THE LEGAL FRAMEWORK ON CORPORATE CRIMES IN TANZANIA

THE LEGAL FRAMEWORK ON CORPORATE CRIMES IN TANZANIA. By MWAKIBETE, ALPHA .A. *MWAKIBETE ALPHA .A. LL.B (Mzumbe University) Postgraduate student on LL.M in Corporate, Banking and Securities Law(Open University of Tanzania O.U.T). Police Officer, Tanzania Police Force, Ministry of Home Affairs. © Mwakibete. Alpha .A., 2019 LISTS OF STATUTES I. The Constitution of United Republic of Tanzania of 1977 Cap.2 R.E 2008 2. The Prevention and Combating of Corruption Act of 2007, Act No.11 Of 2007 3. The Anti-Money Laundering Act of 2006, Act No.12 Of 2006. 4. The Capital Market and Securities Act of 1994, Act No.5 Of 1994 5. The Income Tax Act Cap 332 R.E 2008 6. The Value Added Tax Act of 2014, Act No.5 Of 2014 7. The Excise (management and tarif) Act CAP 147 R.E 2008 8. The company Act of 2002, Act No.12 of 2002 9. The Tanzania Penal Code Cap 16 R.E 2002 I LISTS OF ABRIVIATIONS ACCA Association of Chartered Certified Accountants BOT Bank of Tanzania CEO Chief Executive Officer Corp. Corporations Cap Chapter D.P.P Director Public Prosecution Et al. And others e.g Example Etc. Et cetera Ed Edition FIU Financial Intelligence Unit Http Hypertext Transfer Protocol I.e such as Ibid ibidem (in the same place) No. Number Op. Cit opus citatum (the work cited) PCCB Prevention and combating of corruption Bureau P Page Pp Pages PEP Politically Exposed Person R. E Revised Edition Tsh. Tanzania Shillings USA United States of America UK United Kingdom Vol. Volume VAT Value Added Tax www world wide website II TABLE OF CONTENTS LISTS OF STATUTES............................................................................................................... I LISTS OF ABRIVIATIONS......................................................................................................II ABSTRACT............................................................................................................................. IV CHAPTER ONE......................................................................................................................... 1 CONCEPTUAL OVERVIEW OF THE CORPORATE CRIMES............................................ 1 1:0 Introduction................................................................................................................... 1 1:1 The concept of the corporate crime............................................................................... 2 1:2 Nature of Corporate Crime............................................................................................ 2 1:3 Features of the corporate crimes....................................................................................4 1:4 Theories of corporate criminality.................................................................................. 8 1:5 Liability on corporations............................................................................................. 10 1:6 Conclusion................................................................................................................... 12 CHAPTER TWO...................................................................................................................... 13 LEGAL FRAMEWORK ON CORPORATE CRIMES IN TANZANIA................................ 13 2:0 Introduction................................................................................................................. 13 2:1 Corruption....................................................................................................................13 2:2 Insider trading...........................................................................................................16 2:3 Money laundering........................................................................................................19 2:4 Pyramid schemes......................................................................................................... 27 2.6. Tax evasion and tax avoidance................................................................................... 29 2:7. Conclusion.................................................................................................................. 33 CHAPTER THREE.................................................................................................................. 34 INEFFICACY OF THE LEGAL FRAMEWORK ON CORPORATE CRIMES IN TANZANIA..............................................................................................................................34 3:0 Introduction................................................................................................................. 34 3:1 Weaknesses og the legal framework on corporate crimes in Tanzania.......................34 3:1:1 Weakness of legal framework on inside trading...................................................... 34 3:1:2 Weakness of legal framework on money laundering............................................... 35 3:1:3 General weakness of legal framework on discussed corporate crimes.................... 36 3:2 Conclusion................................................................................................................... 36 CHAPTER FOUR.....................................................................................................................37 RECOMMENDATIONS AND CONCLUSION..................................................................... 37 4:1. RECOMENDATIONS............................................................................................... 37 4:2 CONCLUSION........................................................................................................... 38 REFERENCES......................................................................................................................... 39 III ABSTRACT Money laundering, inside trading, corruption,bribery,illegal pyramid schemes, tax evasion, embezzlement etc are common crimes which have been associated with the modern day domestic and multinational giant corporation. Their new characters have forced the courts to give newer interpretations about the concept of criminal liability of the corporate and also has led to new legislation being adopted where by the governments have incorporated new jurisprudence of handling the corporate crime and corporate guilt. Thus this paper focus on discussion on Tanzanian legal framework on common corporate crimes namely, corruption, inside trading, money laundering, tax evasion and illegal pyramid schemes. Before jumping into the discussion of legal regime on mentioned corporate crimes in Tanzania, the paper discuss in deep the concept of the corporate crimes. In the conceptual overview on corporate crime, the paper discussed the legal definition of the corporate crimes, the nature of the corporate crimes, the features of the corporate crimes, theories of criminality of corporate crimes and the general rule of the liability of the corporations over commission of the corporate crimes. All this discussion gathered together in the first chapter of the paper. The second chapter of the paper focused on legal regime as established in Tanzania jurisdiction over corporate crimes. This paper selected only five common crimes which are mostly committed to the corporations and how the legal framework dealt on them. In the legal framework, the paper focused mainly on provisions established these offenses and criminal and civil liabilities against commission of these crimes. Chapter three of the paper focus of discussion on weaknesses of the legal framework on discussed corporate crimes which hinder the efficacy of the its enforcement as to prevent and combating the these crimes on the corporations. The paper revealed the legal framework on inside trading has weakness on failure to establish the legal interpretation of the inside information and means of publication of the inside information. Also the paper discussed the power of Financial Intelligence Unit (FIU) which limited on tracking, analyzing and reporting suspicious transaction of the money laundering where the paper considered exclusion of the investigation and prosecution power to the FIU is weakness of the law. Also the paper generally IV discussed the criminal and civil liabilities as provided by the laws are weak since they establish inadequate penalties for the criminals. The final chapter provide the recommendations on how it supposed to be done in order to create strong legal framework as to smoothing the combating the corporate crimes include the reform of the law concerning inside trading, vesting prosecuting and investigating power to FIU and reform on criminal and civil liabilities against the corporate crimes. Finally the paper concluded in this part by summarizing all discussed parts of the paper. V The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A CHAPTER ONE CONCEPTUAL OVERVIEW OF THE CORPORATE CRIMES 1:0 Introduction The most popular vehicle for business in the world is the corporate form the joint stock company. Companies are found in most countries of the world.A company is the most popular form of business association and has a legal personality separate from its owners (known as members). It is a formal arrangement, surrounded by formality and publicity, but its chief advantage is that members' liability for the company's debts is typically limited. Through her legal personality the corporations has capable of committing an offence as other natural person and she can sue be sued before the court of law1. The corporations has long way of being accused of committing number crimes within the corporations or outside the corporation. The difficulty lies not only in the fact that it is way too difficult to put the blame on the companies for a criminal wrong committed by them rather the most challenging part is to put the blame on the right shoulders when a wrong has been done. Who carried the plan out, who drafted the plan to why the plan was drafted? What profits would be achieved are the few questions which keep the investigators of the corporate crimes busy. Even though a separate legal presence and existence of the company has long been established by the courts yet, the complex hierarchy of today mainstream body corporate make it a tiresome process to find out the real culprit who acted on behalf of that legal personification2. The employees, the directors, the agents, the other stakeholders, all of them can be held liable guilty on behalf of the criminal acts of the company. The money laundering, inside trading, illegal pyramid schemes, corruption, tax evasion, embezzlement etc are common crimes have been associated with the modern day domestic and multinational giant corporations. Their new characters have forced “Coporate Crimes: Nature and Types and it’s Impact on the society” chapter 5 document retrieved from http://www.shodhganga.inflibnet.ac.in>document p.158 2 Ibid 1 1 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A the courts to give newer interpretations about the concept of criminal liability of the corporations and also has led to new legislation being adopted where by the governments have incorporated new jurisprudence of handling the corporate crime and corporate guilt. In this chapter, the paper has attempted to analyse the concept, nature, features and theories of corporate crime as well as criminality, that who are perpetrators of a corporate crime and who may be held liable for them. 1:1 The concept of the corporate crime In Criminology, corporate crime refers to crimes committed either by a corporation I.e a business entity having a separate legal personality from the natural persons that manage its activities or by individual acting on behalf of a corporation or other business entity3. The corporate crimes also can be defined as the conduct of a corporation or employees acting on behalf of a corporation, which is proscribed and punishable by law4. This definition stands the test of time as these crimes can be categorized into two sub sects. In the first subsect the employees or the company commits the wrong and in the second subsect the company faces the wrong against itself. Both these categories lead to corporate crimes. In many cases the face of the criminal is separate from the company but over the past decades it is visible that the corporate veil has hidden quite a few faces behind it and saved them from being punished. Corporate conduct has been regulated by the corporate laws since long. It’s time that the liability of a company for criminal wrongs be addressed. The common laws make a corporation liable for the actions of its agents when employees agents act within the scope of their employment and create a profit for the corporation with that act. 1:2 Nature of Corporate Crime Corporate crimes are considered to be general varieties of the White Collar Crime. Corporate crimes are also known with reference to occupational crimes. The distinction between corporate crime and occupational crime is that whereas corporate crime refers to situations in which corporate managers commit a criminal act for the www.wikipedia// corporatecrime accessed on 18th December 2018 Braithwaite J ” Regulatory Capitalism: How it Works, Idea For Making It Work Better” (2008) Edward Elgar Publishing, United Kingdom.. 