Safe Deposit Boxes in Zimbabwe

Introduction

On 30 November 2023, the Minister of Finance and Economic Development, Prof. Mthuli Ncube delivered a National Budget Statement for 2024, addressing the challenges posed by the extensive use of cash, particularly by businesses, and its impact on transparency and taxation. One notable proposal involved the regulation of custodial services provided by financial institutions and security companies, specifically those related to safe deposit boxes. The Minister proposed that the Commissioner-General for Zimbabwe Revenue Authority (ZIMRA) be empowered to open custody vaults and safe deposit boxes at any time to ascertain their contents where there is suspicion of tax evasion. This proposal was then introduced in the Finance Bill, 2023. The Finance Bill, 2023 was passed by both houses of Parliament and it was gazetted as the Finance Act No. 13 of 2023, on the 29th of December 2023. This article aims to review and analyse this new law in light of international standards.

The Current Landscape

Zimbabwe has long operated within a multicurrency system, and while it has played a critical role in the market, concerns have arisen regarding the transparency of businesses operating exclusively in cash. The issue at hand is the non-commensurate responsibility for transparency, particularly in banking cash receipts and fulfilling tax obligations.

Financial institutions and security companies have been providing custodial services in the form of safe deposit boxes, allowing individuals and businesses to store their cash, important documents like title deeds and passports, jewellery and other valuables securely. Nonetheless, a notable challenge has arisen, stemming from businesses’ non-compliance with the stipulations outlined in the Bank Use Promotion and Suppression of Money Laundering Act (Chapter 24:24) regarding the mandatory deposit of funds. In response, certain businesses have chosen to store their foreign currency in safe deposit boxes rather than adhering to the requirement of depositing these funds in banking institutions. This lack of transparency has created a breeding ground for tax evasion, particularly in foreign currency receipts where sales often go undeclared.

The Legal Aspects of Safe Deposit Boxes

In recent years, the practice of utilising safe deposit boxes for storing valuable assets has gained popularity. Individuals often choose to safeguard items such as jewellery, important documents, and even cash within the secure confines of safe deposit boxes offered by financial institutions or security companies. However, it is imperative to have a comprehensive understanding of the legal aspects associated with safe deposit boxes.

Fundamentally, the relationship between a financial institution and its safe deposit customer is contractual. In essence, the contractual arrangement can be likened to a lease, with the financial institution assuming roles such as “bank,” “lessor,” or “landlord,” and the customer adopting titles such as “renter,” “lessee,” or “tenant.” In this relationship, the customer is granted access to the use of a safe deposit box during specified banking hours and is provided with a key, in exchange for payment of a rental fee. This key, when used in conjunction with a master key held by the bank, facilitates access to the safe deposit box.[1]

Crucially, the financial institution owes a duty of due care to its customers who use the safe deposit box services. This duty entails taking all reasonable measures to prevent unauthorised access or removal of contents by individuals not sanctioned by the customer. The responsibility to maintain a secure environment for the stored valuables is a key aspect of the contractual agreement.

Challenges Raised

Despite the benefits of the use of safe deposit boxes, challenges have emerged due to the lack of transparency with regard to their contents. The Freedom of Information Act prohibits companies from disclosing information about users of safe deposit boxes, making it challenging to combat the non-declaration of foreign currency receipts. This lack of transparency is seen as aiding tax evasion, especially when sales are not properly declared.

Furthermore, the Minister asserted that the Tax Administration faces hurdles in revenue collection as they can only open a safe deposit box of a known taxpayer with a court order. Garnish orders, designed to collect owed funds directly from financial institutions, cannot be executed unless the contents and their value within the safe deposit boxes are known.

Finance Act No. 13 of 2023

The Finance Act No. 13 of 2023 amends the provisions of the Income Tax Act (Chapter 23:06) by authorising the ZIMRA Commissioner General to request information regarding the customers who hold safe deposit boxes and authorising the ZIMRA Commissioner General access to the contents of these safe deposit boxes.

Section 60 – Power to Require Information

The Finance Act No. 13 of 2023 repealed section 60 of the Income Tax Act and substituted it with a new section 60. In terms of this new section 60, the ZIMRA Commissioner-General may require any person by means of a written disclosure notice served on him to give the Commissioner any information in respect of any moneys, funds or other assets which may be held by that person, or due by that person, to the person or persons mentioned in the disclosure notice without delay. A person is defined to mean a financial institution, a partnership, a designated business or professional service and any officer in the Public Service. This new section also applies to moneys, funds, or other assets that a representative taxpayer holds on behalf of another person as a professional custodian.

