Friday, 11 January 2008

One Strike and Your Out of Business

By Sabine Hertveldt

On October 17, 1993, 16 West African states signed a treaty known as the “Organisation pour l'Harmonisation du Droit des Affaires en Afrique” or “OHADA” (Organization for the Harmonization of Commercial Law in Africa). The objective of the organization is to promote African economic integration and attract investment to the region. In an effort to harmonize laws, the member states have adopted “Uniform Acts” in areas such as corporate law, bankruptcy, accounting and debt recovery.

In 1998, the 16 OHADA countries- soon 17 when DRC Congo joins the club- adopted a “Uniform Act on General Commercial Law” which governs business registration. Article 10 of the Act states that “people who have been convicted of a crime as well as people who have been imprisoned for at least 3 months for committing economic or financial offenses are excluded from becoming an entrepreneur”. This provision was meant to protect society by excluding criminals from doing business.

The Doing Business project counts 24 countries (out of 178) that still require company founders to submit a criminal record when they want to register their business. Out of the 24, 16 are the OHADA member countries. The remaining 8 are Algeria, Kuwait, Burundi, Djibouti, Macedonia FYR, Slovakia, St Kitts, and the Czech Republic. In Kuwait for example, you cannot even hold shares in a company without a clean criminal record. These laws sharply contrast with countries like the United States and the United Kingdom where some cities have training programs and give financial support to convicts-while still in prison-to help them start a business when they get out.

The OHADA Uniform Act on General Commercial Law lists all documents and administrative procedures required to register a business- either as an individual or a company. Under articles 26 and 28, each individual or shareholder/director must submit a “criminal record” to the Commercial Registrar of the place where he intends to do business. Since the OHADA Uniform Act does not make an explicit link between article 10 and the articles 26-28, it is unclear whether submitting a criminal record to the Commercial Registrar (articles 26-28) is meant to only exclude the type of criminal convicts mentioned in article 10. Legal doctrine on OHADA law is silent on this issue. One wonders what would happen for example, when someone who has been convicted for a traffic offense wants to start a business.

Last December, I asked the Commercial Registrar in Bamako (Mali) whether he had ever refused someone a registration number based on his criminal record. My question turned out to be a theoretical one, because in Mali, as in most West African countries, the criminal courts that convict people are not computerized, let alone connected to the civil courts that issue criminal records. As a result, the large majority of criminal records in these countries are not updated.

In addition to being a useless requirement (since criminal records are not updated in the first place), obtaining such a record can also be expensive for entrepreneurs in Mali, Guinea and Togo, where local law obliges them to travel to the court of their place of birth to obtain the record. Too bad if you want to start a business in Bamako and were born 1,000 km from there...Starting a business then takes 2 weeks longer than expected.

In recent years, two OHADA countries have taken initiatives to avoid the obtaining criminal records from holding up the registration process. In March 2006 and 2007, Niger and Burkina Faso adopted a Circular Letter allowing entrepreneurs to submit their criminal records within 2 months after registering their businesses. The Commercial Registrar in Bamako- a pragmatic man-confirmed this is common practice: he issues registration numbers if the entrepreneur promises to submit his or her criminal records later. Niger and Burkina Faso demonstrate that the OHADA law direly needs revision.

When reviewing the “Uniform Act on General Commercial Law”, it might be useful to consider whether requiring criminal records for business registration still makes sense. Just like eliminating the minimum capital requirement, cutting procedures that no longer have a reason to exist can bring more entrepreneurs into the formal sector and help spur economic growth. And isn’t that what OHADA is all about?

Source: World Bank Doing Business Blog


Anonymous said...

Trying to get any kind of loan when you have a bad credit history is hard to do. It seems more and more people are turning to payday loans. I wonder if the guys on Wall Street know they are making a mess of the economy.

- Marianna SHERROD

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