3 4 2 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A benefit of the corporation, the occupational crimes are committed by individual employees against the corporation itself or the customers or consumers of the corporation, in the course of employment5. When we deal with 'corporate crime' the first question that emerges is whether the corporate actually commit crime. This question can be answered by looking at the situations in which substantial harm is caused in the operation of the corporations which is much more than the traditional crimes committed by individuals. Looking the matter from criminological perspective, the criminal behavior in corporate crimes it is altogether different from the traditional crimes committed by the individuals. The criminological theories have developed in different settings by placing the behavior of the individual as an individual in focus and not in the organizational structure. Still these are the acts and activities of individuals in the corporate crimes which are attributed to the corporation. As such there is no separate branch of criminology dealing with corp-orates6. The criminal behavior of corporations is tried to be understood by applying the existing theories applicable to individual delinquency. However, there is a need to analyse the corporate crime and criminal behavior in the new settings in which corporations operate. Another significant aspect of corporate crime is that while the response of the criminal justice to the individual crime is prompt and aggressive it is lacking or mild to the corporate crime. At the same time oblivious societal response also tends to minimize the seriousness of the corporate crime7. Therefore corporate crime has acquired a new meaning which is required to be understood and addressed, if we are to control and combat this emerging form of criminality. Therefore before embarking upon study of various theories of corporate criminality the typical features of corporate crime need is distinguished from the related areas of criminality in the following discussion. Corporate Crimes: Nature and Types and It's Impact on the Society Ibid 7 Brian K.,,et al, “Corporate Crime” published at www.oxfordbibliographies.com// on 15th January 2015 5 6 3 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A 1:3 Features of the corporate crimes (a) Corporate crimes as white collar crimes White collar crimes refers to the financially motivated, nonviolent crime committed by business and government professional. In other words these are crimes which committed by a persons of respectability an high social status in the course of their occupation. Since white collar crimes are linked to professional and elite class the corporate crime have a link to white collar crime. The corporate crime deals with a company as a distinct entity8. It benefits the corporation as a whole which may include investors and individuals in the high position in the company. White collar crime and corporate crimes are similar as both are involved with business. The difference is that white collar crime benefit individual and corporate crime benefit the corporation. Corporate crime as generally understood is committed through responsible executive of the corporation for the benefit of the corporation within the structure of corporate activities. In a way corporate crime is akin to white collar crime. The theory of white collar crime was propounded by Edwin Sutherland to state that it a crime committed by the person of respectability and of high social status in the course of his occupation. Sutherland has drawn the attention to the development that crimes are also been committed by members of upper class for economic gains and are different from those traditional crimes. When we discuss white collar crime in relation to corporate crime we can find that term 'White Collar Crime' is wider and it can include 'Corporate Crime.' It is asserted by Sutherland that corporate crime is a large scale version of white collar crime, because it involves people of high class society, committed in the course of their occupation9. The two forms of crime overlap each other because they all happen within similar environments in which incentives are high for an individual or group to engage in bribery, money laundering, inside trading, forgery and embezzlement etc. Presently corporations focus on prevention of white collar crimes through their policies and procedure. In view of the detrimental effect of corporate crimes as Sutherland E.H “White Collar Crime Criminality” the article published by American Sociological Review,vol.5, No.1. on Feb,1940,pp 1-12 9 Ibid 8 4 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A financial, reputational etc, there is need for specific policies and procedures for prevention and detection of corporate crimes. To draw a distinction between corporate crime and white collar crime it is said white collar offenses are those 'socially injurious and blameworthy acts committed by individuals or group of individuals who occupy decision making position in corporations and business and which are committed for their own personal gain against the business, and the corporations that engage them. On the other hand corporate crimes are those which are socially injurious or blameworthy acts, those cause financial, physical or environmental harm committed by corporations and business against their workers, the general public, the environment, other corporations and businesses, the government or other countries10. (b) Corporate crimes as occupational crimes Occupational crimes are crimes which are committed by the person though his opportunity created in the course of legal occupation i.e theft of property, corruption, embezzlement, vandalism etc. The corporate crimes are related to the occupational crimes since most of them committed by the individual within the company through their occupation they held within the company Corporate crimes are committed by collectives or aggregate of discreet individual on behalf of the corporations. As such individuals or groups commit occupational or elite crimes for their own purpose or enrichment, rather than for enrichment of the organization on a whole11. Corporate crime is rather committed at the higher level of corporation for example at the Managerial level or other responsible position and the occupational crimes could involve employees at all levels. In corporate crime both organization and individuals may be illegal actors and could be liable for their criminality. Occupational crimes can be labeled as crime against the organization. As such corporations become victims of crime when they suffer a loss as a result of an offence committed by any one including employees and managers. Singh V.K, “Corporate Power to Corporate Crimes: Understanding Corporate Criminal Liability in India”(2013) Satyam Law International p. 149. 11 Hansen, L.L. “Journal of Financial Crime: Social diagnosis and treatment” vol.16 issue 1 of (2009), published by Emarald Group Publishing Ltd, USA pp28-40 10 5 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A On the other hand corporations become perpetrators of crime when managers or employees commit financial crime within the context of legal organization12. (c) Corporate crimes as state corporate crimes State corporate crime is a concept which refers to crime which are committed in relationship with policies of the State and the policies and practices of commercial corporations13. State corporate crime is distinguished from corporate crime which refers to deviance within the context of corporation and by the corporation. It is also different from political crime which is directed at State. It is also not 'State Organized Crime' which is crime committed by Government Organizations14. The infrastructure of law and commerce is provided by government of each State in which the corporations desire to trade, and there is inevitable linkage between the political and commercial interests. All States rely on business to provide an economic base consistent with each government's political policies. Without supportive policies economic activity, businesses will not be profitable and will not be able to provide the economic support that the State desires. In some cases the symbiosis may lead to crime. There acts include all 'socially injurious acts' and not merely those that are defined by the local jurisdiction as crime15. Harper and Israel commented that 'societies create crime because they construct the rules whose transgression constitutes crime. The State is a major player in this process16. Snider said that capitalistic States are often reluctant to pass laws to regulate large corporations, because this might threaten profitability and these States offer use considerable sums to attract regional or national inward investment from Clinard M. B et al “Criminal Behavior Systems: A Typology” (1994) 3rd Ed, Anderson Publishing, Ireland 13 The term was coined by Kramer and Michalowski (1950) and redefined by Autette and Michalowski (1993) see www.wikipedia.com//corporate-crime 14 Chambliss W.J "State Organised Crime" as published by American Society of Criminology vol.27, No2 of 1989 pp183-209 15 www.wikipedia.com//corporate-crime 16 Ainsley.H et all "The Killing of the Fly: State Corporate Victimization in Papua, New Guinea" working paper No.22, Paper presented in the Resource Management In Pacific Asia seminar series at The Australian National University on 1st July 1999, pp5-6 12 6 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A large corporations17. They may give preferential tax concession, loans and subsidies etc. (d) Corporate Crimes as organized Crimes. The organized crime generally involve illegal street activities such as kidnapping or cross border operations like drugs trafficking whereas corporate crime involves 'clean jobs' like manipulation of accounts, insider trading, misappropriation of funds, tax evasion etc. The points of similarity can be the requirement of some degree of financial, social or political influence for successful operation. Both types of crime are thriving for money. It is viewed that corporation are better organized, are wealthier and get benefit from