It is crucial to take note the Commissioner General cannot request information without serving a disclosure notice on the professional custodian. A disclosure notice compels the professional custodian only to disclose that the person/s named in the disclosure notice has in his name, a safe deposit box or other receptacle located on the premises of the professional custodian. This disclosure notice does not compel the professional custodian to open any safe deposit box or other receptacle wherein such person’s moneys, funds or other assets may be secured.

Furthermore, the new provisions state that a professional custodian served with a disclosure notice cannot invoke any secrecy or confidentiality provision in any statute or any other law or contract for the provision of custodial services or for the safeguarding of property in a safe deposit box, as grounds for refusing to comply with its obligations. A professional custodian who complies with the disclosure notice is immunised against any civil or criminal action for the breach of any secrecy or confidentiality provision in any statute, or any other law or any contract.

Access to the contents of a safe deposit box may only be obtained by virtue of a warrant issued in terms of section 60A. The new section 60 also empowers the ZIMRA Commissioner to request the Director of the Financial Intelligence Unit to issue a temporary freezing order in terms of section 41A of the Bank Use Promotion Act (Chapter 24:24) in relation to moneys, funds and other assets believed to have been deposited by the target of the temporary freezing order in a safe deposit box with a banking or other financial institution.

Analysis

These new provisions of the Income Tax Act empower ZIMRA to demand any information in respect of any moneys, funds or other assets held by financial institutions, partnerships, designated businesses or professional service and any officer in the Public Service, as well as professional custodians. The demand for the information is made through a written disclosure notice from the ZIMRA Commissioner General.

This disclosure notice mandates the professional custodian to provide full details of the number of safe deposit boxes held by the person/s in the disclosure notice. Important to note however is that the disclosure notice does not require that the  professional custodian must open the safe deposit box held by the person/s in the disclosure notice. This is done only in terms of a warrant issued in terms of section 60A, below.

This new law affects legal practitioners as professional custodians who hold trust funds in safe deposit boxes. In terms of this new section 60(1) of the Income Tax Act, it clearly states that any person (which includes a designated business or professional service) served with a disclosure notice is required to comply with the notice. In this case, legal practitioners fall under the purview of ‘person’ as defined in the new definition in section 58 of the Income Tax Act. Legal practitioners who hold trust funds in cash, in safe deposit boxes are obliged to comply with the disclosure notice. This presents a challenge of violating attorney-client confidentiality in making disclosures to ZIMRA. Section 60(2)(b) of the Income Tax Act makes it clear that a professional custodian served with a disclosure notice cannot invoke any secrecy or confidentiality provision in any statute or any other law, or any contract as grounds for refusing to comply with the disclosure notice.  This provision makes it difficult for legal practitioners not to comply with the disclosure notice.

The provisions of section 60 therefore empower ZIMRA to get details of all persons who hold safe deposit boxes with any financial institutions, partnerships, professional custodians and businesses listed in the section. Once ZIMRA has these details, it can proceed to apply for a special warrant in terms of section 60A below, to access the contents of the safe deposit boxes.

 Section 60A – Special Warrant for Access to Assets in Possession of Professional Custodians

The Finance Act No. 13 of 2023 introduces a new section 60A, which empowers the ZIMRA Commissioner General to apply for a special warrant to access the contents of safe deposit boxes. In terms of section 60A(2) of the Income Tax Act, a special warrant may be obtained from a judge, magistrate or justice of the peace if the ZIMRA Commissioner General believes a tax debtor possesses or has title to assets held by a professional custodian. An application for a special warrant must include the name of the tax debtor who is the subject of the warrant, together with his or her address, contact details, and the assessed extent of his or her tax liability. The special warrant must also be supported by an affidavit sworn by or on behalf of the Commissioner-General affirming that, from the information available to him or her, he or she has reasonable grounds of suspicion against the tax debtor for having committed certain offences described in the Income Tax Act.

In terms of section 60A(4) of the Income Tax Act, an officer of the Zimbabwe Revenue Authority is empowered, by virtue of a special warrant, to execute the following:

• to require the tax debtor to open any safe deposit box;
• to require the tax debtor to provide any electronic or other key needed to open any safe deposit box;
• to examine and inquire into the affairs of any tax debtor;
• to require any person who is employed in or at the premises of the tax debtor to produce any book, account, notice, record, list or other documents relating to the affairs of the tax debtor;
• to examine and make copies of any book, account, notice, record, list or other document relating to the affairs of a tax debtor;
• to take possession of any book, account, notice, record, list or other document relating to the affairs of the tax debtor,
• to take possession of the contents of any safe deposit box, then issue a full written receipt to the owner of the safe deposit box or the institution having custody of the safe deposit box, of the contents taken, including the description of the nature of the contents, the quantity and, if ascertainable, the value of the contents, as well as any identification numbers or marks on the contents.

