J$1 million is enough cash
Aubyn Hill, financial Gleaner COLUMNIST
The government and some bankers with whom I have spoken on the cash-transaction limit are firmly of the view that as little as J$500,000 would be a big enough cash limit to handle the majority of transactions that our society really needs to conduct.
These two powerhouses in our economy have some stated joint reasons, and there are some very important unstated ones that will be costly to Jamaicans.
National Security Minister Peter Bunting made the Government of Jamaica's case in Parliament on October 15, 2013. In moving an amendment to the Proceeds of Crime Act (POCA), Minister Bunting proposed a cash limit of J$500,000 per transaction.
The minister framed his argument in terms of the fundamental aspect of tracking the proceeds of crime, but also creating the very "necessary paper trail to assist the tax authorities in collecting the critical revenues necessary for Jamaica to meet its development objective".
Simply put, the minister and his government colleagues are officially going after criminals such as drug and gunrunners, human traffickers and gangsters, as well as tax dodgers who use great wads and buckets of cash to conduct their business transactions.
They use their bundles of cash to avoid and evade criminal detection and GOJ collectors of taxes.
No right-thinking Jamaican could oppose the minister's objectives to lock down these reprobates and destroyers of our society and social and economic well-being.
As it happened, the noble objective of the minister was not the main issue in Parliament; it was the figure of the limit - J$500,000 - which was seen as far too small a cash-transaction limit at this time.
Opposition members such as Delroy Chuck, the JLP's spokesman on national security, was joined by Mike Henry, Pearnel Charles and Karl Samuda from his party, but also Fitz Jackson, Richard Parchment and Andre Hylton from the governing People's National Party in opposing the low J$500,000 limit.
In the end, Parliament agreed and passed a cash-transaction limit of J$1 million. But the Jamaica Used Car Dealers Association is still not happy and publicly asked for a higher limit of J$1.5 million.
WILL BANKS MAKE A KILLING?
Members of Parliament Fitz Jackson and Delroy Chuck seem to believe that banks will make a killing on charges on the vast transactions that will have to pass through the doors of these institutions.
Bankers pooh-pooh the idea, but it is an interesting group of circumstances which have been brought together by our Government.
The GOJ, through the Bank of Jamaica, the central bank, issues licences to a few institutions called 'banks', which are able to take current and fixed deposits and conduct chequing accounts for their hundreds of thousands of clients.
Cambios, merchant banks and other financial institutions cannot offer chequing accounts to their clients - only banks can.
Before the POCA amendment, citizens and residents could conduct a lot of sizeable cash transactions outside of the banking system and avoid bank charges. Now the new law will force them into banks for good reasons, but also at an additional set of costs to these customers.
The idea that "banks will be making a killing" as stated by parliamentarians from both sides of the aisle may, in part, be due to the recent move by some banks to charge their individual clients between J$125 and J$175 to process each cheque drawn on their accounts with these banks, and even more will have to be paid by corporate clients. This is on top of a plethora of fees for the most innovative ideas of 'service' charges one can imagine.
We do need to realise that banks do provide many services for their clients - keeping their money safely, providing computer services to do accurate accounting and a growing host of online services.
They also invest in branches and ATMs to accommodate clients, and they spend on lots of advertising to inform their clients and the general public of their products and services.
Still, many wonder if clients' fees are being jacked up to support bloated costs and physical structures whose time have passedin this technologically savvy and ubiquitous age.
One banker I spoke with really welcomed the cash limit, although that person thought the J$500,000 threshold would have been better, because few realise how very costly it is to handle and manage oodles of cash on a daily basis.
The move to a cash limit will reduce some of the recurrent cash bundles which that banker's institution will have to handle. The hope is that these formerly unbanked individuals and businesses will move to many more online and automatic transaction options that banks offer.
The calculation is that the GOJ gives a few institutions called 'banks' the right to collect money from everyone, it now passes a law to force all to use these few banks to handle all commercial and private transactions over J$1 million. Consumers and businesses are left entirely on their own to deal with oligopoly pricing, because the banking landscape in Jamaica is so without competition - especially when it comes to charging fees.
How will consumers be protected from overcharging in the relentlessly innovative creation of new fees to charge the clients of these specially licensed institutions?
Given that the government is forcing these clients into the arms of licensed banks - with no legal alternatives to clients - is the GOJ unwittingly taking on the 'moral hazard', covering as insurers of last resort to these banks' clients?
IMF, CRIMINALS AND TAXES
There is no doubt that the IMF wants this legislation and would have pushed it. In fact, it is a month late.
I hope people are finally getting to understand that an undisciplined, dithering, corruption-accommodating state like ours needs a foreign institution like the IMF to guide us with a firm hand to do what we should have done without them.
Where did we believe gangsters get all that money they slosh around, and how do they wash their money?
The J$1m limit is a good first step. To have gone to J$500,000 in the initial round would probably have caused unnecessary hardships. Jamaicans must get used to using formal channels and paying their fair share of taxes. Having said that, the Government, in its noble and right search to bring more non-taxpaying earners into the system, has gone and handed the banks another possible financial windfall.
Those non-taxpaying earners are not just the ones we tend to call criminals; lots of independent professionals love the cash system and evade taxes by staying away from formal or regulated financial firms.
In these difficult economic times consumers could do with a break. And, then again, many of them who will now be caught in the net have been avoiding, at best, paying taxes for many years.
I suspect that in six months we will not even think about the J$1m cash limit as a hassle.
Aubyn Hill is the CEO of Corporate Strategies Limited and was an international banker for more than 25 years.Email: email@example.comTwitter: @HillAubynFacebook: facebook.com/Corporate.Strategies