economy of scale in corruption. Corporations are better placed to manipulate politicians and media. By making use of large grants, generous campaign contributions and influential lobbying organizations, they may push law changes and legal reforms that benefit their illegal activities18. These offences are carried out with planning and discreetly. Further both corporate crime and organized crime can have global impact and thereby pose difficulty in detection and prosecution. There can be money connection between corporate crime and organized crime. The perpetrator of organized crime needs to clean the money that they got through illegal activities. They may set up legitimate business activity through corporations for the purpose of money laundering. Therefore, corporate crime may relate with organized crime19. The prevalence of these crimes is due to availability of opportunity to commit crime and absence of deterrence. Organized crime like corporate crime affect the society at large, that is, no specific individuals are singled out as victims. The points of difference are that organizational structure of corporations is formal where as in organized crime those are informal hierarchies in which members, usually family members, occupy ranks that determine their duties. The group in organized crime functions in secretive manner whereas corporation activities are legitimate and publically known businesses. Whatever illegal activity is carried on the corporate Snider, L "Relocating Law : Making Corporate Crime Disappear"(1999) Halifax Feermwood Publication, pp160-208 18 Gottschalk .P et al,,. "Corporate Crime does pay! The Relationship between Financial Crime and Imprisonment in White Collar Crime", International Letters of Social and Humanistic Sciences Vol. 5, pp. 63-78 at p. 66 (2013). 19 Ibid 17 7 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A crime it is in the guise of legitimate acts of the corporations. Speaking generally, corporations may commit business crimes whereas illegal organization are in the business of committing crime. 1:4 Theories of corporate criminality The corporate crimes are peculiar in nature and commission. To look at the criminological perspective of corporate criminal liability there is a need to study certain behaviour pattern. Though these patterns have not been specifically laid down for the corporation but these can be studied with in the activities in the corporate environment. (a) Learning Theory: Like all kinds of behaviour criminal behavior is also a result of learning process. Edwin Sutherland has propagated the theory of 'differential association'.20 A criminal behaviour emerges when a person is associated with others and who consider that type of behavior as positive. This learning process depends upon the intensity of interaction with such people. This interaction is more in the small group. This learning process includes the motives and techniques of the deviant behaviour. (b) Theory of Anomy: French sociologist Emile Durkheim coined the term 'anomy' to describe a state of lawlessness due to major social and moral change21. Robert Merton purports that crime averages when there is a gap between commonly stated goals in a society and the legal means a member of the society has to achieve these goals22. Hence the people may adopt the illegal means to achieve these goals. In the context of corporate crime it is explained that considerable number of corporate crime is committed within smaller firms struggling for their economic survival. There is always a general tendency to improve and gain when the people compare themselves with other people of their own kind. “Coporate Crimes: Nature and Types and it’s Impact on the society” chapter 5 document retrieved from http://www.shodhganga.inflibnet.ac.in>document p169 21 Ibid 22 Ibid 20 8 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A (c) Neutralization Techniques: The theory of 'techniques of neutralization' propagated by Gresham Sykes and David Matza in 1958 is said to be a counterpart of theory of 'delinquent subculture'. The theory of delinquent subculture suggest that deviant groups like youth gangs have their own set of values and rules that differ from the rest of the society. most offenders do not reject social rules generally but justify their violation under the given circumstances23. Such justifications may be raised within a corporation where many actions are performed by several people through division of labour and in such circumstances sense of individual responsibility fades. Further, corporate violations are often against collective victims and damage is not visible as it is against an individual. In corporations there is some sort of 'business subculture that not only allows but even encourages deviation from the law in order to ensure economic success. Therefore, there can be 'culture of non-compliance' with techniques of neutralization a central element. Therefore, it is opined that constant acceptance of criminal behaviour within social environment of a person is a major factor in explaining future crime24. (d) Control Theories: Control theories lay emphasis on identifying the restraining factors that make the people to control themselves from committing crime. The premise is that why anyone would not commit a crime when there is an opportunity to commit it. In the context of morality as a restraining factor, it is said that it is quite fragile with respect to economic offenders. The moral foundation of economic criminal law is not as strong and evident as the one in the so called 'delicta mala in se' like murder or rape, where the harm is apparent25. There are blurred moral standards in most economic crimes when education process of children and young person do not adequately address the issues as it is for other crimes. It is accepted that opportunity to commit crime is an important cause of crime. And opportunities are important cause of white collar crime, where opportunity structures may be different from those of Skyes G.M et al,, "Techniques of Neutralization: A theory of Delinquency" American Sociological Review vol.22, No.6 issued on Dec 1957 pp664-670. 24 Kaspar J “corporate criminology causes and Prevention of Corporate crime” legal research Bullettin Kyustin University, Vol 3 of 2013 p.121 25 Nelken.D "White Collar Crime",(2002) 3rd Ed The Oxford Handbook of Criminology p86. 23 9 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A other kinds of crime. These differences create special difficulties for control, but they also provide new openings for control26. (e) Economic Theory: Cost benefit theory is more plausible in the context of economic crimes than in the violent crimes. The loss could be damage to reputation, risk of civil action by victims, risk of prosecution and punishment. When there is low visibility and less chances of detection and prosecution of white collar crimes then the benefit may over weigh the anticipated costs27. Therefore, in the economic context, calculation of possible gain and costs has some influence on peoples' behaviour. According to this theory there several social-economic factors drives the criminality of the corporations, these driving factors include social-economic developments28, organizational structure29 and criminologic market (Sometimes persons in the organization need to commit crime because of criminologic market forces)30. 1:5 Liability on corporations Corporation is legal person therefore she can be sue and sued. The corporation can be held liable for any offence committed by the employees in the course of performing the duties of the company and once that c omission benefit the corporation concerned. The despite of the fact that the corporation is legal person but duties and functions of the corporation are under control of directors, managers and employees. These officials of the corporations are regarded as agent of the company and whatever they done it considered as they done for the benefit of the company, therefore any commission of the offense within the company is presumed the corporation is aware of such commission.in In determination of the corporate liability, the courts use to establish the situational circumstances which are31; Bensen, M.L. et al,, ”White Collar Crime:An Opportunity Perspective” (2009) 1st Ed, Criminology and Justice Series, Routledge, N.Y. (New York). 27 “Coporate Crimes: Nature and Types and it’s Impact on the society” chapter 5 document retrieved from http://www.shodhganga.inflibnet.ac.in>document 28 Ibid 29 Ibid 30 Leonard, W.N. et al Law and Society Review vol.4 No.3 (1970) pp 407-424. 31 “Coporate Crimes: Nature and Types and it’s Impact on the society” chapter 5 document retrieved from http://www.shodhganga.inflibnet.ac.in>document 26 10 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A a) Conduct of employee; A corporation is considered to have received a benefit if the employee engaged in criminal conduct with the intent to benefit the corporation. Moreover, an intent to benefit the corporation does not have to be the sole, or even primary, motivation for the employee’s conduct. b) Personal gains: The benefit requirement is satisfied even when the employee’s conduct is performed for his or her own personal gain, and the corporation somehow benefits from the conduct as well. c) Hierarchy of Employment: As to the limitation that employees must be acting within the scope of their actual or apparent authority. The position of authority mean that he should be in a position of decision making. The American jurisprudence profound that even a single low-level employee’s criminal conduct can be sufficient to trigger criminal liability on the part of the corporation. d) Criminal Conduct: An employee will be criminally liable for actively and directly engaging in criminal conduct. A corporate employee cannot hide from criminal liability merely by claiming the conduct occurred during the scope of employment. e) Criminal Conspiracy: A conspiracy occurs whenever two or more people agree to commit an offense, and one of those persons takes an affirmative act in furtherance of the goals of the conspiracy. In prosecuting a scheme that involves separate roles for conspirators, there is no need to prove that each participant directly interacted with each of the other conspirators. It is also not required to prove that each co-conspirator knew all the details of the agreement and participated in all of its operations or joined the agreement at the same time, or became aware of all the activities of the other participants in the agreement. However, it is general rule, Corporations may escape liability by establishing a defense. Unless the offense is one for which absolute liability has been imposed, the corporation may be able to establish a defense if it can prove by a preponderance of evidence that the high managerial agent having supervisory responsibility over the subject matter of the offense employed due diligence to prevent its commission. 11 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A 1:6 Conclusion The above discussion was on conceptual overview on the corporate crime globally. The chapter discussed the general concept of the corporate crime, features, nature of the corporate crimes and theories of criminality of the corporate crime as well as the liability of the corporations over the commission of the corporate crimes. Something to bear in mind the corporate crimes differ from one jurisdiction to another, there some are not recognize as crime in particular jurisdiction while in another it is recognized as crime, the subsequent chapter will discuss the position of the legal regime in Tanzania over some of corporate crimes. 