Opinion: What businesses must watch out for when dealing with foreign exchange

There are many pitfalls for the unwary when dealing with other countries’ money says Stephen Massa, Head of the PNG Office for law firm Dentons.

Dentons’ Stephen Massa warns businesses to be careful about foreign exchange laws Source: Dentons

Although there is no legal limit on the amount that can be transmitted out of Papua New Guinea, there is limited availability of foreign currency at the moment and, as a practical matter, it is difficult to transmit large sums of money out of PNG.

Generally speaking, the larger the amount ordered, the longer the wait. Here are several pointers about the formal guidelines.

  1. A contract between PNG residents denominated in a foreign currency requires PNG Central Bank (Bank of Papau New Guinea) approval. An entity is deemed to be a PNG ‘resident’ for the purposes of PNG’s foreign exchange controls if it carries on commercial activity in PNG. This includes PNG branches of foreign incorporated entities.
  2. Even where BPNG approval is obtained for PNG residents to contract in a foreign currency, PNG’s foreign exchange controls clearly state that settlement must be in kina in PNG.
  3. Prior authorisation of the Central Bank is needed before an offshore account, as well as an onshore foreign currency account, can be opened. The Central Bank, if it gives its approval, will generally limit the use of those accounts to the extent necessary to comply with the contracts submitted to it.
  4. The Central Bank is limiting the ability of PNG companies to open offshore accounts or onshore foreign currency accounts. Without an offshore account or an onshore foreign currency account, all payments received by the borrower in a foreign currency will be converted by the receiving PNG bank into kina for depositing into the kina account held with the receiving PNG bank.
  5. When a company has approval for an offshore account, it will need to provide monthly foreign currency reporting of actual cash inflows and outflows through the offshore account.
  6. An exporter must repatriate all of its export proceeds onshore and convert it into kina only with an Authorised Dealer. The repatriation must be done within three months from the shipment date of the export. Any offset against offshore liabilities is not permitted.
  7. The penalties for breaches are potentially significant. Any person who is a party to a transaction that breaches Forex Control Regulation is liable to a penalty of: a fine of K100,000 or 25 per cent of the total value of the funds; or imprisonment of up to five years; or a court-ordered forfeiture of the foreign currency or goods involved, or resulting, from the prohibited transaction.

These penalties are for each breach.

This article first published in the Business Advantage Papua New Guinea 2018 business and investment guide, which is available now.

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Comments

  1. very timely and helpful insight.

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