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Tuesday, 8 October 2013

Legislative Folly in Zambia (Part 1) - Bounced Cheques

Bouncing cheques is a criminal offence in #Zambia under the National Payments System Act 2007. It is not a civil offence. In other words it is a crime against the State not a contractual breach against the individual. Any person who wilfully, dishonestly or with intent to defraud issues a cheque on an insufficiently funded account is liable to imprisonment for two years.

It is interesting to note that annually we have around 16,000 bounced cheques! There are few criminal prosecutions. In fact the prosecutions have usually been only where politics is involved e.g. when George Mpombo was prosecuted in 2010 for bouncing a cheque after he had resigned from the Banda administration. With little or no deterrence effect it begs the question why this is a criminal offence and not a civil breach between individuals. Why send people to jail for merely bouncing a cheque?

The law is an exercise in foolishness because if we had to investigate and prosecute everyone we would be bankrupt as a country. A good law is one which is rarely used because the deterrent effect is sufficient enough. This law is like legislating against someone urinating in public. It has had a zero deterrent effect - as seen by the statistics. In fact it has been at 16,000 for the last five years.

It is also foolish on economic grounds. I can see why any normal human being would consider it wrong for people to intentionally bounce cheques, but I don’t see why that should translate in a criminal penalty. In my view criminal penalties are there for offences seen as injurious to the general population or to the State, including some that cause serious loss or damage to individuals. This is why they often result in custodial sentences. Bouncing a cheque is not in my view a crime against the state, nor are there serious economic foundations for treating it as a social problem, let alone a criminal or custodial offence.

On economic efficiency grounds government intervention is warranted if bouncing a cheque in some way imposes costs on society that are not borne by the players involved in the transaction. In many cases cheques are accepted on trust, but where such trust does not exist people prefer more certain transactions, and so it should be! There's a good reason why supermarkets don't take a cheque without a cheque guarantee card! It is not government’s job to constantly police that Y gets the correct cheques from X. The point of course is that whether Y’s judgement is poor or not is irrelevant, what matters is that this is a deal between two private and rational individuals and therefore all the costs borne by either side are “internalised”.

Some might say, well that sounds fine but what about the cost on the courts if Y had to be forced to pursue X to recover the debt? Surely, by having this draconian law we are ensuring such eventualities never take place – a sort of deterrent effect? That is true, but we have to remember that this is different point for a number of reasons. For one thing, the underlying questions raised is predicated on 100% deterrence. As already noted we have many cases of these breaches. So in most cases what we have is more costs on the system with minimal deterrence. So having the criminal sanction does not prevent the ensuing criminal justice costs. Rather it increases the costs. It is more costly to pursue a criminal sanction than a civil breach.

The other point is that criminalisation of cheque bouncers has significant costs on society. Criminalisation is not without costs in instances where prosecutions takes places because it imposes costs on the justice system - particularly on our crowded courts and prisons . But it is the costs to society for someone having gone through the criminal fraternity that we should worry about most. It is well know that often jail is simply a training ground for later re-offending. It therefore begs the question why any responsible person would even contemplate sending people to jail in the first place for bouncing a cheque.

Finally, the law is foolish on equity grounds. It is inherently discriminatory against the poor because it is hard to dismiss that the relatively poor members of society are the ones who tend to issue bounced cheques. It is they that often struggle financially as they fend for themselves. The poor also suffer because they have weak legal representation. Legal aid provision is insufficiently funded by government (and NGOs) and many of our poorest do not get high quality legal presentation, if at all. There’s significant likelihood that where this law to be properly enforced many innocent poor people would end up being sent to our crowded jails based on foolish laws and crimes they have not committed. This is a triple injustice: poor, foolish laws and incorrectly convicted.

This policy legislation at the expense of the poor continues to manifest itself in many areas of our Zambian life. When one takes a careful review of the Draft Constitution clause after clause smack of an affront to our poor e.g. political funding, many constituencies. The list is endless!

Chola Mukanga | Economist
Copyright © Zambian Economist 2013

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