12 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A CHAPTER TWO LEGAL FRAMEWORK ON CORPORATE CRIMES IN TANZANIA 2:0 Introduction As discussed in former chapter the corporations has legal personality with capable of committing crimes. Most of jurisdiction around the world establish the legal regime for the crime establishment, enforcement mechanism, criminal and civil liability upon the offence which can be committed by the corporations. Tanzania has her own legal framework on the corporate crimes which covered by different legislation. These legislation established the offenses and impose the criminal and civil liabilities against the offenders of those crimes. Therefore this chapter will focus on discussing the legal frameworks of the common crimes, corruption, inside trading, money laundering, illegal pyramid schemes and tax evasion, which mostly allegedly to be committed by corporations. The chapter will discuss the establishment of those crimes, criminality of the crimes and liabilities both civil and criminal liability as imposed by the laws. 2:1 Corruption Corruption is pervasive through Tanzanian society and is a serious problem across all sectors of the economy32. Corruption as one of most practiced corporate crime in Tanzania. There is inter-corporate corruption and state-corporate corruption. Inter-corporate corruption is form of corporate corruption which practiced within the corruption and mostly practiced by the officers of the company for individual interest. The effect of inter- corporate corruption hurt directly the economic and financial sustainability of the company. The state- corporate corruption is kind of corruption which practiced between the government agencies, departments or government officials and the companies. Through this form the companies use to bribe the government officials as to get favour for the interest of their companies. Corruption in Tanzania is criminalized under the Prevention and Combating of Corruption Act33. The corruption related offenses is provided under Part III of the 32 33 www.business-anti-corruption.com//tanzaniacorruptionreport accessed on 14th January 2019 Prevention and Combating Corruption Act, Act No.11 of 2007 13 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A Act34 and for the purpose of this paper, it will discuss the corruption related offenses which is committed in corporations being the state or private corporations. According to the Act the corruption transactions includes solicits, accepts or obtains. or attempts to obtains, from any person for himself or any other person. any advantage as an inducement to or reward or for otherwise on account of any agent whether or not such agent is the same person as such first mentioned person and whether the agent has or has authority to do. or forbeating to do, or have done or forborne to do anything in relation to his principal’s affairs or business35. This provision criminalize any acts of inducement as to gain the advantages on particular service in relation of the principal affairs or business. This provision provides general corruption transactions. The following are specific corruption transaction which can be conducted by corporations; (a) Corrupt transactions in contracts; the Act criminalize any person who offers an advantage to public official as inducement as to gain assistance or used as influence to gain the assistance in promotion, execution and procuring any contract or subcontract with public body in performance of any work or supply of any service, materials or substance36. This section use to criminalize the state-corporate corruption as leading grand form of corruption in economic sectors. The corporation through their officials use to corrupt the public officials as to gain the contracts of service in particular public body. Once the person committed this offense can be sentenced for the fine not less than one million shillings or imprisonment of not less than three years and not more than five years37. Also the court may order such person to pay money received by him38. (b) Corrupt corruption in procurement; the Act criminalize any person who offers any advantage as an inducement to gain the tender contract on performance of work or supplying materials and substances with public body or private body39. Corporations are business entity and most of them depends on receiving tenders especially from government as to perform particular work or supplying materials and substances. The procurement department regarded as one of leading area which 34 35 36 37 38 39 Ibid Section 15(1)(a)(b) Prevention and Combating of Corruption Act.No.11 of 2007 Section 16(1)(a)(b) of Prevention and Combating of Corruption Act No.11 OF 2007 Section 16(3) of Prevention and Combating of Corruption Act No.11 OF 2007 Section 16(4)(a)(i)(ii)of Prevention and Combating of Corruption Act No.11 OF 2007 Section 17(1)(a)(b)of Prevention and Combating of Corruption Act No.11 OF 2007 14 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A commit corrupt transactions, thus this provision. In accordance to this provision whoever convicted with involvement in this transaction is liable for fine of not exceeding fifteen million shillings or imprisonment of not exceeding seven years or both40. Also the court shall order such person to pay money received by him41. (c) Corrupt transactions in auctions: in line of the provision of section 18 criminalize any person who offers, solicits, accepts any advantage as inducement in account of refraining from bidding on an auction conducted by or on behalf of public body or private body42. There is tendency of fraudulent officials of the corporations to offers and solicits officers who conduct the auction as to be benefited with such auction especially on issue of prices.the law impose fine not exceeding fifteen million shillings or imprisonment of not exceeding seven years or both to any person convicted liable for this transactions43. The Act established the Prevention and Combating Corruption Bureau (PCCB) as primary independent body enforcement body against corruption and all its related offenses44. The PCCB has number of functions and powers with primary target of preventing and combating corruption. According to section 7 of the Act the PCCB has powers and functions of examine and advise the practices and procedures of public parastatal and private organization, in order to facilitate the detection of corruption or prevent corruption and secure the revision of methods of work or procedure which appear to add to the efficiency and transparency of the institution concerned, enlist and foster public support combating corrupt practices, advice public, private and parastatal bodies on ways and means of preventing corrupt practices, and on changes in methods of work or procedures of such public, private and parastatal bodies compatible with the effective performance of their duties, which the Bureau considers necessary to reduce the incidences of corrupt practices, cooperate and collaborate with international institutions, agencies or organizations in the fight against corruption, Section 17(2)of Prevention and Combating of Corruption Act No.11 OF 2007 Section 17(3)(a)(i)(ii) of Prevention and Combating of Corruption Act No.11 OF 2007 42 Section 18(1)(a)(b)of Prevention and Combating of Corruption Act No.11 OF 2007 43 Section 18 (2)of Prevention and Combating of Corruption Act No.11 OF 2007 44 PCCB established under section 5 (1)of Prevention and Combating of Corruption Act No.11 OF 2007 40 41 15 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A investigate and, subject to the directions of the Director of Public Prosecutions (D.P.P) and prosecute offenses under this Act. The provision of section 7 vest the power to the PCCB to examine all practices conducted in corporation being private or public or government parastatal as to combat the corruption within those corporate bodies45. The Bureau has the power to investigate any matter related to corruption and prosecute the offence of the corruption before the court46. The law covers the corruption in Tanzania much focus on state corporate corruption which sometime known as political corruption because much involve the government officials, agencies, department who deals with private owned corporations. Generally; the issue of corruption and bribery in corporations and other business entity takes different faces which makes the legal framework to be ineffectual to deal with this kind of corporate crime. 2:2 Insider trading Insider trading is a practice by which one person armed with price or value sensitive non-public (confidential) information, concludes a transaction in securities to which that information relates without sharing that piece of information with others47. Before jumping to the legal framework on insider trading or dealing, let this part explaining the three concepts here, namely insider and inside information; a) Insider; is person who have the privilege in his course of business of possessing the information or details which are confidential in nature within the corporation. The person can be said to be insider of the information within the company if such person has capable of having the information through inside source.basically insiders in any corporation includes directors, managers, employees, auditors, accountants etc48. Also the insider can extend to the investment banks, lawyers, consultants who work directly with the corporation. Section 7(a)-(f) of Prevention and Combating of Corruption Act No.11 OF 2007 Section 7€ of Prevention and Combating of Corruption Act No.11 OF 2007 47 Riches S,et al “Keenan and Riches’ Business Law” (2009) 9th Ed, Ashford Colour Press Ltd., Gosport, England p373 48 Ibid p.374 45 46 16 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A b) Inside information; this is information which relates to the securities themselves or to the state of the corporation which issued them. It must be specific and precise so that general information about a company49. The information must not have been made public and must be the sort of information which, if it had been made public, would be likely to have had a significant effect on the price of those securities, e.g. falling or rising profits or decisions to pay a higher dividend than expected, or a lower one or no dividend at all. Insider trading operates through two major channels, first, there is an informatioally advantaged party possessing information that the trading party could not possibly have accessed through the exercise of diligence or the expenditure of financial resources and second the informationally advantaged party is able to achieve abnormal profits or avoid losses in an extraordinary fashion and the perpetrators of insider trading are usually persons whose use of the securities related information they possess in securities trading violates some legal (contractual/ fiduciary) or moral duty50. In contemporary legal system, most jurisdiction treat the insider trading as corporate crime and rationale behind is to provide equal and fair trade on capital markets and securities. The insider trading cause the investor who are in out of system of benefiting with non public information and affected to rise and fall of price of securities in market.Tanzania legal system criminalize the insider trading through the provision of The Capital Market and Securities Act51. According to this Act provides as follows;“(1) A person who is, or has at any time in the preceding six months prior to a specific deal been connected with a body corporate shall not deal in any securities of that body corporate if by reason of his association, he is in possession of information that is not generally available but, if it were, might materially affect the price of those securities. 