country, almost everything is import driven including manpower and similarly our private sector was still nascent to take advantage of the opportunities. Therefore, lot of shrewd non nationals at the border towns took all the advantage of the opportunities and privileges through leasing of business licences at a paltry fee or rent from our innocent citizens or a lazy and unsuccessful businessman. All this unwanted development happened due to complacency in strict monitoring and control from the concerned govt. institutions at the border towns.

    After almost 2 decades one do not see any decline on this epidemic rather it is spreading and mushrooming day by day in all levels and category of business sector which is a cause of serious concern to all nationals not only to the private sector. Today we have thousands of unemployed youth which will only grow over the year and negative balance of payment at the national level and further by 2023 we will be no more in LDC category meaning no more free grants and support from outside. The situation or scenario looks very dangerous unless we combat the situation on a war footing basis by confronting any kind of adversary or plug the loopholes collectively before things go out of control.

    It is true that in the interior parts of the country, still many people operate business in others licences due to various reasons like ignorance, lengthy procedure to get licence, good place of operation, working capital so on and so forth. However, one never heard people being penalized for operating in others licence as long as the due taxes are paid timely with the exception of the border town where the complaints are regularly made including in the media. Now with the much easier system to get licence, people in the interior parts of the country should be given adequate time to change the ownership and sensitize the general public on the enforcement of the new law. Once the stringent rule is in place, all levels of business big or small has to fall under the purview of the law. No one can escape.

    Bhutan as a import driven country, all business opportunities are at the border town particularly in Phuentsholing as the economic hub almost a billion Ngultrums worth trading on a daily basis. Therefore, the vulnerable situation was fully exploited through business fronting in phuentsholing at all levels and categories until now. The financial losses, lost opportunities and skill/capacity development to our exchequer and entrepreneurs are unimaginable and we cannot afford to let it go on like this again if we are to become a self reliant and self sufficient GNH country as envisioned by their majesty the Kings.

    Therefore, a stringent and deterrent rule of law is the only solution or remedy to this on going economic and opportunity loss to the Nation through business fronting. As a senior Citizen, I welcome the National Assembly’s proposal to amend Penal Code which will reap tremendous economic benefits to the country as whole.

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