Failure by the tax debtor to comply with the special warrant is deemed an offence, punishable by a level 14 fine or 5 years imprisonment or both the fine and imprisonment. The ZIMRA Officer executing a special warrant should notify the officer commanding the police district in which the officer intends to make the search, entry or seizure and shall be accompanied by a police officer.

In terms of section 60A(7) of the Income Tax Act, ZIMRA represented by an officer designated by the Commissioner General, the Prosecutor General, and the liable tax debtor, may enter into a written agreement called a “non-prosecution agreement” whereby the Prosecutor General agrees not to institute criminal proceedings against any liable person on condition that the liable person agrees to the offsetting against the agreed cash value of items seized by ZIMRA.

Analysis

These provisions empower the ZIMRA Commissioner General to apply to court for a special warrant to access the contents of safe deposit boxes, by various means. ZIMRA can request the owner of the safe deposit box to open it; or that the owner provide the keys to open the safe deposit; or require an employee of the financial institution, partnership, professional custodian or businesses listed in the section 60 to provide details or records of the affairs of the owner of the safe deposit box and make copies of such details; or take possession of the contents of the safe deposit box, and make a detailed list of what has been taken.

Having secured details of persons that hold safe deposit boxes through section 60, ZIMRA is empowered by section 60A to proceed to access the contents of such safe deposit boxes, and to seize them. Note that the circumstances under which such seizure is permitted is when the owner of the safe deposit box has unpaid tax obligations due to ZIMRA. ZIMRA officers are required to conduct seizures of the contents of safe deposit boxes with the assistance of the police. These amendments therefore strengthen the collaboration between tax authorities and law enforcement agencies, facilitating the ease of investigation and prosecution of tax-related offences.

The changes to the law came about as a means to access moneys, funds and other assets owned by persons owing taxes to ZIMRA, and keeping such moneys, funds and other assets outside banking institutions. It is likely that these provisions shall be the subject of a court challenge for various reasons

The inclusion of non-prosecution agreements provides a mechanism for settling cases without criminal proceedings, promoting cooperation and recovering revenue. However, it raises concerns about potential abuse and the need for transparency in such agreements.

Overall, the changes reflect an increased focus on enforcing tax compliance and enhancing the ability of tax authorities to investigate and address tax evasion and related offences.

International Standards

To evaluate the new law’s alignment with international standards, it is essential to consider the practices of jurisdictions that regulate safe deposit boxes. Many countries have robust regulations in place to ensure financial transparency and prevent illicit activities such as money laundering and tax evasion. Several countries have implemented regulations to address similar challenges, and examining these can provide insights into the effectiveness of different strategies.

United States of America

In the United States of America, financial institutions are subject to stringent regulations to prevent money laundering and tax evasion. The Financial Crimes Enforcement Network (FinCEN) requires financial institutions to report certain transactions and maintain customer records. However, the privacy of safe deposit boxes is generally protected, and authorities can access them under court orders for specific reasons. For instance, the Internal Revenue Service (IRS) can issue a notice of levy or seizure requesting the financial institution to freeze the customer’s safe deposit box. Thereafter, the IRS will request the customer to open the box in the presence of their representatives. If the box holder does not consent to the IRS’s inspection of the box contents, a court order will be required before the taxing agency may proceed.[2]

Switzerland

Known for its banking privacy laws, Switzerland has historically been a destination for individuals seeking discreet financial services. However, in recent years, Switzerland has made efforts to align its practices with international standards. The Swiss Financial Market Supervisory Authority (FINMA) oversees financial institutions and ensures compliance with anti-money laundering regulations. The privacy of safe deposit boxes is still maintained,[3] and secrecy in Swiss banking is of paramount importance. However, a bank may forcibly open a safe deposit box under exceptional circumstances when instructed to by a Swiss court order.[4]

 Singapore

Singapore has a robust regulatory framework to combat financial crimes. The Monetary Authority of Singapore (MAS) regulates financial institutions and requires them to implement strict anti-money laundering measures. Safe deposit boxes are not subject to routine inspections, but authorities can access them if a search warrant has been issued by a Singaporean Court.[5]

 United Kingdom

The United Kingdom has implemented comprehensive regulations to prevent tax evasion and money laundering. The Money Laundering and Terrorist Financing (Amendment) Regulations 2019, allows a law enforcement agency to make a request, using the central automated mechanism, to a provider of safe custody services for any of the information specified in this regulation in relation to a safe deposit box held with that provider.[6] In terms of those regulations, the law enforcement agency may request the following:

1. the name of the customer to whom the safe deposit box was or is made available;
2. where the customer is an individual, their date of birth;
3. where the customer is an individual, their address;
4. where the customer is a firm, the address of its registered office and, if different, its principal place of business;
5. the name of any person (except for employees of the provider of safe custody services) who the provider of safe custody services knows holds, or held, a key for the safe deposit box, or has or has had access to the safe deposit box in any other way;
6. the date on which the safe deposit box was made available to the customer and, if appropriate, ceased to be available; and
7. any other numbers which are specific to an individual who is mentioned in sub-paragraphs (a) to (c) and (e) and which may be used to verify that individual’s identity

Financial institutions are obligated to conduct due diligence on their clients, and suspicious transactions are reported to the National Crime Agency. While safe deposit boxes are generally private, authorities can access them under certain circumstances, such as during criminal investigations.

Comparative Analysis

An examination of the above international standards reveals that various jurisdictions, such as the United States, Switzerland, Singapore, and the United Kingdom, employ diverse strategies to regulate safe deposit boxes. While financial transparency and anti-money laundering efforts are evident across these jurisdictions, the level of privacy afforded to safe deposit boxes varies, with access generally allowed under specific circumstances, often involving court orders.

Conclusion

Sections 60 and 60A of the Finance Act No. 13 of 2023 introduce pivotal amendments to the Income Tax Act in respect of access to information and contents of safe deposit boxes by the ZIMRA Commissioner General. The powers to demand information from professional custodians under section 60 raise concerns about the scope of information that can be requested. Nevertheless, safeguards, including the necessity for a special warrant, are incorporated to protect individuals and juristic persons from arbitrary conduct.

The changes underscore an intensified commitment to enforce tax compliance, allowing tax authorities to collaborate more effectively with law enforcement agencies in investigating and prosecuting tax-related offenses. The inclusion of non-prosecution agreements provides a mechanism for resolving cases without resorting to criminal proceedings, fostering cooperation and revenue recovery, albeit raising concerns about potential abuse and the necessity for transparency in such agreements.

The amendments introduced by the Finance Act No. 13 of 2023 reflect a global trend towards strengthening financial regulations to combat tax evasion and money laundering. The nuanced approach taken in the amendments balances the need for enhanced enforcement with safeguards to protect individual rights, aligning with international standards while recognising the divergent practices in other jurisdictions. The effectiveness of these changes will be contingent on their careful implementation, ensuring a harmonious balance between tax enforcement and individual privacy.

Sources consulted:

1. National Budget Statement for 2024.
2. Finance Act No. 13 of 2023.
3. Bank Use Promotion and Suppression of Money Laundering Act (Chapter 24:24)
4. Richard A. Lord, The Legal Relationship Between the Bank and its Safe Deposit Customer, 5 Campbell L. Rev. 263 (1983).
5. Websites:

1. https://www.findlaw.com/legalblogs/law-and-life/can-the-irs-open-a-safe-deposit-box/ 
2. https://www.irs.gov/irm/part5/irm_05-010-003 
3. https://swissgoldsafe.ch/en/additional-information/conditions-value-storage/off-bank-safe-deposit-boxes-is-there-a-duty-of-disclosure/ 
4. https://www.moneyland.ch/en/swiss-safe-deposit-boxes-comparison#:~:text=The%20bank%20does%20not%20hold,court%20order%2C%20for%20example).
5. https://www.bullionstar.com/safe-deposit-boxes#:~:text=A%3A%20No%2C%20access%20will%20only,box%20must%20be%20drilled%20open.
6. https://www.legislation.gov.uk/uksi/2019/1511/regulation/6/made 
   • [1] Richard A. Lord, The Legal Relationship Between the Bank and its Safe Deposit Customer, 5 Campbell L. Rev. 263 (1983).
   •  
   • [2] https://www.findlaw.com/legalblogs/law-and-life/can-the-irs-open-a-safe-deposit-box/ ; https://www.irs.gov/irm/part5/irm_05-010-003
   • [3] https://swissgoldsafe.ch/en/additional-information/conditions-value-storage/off-bank-safe-deposit-boxes-is-there-a-duty-of-disclosure/
   • [4] https://www.moneyland.ch/en/swiss-safe-deposit-boxes-comparison#:~:text=The%20bank%20does%20not%20hold,court%20order%2C%20for%20example).
   • [5] https://www.bullionstar.com/safe-deposit-boxes#:~:text=A%3A%20No%2C%20access%20will%20only,box%20must%20be%20drilled%20open.
   • [6] https://www.legislation.gov.uk/uksi/2019/1511/regulation/6/made