49 50 51 Cassim F.H.I et al Contemporary Company Law (2011), Juta Publisher 944. Ibid Act No.5 of 1994 17 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A “(2) A person who is, or has at any time in the preceding six months prior to a specified deal been connected with a body corporate shall not deal in any securities of another body corporate if by reason of his being; or having been connected with the first-mentioned body corporate he is in possession of information that; (a) is not generally available but, if it were, would be likely to affect materially the price of those securities; and (b) relates to any transaction (actual or expected) involving both those bodies corporate or involving one of them and the securities of the other.” 52 The provision of this section directly concerns those person are connected with corporation and has inside information by reason through his association and possession of such information which is not generally available in public might materially affect the price of those securities. The provision provides three elements for insider trading to be committed; (a) Person must be connected with corporate body; the Act defined the connected person is to mean the officer of the corporation, substantial shareholder or the person who has the position in corporate which reasonably can give the access of inside information53. The officer in relation with corporation includes a director, secretary, executive officer or employee of the body, corporate, a receiver, or receiver and manager, of property of the body corporate, an official manager or a deputy official manager of the body corporate, a liquidator of the body corporate; and a trustee or other person administering a compromise or arrangement made between the body corporate and another person54. (b) Association and possession of inside information; in order for the connected person to be held liable in insider trading his association and possession of the inside information must proved. In determining this the connected persons as defined under section 112(8) presumed to associate and possess the inside information in the corporation. 52 53 54 Section 112(1)(2) of Capital Market and Securities Act No.5 of 1994 Section 112(8) of Capital Market and Securities Act No.5 of 1994 Sectio 112(11) of Capital Market and Securities Act No.5 of 1994 18 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A (c) information is confidential; the information must be in publicly unavailable and if it were, would likely to affect the price the securities. Furthermore the law include into the criminal liability to those persons and corporate body who receive the inside information knowingly and participate into the market upon those securities on relying of the inside information they received from the person who connected to the corporations55. Also the law provide for exception for the person or corporate body not to be held liable for insider trading if he is not aware of the presence of the inside information or if receive such information, he did not know if it was inside information56. Section 113 provides for the criminal and civil penalty for the offence of the insider trading, any person convicted with insider trading is liable for fine not less than five million shillings or imprisonment of term no exceeding five years or both. Also the court shall order such person or corporate to pay compensation to any person who suffer any loss due to his action57. 2:3 Money laundering Laundering means acquiring, owning, possessing or transferring any proceeds ( of money) of crime or knowingly entering into any transaction related to proceeds of the crime either directly or indirectly or concealing or aiding in the concealment of the proceeds or gains of crime, within or outside58. It is a process for conversion of money obtained illegally to appear to have originated from legitimate sources. Money laundering often involves a complex series of transactions that are usually difficult to separate. However, we generally consider three phases of money laundering: a) Placement; The physical disposal of cash or other assets derived from criminal activity. During this initial phase, the money launderer introduces the illegal proceeds into the financial system. Often, this is accomplished by placing the funds into circulation through financial institutions, casinos, shops and other businesses, both 55 56 57 58 Section 112(4) of Capital Market and Securities Act No.5 of 1994 Section 112(6)(7) of Capital Market and Securities Act No.5 of 1994 Section 113(1)-(5) of Capital Market and Securities Act No.5 of 1994 The Institute of Company Secretaries in India “Banking Law and Practice” (2014) p48 19 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A domestic and international59. This phase can involve transactions such as: Breaking up large amounts of cash into smaller sums and depositing them directly into a bank account. Transporting cash across borders to deposit in foreign financial institutions, or to buy high-value goods such as artwork, antiques, and precious metals and stones that can then be resold for payment by check or bank transfer. b) Layering; The separation of illicit proceeds from their source by layers of financial transactions intended to conceal the origin of the proceeds. This second stage involves converting the proceeds of the crime into another form and creating complex layers of financial transactions to disguise the audit trail, source and ownership of funds. This phase can involve transactions such as: Sending wire transfers of funds from one account to another, sometimes to or from other institutions or jurisdictions, Converting deposited cash into monetary instruments (e.g.traveler’s checks), Reselling high-value goods and prepaid access/stored value products, Investing in real estate and legitimate businesses, Placing money in investments such as stocks, bonds or life insurance, Using shell companies or other structures whose primary intended business purpose is to obscure the ownership of assets60. c) Integration; Supplying apparent legitimacy to illicit wealth through the re-entry of the funds into the economy in what appears to be normal business or personal transactions.This stage entails using laundered proceeds in seemingly normal transactions to create the perception of legitimacy. The launderer, for instance, might choose to invest the funds in real estate, financial ventures or luxury assets. By the integration stage, it is exceedingly difficult to distinguish between legal and illegal wealth. This stage provides a launderer the opportunity to increase his wealth with the proceeds of crime61. Integration is generally difficult to spot unless there are great disparities between a person’s or company’s legitimate employment, business or investment ventures and a person’s wealth or a company’s income or assets. Money laundry plays big role in corporate bodies i.e banks, financial institutions, insurance companies, investment companies etc, this is due to the fact that this 59 60 61 bid ibid Ibid 20 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A corporate crime ensure easy and funds for the corporate or individual person. Money laundering is prohibited in Tanzania generally by Ant-Money Laundering Act62. This legislation covers several aspects concerning money laundering including, the interpretation of money laundering offence and related offenses, criminal and civil liability for the person or corporate body engage into this crime and also it provides the enforcement mechanisms for handling this crime. According to interpretation section of the Act defines the money laundering to mean the engag/ement of the of a person or persons, direct or indirectly in conversion, transfer, concealment, disguising, use or acquisition of money or property known to be of illicit origin and in which such engagement intends to avoid the legal consequence of such action63. In accordance to this Act, the person will be regarded to commit or attempt or conspire to commit the offence of money laundering if engage or attempts or conspires directly or indirectly in transacting, converting, transferring, transmitting, transporting, using, administering, acting, possessing, the property that is proceeds of a predicate offence while he knows or ought to known or ought to have known that property is the proceeds of the predicate offence and assisting to commit such offence as to evade legal liability64. Further the Act extends to criminalize for this offense to those who impedes, disguises and conceals the truth concerning the nature, source, location, disposition, movement or ownership of or rights with respect to property, while he knows or ought to know or ought to have known that such property is the proceeds of a predicate offence65. The establish offence section laid essential elements for the offence of the money laundering; i) Engagement; this is actus reus of the offence, whether the engagement is directly or directly on transaction, transportation, administration, usage, transmitting, conversion and transferring the property which is proceeds of the predicate offence. 62 63 64 65 Act No.12 of 2006 (CAP 423) Section 3 of Ant-Money Laundering Act No.12 of 2006 Section 12(a)(b)(d)(e) of Ant-Money Laundering Act No.12 of 2006 Section 12 (e) of Ant-Money Laundering Act No.12 of 2006 21 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A ii) Property is that of proceeds of the predicate offence; the property which involved in money laundering can be cash money or tangible or intangible property and must be the proceeding property of the predicate offence. the property is said to proceeds of predicate offence if it obtain illicitly. The Act defines the predicate offence to include drugs trafficking, arms trafficking, theft, counterfeiting, illegal fishing, corruption, extortion, hijacking, piracy, tax evasion, insider trading, forgery, illicit gaming, human trafficking, environmental crimes, illegal mining, armed robbery etc66. iii) Intention; This is mens rea of the offence, the person shall be liable for the offence if he knows or ought to know or ought to have known that property is resulted from the illegal activities and assist to commit such offence as avoid legal liability. The Act provides for circumstances where the corporation can be liable for the offence of the money laundering. It provides the directors, managers, controllers, partners or other officials concerned in management shall be held liable for an offence of money laundering if theycommit or attempt or conspire to commit the offence of money laundering if engage or attempts or conspires directly or indirectly in transacting, converting, transferring, transmitting, transporting, using, administering, acting, possessing, the property that is proceeds of a predicate offence while he knows or ought to known or ought to have known that property is the proceeds of the predicate offence and assisting to commit such offence as to evade legal liability67. The provision also provide for the defence which can be raised by corporate officers against the involvement on money laundering if they will prove they were not aware for commission of the offence and they took reasonable measure to prevent such crime to be committed in the corporation68. Section 13 provides for the criminal liability and civil liability for any person or corporate body engage into commission of the offence of money laundering. According to this section if the convicted person is individual person can convicetd for the fine of not less than one hundred million shillings or imprisonment for term 66 67 68 Section 3 of Ant-Money Laundering Act No12 of 2006 Section 14(1)(2) of Ant-Money Laundering Act No12 of 2006 Section 14(3)of Ant-Money Laundering Act No12 of 2006 22 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A not exceeding ten years and not less than five years. In case to corporation will pay the fine not exceeding one billion shillings and not less than five hundred million shillings or be ordered to pay the amount equivalent to three times the market value of the property, whichever amount is greater69. 2:3:1 Preventive measures against money laundering The law in recognition of the risky of the money laundering in the corporations provide preventing measures to be taken by corporation against commission of the money laundering within the corporations. The law use the term “reporting person” to mean banks and financial institutions, cash dealer, an accountant, real estate agent, dealer in precious stones, work of arts or metals, a regulator, customs officer, attorneys, notaries and other independent legal professionals when, assisting clients in preparing or executing transactions involving, the purchase or sale of real property or commercial enterprises, management of funds, securities or other assets which belong to a client, the opening or management of bank accounts, saving accounts or portfolios, the organization of contributions required to create, manage or direct corporations or legal entitles, the creation, management or direction of corporations or legal entities; and the buying or selling of business entities, acting on behalf of a client in any financial or real estate transaction, auctioneers and any other person who the Minister may, by notice published in the gazette70. This reporting person (corporation) as defined by the law requires to take the following as preventive measures against money laundering; (a) Customer’s identification verification71 The law requires the corporation to verify true identity of the customer before creating or establishing the business relation with him. The law requires the reporting person to require the person to produce the official record which proving his true identity. According to this law the true record includes a birth certificate or an affidavit to that effect, a passport or other official means of identification, in the case of a body corporate, a copy of the organizations, Memorandum and Articles of Association and 69 70 71 Section 13(a)(b)of Ant-Money Laundering Act No12 of 2006 Section 3of Ant-Money Laundering Act No12 of 2006 Section 15(1)-(6) of Ant-Money Laundering Act No12 of 2006 23 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A a certificate of incorporation together with latest annual reports certified by the Chief Executive Officer of the Business Registration and Licensing Authority and any other documents as may be prescribed by the Minister in the regulations. In the case of the customer who are identified as Politically Exposed Persons (PEP) (foreign individual entrusted with prominent public functions including heads of state or government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations or agencies), the law requires the corporation to take the following measure as to verify this PEP, to have appropriate risk management systems to determine whether the customer is a PEP, to obtain senior management approval for establishing business relationship with such customer, to take reasonable measures to establish the source of wealth and source of funds and conduct enhanced on-going monitoring of the business relationship. In addition, the law requires further reasonable measure to be taken upon identification of a person who claim to be agent, trustee or person acting on behalf of another and want to enter into the transaction whether or not in course of continuing business relationship. In verify this identity of acting on behalf the reporting person have to examine records of such person who act on behalf and once he satisfy that person is acting on behalf he also requires to verify true identification of the person to whom such applicant act on behalf. (b) Establishing and maintaining the customer’s records72 Section 16 requires the reporting person to establish and maintaining the records of all transactions of currency or its equivalent of foregn currency. The records requires under this section in matter of identity must contain, the name address and occupation or where appropriate business or principal activity, the nature and date of the transaction, the type and amount of currency involved, the type and identifying number of any account with the reporting person involved in the transaction, if the transaction involves a negotiable instrument other than currency, the name of the drawer of the instrument, the name of the institution on which it was drawn, the name of the payee, if any, the amount and date of the instrument, the number, if any of the 72 Section 16(1)-(4) of Ant-Money Laundering Act No12 of 2006 24 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A instrument and details of any endorsements appearing on the instrument and the name and address of the reporting person, and of the officer, employee or agent of the reporting person who prepared the record. The law requires further, the reporting person to remain maintain copy of the records of transactions once the original one requested before the minister requests. (c) Report of suspicious transactions73 As preventive measure against the money laundering, the law requires the officer to report when he suspect any transaction of the funds or property of proceeds of crime or are related or linked to or are to be used for commission or continuation of a predicate offence or has knowledge of a fact or an activity that may be an indicating of money laundering or predicate offence. The officer requires within twenty four hours after forming the suspious and before execution of such transaction, to take reasonable measures to ascertain the purpose of the transaction or proposed transaction, the origin and ultimate destination of the funds or property involved, and the identity and address of any ultimate beneficiary; and prepare a report of the transaction or proposed transaction and communicate the information to the Financial Intelligence Unit (FIU) by any secure means as may be specified by FIU. As to make sure this complied the law impose the criminal liability for any person contravene with this provision, if the convicted person is individual person will liable for a fine not exceeding Tsh.5000,000/= or imprisonment of term not exceeding five years and if it is corporation will order to pay fine to exceeding Tsh.10,000,000/= or ordered to pay three times the market value of the property, whichever amount is greater. Also section 20 prohibit any person who inform, warn and dislose to any person or third party that the transaction which is suspecting is reported. (d) Establishing and maintaining the internal reporting procedures74 Law is aware of practice of commission of the offence of the money laundering in the corporations. Due to corporations are controlled by individuals persons such as directors, managers, employees etc the possibility of money laundering to be committed by this officers is likely to occur, hence the law requires the corporations 73 74 Section 17(1)-(4)of Ant-Money Laundering Act No12 of 2006 Section 18(a)-(c) of Ant-Money Laundering Act No12 of 2006 25 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A to design internal preventing and enforcement mechanism for reporting any suspicious on all transaction of funds or property of proceeds of crime conducted by the employees of corporation. Also the law requires the corporation to conduct the training to the employees on dealing with money laundering and also educate them about legal framework govering the money laundering as to disengage with the commission of the offence of money laundering. (e) Prevention on operating banks accounts of false names75 The law also prohibits banks and financial institution to open the accounts without conducting due diligence to the customers or to open the accounts or to operate account with false, disguise and anonymous name. The person or corporate body contravene with this prohibition will be liable for a fine of not exceeding Tsh.5,000,000/= or imprisonment of term of twelve months and if it is committed by corporate body will liable for fine not exceeding Tsh.10,000,000. (f) Establishment of Financial Intelligence Unit (FIU)76 As to ensure to ensure the effective preventive and enforcement mechanism against the money laundering, the law establish the Financial Intelligence Unit (FIU) responsible for receiving, analyzing and disseminating suspicious transaction reports and other information regarding potential money laundering or terrorist financing received from the corporation and other sources from within the outside the United Republic77. The corporation are requires to report any suspicions transactions amounting to money laundering to FIU and this unit have to receive such report, analyzing the received report and if they will satisfy that the transaction is part of money laundering, they have to communicate with other enforcement agencies i.e police and D.P.P for further criminal investigation and criminal proceedings78. by virtue of section 6(c)of the Act, the FIU has no power of investigating or prosecuting against the offence. Also the FIU have power to provide the guidelines and training the corporation’s officials concerning money laundering and other related emerged issues on such offence. Section 19(2)(3)of Ant-Money Laundering Act No12 of 2006 Section 4(1)of Ant-Money Laundering Act No12 of 2006 77 Section 6 of Ant-Money Laundering Act No12 of 2006 78 Section 6 (c) of Ant-Money Laundering Act No12 of 2006 75 76 26 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A Cumulatively, the purpose of the law to provide for above discussed measures is to guide the corporations against engagement into money laundering since the corporations especially banks and financial institutions are in the close line of involvement into this kind of offence whether intentionally or not, therefore this measures used as guidelines for fighting against the money laundering. The issue of whether this preventive measures and power of FIU is adequate or not it will be covered in subsequent chapter. 2:4 Pyramid schemes This is a form of fraud which lures investors and pays profits to earlier investors by using funds obtained from the more recent investors. In this kind of scheme the victims are led to believe that the the profits are coming from product sales or other means and they remain unaware that other investors are the source of profits79. A pyramid scheme basically maintain the illusion of a sustainable business as long as there continue to be new investors willing to contribute new funds and as long as most of the investor do not demand full repayment and are willing to believe in the non existent assets that they are purported to own. The pyramid scheme characterized by requiring an initial investment and promise above average return. This promise of high returns often encourage investors to leave their money in the scheme, so that the operator does not actually have to pay very much investors80. The operator will simply send the statements showing how much they have earned, which maintain deception that the scheme is an investment with high returns. Investors within the pyramid scheme may even face difficulties when trying to get their money out of the investment. Globally, the pyramid scheme criminalized and and as to protect the investors against this kind of corporate crime number of features underlined as to act as red frags for the commission of the offence of the pyramid schemes, includes; high investment return with little or no risk, overly consistent return, unregistered investment, 79 80 www.wikipedia.com//pyramid-schemes-meaning accessed on 20th December 2018 Ibid 27 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A unlicensed sellers, secretive or complex strategies and difficulties on receiving payments. In Tanzanian legal system criminalize the pyramid scheme under section 171A of the Penal Code81. The Act define the pyramid scheme to mean an operation or contrivance whereby a person holds out a promise to another person or persons that upon the payment of a specific sum of money, giving a certain amount of valuable security or obliging another person or persons to pay the specific amount of money or to give a certain amount of valuable security, that person shall become entitled to receive a sum of money or an amount of valuable security which, given all commercial considerations, is greater than the money or valuable security given or a return on the investment of the money or valuable security so given or makes any payment to or for the benefit of the promoter or to any of the promoters, or for the benefit of a participant in the scheme82. The above legal definition identify the features of the scheme as previous discussed, namely, payment of specific amount of money or valuable security as initial investment and promise of high return due to the invested money or valuable security. The law further extend the criminal liability to a person who receive the benefit by introducing the participants in the scheme, promoting the scheme and supply goods to the scheme83. The law impose the criminal conviction for the person who contravenes with this provision either to pay fine not exceeding five million shillings or imprisonment of term not exceeding five years84.In addition the law criminalize person or group of person who induce another person to engage into the scheme and such person will be liable for the fine not exceeding five million shillings or imprisonment of five years85. Also the law criminalize the person who advertise the scheme with knowledge of the scheme was fraud86. 81 82 83 84 85 86 The Tanzania Penal Code Cap 16 amended by Act No.8 of 2006 171A(2) of The Tanzania Penal Code Cap 16 amended by Act No.8 of 2006 Section 171A(4)The Tanzania Penal Code Cap 16 amended by Act No.8 of 2006 Section 171A(3)The Tanzania Penal Code Cap 16 amended by Act No.8 of 2006 Section 171B(1)The Tanzania Penal Code Cap 16 amended by Act No.8 of 2006 Section 171B(4)The Tanzania Penal Code Cap 16 amended by Act No.8 of 2006 28 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A Conclusively, the paper discussed this offence due to the fact there some investment corporations established based in this scheme. This scheme injure social and financial economy not only to the individual investors also to the corporate investors. The issue to whether the legal framework against this financial crime is in efficacy or inefficacy on combating the crime it will be discussed in later chapter. 2.6. Tax evasion and tax avoidance Tax can be defined as to mean a compulsory, non-punitive exaction of money from a private person or entity by a public authority for public purposes87. There are many different kinds of tax, including income tax, consumption tax, corporate tax, capital gains tax, property tax, sales tax, inheritance tax, value added tax, excise tax, poll tax, tariffs, tolls, and transfer tax88. In all legal jurisdiction around the world, payment of tax is compulsory and every individual person and corporate bodies have to pay taxes in accordance to legal provision. The noncompliance of the tax laws in payment of taxes the can be termed as tax evasion and tax avoidance. Tax evasion is the illegal practice of intentional non payment of tax to the government, in contrast tax avoidance is legal use of tax laws to reduce one’s tax burden in other words the tax avoidance means usage of legal tax regime in a single territory to one’s own advantage to reduce the amount of tax that is payable by means that are within the law89. Basically both tax evasion and avoidance viewed as tax noncompliance. The tax evasion can be practiced in different forms namely, misstatement of the tax and smuggling. The person can avoid to pay tax by filling false statement concerning the true income statement of his business transactions. Also the individual person or corporation can avoid tax by importation and exportation of the the customer goods by without following the legal procedures including to pass to customs authority for tax deductions, this practice known as smuggling. In Tanzania there is legal regime on taxation. Laws on taxation varied depend on kind of tax there is Income tax Act90 covers the income tax, there is Value added Tax Makinyika F.D.A.L “A sourcebook of Income Law in Tanzania” (2000)1st Ed Salaam Press p.1 88 www.wikipedia.com//tax-meaning accessed on 20th December 2018 89 ibid 90 Cap 332 R.E 2008 87 29 University of Dar es The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A Act91 covers the tax on the goods’ value and Excise (Management and tariff) Act92 which covers the tax or tariff to the excise goods. This paper will discuss only the Income Tax Act and how covers the tax evasion in corporation The income tax Act is legal framework for tax income in Tanzania. According to this Act the individual person or corporate body or any other business entity have to pay income tax. Since the paper focus on corporations, it will discuss the corporations’ income tax and how evasion is dealt under this law. In accordance to this law defines the corporation to mean any company or body corporate established, incorporated or registered under any law in force in the United Republic or elsewhere, an unincorporated association or other body of persons, a government, a political subdivision of a government, a parastatal organization, a public international organization and a unit-trust but excludes a partnership93. Section 4 of the Act provides the taxable income by the corporation to mean the total income for the year on income or perpetual unrelieved loss for the year of income and the previous two consecutive years of income. Through lines of section 4, the corporation have to pay total income incurred in the year and also from perpetual unrelieved loss for the year of income. The unrelieved loss means the amount of a loss that has not been deducted in calculating a person’s income94. In accordance to this Income Tax Act the corporation is legal person and independent one, it is liable to pay income tax separately from its shareholders95. In case the shareholders has jointly incurred and own the expenditures, liabilities and assets for the purpose of the corporation that lacks legal capacity, the law treats those expenditures,liabilities and assets are derived or incurred or owned by the corporation and not any other person96. Also the law provides that shareholders of the corporation shall pay income tax through dividends distributed to them97.. 91 92 93 94 95 96 97 Act No.10 of 2014 Cap 147 R.E 2008 Section 3 of Income Tax Act Cap 332 R.E 2008 Section 19(4) of Income Tax Act Cap 332 R.E 2008 Section 53(1)of Income Tax Act Cap 332 R.E 2008 Section 53(3) of Income Tax Act Cap 332 R.E 2008 Section 54(1) of Income Tax Act Cap 332 R.E 2008 30 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A It is Part VIII of the Act which criminalize all form of the tax evasion. It provides for the offenses and penalties for the tax evasion and related offence to it. Section 104 of the Act criminalize any person who fails to pay tax without any reasonable cause98. If the person fails to pay tax in excess of Tsh.500,000/= shall pay fine not less than Tsh 250,000/= and not exceed Tsh 1000,000/ or the imprisonment of term not less than three months and not exceed one year or both fine and imprisonment. And if the person fails to pay income tax amount less than Tsh.500,000/- is liable for the fine not exceed Tsh.250,000/= not less than Tsh.50,000/- or imprisonment not less than one months not exceed three months or both99. Further, Section 106 provides that where the statement or omission is made without reasonable excuse and, if the inaccuracy of the statement were undetected, may have resulted in an underpayment of tax in an amount exceeding shillings 500,000, to a fine of not less than shillings 250,000 and not more than shillings 1,000,000, imprisonment for a term of not less than three months and not more than one year or both; and in any other case, to a fine of not less than Tshs. 50,000 and not more than shillings 250,000 imprisonment for a term of not less than one month and not more than three months or both. Further it provides that where the statement or omission is made willfully or negligently and, if the inaccuracy of the statement were undetected, may have resulted in an underpayment of tax in an amount exceeding Tsh.500,000/- to a fine of not less than Tsh.500,000/- and not more than shillings 2,000,000, imprisonment for a term of not less than one year and not more than two years or Both and in any other case, to a fine of not less than shillings 100,000 and not more than Tsh.500,000/imprisonment for a term of not less than six months and not more than one year or both100. The law also criminalize the person who aiding or abetting to mislead or make false statement.it provides that if the inaccuracy of the statement were undetected, may have resulted in an underpayment of tax in an amount exceeding shillings 500,000, to Section 104(a)of Income Tax Act Cap 332 R.E 2008 Section 104(b)of Income Tax Act Cap 332 R.E 2008 100 Section 106(d)of Income Tax Act Cap 332 R.E 2008 98 99 31 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A a fine of not less than shillings 500,000 and not more than shillings 2,000,000, imprisonment for a term of not less than one year and not more than two years or both and in any other case, to a fine of not less than shillings 100,000 and not more than shillings 500,000, imprisonment for a term of not less than six months and not more than one year or both101. Division II of the Part VII of the Act provides for the recovery of the tax from the tax debtor. Section 110 provides that the suit for recovery of tax can be instituted in the court if the person fails to pay tax. Section 112 vests power to commissioner of tax to charge over assets of the tax debtor as means of recovery unpaid tax and if after charge the assets the debtor fails to recover his assets by paying unpaid tax the commissioner has power to sale those assets as to recover the unpaid taxes. Since the corporation controlled by the natural persons once the offence is committed the officer of the corporation will be liable to the offence also. The officer of the company can be sued for recover the unpaid tax or his assets can be charged and sold102. The defence can be raised by the officer if he satisfy the court that he exercised the degree of care diligence and skill that a reasonably prudent person would have exercised in comparable circumstances to prevent the commission of the offence or failure103. Generally, the law provides the manner of corporations to pay income tax and also it provides the criminal and civil liability of noncompliance of the Act includes failure of tax payment. The offense of tax evasion within the companies is so common if there is no proper mechanism of enforcing the law within the state. The corporations use any means to avoid tax as means to benefit the corporation, the issue of whether the legal framework is adequate on combating the offence discussed in the following chapter 101 102 103 Section 109of Income Tax Act Cap 332 R.E 2008 Section 115(1)(2)of Income Tax Act Cap 332 R.E 2008 Section 115(3)(b)of Income Tax Act Cap 332 R.E 2008 32 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A 2:7. Conclusion As above discussion is concerned the legal framework of the corporate crimes; inside trading, corruption, tax evasion, pyramid schemes and money laundering. These offenses selected to cover this paper due to their commission by the corporations. The law tried to cover important aspect on dealing with this offence but also there some of area which need reforms as to create the efficacy of the legal regime upon these crimes, much will be covered on the subsequent chapter. 33 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A CHAPTER THREE INEFFICACY OF THE LEGAL FRAMEWORK ON CORPORATE CRIMES IN TANZANIA 3:0 Introduction The paper discussed the legal framework on corporate crimes in former chapter through the analyzing and discussing the legal provisions which cover the selected corporate crimes, the paper discover number of weaknesses which in some extend lead to inefficacy of the legal framework against the sufficient prevention and combating the corporate crimes which selected in this paper. The following is the discussion on those weakness found and the solutions for corrections will be dealt in the last chapter. 3:1 Weaknesses of the legal framework on corporate crimes in Tanzania 3:1:1 Weakness of legal framework on inside trading The Capital market and Securities Act104 does not provide a definition as to what amounts to inside information of a body corporate. It is only from the provision of section 112 subsections (1) and (2) that one can interpret to the extent that inside information refers to any information that is not generally available to the public but, if it were, might materially affect the price of the securities at the market. This would mean that not all information is treated as inside information for the purposes of regulating insider trading105. One legal scholar defined inside information as specific or precise information which has not been made public and which is obtained or learned as an insider and if it were made public would be likely to have a material effect on the price or value of any security listed on a regulated market106. through this view, the information must be specific or precise, not have been made public, must be obtained or learned as an Act No.8 of 1994 Ghatti W. “Critical analysis of the insider trading framework of Tanzania” The mini- thesis submitted in partial fulfillment of the requirements for the award of master degree in law (LL.M): corporate governance and corporate finance law, at University of Western Cape in 2015 pp14-15 106 Cassim F.H.I,, et al Contemporary Company Law (2011), Juta Publisher ISBN 0702185442 p.940 104 105 34 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A insider and if it were made public would be likely to have a material effect on the price or value of any security listed on a regulated market. Also the Act does not provide the meaning of the term “publication.” However, inside information ceases to be inside information for purposes of the Act upon its publication. Already published information does not attract any liability unless such publication was not made in terms of the Act. The failure of the Act to provide the meaning of the term “publication” is a weakness in law because publication of inside information carries a heavy weight to the establishment of the offence of insider trading107. As it is discussed by Cassim the legislation should clearly state circumstances in which information is to be regarded as having been made public so that the moment it is published, dealing is permissible108. Again it is submitted that even the method through which inside information is purported to have been possessed does not preclude other methods of having received inside information so as to cause the commission of the offence of insider trading. Inside information can still be acquired through other methods such as espionage, theft, bribery, fraud, misrepresentation or any other wrongful method to affect materially the price of securities on the market. The Act does not provide for information obtained by theft as an offence. This is a loophole in the Act. 3:1:2 Weakness of legal framework on money laundering The law which covers the offense of money laundering, which is Ant- Money Laundering Act fails to vest the prosecution and investigating power to the Financial Intelligence Unit FIU. The offence of money laundering involves the expert of money transaction which also need the investigation and prosecution to be conducted by the people who are expert in such field. The duties of FIU is limite only on tracking and reporting and left the investigation and prosecution to be dealt by other authorities like police and D.P.P. in matter of practice the FIU use to be called as expert witness Ghatti W. “Critical analysis of the insider trading framework of Tanzania” The mini- thesis submitted in partial fulfillment of the requirements for the award of master degree in law (LL.M): corporate governance and corporate finance law, at University of Western Cape in 2015 pp14-15 108 Cassim F.H.I,, et al Contemporary Company Law (2011), Juta Publisher ISBN 0702185442 p.941 107 35 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A before the court and not prosecutor. The investigators and prosecutors mostly are not expert much of the field of the money laundering and it works. 3:1:3 General weakness of legal framework on discussed corporate crimes The laws governing selected corporate crimes do not establish harsh criminal and civil liability to the offenders. The punishments are so smooth and not cause and deterrence ot the offenders. The discussed offenses involve people and corporations with powerful financial base and most of punishments based on payment of fines or imprisonments, the offenders prefer to pay fines cause are so cheap to pay. The legal framework on these offence have to introduce harsh and hard punishments to the offenders as to cause them to deter, hence the elimination of corporate crime commission. 3:2 Conclusion The weaknesses as discussed above hinder the enforcement of these corporate crimes within the state since provide loopholes for the criminals to escape the liability. Apart from these weaknesses retrieved from legal framework there other factor which affect the perfection of implementation of the laws against the corporate crimes such as lack of experties of dealing with these offenses especially offense of inside trading and money laundering, the failure of government to criminalize the corporations for fearing especially foreign investors to run away etc. 36 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A CHAPTER FOUR RECOMMENDATIONS AND CONCLUSION 4:1. RECOMENDATIONS It is common maxim that the weakness of the law provides the wide loophole of the crime commission, therefore due to the discussed weaknesses of the legal framework in former chapter the paper have number of recommendations; 1. The law of insider information must be amended and the recommending amending law must focus much on defining clearly the who insider information and its publication. Also the law have to cover other area which cause the inside information to be out before general publication. Those other means must include theft of in formations, espionage on information etc 2. All laws have to introduce harsh and hard punishments to the offenders of those crimes. Since these offenses involve the corporations and individual person with health and strong financial base, the law must introduce harsh penalties including fines and imprisonment term as to provide deterrence to the criminals and their corporations as to make sure these crimes are reduced or even eliminated completely. 3. The Financial Intelligence Unit FIU as established by Ant-Money Laundering Act must be vested power of conducting investigation and prosecuting rather than receiving and analyzing the report of the suspicious transactions of money laundering. The power of prosecuting and investigating will give the efficient power on enforcement mechanism against the money laundering since the FIU composed by experts crew on field of financial crimes. 37 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A 4:2 CONCLUSION Up to this closing-paper paragraph the paper focused on legal framework of most common corporate offenses namely; money laundering, corruption, inside trading, tax evasion and pyramid schemes. The paper papers revealed area of weakness on legal framework of these offence including insufficient definition of key terms of the offense, power of the FIU and weakness of the criminal and civil penalties against the criminals. Finally the paper provide recommendations as to ensure efficacy of the legal framework on these discussed corporate offenses as to ensure these offenses are dealt accordingly. General speaking the continuation of corporate crimes have lot of negative repercussions both on social and political aspects and it needs a lot of effort to combat them. the law itself does not enough to combat these crimes, all stakeholders include law enforcers and corporations being private or public have to create tied-chemistry as to ensure these offenses are not committed as to create stable financial and economic base of the country both for the present and future generation. 38 The Legal Framework on Corporate Crimes in Tanzania By Mwakibete .Alpha.A REFERENCES BOOKS Arshadi N, et al,, “The Law and Finance of Corporate Insider Trading: Theory and Evidence” (1993) Massachusetts: Academic Publishers . Bensen, M.L. et al,, ”White Collar Crime:An Opportunity Perspective” (2009) 1st Ed, Criminology and Justice Series, Routledge, New York, USA. Braithwaite J ” Regulatory Capitalism: How it Works, Idea For Making It Work Better” (2008) Edward Elgar Publishing, United Kingdom. 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Sutherland E.H “White Collar Crime Criminality” the article published by American Sociological Review,vol.5, No.1. on Feb,1940. Hansen, L.L. “Journal of Financial Crime: Social diagnosis and treatment” vol.16 issue 1 of (2009), published by Emarald Group Publishing Ltd, USA. Gottschalk .P et al,,. "Corporate Crime does pay! The Relationship between Financial Crime and Imprisonment in White Collar Crime", International Letters of Social and Humanistic Sciences Vol. 5. Snider, L "Relocating Law : Making Corporate Crime Disappear"(1999) Halifax Feermwood Publication. PRESENTED PAPERS Ainsley.H et all "The Killing of the Fly: State Corporate Victimization in Papua, New Guinea" working paper No.22, Paper presented in the Resource Management In Pacific Asia seminar series at The Australian National University on 1st July 1999. ARTICLES Brian K.,,et al, “Corporate Crime” published th http://www.oxfordbibliographies.com//corporate-crime on 15 January 2015. at VanErp J.G “The Organization of corporate Crime: Introduction to Special Issue of Administrative Sciences” vol.8 No.36 of July,2018. “Coporate Crimes: Nature and Types and it’s Impact on the society” chapter 5 document retrieved from http://www.shodhganga.inflibnet.ac.in>document THESIS/DISSERTIONS/REPORTS Ghatti W. “Critical analysis of the insider trading framework of Tanzania” The minithesis submitted in partial fulfillment of the requirements for the award of master degree in law (LL.M): corporate governance and corporate finance law, at University of Western Cape in 2015 INTERNET SOURCES www.wikipedia.com//pyramid-schemes-meaning accessed on 20th December 2018 www.business-anti-corruption.com//tanzaniacorruptionreport accessed on 14th January 2019 www.wikipedia.com//corporate-crime accessed on 16th December 2018 40